Offer and Acceptance in Contract Law

Certainty in offer and acceptance

Even though the parties may have appeared to make an agreement by the exchange of a matching offer and acceptance, the courts may refuse to enforce it if there appears to be uncertainty about what has been agreed, or if some important aspect of the agreement if left open to be decided later. In Scammell v Ouston, for example, the parties had agreed to the supply of a lorry on ‘hire purchase terms.’ The House of Lords held that in the absence of any other evidence of the details of the hire purchase agreement this was too vague to be enforceable, and there was therefore no contract.

This does not necessarily mean that all details of a contract must be finally settled in advance. It is not uncommon, for example, in relation to contracts for the supply of services for the precise amount to be paid to be left unspecified at the time of the agreement. This approach now has statutory force by virtue of s 15 of the Supply of Goods and Services Act 1982, which states that:

  1. Where…the consideration for a service is not determined by the contract, left to be determined in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the party contracting will pay a reasonable charge.
  2. What is a reasonable charge is a question of fact.

The same rule also operates in relation to goods by virtue of the similar provision contained in s 8(2) and (3) of the Sale of Goods Act 1979.

Meaningless phrases

The decision in Scammell v Ouston might be thought to open the door to an unscrupulous party to include some meaningless phrase in an agreement, which would then allow him to escape from the contract if he wished on the basis of uncertainty. To have such an effect, however, the phrase must relate to some significant aspect of the contract. If it can be deleted and still leave a perfectly workable agreement, the courts will ignore it. This was the position in Nicolene v Simmonds, where the contractual documentation contained the statement ‘we are in agreement that the usual conditions of acceptance apply.’ Since there were no ‘usual conditions,’ it was held that that this was simply a meaningless phrase, which could be ignored. There was nothing left open which needed to be determined.

Incomplete agreements

If an agreement leaves undecided, and undeterminable, some important aspect of the contract, then the courts will not enforce it. This can arise where perfectly clear words are used, bout the meaning of which there is no dispute, but which do not settle some significant part of the contractual terms. In May and Butcher v R, for example, the agreement provided that the price, and the date of payment, under a contract of sale, was to be ‘agreed upon from time to time.’ The House of Lords held that there was no contract in this case. The parties had not left the price open, they had specifically stated that they would agree in the future. The contract contained an arbitration clause, but the House of Lords considered that this was only meant to be used in the event of disputes, and could not be the means of determining basic obligations.

The reluctance to allow for the kind of arrangement which the parties had put into their contract in May and Butcher v R can be seen as an example of the English courts’ refusal to take account of the ongoing, relational nature of many contracts. Instead they expect all facets of the contract to be determined at the outset, and very little scope is allowed for the modification and development of obligations over its existence. The practice of the courts thus becomes divorced from the commercial reality of the business relationship of the parties.

Obligations distinguished from ‘machinery’

The contract will not be regarded as incomplete if it provides a machinery for resolving an aspect which has been left uncertain.  In relation to the price, the courts will often to be prepared to assume that a ‘reasonable price’ was intended. They will also be prepared to give effect to an agreement where property is to be valued by an independent valuer, or where the price is to be determined by reference to the prevailing market price. In such situations, the contract provides a mechanism by which the uncertainty can be resolved.

In some cases, however, the courts have been prepared to stretch this principle rather further than might have been expected. In Studbook Trading Estate v Eggleton, the price for the exercise of an option to purchase was to be determined by two valuers, one to be nominated by each party. One party refused to appoint a valuer, and claimed that the agreement was therefore void for uncertainty. The House of Lords disagreed with this and held that the contract was not uncertain in that it provided clear machinery by which the price was to be determined. The machinery was not, however, itself an essential term of the contract. It was simply a way of establishing a ‘fair’ price. If the machinery failed, then the court could substitute its own means of determining what was a ‘fair’ price.

The question of whether a particular valuation provision is ‘essential’ to the determination of an amount to be made or simply ‘machinery’ will depend on the precise wording of the clause and the context in which it operates. If it appears that there is no basis for determining the relevant value when essential procedures in the contract have not been followed, then the courts will still be prepared, even in a commercial context, to say that there is no agreement and therefore no binding obligation. The parties should not, therefore, rely on the courts coming to their rescue if they fail to follow the procedures which they have set out in their agreement. In some circumstances they will do so, but the determination of whether particular provisions are ‘essential’ or simply ‘machinery’ is sufficiently unpredictable that reliance on the court to intervene is a dangerous option.