A vintage car enthusiast contracted with a company to restore a Bristol 405D drophead coupe. That company failed to carry out the work. The parties signed a settlement agreement whereby the company agreed to pay some money to the customer. However, there was a condition. The company was not required to make the payments unless the customer had used “reasonable endeavours” to enter into an agreement with another (named) company to restore the car. The scope of the works to be carried out was annexed to the settlement agreement.
The purpose of this condition (as the judge noted) was to ensure that there was something more than a moral obligation on the customer to negotiate an agreement with the other company. Indeed, the customer duly attempted to do so. However, he was unable to reach agreement, particularly on the price. So the customer sued the original company for the amounts payable under the settlement agreement.
The original company said it was not liable to pay him because the customer had not met the condition in the settlement agreement. The customer argued that the condition was unenforceable.
The court found in favour of the customer. If you want an enforceable obligation to use reasonable endeavours to achieve something:
- you must be able to ascertain the object of the endeavours with sufficient certainty; and
- there must be sufficient objective criteria by which the performance of the “endeavours” obligation can be evaluated.
In this case, the object was a future agreement whose terms were wholly uncertain. Although the parties had tried to achieve certainty by annexing the scope of works to the settlement agreement, they had left open the question of the price and other terms.
The condition in the settlement agreement was therefore unenforceable. As a result, the original company was still on the hook to pay damages to the customer for its failure to carry out the restoration works. The judge admitted that he reached this conclusion with regret, since it was obvious that both parties intended the condition to be binding and enforceable.
In our experience, many contracts contain agreements to agree – particularly at the outset of a commercial relationship when everything is rosy. Parties want to sign something quickly to indicate their commitment to the relationship and often that initial agreement provides that they will enter into a more detailed agreement by a certain date. This case reminds us that, while it is not impossible to have an enforceable obligation to enter into a future agreement, a mere agreement to agree will not be enough. If this is something you’re thinking about doing, do call your Brodies contact who can advise further.
Case: Dany Lions v Bristol Cars.
On May 7, 2014