Resolving Contractual Disputes: Agreements with Terms to be Agreed Upon, Lecture notes of Law

Download Resolving Contractual Disputes: Agreements with Terms to be Agreed Upon and more Lecture notes Law in PDF only on Docsity! CONTRACTS EXPRESSLY PROVIDING FOR FURTHER AGREEMENT MICHAEL HOWARO* Introduction The purpose ofthis article is to considerways in which problems, which are created by contracts which expressly provide that a term of importance is to be agreed upon by the parties at some time in the future, can be satisfactorily resolved by the courts. It has been stated that "To be a good contract there must be a concluded bargain and a concluded bargain is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties."! An application by the courts of the principle contained in this statement has usually2 resulted in a refusal to uphold dealings which expressly provide that a term of importance is to be fixed by further agreement between the parties themselves. The principal difficulty facing the courts with problems of this char­ acter is that they have in some way to give effect to expressions of intention which are contrary. On the one hand the parties have agreed to be bound to terms ofimportance but, at the same time, they have expressly agreed that they do not want to be bound immediately to another term of importance; "at a price to be agreed" for example. The basic objection to the usual judicial approach, which refuses to uphold such agreements,3 is that it places too much emphasisupon the presence ofthe term "to be agreed" and thus tends to ignore completely the parties' expressed intentions to be bound to all the other terms of importance. Where the parties leave a number of terms to be fixed in the future it is reasonable that the court would not uphold such an arrangement because the parties would appear to be still in the process· of negotiation. In the absence ofperformance ofthe particular obligations, or perhaps a course of dealing between the parties, there would be no clear evidence of an intention to be bound. Thus, by refusing to uphold this arrangement, the court would be giving effect to the parties' intentions. However, for the purposes ofthis article, it will be assumed that there is evidence ofan overall intention to be bound in spite of the fact that a term of importance has not been fixed at the time ofcontracting. It is not suggested that the intention of the parties to be "unbound" as to a particular term should be just ignored * Ph.D.(B'ham), Senior Lecturer in Law, University of Tasmania. I Per ~iscount .Dunedin in May & Butcher Ltd. v. The Ki!'g 11934] 2 K.B. 17n., 21n. 2 See. however. cases such as Foley v. Classique Coaches Ltd. [1934] 2 K.B. 1 and F. & G. Sykes (Wessex) Ltd. v. Fine Fare Ltd. [1967] Lloyd's Rep. 53. . 3 See. for example. Loftus v. Roberts (1902) 18 T.L.R. 532 ("at a West-end salary, to be mutually arranged between us"); British Homophone Ltd. v. Kunz(1935) 152 L.T. 589; May & Butcher Ltd. v. The King, supra n.l ("the price or prices to be paid, and the date or dates on which payment is to be made ... shall be agreed upon from time to time ... "). Cf. R. & J. Dempster Ltd. v. Motherwell Bridge & Engineering Co. Ltd. 1964 S.LT. 353 where the contract was upheld even though it provided that "the prices to be settled at a later date". 15 but, once it has been accepted that in the circumstances ofthe particularcase there is evidence of an intention to be bound, then it would seem that the only reason for refusing to assist the parties to carry out their intention would be the fact that they had not agreed upon all the terms at the time of contracting. It is submitted, however, that this is not a satisfactory reason for defeating the parties' expressed intention to be bound. An attractive judicial approach to the problem can be illustrated by reference to such cases as Foley v. Classique Coaches Ltd. 4 ("at a price to be agreed by the parties in writing and from time to time") and F & G. Sykes (Wessex) Ltd. v. Fine Fare Ltd. 5 ("such other figures as may be agreed between the parties hereto"). In both cases the court was more concerned with upholding the parties' intentions to be bound, as evidenced by their performance of the contractual obligations over a period of time, than with the term "to be agreed", and the presence of such a term certainly did not deter the court from upholding the contracts in both cases. It is submitted that the same approach can be adopted in any other case where the court is satisfied of the existence of an intention to be bound. Performance of the contractual obligations clearly was important evidence in both cases6 but it is submitted that this ought not to be regarded as the only satisfactory evidence and agreement upon all the other terms of importance could equally be regarded as sufficient evidence of an intention to be bound. Before considering an approach to the problems which places less emphasis upon the term "to be agreed" and examines the ways in which the courts may be able to give effect to the parties' intentions to be bound, it is suggested that it is of value to identify the problem more particularly and isolate it from others which are often lumped together under the general heading of "Uncertainty". It is necessary to distinguish the present problem from difficulties created by either incompleteness or indefiniteness. In the case of "incompleteness" the parties have either deliberately or inadvertently left gaps in their contract which the court in most cases can fill without difficulty with the help ofobjective criteria. With "indefiniteness" the problem before the court is that ofbeing unable to give a sufficiently definite meaning to the language used by the contract. These difficulties are illustrated by such cases as G. Scan1mell & Nephew Ltd. v. H. C. and J. C. Ouston7 ("the balance of purchase price may be had on hire-purchase terms over a period of two years"), Bishop & Baxter Ltd. v. Anglo-Eastern Trading & Industrial Co. Ltd. 8 (a purported acceptance "subject to war clause") and British Electrical & Associated Industries (Cardiff) Ltd. v. Patley Pressings Ltd. 9 ("subject to force majeure conditions"). The courts could not uphold these contracts because they could not give a particular meaning to the phrases used which were capable ofa variety ofmeanings. However, ifthe contract provides, for 4 Supra n.2. 