The recent Court of Appeal decision of Tolan v Connacht Gold Co-operative Society Limited illustrates that in considering whether a signed document is or is not an enforceable contract, the document must be judged objectively against the overall context of the agreement, and not by reference to any subjective intentions of a party.
The contentious issue of the recent case was whether a document prepared and signed between the plaintiff cattle dealer and the defendant co-operative society constituted an enforceable contract. The plaintiff had a long-standing informal business arrangement with the defendant for the supply of cattle and related payment terms. The document set out what was agreed at a meeting of the parties in relation to revised credit terms for the arrangement, but was silent on many particulars of the arrangement including its duration and the quantity of cattle to be supplied. The defendant claimed that document was never intended to be a contract but was simply a note of what was discussed and that a further meeting was to be held, whereas the plaintiff claimed that the document was a binding contract which would govern the arrangement between the parties until at least the year’s end.
In dismissing the appeal, Mr Justice Peart held that the document evidenced that an agreement had been reached only in respect of credit terms but that the more important terms of the arrangement were not in fact agreed and would be discussed later. Paying particular attention to the overall background to the document, Mr Justice Peart found its lack of essential details or agreement of key issues meant the document was unenforceable as a standalone agreement.
In order for a document to be an enforceable contract, the four classic elements must be present, namely (1) an offer, (2) its acceptance, (3) consideration and (4) an intention to create legal relations. This decision illustrates that in considering whether these elements exist, the Court will take into account the context in which a document arose. The Court will have regard to the overall business relationship when determining if a document is a complete agreement between the parties, or whether it was intended to be a partial agreement in the sense that it deals with just one of the issues which fell to be agreed between the parties, with the remainder of what must be discussed and agreed left to another date.
There is a fine distinction between an agreement on all matters at issue between parties which is temporary, pending the signing of a longer term agreement, and an agreement on part of what is at issue between the parties, be that on a temporary or a longer term basis. If an enforceable contract is intended, it is advisable to draft the terms of the agreement in standardised contract form, including every detail of the arrangement to avoid ambiguity as to the scope and enforceability of the document.
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Diarmaid Gavin, Partner (firstname.lastname@example.org)
Seán O’Reilly, Associate (email@example.com)