#2224 - The Problem Of Certainty - Contract Law

The problem of certainty

• Correspondence between offer and acceptance irrelevant if

  • There is need for further agreement

  • The terms are too vague or the material points have not been worked out nor agreed

Where the agreement is conditional

• Definitions

  • Contingent Condition Precedent =

    • Contract is not to binding until the specified event occurs

  • Contingent Condition Subsequent =

    • Where previously binding contract is to determine on the occurrence of the event

• What will happen then depends on the construction of the clause

  • Both parties might be free to withdraw before the condition occurs

  • Both parties will not be free to withdraw unless the condition cannot be fulfilled

  • Or the parties need not do anything, but must not do anything to prevent the occurrence of the condition

Where the terms of the contract are either too vague or incomplete to enforce

• Courts take one of two approaches to this problem:

  • Anti enforcement approach

    • Based on the usual guff of “freedom to contract” and that courts should not interfere etc.

  • Pro-enforcement approach

    • Justifications for this:

      • Chen Wishart: Imprecision of business practise

        • Many business people attempt to avoid precise terms so that they won’t lose a good deal

      • Chen Wishart: Necessity and difficulty of building in flexibility

        • By trying to agree terms that are flexible, parties may end up creating uncertainty.

        • Courts will have to try to fill the gaps.

      • Lord Denning: Protecting reliance

        • If a party has begun to act on an agreement, courts should strive to reasonably fill the gaps and uphold the contract.

      • Chen Wishart: unmeritorious pleas for uncertainty where parties are trying to escape a contract because it is disadvantageous to them owing to market fluctuations

        • Especially when they may have already received some benefit from them.

      • Courts have to be careful not to fall into the trap of making a contract rather than construing a contract.

Overcoming Vagueness

• Agreement where terms are too vague to enforce

  • Scammell & Nephew v Ouston: Term in dispute was that goods would be held on “hire purchase” without specifying exactly what this would mean.

    • HoL

      • This is too vague to be enforced – there are all kinds of hire purchase agreements in widely different terms –

        • so no substitute available.

• Previous dealing and custom

  • Shamrock SS Co v Storey & Co [1899]: Case concerned a contract to load coal at Grimsby “on the usual colliery guarantee”. Most collierys in Grimsby used the same standard terms

    • Held

      • As long as the terms can be proved by custom or previous dealing, that’s fine.

• Reasonableness

  • Scamell and Nephew Ltd v Ouston [1941]:

    • Viscount Simon:

      • As long as both parties agree and intend to be bound, the court will substitute the necessary words and mechanisms to uphold the contract

  • Hillas v Arcos: C and D, both well acquainted with the timber trade, agreed for the sale of timber of “fair specification”. C claimed that the contract was too uncertain.

    • Lord Thankerton

      • There is a distinction between cases where the contract provides for an objective standard which the court applies by ascertaining what is reasonable

        • and those where, there being no such standard, the test of reasonableness is being used to make an agreement for the parties which they have not made for themselves

          • in the former the court can intervene, in the later it cannot.

      • The question to ask is:

        • Do the words of the ‘contract’ provide a standard by which the Court is enabled to ascertain the subject matter of the contract?

          • If so, they can be adjudicated on

    • Lord Tomlin:

      • What does “22,000 standards of fair specification mean”?

        • If you can’t work that out as certain, then no contract exists

          • However, that would involve excluding the possibility of all reasonable meaning that would give certainty to the words

      • As it happens, common practise means we can give certainty by looking at the document as a whole.

  • Baird Textile Holdings v Marks & Spencer [2001]: B supplied MS with clothes over a period of 30 years. There was no contract between B and MS, however, in accordance with MS’s wishes and practises. W/o warning, MS terminated the arrangement. B contended that there was an implied contractual undertaking which MS would acquire garments from B in quantities and prices which were reasonable in the circumstances and to not terminate w/o reasonable notice.

    • Morrit VC:

      • The alleged obligation on MS to acquire garments from B is insufficiently certain to found any contractual obligation

        • because there are no objective criteria by which the court could assess what would be reasonable either as to quantity or price.

      • This is not a case in which, the parties having evidently sought to make a contract,

        • the court seeks to uphold its validity by construing the terms to produce certainty.

          • Rather it is a case in which the lack of certainty confirms the absence of any clear evidence of an intention to create legal relations

Overcoming Incompleteness

• Agreements to negotiate

  • Walford v Miles [1992]:

    • IF agreement to negotiate (lock-in clause), then unenforceable because too uncertain

    • IF agreement NOT to negotiate with third party (lock-out clause)

      • Then enforceable so long as time limit is placed on it.

    • C seeks to assert that it was an implied term of the agreement that,

      • while D wanted to sell the business, they would negotiate in good faith with the claimants.

      • It is impossible to imply such a term since it was unworkable in practice

        • and inherently inconsistent with the position of a party negotiating “subject to contract”.

  • Petromec [2005]: Concerning an agreement to “negotiate in good faith”.

    • Longmore LJ:

      • I would only say that I do not consider that Walford v Miles binds us to hold that the express obligation to negotiate as is completely without legal substance

        • The agreement to agree here is contained in a supervision agreement which is itself enforceable

        • The losses can be estimated with comparative ease

        • Similarly there is unlikely to be any difficulty in deciding what the result of good faith negotiations is likely to have been.

          • Unless there are special factors present, it is likely to be the same as the reasonable cost.

          • Indeed it is not uncommon for courts to have to assess, by way of calculating damages, whether a claim against a third party was good or not and for how much it might have been settled.

  • BBC Worldwide v BeeLoad [2007]:

    • Toulson LJ sitting as a High Court judge

      • In Petromeck, the clause said B agreed to negotiate the costs with P in good faith.

        • So there was a substantive obligation on the part of B to pay P’s reasonable costs,

          • and the agreement to negotiate them in good faith was a matter of machinery for quantifying them.

      • Longmore LJ observed that the cost to Petromeck was comparatively easy to ascertain;

        • And that there should be no difficulty in deciding what the result of good faith negotiations was likely to have been.

      • By contrast, in the present case clause 15 cannot be regarded as machinery for determining the amount of a contractual liability.

        • The clause provides no criteria by which a court could determine whether “in good faith”

          • any particular request for any particular form of extension should be considered favourably

• Agreements to agree later

  • May & Butcher v R [1934]: If expressly stated to “agree later” on a matter of importance then

    • Lord Buckmaster: is no contract at all

  • Trietel: But where it can be inferred that the parties intended to be bound at once despite clauses needing further agreement, a binding contract can be created at once

    • Foley v Classique Coaches [1934]: F sold a piece of land to C on the agreement C would buy petrol from F’s adjoining petrol station. C agreed to buy petrol “at a price to be agreed by the parties in writing from time to time”

      • Scrutton LJ:

        • In the present case the parties obviously believed they had a contract and they acted for three years as if they had;

          • they had an arbitration clause which relates to the subject-matter of the agreement as to the supply of petrol,

            • Thus there is to be implied in this contract a term that the petrol shall be supplied at a reasonable price and shall be of reasonable quality

      • Greer LJ:

        • It is quite true that one cannot add to a contract an implied term inconsistent with or which contradicts the express terms of the contract,

          • but in a suitable case one can imply a term,

            • and to imply a term in this contract that the price of the petrol supplied shall be reasonable is in no way inconsistent with the agreement

        • You can distinguish this from Butcher as here we have a stamped document and its clear both parties intended to be bound.

• Agreements where details are left silent

  • But...