Certainty & Intention to Create Legal Relations
Certainty Introduction
Once there is valid offer and acceptance, an agreement is formed. The next
requirement for such an agreement to be enforceable as a legally binding contract
is its certainty.
An agreement may not qualify as a valid and enforceable contract if it lacks
certainty, as upheld in the early decision in Guthing v Lynn, (1831) 2 B7 Ad 232.
For instance, where a son sought to avoid a promissory note on the pretext of a
promise made to his father to not challenge the distribution of wealth under the
latter’s will, the court rejected the plea as the promise being too uncertain- White
v Bluett, (1853) LJ Ex 36.
However, the extent of certainty necessary to validate an agreement depends on
the facts of individual case, leaving much scope for judicial interpretation. Thus,
while a failure to describe a vital term (such as price, rent, quality, quantity, time
period) is likely to render an agreement without effect, it is not always necessary
to fill in every detail, for instance- even if the agreement envisages future
documentation, it may nonetheless constitute a binding
contract- Harvey v ADI, [2003] EWCA Civ 1757. Although an estimate or quotation
is normally not regarded as having contractual effect, the result may vary - as in
case of quotations against tenders culminating into a binding contract- Blackpool
Aero Club v Blackpool BC, [1990] 3 All ER 25.
Another genre of agreements causing ambiguity is one which is subject to
conditions precedent. A condition precedent is an event which must occur before
performance of the contract is due. While such an agreement may not be fully
effective until the conditions are fulfilled, it may nevertheless be binding upon the
parties insofar as completing those conditions are concerned- Ee v Kakar, (1979)
124 SJ 327. The problem intensifies further in the context of open contracts,
specifying only the parties, property and price, under broad
heads- Bigg v Boyd Gibbins, [1971] 2 All ER 183.
Despite the peculiarity arising from varying facts and circumstances of each case,
the uncertainty vitiating a contract may be broadly classified into two categories:
(a) vagueness, and (b) incomplete agreement, discussed below.
Vagueness
,Where an agreement is too vague and abstract, such that no definite meaning can
be accorded to it without altering the original terms or adding new ones, the
courts will refrain from substituting its own will over the parties’ intent, and thus,
not enforce the agreement- Mileform Ltd v Interserve Security Ltd, [2013] EWHC
3386. For instance, in G Scammell & Nephew v Ouston, [1941] AC 251, it was held
that an agreement to buy goods on hire- purchase, without specifying the exact
kind and terms of it, was not enforceable. Likewise, an agreement subject to
satisfaction of another party has been reckoned as vague and incapable of
enforcement, in Stabilad Ltd v Stephens & Carter, [1999] 2 All ER 651. An estoppel
or action by a party cannot be cited to remedy the inherent gaps in the contract,
although a claim for restitution may apply- Easat Antennas Ltd v Racal Defence
Electronics Ltd, [2000] All ER (D) 845.
Also, where the court is of the opinion that an agreement is no more than an
agreement to agree, enforcement has been negated, for instance, in Barbudev v
Eurocom Cable Management Bulgaria, [2011] EWHC 1560, and Dhanani v
Crasnianski, [2011] EWHC 926. In the former case, the court, while deciding upon
the enforceability of a side letter issued in relation to a merger deal, held that
agreement could not be enforced if it is uncertain and
vague in its entirety. In the latter case, an agreement and a term sheet requiring
the parties to do their best towards setting up a private equity fund were found to
have much left to be decided in future, and thus, held to not constitute
enforceable contract.
Methods of resolving vagueness
1. Use of business customs and trade usages: Not all agreements apparently
vague are, however, rendered unenforceable. Rather, courts, in the interest
of contractual sanctity and commercial needs, tend to cure any gaps
through business, customs and trade usages, wherever
possible- Courtney v Fairbairn Ltd v Tolaini Bros (Hotels) Ltd, [1975] 1 All ER 453.
Thus, the likelihood of an agreement getting vitiated due to uncertainty is lesser in
the business/commercial context, as parties can fill the gap through ordinary
course of dealings, trade customs and usages- as was the case in British Crane Hire
v Ipswich Plant Hire, [1974] 1 All ER 1059. In this case, an agreement over the
telephone was held valid, owing to the standard forms subsequently circulated of
which practice the hirer was aware of. Having said that, the same outcome may
not follow where one of the parties is not accustomed to the usual business
trends- Hollingworth v Southern Ferries, [1977] 2 Lloyd’s Rep 70. In another case,
, the term “not less favourable” in relation to remuneration in the agreement was
interpreted to mean of an equivalent value or more, and thus, was upheld as clear
and certain clause- Leeds Rugby Ltd v Harris, [2005] EWHC 1591.
