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. Particular focus is placed on how courts balance the principle that they will not make a contract for the parties against their willingness to uphold commercial bargains where the parties intended to be bound, the role of objective interpretation, when statutory “gap-filling” is available, when third-party mechanisms suffice, the effect of “subject to contract” language, the enforceability of lock-out agreements, and when uncertain provisions can be severed to save an otherwise valid contract.

SQE1 Syllabus

For SQE1, you are required to understand the requirement for certainty in contract formation and how it determines whether a binding contract exists, including the courts’ approach to uncertain agreements, with a focus on the following syllabus points:

• 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
• how the objective test is applied to determine whether there is a concluded bargain
• the effect of expressions like “subject to contract” or “binding in honour only” on enforceability
• when third-party mechanisms (e.g., expert valuation) provide sufficient certainty
• the scope of statutory “gap-fillers” implying a reasonable price or reasonable time for performance
• the enforceability of lock-out agreements (and why “agreements to negotiate” are problematic)
• whether uncertain or meaningless clauses can be severed without defeating the core bargain
• the weight courts give to partial performance and reliance in commercial settings.

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? At the same time, courts recognise commercial parties often record deals imperfectly; where there is a clear intention to be bound, courts strive to uphold bargains by construing them fairly in their commercial context, using trade usage and prior dealings to clarify ambiguities, so long as they are not forced to create essential terms that the parties never agreed.

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.

Courts distinguish between construing an agreement (giving fair meaning to the parties’ words in context) and impermissibly making a contract for the parties. In commercial settings the judicial tendency is to uphold bargains where possible, particularly where the parties have acted on the agreement, but the court will not supply an essential term out of thin air.

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). For instance, expressions such as “timber of fair specification” or “market price at delivery” may be sufficiently certain when read against industry norms and a history of dealing.

Where an uncertain phrase is truly meaningless, it may sometimes be severed if removing it does not affect the core bargain. In Nicolene Ltd v Simmonds [1953] 1 QB 543, a clause stating “subject to the usual conditions of acceptance” was struck out as meaningless; the rest of the contract remained enforceable because the bargain was otherwise complete and intelligible.

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.

What counts as “essential” varies with contract type. For a lease, rent and term are commonly essential; a purported lease “at a rent to be agreed” is usually void for uncertainty. For a sale of goods, statute may fill gaps: the Sale of Goods Act 1979 allows a reasonable price to be implied where none is fixed or determinable. For services, a reasonable charge or time for performance can be implied by the Supply of Goods and Services Act 1982 (for business-to-business) and the Consumer Rights Act 2015 (for business-to-consumer), which can rescue an otherwise workable bargain where price or time are omitted.

Where the parties are still negotiating or are in active disagreement over a key term, the courts are less likely to find a contract. By contrast, where essential terms are settled and performance has begun, courts are more inclined to uphold the bargain and treat missing non-essential detail as adjustable in performance.

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). By contrast, where parties simply say “price to be agreed” without more, the agreement typically fails for uncertainty.

In long-term, relational or framework arrangements, parties often leave some details to be adjusted as the relationship unfolds. Courts can uphold such contracts where there is a sufficient core bargain (subject matter, quantity or output/requirements, price determinable) and the parties’ conduct evidences an intention to be bound, with practical machinery to resolve later issues.

Statute also provides gap-filling tools:

• Sale of Goods Act 1979, s.8: if the price is not determined, the buyer must pay a reasonable price.
• Supply of Goods and Services Act 1982, s.14 and s.15: where time and/or price are not fixed, a reasonable time and reasonable charge may be implied for business-to-business services.
• Consumer Rights Act 2015, s.51 and s.52: similar implications for consumer contracts as to price and time.

Key Term: Third-party determination
An agreed mechanism under which an independent person (e.g., an expert or valuer) decides an unresolved term, such as price, with that decision binding the parties.

Worked Example 1.2

Two shareholders agree that, on exit, A can buy B’s shares “at a price to be agreed.” The clause continues: “If not agreed within 20 days, an independent accountant shall fix the price as an expert.” The accountant later refuses to act. Is the buyout clause enforceable?

Answer:
Yes, likely. Although “to be agreed” suggests uncertainty, the parties have included a determination mechanism. If the designated expert refuses to act, the court can step in to appoint a substitute or determine the price itself to give effect to the chosen mechanism (Sudbrook Trading Estate v Eggleton), preserving the clause’s enforceability.

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. The classic problem phrase is “price to be agreed.” Where no objective standard or mechanism is provided, the courts treat such wording as an incomplete consensus.

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.

Courts distinguish these from cases where parties intend to be bound now, with an objective way to resolve outstanding detail. Commercial cases stress that, if the essentials are settled and performance begins, a contract may be found despite pending formalities. Conversely, where a document expressly leaves an essential term to future agreement and the parties remain in genuine disagreement, a court will not manufacture consensus.

Worked Example 1.3

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). The law draws a line between an unenforceable obligation to reach agreement, and an enforceable promise not to negotiate elsewhere for a fixed time.

Key Term: Lock-out agreement
A collateral contract by which a party promises not to negotiate with third parties for a specified period, typically to allow focused bilateral negotiations; enforceable if time-bound and supported by consideration.

