Summary
Summary LAWS10078 Contract Honours- Introduction Seminar- Week 3- Seminar 3
- Module
- LAWS10078
- Institution
- The University Of Edinburgh (ED)
LAWS10078 Contract Honours- Introduction Seminar- Week 3- Seminar 3
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Contract Honours- Introduction Seminar- Week 3- Seminar 3Walford and others v Miles and another
House of Lords
January 23 1992(Before Lord KEITH OF KINKEL, Lord ACKNER, Lord GOFF OF CHIEVELEY,
Lord JAUNCEY OF TULLICHETTLE and Lord BROWNE-WILKINSON)
Estates Gazette March 21 1992[1992] 11 EG 115
Sales of land — Oral agreement — Collateral “lock-out” agreement — Whether implied
term to negotiate in good faith — Whether agreement enforceable
At the material time the respondents, Mr and Mrs Miles, owned a company PNM
Laboratories Ltd together with premises in Blackfriars Road, London, let to the
company — In 1986 the respondents decided to sell the company and its business
premises — Martin Walford and his brother Charles Walford, the first and second
appellants, were interested in purchasing the company and its premises — On March
16 1987, following negotiations, the first appellant faxed a letter headed “subject to
contract” to the respondents' solicitor recording that the first respondent had given his
assurance that, provided he received a clear indication of the intention to proceed with
the purchase not later than March 25, he would not treat with any third party or
consider any other alternative offers — In a telephone conversation on the following
day with the first appellant, the first respondent agreed that if the appellants provided
a comfort letter from their bankers confirming that they were prepared to provide the
finance to effect the purchase by Friday of that week, he would terminate negotiations
with any third party with a view to concluding agreements with the appellants — The
first respondent further agreed that even if he received a satisfactory proposal from a
third party before the following Friday he would not deal with that third party nor would
he give further consideration to any alternative — On March 30 1987 the respondents
informed the appellants that they had decided to sell the company and premises to a
third party
The appellants brought proceedings relying upon an oral agreement, collateral to the
negotiations — The consideration for this oral agreement was the respondents'
agreeing to continue the negotiations and not to withdraw and, further, the comfort
letter from the bankers — The Court of Appeal allowed an appeal by the respondents
on the grounds that the agreement alleged was no more than an agreement to
negotiate and was therefore unenforceable — The appellants appealed
Held: The appeal was dismissed — The reason why an agreement to negotiate, like an
agreement to agree, is unenforceable, is simply because it lacks the necessary certainty
— The concept of a duty to carry on negotiations in good faith is inherently repugnant to
the adversarial position of the parties when involved in negotiations — Each party to the
negotiations is entitled to pursue his own interest so long as he avoids making
misrepresentations — To advance that interest he must be entitled, if he thinks it
appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in
the hope that the opposite party may seek to reopen the negotiations by offering him
improved terms — A duty to negotiate in good faith is as unworkable in practice as it is
inherently inconsistent with the position of a negotiating party — Accordingly, a bare
agreement to negotiate has no legal content
However, there is clearly no reason in English contract law why A, for good consideration,
should not achieve an enforceable agreement whereby B agrees, for a specified period of
, time, not to negotiate with anyone except A in relation to the sale of his property — This
is a negative agreement giving A an exclusive opportunity, for a fixed period, to try to
come to terms with B, an opportunity for which he has, unless he makes his agreement
under seal, to give good consideration — The agreement alleged in the appellants'
statement of claim contained the essential characteristics of a basic valid lock-out
agreement save that it did not specify for how long it was to last — Lacking the
necessary certainty it was therefore unenforceable
Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683, 133 N.W.2d 267 (1965).
Facts: Hoffman (P) owned and operated a bakery and sought to obtain a supermarket
franchise with Red Owl Stores (D). Red Owl Stores assured Hoffman that his $18,000 was
sufficient and advised him to acquire and operate a small store to gain experience. Three
months later Red Owl Stores advised him to sell that store with the assurance that he
would be given a larger store. Hoffman was reluctant to miss the summer tourist season
but sold the store on Red Owl’s assurances.
A few months later Red Owl told Hoffman “everything is ready to go. Get your money
together and we are set.” D told P to raise the rest of his financial contribution by selling
his bakery. P sold the bakery for $10,000 and took a job on the night shift at a local
bakery.
Red Owl informed Hoffman that he would have to contribute a greater amount of money.
Red Owl agreed to permit Hoffman’s father in law to contribute $13,000 and become a
partner in the store. Hoffman was then told that he would have to sign an agreement
that the $13,000 was either a gift or a loan subordinate to all general creditors.
Negotiations terminated and Hoffman sued Red Owl for reliance damages, lost profits,
and expenses.
Red Owl’s defense was that the parties had never reached agreement on essential
factors necessary to create a valid contract. The jury awarded Hoffman $16,735 for the
sale of the store, $2000 for the sale of the bakery, and $1250 for other expenses. The
trial court ordered a new trial regarding the $16,735 for the sale of the store. Red Owl
appealed.
Issues: 1) Does promissory estoppel require that, aside from the lack of consideration,
the promise sued upon must be able to sustain a cause of action under a breach of
contract? 2) Once promissory estoppel is applied, to what remedy is the plaintiff entitled?
Holding and Rule: 1) No. Promissory estoppel does not require that the promise
sued upon, aside from the lack of consideration, must be able to sustain a cause of
action under a breach of contract. 2) Once promissory estoppel is applied damages
should be those designed to prevent injustice, not to enforce the promises made.
The court then considered the significance of the parties’ never having reached
agreement on essential factors necessary to establish a binding contract. The court held
that the doctrine of promissory estoppel was invoked as a substitute for consideration
rendering a gratuitous promise enforceable. Restatement Section 90 does not impose the
requirement that the promise must be so comprehensive in scope as to meet the
requirements of an offer that would create a binding contract if accepted by the
promisee.
Rule for Promissory Estoppel: For a finding of promissory estoppel, the requirements
are: a promise which the promissor should reasonably expect to induce action or
forbearance of a definite and substantial character, that the promise did induce such
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