May & Butcher Ltd v King, The [1929] UKHL 2 (22 February 1929)

May & Butcher Ltd agreed to purchase surplus government tentage with the price to be agreed later between the parties. When price negotiations failed, the Crown refused to deliver further goods. The House of Lords held there was no binding contract as the price, an essential term, remained undetermined.

Facts

Following the First World War, the Government established a Disposals Board to sell surplus war goods. May & Butcher Ltd (the appellants) entered into arrangements with the Disposals Board to purchase tentage. Under a letter agreement dated January 1922, the Commission confirmed the sale of tentage that would become available up to March 31, 1923, with the price to be agreed between the parties in accordance with earlier contract terms. An arbitration clause provided that disputes ‘with reference to or arising out of this agreement’ would be submitted to arbitration under the Arbitration Act 1889.

When Sir Maurice Levy took over control of the Disposals Board from Major Lethaby, negotiations over price broke down. The Disposals Board considered themselves no longer bound and declined to deliver further goods.

Issues

Primary Issue

Whether the terms of the contract were sufficiently defined to constitute a legally binding contract when the price was left to be agreed between the parties.

Secondary Issues

Whether, in the absence of an agreed price, a reasonable price should be implied under the Sale of Goods Act 1893.

Whether the arbitration clause operated to refer the question of price to arbitration.

Whether the appellants were entitled to receive offers for future parcels of goods.

Judgment

The House of Lords unanimously dismissed the appeal, holding that no binding contract existed.

Lord Buckmaster

Lord Buckmaster affirmed the long-established principle that an agreement to enter into an agreement where some critical matter is left undetermined is no contract at all. He distinguished section 8 of the Sale of Goods Act 1893, which provides for a reasonable price when price is not determined, on the basis that this applies to silence on price, not where there is an express provision that the parties are to agree.

Viscount Dunedin

Viscount Dunedin emphasised that for a good contract there must be a concluded bargain that settles everything necessary. He invoked the principle ‘Certum est quod certum reddi potest’ – that which can be made certain is certain. He distinguished between parties being silent on price (where a reasonable price may be implied) and expressly providing that price is to be agreed between them.

Lord Warrington of Clyffe

Lord Warrington confirmed that unless essential terms are agreed, there is no binding obligation. To imply a reasonable price would contradict the express terms of the document.

The Arbitration Clause

All three judges held that the arbitration clause could not save the contract. The clause referred to disputes ‘arising out of’ the agreement, but until price was fixed, there was no agreement. A failure to agree is fundamentally different from a dispute. To apply the arbitration clause would substitute an arbitrator’s award for the parties’ own agreement.

Implications

This case established a fundamental principle of English contract law: an agreement to agree on essential terms in the future is not a binding contract. The decision clarified that section 8 of the Sale of Goods Act 1893, which implies a reasonable price, only applies where parties are silent on price, not where they expressly provide for future agreement. The case also confirmed that general arbitration clauses relating to disputes under a contract cannot convert an incomplete agreement into a binding contract by referring the determination of essential terms to arbitration.

The decision has had lasting significance in contract formation, particularly regarding agreements that leave material terms to be settled later. It remains a leading authority on the requirement for certainty in contracts.

Verdict: Appeal dismissed. No binding contract existed because the price, an essential term, was left to be agreed between the parties and was never determined.

Source: May & Butcher Ltd v King, The [1929] UKHL 2 (22 February 1929)