UNIT 3

Incomplete Agreements
3.3.1 Objectives

At the end of this unit you should be able to:

Identify and give examples of incomplete agreements; and

Explain methods by which the courts may make incomplete agreements

certain.

3.3.2 Reading

Prescribed Reading:

Corrin Care pp 53-61

Poole pp64-77

Prescribed Cases

May & Butcher Ltd v R [1934] 2 KB 17n (HL) Poole 72

Foley v Classique Coaches [1934] 2 KB 1 (CA), Poole 73

Solomon Islands Housing Authority v Fielder Onio, unreported, Court of Appeal,

Solomon Islands, CA 2/89, 11 December 1989 (PLM).

Courtney & Fairburn Ltd v Tolani Brothers (Hotels) Ltd [1975] 1 All ER 716 (CA)
Poole 68.

Walford v Miles [1992] 1 All ER 453 (HL) Poole 69.

Further Reading:

Furmston pp44 - 47

3.3.3 What is Incompleteness?

Incompleteness occurs where perfectly clear words are used, but they do not settle an
essential part of the contractual terms. If an agreement leaves incomplete and
indeterminable, an essential term of a contract, the courts will not enforce it.
Incompleteness may arise in various situations:

(a) Agreement in Principle Only

Incompleteness may occur if parties come to an agreement in principle only while

leaving important details of the contract unsettled.

Example

Joe owns a rental property. He enters into an agreement to lease the property to Steve.
However, no lease price or commencement date are decided.

? Was the Court of Appeal entirely convinced by the Supreme Courts finding
in Solomon Islands Housing Authority v Fielder Onio that there was a
contract between the Solomon Islands Housing Authority and Mrs Onio in
1985?

ANSWER

(b) Further Agreement Expressly Required

(i) terms to be agreed

Incompleteness can exist if an agreement provides that certain matters are to be

agreed later, or from time to time. This was the situation in May & Butcher Ltd v R
[1934] 2 KB 17n (HL) Poole 72. Pause now to read this case.

An agreement to agree is thought to be too uncertain as there is no way for the courts
to provide a remedy if no agreement is reached. This is because agreeing to agree
relies entirely on the parties, with their own subjective views and desires, coming to an
agreement. The court has no way of knowing what would be the outcome.

Example

Heta and Marama enter into an agreement that Heta will paint a picture of Marama and
her family. They agree that they will decide a price for the painting later. Heta paints
the picture but Marama refuses to accept it or pay anything for it. Heta seeks to enforce
the agreement.

In this example, the court has no way of establishing what Heta and Maramas
intentions were regarding the paintings price. Therefore, a court would be using its own
judgement and not respecting the intentions of the parties if it imposed a price upon the
agreement. Thus, it is highly likely that a court would find the agreement unenforceable.
(ii) agreements to negotiate

Incompleteness may also exist if parties have made an agreement to negotiate. The
rationale behind holding that agreements to negotiate lack of certainty is the same as
the rationale behind the rule that agreements to agree are uncertain.

Pause now to read Courtney & Fairburn Ltd v Tolani Brothers (Hotels) Ltd [1975] 1 All
ER 716 (CA) Poole 68 which discusses the rule that it is not possible to have a contract
to negotiate. Courtney & Fairburn v Tolani Brothers was supported by Walford v Miles
[1992] 1 All ER 453 (HL) Poole 69.

3.3.4 Clarifying Incomplete Agreements

As stated in 3.1.4, the courts will try and clarify incomplete contractual terms if the court
finds:

(i) that the parties intended there to be a binding agreement; and

(ii) that the agreement provides some method for resolving the uncertainty, as long as that method for determination does not depend on the agreement of
the parties.

There are three methods for resolving uncertainty which courts may use to render
certain seemingly incomplete agreements.

(a) Implied Means or Standards

The courts will often imply in a means or standard to make an incomplete agreement
certain. For example, in relation to price, the courts will often be prepared to accept that
a reasonable price was intended. This occurred in Foley v Classique Coaches [1934]
2 KB 1 (CA) where a reasonable price was to be paid in a contract where the price of
the petrol to be paid was to be agreed by the parties from time to time.

This result in Foley v Classique Coaches may appear contrary to May v Butcher.
However, the court in Foley v Classique Coaches distinguished the agreement in May v
Butcher on a number of grounds:

it was believed by both parties to be binding and had been acted upon for a
number of years;

it contained an arbitration clause in a somewhat unusual form which was construed to apply to any failure to agree as to the price; and

it formed part of a larger bargain under which the defendants had acquired the land at a price which was no doubt fixed on the assumption that they would
be bound to buy all their petrol from the plaintiff.

While none of these factors was itself conclusive, the court held that their cumulative
effect was sufficient to distinguish the two cases.
(b) Express Machinery Provisions

The agreement may provide machinery for resolving matters which have been left open
in the agreement. For example, the price of a property may be provided to be set by an
independent arbitrator or valuer.

However, it is not in every case that machinery provided in a contract will be applicable
to the determination of the terms of the contract. For example, in May v Butcher there
was an arbitration clause but it was held not to cover the situation of setting the price.
The court found that it was limited in application to disputes between the parties once
the contract was formed, not the sorting out of the terms of the agreement.

Importantly too, the courts have established that an agreement is not necessarily
ineffective merely because the agreed machinery is defective. This will be the case if
the machinery provided by the parties indicates to the court what the means or standard
was to be for making the uncertain terms certain. For example, in Sudbrook Trading
Estate Ltd v Eggleton [1983] 1 AC 444, Poole 74 the contract was not uncertain in that it
provided a clear machinery by which the price was to be determined. The price was to
be determined by two valuers one to be nominated by each party. One party refused to
appoint a valuer, and claimed that the agreement was therefore void for uncertainty. The
House of Lords disagreed. It held that the machinery was not an essential term of the
contract. The machinery provision was simply a way of establishing a fair price. If the
machinery failed the court could substitute its own means of determining a fair price.

In comparison to Sudbrook, the courts will not fix defective machinery provisions if the
court can not substitute an appropriate means or standard to render the uncertain terms
certain. In particular, the courts will not remedy a defect in the appointed machinery if
that machinery was to use a subjective means to determine the term.

Example

Samuel agrees to sell two historic carvings to Louis. The price is to be set by the local
art dealer and Samuels grandparents. However, Samuels grandparents will not
participate in setting the price as they are against the sale. Due to his grandfathers
reaction, Samuel decides not to go ahead with the sale. Louis tries to argue that there
is a contract.

In this example, Samuels grandparents would have been giving a subjective view of the
worth of the carvings. Therefore, when they refuse to set the price in conjunction with
the art dealer the court could not impose a means or standard, as none could
objectively be set.
(c) Statutory Provisions

The third method by which incomplete agreements can be made certain is through
various statutory provisions. For example, you will have noted that there was
discussion in May v Butcher about the Sale of Goods Act 1893 (now replaced by s8 of
the Sale of Goods Act 1979 (UK)). This provision is relevant where a contract for the
sale of goods specifies no price at all. Similar statutory provisions are applicable
around the South Pacific. For example, section 9 of the Sale of Goods Act in Samoa;
s11 of the Consumer Guarantees Act 1993 (NZ) in Tokelau; and s10 of the Sale of
Goods Act cap 230 in Fiji.