Self-test questions: Certainty and Intention to Create Legal Relations

. Troy's Toys Ltd is negotiating with the department store Delilah's for the purpose of Troy's Toys' products being sold in Delilah's stores. Delilah's is a subsidiary of the Retail World Group. Which one of the following statements is incorrect?

If the parties' contract contains a term which provides that the contract cannot subsequently be modified orally and that any modification must be agreed in writing and signed by both parties, a court will nevertheless allow an oral modification if it appears to be what the parties intended.

The test of the parties' contractual intention is generally an objective one, but if Delilah's knew that Troy's Toys did not intend to be bound to a contract, Delilah's would not be able to use the objective approach to hold Troy's Toys to such a contract.

When the parties' negotiations are expressly stated as 'subject to contract', a court will generally conclude that this negatives contractual intent until the final content of the formal contract has been settled and the parties have indicated it is no longer subject to contract.

A clause stating the parties' agreement is 'binding in honour only' may negative contractual intent and rebut the presumption of intention to create legal relations in the commercial context.

A letter of comfort issued by Retail World Group, setting out its policy that Delilah's is always able to meet any debts and liabilities, may be treated as no more than a statement of policy and not of contractual force.

. Hanbury Exports and Zest Products have a contract which specifies that, in the event of any dispute between the parties under their contract, they will enter a period of 'friendly discussions by way of negotiation in good faith' for a four-week period in order to seek to resolve that dispute before either party may commence arbitration to have the dispute resolved. In relation to such a contractual term, which one of the following is true?

A term which contains a promise to negotiate in good faith is considered to be no more than an 'agreement to agree' and so is always unenforceable.

According to the decision in Petromec Inc. v Petroleo Brasileiro SA Petrobas (No.3) [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep 121, an agreement to negotiate in good faith can never be enforceable, because it is too difficult to work out the damages for the failure to comply with such an obligation.

A term which contains a promise to negotiate in good faith is considered no more than an 'agreement to agree' and of 'fundamental uncertainty', which means the contract is void.

A court will never enforce such a promise to negotiate in good faith because to do so would involve the court making the parties' contract for them, which is considered impermissible.

A court might enforce such a promise to negotiate in good faith, because it will recognise the commercial sense in the parties seeking to avoid expensive and time-consuming arbitration.

. Sasha and Robert are negotiating to form a contract and have proposed that the contract price be determined by two independent valuers (one nominated by each party). In this connection, which one of the following statements most accurately summarises the decision in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444?

A contract that fails to fix a price or to provide a price-fixing mechanism is void for uncertainty.

A contract that fails to fix a price but provides a price-fixing mechanism is not void for uncertainty.

Where a contract provides a non-essential price-fixing mechanism and the mechanism fails to work due to the fault of one of the parties in not cooperating, the contract may not be void for uncertainty and the court may order a reasonable price be paid.

Where a contract provides an integral and essential price-fixing mechanism and the mechanism fails to work due to neither party's fault, the contract may not be void for uncertainty and the court may order a reasonable price to be paid.

A contract that fails to fix a price will be void, and a court will not attempt to identify a fair and reasonable price, unless the contract falls within one of the exceptions within the Sale of Goods Act 1979.

. Allie contacts Carl, a friend, by telephone and asks him out to lunch adding that she (Allie) will pay. Carl agrees to meet Allie, saying that he (Carl) will pay for the wine. Carl arrives at the agreed restaurant the next day, but Allie contacts Carl to say that she must cancel the arrangement because of an urgent business meeting. Carl, who is a self-employed financial consultant, has taken a day off work for the lunch and, because he has lost a day's earnings as a consequence of Allie's cancellation, seeks some redress (even if this is simply payment for his meal). Which one of these statements most accurately summarises the legal position?

Allie and Carl have a contract because both parties provide valid consideration.

Because Allie and Carl are businesspeople, there is a presumption of intention to create legal relations in this contract and so it is a binding contract.

There is a presumption that legal relations are not intended in social agreements of this nature.

Allie is estopped from refusing to pay for Carl's meal.

As Allie and Carl had specified important matters, such as payment of the meal and wine, at the outset, there is sufficient certainty and so a contract exists between them.

. Which one of the following statements is not true?

Where it is alleged that a commercial agreement has been formed by two people visiting a public house and having consumed substantial amounts of alcohol, it is nevertheless possible that a court will find that an intention to create legal relations exists.

The presumption of a legal intention under a commercial agreement can be rebutted if the agreement clearly states that it is 'binding in honour only'.

Where it is not wholly clear whether or not an agreement is commercial, the courts may sometimes depart from the 'presumption' route and apply a contextual approach to determine the existence of an intention to create legal relations.

An advertisement placed by a store, which promises to give a TV for free to the first three persons who place an order for a specific laptop, can be binding.

In the commercial context, it is always the party denying the binding force of an agreement that shoulders the burden to prove the absence of an intention to create legal relations.

. Ed makes a promise to his nephew, Luca, to pay Luca's university fees 'as long as I can manage it' if Luca achieves a certain score in his A-Level examinations. Luca achieves the prescribed score in his examinations and, on the strength of Ed's promise, buys a new car. Which one of the following statements is true?

Ed is bound by the promise because the agreement between the two parties should be regarded as a commercial one.

Ed is not bound by the promise because the language of the promise is not sufficiently certain.

Ed is bound by the promise because the nephew has relied upon the promise.

Ed is not bound by the promise because an agreement made in a domestic context is not enforceable.

Ed is bound by the promise because Luca can raise a promissory estoppel.

. Zakeer divorces Samira, his wife, and then promises to 'maintain' Samira, provided she takes good care of their only child and keeps the child happy. Later, Zakeer changes his mind and refuses to provide any maintenance to Samira. Samira then seeks to enforce the promise. Which one of the following statements most accurately summarises the position between the two?

The promise is unenforceable because it is not supported by valid consideration, since Samira has a legal duty to take care of their child.

The promise is enforceable because it is supported by valid consideration and Zakeer clearly intends to be bound.

The promise is unenforceable because there is a presumption against legal intention and Samira would not be able to rebut it.

The promise is enforceable because, although there is a presumption against legal intention, Samira would be able to rebut the presumption by proving that she has relied upon the promise.

The promise is enforceable because the courts would treat the arrangement as a commercial arrangement rather than a domestic arrangement because the parties are divorced.

. Simran and Leo are negotiating in relation to a commercial contract, but are unsure as to the specificity required within their agreement. Which one of the following agreements is probably void because of vagueness or uncertainty?

A partly executed agreement to agree a price from time to time.

An agreement for sale of goods governed by the Sale of Goods Act 1979, which does not fix a price.

An agreement under which a particular person is named to fix the price but when, unknown to both parties, the named person has long been dead.

An agreement of ten-year length, which fixes the price for the first three years and leaves the price unfixed for the remaining seven years.

An agreement for the supply of a service governed by the Supply of Goods and Services Act 1982, which does not fix a price.

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