Incomplete and Vague Agreements

• 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...

Buy the full version of these notes or essay plans and more in our GDL Contract Law Notes.