This article has been written by Reema Agrawal pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho.
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
The word ‘certainty’ refers to a state where there is little or no chance of doubt about the outcome of an event or an action. For a successful venture in anything, certainty is required at every step. It is certainty that provides determination and assurance to achieve new milestones at every phase of life.
What is a contract
The ‘Contract’ in legal terms is a legal agreement between the two parties in consideration of something in return while performing an activity. It has legal validity and is binding on the parties.
Essentials of a valid contract
A valid and legal contract consists of some essential elements. They are:
- Offer- An offer is the first step towards entering into a valid contract. It is the proposal made by one party to another. It is to be accepted by the other party within a prescribed period. The party who makes a proposal is called an offeror, while the other party who accepts that proposal is called an offeree.
- Acceptance- The offer made by one party is accepted by the other party after considering the terms of the proposal. This depends on the consensus, i.e., the meeting of minds regarding the terms of the contract.
- Consideration- The parties to the contract must exchange something with each other to consider the contract to be valid. It can be tangible, i.e., money or intangible, i.e., confidential information.
- Legal intention- Legal intention is the necessary element of a contract; without a legal intention to make the contract, it won’t be legally binding upon the parties.
- Capacity to contract- The parties who enter into a contract must be competent, i.e., of a major, sound mind and not under intoxication at the time of making the contract.
Certainty as an element of contract
The element of certainty in a contract reflects the mutual understanding between the parties, which is the most essential requirement in a contract. The parties ascertain that they have understood and substantially accepted all the terms and conditions of the contract.
In the event of uncertainty in the terms of a contract, it becomes difficult for the court to make judgements. At that time, regardless of what loss the party will have to bear, the court has to decide on the basis of the legal intention that the parties had at the time of making the written contract.
For example, A agrees to sell his property to B for Rs. 70,00,000. Without mentioning which property A has decided to sell, he enters into a written contract with B. Here, this will result in a dispute between the parties as the terms of the contract regarding the property lack certainty.
What if certainty is absent in a contract
Certainty is the key element in a contract. The absence of certainty in a contract can lead to various issues, including:
Lack of clarification
Certainty ensures clarity in the terms of the contract. It will make the contract ambiguous, which makes it even more complex for the court to identify the breach done by the defaulting party.
Void contracts
The contract, without any certainty, shall be deemed to be either void-ab-initio or may be voidable at the choice of the non-defaulting party.
Enforceability
Without the element of certainty, the contract cannot be considered valid and will not be legally binding to the court. This will make it difficult for the non-defaulting party, as he shall not be entitled to any reward for the breach done by the defaulting party due to a lack of certainty.
What is certainty of terms and conditions in a contract
In commercial law, certainty ensures the confidence between the parties to have understood all the terms and conditions exchanged about the contract. Lack of certainty had great repercussions for a valid agreement between two parties. Before entering into a contract, each party acknowledges every minute remarks regarding the rights conferred and liabilities incurred upon them against the other party. Each party’s right is an obligation of the other party, which has the liability to fulfil it.
Every commercial activity involves finance, and no person wishes to conduct an act that does not give them any benefit in the form of profits, gains, earnings or the like. For these benefits, he enters into a business relationship with the other party. Furthermore, there are obligations that need to be carried out by the parties, which are considered the terms and conditions. They agree with terms and conditions with mutual consent, having a common intention of gaining something, while remembering that certain terms and conditions are required to be in compliance with the governing laws.
Fearing facing backlash in the future, both parties register their terms and conditions in the form of a contract. Nonetheless, before drafting a contract, one needs to take into consideration that no condition pertaining to the contract is valid if the parties have even a single doubt.
In the event of any doubt arising by any of the parties, it leads to disputes during the course of the contract. Certainty ensures that every bit of the contract is free from vagueness and ambiguity, such that it becomes comprehensive and covers all the major aspects of the agreement.
Thus, certainty plays a vital role here in removing ambiguity and misunderstandings by making each and every clause in the agreement clear and specific. This will further leave no room for confusion in interpreting the terms of a contract. It also protects one party against the other party taking undue advantage of him and consequently exploiting him.
Certainty acts as an alternative when the dispute reaches the court. It enables the non-defaulting party to exercise a right against the defaulting party for the performance or non-performance of an act that is required according to the terms of the contract. This could be done by identifying the core issues in the terms and conditions and rectifying them in advance, or by raising them in court. This enhances the performance standards of the parties to the contract. Therefore, certainty helps not only in preventing disputes but also in resolving them in court.
Significance of certainty in contract terms
Let’s delve into the significance of certainty in contract terms and explore why it is crucial for both parties involved:
- Mutual understanding and consent:
- Certainty ensures that both parties have a clear understanding of their rights, obligations, and expectations under the contract.
- When terms are vague or ambiguous, it can lead to differing interpretations and misunderstandings, potentially resulting in disputes and breaches of contract.
