This article is written by R Sai Gayatri, from the Post Graduate College of Law, Osmania University. This article talks about contractual certainty and its impact on contract law.
The word certainty seems to be so assuring and comforting. When you’re certain about something, it makes you feel relieved because you already know what exactly the outcome of a situation will be. In the same manner, the law must also be established in such a way that there exists clarity as to how and why a particular law is interpreted in a particular way.
In simple words, being certain while dealing with the law is essential to avoid unwanted legal issues. Every case that comes before a court is unique and there are millions of such cases, therefore, the law is required to be precise and certain for appropriate interpretation. The function of ‘certainty’ in contracts and what impact it has on the contract law with regard to the English Courts shall be discussed in this article.
Contracts under the English law
As per English law, a contract is a legal and valid agreement between two parties for performing a particular act and getting consideration in return for the performance of such act. The contract law acts as a legal basis for regulating contracts. A contract must include certain elements for it to be considered legally valid, let’s know about them in brief.
An offer is a proposal made by one party to another, and when such an offer is accepted it is considered as a contract. An offer shall cease to exist when a counter-offer is made or if the said offer is not accepted within a particular time period. Under English Law, the person proposing the contract is called the offeror and the person accepting such a proposal is called an offeree.
This element of a contract is based on the following:
- The offer made must be communicated with clarity regarding its terms and such terms must be certain.
- The offer must not be subjected to any changes or conditions. In case any changes or conditions are introduced then the contract will cease to exist.
- There must exist consensus ad idem i.e. meeting of minds between both the parties regarding the terms of the contract.
In every contract, there must be an exchange of value, it can be done through monetary terms or as specified by the party to the contract.
The parties to a contract must have an intention to make the contract a legally binding one. For example, sometimes certain agreements are done at the family level and we do not care to make the agreement legal. In such cases, if something goes wrong, then the law cannot be involved as it is not a legally valid contract.
The parties to the contract must be capable of understanding the consequences of their acts concerning a particular contract. They must be mentally competent to understand the terms of the contract, legally competent to give their consent and must not be under the influence of alcohol or any other drugs while giving such consent.
Contractual certainty and English law
Contractual certainty which is also known as certainty in a contract states that every contract must be precise and not vague. The certainty here refers to the terms of the contract, in case such terms are not definite or uncertain then such an agreement between the parties to the contract will not be considered legal. Vague or broad terms are not entertained while making a contract as such a contract when executed might welcome unnecessary confusion, also rendering the contract void.
In the case of Guthing v. Lynn (1831), an offer was made by the offeror that he shall pay the offeree more money if the horse turns out to be lucky for him. Here, the court held that the offer made was vague and the term ‘lucky’ was general. The offer was uncertain and as a result, the offeree could not understand the offer. Thus, the contract was not considered valid. This case states that a contract must be made with clarity and certainty. Contracts based on condition precedent are another category of cases where interpretation of the law is given priority as such contracts have conditions that must be satisfied for the performance of the contract to take place.
Each contract has its own level of certainty that needs to be precisely established for it to be legally valid, and this, therefore, creates an open ground for judicial interpretation. The fate of every contract in dispute with the law is decided based on how such law is interpreted in the courts, so it is imperative that the terms of a contract must be certain.
Uncertainty in contracts
A contract is a valid and legally binding agreement between two parties. An agreement that can be enforced by the law can be called a contract. It is always better for a contract to be certain and very clear about its terms or else it will invite such interpretation of the law that might be undesirable by one or the other party to a contract. The same was established in the case of Openwork Limited v. Forte (2018). Uncertainty in a contract mainly occurs due to the use of general/vague terms or not providing complete details in the contract. Let us understand this through an example. A agrees to sell 150 kilos of rice to B. However, the kind of rice being sold was not described under the terms of the contract. In this case, the contract will be held as invalid based on the ground of uncertainty.
In certain cases, the terms of the contract are not required to be explicitly stated. For example, A only deals in imported watches. B, a retailer, agrees to buy 100 watches. Here, it is implied that the watches being sold by A and bought by B are imported watches. Therefore it is not necessary to mention such implied information in the contract. However, it is essential for contracts to be transparent and predictable to avoid any kind of legal disputes arising from the contract.
Contractual interpretation and its principles
In the case of Chartbrook Ltd v. Persimmon Homes, it was held that the interpretation of contracts must be done in such a manner that if a reasonable person is provided with all the information regarding a contract in dispute, he shall understand the language of such contractual terms similar to the court’s understanding.
There are certain general principles meant for contractual interpretation, they are as follows:
- The terms of the contracts and the language used must be viewed and perceived in their ordinary sense.
