Ascertaining the Contract Terms
There must be a minimum degree of certainty in relation to the terms of a contract. If all essential terms are not agreed, there is no contract. Some terms are illusory, in that they involve no meaningful undertaking. A promise to undertake an obligation while at the same time, reserving the full right not to do so, is not a meaningful contractual undertaking.
If key terms are vague or incomplete, there is no binding contract. While the courts will imply and interpret terms in the manner set out below, the courts will not make and rewrite contracts for the parties.
A term in a consumer agreement whereby the trader may, without a good reason, vary the terms of the contract, is likely to be an unfair contract term. The power is listed as one of the potentially unfair terms in the Unfair Contract Terms Regulations.
If the parties have partly undertaken a transaction in circumstances where there is no contract, then the principles of restitution may entitle one or the other party to rights and remedies. See the sections on restitution.
Courts Seek to give Effect to Agreements
Where parties have in substance intended to enter an agreement and become legally bound, the courts will endeavour to give effect to their agreement, if possible.
If the parties have acted on the basis of being bound, the courts will seek to give effect to the terms of the agreement, even if a certain level of implication of terms is necessary. Where parties proceed on the basis that there is a contract between them, the court will wish to uphold this expectation, notwithstanding that the express terms of the contract may be sparse.
However, there are limits to this approach. The courts will not make a contract for the parties, where none has been made. Even where no contract is found, but acts of performance have taken place at the request of another, there is likely to be an implied contract to pay or an obligation to make payment by way of restitution.
Filling the Gaps
The absence of specific agreement on less important matters, may not be fatal to a contract. The courts will endeavour to enforce contracts, if possible. The further a transaction or matter has proceeded, the more likely the courts are to implement it and imply terms to give it effect.
In many cases, the parties will not have thought specifically about important terms and conditions. Where it is clear that they have intended to reach an agreement, the courts will often be willing to find implied terms on subsidiary issues where the principal terms have been agreed.
The common law or statute may imply terms into the agreement. Terms may be implied by legislation, custom, a course of dealing or simply by commercial necessity. See the section on the implication of contract terms. The courts will imply into contracts, terms which give business efficacy to the contract in a commercial context.
Where the terms of a contract are ambiguous, the courts will seek to interpret them to give business efficacy to the agreement. Ambiguous terms are usually interpreted against the interests of the person putting the term forward. The Unfair Consumer Contract Terms Regulations require that ambiguous terms in consumer contracts be interpreted in favour of the consumer.
Limits to Finding a Contract
Persons may intend to be bound while some important issue has not been the subject of a final agreement. A contract may be found, in this case where the remaining terms are subsidiary, and not critical.
However, if some critical term has not been agreed, then there will be no contract. In this case, the parties will be left to their remedies in restitution. It is a matter for the court to decide whether the parties intend to be finally bound. Although the court may endeavour to find and enforce a contract, it cannot do so if there is disagreement on essential terms.
A distinction has been made between a term which is meaningless and a term which is yet to be agreed. A term which is meaningless will be more readily disregarded. A term which is yet to be agreed implies that the contract may not be yet concluded. Where a clause appears ambiguous or meaningless, it may be excised from the contract, which may be enforced without that meaningless or ambiguous term.
Many Agreements to Agree Void
Agreements to negotiate or to agree will in many, if not most cases, be void for certainty. An agreement to cooperate and maintain harmonious relationships is likely to be too uncertain in scope to be enforceable. The “obligations” are vague and amount to little more than aspirations.
An agreement to contract in the future is generally meaningless because it is insufficiently certain. The parties cannot be held to any particular terms so that the courts regard it as futile to require them to attempt to agree, where they do not wish or intend to do so.
The consideration is illusory in that there is no real contractual undertaking. It is not clear what damages might arise for a breach and indeed what would constitute a breach.
Some Agreements to Agree Enforceable
A contract to enter an agreement of itself will generally be void for uncertainty. However, in certain circumstances, an agreement to contract can be meaningful and enforceable. The courts have been willing in some cases to provide for commitments to enter into bona fide negotiations.
A contract for negotiation in good faith may be enforceable, even where there is no existing contract. A contract to negotiate in good faith might be found to have been breached where a contract is entered with a competitor and during the exclusivity period.
Agreements to negotiate may arise in particular contexts where certain subsidiary matters cannot be agreed at the outset due to the circumstances or nature of the contract.
Some contracts may provide for an agreement to negotiate on subsidiary issues that arise in the course of the contract. Such clauses are more likely to be upheld where they relate to minor terms which are capable of objective measurement.
Where the terms can be ascertained by reference to an independent third party or objective criteria, they are likely to be upheld. Clauses which purport to leave the determination of terms to a party to the contract are more likely to be characterised as illusory, with the consequence that there is no contract.
More Peripheral Matters More Readily Agreed Later
If everything intended to be covered by the contract is expressly or impliedly agreed, then there may is a concluded agreement. If an important term was intended to be agreed and is still outstanding, there is no contract. However, if the relevant term is peripheral, the court may conclude that it was intended that the term may simply not take effect or that reasonable terms would apply. The court may be willing to imply the missing term.
The more important the term not agreed, the more likely that the court will conclude that it was to be left for future agreement so that there is no contract. However, where it is clearly intended that a contract be entered immediately, then even relatively important issues can be deferred. If an agreement is not reached on terms relating to the further matters in accordance with the contract, the existing more limited contract may simply run out its course.
The more peripheral the matter not agreed, the more likely the courts are to provide for a contract subject to a mechanism or an agreement that reasonable provision should be made in relation to the issue concerned. Where performance of the contract has already commenced, the courts are more willing to provide such a mechanism, where this is a common intention.
