FOLEY V CLASSIQUE COACHES, LIMITED.
[1933. F. 1528.]
[COURT OF APPEAL]
[1934] 2 KB 1
HEARING-DATES: 15, 16 March 1934
16 March 1934
CATCHWORDS:
Contract - Sale of land - Supplemental agreement by purchasers to take their petrol supplies exclusively from vendor - Petrol to be supplied "at a price to be agreed by the parties in writing and from time to time" - Arbitration clause Restraint of trade.
HEADNOTE:
By an agreement in writing the plaintiff agreed to sell and the defendants to purchase a piece of land, adjoining
other land belonging to the plaintiff, which the defendants intended to use for their business as motor coach proprietors.
The sale was made subject to the defendants entering into another agreement to purchase from the plaintiff all the petrol
required for their said business. On the same date that second agreement, described as supplemental to the first, was
executed, which, after reciting that the plaintiff was the proprietor of a petrol-filling station on the land retained by him,
provided that the defendants would purchase from him all the petrol required by them for the running of their said business, "at a price to be agreed by the parties in writing and from time to time"; and further, that the defendants would
purchase no petrol from any other person so long as the plaintiff was able to supply them with quantities sufficient
to satisfy their daily requirements. Clause 8 was in these terms: "If any dispute or difference shall arise on the subject
matter or construction of this agreement the same shall be submitted to arbitration in the usual way in accordance with
the provisions of the Arbitration Act, 1889."
The land, the subject of the first agreement, was duly conveyed to the defendants, and for three years the defendants
obtained their petrol from the plaintiff. Thereafter disputes arose between them, and thereupon the defendants purported
to repudiate the second agreement, alleging that it had no binding force because (1.) no agreement in writing as to price
had ever been made, and (2.) the clause requiring the defendants to take all their petrol supplies from the plaintiff was
an unreasonable and unnecessary restraint of their trade.
In an action by the plaintiff claiming a declaration that the petrol agreement was valid and binding, and an injunction to restrain the defendants from purchasing petrol required for their said business from any person other than the
plaintiff:Held, (1.) that a term must be implied in the agreement that the petrol supplied by the plaintiff should be of reasonable quality and sold at a reasonable price, and that if any dispute arose as to what was a reasonable price it was to be
determined by arbitration pursuant to clause 8; (2.) that inasmuch as the defendants were only required to purchase petrol from the plaintiff for the purpose of the business carried on by them on the land purchased from the plaintiff, and so
long only as it was supplied of a reasonable quality and at a reasonable price, the obligation was not an unreasonable
and unnecessary restraint of their trade; and (3.) that the agreement therefore was valid and binding on the defendants.
May & Butcher v. The King (1929) (post, p. 17) distinguished; Hillas & Co., Ld. v. Arcos, Ld. (1932) 147 L. T.
503 considered.
Decision of Lord Hewart C.J. affirmed.
INTRODUCTION:
APPEAL from a decision of Lord Hewart C.J.
The plaintiff was a retail dealer in petrol and the defendants were the owners of motor coaches who carried on business at premises adjoining those of the plaintiff at 481 Lea Bridge Road, Leyton.
By an agreement in writing dated April 11, 1930, it was agreed that the plaintiff should sell and the defendants
should purchase for 1100l. the freehold property which immediately adjoined that retained by the plaintiff. The sale was
made subject to certain conditions, among others that the defendants would enter into an agreement with the plaintiff as
to the sale of petrol and/or oil, the terms of which had been agreed between them. On the same date the agreement as to
the sale
of petrol and/or oil was signed. It recited that it was "supplemental to an agreement bearing even date herewith and
made between the same parties as are parties thereto and whereby the vendor has agreed to sell and the company to purchase" the property in the already mentioned agreement, and "whereas the vendor and his present wife are the proprietors of a petrol and oil filling station at his said address and the company are proposing to carry on the business of chara-banc and garage proprietors on the said adjoining land and it has been agreed that the vendor shall supply to the company and the company will take from the vendor all petrol as shall be required by the company as hereinafter mentioned. Now it is hereby agreed as follows:"1. The vendor shall sell to the company and the company shall purchase from the vendor all petrol which shall be
required by the company for the running of their said business at a price to be agreed by the parties in writing and from
time to time.
"2. The vendor shall deliver the said petrol to the company from the vendor's pumps now or hereafter on his said
land.
"3. This agreement shall remain in force during the life of the vendor and his present wife if she survives him."
Clause 4 dealt with the contingency of a strike or lock-out.
"5. In the event of the company being wound up ... the vendor may determine this agreement at any time after the
commencement of such winding-up by giving one week's notice in writing of his intention so to do ... and upon the expiration of such notice this agreement shall cease ... but without prejudice to the right of action of the vendor in respect
of any breach of the company's agreement herein contained.
"6. The company shall not purchase any petrol from any other person or corporation so long as the vendor is able to
supply them with sufficient petrol to satisfy their daily requirements but nothing herein contained shall prevent the vendor from selling petrol and/or oil to any other person or corporation to be used for any purposes whatever provided that
the company and their servants shall be at liberty to purchase such petrol as may be found necessary to complete the
particular
journey when engaged on journeys over a distance necessitating the re-fuelling of their vehicles.
"7. The vendor shall supply the said petrol of a standard and quality at present supplied by the vendor or of such
other standard and quality as the company may reasonably approve.
