A contract would not be considered as legally binding unless both parties agreed to be determined objectively with a reasonable degree of certainty.[1] Therefore if the terms are sufficiently certain, agreements to agree can be enforceable.

In circumstances where a contract containing language that is incapable of giving any definite or precise meaning and the court is unable to attribute to the parties any contractual intention in the eyes of law, will be deemed unenforceable.[2] When there is one or more terms considered uncertain or ambiguous, the court will do its utmost to hold an agreement[3] and to adopt reasonableness principle to interpret uncertain clause.[4]

If such term can link to external standard where there is a term that first appears to be uncertain, parties may provide for external references made directly or indirectly (relying on an original/previous contract to determine the meaning of the terms) to interpret meaning of the term.[5] Nevertheless such contract can only compromise one uncertain term. The invalidity of one term of the contract would not necessary void the whole contract.[6] However, if such uncertain clause forms a vital part of the contract, severance to comprise one uncertain term would not apply.[7] Such severance would only apply if the remainder of the uncertain or meaningless clause, after severance of that ambiguous term, reflects the intention of the parties.[8] On the other hand, if the parties have not agreed on all of the essential terms of the agreement, regardless of whether the language contained was considered uncertain or ambiguous, the contract will be deemed unenforceable.[9] Both parties must reach final agreement on all essential parts of the contract to make the contract legally binding. Lastly, if a contract contained an illusory promise to where one party would not carry out his or her obligations, such contract will be deemed unenforceable.[10]  

To create a contract, there must be an intention to create legal relations for both parties to enter into legal obligations.[11] Factors to be considered whether there is an intention to create legal relations include: status of both parties, subject matter of agreement, language used, parties’ relationship to one another, context of agreement and subsequent conduct. The legal test to see whether the parties intended to create legal relations is objective. The court would look at whether a reasonable person would regard the agreement as legally binding instead of looking at the minds of the parties.[12]

Nevertheless if such negotiation occurred in a business setting, it would be presumed that parties intended the agreement to have legal consequences.[13] In the case of Esso Petroleum Ltd v Commissioners of Customs and Excise, is one example that negotiation took place in a business setting and such promotion was to offer the coins in exchange to purchase petrol despite the small intrinsic value of the coins. When an agreement is entered in a commercial context, a heavy onus will shift to the party denying the existence of the contract to prove that there was no legal intention when making such offer.[14]

Consideration is an act of promise of an act and there often involves a price paid for the other’s promise.[15] Such consideration must be sufficient for ‘something that is valuable in the eyes of the law’[16] and be moved from the promisee.[17] However such consideration would not need to move to the promisor, it would be considered sufficient if consideration moves to a third party at the direction of the promisor. When there are joint promises, there only need one of the parties on behalf of all to move such consideration to the promisor.[18]

 

[1] Scammell and Nephew v Ouston [1941] AC 251.

[2] Ibid.

[3] WN Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2.

[4] Ibid.

[5] Ibid.

[6] Fitzgerald v Masters [1956] HCA 53.

[7] Whitlock v Brew (1968) 118 CLR 445.

[8] State of NSW v Banabelle Electrical Ptd Ltd [2002] NSWSC 178.

[9] Scammell and Nephew v Ouston [1941] AC 251.

[10] Thorby v Goldberg (1964) 112 CLR 597.

[11] Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2.

[12] Merritt v Merritt [1970] EWCA Civ 6.

[13] Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2.

[14] PIRT BIOTECHNOLOGIES PTY LTD V PIRTFERM LTD [2001] WASCC 96. 

[15] Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1.

[16] Thomas v Thomas [1842] 2 QB 851.

[17] Tweddle v Atkinson [1861] EWHC QB J57.

[18] Coulls v Bagots Executor & Trustee Co Ltd. (1967) 119 CLR 460. 

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