Use of Endeavours I
The courts are willing to give effect to contracts to use reasonable or best endeavours to achieve a particular result. This will commonly arise in conditional contracts in which the parties agree to purchase the property subject to obtaining loan finance.
An obligation to use best endeavours implies a higher standard of obligation than that to use reasonable endeavours. It may require that the party take extensive steps with a view to securing the requisite result.
An obligation to use reasonable endeavours requires that real and substantial efforts and attempts be made to comply with the condition. It cannot simply be ignored as illusory. A party who does not make the reasonable endeavours required will be in breach of contract.
Use of Endeavours II
The parties may undertake to use reasonable endeavours to achieve a particular result. In this case, it is implied that the party concerned must make reasonable efforts to secure the necessary outcome. The courts may also n imply an obligation to use reasonable endeavours to achieve a pre-condition, even when the contract does not make express provision for it.
Where a contract is conditional upon some factor within the control of one party or which he can at least influence, the courts are likely to imply an obligation that the party concerned must use reasonable endeavours in good faith to do so.
It is possible to have a contract to use reasonable efforts to arrange that a third party does something. An agreement to use best endeavours implies a higher degree of obligation
In contracts for the supply of goods or the provision of services on an ongoing basis, it will not be possible to agree in advance, the contractual terms (such as price) for each particular instalment or service. In these circumstances, there may be a standing contract with general terms and conditions.
There may be no contract whatsoever in some cases, just standing terms and conditions that are incorporated from time to time. It may be that each supply, instalment or service is the subject of contract in accordance with the general conditions.
In other cases, there may be ongoing obligations such as an agreement to supply for a term/duration. In this case, there may be an obligation to buy and sell at a reasonable price or in accordance with a valuation mechanism from time to time. There may be an obligation to endeavour to agree on terms in relation to each individual instalment or supply.
Undetermined Prices and Value
A failure to agree on a price will often be fatal to the existence of a contract. The price is usually a key commercial term. However, it is possible to have an agreement to sell at a reasonable price or a price to be determined in accordance with a mechanism.
Where the courts find an intention to be bound, they will usually attempt to imply a mechanism to determine the price. An agreement to sell at a reasonable price may be binding. The courts may imply that a reasonable price should be paid. Where there is a contract to sell at a price to be agreed, the courts may imply that the parties are to act reasonably to agree.
The Sale of Goods Act provides that the unstated price in a contract for the sale of goods may be determined by a course of dealings. Where it is not determined, the buyer must pay a reasonable price. What is reasonable depends on the circumstances.
The Sale of Goods Act provides for an agreement for the sale of goods at a price to be fixed by a valuation. Where the valuer does not or cannot make the valuation, a reasonable price is to be paid. There may be a claim for breach against the party whose fault frustrates the valuation mechanism.
Where there is a price to be set by a valuation mechanism, this will generally be upheld. Rent review clauses are valid. Where the valuation mechanism is defective, the court may substitute a workable mechanism.
The Sale of Goods Act provides that where there is an agreement to fix a price by valuation by a third party and he does not make the valuation, the buyer must pay a reasonable price once the goods have been delivered and appropriated by him.
A valuation mechanism typically involves the appointment of an independent arbitrator or valuer. There may be a mechanism for appointment of the valuer or the arbitrator in default of agreement as to appointment. If the parties agree on a valuation mechanism, but it is defective, the courts will generally be willing to rectify and give effect to it.
The courts will readily imply that the parties must have intended a workable valuation mechanism. However, where the parties have not provided adequate machinery for the determination of the price at all, the court will be reluctant to substitute its own mechanism.
Variable Interest Loans
Where it is commercially necessary to do so, the courts are willing to give effect to obligations undertaken. An example of this principle is an agreement to pay a variable interest rate in a loan agreement, by which interest rates may vary in accordance with market terms.
A variable interest rate on a loan is generally valid. There should be an objective measure by reference to an underlying base rate. If on the other hand, the lender has a discretionary power to charge what it wishes, this is likely to be invalid as illusory.
Disputes often arise in the property context in relation to whether there is a contract. Generally, with property contracts, there is an interval between the time the contract is agreed in principle verbally and finalised and becomes binding. This is because it is desirable to obtain legal advice and make certain physical and legal investigation before a contract is entered.
The term “subject to contract” is frequently used to confirm that there was no contract by reason of correspondence on negotiations or to negate a contract which might otherwise be found.
There has been difficulty with the use of this term, but the courts have endeavoured to re-establish the principle that the phrase used in the course of negotiation implies that there is no contract.
It is possible to negotiate an exclusivity agreement for a period. It would usually be a breach for the seller to sell to or negotiate with a third party during this period. Such agreements are not commonly undertaken in practice, outside of high-value transactions.
References and Sources
Irish Textbooks and Casebooks
Clark, R. Contract Law in Ireland 8th Ed. (2016) Part 1
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017) Ch 1
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
Chen-Wishart, Contract Law 5th Ed (2015)
Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)
Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.
Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
Duxbury, Robert (2011) Contract law. 2nd Ed.
Halson, Roger (2012) Contract law. 2nd Ed.
Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)
O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)
Peel, and Treitel, The law of contract. 13th Ed. (2011).
Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
Richards, P Law of contract. 10th Ed. (2011)
Stone, R. The Modern law of Contract. 10th Ed. (2013)
Treitel, G. H. An outline of the law of contract. 6th Ed (2014).
Turner, C Unlocking contract law. 4th Ed. (2014).
Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).
Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)
McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)
Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)
Burrows, A. S. A Casebook on Contract. 4th Ed.
Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)
UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the latest edition.