"8. If any dispute or difference shall arise on the subject matter or construction of this agreement the same shall be
submitted to arbitration in the usual way in accordance with the provisions of the Arbitration Act, 1889."
The land, the subject of the first agreement, was duly conveyed to the company, and from April 26, 1930, till October 7, 1933, the defendants bought petrol from the plaintiff in pursuance of the agreement at prices charged by the plaintiff in accounts delivered by him to the defendants each week.
Disputes then arose between the parties as to the price and quality of the petrol, and eventually the defendants' solicitor wrote this letter to the plaintiff dated September 29, 1933: "It appears that although you have supplied petrol to my
clients as and when they have required it no agreement in writing as to price has ever been made, nor any agreement of
any sort thereunder. My clients have from time to time sent you their cheque in payment of statements of account rendered by you. Having considered this alleged agreement and the aforesaid facts, I have advised my clients that this document is of no force or effect, and therefore, acting on their behalf, I hereby give you notice that my clients do not intend
to be bound by any of the provisions contained in this alleged agreement. As from October 8, 1933, my clients will be
purchasing their petrol supplies elsewhere."
The plaintiff thereupon issued a writ claiming (1.) a declaration that the petrol agreement was valid and binding
upon the parties; (2.) an injunction to restrain the defendants from purchasing any petrol required by them for the carry-
ing on of their said business from any persons other than the plaintiff; (3.) an account of all petrol bought by the defendants in breach of the said petrol agreement from any person other than the plaintiff; and (4.) damages for breach of
contract.
The defendants pleaded that no price at which petrol should be sold to them by the plaintiff had been agreed; that
the provision relating to the supply of petrol did not constitute a binding and/or complete agreement; that clause 6 of the
agreement was an unreasonable and unnecessary restraint of the defendants' trade and was contrary to public policy and
illegal; and further, or in the alternative, that that provision was applicable when, and only so long as, the parties agreed
the price at which petrol was to be supplied.
The Lord Chief Justice, in the course of his judgment, said: It was contended on behalf of the defendants that I am
bound, by virtue of a decision of the House of Lords in May & Butcher v. The King n(1) , to hold that the agreement
with reference to petrol is not a contract at all, because the price to be paid for the petrol is to be agreed by the parties in
writing from time to time. I should very much regret to be compelled to come to such a decision. There is no doubt that
the parties intended to make a binding contract and thought that they had done so, and that is a circumstance which, according to the judgments of Lord Tomlin, Lord Thankerton, and Lord Wright in Hillas & Co. v. Arcos n(2) ought to be
taken into consideration in deciding whether there is a concluded contract or not. The fact that the agreement is part of
the consideration for the land which has been conveyed to the defendants and is still in their possession distinguishes
the case, in my opinion, from that of May & Butcher v. The King n(1) , and on the whole I think there is a valid and
binding contract for the purchase and sale of petrol in accordance with the terms of clauses 1 and 7. In The Moorcock
n(3) Bowen L.J., in reference to implied terms in contracts, said: "The implication which the law draws from what must
obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and
preventing such a failure of consideration as cannot have been within the contemplation of either side. ... In business
transactions such as this, what the law desires to
n(1) See post, p. 17.
n(2) 147 L. T. 503.
n(3) (1889) 14 P. D. 64, 68.
effect by the implication is to give such business efficacy to the transaction as must have been intended at all events
by both parties who are business men." The Lord Chief Justice accordingly held that there was a valid and binding contract for the purchase and sale of petrol in accordance with the terms of clauses 1 and 7. If nothing had been said, or if
the parties failed to agree the price of the petrol the law would imply that a reasonable price should be paid; and if any
dispute arose as to what was a reasonable price that was to be determined by arbitration pursuant to clause 8. It had further been argued that clause 6 was contrary to public policy and illegal as being an unreasonable and unnecessary restraint of the defendants' trade. As the clause was intended to secure to the plaintiff the benefit of the agreement as a
whole, it was not unreasonable or invalid as being in restraint of trade. His Lordship therefore granted an injunction restraining the defendants their agents and servants from any breach of clause 6 and awarded an amount of damages to be
ascertained.
The defendants appealed. The appeal was heard on March 15 and 16, 1934.
COUNSEL:
van den Berg K.C. and Astell Burt for the appellants. The petrol agreement in this case is on all fours with that which was considered by the House of Lords in May & Butcher v. The King n(1) , where it was held that there was no binding contract. It was there said that an agreement for sale from which the essential term of price is absent is no contract.
Here there was no agreement as to the price of the petrol. No doubt it will be said that the price is to be determined by
arbitration under clause 8; but as to that, the answer is that there was a similar clause in May & Butcher v. The King
n(1) , and as was there pointed out, the clause could not come into operation if there was no concluded contract. Hillas
& Co. v. Arcos n(2) is distinguishable on the terms of the bargain there entered into.
Secondly, clause 6 of the agreement is much too wide, and is therefore unenforceable. It involves an obligation on
the
n(1) See post, p. 17.
n(2) 147 L. T. 503.
appellants to purchase all their petrol supplies from the respondent, not only that required for the business carried
on at the premises adjoining the respondent's land, but wherever they may in the future carry on business, however distant from the respondent's land. That is obviously an oppressive obligation. Moreover the agreement, including clause
6, is to be operative during the lifetime of the respondent and of his present wife, should she survive him, but the wife is
under no obligation to supply petrol to customers.
