4: Certainty and agreement mistakes

Contract Law
Textbook notes

Certainty, Vagueness, Incompleteness, A general rule? A restitutionary approach? Mistake negativing consent

4.1: Certainty

Requirements for certainty, the traditional stance, the modern stance, past inconsistency, modern
inconsistency, problems in Walford? Conclusion
Cases:
Acts:
Reading: pp 45-49
What are the requirements for a contract to be regarded certain enough?
1. The agreement of the parties must be expressed in a form, which is
sufficiently certain for the courts to be able to enforce.
2. Exceptions are made for commercial contracts to allow for essential
flexibility.

What is the traditional stance on the certainty of contracts?

1. That the parties must express their meaning with a reasonable degree of
certainty;
2. That unless this is done the contract will not be valid.1

How has the application on commercial contracts changed court attitude?

1. Businessmen who wish to avoid rigid contracts to give them room to
manoeuvre in a fluctuating economy have changed the nature of contract
terms, e.g. building ad civil engineering contracts such as clause 51 of the
seventh edition of the Institute of Civil Engineers Conditions of Contract which
change the nature of contracts for the court. 2
a. They oblige the contractor to carry out additional work
b. They entitle the contractor to be paid for that work under the contract.
2. The courts are generally reluctant to find that no contract has been concluded
where the parties have acted on the agreement.3

What are the inconsistencies of the policy on certainty?

The reluctance to declare contracts not concluded for contracts agreed and
acted upon is limited.4

What is the relevance of academic thought on the ‘making’ and ‘construing’ of

contracts? Why is the distinction ambiguous?
1. ‘Making’ a contract would be legitimate while the latter would not be so.
2. Some commentators have accepted this distinction; Fridman (1962); others
have criticised it; Samek (1970) and Ellinghaus (1971) but the distinction is not
obvious:
a. The test for an agreement is objective e.g. Gibson v Manchester City

1
Viscount Maugham in Scammel and Nephew Ltd v Ouston [1941] AC 251
2
Lord Wright in Hillas v Arcos (1932) 147 LT 503: “Businessmen often record the most important agreements in crude
and summary fashion . . . It is . . . the duty of the court to construe such documents fairly and broadly, without being too
astute or subtle in finding defects.”
3
Percy Trentham Ltd v Archtial Luxfer Ltd [1993] 1 Lloyd’s Rep 25
4
Maitheson Gee (Ayreshire) Ltd v Quigly 1952 SC (HL) 38
 Council [1979] 1 WLR 294.
b. The courts do not insist upon absolute certainty e.g. in Scammel v
Ouston that there is no hard and fast line between what is certain and
what is not.

What are the consequences of this ambiguity?

1. That the approach adopted in distinguishing between ‘making’ and
‘construing’ has not been wholly consistent as seen is May and Butcher v R
[1934] as opposed to Hillas v Arcos.
a. The May and Butcher approach was to find no agreement had been
concluded where important contract matter had been missed out;
according to Lord Buckmaster: ‘an agreement between two parties to
enter into an agreement I which some critical part of the contract
matter is left undetermined is no contract at all.’
b. The Hillas v Arcos approach that where a reasonable meaning could be
derived from an uncertain contract there is a contract. In the words of
Lord Tomlin: “it is necessary to exclude as impossible all reasonable
meanings which would give certainty to the words”. It should be noted
that there was a prior contract in Hillas however.
2. That the past inconsistency is present in cases today. The two cases are
Queensland Electricity Generating Board v New Hope Collieries Pty Ltd [1989]
1 Lloyd’s Rep 205 and Walford v Miles [1992] 2 AC 128.
a. The liberal approach: Queensland shows that an agreement that is
vague is not too uncertain to be a contract where there was an implied
commitment to continue relations and apparent agreement to keep
the contract vague.5
b. The restrictive approach: Walford shows that where one side complied
with an said to be vague agreement but the other subsequently did
not the agreement it could be found unenforceable due to insufficient
certainty of the agreement.

Why may Walford be regrettable?

