Contracts (O‟Byrne)
Certainty
Legal Propositions
GENERAL STATEMENT OF LAW:
Per Treitel:
“an agreement is not a binding contract if it lacks certainty, either because it is too
vague or because it is obviously incomplete.”
Per Anson‟s Law of Contract:
“Although the parties may have reached agreement in the sense that the requirements
of offer and acceptance have been complied with, there may yet be no contract
because the terms of the agreement are uncertain or because the agreement is
qualified by reference to the need for a future agreement between them.”
Two competing propositions apply:
1. Courts will not make an agreement for the parties
2. That is certain which is capable of being rendered certain
CATEGORIES OF CASES
I.
VAGUENESS
GENERAL STATEMENT OF LAW: Per Treitel, where the courts cannot determine on what
terms the parties have purportedly contracted, due to
vagueness, they will not enforce the agreement. That said,
per Treitel, “courts do not expect commercial documents to
be drafted with strict precision, and will, particularly if the
parties have acted on an agreement, do their best to avoid
striking it down on the ground that it is too vague.”
CAE [1986] (F.C.A): per court, the agreement was not vague and uncertain or
incomplete. If parties have expressed themselves in language sufficiently clear so as to
have created rights and obligations, the court will enforce the contract especially where
the contract has been partly performed. Courts will struggle against vagueness,
providing the contract is complete. Here, everything has been settled between the
parties [no missing terms] and words such as Abest efforts@ can be given meaning.
Hillas v. Arcos (1932)(H.L.) re „standards‟: vague words or phrases can be interpreted in
light of what is reasonable. Per Treitel: “The agreement was upheld as the standard of
reasonableness could be applied to make the otherwise vague phrase certain.”
II.
INCOMPLETENESSS BECAUSE TERMS ARE LEFT OPEN
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Per Treitel: “parties to an agreement may be reluctant to commit themselves to a rigid
long-term arrangement, particularly when prices and other factors affecting
performance are likely to fluctuate. They therefore attempt sometimes to introduce an
element of flexibility into the agreement….”
Per Anson‟s Law of Contract: “The line between discovering the agreement of the
parties and imposing an agreement on the basis of what
the Court considers the parties ought to have intended can
be fine. The Court must be satisfied that the parties have
in fact concluded a contract, and not merely expressed
willingness to contract in the future. It may have regard to
what has been said and done, the context in which it was
said or done, the relative importance of the unsettled
matter, and whether the parties have provided machinery
for settling it.”
1. Criteria or machinery specified in the agreement
a.
criteria
Per Treitel, “An agreement may fail to specify matters such as price or quality but lay
down criteria for determining those matters. For example, in Hillas…an option to buy
timber was held binding even though it did not specify the price, since it provided for
the price to be calculated by reference to an official price list.”
Hillas v. Arcos (1932) (C.A.): an agreement to agree is unenforceable. The court will not
make an agreement of the parties.
Hillas v. Arcos (1932)(H.L.): content of option clause is determined with reference to
other sections of the agreement or is derived from a reasonableness standard. It is the
duty of the court to construe documents fairly and broadly. This agreement is complete
and is not dependent on any future agreement for its validity. Court says that May v.
Butcher does not apply here.
b. machinery
Per Treitel, “Alternatively, the agreement may provide machinery for resolving matters
originally left open.”
Sudbrook Trading v. Eggleton [1983] (H.L.): (not in CB.): Lease gave tenant the option
to purchase the property “at such price as may be agreed upon by two Valuers, one to
be nominated by” each party. Mechanism failed because lessor refused to appoint a
valuer (!!) Issue is whether price mechanism is an essential term [to distinguish from
May]. If it isn=t and a reasonableness standard is consistent with the parties= intent, the
court can set the price. Per Treitel, the valuer=s clause amounts “to an agreement to sell
at a reasonable price to be determined by the valuers; and the stipulation that each
party should nominate one of the valuers was merely „subsidiary and inessential.‟”
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2. Terms “to be agreed”
Key issues for the cases below in this section: when can a Aprice to be agreed@ clause be
interpreted as a clause which means that the price is to be fair and reasonable? does
the contract contain a device for creating certainty?
