Contract Law
Anchor 2020 Limited v Midas Construction Limited [2019] EWHC 435(TCC) has provided a legal test on the principles that guide contracts’ formation. Ideally, a legally binding contract comprises critical elements that include an offer, acceptance, capacity to contract, consideration, an agreement (consensus ad idem), the Latin word for the meeting of minds, and the intention to create legal relationships. All these are aspects to be met if a contract has to be legally binding and enforceable in a court of law.
However, the English Technology and Construction Court held a binding contract between the two parties despite one of the parties not signing the contract.
Facts of the Case
The Employer, Anchor 2020 Limited, had contracted Midas Construction Limited to design and develop in Hampshire, United Kingdom, a retirement community. After their preliminary agreement, Midas Construction Limited brought back a signed account of the contract they had with the employer for their countersigning. However, the employer could not sign the document, despite the Contractor having begun the development assignment, and substantial completion of the project was already achieved. This points out that the two parties had already fulfilled some of the key elements of contracting, such as offer, acceptance, and the capacity to contract, and there was a meeting of the minds already.
Midas Construction Limited reneged on the contract by declaring it was not binding since Anchor 2020 Limited had not signed the contracting documents. Thus, they were liable to pay the Contractor a reasonable amount of money and not the contractual cost for the work that had been done. However, the Court noted that the parties exchanged several letters of intent before the final formalization of their contract in the course of their transactions.
From the facts of the case stated above, the inference can be made to the parties’ intentions to conclude all the contract requirements—Justice Coulson J., in Cunningham and Ors. V Collet and Farmer 2006 EWHC 1771 TCC stated that there might arise situations where a letter of intent can be the most efficient means of causing works to begin without delay even before the contract itself is formally finalized. The Judge stated that whenever an employer is interested in having the work started without any hesitation, and the Contractor shows intent, then a letter of intent is the best tool at such a time. The learned Judge laid down the requirements for a valid contract to be inferred from a letter of intent to include, the definition of the scope of the work to be done, and an agreement on the price of the contract or an indication that the two are likely to be agreed, alongside other contractual terms.
Necessarily implied terms can be derived from the words and conduct of the parties involved. They do not necessarily require to be put down in writing. As a general rule, whenever it looks like contracting parties have reached a meeting of the minds, then meaning will be attached to the contract that either of the parties will fulfill their parts even without express writing to the effect.
Legal Test
In determining the case of Anchor 2020 Limited v Midas Construction Limited, Justice Waksman, took into consideration the principle governing how contracts are formed. He took note that the contracting parties’ intention could be communicated by conduct or by words. In particular situations, such could lead to an objective conclusion that the contracting parties wanted to create legal relations and had fulfilled all the legal requirements necessary to have a binding contract. The Court noted that the documents exchanged by the two contracting parties provided room for the implementation of the contractual obligations since Anchor 2020 Limited wanted Midas Construction Limited to sign the contract. The Judge also took judicial notice of the fact that Midas Construction Limited had in numerous times sought the employer to append the signature on the documents, a fact that was captured in the minutes by the employer, and the fact that points towards the intention the two parties had to conclude the formalization of the contract. This, therefore, meant in the opinion of the Court that the deal was valid despite it being partially signed. The decision was premised on two legal reasons. The first was that the contract’s crucial terms had already been settled on by the two contracting parties when the Contractor sent the employer’s partly signed document. Two was that an intention to create legal relations could be inferred. The Court noticed that the Contractor was already carrying out their obligation as required in their contractual arrangement, and they would not have continued to do the work had they thought the contract was not binding.
The determination of the Court that the contract was binding therefore affected the resolution of the amount the Contractor was entitled to as the valuation of the work he had undertaken in tandem with the provisions of the contract. The Court viewed Midas Construction Limited’s claim for a reasonable amount for the work they had already done as a requirement for a share of quantum meruit.
Justice Waksman rejected the Contractor’s argument that his claim ought to be looked at in terms of the value of work and not by an assessment of Anchor 2020 Limited’s cost and that a profit margin should be factored in. The Judge affirmed that payment should be seen from the view of the contract that was partly signed. The Judge’s decision was anchored on the principle that Midas Construction Limited performed the work under the terms laid down in the letters of intention exchanged between the employer and them. The Court noticed that Midas Construction Limited reneged on the contract because, in the course of implementation, they realized they were not making any profit and regretted their decision to take the agreed price. The Court decided that the employer was not responsible for their wrong commercial decision. This decision also spells out how far courts can intervene in the financial negotiations of a commercial transaction.
The implication of the decision in the case of Anchor 2020 Limited v Midas Construction Limited [2019] EWHC 435(TCC) in practice sets out the requirements for a court to decide when a contract can be enforced even before it is formally concluded. The circumstance of every case will determine whether the Court finds it enforceable or not. The case has shown that a contract can be valid and enforceable even before all the formalities are concluded and the contract is signed. This is significant in remedying situations where an agreement is likely to take a much longer time before it is finalized. Parties could be waiting for a contract to be signed when the contract is already in force and valid. Additionally, even when the deal seems not enforceable, the courts may look at the terms used in the intended agreement in determining the costs of accomplished work, mostly if it was done under a letter of intent in a contract.
In McArthur v Lawson 1877 4 R. 1134, an agreement to agree was found to be meaningless. The courts determined that it would not re-rewrite a deal that is indeterminate for the contracting parties. It stated that: “a partnership will be provided so that your income will be substantially increased” could not amount to a valid contract and was therefore not legally enforceable.
In Multiplex Constructions Limited v Cleveland Bridge Limited and another [2006] EWHC 1341 (TCC), the Court in New Wembley decided the obligation held on Multiplex and Cleveland to strike an agreement as a stamen of aspirations and that the construction of the contract was too uncertain for a court of law to compel the contracting parties to honour their obligations . The Court opined that contracts are legally formed from what contracting parties make in their innermost minds. It demanded that from a practical test, the agreement should intend to create legal relations.
References
Anchor 2020 Limited v Midas Construction Limited [2019] EWHC 435(TCC)
Cunningham and Ors. V Collet and Farmer 2006 EWHC 1771 TCC
McArthur v Lawson 1877 4 R. 1134
Multiplex Constructions Limited v Cleveland Bridge Limited and another [2006] EWHC 1341 (TCC)