#17251 - Incomplete And Vague Agreements - GDL Contract Law

The basic position

• Viscount Dunedin (Hillas v Arcos): “As a matter of the general law of contract all the essentials have to be settled”.

• Viscount Maugham, (Scammell v Ouston): “parties must so express themselves that their meaning can be determined with a reasonable degree of certainty”

Iain Macneil describes the attempts to extract coherent principles from these cases as ‘a fool’s errand.’

Incomplete: an incomplete contract is one which leaves the parties not agreed on some matter, or in disagreement over it, or still aiming to reach agreement over it in the future.

• Courts do not exist to force agreement.

Vague: a vague contract is one which raises a question of what it is that the parties have agreed.

• Courts will not write a contract for a party, but they will give effect to a valid bargain.

Incomplete Agreementsw

• Conditional Agreements - binding pending the occurrence of the condition (e.g. a contract of insurance, in which the insurer’s obligation to pay does not arise until loss is sustained by the insured)

  • Winn v Bull (1877) - 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”.

    • Held no contract to enforce.

    • Parties may settle majority of terms themselves but appoint solicitor to settle minor matters, may be bound. The rules of contract formation must take into account context.

• Deferred Agreements - “subject to contract” - courts’ presumption that binding legal relations are postponed until the conclusion of a formal agreement.

  • Chillingworth v Esche [1924] - Sargant LJ: “it would require a very strong and exceptional case for this clear prima facie meaning [of subject to contract] to be displaced”. What may look very like a contract can be prevented from binding by being made subject to the conclusion of a further contract.

    • Commercial benefit as this allows parties to communicate without being bound (e.g. ‘without prejudice’). No intention to be bound.

  • Branca v Cobarro [1947] – a short agreement provided that Branca would buy the lease of a mushroom farm from Cobarro, but ended with words “provisional agreement” subject to solicitor creating a fully legalised agreement on those conditions. B paid 10% deposit.

    • Branca withdrew, and sued for return of deposit as no agreement made. Dennign J at first instance held ‘provisional’ deprived agreement of force.

    • On appeal this was overturned: ordinary meaning of “provisional” was that something was going to operate unless or until something else happened

  • Alpenstow v Regalian Properties [1985] - An exceptional case where subject to contract did not apply. Parties agreed that following a planning permission if A were willing to sell part of their land to R they would serve a notice to that effect. Agreement was very detailed but was subject to submission by Alpenstow of a draft contract.

    • Alpenstow subsequently refused to provide a draft contract. Nourse J held that the usual meaning of “subject to contract”, was displaced on these exceptional facts; The agreement was intended to create a duty to exchange contracts.

• Pre-Emptive Agreements

  • Courtney & Fairburn v Tolaini Bros [1975] – D wanted to devlop site into a motel. Plaintiff was property developer. If plantiff could make financial arrangements D agreed to use P for three projects. Financial backing was found but parties could not agree on price. D employed another developer, using the finance found by the plaintiff.

    • Plantiff sued for lost profit. Lost on appeal. agreement contained in the correspondence was no more than an agreement to negotiate

    • Denning MR: “the price in a building contract is of fundamental importance. It is so essential a term that there is no contract unless the price is agreed”

  • Walford v Miles [1992] – Miles was negotiating the sale of his photography processing business and received a favourable offer from a third party. M agreed if W could provide a comfort letter confirming the financing of the deal, Miles would cease negotiations with any other party.

    • W did this, but M still sold to the third party.

    • CA Bingham LJ (dissenting) held that the agreement was merely an agreement to negotiate, and as such was unenforceable.

    • In HoL Lord Ackner held that a duty to negotiate in good faith was ‘inherently repugnant’ due to its inherent uncertainty.

    • Lord Ackner draws a distinction between such an agreement, and an agreement to use best endeavours. The latter is not uncertain, and therefore binds.

      • But it is difficult to see the distinction.

    • 2005, the Court of Appeal upheld an express agreement to negotiate in good faith: see Petromec. v Petroleo Brasileiro.

    • McKendrick and others point out, the plaintiff’s case was quite likely to fail for a very basic reason. Walford had chosen to sue not for his reliance loss (a modest sum), but for his expectation loss.

• Executed Agreements - Where an agreement has been performed, the attitude of the law is quite different.

  • British Bank for Foreign Trade v Novinex [1949] - Novinex, 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. Wrote to Plantiff agreeing to give commission to bank for any further transactions if they were put in contact. Refused to pay commission.

    • On appeal Cohen LJ held that there was a contract. An independent agreement arises from the fact of performance

    • The “necessity” of this implication, its basis is obvious - The alternative to imposing this solution is that one party will have been unjustly enriched at the expense of the other.

• The Resolution of Incompleteness

  • Contractual Machinery

    • Sudbrook Trading v Eggleton [1982] - Four leases gave the lessees an option to purchase the freehold, price to be agreed by valuers. The lessors declined to appoint a valuer, and submitted that the agreement was void for uncertainty since it did not specify a price.

      • HoL dismissed the argument that this was 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.

      • Lord Fraser, the position might have been different if a named valuer had been intended to act, or required a person with special knowledge.

      • Lord Diplock classified the contract as a unilateral contract.

      • Lord Russell, dissenting, there is no presuption that both sides intended to be fair an reasonable.

    • Foley v Classique Coaches [1934] - 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. This was to be supplied at a price to be agreed by the parties. Any dispute would be resolved by arbitration.

      • D’s repudiated supply contract after three years, arguing it was not valid as depending on future agreement.

      • CA rejected this argument - Scrutton LJ “the parties obviously believed they had a contract and they acted for three years as if they had”.

        • NB Scrutton dissented from May & Butcher below.

      • Arbitration was also contractual machinery as in Sudbrook.

  • Severance of Uncertainties

    • Nicolene v Simmonds [1953] – agreement for 3,000 tons of steel reinforcing bars, concluded: “I assume that we are in agreement and that the usual conditions of acceptance apply”. Seller failed delivery and claimed that the buyers...