May v. Butcher [1934] (H.L.): agreements to agree are not enforceable. The mechanism
here has broken down [Aprice shall be agreed upon from time to time; disputes arising
out of this agreement will be submitted to arbitration]. Because, pursuant to the S.G.A.,
a reasonableness standard has been thereby ousted, the contract fails for uncertainty.
[watch how other cases treat this point such as Foley and Sudbrook]. Per Treitel,
seems that parties did not intend to be bound until they had agreed upon price.
Foley v. Classique Coach [1934] (English C.A.): Per Treitel, parties here did intend to
be bound immediately, in spite of a provision requiring further agreement. One of the
mechanisms here had broken down [Aat a price agreed by the parties from time to
time@] but May was distinguished because the unusual arbitration clause here referred
not to this agreement [as in May] but to “the subject matter or construction of this
agreement.” It could therefore be used to fix price. As well, here both parties believed
that they had a binding agreement and had acted on it for a number of years; it
formed part of a larger bargain. Court appears to be saying presence of the arbitration
clause on these facts means that Ait 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.@
3. Agreements to negotiate
Empress Towers Ltd. v. Bank of N.S. (B.C.C.A.) [1991]: Is renewal clause void for
uncertainty? Three possibilities per Brown: (1) where rent is Ato be agreed,@ clause is
normally not enforceable; (2) where rent is to be established by a formula [example:
market value] but no machinery for application of the formula is provided [ie: who
determines market value?], courts will often supply the machinery [ie: the court will
determine what market value is]; (3) formula is set out but defective [example:
formula provides for a market value price but there is no market activity] and
machinery is provided for application of the formula, machinery may [perhaps] be
used to cure defect in the formula. Here, formula is market value as mutually agreed.
Effect is that landlord cannot be compelled to enter into a renewal at a rent which it
has not accepted as the market rental. However, landlord has obligation to negotiate
in good faith and not be unreasonable due to a term implied under the officious
bystander and business efficacy principles.
Mannpar Enterprises Ltd. v. Canada (B.C.S.C.) (1997): where renewal clause is too
broadly worded, it fails because there is no objective measure. All we have is an
agreement to agree B which is void.
Wellington City Council v. Body Corporate 51702 (Wellington) (2002) (N.Z.C.A.):
agreement to negotiate in good faith (as part of a process >contract=) is not enforceable
because it lacks, here, a specific procedure by which courts can reasonably determine
what the parties are required to do and whether they have done it.
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III.
AN AGREEMENT IS REACHED WHICH ENVISAGES A FURTHER FORMAL DOCUMENT
Key issue: distinguish between the situation where the parties intend to be bound at
once, and where they do not anticipate being bound until the document is executed.
GENERAL STATEMENT OF LAW: Per Treitel, the effect of a stipulation that an agreement is
to be embodied in a formal written document depends on its
purpose. Is the agreement incomplete and not binding until
terms of formal document are agreed and document is
executed OR such a document is intended only as a solemn
record of an already complete and binding agreement?
Bawitko Investments Ltd. v. Kernels Popcorn Ltd.(1991) (Ont. C.A.): look to parties=
intention as to whether the execution of the contemplated formal document is intended
only as a solemn record or memorial of an already binding contract OR is essential to
the formation (or creation) of the contract itself. When the original contract is
incomplete because the essential provisions have not been settled or agreed to; or the
contract is too uncertain and is dependent on the making of a formal contract; or the
parties intention or understanding is that B even absent uncertainty B the contract is
only binding once a formal contract has been approved or executed, then the original
or preliminary agreement cannot constitute an enforceable contract. By way of
contrast, when parties agree on all of the essential provision to be incorporated in a
formal document with the intention that the agreement shall thereupon become
binding, they will have fulfilled all the requisites for the formation of a contract. The
fact that a formal written document to the same effect is to be thereafter prepared and
signed does not alter the binding validity of the original contract.