Can you agree to agree?
- AuthorPaul Simpson
Forming a contract
In order to form a legally binding contract, there are a number of key elements:
1) one party needs to make an offer;
2) another party needs to accept;
3) there needs to be certainty of terms;
4) there needs to be an intention to create binding obligations; and
5) there needs to be consideration – what one party gives in exchange for a promise or performance by another party.
Morris v Swanton Care & Community Ltd¹
This recent case (Dec 2018) concerned principles regarding agreements to agree and certainty of terms.
In this case, Mr Morris sold his shares in a company to Swanton Care & Community Ltd (the Buyer). Under the terms of the deal, Mr Morris was engaged as a consultant for the business after the sale.
The share sale agreement provided
‘Mr Morris shall have the option for a period of four years from Completion and following such period such further period as shall reasonably be agreed between Mr Morris and the Buyer to provide the following services […]’
It was agreed between the parties that Mr Morris would act as a consultant and provide such services for the initial period of four years. As that period approached its end, Mr Morris asked the Buyer for an extension to the period of engagement and this was re-fused.
Mr Morris claimed he had a right to extend the period of his engagement.
The court did not agree and held that he only had a right to the initial four year period. The court held that there was no mechanism in the share sale agreement to determine what a reasonable extension to that period would be and there was no objective standard that the parties or the court could refer to either.
Mr Morris appealed.
( ¹ Morris v Swanton Care & Community Ltd  EWCA Civ 2763)
The Court of Appeal upheld the first decision.
• In respect of any further period beyond the original four years, the agreement between Mr Morris and the Buyer was at best to reasonably seek to agree a further period, but either party would be free to agree or disagree about this.
• Although the share sale agreement was legally binding in other respects, the provision as to a further period of time was void for uncertainty.
• The Court of Appeal held it was clear that any extra period of engagement required a further agreement between Mr Morris and the Buyer.
• The contract did not set out any process or objective standard that anyone, including the court, could use to determine what an appropriate further period should be. In the absence of a separate agreement between the parties, the length of the further period of engagement or what would be reasonable was not capable of being determined.
This case demonstrates the perils facing parties if they leave matters to be agreed at some point in the future. An agreement to agree means that either party is free to either agree or disagree in the future and this means there is no actual deal that can be enforced in court.
For further information, please contact:
Paul Simpson, T: 01522 781461 E: firstname.lastname@example.org
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