- The provisions of a contract must not be treated individually, the contract must be taken into consideration as a whole.
- A reasonable approach must be employed for the understanding of a contract.
Ensuring fairness in contracts
It is implied that where there is law, there must be justice and such justice must be done in a fair manner. The aspect of fairness in contracts is given importance when the contract is being made or through the intervention of statutes. The fairness of contracts can be described in two ways i.e. fairness regarding the performance of the parties to a contract in the agreed manner and fairness regarding the terms of the contract.
For example, if A agrees to sell a red colour car to B and after agreement A sells a blue colour car to B. Here the performance of the contract is not done as per the agreed terms, so it will be regarded as unfair. Another example is that ‘A’ agrees to sell his car to ‘B’ for just Rupees 100, here the terms of the contract are unfair. The contract law mostly deals with the first category of fairness where the parties are required to perform their duty as agreed.
The disputes in the terms of a contract give rise to certain circumstances that are to be looked into by the courts. Whether such terms of the contract or the principle of law are fair or not depends on the circumstance of the case. It is the court’s responsibility to ensure that both the parties to the contract have reached an agreement in such a manner that the minimum requirements of both are met and no unfair terms harm any of the parties.
Few case laws dealing with contractual certainty
G Scammell and Nephew v. HC & JG Ouston
Facts of the case
In this case, there was an agreement between Ouston and Scammell about Ouston buying a van from Scammell. Ouston stated that the price of the van must be on the basis of hire-purchase for a period of two years where some of the agreed amounts has been paid by a van of which Ouston was already the owner.
However, Scammell did not want to proceed with the sale before the hire-purchase conditions were agreed upon. Subsequently, Ouston brought a claim against Scammell for breach of the contract where Scammell argued that the hire-purchase conditions were not agreed upon and so on the ground of uncertainty the agreement shall be considered void. Ouston was awarded damages by the trial judge on the basis that the contract was refused and denied by Scammell in the wrong way. As a result, the decision of the trial judge was appealed to the House of Lords by Scammell.
The issue before the court
To decide whether the term ‘hire-purchase’ is vague enough for the contract to be repudiated or not.
Judgement of the court
The term ‘hire-purchase’ was held to be too vague and uncertain to constitute a contract as it entailed no precision. Accordingly, the contract was deemed to be unenforceable between both parties.
Hillas and Co v. Arcos Ltd.
Facts of the case
In this case, Arcos Ltd. were timber merchants and Hillas purchased timber from them. 22,000 pieces of timber were bought with an agreement that a 5% discount will be given with an allowance to buy 1,00,000 pieces of timber the next year. Subsequently, Arcos did not agree to continue with such an agreement as it needed further agreement to be done by the parties in the future. As a result, Hillas brought a suit against Arcos.
Issue before the court
Whether an agreement done in the first contract to enter into another agreement in the future is enforceable or not.
Judgement of the court
The court held that the agreement made between both parties is enforceable and valid. Timber is a commodity that is subject to price fluctuation so the exact price for such purchase need not be agreed upon. As a result, the court directed Hillas to purchase 1,00,000 pieces of timber at the agreed reduced rate.
Nicolene Ltd. v. Simmonds
Facts of the case
In the case of Nicolene Ltd, v, Simmonds, Simmonds dealt in steel bars and Nicolene Ltd. had placed an order of 3,000 tonnes of steel bars with them. There was a written agreement made between the parties which stated that the usual terms of acceptance shall be employed for carrying out the contract. Both the parties had never done any business together previously, as a result, there were no usual terms of acceptance. Simmonds failed to provide the delivery as required by Nicole Ltd. for which a suit was brought against Simmonds for breach of contract. Simmonds contended that the contract is invalid on the ground of uncertainty as no usual terms of acceptance existed that would form the basis of the contract.
Issue before the court
Does the non-existence of usual terms of acceptance make the contract invalid and unenforceable based on the grounds of uncertainty and vagueness?
Judgement of the court
The court opined that the phrase ‘usual terms of acceptance’ was baseless as there were no such prior terms agreed upon by the parties to the contract. Therefore, the said phrase was severed as it did not have any effect on the rest of the contract. The other required conditions and terms of the contract were upheld by the court.
Certainty is a core concept in contract law, it establishes clarity and transparency between the parties to a contract. The role of English courts in bridging the gap between the principle of law and fairness in contracts has been steadily progressing of which the case laws are proof. It is always preferred for the law to provide expeditious and effective solutions and the interpretation of the contract law as done by the English courts is an example of the same.
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