#19853 - The Need For Certainty Over Terms - Contract Law

The Need for Certainty Over Terms

5. Contract as an agreement

Until parties have agreed on everything they consider needs agreeing, there’s no contract (Viscount Dunedin in May and Butcher v R). Until then, parties still are negotiating.

In May and Butcher the parties had an arrangement for the sale of tents but it said the price and dates of payments will be agreed by the parties. The parties hadn’t agreed it yet no contract.

It’s common for people to contract for goods without specifying the price. This is fine if they don’t intend to agree a price – there is an enforceable contract to pay a reasonable price. Law assumes parties intended this. Same with delivery/performance time – if it doesn’t say, law says reasonable time. So if the contract is silent as to important terms, the courts can imply such terms. If the parties specify ‘this term is to be agreed’, the court can’t do much. Implied terms can’t contradict express terms.

There is a certain minimum needed for the courts to fill in gaps. In Scammel (G) and Nephew v Ouston, D agreed to buy a new van but said ‘this order is given on the understanding the balance of the purchase price can be had on hire-purchase terms over a period of two years’. HL said this was so vague it doesn’t by itself have a meaning. Hire-purchase can take different forms and the court couldn’t determine the parties would’ve agreed to.

Similarly, in Morris v Swanton Care & Community, there was an agreement for one party to be entitled to provide services for 4 years and thereafter for ‘such further period as shall reasonably be agreed’ by the parties. CA said that part was an agreement to agree unenforceable. In any event, the court wouldn’t have been able to determine what a reasonable time period would’ve been.

Making a contract unenforceable for lack of certainty is a last resort. Leggatt J said the role of the court in commercial disputes is to give effect to what parties have agreed, not give up because the parties have made it hard (Astor Management AG v Atalaya Mining).

In a contract of sale of land, the terms are usually standard. The parties, property and price just needs to be specified theoretically and the law can comply the other terms.

5.2 Executed and Executory Agreements

Executory is when performance lies in the future, and nothing has been done toward it. Differentiate between executed and executory agreements.

In executed agreements, the party has to pay for the other’s performance, despite the uncertainty as to the terms. For example in May and Butcher, if the tentage had been delivered and accepted without any agreement as to price, this is an executed agreement. Denning J in British Bank for Foreign Trade v Novinex said in such cases, law will say there is implied from the parties’ conduct a contract that a reasonable sum be paid. In that case, D wanted to acquire oilskins through C’s friend. They said if you put us in touch, we’ll pay you commission. D declined to pay commission. CA said C was entitled to reasonable commission. The commission had never been ‘agreed’, but it was an offer of unilateral contract which was accepted and performed by C when he put D in contact with the friend.

Unilateral contracts are never completely executory because there is no contract until the offeree has done his part.

In Foley v Classique Coaches, the contract was bilateral. C agreed to sell land to D in consideration of D’s agreeing to buy petrol from him exclusively. The petrol was at a price ‘agreed by the parties in writing from time to time’. When this was signed, there was no contract. But the land was sold and petrol purchased for 3 years before D rescinded his petrol-promise. Court said contract was binding – it had been substantially executed. British Bank for Foreign Trade applied.

In Wells v Devani, estate agent and seller reached an oral agreement without specifying what would trigger the agent’s entitlement to commission. UKSC said commission payable on completion of sale. Even if this could not have been interpreted in, this implied term would’ve kicked in anyway to ensure the contract didn’t fail through lack of certainty. Lord Kitchen said the courts don’t want to find an agreement to vague/uncertain where the parties had the intention of being contractually bound and’ve acted on the agreement.

5.3 Lock-out agreements and agreements to negotiate

Lock-out agreements are when A agrees with B they won’t negotiate with anyone else for a time.

Walford v Miles is an important case on this. It established:

• Lock out agreements are good contracts

• You must specify the time – the courts won’t imply this to be a reasonable time

• Lock-out agreements are negative agreements – you can’t force someone to negotiate with you, only prevent them from negotiating with others. An agreement to negotiate would lack certainty.

• B will not be under a ‘good faith’ duty to negotiate with A at all. B must be able to threaten to withdraw negotiations.

5.4 Terms to be settled otherwise than by agreement of the parties

Leaving something to be settled by agreement between parties prevents an executory contract from forming, but leaving it to be settled some other way does not. For example, an agreement the price is to be fixed by one of the parties at a later date is valid. An agreement a money-lender will vary their interest rate at will is valid, although probably subject to an implied term not to use this dishonestly and reasonably. The logic here is the parties don’t need to do any further agreeing, so the contract is binding. Similarly, the parties can agree to let someone else fix the price. If that person fixes price in good faith, it’s binding, no matter how unreasonable it be.

There is a contract as soon as everything the parties need to agree on has been agreed. For example, s.9(2) Sale of Goods Act 1979 says if parties agree to let Jim fix the price, and then one of the parties prevents Jim from doing so, the other can sue on contract. The same goes for if the parties want two people to fix the price – Sudbrook Trading v Eggleton. So when a party refused to appoint a valuer, the court held the contract could be enforced using the court’s price.

An agreement to agree is invalid because we don’t know what the parties would’ve agreed had the agreement to agree gone through. Sometimes though a contract to make a contract is valid. When? When there is no more agreeing to be done. For example, a contract to grant a lease – the lease is a contract so it’s a contract to make a contract. All terms of the second contract are implied within the first.

It can be hard to tell if something’s an agreement to agree. In Branca v Cobarro, a written agreement for a lease, but it said it was a ‘provisional agreement until a fully legalised agreement… is signed’ with the conditions stated in the provisional agreement. Denning J thought this was an agreement to agree, and thus no contract. CA disagreed and said there was a contract because of the word ‘provisional’.

5.5 Agreements subject to…

This is where the contract terms are in place, but the contract isn’t binding until something happens.

Agreements Subject to Contract

This is where preliminary terms are agreed, but there are still more terms to negotiate. So, the agreement of the preliminary terms are ‘subject to contract’. These will only be binding when the formal written contract is made. It’s common...