Glyn-Jones for the respondent. The petrol agreement was supplemental to the agreement for the sale of the land, the
two together constituting one contract. The parties clearly intended to enter into a binding agreement, and that is a circumstance to be considered. In construing the petrol agreement and to give it business efficacy there must be implied a
term that the petrol to be supplied shall be sold at a reasonable price, and any dispute as to that falls within the arbitration clause. The facts here are quite different from those being considered in May & Butcher v. The King n(1) , and the
decision in that case has no bearing.
van den Berg K.C. in reply. The argument for the respondent involves reading in a clause to this effect "and failing
agreement as to price the price shall be settled by arbitration." That amounts to making a contract for the parties.
PANEL: SCRUTTON, GREER, and MAUGHAM L.JJ
JUDGMENTBY-1: SCRUTTON L.J
JUDGMENT-1:
SCRUTTON L.J: In this appeal I think that the Lord Chief Justice's decision was right, and I am glad to come to
that conclusion, because I do not regard the appellants' contention as an honest one.
The nature of the case is this: the respondent, the plaintiff in the action, had some land, part of which was occupied
by petrol pumps. Adjoining that land was some vacant land belonging to him which the appellants wanted to use as the
headquarters for their char-...-bancs, and they approached the respondent, who was willing to sell on the terms that the
appellants obtained all their petrol from him. It is quite clear that unless the appellants had agreed to this they would
n(1) See post, p. 17.
never have got the land. There was a discussion whether this term about the petrol and the agreement to purchase
the land should be put in one document or in two, but ultimately it was decided to put them in two documents of even
date. One relates specifically to the sale and purchase of the land, and that was to go through on condition that the
appellants undertook to enter into the petrol agreement, the terms of which had been already agreed. On the same day
the second agreement was signed reciting that it was supplemental to the agreement of even date, that is the agreement
for the sale of the land. The petrol agreement included a clause that if any dispute or difference should arise on the subject-matter or construction "the same shall be submitted to arbitration in the usual way." It is quite clear that the parties
intended to make an agreement, and for the space of three years no doubt entered the mind of the appellants that they
had a business agreement, for they acted on it during that time. The petrol supplied by the respondent was non-combine
petrol, but he had also combine petrol pumps. The non-combine petrol was supplied to the appellants at a price lower
than that paid by the public, and an account was rendered periodically in writing and paid. In the third year some one
acting for the appellants thought he could get better petrol elsewhere, and on September 29, 1933, their solicitor, thinking he saw a way out of the agreement, wrote on behalf of the appellants the letter of September 29, 1933, repudiating
the agreement. Possibly the solicitor had heard something about the decision of the House of Lords in May & Butcher v.
The King n(1) but probably had not heard of Braithwaite v. Foreign Hardwood Co. n(2) , in which the Court of Appeal
decided that the wrongful repudiation of a contract by one party relieves the other party from the performance of any
conditions precedent. If the solicitor had known of that decision he would not have written the letter in the terms he did.
Thereafter the respondent brought his action claiming damages for breach of the agreement, a declaration that the agreement is binding, and an injunction to restrain the appellants from purchasing
n(1) See post, p. 17.
n(2) [1905] 2 K. B. 543.
petrol from any other person. The Lord Chief Justice decided that the respondent was entitled to judgment, as there
was a binding agreement by which the appellants got the land on condition that they should buy their petrol from the respondent. I observe that the appellants' solicitor in his letter made no suggestion that the land would be returned, and I
suppose the appellants would have been extremely annoyed if they had been asked to return it when they repudiated the
condition.
A good deal of the case turns upon the effect of two decisions of the House of Lords which are not easy to fit in
with each other. The first of these cases is May & Butcher v. The King n(1) , which related to a claim in respect of a
purchase of surplus stores from a Government department. In the Court of Appeal two members of the Court took the
view that inasmuch as there was a provision that the price of the stores which were to be offered from time to time was
to be agreed there was no binding contract because an agreement to make an agreement does not constitute a contract,
and that the language of clause 10 that any dispute as to the construction of the agreement was to be submitted to arbitration was irrevelant, because there was not an agreement, although the parties thought there was. In the second cases
Hillas & Co. v. Arcos n(2) , there was an agreement between Hillas & Co. and the Russian authorities under which Hillas & Co. were to take in one year 22,000 standards of Russian timber, and in the same agreement they had an option to
take in the next year 100,000 standards, with no particulars as to the kind of timber or as to the terms of shipment or any
of the other matters one expects to find dealt with on a sale of a large quantity of Russian timber over a period. The
Court of Appeal, which included Greer L.J. and myself, both having a very large experience in these timber cases, came
to the conclusion that as the House of Lords in May & Butcher v. The King n(1) considered that where a detail had to
be agreed upon there was no agreement until that detail was agreed, we were bound to follow the decision in May &
Butcher v. The King n(1) and hold that there was no
n(1) See post, p. 17.
n(2) 147 L. T. 503.
