Stabilad Ltd v Stephens & Carter Ltd (No. 2) [1999] 2 All ER (Comm) 651

Contract law – Formation of contract – Implied terms

Facts

S and SC began negotiations for the sale of rights in a device which stabilised ladders. SC sent S a document which provided for further negotiation with regards to S’ exclusive rights on the intellectual property of the product. In return, SC would pay a yearly royalty. SC also stated that they would make a further payment of £400,000, split over two occasions on the completion of certain stages of marketing and advertising the product. SC later found that a competitor had created a similar product and wrote to S stating that they had proceeded on the unique nature of S’ product. They attempted to claim that the document was not legally binding and that S had not completed one of the stages in the agreed timeframe. S claimed for the money owed by SC. 

Issue

The court at the initial stage was satisfied that S had completed the contract prior to SC finding their rival’s product and subsequently held that SC was required to pay S the payment previously agreed. SC appealed the decision. Therefore, it was important for the court to understand whether the communication between S and SC created a binding contract between the parties.

Held

The court allowed SC’s appeal. They found that the terms of the agreement could not be satisfied until SC had informed S they wished to proceed. In this case, the court found that this would have been indicated by the payment of the lump sum to S, or by entering into a further contract.