While Walford remains the leading authority against enforcing open-ended agreements to negotiate in good faith, case law recognises that an express obligation to use reasonable or best endeavours to agree a particular matter may be enforceable where it forms part of a concluded contract and is anchored to an objective yardstick or mechanism. Nevertheless, the safer view in SQE1 problem-solving is that a bare agreement to negotiate is void for uncertainty.

Key Term: Subject to contract
A phrase indicating that parties do not intend to be legally bound until a formal contract is executed; it generally prevents a binding contract arising until the condition is met, unless clearly waived by both parties’ conduct once essentials are agreed.

“Subject to contract” language typically rebuts intention to be bound during negotiations and aligns with the uncertainty of pending terms. However, parties can, by their conduct, waive this qualification once essential terms are settled and performance commences, leading to a concluded contract despite the initial reservation.

Worked Example 1.4

Seller grants Buyer “an exclusive period of 21 days” to negotiate for a property and promises “not to deal with third parties” during that time. Buyer pays £5,000 for the exclusivity. Two days later, Seller accepts a higher third-party offer. Is the lock-out enforceable?

Answer:
Yes. The lock-out is sufficiently certain (fixed 21-day period) and supported by consideration (the £5,000). Seller’s breach of the promise not to negotiate elsewhere within the period gives Buyer a claim for breach (Pitt v PHH Asset Management). By contrast, a bare promise to negotiate in good faith would be unenforceable (Walford v Miles).

Worked Example 1.5

Two companies sign heads of terms “subject to contract”. They then agree all technical specifications and price, begin manufacturing and delivery, and perform for three months while the formal document is still being drafted. Can a court find a binding contract?

Answer:
Yes, potentially. Although “subject to contract” usually precludes enforceability, parties may waive it by conduct. If the essentials are agreed and both sides perform as if bound, a court can conclude that a contract exists notwithstanding the absence of a formal signed document, based on objective intention and performance.

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.

Additional Considerations on Certainty

Although the core rules above are the backbone of the doctrine, a few further points help in borderline cases:

• Partial performance and reliance can be persuasive. Where parties have substantially performed in line with an apparent bargain, courts will be slow to treat the arrangement as void for uncertainty. This is especially so in commercial cases where the essentials are set and the parties proceeded on the assumption that a contract existed.

• Trade usage and past dealings can supply meaning to otherwise vague expressions. For parties embedded in a trade, terms like “fair specification” or “standard quality” may not be too vague when interpreted against industry practice and the parties’ own history.

• Severance is a rescue tool of last resort. If an uncertain or meaningless clause can be struck out without undermining the core bargain, the rest of the agreement can stand. But the more central the clause, the less likely severance will save the contract.

Key Term: Severance
The judicial removal of an uncertain or meaningless clause from an agreement where doing so does not affect the substance of the bargain, allowing the remainder to be enforced.

Worked Example 1.6

A contract for the sale of steel bars includes: “Standard seller’s conditions apply.” No such conditions are identified, and neither party can prove any standard form used in their dealings. The rest of the contract is complete. Void for uncertainty?

Answer:
Not necessarily. If the reference to “standard conditions” is meaningless and cannot be identified, a court may sever it as surplusage and enforce the rest, provided the core bargain is unaffected. If, however, key risk allocation depended on those conditions, severance might not be possible.

When Courts Will and Will Not Rescue Uncertain Agreements

Courts will not enforce an arrangement that amounts to no more than an agreement to agree on an essential term, or where the term is so vague that no clear obligation can be derived. Typical problem phrases include “to be agreed,” “on terms to be arranged,” or “for as long as he can” where the obligation cannot be objectively measured.

They are more willing to enforce where:

• A clear mechanism exists to resolve uncertainty (valuation by an expert, pricing formula, arbitration of specific items).
• Statutory gap-fillers make the bargain work (reasonable price/time).
• The contract is one for future performance over time and contemplates adjustments with an established method of implementing them.
• There has been partial performance or investment based on the agreement, evidencing a concluded bargain.

By contrast, where parties are still negotiating or have genuine disagreement on a material point, or where “subject to contract” has not been waived and essentials remain unsettled, the court will not speculate as to the terms and will find no contract.

Worked Example 1.7

A food service company agrees to provide food for a conference “at the market rate on the day of delivery,” with menu and quantities specified. Is the price term certain?

Answer:
Yes. Although the exact figure is not fixed at the outset, the contract supplies an objective yardstick for calculating price (“market rate on the day of delivery”). This is sufficiently definite, especially in a familiar trade context where market rates are ascertainable.

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.
• Lock-out agreements with a fixed period and consideration are enforceable; “lock-in” obligations to negotiate are not.
• “Subject to contract” usually prevents a binding contract, but can be waived by conduct once essentials are agreed.
• Statutory gap-filling can imply a reasonable price or reasonable time (SGA 1979; SGSA 1982; CRA 2015) where consistent with the parties’ bargain.
• Severance can remove meaningless clauses, saving the balance of an otherwise certain agreement.
• Partial performance and reliance in commercial contexts weigh in favour of finding a concluded bargain where the essentials are settled.

Key Terms and Concepts

• Certainty
• Agreement to Agree
• Third-party determination
• Lock-out agreement
• Subject to contract
• Severance