effective agreement in respect of the option, because the terms had not been agreed. It was, however, held by the
House of Lords in Hillas & Co. v. Arcos n(1) that we were wrong in so deciding and that we had misunderstood the decision in May & Butcher v. The King. n(2) The House took this line: it is quite true that there seems to be considerable
vagueness about the agreement but the parties contrived to get through it on the contract for 22,000 standards, and so
the House thought there was an agreement as to the option which the parties would be able to get through also despite
the absence of details. It is true that in the first year the parties got through quite satisfactorily; that was because during
that year the great bulk of English buyers were boycotting the Russian sellers. In the second year the position was different. The English buyers had changed their view and were buying large quantities of Russian timber, so that different
conditions were then prevailing. In Hillas & Co. v. Arcos n(1) the House of Lords said that they had not laid down universal principles of construction in May & Butcher v. The King n(2) , and that each case must be decided on the construction of the particular document, while in Hillas & Co. v. Arcos n(1) they found that the parties believed they had a
contract. In the present case the parties obviously believed they had a contract and they acted for three years as if they
had; they had an arbitration clause which relates to the subject-matter of the agreement as to the supply of petrol, and it
seems to me that this arbitration clause applies to any failure to agree as to the price. By analogy to the case of a tied
house there is to be implied in this contract a term that the petrol shall be supplied at a reasonable price and shall be of
reasonable quality. For these reasons I think the Lord Chief Justice was right in holding that there was an effective and
enforceable contract, although as to the future no definite price had been agreed with regard to the petrol.
It was said, secondly, on behalf of the appellants that the contract was bad, as para. 6 was in restraint of trade. In
my view that contention is clearly untenable. The contract
n(1) 147 L. T. 503.
n(2) See post, p. 17.
is an ordinary one to purchase petrol from a particular person, and as long as petrol of a reasonable price and quality is supplied - and there is an implied term that it shall be so supplied - there is no undue restraint of trade. It is suggested, however, that the injunction granted to restrain a breach of clause 6 might have this result, that if the appellants
moved their coaching business, say to Edinburgh, they would still be required to purchase their petrol in London from
the respondent. That, no doubt, would be a ridiculous agreement if it had been made, but it is quite clear that the appellants' obligation to take their supplies of petrol from the respondent applies only to the business carried on by them on
the land adjoining the respondent's petrol pumps, and has no application to a business carried on in Edinburgh or Aberdeen or any other place remote from London.
The appeal therefore fails, and no alteration is required in the form of the injunction that has been granted.
JUDGMENTBY-2: GREER L.J
JUDGMENT-2:
GREER L.J: I think the judgment of the Lord Chief Justice was right and ought not to be disturbed. [The Lord Justice read the passage from the Lord Chief Justice's judgment already set out and continued:] In the present case the parties intended that there should be two considerations for the purchase of the land by the appellants, (1.) the payment of
1100l., and (2.) the appellants' promise contained in the agreement of even date to purchase all their petrol from the respondent, and if that second promise does not amount to an agreement then one of the two considerations which both
parties intended disappears, and the appellants get the land without implementing more than the first consideration - namely, the payment of 1100l. I think the words of Bowen L.J. in The Moorcock n(1) are clearly applicable to a case of
this kind, and that in order to give effect to what both parties intended the Court is justified in implying that in the absence of agreement as to price a reasonable price must be paid, and if the parties cannot agree as to what is a reasonable
price then arbitration must take place. It
n(1) 14 P. D. 64, 68.
is quite true that 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, and in my judgment to imply a term in this contract
that the price of the petrol supplied by the respondent shall be reasonable is in no way inconsistent with the agreement.
May & Butcher v. The King n(1) is distinguishable from the present case both on its facts and as to the nature of the
agreement. In that case, as I understand, there was no question of anything whatever except the sale of what was called
tentage, and there was a term that the purchaser should leave a deposit in the hands of the seller. There was no consideration, unless a term to agree a price in the future was a consideration. It is a common observation that a decision upon
the construction of one contract is not an authority upon the construction of another contract in different words and entered into in different circumstances. The facts of this case and the nature of the contract take it out of the authority of
May & Butcher v. The King n(1) , and leave us free to construe this contract as containing the implied term mentioned.
When the buyers through their solicitor said that they would have nothing more to do with the contract they thereby relieved the seller from the obligation that might otherwise have been upon him to discuss in the future what should be the
price of the deliveries from time to time. Having repudiated the contract when they were not entitled to do so they cannot rely on the fact that the contract might have broken down in the future because of their possible refusal to pay a rea sonable price or their possible refusal to accept what the seller said was a reasonable quality of petrol.
For these reasons I think the Lord Chief Justice's judgment was right both on the main question and also on the
point as to restraint of trade.
JUDGMENTBY-3: MAUGHAM L.J
JUDGMENT-3:
MAUGHAM L.J: The question raised in this case involves the construction of the agreement dated April 11, 1930.
n(1) See post, p. 17.
It is indisputable that unless all the material terms of the contract are agreed there is no binding obligation. An
agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled nor implied
by law and the document contains no machinery for ascertaining it. Neither of these propositions was in question either
in May & Butcher v. The King n(1) or in Hillas & Co. v. Arcos n(2) , and it happens that in the first case the decision
was one way and in the second case the other way on the construction of the relevant documents, but in neither was any
new principle of construction laid down.
