Contract

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Q&A 2
Certainty of terms and intention
Introduction
Contractual certainty
If businessmen are often not overly-concerned with the niceties of offer and acceptance it follows that their contracts may not be all-embracing and complete in every respect. The parties may have reached an agreement in principle and then prefer to rely on experience from previous dealings, business practice and goodwill. The law’s overall policy is to uphold bargains wherever possible and although businessmen tend to record their agreements in ‘crude and summary fashion’ the law should not be ‘too astute or subtle in finding defects’ (Hillas & Co. Ltd v Arcos Ltd (1932) 147 LT 503, 514, per Lord Wright). However, the parties must fix the boundaries of their own obligations and the law cannot paternalistically intervene to create a contract on their behalf. Consequently, in seeking to clarify and enforce agreements the law must tread a middle line, avoiding wanton destruction of agreements on one side and the imaginative creation of bargains on the other (compare Hillas (supra) with Scammell (G) & Nephew Ltd v Ouston [1941] AC 251). In pursuit of the general policy of upholding bargains, the law may (a) ignore a meaningless clause if it adds nothing to an otherwise complete agreement (see Nicolene Ltd v Simmonds [1953] 1 QB 543), (b) enforce an agreement where one party is under a duty to resolve the uncertainty (see David T Boyd v Louis Louca [1973] 1 Lloyd’s Rep 209), (c) refer to previous dealings and trade practices (see Hillas (supra) ) and, (d) resolve vagueness by reference to custom (see Shamrock SS Co. v Storey & Co. (1899) 81 LT 413). Often the parties attempt to allow for fluctuating economic conditions by introducing a variable provision into their agreement, e.g. dates of payment and delivery to be fixed from time to time in the future. Such a provision may be regarded by the courts as ‘an agreement to agree’ and be so uncertain as to be incapable of enforcement (see May & Butcher v R [1934] 2 KB 17n; Smith v Morgan [1971] 1 WLR 803). As the courts are reluctant to strikedown provisions which are intended to have legal effect, they may uphold some agreements even if further terms are to be agreed by the parties (see Foley v Classique Coaches Ltd [1934] 2 KB 1; British Bank for Foreign Trade v Novinex [1949] 1 KB 623) and this is particularly so where there are criteria for resolving the uncertainty (see Brown v Gould [1972] Ch 53; Sudbrook Trading Estate Ltd v Eggleton [1982] 1 AC 493).

24 CERTAINTY OF TERMS AND INTENTION
Letters of intent cause problems with certainty. Here the sender of the letter states that he intends to contract with the recipient and the latter may act in reliance on the letter in commencing performance. It is quite possible to establish a certain, binding contract in such cases (see Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333; Wilson Smithett & Cape (Sugar) Ltd v Bangladesh Sugar and Food Industries Corporation [1986] 1 Lloyd’s Rep 378). Similarly, letters of comfort may be either binding contracts or informal and uncertain assurances resting entirely upon business goodwill (see Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad [1989] 1 WLR 379). The House of Lords has recently considered the status of a contract to negotiate and denied the existence of an enforceable, positive contract to negotiate in good faith as lacking sufficient certainty (see Walford v Miles [1992] 2 AC 128) although it is clear that a purely negative lock-out arrangement, for a specific period of time, is an enforceable contract (see Pitt v PHH Asset Management Ltd [1993] 4 All ER 961).

Contractual Intent
As well as the other elements required for the formation of a contract, there must be an intention to create legal relations, this being assessed objectively. In commercial contracts there is a presumption of intention and the onus is on the party who asserts that no legal effect is intended to...
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