Contract Law – Agreement to Agree?
Friday 17th June 2016
If you agree to buy something, but do not agree the price, specification or even the delivery date, is there a binding contract or would this merely be an agreement to agree? Well, it usually depends on the facts, but the courts would look at (i) clarity of terms used, (ii) the intention of the parties and (iii) the wording used in any agreement.
A recent case illustrating the approach of the courts involved a Porsche dealer, who agreed to sell a forthcoming limited edition car. The customer signed the dealer’s standard contract, which stated that the dealer was not obliged to fulfil orders in the order in which they were received. The price, specification and delivery date clauses were left blank in the contract. The customer did, however, receive an email from the dealer confirming that he would be first in the queue for delivery. Subsequently, the dealer only received one vehicle and sold it to another customer.
The courts decided that there was both a binding and a collateral contract. As the parties had signed the dealer’s standard contract, they clearly intended to enter into it. Any uncertainty as to the terms was not fatal, as such terms can be implied by the courts under sections 5, 8 and 29 of the Sale of Goods Act 1979. Further, the confirmation email amounted to a collateral contract, as it clearly set out the intention of the parties. The email varied the standard terms, so that the dealer was obliged to make this customer first in the queue.
A point to note is that the dealer’s terms did not include an entire agreement clause, which states that the contract constitutes the whole agreement between the parties and seeks to prevent the parties from relying on any pre-contractual representations, statements, arrangements or discussions that have not been set out in the agreement. The email from the Porsche dealer amounted to a pre-contractual statement. Had the dealer’s standard contract included an entire agreement clause, there might not have been a collateral agreement and the dealer may have avoided liability.
Businesses may want to consider reviewing their standard contracts, in particular to check whether these include an ‘entire agreement’ provision, which would ensure that all terms are included in one document.
The information contained in this article is for information only, is not exhaustive and does not constitute legal advice. You should take specific legal advice before acting on any of the issues raised in this article.