Contract: Certainty

Certainty in Contract Formation

The Role of Certainty in Contract Formation

For a contract to be formed, the following requirements of certainty must be met:

  • The intention to contract must be expressed in sufficiently precise terms that a clear meaning can be given to it: Gould v Gould [1970] 1 QB 275;
  • The parties must have clearly agreed on the main, essential and important contract terms: Willis Management (Isle of Man) Ltd & Anor v Cable and Wireless plc [2005] EWCA Civ 806. Examples include the price and subject matter of the contract.

If these conditions are met, it does not matter that the parties have yet to agree on less important terms.  However, an ‘agreement to agree’ is too uncertain and unenforceable.

Resolving Gaps

If important terms are not explicitly stated, the court should consider whether the factual matrix allows any gaps to be resolved.

  • If there has been a consistent past course of dealing or trade custom, the courts may be able to imply the missing terms: Hillas v Arcos (1932) 147 LT 503;
  • If a clause states that the parties will agree on the term later, this is normally too uncertain: Consolidated Pool Carriers GmbH v CTM Cia Mediterranea SA (1994) 1 Lloyd’s Rep 68.
Resolving Ambiguities

If an important term is ambiguous, the courts will seek to interpret it by reference to the factual matrix to see if the parties’ intentions can be determined. The normal rules for interpreting express terms apply.

  • If the parties use a vague term (such as ‘reasonable’ or ‘proportionate’) but state objective criteria by which the meaning of that term can be determined, the agreement may be sufficiently certain: Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274. 
  • A term which allows key matters to be determined by a specific third-party (or which provides an objective mechanism for choosing such a third-party) is normally sufficiently certain: Sudbrook Trading Estate v Eggleton [1983] 1 AC 444.
  • If a completely ambiguous clause is not important to the overall contract and all the other terms are clear, it can be severed, saving the rest of the agreement: Nicolene v Simmonds [1953] 1 QB 543.
Agreement ‘Subject to Contract’

Problems arise if an agreement is reached on all important terms, but the agreement is stated to be ‘subject to contract’. By this, parties normally mean that the agreement should be in signed writing first.

Normally in these situations, there is no contract. This is because the inclusion of these words shows that the parties do not intend to create legal relations. However, if the parties have begun performing as if they have an agreement, there may be sufficient legal intention. In such a case, what are the terms of the agreement?

Subject to contract

If the parties’ behaviour indicates objectively that they both intend to waive the ‘subject to contract’ stipulation, then the terms of the contract are those agreed in the written document: Bieber v Teathers Ltd (In Liquidation) [2014] EWHC 4205 (Ch).

Performance services

If not, the court will examine the parties’ conduct and all the circumstances to determine what terms have been agreed: RTS Flexible Systems Ltd v Molkerei Alois Müller [2010] UKSC 14. The written terms will not necessarily be the terms applicable to the case.


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Contract Formation Quiz

Test yourself on the principles which determine when a contract is formed.

1 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he gives her his car, which is worth £800. Maureen agrees because she loves the car. Has Dennis provided consideration for Maureen's promise to discharge the debt?

2 / 42

Julie offers to pay Ophelia a £1000 allowance in exchange for her continued affection. Ophelia agrees. Have both parties provided consideration?

 

3 / 42

Erica is a software programmer who was contracted to develop systems for Herbert's business. She begins to have money troubles, and asks Herbert for the extra £100 she needs to complete the project on time. Herbert accepts, because if delivery is late he will be liable to pay damages to a third-party. Has Erica provided consideration for the extra money?

 

4 / 42

Does the postal rule apply to cases where an offeror is seeking to withdraw his offer?

 

5 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo swims the English Channel the next day, and then calls Annabelle asking for the money. Is Annabelle obliged to pay him?

 

6 / 42

For the purposes of demonstrating consideration under the rule in Williams v Roffey Bros, which of the following constitute a practical benefit?

7 / 42

John is a Government official who is under a duty to give a license to anyone who fills out the proper application form. Paul fills in the form and offers to give John £300 if he gets a license. John agrees. Have both parties provided consideration?

 

8 / 42

Fatima is looking to sell an antique doll, which is worth £3000. Paul offers to buy it for £5. Fatima accepts, as she is in a hurry to get rid of the doll as it spooks her. Have both parties provided consideration?

9 / 42

Bob offers to sell Arthur a wedding dress for $400. Arthur responds by asking if the veil is included for that price. What is the legal nature of Arthur's response?

10 / 42

When can an offer be revoked?

11 / 42

Phil makes a contract with Ingrid for his old shed to be torn down in exchange for £200. His next-door neighbour Andrew, who thinks the shed is an eye-sore, says he will pay Ingrid an extra £100 for taking down Phil's shed. Ingrid accepts and takes down the shed. Has Ingrid provided consideration for Andrew's promise?

