Chapter 5: Certainty in Contract Law

Introduction

• Certainty is a key element for valid contract formation.
• The parties must agree on essential terms that reflect the core bargain.
• There are three components of certainty:
  1. Completeness of Agreement: Essential terms must be agreed upon.
  2. Clarity of Terms: The terms must be expressed clearly and not be too uncertain.
  3. Real Promises: The promises must not be illusory, meaning they have to have legal consequences.

Importance of Certainty in Contracts

• Certainty interrelates with:
  • Offer and Acceptance: A clear offer must contain essential terms proposed by the offeror.
  • Consideration: It should provide real benefits and not be devoid of legal consequences.
  • Intention to Create Legal Relations: A lack of essential terms may indicate no intention for a full agreement.

Judicial Perspective on Certainty

• Courts generally seek to uphold contracts but struggle with ambiguous terms.
• The balance is between enforcing agreements and not creating contracts that parties did not intend.
• Judges may differ based on interpretations of specific cases.

Case Study: Biotechnology Australia v Pace

• Facts: Dr. Pace's contract promised an equity scheme not in existence at the time.
• Issue: Was the promise enforceable?
• Holding: The promise was too uncertain and therefore not enforceable; consideration was deemed illusory.
• Implications: Highlighted the tension between contract enforcement and avoiding ambiguity.

Observations from Biotechnology Australia v Pace

1. Each case's determination depends on its facts.
2. Courts favor validating agreements but refrain from clarifying ambiguous terms excessively.
3. Importance of mentioning external references to resolve uncertainties if necessary.
4. Essential terms must be agreed upon, even if a third party is involved to determine certain conditions.
5. External standards can bolster enforceability if properly identified.
6. Courts uphold reasonable terms while avoiding ambiguity that leads to enforceability issues.

Completeness of Agreement

• Essential terms must be agreed upon, such as price and subject matter.
• Hall v Busst: Confirmed that options dependent on uncertain terms make contracts unenforceable.
• Courts can imply reasonable prices in sale of goods, but that does not extend to real estate contracts.

Certainty of Terms

• Contracts must have clear terms; vague language may lead to unenforceability.
• Council of the Upper Hunter County District v Australian Chilling and Freezing: Emphasized that contracts with more than one possible meaning might still be valid.
• Courts will attempt to interpret terms unless they are completely devoid of meaning.

Promises Must Not Be Illusory

• An illusory promise lacks enforceability because it depends on the discretion of one party.
• Key Case: Placer Development v Commonwealth affirmed that undefined obligations are unenforceable.
• Conditions that create discretion regarding performance can complicate enforceability.

Agreements to Negotiate in Good Faith

• These are different from agreements to agree; courts may enforce these under certain conditions.
• Courts require a clear framework or third party reference to assess the parties' negotiations in good faith.
• Coal Cliff Collieries v Sijehama: The promise to negotiate was too vague to enforce; lacked external mechanisms for resolving disputes.
• Contrasted with United Group Rail Services v Rail Corporation NSW where good faith obligation held valid due to provisions for assessment.

Conclusion

• Certainty is a multifaceted requirement crucial to enforce contracts; parties should ensure clarity, completeness, and realism in promises.
• Example cases illuminate legal principles governing certainty in contract formation, guiding parties to form valid and enforceable agreements effectively.