Existence and formation of a contract - Certainty

Learning Outcomes

This article explains the requirement for certainty in contract formation. It outlines why terms must be sufficiently clear and complete for an agreement to be legally enforceable. For the SQE1 assessments, you will need to understand the consequences of uncertainty, including situations involving vague language, missing terms, and agreements to agree. You will also need to apply relevant case law principles to SQE1-style single best answer MCQs concerning the validity of purported contracts where certainty is questionable.

SQE1 Syllabus

For SQE1, your understanding of certainty is fundamental to determining whether a binding contract exists. You will likely encounter scenarios requiring you to assess if the terms of an agreement are sufficiently definite to be enforced by the courts. An appreciation of how courts approach uncertain agreements is essential.

As you work through this article, remember to pay particular attention in your revision to:

• the legal requirement that contract terms must be certain and complete
• the consequences of terms being too vague or essential terms being omitted
• the distinction between enforceable agreements and unenforceable 'agreements to agree'
• key case law illustrating the courts' approach to certainty issues
• the limited circumstances where courts may imply terms or resolve ambiguity.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following agreements is MOST likely to be considered void for uncertainty?
   1. An agreement to sell "500 tonnes of timber of fair specification".
   2. An agreement to lease an office "at a rent to be agreed between the parties".
   3. An agreement where the price is to be determined by an independent third-party valuer.
   4. An agreement to buy a car where the delivery date is not specified.
2. In Scammell v Ouston [1941], why did the House of Lords find the agreement unenforceable?
   1. There was no intention to create legal relations.
   2. The consideration provided was inadequate.
   3. The phrase "on hire-purchase terms" was too vague.
   4. One party lacked the capacity to contract.
3. Which statement best describes the principle established in Walford v Miles [1992]?
   1. Courts will always imply a term requiring parties to negotiate in good faith.
   2. An agreement to lock-out competing negotiators for a fixed period can be enforceable.
   3. An agreement to agree on essential terms is generally unenforceable in English law.
   4. If essential terms are missing, courts will readily imply them based on reasonableness.

Introduction

For a legally binding contract to exist, the agreement reached by the parties must be sufficiently certain. This means the terms governing the parties' obligations must be clear, complete, and capable of being given legal effect. If an agreement is too vague or essential terms are missing or yet to be agreed, the courts may find that no contract was ever formed. Certainty is assessed objectively – would a reasonable person believe the parties reached a concluded agreement on all essential aspects? This article explores the requirement of certainty and the consequences when it is lacking.

Key Term: Certainty
The legal requirement that the terms of an agreement must be sufficiently clear, precise, and complete to be legally enforceable as a contract.

THE NEED FOR CERTAIN AND COMPLETE TERMS

An agreement cannot constitute a binding contract unless the parties have agreed on all terms that they considered essential, and those terms are expressed with sufficient clarity. If key aspects are ambiguous, incomplete, or left open for future negotiation, the courts will generally conclude there is no contract.

Vague or Ambiguous Terms

If the language used by the parties is so obscure or imprecise that the court cannot determine the intended obligations with a reasonable degree of certainty, the agreement will fail. A classic example is Scammell v Ouston [1941] AC 251, where an agreement to acquire a van "on hire-purchase terms" was held void. The phrase was deemed meaningless without further specification, as numerous types of hire-purchase agreements existed.

However, courts do not expect perfect clarity and will strive to give effect to agreements where possible, particularly in commercial contexts. They may consider the wording, the background context, trade usage, or the parties' previous dealings to interpret ambiguous terms (Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2).

Incompleteness – Missing Terms

An agreement may also fail for uncertainty if essential terms have not been agreed upon. What is 'essential' depends on the nature of the contract. Typically, this includes:

• Identification of the parties
• The subject matter (goods, services etc.)
• The price or consideration

If parties explicitly state that an essential matter (e.g., price) is "to be agreed" later, this usually indicates that they have not yet reached a concluded contract. The courts generally will not step in to impose a price or other essential term that the parties themselves failed to fix.

Worked Example 1.1

Asha agrees to sell her vintage bicycle to Ben. They agree Ben will pay "a fair price" for it next week. Is this agreement sufficiently certain?