5 Supra n.2. 6 Notice also the presence of an arbitration clause in both cases. The courts attached in1portance to these but no doubt they would have been capable of determining a ""reasonable price" (Foley. supra n.2) or a "reasonable quantity" (Sykes, supra n.2) for themselves. 7 [1941]A.C.251. 8 [1944] K.B. 12. 9 [1953] 1 W.L.R. 280. 18 Where both time for delivery and for payment are "to be agreed" it is submitted that, consistent with the suggested approach to the price term, the court could fix a reasonable time having regard to the nature of the deal, where the parties failed to do this by the time a dispute arises. 2. Mode ofpayment in credit sales The phrase "mode ofpayment" can be used to describe any term which provides for the way in which the purchaser is required to discharge his obligation as to the price term. This may relate to the whole amount (e.g. "upon hire-purchase terms to be agreed") or the balance after payment of a deposit as in DeLaval v. Bloomfield18 ("$200 Nov. 1, 1937, bal to be arranged"). The contract may provide in either case that the parties are to agree in the future as to the time within which the obligations are to be discharged. It is submitted that these are all matters which a court ought to be well able to determine by using an objective standard of what is fair and reasonable in the circumstances ofthe particular case. Thus, taking the facts of DeLaval v. Bloomfield, there was a written contract for the sale of machinery where all the terms of importance were fixed including the price term which was $400: "$200 Nov. 1, 1937, bal to be arranged." The parties clearly intended to be bound and a satisfactory approach would have been to uphold the contract by fixing "reasonable terms" for the payment of the balance of the purchase money. Applying a traditional approach the contract would not have been upheld. In fact, the Ontario Court ofAppeal held that, because the defendant purchaser had refused -.to make any arrangements with regard to the balance, the plaintiff was entitled to claim the instalment of $200. 19 DeLaval v. Bloomfield 20 was disapproved of in Cherewick v. Moore and Dean21 where it was stated that the court should not treat a refusal ofthe defendants to enter into an agreement, as to the method of payment, as entitling the plaintiff to immediate payment. Although not agreeing with the decision in Cherewick's case (that there was no enforceable contract where the manner and time of payment were left unsettled in a licensing agreement) we would agree with the court that in DeLaval v. Bloomfield 22 there was no "breach" of "an agreement". This was clearly not the view of the court in DeLaval v. Bloomfield where it was said that: 23 "His breach of his agreement to arrange the mode of payment gives the plaintiff a right of action." This approach is really treating the arrangement as a "contract to negotiate in good faith". It is submitted, however, that the circumstances will usually indicate that, where the contract provides that a term is "to be agreed" this should be construed as a statement of intention rather than a promise. 24 18 [1938] 3 D.L.R. 405. 19 The Court applied Hallv. Condor (1857) 2 C.B. (N.S.) 22; 140 E.R. 318. 20 Supra n.18. 21 [1955] 2 D.L.R. 492. 22 Supra n.18. 23 Ibid.. 409. 24 See Willetsv. Ryan (l968]N.Z.L.R. 863 asan extreme example of the traditional approach. It was held that there was no contract for the sale of land where all the terms were agreed upon including the deposit because it was provided that the balance of the purchase price was to be paid "by mutual agreement". There was clearly an intention to deal and, in addition. it could be said that the purchaser would have been unlikely to have disagreed with any method ofpaying the balance which the vendor may have suggested. In any event it is submitted that the court could have used objective criteria without difficulty to determine reasonable terms of payment. 19 B. OTHER CONTRACTS I. Leases 1. Options to renew In King's Motors (Oxford) Ltd. v. Lax25 it was stated that "In substance it amounts to no more than a contract to enter into a contract which is always given as the classic example ofan agreement which is unenforceable,"26 and the court refused to uphold an option to renew a lease "at such rental as may be agreed upon between the parties hereto". However, as Williston has pointed out,27 "On the contrary, some courts, recognising the practical business utility of such clauses in a lease, treat them as sufficiently definite by interpreting them as meaning a reasonable rental under the circum­ stances in case the parties cannot agree." It is interesting to observe the approach of the New Zealand Court of Appeal in the recent case of Attorney-Generalv. Barker Bros. Ltd. 28 The right of the Crown to renew a lease which provided that "The terms and conditions of any such renewed lease shall be as agreed upon by the parties at