4. Incomplete and Vague Agreements Flashcards
(13 cards)
(Incomplete agreements - Conditional agreements) The parties agreed in writing that the defendant would take a lease of a house from the plaintiff for a specified term at a specified rent “subject to the preparation and approval of a formal contract”. In fact no formal contract was ever concluded. The plaintiff’s action for specific performance of the agreement failed. There was no contract to be enforced.
Q. Does the law, and should it, distinguish between formal and informal agreements?
Winn v Bull
(Incomplete agreements - Deferred agreements)
Chillingworth v Esche
(Incomplete agreements - Deferred agreements) An agreement (amounting only to some five sentences) provided that X would buy the lease and goodwill of a mushroom farm from Y. It ended with these words: “This is a provisional agreement until a fully legalised agreement drawn up by a solicitor and embodying all the conditions herewith stated is signed”. The agreement was witnessed by a third party. A deposit of 10% of the purchase price was to be payable, and was paid. X withdrew from the purchase, and sued for the return of the deposit on the ground that the agreement was not binding. At first instance, Denning J held that the word “provisional” in the agreement deprived it of force, since it could be glossed “tentative”. On appeal, his decision was overturned. The ordinary meaning of “provisional” was that something was going to operate unless or until something else happened. The parties had realised the desirability of a formal document, but had been determined that there should be no escape for either of them between the signing of the provisional agreement and the signing of the final contract.
Q. Which sense of the word “provisional” do you consider to have been the correct one here?
Branca v Cobarro
(Incomplete agreements - Deferred agreements) An agreement between X and Y stated that if, following a grant of planning permission, the former were willing to sell part of their interest in land to the latter, then they would serve notice to that effect. The agreement stated a price, and further established time periods for the acceptance of the notice subject to contract, submission by X of a draft contract to Y, approval of the draft subject to any amendment that might reasonably be required, and exchange of contracts. X subsequently refused to provide a draft contract, relying on the words “subject to contract” within the agreement as authorising either party to withdraw from it up until exchange of contracts. Nourse J held that the usual meaning of “subject to contract”, suggesting the liberty to withdraw, was displaced on these exceptional facts. The agreement was intended to create a duty to exchange contracts.
Q. What other types of evidence might make a case sufficiently strong and exceptional for the usual meaning of the words “subject to contract” to be displaced?
Alpenstow v Regalian Properties
(Incomplete agreements - Pre-emptive agreements) The defendant, the owner of a site in Hertfordshire, wanted to develop it as a motel. He contacted the plaintiff, a property developer and builder. The proposal was that the developer should introduce a financial backer, and himself carry out the construction work. After a meeting between the two, the developer wrote to the owner proposing that if he could make a suitable financial arrangement, the owner “will be prepared to instruct your Quantity Surveyor to negotiate fair and reasonable contract sums in respect of each of the three projects as they arise. (These would, incidentally, be based upon agreed estimates of the net cost of work and general overheads with a margin for profit of 5%) which, I am sure you will agree, is indeed reasonable”. The owner agreed. Financial backing was found by the developer, but the parties were not able to agree on the pricing of the project. The owner then employed another developer, using the finance found by the plaintiff. The plaintiff sued for the profit he would have made on the project, succeeded at first instance, and lost on appeal. The agreement contained in the correspondence was no more than an agreement to negotiate, which was not a contract known to the law.
Q. Did this claim fail because it was an agreement to agree, or for other reasons?
Courtney v Tolaini
(Incomplete agreements - Pre-emptive agreements) In the course of negotiations for the sale of his photographic processing business, Y received a favourable offer from a third party, X. An agreement for sale was concluded between them, subject to contract. Y then further agreed with X that if the latter’s bankers would provide a comfort letter confirming the financing of the deal, Y would cease negotiations with any other party with a view to concluding a formal contract with X. X did as agreed, but Y sold the business to the party with whom he had originally been negotiating. X sued for the amount by which he said the true value of the business exceeded the price he had agreed for it. He argued that a term was to be implied into the further agreement, to give it business efficacy, that Y would continue to negotiate with him in good faith. The Court of Appeal (Bingham LJ dissenting) held that the agreement was merely an agreement to negotiate, and as such was unenforceable. X’s appeal to the House of Lords failed.
Q. Should the law be able to give effect to the fact that the parties have formally agreed to negotiate towards a certain end?
Walford v Miles
(Incomplete agreements - Executed agreements) Y, having agreed to buy 20,000 oilskin suits from a firm which was a client of the plaintiffs, wished to be put in direct contact with that firm. They wrote to the plaintiffs as follows: “We … undertake to cover you with an agreed commission on any other business transacted with your friends. In return for this you are to put us in direct contact with your friends”. The plaintiffs did put them in contact with the firm and Y went on to transact further business with it, but refused to pay any commission to the plaintiffs, who sued for breach of contract. Y successfully argued at first instance that it had not concluded a contract with the plaintiff. The contrary view prevailed on appeal. There was a difference between the analysis of agreements which were wholly executory (falling to be performed in the future) and those which had been executed (performed).
Q. If incomplete executory and executed agreements are treated so differently, can the law answer the charge that this area is a matter of evidence, and not principle?
