TOMASITO, EL PIE TIERNO N° 2 TOMASITO TALA UN ARBOL

The contract will not be regarded as incomplete if it provides a machinery for resolving an aspect which has been left uncertain. As we have seen, in relation to the price, the courts will often be prepared to assume that a ‘reasonable price’ was intended. They will

204 [1992] 2 AC 128; [1992] 1 All ER 453.

205 See, for example, Brown, 1992; Buckley, 1993; Cumberbatch, 1992; Neill, 1992; Steyn, 1997, at p 439. Lord Steyn, a current member of the House of Lords, expresses the hope that if the matter were to be raised again ‘with the benefit of fuller argument … the concept of good faith would not be rejected out of hand’.

206 See, for example, Brownsword, 2000, para 5.17. 207 See Chapter 1, 1.7.

208 See, for example, Cumberbatch, 1992, at p 173. 209 [1993] 4 All ER 961; [1994] 1 WLR 327.

also be prepared to give effect to an agreement where property is to be valued by an independent valuer, or where the price is to be determined by reference to the prevailing market price. In such situations, the contract provides a mechanism by which the uncertainty can be resolved.

In some cases, however, the courts have been prepared to stretch this principle rather further than might have been expected. In Sudbrook Trading Estate v Eggleton,210the price for exercise of an option to purchase 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. The contract was not uncertain in that it provided a clear machinery by which the price was to be determined. This machinery was not, however, itself an essential term of the contract. It was simply a way of establishing a ‘fair’ price. If the machinery failed, then the court could substitute its own means of determining what was a fair price. This approach was relied on by the Court of Appeal in Didymi Corporation v Atlantic Lines and Navigation Co

Inc.211The agreement contained a provision under which the hire under a charter of a ship could in some circumstances be increased ‘equitably’ by an amount ‘to be mutually agreed between the parties’. At first sight, this looks like an ‘agreement to agree’ which would be unenforceable. The court, however, following the lead given by Sudbrook

Trading Estate v Eggleton, ruled that the reference to ‘mutual agreement’ was simply part

of the ‘inessential machinery’ by which the hire was to be determined. The agreement was that the hire should be ‘equitable’, which meant ‘fair and reasonable’. There was therefore no reason why the court should not determine this as a question of fact.212

In Gillatt v Sky Television Ltd,213the Court of Appeal, while not disagreeing with the approach taken in Sudbrook Trading Estate v Eggleton or Didymi Corporation v Atlantic Lines

and Navigation Co Inc, held that on the facts that the valuation clause under consideration

was not merely a mechanism for dispute resolution. The clause provided that the claimant was entitled to 55% of the open market value of certain shares, ‘as determined by an independent chartered accountant’. This provision was distinguishable from the clauses in the earlier authorities, because there was no objective meaning to be given to ‘open market value’ in that there were different bases on which shares could be valued. The reference to the independent accountant as the determiner of the valuer was therefore an essential element in that process, and not simply ‘machinery’. Moreover this was not a case where the mechanism for dispute resolution had broken down; under the contract either party could have taken steps towards the appointment of the valuer but neither had chosen to do so. In these circumstances the Court of Appeal agreed with the trial judge that the claimant was not entitled to any payment under the contract.

The question of whether a particular valuation provision is ‘essential’ to the determination of an amount to be made, or simply ‘machinery’ will therefore depend on the precise wording of the clause, and the context in which it operates. If it appears that there is no basis for determining the relevant value when essential procedures in the contract have not been followed, then the courts will still be prepared, even in a commercial context, to say there is no agreement and therefore no binding obligation. The parties should not, therefore, rely on the courts coming to their rescue if they fail to follow the procedures which they have set out in their agreement. In some circumstances they

210 [1982] 3 All ER 1.

211 [1987] 2 Lloyd’s Rep 166. See also Re Malpass [1985] Ch 42.

212 A similar approach was taken by the Court of Appeal in Mamidoil-Jetoil Greek Petroleum Co SA v

Okta Crude Refinery AD [2001] EWCA CIV 406; [2001] 2 All ER Comm 193.

will do so, but the determination of whether particular provisions are ‘essential’ or simply ‘machinery’ is sufficiently unpredictable that reliance on the court to intervene is a dangerous option.

The lack of coherence in this distinction suggests that the courts recognise the problems which the classical theory’s insistence on ‘presentiation’ brings,214 but are reluctant to find a proper method of addressing them. They must adhere to the myth that the parties will have fully determined all future obligations at the moment of contracting, even when this clearly does not accord with the parties’ actual intentions, or the requirements of business. The result is the unsatisfactory and unhelpful distinction between ‘obligations’ and ‘machinery’.

An incomplete agreement, which is not regarded as creating an enforceable contract, may nevertheless give rise to some legal obligations between the parties under the doctrine of ‘restitution’. This is discussed further in Chapter 20.

This chapter is concerned with the issue of the enforceability of promises. In the previous chapter the factors which lead a court to conclude that there was sufficient of an ‘agreement’ for there to be a binding contract were discussed. In Chapter 4 the overarching concept of an ‘intention to create legal relations’ will be considered. Three main issues are dealt with in this chapter – deeds, the doctrine of consideration, and situations where promises are regarded as enforceable even in the absence of a deed or consideration. The main example of that type of enforceability is to be found in the concept of ‘reasonable reliance’, which can be seen to be at the root of the so called ‘doctrine of promissory estoppel’.

3.1 DEEDS

The ‘deed’ is a way of using the physical form in which an agreement is recorded in order to give it enforceability. The agreement is put in writing and, traditionally, ‘sealed’ by the party or parties to be bound to it. The ‘seal’ could take the form of a wax seal, a seal ‘embossed’ onto the document by a special stamp, or simply the attachment of an adhesive paper seal (usually red).1 _{Such contracts were also known as ‘contracts under}

seal’ (in contrast to ‘simple contracts’ which use ‘consideration’ as the test of enforceability).

The formal requirements for making a ‘deed’ are now contained in s 1 of the Law of Property (Miscellaneous Provisions) Act 1989.2 There is no longer any requirement that the document should be sealed.3The document must, however, make it clear ‘on its face’ that it is intended to be a deed, and it must be ‘validly executed’ by the person making it or the parties to it.4_{‘Valid execution’ for an individual means that the document must be}

signed in the presence of a witness who attests to the signature.5 In addition there is a requirement of delivery – the document must be ‘delivered as a deed by [the person executing it] or a person authorised to do so on his behalf’.6_{For a company incorporated}

under the Companies Acts, the position is governed by s 36A of the Companies Act 1985.7 The ‘execution’ of a document by a company can take effect either by the affixing of its common seal,8 or by being signed by a director and the secretary of the company, or by two directors.9 For a document executed by a company to be a deed it simply needs to

1 Indeed, it was probably sufficient for the document to indicate on its face that it was ‘sealed’, without the need for any physical ‘sealing’ – see First National Securities Ltd v Jones [1978] Ch 109; Law Commission, Working Paper No 93, paras 4.2–4.3.

2 This followed from the Law Commission Report No 163, Deeds and Escrows.

3 Section 1(1)(a); nor is there any limitation on the substances on which a deed may be written. At one time, deeds were traditionally written on parchment rather than paper.

4 Section 1(2).

5 Section 1(3)(a). It may also be signed at the relevant person’s direction, but it must still be in his presence and, in this case, in the presence of two witnesses who must each attest the signature: ibid. 6 Section 1(3)(b).

7 As inserted by the Companies Act 1989, s 130(2). 8 Section 36A(2).

9 Section 36A(3). The document should be make it clear that it is being executed by the company.