2. Reasonableness:The aspect of reasonableness is also used by courts to
rectify uncertainties, as was done in Hillas & Co v Arcos Ltd, (1932) 147 LT
503. This case concerned an agreement for sale of timber of certain fair
specification, which was contended as being vague and
uncertain. The court, applying the standard of reasonableness and objective
standards of quality, upheld the agreement. More recently, the standard was
applied in MRI Trading AG v Erdenet Mining Corporation LLC, [2012] EWHC 1988,
to uphold a delivery contract based on a reasonable shipping schedule where it
was not expressly so agreed upon.
3. Doctrine of severability:The doctrine of severability can also come to
rescue an uncertain clause, i.e., court may ignore the vague clause and
effectuate the remaining agreement. This was done in Nicolene Ltd v
Simmonds, [1953] 1 QB 543, where the sale was subject to usual conditions
of acceptance, although no such conditions existed. The court, ignoring the
phrase as meaningless, upheld the other parts of the contract. Similarly, a
self-contradicting
arbitration clause in ERJ Lovelock v Exportles, [1968] 1 Lloyd’s Rep 163, was
disregarded to validate the other provisions.
4. The contract itself:The courts may also identify a mechanism inherent in
the contract itself by which ambiguity is to be resolved. The case of Foley v
Classique Coaches Ltd,[1934] 2 KB 1 is an example of this, whereby the
contract had a term stating any ambiguity would be resolved by
arbitration.
Incompleteness
While an agreement does not require to contain all minute details, it should
nevertheless be complete insofar as the vital or essential terms are concerned-
Grow With Us Ltd v Green Thumb (UK) Ltd, [2006] EWCA Civ 1201. Thus, while
period of a lease and identification of property in conveyance are important
(Harvey v Pratt, [1965] 1 WLR 1025, and Bushwall Properties v Vortex Properties,
[1976] 1 WLR 591), price in a sale of goods may not be that critical as it can be
ascertained by standard of reasonableness. The latter is corroborated by section
8(2) of the Sale of Goods Act of 1979, and upheld in Foley v Classique Coaches Ltd,
Certainty Introduction
Once there is valid offer and acceptance, an agreement is formed. The next
requirement for such an agreement to be enforceable as a legally binding contract
is its certainty.
An agreement may not qualify as a valid and enforceable contract if it lacks
certainty, as upheld in the early decision in Guthing v Lynn, (1831) 2 B7 Ad 232.
For instance, where a son sought to avoid a promissory note on the pretext of a
promise made to his father to not challenge the distribution of wealth under the
latter’s will, the court rejected the plea as the promise being too uncertain- White
v Bluett, (1853) LJ Ex 36.
However, the extent of certainty necessary to validate an agreement depends on
the facts of individual case, leaving much scope for judicial interpretation. Thus,
while a failure to describe a vital term (such as price, rent, quality, quantity, time
period) is likely to render an agreement without effect, it is not always necessary
to fill in every detail, for instance- even if the agreement envisages future
documentation, it may nonetheless constitute a binding
contract- Harvey v ADI, [2003] EWCA Civ 1757. Although an estimate or quotation
is normally not regarded as having contractual effect, the result may vary - as in
case of quotations against tenders culminating into a binding contract- Blackpool
Aero Club v Blackpool BC, [1990] 3 All ER 25.
Another genre of agreements causing ambiguity is one which is subject to
conditions precedent. A condition precedent is an event which must occur before
performance of the contract is due. While such an agreement may not be fully
effective until the conditions are fulfilled, it may nevertheless be binding upon the
parties insofar as completing those conditions are concerned- Ee v Kakar, (1979)
124 SJ 327. The problem intensifies further in the context of open contracts,
specifying only the parties, property and price, under broad
heads- Bigg v Boyd Gibbins, [1971] 2 All ER 183.
Despite the peculiarity arising from varying facts and circumstances of each case,
the uncertainty vitiating a contract may be broadly classified into two categories:
(a) vagueness, and (b) incomplete agreement, discussed below.