In the present case the respondent, the plaintiff in the action, was the owner of land on which was a petrol-filling
station. The appellants desired to buy a part of that property for the purposes of their business of motor coach proprietors. Two agreements were entered into of even date, one being supplemental to the other. The agreements provided for
the purchase of the land by the appellants and for the purchase by them of the petrol required in their business. For three
and a half years the appellants purchased their petrol from the respondent, but in September, 1933, they repudiated the
agreement, saying that it was not binding upon them. I desire to say, first, that it is quite plain from the surrounding circumstances that the agreement as to the sale and purchase of the petrol was intended to be a binding contract and it formed part of the inducement for the sale of the land. Secondly, the agreement was duly stamped and bears all the signs of
a legal contract, and was not, as in May & Butcher v. The King n(1) , a mere informal letter. In the later case, Hillas &
Co. v. Arcos n(2) , some weight, although not too much, is to be attached to the fact that the parties conceived that they
were entering into a binding contract, and the old maxim applies that the document should, if possible, be so interpreted
ut res magis valeat quam pereat. As to the agreement relating to the sale of petrol, I think it is plain that the words in
clause 1 that "the company shall purchase
n(1) See post, p. 17.
n(2) 147 L. T. 503.
from the vendor all petrol which shall be required by the company for the running of their said business" refer to
the business intended to be set up next door to the respondent. The two parties were carrying on business side by side,
and one of them, the respondent, was to supply petrol from his pumps to the other. That appears also from clause 2,
which provides that the vendor shall deliver the petrol from the pumps on his land. The petrol cannot therefore be supplied elsewhere; it is an essential term of the agreement entered into since it is an inducement to the vendor to sell part
of his land. Clause 5, which has some bearing on the question we have to determine, says: "In the event of the company
being wound up ... the vendor may determine this agreement at any time after the commencement of such winding-up
by giving one week's notice in writing of his intention so to do to the liquidator of the company, and upon the expiration
of such notice this agreement shall cease and no claim shall be made against the company by the vendor but without
prejudice to the right of action of the vendor in respect of any breach of the company's agreements herein contained."
Why this provision should be inserted if the vendor was not to sell petrol to the buyers I cannot conceive. The obvious
implication is that there is an obligation on the vendor which is or may be of some importance, and that in the event of
the company being wound up he is entitled to determine the agreement. We now come to clause 6, which provides that
"the company shall not purchase any petrol from any other person or corporation so long as the vendor is able to supply
them with sufficient to satisfy their daily requirements but nothing herein contained shall prevent the vendor from selling petrol and/or oil to any other person or corporation to be used for any purposes whatever provided that the company
and their servants shall be at liberty to purchase such petrol as may be found necessary to complete the particular journey when engaged on journeys over a distance necessitating the refuelling of their vehicles." The only condition there
expressed is that the obligation is to last so long as the vendor is able to
supply the company with sufficient petrol. Are we to assume that both parties were so ignorant of business that no
dispute as to price could possibly arise? Price is the very basis of this agreement, which surely does not mean that the
company are not to purchase petrol from any other person or corporation if they are unable to agree in writing on the
price or if the vendor chooses to fix a price above the commercial price which the company could possibly pay. If the
clause were to be construed in that way it would be nonsense, and in my opinion it is necessary to imply in clause 6 a
proviso that so long as the vendor is able and willing to supply the company with sufficient petrol either at a price to be
agreed under clause 1 or at a fair and reasonable price if the price has not been so agreed, the company shall purchase it
from him. In coming to this conclusion I am following the old-established rule in the case of tied houses laid down in
Catt v. Tourle n(1) , and more recently in Courage & Co. v. Carpenter. n(2) In each of these cases the publican agreed
that he would not take beer from any one except the brewer. The Court thought it plain that that meant so long as the
brewer was willing to supply beer of reasonable quality and at a reasonable price, and that was expressed in the form of
the injunction granted in the second of these cases. The judgment of Bowen L.J. in The Moorcock n(3) has been referred to, where the principle as to implications was stated in admirable terms; and the same principle involves in the tied
house cases that no publican binds himself to take all his beer from a particular brewer at any price the brewer likes to
put upon it. There is no distinction in principle between a contract for the price of beer to be paid by the tenant of a tied
house and the contract we have in this case.
Two further changes in the agreement should be referred to, namely, clauses 7 and 8. Why should clause 7, which
says that "the vendor shall supply the said petrol of a standard and quality at present supplied by the vendor or of such
other standard and quality as the company may reasonably
n(1) (1869) L. R. 4 Ch. 654.
n(2) [1910] 1 Ch. 262.
n(3) 14 P. D. 64, 68.
approve," be inserted unless there was a binding obligation on the company to purchase? Clause 8, the arbitration
clause, is in unusual form, providing that "if any dispute or difference shall arise on the subject matter or construction of
this agreement the same shall be submitted to arbitration in the usual way in accordance with the provisions of the Arbitration Act, 1889." The reference to "subject matter" is not usual in such a clause. Returning now to clauses 1, 5 and 6,
in my opinion these constrain the Court to hold that there must be implied in the obligation to sell and purchase the petrol at an agreed price words to this effect: "or, failing agreement, at a reasonable price to be determined under the arbitration clause." If the agreement had stopped short at clause 2 I should have thought that it was unenforceable, but the
contract must be construed as a whole, and, construing it as a whole, I come to the conclusion I have stated. The duty of
the Court is to ascertain the intention of the parties from the document as a whole. Verba intentioni, non e contra, debent
inservire.
On the question as to restraint of trade I agree with what Scrutton L.J. has said, and I can see no reason for altering
the terms of the injunction that has been granted. It will of course have effect according to the construction put upon the
agreement by this Court, that is, the appellants are only compelled to purchase petrol from the respondent for the purposes of their business carried on next door and so long as the respondent is willing to supply it of a reasonable quality and
at a reasonable price from the pumps belonging to him on his land.