12 / 42

Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, agreeing. The two draw up a written agreement, which includes a clause saying that it is binding in honour only. Is this agreement a valid contract?

 

13 / 42

Dennis owes Maureen £1000. Dennis asks Maureen if she will discharge the debt if his sister Dee pays her £600. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?

14 / 42

Stephen asks Jameel to help him find a venue for his up-coming book signing. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?

 

15 / 42

Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by letter with his signature if he accepts. Tom sends Kayleigh a letter accepting the tomatoes, but does not sign it. Is this a valid acceptance?

 

16 / 42

Shira is seriously injured as a result of Quen's negligence. She tells them that if they give her their car, she will not sue. Quen agrees. Have both parties provided consideration?

17 / 42

What four factors indicate that family members or friends intended to be legally bound by their agreements?

18 / 42

Stephen is struggling to find a venue for his up-coming book signing. Jameel decides to help him on his own initiative. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?

 

19 / 42

Which two of the following factors are relevant to whether a statement is an offer?

20 / 42

On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it is lost in the post and never arrives. Has Tyrone accepted the offer?

 

21 / 42

Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, asking if they can meet up to negotiate terms. The two meet up and reach a written agreement, but the document states that it is 'subject to contract'. Is this agreement a valid contract?

 

22 / 42

Sean offers to sell his collection of nerdy T-Shirts to Chris, for £40. Chris accepts, saying that his father will provide the money. Have Sean and Chris both provided consideration?

 

23 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Maureen agrees, because she needs the money to avoid being liable to a third-party and therefore thinks the arrangement is practically beneficial. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?

24 / 42

The parties in a case reached an agreement for the claimant to do some work, but that agreement was stated to be subject to contract. Despite a written contract never being signed, the parties have begun performing as if there were a contract. Do the terms of the 'subject to contract' agreement apply?

25 / 42

In what four circumstances is an offer terminated without the offeror having to withdraw it?

26 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first member of the team that swims the English Channel. Ricardo, one of the team members, is not present. The next day he decides to swim the English Channel for fun, not knowing about Annabelle's offer. If he completes the challenge, is Annabelle bound to pay him the money?

 

27 / 42

Dennis owes Maureen £1000, and is obligated to pay by the 1st of June. He asks her if she will discharge the debt for £600, if he pays by the 1st of May. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?

28 / 42

Which four of the following scenarios normally involve an invitation to treat and not an offer?

29 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Taking pity on him, Maureen agrees. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?

30 / 42

Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, immediately calls his work phone and leaves a message on his answering machine saying she will buy the cat. Jubedul never listens to the message. An hour later, Micah tells Jubedul in person that she will buy the cat. Who has validly accepted Jubedul's offer to buy Bianca?

31 / 42

Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by telephone if he accepts. Tom sends Kayleigh a letter accepting the tomatoes. Is this a valid acceptance?

 

32 / 42

The parties have reached an agreement, but have not agreed on an important term such as the price. Is the contract void for uncertainty?

33 / 42

What two conditions must be met for an agreement to be sufficiently certain to form a contract?

34 / 42

Frederick is Manuel's employee. One day, Frederick is told by Manuel that he needs him to take on some work which goes beyond his employment duties. Frederick is reluctant, but Manuel tells him that if he does it, Manuel will pay Frederick double. Frederick accepts. Has Frederick provided consideration for the extra payment?

 

35 / 42

How can an offeror validly withdraw their offer?

36 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo begins swimming the English Channel the next day, but before he can finish Annabelle changes her mind and says she will not pay. Has Annabelle revoked her unilateral offer?

 

37 / 42

Bob offers to sell a wedding dress to Arthur for $400. Arthur says he is willing to buy the dress for $400, but only if Bob also includes a veil. Has Arthur accepted Bob's offer?

38 / 42

Specific proof is required to demonstrate intention to be legally bound where the parties have a business or commercial relationship. True or false?

 

39 / 42

Clarence offers to sell Pam a table and chairs set for $300. He adds that if Pam does not respond to him within the week, he will assume that she has accepted. Pam does not respond within the week, nor does she positively indicate acceptance in any other way. Has Pam accepted the offer?

 

40 / 42

Specific proof is required to demonstrate intention to be legally bound where the parties have a family or social relationship. True or false?

 

41 / 42

Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, sends him a letter containing £50, saying that she will buy Bianca. However, she puts the wrong address on the envelope and the letter never arrives. Has Liz accepted Jubedul's offer?

 

42 / 42

On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it does not arrive until Friday. Has Tyrone accepted the offer?

 

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