Vagueness
,Where an agreement is too vague and abstract, such that no definite meaning can
be accorded to it without altering the original terms or adding new ones, the
courts will refrain from substituting its own will over the parties’ intent, and thus,
not enforce the agreement- Mileform Ltd v Interserve Security Ltd, [2013] EWHC
3386. For instance, in G Scammell & Nephew v Ouston, [1941] AC 251, it was held
that an agreement to buy goods on hire- purchase, without specifying the exact
kind and terms of it, was not enforceable. Likewise, an agreement subject to
satisfaction of another party has been reckoned as vague and incapable of
enforcement, in Stabilad Ltd v Stephens & Carter, [1999] 2 All ER 651. An estoppel
or action by a party cannot be cited to remedy the inherent gaps in the contract,
although a claim for restitution may apply- Easat Antennas Ltd v Racal Defence
Electronics Ltd, [2000] All ER (D) 845.
Also, where the court is of the opinion that an agreement is no more than an
agreement to agree, enforcement has been negated, for instance, in Barbudev v
Eurocom Cable Management Bulgaria, [2011] EWHC 1560, and Dhanani v
Crasnianski, [2011] EWHC 926. In the former case, the court, while deciding upon
the enforceability of a side letter issued in relation to a merger deal, held that
agreement could not be enforced if it is uncertain and
vague in its entirety. In the latter case, an agreement and a term sheet requiring
the parties to do their best towards setting up a private equity fund were found to
have much left to be decided in future, and thus, held to not constitute
enforceable contract.
Methods of resolving vagueness
1. Use of business customs and trade usages: Not all agreements apparently
vague are, however, rendered unenforceable. Rather, courts, in the interest
of contractual sanctity and commercial needs, tend to cure any gaps
through business, customs and trade usages, wherever
possible- Courtney v Fairbairn Ltd v Tolaini Bros (Hotels) Ltd, [1975] 1 All ER 453.
Thus, the likelihood of an agreement getting vitiated due to uncertainty is lesser in
the business/commercial context, as parties can fill the gap through ordinary
course of dealings, trade customs and usages- as was the case in British Crane Hire
v Ipswich Plant Hire, [1974] 1 All ER 1059. In this case, an agreement over the
telephone was held valid, owing to the standard forms subsequently circulated of
which practice the hirer was aware of. Having said that, the same outcome may
not follow where one of the parties is not accustomed to the usual business
trends- Hollingworth v Southern Ferries, [1977] 2 Lloyd’s Rep 70. In another case,
, the term “not less favourable” in relation to remuneration in the agreement was
interpreted to mean of an equivalent value or more, and thus, was upheld as clear
and certain clause- Leeds Rugby Ltd v Harris, [2005] EWHC 1591.
2. Reasonableness:The aspect of reasonableness is also used by courts to
rectify uncertainties, as was done in Hillas & Co v Arcos Ltd, (1932) 147 LT
503. This case concerned an agreement for sale of timber of certain fair
specification, which was contended as being vague and
uncertain. The court, applying the standard of reasonableness and objective
standards of quality, upheld the agreement. More recently, the standard was
applied in MRI Trading AG v Erdenet Mining Corporation LLC, [2012] EWHC 1988,
to uphold a delivery contract based on a reasonable shipping schedule where it
was not expressly so agreed upon.
3. Doctrine of severability:The doctrine of severability can also come to
rescue an uncertain clause, i.e., court may ignore the vague clause and
effectuate the remaining agreement. This was done in Nicolene Ltd v
Simmonds, [1953] 1 QB 543, where the sale was subject to usual conditions
of acceptance, although no such conditions existed. The court, ignoring the
phrase as meaningless, upheld the other parts of the contract. Similarly, a
self-contradicting
arbitration clause in ERJ Lovelock v Exportles, [1968] 1 Lloyd’s Rep 163, was
disregarded to validate the other provisions.
4. The contract itself:The courts may also identify a mechanism inherent in
the contract itself by which ambiguity is to be resolved. The case of Foley v
Classique Coaches Ltd,[1934] 2 KB 1 is an example of this, whereby the
contract had a term stating any ambiguity would be resolved by
arbitration.
Incompleteness
While an agreement does not require to contain all minute details, it should
nevertheless be complete insofar as the vital or essential terms are concerned-
Grow With Us Ltd v Green Thumb (UK) Ltd, [2006] EWCA Civ 1201. Thus, while
period of a lease and identification of property in conveyance are important
(Harvey v Pratt, [1965] 1 WLR 1025, and Bushwall Properties v Vortex Properties,
[1976] 1 WLR 591), price in a sale of goods may not be that critical as it can be
ascertained by standard of reasonableness. The latter is corroborated by section
8(2) of the Sale of Goods Act of 1979, and upheld in Foley v Classique Coaches Ltd,
