Contract LAW1221 Lecture 5 09/10/26
Contract formation : overview
Certainty
General Principles
• The test for sufficient certainty is fairly generous, the court often tries to find the enforceable
contract if that is indeed what the party wanted. For an agreement to be enforceable as a
contract, the meaning of its terms need to be ascertainable ‘with a reasonable degree of certainty’
Scammell v Ouston.
• The courts try hard to uphold agreement unless it is impossible to give reasonable meaning to the
parties’ words will the contract be void for uncertainty. It is particularly hard to argue that an
agreement is too uncertain if performance has commenced G Percy Trentham
• The more variables left undetermined, the more likely it is that an agreement will be insufficiently
certain.
Examples
Too uncertain: to sell ‘on hire purchase terms’ (Scammell) ; to provide ‘reasonable finance’
Upheld agreements: 22,000 boards of softwood ‘of fair specification’ (Hillas v Arcos) ; to sell petrol ‘at
a price to be agreed by the parties in writing and from time to time’ (Foley v Classique Coaches)
Statutory implication of reasonable price
In a sale of goods, if the price is not fixed the ‘buyer must pay a reasonable price’: Sale of Goods Act
1979, s 8(2). Likewise, in a contract for the supply of services, if there is no agreement on price ‘there
is an implied term that the party contracting with the supplier will pay a reasonable charge’: Supply of
Goods and Services Act s15(1).
Good Faith Agreements : uncertainty
Are agreements to negotiate in good faith enforceable. Courts will be reluctant to enforce an
agreement to negotiate a contract in good faith if the agreement provides no clear criteria to say
whether a party has acted unreasonably. In Walford v Miles, parties were negotiating the sale of a
business. S agreed not to negotiate with anyone else, but not time limit was placed on this ‘lock out’.
B argued that S had an implied duty to negotiate in good faith with B. HL refused to imply such a duty
‘A duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the
parties… involved in negotiations’ Lord Ackner.
When agreements to negotiate in good faith are enforceable
However, a clause in a contract requiring the parties to negotiate in good faith the cost of an upgrade
of a vessel was upheld as valid in Petromec v Petrobras. Here the court did have a framework for
assessing whether the duty had been complied with because: The clause was part of an existing
contract, which was detailed, drafted by solicitors & clearly intended to be enforceable, and related to
just one element of cost which the court could, if need be, adjudicate on.
Intention to create legal relations
Intention to create legal relations : the 2 presumptions
1
Contract formation : overview
Certainty
General Principles
• The test for sufficient certainty is fairly generous, the court often tries to find the enforceable
contract if that is indeed what the party wanted. For an agreement to be enforceable as a
contract, the meaning of its terms need to be ascertainable ‘with a reasonable degree of certainty’
Scammell v Ouston.
• The courts try hard to uphold agreement unless it is impossible to give reasonable meaning to the
parties’ words will the contract be void for uncertainty. It is particularly hard to argue that an
agreement is too uncertain if performance has commenced G Percy Trentham
• The more variables left undetermined, the more likely it is that an agreement will be insufficiently
certain.
Examples
Too uncertain: to sell ‘on hire purchase terms’ (Scammell) ; to provide ‘reasonable finance’
Upheld agreements: 22,000 boards of softwood ‘of fair specification’ (Hillas v Arcos) ; to sell petrol ‘at
a price to be agreed by the parties in writing and from time to time’ (Foley v Classique Coaches)
Statutory implication of reasonable price
In a sale of goods, if the price is not fixed the ‘buyer must pay a reasonable price’: Sale of Goods Act
1979, s 8(2). Likewise, in a contract for the supply of services, if there is no agreement on price ‘there
is an implied term that the party contracting with the supplier will pay a reasonable charge’: Supply of
Goods and Services Act s15(1).
Good Faith Agreements : uncertainty
Are agreements to negotiate in good faith enforceable. Courts will be reluctant to enforce an
agreement to negotiate a contract in good faith if the agreement provides no clear criteria to say
whether a party has acted unreasonably. In Walford v Miles, parties were negotiating the sale of a
business. S agreed not to negotiate with anyone else, but not time limit was placed on this ‘lock out’.
B argued that S had an implied duty to negotiate in good faith with B. HL refused to imply such a duty
‘A duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the
parties… involved in negotiations’ Lord Ackner.
When agreements to negotiate in good faith are enforceable
However, a clause in a contract requiring the parties to negotiate in good faith the cost of an upgrade
of a vessel was upheld as valid in Petromec v Petrobras. Here the court did have a framework for
assessing whether the duty had been complied with because: The clause was part of an existing
contract, which was detailed, drafted by solicitors & clearly intended to be enforceable, and related to
just one element of cost which the court could, if need be, adjudicate on.
Intention to create legal relations
Intention to create legal relations : the 2 presumptions
1