DISPOSITION:
Appeal dismissed.
SOLICITORS:
Solicitor for appellants: J. R. Cort Bathurst.
Solicitor for respondent: C. J. Lewis.
NOTE.
MAY AND BUTCHER, LIMITED v. THE KING.
22 February 1929.
LORD BUCKMASTER and VISCOUNT DUNEDIN.
Petition of Right.
The suppliants, May & Butcher, Ld., who were general contractors, alleged that it was mutually agreed between
them and the Controller of the Disposals Board for the purchase by the suppliants of the whole of the tentage which
might become available in the United Kingdom for disposal up to March 31, 1923. The material letters for the purposes
of the case were dated June 29, 1921, and January 7, 1922. By the earlier of these letters written by the Controller to the
suppliants it was stated that "in consideration of your agreeing to deposit with the [Disposals & Liquidation] Commission the sum of 1000l. as security for the carrying out of this extended contract, the Commission hereby confirm the sale
to you of the whole of the old tentage which may become available ... up to and including December 31, 1921, upon the
following terms:"(1.) The Commission agrees to sell and [the suppliants] agree to purchase the total stock of old tentage ...
.......................................
"(3.) The price or prices to be paid, and the date or dates on which payment is to be made by the purchasers to the
Commission for such old tentage shall be agreed upon from time to time between the Commission and the purchasers as
the quantities of the said old tentage become available for disposal, and are offered to the purchasers by the Commission.
"(4.) Delivery ... shall be taken by the purchasers in such period or periods as may be agreed upon between the
Commission and the purchasers when such quantities of old tentage are offered to the purchasers by the Commission. ...
......................................
"(10.) It is understood that all disputes with reference to or arising out of this agreement will be submitted to arbitration in accordance with the provisions of the Arbitration Act, 1889."
By the second letter dated January 7, 1922, the Disposals Controller, referring to verbal negotiations that had taken
place for an extension of the agreement between the Commission and the suppliants, confirmed the sale to the latter of
the tentage which might become available for disposal up to March 31, 1923. This letter, which varied in certain respects the earlier terms, stated that "the prices to be agreed upon between the Commission and the purchasers in accordance with the terms of clause 3 of the said earlier contract shall include delivery free on rail ... nearest to the depots at
which the said tentage may be lying. ...."
Some time later the proposals made by the suppliants for purchase were not acceptable to the Controller, and in August, 1922, the Disposals Board said they considered themselves no longer bound by the agreement, whereupon the suppliants filed their petition of right claiming an injunction restraining the Commission from disposing elsewhere than to
the suppliants of the remainder of the tentage; an account of the tentage that had become available; and compensation
for the damage done to them.
By the demurrer, answer and plea the Attorney-General said that the petition of right disclosed no sufficient and
binding contract for the sale
to the suppliants of any tentage, and further that it was a term of the contract (if any) that the suppliants should pay
a reasonable price for the tentage and that the suppliants were not at the material time ready and willing to pay a reasonable price.
Rowlatt J. held that the letters of June 29, 1921, and January 7 and 18, 1922, constituted no contract but contained
merely a series of clauses for adoption if and when contracts were made, because the price, date of payment and period
of delivery had still to be agreed; and that the arbitration clause did not apply to differences of opinion upon these questions. The Court of Appeal (Scrutton L. J. dissenting) affirmed Rowlatt J.'s decision.
The suppliants appealed.
Stuart Bevan K.C., James Wylie, and Leon Freedman for the appellants.
Sir Thomas Inskip A.-G., Sir Boyd Merriman S.-G., and Bowstead for the Crown.
LORD BUCKMASTER.My Lords, consequent upon the War there remained at the disposal of the Government a
considerable quantity of goods which had formerly been required for the prosecution of the War. In order that these
goods might be effectively disposed of, a Disposals Board was set up into whose charge the various Departments handed over such of the surplus stock as they from time to time possessed. The Disposals Board then proceeded to deal
with those goods by sale to various people. The present appellants were among the purchasers of that class of goods that
related to the construction and equipment of tents and which was called by a word, which has convenience if it has not
euphony in its favour, tentage. The first arrangement made between the Disposals Board and the appellants was in
April, 1920. The transactions between them all appear to have taken a similar form. There was an agreement for the sale
of the goods; there was an agreement that the price for the goods should be subsequently fixed between the parties; and
there were provisions with regard to arbitration in the event of dispute. A dispute then arose out of the bargain dated January 7, 1922. At or about that time the control of the Disposals Board was changed; Major Lethaby formerly had charge of it, and Sir Maurice Levy took charge from him. It has been suggested that this caused a difference of relationship
between the parties which led to the dispute. Such a suggestion certainly is in no way material to the matter we have to
decide, and I am quite unable to find anything throughout these proceedings to justify the suggestion that Sir Maurice
Levy did otherwise than what was his duty to do - namely, take the steps he thought most effective to secure the largest
price for the goods.
