Incomplete and Uncertain Agreements

Question 1

Hillas v Arcos - Viscount Dunedin re concluded bargains?

Scammell v Ouston

Answer 1

“to be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled between the parties and leaves nothing to be settled by agreement between the parties….As a matter of the general law of contract all the essentials have to be settled”.

“In order to constitute a valid contract, the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that, unless this can be done, it would be impossible to hold that the contracting parties had the same intention”.

Question 2

Incomplete?

Vague

Answer 2

1. Leaves parties not agreed on a matter, or in disagreement over it, or still aiming for agreement in future.
2. Vague - what did they agree?

Question 3

Barrier to enforcement of incomplete agreement?

To vague?

Answer 3

Courts don’t force agreement on parties.

Courts won’t write contract for parties, but should give effect to bargains, even if some details weren’t expressed.

Question 4

Professor Iain Macneil thinks seeking principles in this area is …

Answer 4

“a fools errand” …

Question 5

Court may imply terms on which grounds?

Answer 5

Necessity, business efficacy, implications of reasonableness, power to hear evidence to resolve issues left outstanding.

Question 6

Conditional agreements -

May be binding pending occurrence of condition - i.e. insurance contract.

Answer 6

But relevant here where operation of agreement depends on fulfilment of condition.

Not binding until condition is fulfilled, even parties imagine otherwise.

Question 7

Winn v Bull (1877)

FACTS: agreed in writing that def would take lease of house from pl for term at rent “subject to preparation and approval of a formal contract.” No contract concluded. Pl action for specific performance failed - no contract to be enforced.

Answer 7

Jessel MR - If all terms agreed and are just writing it down, there is a contract. If agree that terms will be settled by submission to solicitor subject to approval, no contract - no settled terms.

More stipulations required here than a mere agreement. Stipulation for formal agreement protects vendor.

Question 8

Open Contract?

Answer 8

Gives names of parties, property sold, agreed price - unlikely to bind parties (Harvey v Facey, Clifton v Palumbo).

Therefore context important.

Question 9

Deferred agreements:

“Subject to contract”

Answer 9

Where an interim accord doesn’t bind - presumption that legal relations are postponed until conclusion of formal agreement.

Question 10

Chillingworth v Esche (1924)

Sargant LJ - regards “subject to contract” as taking on legal meaning to postpone legal binds.

Answer 10

What looks like a contract is prevented from binding subject to conclusion of further contract.

Allows communication without binding effect. An agreement, although “subject to contract” is no less of an agreement for insertion of words… for measure designed to protect agreement, may scupper it if lawyers don’t agree.

Question 11

Branca v Cobarro (1947)

A “provisional” agreement may be binding.

FACTS: 5 sentence agreement - B was to buy farm. Agreement witnessed by third party, but described as provisional. 10% deposit paid. B withdrew from purchase, sued for deposit as agreement wasn’t binding.

Answer 11

HELD: Denning J - “provisional” deprived of force = “tentative”.

Appeal overturned - provisional, would operate, unless or until something else happened. Parties realised desirability of formal document, determined should be no escape for either between signing of provisional agreement and signing of contract.

Question 12

Alpenstow v Regalian Properties (1985)

Open to parties to insert words into agreement to postpone point at which become legally bound.

Answer 12

FACTS: “Subject to contract” was displaced on the facts - agreement intended to create duty to exchange contracts.

Question 13

Courtney & Fairbairn v Tolaini (1975)

FACTS: Def proposed building motel on land. Parties not able to agree on pricing of project. Owner then used another developer, financed through Pl.

HELD: Pl sued for profit would have made, CFI success, on appeal lost. Agreement was such to negotiate, not a contract.

Answer 13

Denning: The agreement was to negotiate fair contract sums. “As they arise” shows estimates not yet been agreed. All left to be agreed in the future.

Price in building contract important - so essential a term that no contract unless price agreed, or agreed method of ascertaining it.

Contract to negotiate? The negs broke down. Doesn’t give rise to cause of action. Negotiations may be fruitless and result in nothing. But if there were good consideration perhaps nominal damages, unless opportunity to negotiate was of appreciable value to injured party.

But - too uncertain re neg. Can’t estimate damages.

Question 14

Existence of a contract is not affected by what happens later. Dennings judgement shows appreciation towards context -

Answer 14

SGA - silence triggers “reasonable price” into deal, so contract will be upheld.

Practical issue re recognising a contract to contract/negotiate. - Creates principle as court doesn’t want to interfere on making bargains.

Question 15

Walford v Miles (1992)

FACTS: negotiations for sale of business, agreement for sale concluded subject to contract. M asked W to provide info re business, W did, but M sold to someone else. W sued, argued term implied into further agreement that M would negotiate in good faith.

Answer 15

AC: Bingham dissented, held that agreement to negotiate, unenforceable.

Lord Ackner - inherent uncertainty, unlimited duration of negotiate in good faith (although submitted as for reasonable amount of time). To carry on negs in good faith is repugnant in parties involved in negotiations.

While negs engaged any party may withdraw. No obligation to keep negotiating until a “proper reason” - court can’t make that subjective anaylsis.

Question 16

Walford v Miles

• closes possibility to establish general duty of good faith in contract law.

Distinction between good faith and best endeavours - which is not uncertain and binds.

Answer 16

Doubted by L Steyn, extra judicially, in Contract Law: Fulfilling the Reasonable Expectations of Honest Men”) 113 LQR 433.

AC - upheld express agreement to negotiate in good faith - Petromec. Inc. v Petroleo Brasileiro SA Petrobas (No 3) [2005]

While W v M was not express, sought introduction as implied term.

Case likely to fail because sued not for reliance loss, but expectation loss - difference between agreed sale price and true value of business.

