Contractually Bound – but Further Terms to Agree
The parties had gone ahead with performance of the arrangement between them, but without a formal agreement being in place.
Held: Parties may intend to be bound forthwith even though there are further terms still to be agreed. If they then failed to reach agreement on the further terms, the existing contract is not invalidated unless the failure to reach agreement renders the contract as a whole ‘unworkable’ or void for uncertainty.
The court was asked how it could establish whether the essential terms of a contract had been agreed so as to create a binding agreement. Lloyd LJ identified six applicable principles: ‘(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole.
(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. This is the ordinary ‘subject to contract’ case.
(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed;
(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled.
(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.
(6) It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail that can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true; the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, ‘the masters of their contractual fate’. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens everyday when parties enter into so-called ‘heads of agreement’.’
Lloyd LJ, Stocker LJ, O’Connor LJ
[1987] 2 Lloyd’s Rep 615
England and Wales
Citing:
Appeal from – Pagnan SpA v Feed Products Ltd ChD 1987
An agreement can be enforceable as an agreement on main terms only, with the detailed terms to be agreed later. Bingham J said: ‘The Court’s task is to review what the parties said and did and from that material to infer whether the parties’ . .
Cited – Hussey v Horne-Payne HL 1879
An exchange of letters which together constituted a binding agreement would satisfy the requirements of Section 4 as it applied to contracts for the sale of land.
Lord Selborne said: ‘The observation has often been made, that a contract . .
Cited – Love and Stewart Ltd v S Instone and Co Ltd HL 1917
A statement by one party in negotiation for a contract to the other party to the negotiation that there was now a contract was not of any real assistance in answering the question whether there was in fact a contract, for the statement could simply . .
Cited by:
Cited – Cox v Cox and Skan Dansk Design Limited ChD 27-Apr-2006
Mrs Cox sought to declarations as to the effect of arrangements made on her divorce in an attempt to avoid contentious proceedings. The couple held equal shares in the family business, but the company registers were missing or had never existed. The . .
Cited – Tullis Russell and Co Ltd v Eadie Industries Ltd SCS 31-Aug-2001
The pursuers and defenders disagreed over which of their respective terms and conditions controlled the sale of equipment, under which the pursuers sought damages for faults in the goods. Both quotation, and order purported to include the respective . .
Cited – Giad Hamdo Pipes Complex Company Limited v Wilson Byard Limited (In Receivership) MacLennan for Interdict and Interdict Ad Interim OHCS 30-Dec-2003
. .
Cited – Spectra International Plc v Tiscali UK Ltd and Another ComC 15-Oct-2002
. .
Cited – Xydhias v Xydhias CA 21-Dec-1998
The principles of contract law are of little use when looking at the course of negotiations in divorce ancillary proceedings. In the case of a dispute the court must use its own discretion to determine whether agreement had been reached. Thorpe LJ . .
Cited – Xydhias v Xydhias CA 21-Dec-1998
The principles of contract law are of little use when looking at the course of negotiations in divorce ancillary proceedings. In the case of a dispute the court must use its own discretion to determine whether agreement had been reached. Thorpe LJ . .
Cited – Aitken v Standard Life Assurance Ltd SCS 3-Dec-2008
The pursuer averred that the defendant, his pension provider, had wrongfully reduced its final bonus by ten per cent without notifying him. He sought to imply a term into the contract to provide such an effect, saying that the contract promised an . .
Cited – RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh and Company Kg (UK Production) SC 10-Mar-2010
The parties had reached agreement in outline and sought to have the contract formalised, but went ahead anyway. They now disputed whether an agreement had been created and as to its terms if so.
Held: It was unrealistic to suggest that no . .
Lists of cited by and citing cases may be incomplete.
Contract
Leading Case
Updated: 09 November 2021; Ref: scu.242129