1. Refusing to countenance the existence of an implied undertaking does not fit
with Queensland and Queensland was not mentioned either in Walford.
2. The decision complicates the drafting of enforceable ‘lock-out’ agreements.
3. It is possible to draft ‘lock-out’ agreements but only if they specify a limited
time as in Pitt v PHH Asset Management Ltd [1994] 1 WLR 327 and Chilli
Developments Ltd v Commission for the New Towns [2008] EWCH 1310 (QB).
4. It is extremely difficult to draft a ‘lock-out’ agreement that will now be
accepted by the courts, but it may not be impossible. In Petromec v Petromec
Brasileiro SA Petrobas [2005] EWCA Civ 891 Longmore LJ stated, obiter, that
an express obligation to act in good faith included in a complex agreement
drafted by commercial lawyers was in his view, enforceable.

Conclusion
1. Courts seem to differ in their approach
2. The more liberal approach is shown in Hillas and Queensland.
3. The distinction between ‘construing’ a contract and ‘making’ a contract is one
of degree and judges will continue to draw the line between the two categories

5
Sir Robin Cooke in Queensland: ‘in cases where the parties have agreed on an arbitration or valuation clause in wide
enough terms, the Courts accord full weight to their manifest intention to create continuing legal relations. Arguments
invoking alleged uncertainty, or alleged inadequacy in the machinery available to the Courts for making contractual rights
effective, exert minimal attraction . . . their Lordships have no doubt that here, buy the agreement, the parties undertook
implied primary obligations to make reasonable endeavor to agree on the terms of supply beyond the initial five-year
period and, failing agreement and upon proper notice, to do everything necessary to procure the appointment of an
arbitrator. Further, it is implicit in any commercial agreement of this kind that the terms of the new price structure are to
be fair and reasonable as between the parties . . .’
in different places, with some judges being more cautious than others.
 4.2: Vagueness

does vagueness un-conclude contracts, court devices against vagueness

Cases: Scammel v Ouston; Scammel v Dicker [2005] EWCA Civ 405; Shamrock SS Co v Storey
and Co [1899] 81 LT 413; Nicolene Ltd v Simmonds [1953] 1 QB 543; Hillas v Arcos.
Acts: -
Reading: pp 49-50
How likely is it that the courts will find a contract not concluded because of
vagueness?
The Courts are reluctant to find that a contract was not concluded on grounds of
vagueness, and Scammel is a very rare case. I most cases the courts will ‘strain to be
the preserver and not the destroyer of bargains’, especially where the parties have
acted upon their apparent agreement (Scammel v Dicker [2005] EWCA Civ 405).

What devices may the court use where it does not wish to find that an agreement is
too vague to be enforced?
1. The court may ascertain the meaning of a phrase by reference to the custom
of the trade in which the parties are contracting (Shamrock SS Co v Storey and
Co (1899) 81 LT 413);
2. It may enforce the agreement by severing a clause which is meaningless
(Nicolene Ltd v Simmonds [1953] 1 QB 543;
3. The court may interpret the vague phrase in the light of what is reasonable
Hillas v Arcos).

4.3 Incompleteness

the nature of incompleteness; devices to deal with incompleteness; devices to deal with absence of
contract-machinery for incomplete contracts.
Cases: May and Butcher v R (see citation above); Paragon Finance plc v Nash [2001] EWCA
Civ 1466; Sudbrooke Estates Ltd v Eggleton [1983] 1 AC 444; Gillat v Sky Television
Ltd [2000] 1 All ER 461
Acts: Sale of Goods Act 1979; the Supply of Goods and Services Act 1982
Reading: pp 50-51
How can an agreement be incomplete?
The parties to the agreement have failed to agree on a particular issue
(relevance of Hillas and May and Butcher).