Answer: Possibly not. While the parties and subject matter are clear, leaving the price as "a fair price" without specifying how it will be determined (e.g., by a third party, or by reference to market value) introduces uncertainty. If this is a contract for the sale of goods, s.8(2) Sale of Goods Act 1979 might allow a court to imply a 'reasonable price', but outside of this statutory context, an agreement simply for a 'fair price' is often too vague.

Mechanisms for Resolving Uncertainty

Parties can sometimes build mechanisms into their agreement to resolve potential uncertainties later, without rendering the contract void from the outset. Examples include:

• Agreeing a formula for calculating a price (e.g., based on costs plus a percentage).
• Leaving a term to be determined by an independent third party (e.g., a surveyor or valuer).
• Including an arbitration clause to resolve disputes over interpretation or performance.

If such a mechanism exists but fails (e.g., the third party refuses to act), the court may sometimes be able to substitute its own determination, depending on the nature of the term and the mechanism agreed (Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444).

AGREEMENTS TO AGREE AND NEGOTIATIONS

A common issue related to certainty is the status of agreements that anticipate further negotiation.

Agreements to Agree

An agreement simply to agree on an essential term in the future is generally unenforceable in English law. This is because it lacks certainty – the parties have not committed to specific obligations, only to try and reach an agreement later.

Key Term: Agreement to Agree
An arrangement where parties state their intention to reach agreement on an essential contract term (like price or duration) at some point in the future. Generally, such arrangements are considered too uncertain to be legally binding contracts.

Worked Example 1.2

Prime Properties plc writes to Local Builders Ltd: "We intend to engage you for the refurbishment of our offices, subject to agreeing satisfactory timelines and final costs within the next month." Local Builders replies: "We accept your intention and look forward to finalising the details." Is there a binding contract?

Answer: No. This is likely an agreement to agree on essential terms (timelines, costs). As these key elements are "subject to agreeing" and not yet fixed, there is insufficient certainty for a binding contract at this stage.

Agreements to Negotiate

Similarly, an agreement to negotiate in good faith towards a future contract is generally considered too uncertain to be enforceable (Walford v Miles [1992] 2 AC 128). The House of Lords held that such an obligation is inherently inconsistent with the adversarial nature of negotiation, where parties must be free to pursue their own interests.

However, a 'lock-out' agreement, where one party agrees not to negotiate with any third party for a specified period, can be enforceable if it is sufficiently certain (e.g., clear duration) and supported by consideration (Pitt v PHH Asset Management Ltd [1994] 1 WLR 327).

Exam Warning

Be careful to distinguish between: (1) An agreement where an essential term is left entirely open for future agreement (likely unenforceable); (2) An agreement containing a formula or mechanism for determining an essential term (potentially enforceable); (3) A subsidiary 'lock-out' agreement preventing negotiation with others for a fixed time (potentially enforceable). Read the facts carefully in MCQ scenarios.

Revision Tip

Remember that the courts are generally reluctant to write a contract for the parties. If the parties have failed to agree on something essential or have expressed themselves too vaguely, the court will usually find no contract exists, rather than imposing terms it thinks are reasonable. The exception under s.8 Sale of Goods Act 1979 (implying a reasonable price where none is fixed) is notable but applies specifically to contracts for the sale of goods.

Key Point Checklist

This article has covered the following key knowledge points:

• A contract must be sufficiently certain and complete regarding its essential terms to be enforceable.
• Uncertainty can arise from vague or ambiguous language, or from the omission of essential terms (like price, subject matter).
• Courts assess certainty objectively, considering what a reasonable person would understand from the parties' words and conduct.
• Agreements that leave essential terms "to be agreed" are generally unenforceable as mere agreements to agree.
• Agreements to negotiate in good faith are typically too uncertain to be binding in English law (Walford v Miles).
• Courts may sometimes resolve ambiguity by reference to context, trade usage, previous dealings, or statutory provisions (e.g., SGA 1979 s.8).
• Mechanisms within the agreement (e.g., determination by a third party) can provide certainty.

Key Terms and Concepts

• Certainty
• Agreement to Agree