The earlier course of business appears to have been this: the Disposals Board received from the various Departments something in the nature of specifications of the goods that were to be handed over, and these specifications were
in turn handed over to the would-be purchaser, who could check them if he liked for himself, or, if not, accept them as
they were offered. Sir Maurice Levy discontinued this practice. He said that he did not think it was unreasonable on the
part of the appellants to ask for the specifications, but he did not deliver them, and I think it is not difficult to understand
why, because if he proceeded to sell by specification instead of selling after inspection, which was always open to the
purchaser, he would be bound by the statements in the specification, many of which contained references to the quality
and character of the goods which he
himself had no opportunity of checking. As a business arrangement it was much better he should let the would-be
purchaser have the fullest opportunity of inspecting the goods he was going to buy; he could then make his offer; and
that was the course in fact pursued. The proposals made by the appellants for purchase were not acceptable to Sir Maurice Levy; the parties were unable to come to an agreement; and the Disposals Board said that they considered themselves no longer bound by the contract. Negotiations failed and the Board declined to deliver any more goods under the attempted bargain. It is that which has given rise to these proceedings.
The points that arise for determination are these: Whether or not the terms of the contract were sufficiently defined
to constitute a legal binding contract between the parties. The Crown says that the price was never agreed. The suppliants say first, that if it was not agreed, it would be a reasonable price. Secondly, they say that even if the price was
not agreed, the arbitration clause in the contract was intended to cover this very question of price, and that consequently
the reasonableness of the price was referred to arbitration under the contract. Thirdly, they any that even if they are
wrong on their first two contentions the fact that the whole of the bargain was ended in 1922 was doing them a wrong,
because in any event they were entitled to have the opportunity of entering into a further agreement for future parcels of
the goods which were referred to in the terms of the contract.
My Lords, those being the contentions, it is obvious that the whole matter depends upon the construction of the actual words of the bargain itself. The contract is contained in the form of a letter. It is written by Major Lethaby, the then
Controller of the Disposals Board, to the appellants. It was a letter based upon the payment by the appellants of 1000l.
as a consideration for the bargain, and it opens in these words: "In consideration of your agreeing to allow the sum of
1000l. (one thousand pounds) now held by the Commission to remain on deposit as a security for the due performance
of this extended contract, the Commission hereby confirm the sale to you of the whole of the tentage which may become available in the United Kingdom for disposal up to and including March 31, 1923," upon the terms of the earlier
contracts. The provision as to price is in these words: "The prices to be agreed upon between the Commission and the
purchasers in accordance with the terms of clause 3 of the said earlier contract shall include delivery free"; and it is provided that the actual price that has to be paid is to be the subject of further agreement between the parties. That is the result of the terms of one of the earlier bargains incorporated by the reference I have read. There is then a provision that
the Commission may "at any time in their uncontrolled discretion and before it has been despatched to or collected by or
resold by the purchasers, certify that any portion of the said tentage is required by the British Government and the Commission shall be at liberty to withhold delivery of such portion"; while finally there is an agreement as to arbitration,
which again is contained in one of the earlier contracts. The arbitration clause may be important; it is in these words: "It
is understood that all disputes with reference to or arising out of this agreement will be submitted to arbitration in accordance with the provisions of the Arbitration Act, 1889."
What resulted was this: it was impossible to agree the prices, and unless the appellants are in a position to establish
either that this failure to agree resulted out of a definite agreement to buy at a reasonable price, or that the
price had become subject to arbitration, it is plain on the first two points which have been mentioned that this
appeal must fail.
In my opinion there never was a concluded contract between the parties. It has long been a well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the
contract matter is left undetermined is no contract at all. It is of course perfectly possible for two people to contract that
they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in the
future agree upon a matter which is vital to the arrangement between them and has not yet been determined. It has been
argued that as the fixing of the price has broken down, a reasonable price must be assumed. That depends in part upon
the terms of the Sale of Goods Act, which no doubt reproduces, and is known to have reproduced, the old law upon the
matter. That provides in s. 8 that "the price in a contract of sale may be fixed by the contract, or may be left to be fixed
in manner thereby agreed, or may be determined by the course of dealing between the parties. Where the price is not determined in accordance with the foregoing provisions the buyer must pay a reasonable price"; while, if the agreement is
to sell goods on the terms that the price is to be fixed by the valuation of a third party, and such third party cannot or
does not make such valuation, s. 9 says that the agreement is avoided. I find myself quite unable to understand the distinction between an agreement to permit the price to be fixed by a third party and an agreement to permit the price to
be fixed in the future by the two parties to the contract themselves In principle it appears to me that they are one and the
same thing. This principle is not without one or two important authorities. I think that Parker J.'s decision in Von Hatzfeldt-Wildenburg v. Alexander n(1) really covers the whole of this dispute, although I agree that the comment upon it by
Sargant L.J. in Chillingworth v. Esche n(2) more fully and accurately expresses the whole position; but the principle
that you cannot agree to agree remains entirely unchanged. Loftus v. Roberts n(3) is to the same effect. The only way
the appellants seek to escape from those authorities is by saying that all related to another subject-matter. If it could be
shown that the different subject-matter was the cause of different principles of contract being applied, that would be an
effective and relevant argument, but apart from the fact that a contract, one, for example, for the sale of land, requires
the consideration of a large number of special details that are wholly unnecessary in relation to a contract for the sale of
goods, and apart also from the way in which either of these contracts may be regulated by the Statute of Frauds on the
one hand, or by the Sale of Goods Act on the other hand, the general underlying principles of contract are the same in
each, and there is no reason why those principles should be in any way varied because of the subject-matter with which
they deal. I therefore find myself quite unable to accede to the argument that the authorities to which I have referred are
weakened in their application to the present case because it happens that their subject-matter is not the same.
