Certainty of terms in contract law (UK): usual terms, severance and terms by reference

What is the legal definition of certainty, and is doing business "on the usual terms" certain enough? In short, a court will not enforce a contract whose terms cannot be given a definite meaning, but usual terms, severance and incorporation by reference all give the law ways to rescue an agreement that is mostly clear. This is the fifth and final element in my series on what makes a contract legally binding, after the offer, acceptance, consideration and intention.

What is certainty of terms?

The rule is that a court will not enforce a contract to which no definite meaning can be given. If the terms of a contract are not sufficiently certain, so that it is not exactly clear what the parties are actually agreeing to, then the element of certainty is not there. A court will not enforce a contract whose terms are unknown, because it would have to invent the bargain for the parties rather than hold them to one they made.

This is a separate question from intention. The parties may have fully intended to be bound, but if nobody can say what they were bound to do, there is nothing for a court to enforce. In my experience this is where informal business deals most often fall down: both sides know roughly what they meant, but the detail was never pinned down.

Oral hire-purchase agreements and certainty

Take an example. Two parties agree orally, just by speaking, that they will enter into a hire-purchase agreement. A court is unlikely to enforce that oral agreement, because there are too many kinds of hire-purchase contract for anyone to be sufficiently certain what kind the parties intended. The label "hire-purchase" tells you the type of deal but not the price, the term, the instalments or what happens on default. Without that detail the agreement is too uncertain to enforce.

The same logic applies to any oral or informal deal that names a type of contract without its substance. "We will do a distribution agreement" or "we will do a consultancy deal" is an agreement to agree, not a contract.

Are "usual terms" enforceable?

What if the parties orally agree that they will enter into the contract "on the usual terms"? Is that sufficiently certain? It is a question of whether those previous usual terms are themselves sufficiently certain. If they are, a court may be able to imply those terms into the new agreement, which makes the arrangement sufficiently certain.

So if you have dealt with the same supplier on the same written terms for years, a quick agreement to do the next job "on the usual terms" may well be enforceable, because the usual terms can be identified precisely. If your past dealings were themselves loose and inconsistent, the phrase does not help.

Severance of uncertain clauses

What about a written agreement where the majority of the terms are sufficiently certain, but certain clauses are not? A court may decide to ignore, also known as sever, the specific clause that is insufficiently certain, and enforce the rest of the contract.

This is reassuring, but it is not something to rely on deliberately. The severed clause might be the one you cared about most. Every clause in your contract should be drafted so that its meaning is definite.

Incorporating terms by reference

Does every term of the contract need to be written into the contract itself for certainty to exist? The answer is no, you do not need to do that, but there are conditions. To rely on terms that sit outside the signed document as being part of the contract, you need to be able to find that information very easily, for example on a website. If the terms are accessible in that way, they can be incorporated by reference and help create sufficient certainty.

This is how many businesses operate in practice: a short order form or email refers to standard terms and conditions published online. The practical point is to make sure the reference is clear and the terms are genuinely easy to locate, and ideally to keep a dated copy of the version that applied when the contract was made.

All five elements present, but still not enforceable?

We have now discussed all five main elements of a legally binding contract: offer, acceptance, consideration, intention and certainty. Even where all five are present in an arrangement, there is still a chance that the contract will not be recognised as legally enforceable, for example because of duress or unfair terms. I cover that in the next page on what makes a contract not enforceable.

Next steps

Before you rely on an agreement, ask whether a stranger reading it could say exactly what each side has to do. If the answer is no, tighten the terms, define the key words, and make any standard terms you rely on easy to find and clearly referred to. For contracts that matter to your business, a commercial solicitor can check that every clause is certain enough to be enforced.