What devices may the court use to deal with incompleteness of contracts?
1. The Sale of Goods Act 1979 device: The court may invoke section 8(2) of the
Sale of Goods Act 1979 which provides that where the price of goods is not
determined by the contract ‘the buyer must pay a reasonable price’. Also see
section 15(1) of the Supply of Goods and Services Act 1982 which states that
where the ‘consideration for the service is not determined by the contract’ it is
‘implied’ that the ‘supplier will pay a reasonable charge’.
2. The parties-contract-machinery device: The parties have failed to agree on a
particular issue but have agreed on a criteria by which an incomplete matter
may be resolved (especially in Hillas v Arcos where the parties had resolved to
this and the courts found it therefore much easier to uphold the agreement;
3. Court discretion over contract-machinery device: the contract itself may
provide for machinery to resolve the dispute between the parties. In May and
 Butcher v R Lord Dunedin stated that ‘with regard to price it is a perfectly
good contract to say that the price is to be settled by the buyer’. Paragon
Finance plc v Nash [2001] EWCA Civ 1466 shows that the courts may cut down
the scope of device 2 by implying a term into the contract.

What can the court do when the machinery in (2) does not come into effect?
1. Traditionally such a failure was fatal to the existence of an enforceable
contract;
2. The traditional view was rejected by the HL in Sudbrooke Estates Ltd v
Eggleton [1983] 1 AC 444 where it was held that a clause must be sufficiently
essential to the agreement for its incompleteness to make a clause or the
contract unenforceable. The machinery was not essential and so the HL was
able to substitute the clause with its own machinery for ascertaining the price
to be paid.
3. An example of machinery being essential is the appointment of a valurer
because of his special skill or knowedge, e.g. Gillat v Sky Television Ltd [2000]
1 All ER 461.

4.4: A general rule for certainty and agreement mistakes?

4.5: A restitutionary approach?

A general impression, the restitutionary approach, British Steel case, outcome justified?
Cases: British Steel v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504;
Acts: (American) section 2-204 of the Uniform Commercial Code;
Reading: pp 51-52
What general impression is left by the study of English case law on uncertainty?
1. That the courts have adopted a rather piecemeal approach, resulting in a
degree of inconsistency;
2. The courts have not laid down a general rule which could provide a unifying
basis for the law in this area; such a law has been adopted in America in
section 2-204 of the Uniform Commercial Code;
3. Britain could adopt a general rule.

Why is the restitutionary approach relevant?

Because it should not be assumed that the law of contract alone can resolve
all the problems raised by agreements which appear to lack certainty, as the
case British Steel v Cleveland Bridge shows.

What is the relevance of British Steel Corporation v Cleveland Bridge and Engineering
Co Ltd [1984] 1 All ER 504?
1. The parties negotiated for the sale of steel nodes. The defendants sent the
claimants a letter stating intention to purchase the goods and that the
proposed contract be on the defendants standard terms. Following extensive
delivery of the goods was late leading to losses for the defendant and no
formal contract was concluded. The defendants refused to pay for the goods
after having received them, were sued for payment and counterclaimed for
damages for the late delivery of the nodes.
2. Robert Goff J saw three possibilities in the claimants’ claim:
a. That an executory contract had come into existence after the letter of
intent had been sent. But he rejected this solution on the ground that,
since the parties were still negotiating and had not reached an
agreement, it was impossible to say that there were material terms of
the contract;
 b. To hold that there was a unilateral contract or a standing offer made
by the defendants, which, if acted upon before it was lawfully
withdrawn, would result in a contract. But, because of the
disagreement between the parties, Robert Goff J held that it could not
be assumed that because the claimants had commended the work
that a contract had thereby been created on the terms of the
defendants’ standing offer;
c. The one that J Goff adapted was to allow the claimants to recover in a
restitutionary action for the reasonable value of the work that they had
done. He held that, because the defendants had requested the
claimants to deliver the nodes, they had received a benefit at the
expense of the claimants and that it was unjust that they retain that
benefit without recompensing the claimants for the reasonable value
of the nodes.
Was the outcome for the defendants in British Steel justified?
1. No
a. The problem is that the defendants losses were not addressed;
2. Yes
a. The defence could have argued that the claimants’ restitutionary claim
should have been reduced on the ground that the defects in the final
product had reduced the value of the benefit received (see Crown
House Engineering Ltd v Amec Projects Ltd [1990] 47 Build LR 32);
b. Instead of liberalising the approach will allow a contract to be
considered concluded make restitution a remedy;
c. In many cases the work is done in anticipation of a contract
materialising, whereby the parties have conducted their negotiations
on an express ‘subject to contract’ basis (see Regalian Properties plc v
London Dockland Development Corporation [1995] 1 WLR 212).