the time, but the rent shall not be less than the amount payable hereunder" was upheld. The Crown had objected to the suggested new rental and had sought the respondent's agreement to submit to arbitration in accordance with a clause in the lease. The respondent then contended that the renewal clause "did not create a binding right of renewal". This argument was rejected, the Court ofAppeal regarding the arbitration clause as providing effective machinery for the settlement of the renewal terms­ "The authorities are clear that an appropriately worded arbitration clause can fill the gap even where the parties, on the face of their bargain, have left some important terms to be agreed between them."29 Having referred to both Foley'scase3o and Sykes'case31 atsome length, it is ofinterest to notethe following comment by the President who delivered the leadingjudgment: "It must, however, be accepted that in F. & G. Sykes (Wessex) Ltd.· v. Fine Fare Ltd. the members of the court seem to have pla~ed reliance not only on the arbitration clause but also on their ability to imply a term that the number ofchicks would be reasonable. "32 However, "I accept that it is not too easy in the present case to adopt precisely the same process of implication as was adopted in Foley v. Classique Coaches Ltd. and F. & G. Sykes (Wessex) Ltd. v. Fine Fare Ltd. I would, therefore, prefer to approach the problem somewhat differently."33 The President then relied upon the presence of the machinery of the arbitration clause to uphold the renewal of the lease although there was no indication given as to why it would have been difficult for the Court itself to determine a reasonable rental in the circumstances. It would seem that the Court's difficulty would have been no more or no less than that of the arbitral body ultimately appointed to determine a reasonable rental. 25 [1970] 1 W.L.R. 426. 428. 26 It has already been suggested. supra at 000. that a contract to enter into a contract is perfectly valid. It bears no relation to the problem which occurred in the King's Motors' case. 27 Williston on Contracts (1967) Vol. L 151. 28 [1976] 2 N.Z.L.R. 495. 29 Ibid.. 500. 30 Supra n.2. 31 Supra n.2. 32 Supra n.28 at 502 (emphasis added). 33 Ibid.. 503. 20 As a final point it should be remen1bered that the lessee is likely to have entered into the contract and performed his obligations under the lease in reliance upon the granting ofthe option to renew. In these circumstances the court ought to be very reluctant to regard the option as being unenforceable. This unsatisfactory result can be avoided by rejecting the traditional attitude34 and adopting the more reasonable approach which is supported by some American authority.35 2. Options to purchase Assuming for a moment that there is no existing contractual re­ lationship between the parties in the form of a lease, it is arguable that a court would order specific performance of a contract for' the sale, for example, of a house where the price was stated but upon "terms to be agreed", the time for payment and the security for deferred payments being not yet settled. However, it is submitted that the court will not order specific performance where the contract for the sale of real property provides that the price is "to be agreed". "With regard to land, the law of specific performance of contracts to sell is founded on the principle that the advantage of possession of a particular piece of land may be inestimable, and no amount of money may be assessable as an exact equivalent for it ...."36 The particular property would not have a market value which could be ascertained by the court. Thus, a price gap in such a contract could not be filled by the use ofan objective standard and, for the same reason, the position would be the same where the price was "to be agreed". Again, the court could not use the standard of a "reasonable" price. However, the position may be quite different in the situation where a lessee, in reliance upon an option being granted, has occupied the premises under the lease (and perhaps made improvements). There is some American authority37 supporting the view that in this case, in order to protect the "reliance interest" of the lessee, the landlord would be required to agree with the plaintiff upon reasonable terms of payment. II. Insurance Contracts Section 31 (1) of the New Zealand Marine Insurance Act, 1908, provides that "Where an insurance is effected at a premium to be arranged, and no arrangement is made, a reasonable premium is payable." This provision would appear to cover the situation where either there is no mention at all of the premium or where it is expressly provided that the premium is "to be arranged". The first category would be consistent with the analogous situation where there.is a contract for the sale ofgoods where the court will fill the gap if there is no mention of the price term.38 The second category supports the argument which has been advanced in relation to the problem where goods are to be sold "at a price to be agreed". 34 See. for example. King's Motors (Oxford) Ltd. v. Lax, supra n.25. See Eudunda Farmers Co-operative Society Ltd. v. Mattiske [1920] S.A.L.R. 309; Randazzo v. Goulding [1968] Qd. R. 433: Aitken v. Regent Theatre Co. Ltd. .[1934] G.L.R. 331, for examples in Common­ wealth jurisdictions. 35 See Corbin on Contracts (1963) Vol. I, 72-74. 36 Willialns on Vendor and Purchaser (4th ed. 1936) Vol. 1,4, n. (r). 37 See Corbin on Contracts, supra n.35 at 72and cases cited therein. Cf. Re W G. Apps &Sons Pty. Ltd. and Hurley [1949] V.L.R. 7 and Murphy v. McSorley [1929] 4 D.L.R. 247. 38 Hoad(r v. M'Laine, supra. n.13.