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Certainty in Contracts - Hughes v Pendragon [2016]

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Where parties enter into a contract and there remain provisions to be agreed in the future then the contract may lack certainty and be considered a mere agreement to agree. It has long been held that if such a contract lacks sufficient certainty then it may be unenforceable.

The Court of Appeal recently considered the enforceability of agreements to agree in the case of Hughes v Pendragon Sabre Limited [2016] EWCA Civ 18 in which the parties entered into what appeared to be an agreement to agree due to the fact that no final price or delivery date were agreed at the time the contract was made.

In Hughes v Pendragon Mr Hughes (H) contacted Pendragon (P) in relation to him purchasing a limited edition car that was due to be manufactured. He paid a £10,000 deposit over the telephone and signed a vehicle order form which was subject to P’s standard terms and conditions which expressly stated that P was not obliged to fulfil orders in the sequence they were placed. The terms also stated that P would contact H in due course in relation to the exact vehicle specification, and the price would then be determined based on the specification. P later emailed H to confirm that H was first on P’s order list for the vehicle.

It transpired that P actually sold the car to another customer and would therefore not be able to supply one to H. H brought a claim for breach of contract, with the measure of damages being the difference between the list price that H had agreed to pay and the current market value of the vehicle as determined by experts.

It was held by the High Court that there was no contract between the parties, merely an agreement to agree which was unenforceable. Furthermore, even if there was a binding contract, under P’s standard terms and conditions, the dealership was not required to fulfil orders in the sequence in which they were made and P was entitled to sell the vehicle to someone else.

H appealed and the Court of Appeal (CA) allowed the appeal. The CA held that there was most certainly a binding contract on the basis that under the Sale of Goods Act 1979 (SGA): (i) it is possible to have a contract for the sale of future goods, which includes goods to be acquired by the seller after the contract is made; (ii) the price of goods can be left be determined in a manner agreed in the contract (and P’s terms contained a mechanism for ascertaining the price once the final specification was decided); and, (iii) despite there being no set delivery date, under the SGA, if a seller is bound to sell goods to a buyer but no delivery date is stated, then delivery must take place within a reasonable time. On the facts given in court, the agreed price for the car was to be the list price, plus the cost of any additions to the standard specification. The CA held that the parties had clearly entered into a binding contract for the vehicle, subject to the manufacturer allocating one to P.

It was further held by the CA that the email sent by P to H confirming that H was first in line for the vehicle amounted to a collateral contract, the effect of which was to very P’s standard terms and conditions, including the term which stated they were under no obligation to fulfil orders in the sequence they were placed. Under the collateral contract if the manufacturer supplied a vehicle to P, then it would be sold to H.

The CA held P to be in breach of the original contract, and the collateral contract. Turning to the award of damages to H, as the car was a limited edition only a small number were to be manufactured meaning there was no available market for the goods upon which to determine the measure of damages as set out in s51(3) SGA. Instead the court relied upon s51(2), and determined the measure of damages based upon the price that H would have paid for the car (the agreed contract price) and what he would have to pay for the nearest equivalent of it.

Many commentators have stated that this case confirms that agreements to agree can in certain circumstances be binding. It is clear from the judgement set out in the CA, however, that in this instance there was a binding contract, even though on the face of it, it appeared to lack sufficient certainty. Therefore, for now, agreements to agree remain unenforceable. The case also highlights that it is possible for post-contract statements, such as the confirmation email, to vary the original contract. Finally, this judgment demonstrates how a court may determine the loss suffered by a claimant, and the subsequent measure of damages, where there is no available market for the goods for the buyer to purchase a replacement.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.