British Bank for Foreign Trade Ltd v Novinex
(The resolution of incompleteness - Contractual machinery for agreement) Four leases gave the lessees an option to purchase the freehold reversion. The price was to be agreed upon by two valuers, one appointed by the lessor and the other by the lessees, or if they failed to agree, by an “umpire” to be appointed by the valuers. The lessors declined to appoint a valuer, and submitted that the agreement was void for uncertainty since it did not specify a price. The House of Lords, by a majority, rejected the contention that this was no more than an agreement to agree. The machinery devised by the parties for ascertaining price, even though it had broken down, indicated that a fair price was intended to be fixed. The court itself could decide a fair price on the evidence.
Q. Suppose there had been no “umpire”; would the requirement that the valuers should agree have propelled this case the same way?
Sudbrook Trading v Eggleton
(The resolution of incompleteness - Contractual machinery for agreement) In return for a deal involving the sale of land, the defendants agreed to buy all the petrol they required for their business from the plaintiff. The agreement provided that the petrol was to be supplied “at a price to be agreed by the parties in writing and from time to time”, and included an arbitration clause relating to “any dispute or difference”. The land was conveyed, and petrol supplied for three years before the defendants repudiated the supply contract, asserting (inter alia) that it was not binding because it depended upon future agreement.
The Court of Appeal rejected this argument. Scrutton LJ explained the grounds for the decision by reference to the arbitration clause, which in his view applied to any failure to agree the price for the petrol supply, and by reference to the fact that “the parties obviously believed they had a contract and they acted for three years as if they had”.
Q. Can you predict any of the tactics which Scrutton LJ (one of the greatest commercial judges of the century) used to proof his judgment against criticism?
Foley v Classique Coaches Ltd
(The resolution of incompleteness - Severance of uncertainties) An agreement for the sale and purchase of 3,000 tons of steel reinforcing bars was concluded by correspondence which included a letter from the seller containing these words: “As you have made the order direct to me, I am unable to confirm on my usual printed form which would have the usual force majeure and war clauses, but I assume that we are in agreement and that the usual conditions of acceptance apply”. The seller failed to deliver the goods, and defended the buyers’ claim for damages by arguing that because the words quoted above were unclear (there were no usual conditions of acceptance), so the contract was void for uncertainty. The Court of Appeal rejected this argument, drawing a distinction between a clause, such as this, which was meaningless and could be severed from the contract, and a clause which required further agreement between the parties in order to be resolved.
Q. What would have been the consequence of allowing these uncertain words to defeat the agreement?
Nicolene v Simmonds
(Vague agreements - Uncertainties incapable of resolution) The parties reached agreement for the sale and purchase of a Commer van, and for the part-exchange of a Bedford van to be traded in against it. They then attempted to formalise their agreement through correspondence, in the course of which X (who had the balance to pay on the Commer van) wrote that “this order is given on the understanding that the balance of the purchase price can be had on hire-purchase terms over a period of 2 years”. The agreement went unperformed because of an argument about the condition of the Bedford van, and X sued for breach of it.
The House of Lords held, overturning the Court of Appeal, that there was no contract. The words quoted above were fundamentally problematic when found in what appeared to be a contract of sale, and admitted of so many mutually exclusive interpretations that they could not safely be given any one meaning.
Q. Was this an agreement breached through non-performance, or a case of failure to agree?
Scammell v Ouston
(Vague agreements) X, a timber merchant, concluded an agreement with Y, a business representative of the Russian government, for the purchase of “22,000 standards of software goods of fair specification over the season 1930”, the buyers to arrange shipping dates. This transaction was effected without any difficulty. Clause 9 of the same agreement gave X an option to enter into a contract for the purchase of “100,000 standards for delivery in 1931”. The price was to constitute a 5% discount from the officially listed price. When X attempted to exercise this option, he discovered that Y had already sold its entire production. He sued for breach of contract. With a degree of hesitancy, the House of Lords held that the agreement did amount to a contract. The words “softwood goods of fair specification” had to be imported into the option clause as a necessary implication. The expression was not incapable of being given a meaning. The parties had considered that they had a contract, and had already acted on it. It was not for the court to be astute in finding defects in it which would destroy it.
Q. This case turns on the meaning to be ascribed to the word “fair”; how would you go about deciding the most plausible meaning to be given to it?
Hillas v Arcos
(Vague agreements) The plaintiffs (properly the “suppliants”), proceeding against the Crown by a petition of right, asserted that the Controller of the Disposals Board had breached a contract with them to sell to them the Government’s excess stock of tentage. The agreement arose from a letter containing these clauses:
(1) The Commission agrees to sell and [the suppliants] agree to purchase the total stock of old tentage….
(3) The price or prices to be paid, and the date or dates on which payment is to be made by the purchasers to the Commission for such old tentage shall be agreed upon from time to time between the Commission and the purchasers as the quantities of the said old tentage become available for disposal, and are offered to the purchasers by the Commission….
(10) It is understood that all disputes with reference to or arising out of this agreement will be submitted to arbitration in accordance with the provisions of the Arbitration Act 1889.
The suppliants’ claim for damages, an account and an injunction was refused by the House of Lords. The agreement between the parties was incapable of enforcement because it provided that price was to be agreed, and the parties’ attempts to agree prices had in fact failed. In the face of that the court was not free to infer that the tentage was to be sold at a reasonable price. The arbitration clause applied to disputes arising out of the arrangement between the parties. This, however, was a failure to agree, which Viscount Dunedin described as “a very different thing from a dispute”.
Q. On your first reading of these facts do you think the parties had an enforceable agreement or did they not?
May & Butcher v The King