4.6: Mistake negativing consent

Cases:
Acts:
Reading:
What are the two types of mistake?
1. Common mistake, which arises when both parties enter into a contract sharing
the same mistake which nullifies the contract;
2. ‘Offer and acceptance’ mistake; so called because it negatives consent and
prevents a contract coming into existence on the ground that one party is
labouring under a mistake or the parties are at cross-purposes.

How does the objective test of agreement reduce the scope of the doctrine of
mistake?
1. It is not sufficient one party to be mistaken in his ‘innermost mind’ see 2.1;
2. It is justified because it promotes certainty in commercial transactions.

In what cases can mistake negative consent despite the restrictions of the objective
test?
1. Where the terms of the offer and acceptance suffer from such latent ambiguity
that it is impossible to reasonably impute any agreement between the parties;
the classic case is Raffles v Wichelhaus (1864) 2 H&C 906; 6
2. Where one of the parties is mistaken as to the terms of the contract, and that
 mistake is known by the other contracting party; In such cases the party who
is aware of the mistake is unable to enforce his version of the contract as per
Hartog v Colin and Shields [1939] 3 All ER 566 (see 2.2.); distinctions drawn in
Smith v Hughes. 7
3. Where there is a unilateral mistake as to identity of the other contracting
party; though what matters is not the identity as such, but his willingness and
ability to pay for the goods, e.g. mistake as to a person being able/ willing to
pay or not as defined by attributes and not their personal characteristics; the
rogue or thief cases where the rogue has sold to a third party where there was
no intention to sell – better to sue unilateral mistake as to identity than the
innocent third party who is likely to have acquired ownership of goods through
his innocent actions.

What are the policy issues in determining the outcome of the competition between
original owner and third party purchaser?
1. What about the insurance position of the parties? Original owner’s fault for
allowing the theft?
2. Nemo dat quod non habet (you cannot give what you do not have) rule
enshrined in acts of parliament: see section 21(1) of the Sale of Goods Act
1979
3. Fraud merely renders a contract voidable while mistake attempts to repair
the original seller’s prior position, and is not concerned with the position of the
rogue; see Shogun Finance Ltd v Hudson [2003] UKHL 62; [2004] 1 AC 919;

How are contracts in writing and contracts concluded orally affect whether or not
mistake as to identity renders a contract void?
1. The distinction has assumed significance since Shogun Finance Ltd v Hudson.
2. Where the parties deal with each other in face-to-face transactions, the law
presumes that both parties intend to deal with each-other; there can be no
mistake as to identity rendering the contract void;
3. Where the parties conclude a contract in writing, the names of those parties
assume greater significance.

Why is the distinction between written and oral contracts important?

Because:
1. There is a need for certainty in written contracts; Lord Hobhouse’ and Lord
Nicholls’ observations in Shogun;
2. The courts appear to be more willing to infer that a party has made a mistake
as to identity where the contract is reduced to writing; this is because when
contracting, the innocent third party will whom he is contracting
3. How the contract has been concluded affects the method the judges will
choose to apply:
a. According to Lord Phillips (Shogun), in the case of a written contract
the task is to ascertain what the intentions of the parties were as
expressed in a written document

6
The defendants agreed to buy from the claimants a cargo of cotton to arrive ‘ex Peerless from Bombay’. There were,
unknown to the parties, two ships called ‘Peerless’ and both sailed from Bombay. The defendants meant the Peerless
which sailed in October whereas the claimants meant the Peerless which sailed in December. When the cotton eventually
arrived, the defendants refused the delivery because they argued that the claimants were obliged to deliver the cotton on
the Peerless sailing in October and so the claimants sued for the price of the wool. The issue before the court was
whether
7
Two distinctions of cases: (1) where the buyer understands the substance of the offer but is mistaken as to the nature
(e.g. old oats not new oats) and the seller is aware of that (see Statoil ASA v Louis Dreyfus Energy Services LP [2008]
EWHC 2257), and (2) the seller knows the buyer is mistaken but this time the buyer is mistaken as to the terms of seller’s
offer. In (1) the seller has no duty to inform the buyer of his mistake who is responsible to ensure that the oats are as he
believes them, but in (2) there has been an offer and acceptance mistake and the seller is under an obligation to inform
the buyer of the true nature of his offer.
 b. The process of such a construction has no presumption corresponding
to that which is applicable to face-to-face transactions, namely that
the parties intended to deal with the author of the letter or the author
of the signature; the court must simply seek to ascertain the intention
of the parties without aid of any presumption as to their intent, BUT:
This distinction is not universally accepted: Lord Nicholls and Lord
Millet in Shogun in their dissent rejected the distinction because the
mistake in the two contexts is the same, namely that the contracting
party is X when it is in fact Y; in their view the method of
communication is not relevant, BUT:
The situations are different; need to be considered separately.

