Foley v Classique Coaches Ltd [1934] 2 KB 1

KEY POINTS

• The purchasers entered a supplemental agreement on their petrol supplies, indicating an additional arrangement beyond the primary land sale. The agreement included clauses detailing the terms of exclusive petrol procurement from the vendor.

• An arbitration clause indicated a provision for resolving potential disputes through arbitration rather than traditional legal proceedings. This alternative dispute resolution mechanism suggested a commitment to a more streamlined and private resolution process.

• The mention of a restraint of trade raises questions about whether any provisions in the contract limit the involved parties' commercial activities. Restraint of trade clauses typically requires scrutiny to ensure they are legally sound and fair to all parties.

FACTS

• Under a written agreement, the Foley (‘Plaintiff’) agreed to sell a piece of land to the Classique Coaches (‘Defendants’), who intended to use it for their motor coach business. The sale was conditional upon the Defendants entering into a supplemental agreement to purchase all required petrol for their business from the Plaintiff, who owned a petrol-filling station on the retained land. 

• This supplemental agreement, executed on the same date as the land sale agreement, stated that the Defendants would buy petrol from the Plaintiff at a price agreed upon in writing and could not purchase petrol from any other supplier as long as the Plaintiff could meet their daily requirements. 

• Clause 8 of the supplemental agreement stipulated arbitration for dispute resolution following the Arbitration Act of 1889.

• The land, subject to the first agreement, was duly conveyed to the Defendants, and for three years, the Plaintiff supplied petrol to them. 

• Disputes later arose, leading the Defendants to repudiate the supplemental agreement, arguing that no written agreement on price had been reached and that the clause restricting petrol purchases constituted an unreasonable restraint of trade.

• In response, the Plaintiff initiated legal action, seeking a declaration that the petrol agreement was valid and binding. The Plaintiff also sought an injunction to prevent the Defendants from purchasing petrol for their business from any supplier other than the Plaintiff.

JUDGEMENT

• It was held that a term had to be implied in the agreement, requiring the petrol supplied by the Plaintiff to be of reasonable quality and sold at a reasonable price. Any dispute arising over a reasonable price was to be resolved through arbitration, as per clause 8 of the agreement.

• Considering that the Defendants were obligated to purchase petrol solely for the specific business conducted on the land acquired from the Plaintiff, and this obligation was contingent upon the petrol being supplied at a reasonable quality and price, it was determined that such a requirement did not impose an unreasonable or unnecessary restraint on the Defendants' trade.

•  The agreement was deemed valid and binding on the defendants, affirming the Plaintiff's claims.

COMMENTARY

• The judgment emphasised upon the implication of a term in the agreement for reasonable quality and price of supplied petrol. Disputes on a reasonable price were subject to arbitration. The court considered the Defendants' obligation to purchase petrol for a specific business on the acquired land and concluded it didn't impose an unreasonable restraint on trade.

• The agreement was deemed valid and binding on the Defendants, confirming the Plaintiff's claims. This case highlights the intricacies of contractual obligations, dispute resolution mechanisms, and considerations around trade restraints in commercial agreements.

ORIGINAL ANALYSIS

• Foley (F) sold Classique Coaches (C) part of his land in a contract on the provision that C would buy petrol from F “at a price to be agreed by the parties in writing from time to time”, while an arbitration clause was inserted. F bought the land and for 3 years bought petrol from C.

• F then denied the contractual requirement to buy petrol from C, since the clause was too vague.

• The court enforced the agreement as one to buy petrol at “a reasonable price”. 

Greer LJ

One cannot add to a contract an implied term inconsistent with or which contradicts the express terms of the contract, but in a suitable case one can imply a term

• NOTE: his argument seems to be that one can imply a term to make a contract workable where one does so within the spirit or terms of the agreement, as here.

• The arbitration clause was to determine what the reasonable price was. 

Maugham LJ

• The agreement that F would buy petrol from C was key to inducing C to sell the land and both parties intended to be bound by it (else why would C have complied with it for the past 3 years?).

• There is more evidence he cites to support the seriousness of the clause that F would buy from C.

• Assuming the parties were aware that there might be future disputes over the price (safe assumption, unless they are totally stupid) and assuming the agreement that C would buy from F (safe assumption) then a “reasonable price” seems to be the only answer 

Good: in this case the outcome that the parties hoped to achieve (a mutually agreed or “reasonable” price) is given effect, 

RELATED CASES

• May Butcher Ltd v R