This website uses cookies to ensure you get the best experience on our website. Learn more

Walford v Miles [1992] 1 All ER 453; [1992] 2 ac 128

By Oxbridge Law TeamUpdated 04/01/2024 07:18

Judgement for the case Walford v Miles

KEY POINTS

  • In matters of contract enforceability, examining an agreement holds legally binding status and can be upheld in a court of law. Another concept of interest is the "contract to negotiate," involving preliminary agreements that initiate discussions for potential future contracts. Similarly, a "lock-out agreement" is applied to situations where one party is restricted from negotiating with others during a specified timeframe.

  • The term "subject to contract" frequently arises, signaling that an agreement has not yet reached a finalized and legally binding state. In contract law, a "collateral contract" refers to a separate agreement that serves the dual purpose of continuing negotiations and terminating discussions with third parties.

  • Specific time limits govern the duration of a collateral agreement and an implied obligation for defendants to engage in good-faith negotiations for a reasonable duration within such contracts. A collateral contract can be legally enforced, underscoring contract law's intricate and multifaceted nature and its intricacies.

FACTS

  • In 1986, the respondents decided to sell their photographic processing business and premises, receiving a £1.9 million offer from a third party. 

  • The appellants entered negotiations, and on March 12, 1987, the respondents agreed to sell to them for £2 million with a profit warranty. 

  • On March 17, they agreed to terminate negotiations with third parties if the appellants provided a bank comfort letter by March 20, which they did.

  • On March 25, the respondents confirmed the sale, but on March 30, they withdrew, citing staff concerns.

  • The appellants sued for breach of a 'lock-out' agreement, claiming implied good faith negotiation terms in the collateral contract. The trial judge upheld the claim, but the Court of Appeal deemed the collateral agreement unenforceable. The appellants appealed to the House of Lords for a final ruling.

JUDGEMENT

  • The Court acknowledged that a lock-out agreement, wherein one party refrains from negotiating with others during a specified period for the sale of their property, is enforceable.

  • However, an agreement to negotiate in good faith without a defined timeframe lacks enforceability. Imposing such a term in an indefinite lock-out agreement isn't feasible since it doesn't obligate the vendor to finalize a contract.

  • Consequently, the uncertainty regarding when negotiations can be terminated makes it impossible for the court to assess valid reasons for termination objectively.

  • Therefore, the alleged collateral agreement was unenforceable, and the appeal was dismissed.

COMMENTARY

  • In contract enforceability, preliminary agreements such as "contract to negotiate" and "lock-out agreements" restrict negotiations during a specified period. "Subject to contract" signifies non-finalized agreements, while "collateral contracts" serve dual purposes in negotiations.

  • The respondents agreed to sell their business but later withdrew from negotiations with the appellants. The appellants sued for breach of a 'lock-out' agreement, alleging implied good faith terms in the collateral contract.

  • The trial judge upheld the claim, but the Court of Appeal found the collateral agreement unenforceable. The House of Lords dismissed the appeal, stating that indefinite good-faith negotiations lacked enforceability in a lock-out agreement.

ORIGINAL ANALYSIS

  • Walford (W) agreed that if Miles (M) could prove his financial resources to pay for M’s business, then he would

    • (1) not negotiate or accept offers from other parties, and

    • (2) deal exclusively with M with a view to concluding the deal as soon as possible.

  • They failed to reach a deal and W sold to a 3rd part, and M sued W.

  • The HL held that the agreement was unenforceable as impractical and inherently contrary to the negotiating process (which required the threats of being able to go elsewhere).

  • It also held that agreements no to negotiate with other parties cold be enforceable IF they were time-limited (it wasn’t in this case), while agreements to exclusively deal with one party were unworkable (what if they simply never came to agreement - would W be bound to never sell his business?)

On the three arguments:

Lord Ackner

  1. A lock in or timeless lockout (which IS a lock in) is “inherently repugnant to the adversarial position of the negotiating parties” who are entitled to act self-interestedly. This is because there is no ability to threaten to or actually go elsewhere.

    • CW says wrong because not all negotiations are adversarial: some are consensual/problem solving in nature+ a party might only have incentive to put together a proposal if he can guarantee acceptance at the end. This is WRONG: it is anti-competitive, and will actually incentivise the purchasing party to offer v low sums since the seller has no option except acceptance. 

  2. In a “good faith” arrangement such as this, it will be impossible for a court to tell whether the reason for leaving the exclusive BF arrangements was a good one because the definition of a “good reason” is subjective.

    • Wrong. As CW says, the courts have no problem in defining a “reasonableness” standard elsewhere. 

  3. The damage for breach of this type of agreement would be impossible to quantify.

    • True, there is no way of determining whether or not such an arrangement would have been successful, and therefore the court is being asked to put a value on the unknown likelihood that a deal of an unknown value would have been reached. Impossible to do with any accuracy. 

Any comments or edits about this case? Get in touch

For Further Study on Walford v Miles

Contract Law Notes
1,511 total pages
744 purchased

Contract law notes fully updated for recent exams at Oxford and Cambrid...

Need instant answers? Our AI exam tutor is here to help.

Ask questions 🙋 Get answers 📔 It's simple 👁️👄👁️

Our AI is educated by the highest scoring students across all subjects and schools. Join hundreds of your peers today.

Get Started
Claim every advantage to get a first in law
Contract Law Notes
1,511 total pages
744 purchased

Contract law notes fully updated for recent exams at Oxford and Cambrid...