- Enforceability:
- Courts rely on the clarity of contract terms to determine the intentions of the parties and enforce the agreement accordingly.
- Vague or uncertain terms may render the contract unenforceable, making it difficult or impossible to seek legal remedies in case of a breach.
- Avoiding disputes:
- Clearly defined terms and conditions help minimise the likelihood of disputes arising from differing interpretations.
- When expectations are clearly laid out, it reduces the chances of misunderstandings and disagreements, promoting a harmonious contractual relationship.
- Protecting legal rights:
- Certainty safeguards the legal rights of both parties.
- Ambiguous terms may leave room for exploitation or manipulation, potentially compromising the interests of one party or another.
- Facilitating contractual performance:
- Clear terms and conditions provide a roadmap for the performance of contractual obligations.
- Uncertainty can lead to confusion, delays, and potential non-compliance, hindering the smooth execution of the contract.
- Minimising litigation costs:
- Disputes stemming from uncertain contract terms can lead to costly and time-consuming litigation.
- Certainty helps avoid unnecessary legal battles and associated expenses.
- Promoting commercial certainty:
- In commercial transactions, certainty of terms is crucial for maintaining trust and confidence among businesses.
- Clear contractual language facilitates smooth business relationships and encourages investment and collaboration.
- Ensuring fair and equitable agreements:
- Certainty helps ensure that contracts are fair and equitable for both parties.
- Vague or ambiguous terms may create an imbalance of power, leaving one party at a disadvantage.
Achieving certainty in contracts
To achieve certainty in contract terms, parties should:
- Use clear and concise language, avoiding legal jargon or technical terms that may be unfamiliar to the other party.
- Define key terms and concepts within the contract itself to eliminate ambiguity.
- Specify the scope, duration, and termination conditions of the contract clearly.
- Include provisions for dispute resolution, such as mediation or arbitration, to address any disagreements that may arise.
- Seek legal advice to ensure that the contract is drafted in accordance with applicable laws and regulations.
Case laws on certainty in contract
May and Butcher Ltd. vs. The King (1934)
Facts of the case
The case May and Butcher Ltd. vs. The King (1934) was adjudged under English law. In this case, during World War 1, the British Government set up a board to sell the surplus tents of the army personnel that were not in use. The board enters into an agreement with May and Butcher Ltd. to sell the tents. They decided that they would agree on terms related to price and delivery in the future. The company paid the security of £1000 to the government. The composition of the board changed and the new board refused to sell the tents. May and Butcher Ltd. filed the case in court.
Issues involved in the case
Whether the terms regarding the agreement on price and delivery in the future are uncertain?
Judgement of the Court
The Court held that consideration is regarded as the basic element of a valid and legal contract, without which the contract is not enforceable. So, the agreement to agree in the future will be held invalid with regard to price and delivery.
Walford vs. Miles (1992)
Facts of the case
In the case Walford vs. Miles (1992), the defendants agreed to sell both the business and the property to the claimant. The claimant requires the defendants to sign a ‘lockout agreement’ whereby they acknowledge that they won’t negotiate regarding the business and property with the third party. The defendants, after some time, decided to sell the business and property to a third party. The claimants sue the defendants, claiming that the defendants have breached the conditions of the ‘lockout’ agreement.
Issues involved in the case
Whether the ‘lockout’ agreement is enforceable in court, taking into consideration its uncertainty?
Judgement of the Court
The Court held that the assertion of the defendants that the term of agreement is ambiguous is valid as to the fact that it fails to state the duration for which the defendants are restrained from any negotiation with the third party. Thus, there is a lack of ‘certainty’ in the contract, which does not render it enforceable.
G Scammell and Nephew vs. HC & JG Ouston (1941) AC 251
Facts of the Case
In the case of G. Scammell & Nephew Ltd vs. Ouston, Ouston entered into an agreement with G. Scammell to purchase a van from him, subject to the condition that the balance of the purchase price can be paid on hire-purchase terms over a period of two years. However, G. Scammell refused to abide by the terms of the contract, ascertaining that they were too uncertain regarding terms of hire-purchase.
Issues involved in the case
Whether the terms of the contract are too uncertain to comprehend and draw conclusions?
Judgement of the Court
The Court held that the terms of the contract are vague and not transparent as to the terms of the hire- contract; thus, G. Scammell is not obliged to fulfil the terms of the contract.
Conclusion
Certainty in terms and conditions is a significant factor in defining a contract. It provides transparency and clarity between the parties before entering into commercial relationships and they are aware of their roles and responsibilities in making the contract more effective and enforceable under law. This helps in providing better results in business transactions and economic affairs.
References
- https://www.upcounsel.com/certainty-in-law-of-contract
- https://www.akorda.com/blog/elements-of-a-contract
- https://www.lawbite.co.uk/resources/blog/certainty-in-contract-law
- https://blog.ipleaders.in/contractual-certainty-english-courts-effect-contract-law/
- https://study.com/academy/lesson/certainty-of-terms-definition-and-terminology.html