Question 17

Performance of an agreement has weight in court:

British Bank for Foreign Trade Ltd v Novinex Ltd (1949)

FACTS: N contracted to pay commission to agents. Failed to do so. CFI, Denning - No contract concluded. Appeal - difference between agreements falling to be performed in future and those which had been executed.

Answer 17

Cohen LJ - is the agreement enforceable? If there is an essential term to be agreed and no express or implied provision for its solution, no binding contract. But to see if there is an implied provision for its solution there is a difference between an arrangement wholly executory on both sides, and one executed on one side.

“to be agreed” - no binding contract - but if executed on one side, then implied from conduct that in default of agreement requires a reasonable sum to be paid..”

What is the reasonable commission for a follow-up or repeat transaction? D found condition too vague. Cohen disagreed.

Question 18

Dennings judgement in Novinex? -

Answer 18

Performance gives rise to an independent agreement - not the original contract, but a collateral contract referring to reasonableness to resolve lacuna in express agreement. Otherwise one party is unjustly enriched at the other’s expense.

Question 19

Sudbrook Trading Estate Ltd v Eggleton (1982)

FACTS - option to purchase freehold. Price agreed upon by 2 valuers. Lessors didn’t appoint one, stated agreement was void for uncertainty, didn’t specify a price.

HELD: HL - A fair price intended to be fixed - court could decide. Machinery in place to decide it.

Answer 19

Lord Fraser - terms which can be implied into contract on ground of business efficacy - parties intend their agreement to work, not fail.

But Lord Russell dissented - vendors and purchasers are greedy - how can be fair?

Relational approach attributing value to parties being/staying in business together can be at odds with freedom of contract.

Case more distinguished than applied.

Question 20

Eggleton - Diplock’s rationale?

Contract was acted upon, with machinery for resolving differences (arbitration clause) enabled upholding of contract.

Answer 20

Option clauses is not an agreement to make and agreement. No terms left to be agreed. It is a unilateral contract - creates a right to which lessess are entitled, not bound, to exercise against lessors at future date. Doesn’t five rise to legal obligations on either until written notice, thereby turning into a bilateral contract.

Until conveyance and payment contract remains executory, as any for sale of land. Templeman in AC referred that was no complete agreement to enforce involves a fallacy.

Question 21

Foley v Classique Coaches Ltd (1934)

FACT: All petrol bought for business provided “at a price to be agreed by the parties in writing and from time to time”, with arbitration clause re any dispute or difference. Land conveyed, petrol supplied for 3 years until defs repudiated the supply contract - not binding, depended on future agreement.

AC - Scrutton LJ referred to arbitration clause, and parties believed they had a contract and acted upon it for 3 years.

Answer 21

Scrutton had dissented in May & Butcher).

Was broader in application because practically speaking ordinary business men didn’t know about no “contract to make a contract”.

Question 22

Nicolene v Simmonds (1953)

FACTS: Sale of steel bars, clause was meaningless but could be severed from contract. Different from one which required further agreement.

Answer 22

Denning: Nothing yet to be agreed - no further negotiation. “Usual conditions of acceptance apply” - vague, severable from the contract, without affecting the rest. Parties treated it as subsisting. Otherwise defaulters would try to look for meaningless clauses to break contracts. Could assume would mean a favourable condition of seller.

but usually with exemption clauses courts construe against favour of maker…

Question 23

Scammell and Nephew v Ouston (1941)

FACTS: Agreement for sale of van, formalise through correspondence. But argument over condition of van, S sued for breach.

HELD: (overturned AC) no contract, too vague.

Answer 23

Viscount Maugham - that non legal businessmen may not use precise words. Lots of interpretations available.

But here the contract could have been held if not for the lawyers..

Question 24

Hillas v Arcos (1932)

FACTS: H tried to exercise option, but A had sold its entire stock. Sued for BoC. HL HELD agreement was a contract “softwood goods of fair specification” - imported into option clause as necessary implication. Parties had considered they had a contract, acted on it..

Answer 24

“fair specification” - just balance of the two interests, or representative of what was on offer. If second the court could define what the items were.

Lord Wright - they thought had an agreement, acted on it. Duty of court to uphold it.

Question 25

May & Butcher Ltd v The King (1929)

FACTS: Suppliants claim for damages, account and injunction refused -agreement couldnt be enforced because price was tba and hadn’t succeeded in reaching consensus. Dispute was different to a “failure to agree.”

Answer 25

HELD: Blanchard J in Fletcher Challenge Energy 2002 -

An agreement missing an essential term doesn’t amount to a contract. But the intention of the parties should be paramount. If court satisfied that parties intended to be bound should give effect.

Would be decided differently today - order sought to restrain performance of a public duty.

Question 26

Professor McLauchlan Rethinking Agreements to Agree?

Answer 26

Professor McLauchlan (Rethinking Agreements to Agree (1998) 18 NZULR 77, 85) that “an agreement to agree will not be held void for uncertainty if the parties have provided a workable formula or objective standard or a machinery (such as arbitration) for determining the matter which has been left open”. We also agree with him that the court can step in and apply the formula or standard if the parties fail to agree or can substitute other machinery if the designated machinery breaks down”.

Question 27

Key principles?

Answer 27

• An agreement to agree is not regarded as an enforceable contract;
• The words “subject to contract” usually prevent an agreement from binding;
• An agreement for exclusive negotiations will bind if expressly limited in duration;
• Problems of incompleteness or vagueness are more easily overcome if the contract has been acted upon;
• Commercial context and contractual interpretation are also vital determinants of the court’s willingness to fill gaps, or sever difficulties;
• There are fault lines running through the decided cases; judges do not all share the same view of good faith or adversarial negotiation;
• Casuistry also plays a part in outcomes; principles can and will be bent to refuse speculative claims.