What is the leading case for dealing with written contracts? What does it hold?
1. Cundy v Lindsay (1878) 3 App Cas 459; a dishonest man called Benkarn who
gave his address as 37 Wood Street, Cheapside, ordered handkerchiefs from
the claimants. Blenkarn signed his name to make it look like Blenkiron & Co, a
respectable firm who carried on business at 123 Wood Street and who were
known by their reputation to the claimants. The claimants duly sent the
hankerchiefs to ‘Blenkiron & Co, 37 Wood St’ where Blenkarn received them,
did not pay for them, and sold the goods to the defendants from whom the
claimants sought to recover the goods thereafter. The HL held that the
contract was void for mistake because the claimants had not intended to deal
with Blenkarn but with Blenkiron & Co.
2. Mistake as to identity will render a contract void; BUT
3. Exceptions: King’s Norton Metal Co v Edridge Merret & Co Ltd (1879) 14 TLR
98 where the claimants sent goods on credit to Hallam and Co, which
purported to be in Sheffield. The rogue, Wallis failed to pay for the goods and
sold them on to a third party. The claimants sued from the defendants third
party; it was held that they intended to contract with the writer of the letters
and they had simply made a mistake as ton one of his attributes, namely
creditworthiness.

In Cundy the defendants attempted to deal with an identifiable third party Blenkiron &
Co, whereas in King’s Norton the claimants had not heard of Hallam and CO and
simply intended to contract with the writer of the letters. They intended to deal with
anyone under the name of ‘Hallam and Co’ and there was no such identity.

What are the complexities of contracts concluded face-to-face?

1. In two leading cases Phillips v Brooks and Lewis v Averay it was held voidable;
In Lewis v Avery [1972] 1 QB 198 a rogue calling himself Richard Greene
offered to buy the claimant’s car, signed a cheque but the claimant did not
want to give him the cheque until it had cleared. The rogue produced a
pinewoods studios badge to gain admission to the car immediately and prove
his identity and then produced a cheque, which turned out worthless. The
rogue sold the car on to the defendants from who the claimants attempted to
recover. CA held that there was nothing to displace the prima facie
presumption that the claimants attempted to deal with the party in front of
him and they confined Ingram to its ‘special facts’.
2. In Ingram v Little it was held to be void; two elderly lady’s fell prey to a rogue
calling himself ‘Hutchinson’ and who wished to buy their car by cheque. When
neither lady accepted a cheque the rogue gave ‘his name’ as a P.G.M
Huntchinson of Stanstead House, Caterham, and one of the ladies this in the
Post Office phone directory. Believing the rogue they sold the car for a cheque
which later proved worthless, and the rogue sold the car on to the defendants,
whom the claimants sued after discovering their mistake. Extensive academic
thought attempts to justify the decision. John Phillips says it was a mistaken
decision.
How can Ingram and Lewis be reconciled?
1. There is no need to reconcile them; each case depends on its facts, see Waller
J’s judgement in Citibank NA v Brown Shipley & Co Ltd [1991] 2 All ER 690;
2. Reluctance of the courts to conclude that the presumption has been rebutted
by Shogun means the divide between oral and written forms of communication
concluding contracts is extremely important; a court is more likely to conclude
that a contract is void for mistake where the contract was concluded in writing
than where the contract is concluded face-to-face, particularly when concluded
via a third party;