The next question is about the arbitration clause, and there I entirely agree with the majority of the Court of Appeal
and also with Rowlatt J. The clause refers "disputes with reference to or arising out of this agreement" to arbitration, but
until the price has been fixed, the agreement is not there.
(1) [1912] 1 Ch. 284.
(2) [1924] 1 Ch. 97, 113.
(3) (1902) 18 Times L. R. 532.
The arbitration clause relates to the settlement of whatever may happen when the agreement has been completed
and the parties are regularly bound. There is nothing in the arbitration clause to enable a contract to be made which in
fact the original bargain has left quite open.
Finally, I cannot take the view that the parties are entitled to an offer for the further parcels, because in my opinion
this agreement is not a binding agreement at all, and the suggestion that the payment of the deposit entitled the appellants as of right to these offers, and constituted a valid and binding option, is not to my mind the true construction of
what that deposit was for. The deposit was really for the purpose of securing the carrying out of the terms of the bargain
when it had been made complete, and for the reasons I have already stated such completion never took place; there never was a complete bargain between the parties, and in my opinion the appellants fail.
VISCOUNT DUNEDIN.I am of the same opinion. This case arises upon a question of sale, but in my view the
principles which we are applying are not confined to sale, but are the general principles of the law of contract. To be a
good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something
which still has to be determined, but then that determination must be a determination which does not depend upon the
agreement between the parties. In the system of law in which I was brought up, that was expressed by one of those brocards of which perhaps we have been too fond, but which often express very neatly what is wanted: "Certum est quod
certum reddi potest." Therefore, you may very well agree that a certain part of the contract of sale, such as price, may be
settled by some one else. As a matter of the general law of contract all the essentials have to be settled. What are the essentials may vary according to the particular contract under consideration. We are here dealing with sale, and undoubtedly price is one of the essentials of sale, and if it is left still to be agreed between the parties, then there is no contract.
It may be left to the determination of a certain person, and if it was so left and that person either would not or could not
act, there would be no contract because the price was to be settled in a certain way and it has become impossible to settle it in that way, and therefore there is no settlement. No doubt as to goods, the Sale of Goods Act, 1893, says that if the
price is not mentioned and settled in the contract it is to be a reasonable price. The simple answer in this case is that the
Sale of Goods Act provides for silence on the point and here there is no silence, because there is a provision that the two
parties are to agree. As long as you have something certain it does not matter. For instance, with regard to price it is a
perfectly good contract to say that the price is to be settled by the buyer. I have not had time, or perhaps I have not been
industrious enough, to look through all the books in England to see if there is such a case; but there was such a case in
Scotland in 1760, where it was decided that a sale of a landed estate was perfectly good, the price being left to be settled
by the buyer himself. I have only expressed in other words what has already been said by my noble friend on the Woolsack. Here there was clearly no contract. There would have been a perfectly good settlement of price if the contract had
said that it was to be settled by arbitration by a certain man, or it might
have been quite good if it was said that it was to be settled by arbitration under the Arbitration Act so as to bring in
a material plan by which a certain person could be put in action. The question then arises, has anything of that sort been
done? I think clearly not. The general arbitration clause is one in very common form as to disputes arising out of the ar-
rangements. In no proper meaning of the word can this be described as a dispute arising between the parties; it is a failure to agree, which is a very different thing from a dispute.
As regards the option point, I do not think it can be more neatly put than it was by Rowlatt J. when he said: "It is an
option to offer terms on terms that are not agreed. An option to offer a contract which is not a contract seems to me not
to carry the case any further than the first way of putting it." For these reasons I agree in the motion.
LORD WARRINGTON OF CLYFFE. I agree. The decision of this case depends upon the application of a well
known and elementary principle of the law of contract, which is that, unless the essential terms of the contract are
agreed upon, there is no binding and enforceable obligation. In the present case we have a document which purports to
be an agreement for the sale by one party to the other party of certain specified goods at a price to be hereafter agreed
between them. If that price is thereafter agreed there is a binding contract within the principle to which I have alluded;
each of the essential terms of the contract has been agreed. If the parties fail to arrive at an agreement, then the price has
not been ascertained in the way in which the parties stipulated that it should be ascertained, and there is therefore no
binding agreement.
It is said that this case is to be treated on the same footing as if there had been no fixing of the price; as if the con tract had been silent as to the price, and the law may then imply a reasonable price; but in the present case the facts preclude the application of any such principle. To do that would not be to imply something about which the parties have
been silent; it would be to insert in the contract a stipulation contrary to that for which they have bargained to give them,
not the result of their own agreement, but possibly the verdict of a jury, or some other means of ascertaining the stipulated price. To do that would be to contradict the express terms of the document which they have signed.
With regard to the application of the arbitration clause, the same considerations apply. In the first place, if I am
right in the view I take in the events which have happened there is no binding contract, the arbitration clause is not binding, and there is no contract out of which or in reference to which any dispute can arise. But more than that, to apply
the arbitration clause would be, as in the attempted application of the doctrine as to reasonable price, to substitute the
award of the arbitrator for that agreement between the parties which was the term by which they had originally agreed
to be bound.
With regard to the option, I have nothing to add to what has been said by my noble and learned friends. All I can
say is that I think the judgments of Sargant L.J. and Eve J. are perfectly unanswerable, and that the appeal ought to be
dismissed.
Appeal dismissed.
Solicitor for appellants: E. V. Huxtable.
Solicitor for respondent: Treasury Solicitor.
J. S. H.