Effects of Uncertainty in the Contract Law

Contract law recognizes and governs the rights and duties arising from agreements created by
the private community for themselves with their own choice. This is subject to Contract Law 1872 which
is commonly based on English Law principles.

The parties sometimes express themselves in such terms which are vague, incomplete and
uncertain and as per section 29 of the Contract Act 1872 uncertain agreements or agreements which not
capable of being made certain are void. The terms and conditions laid down in the contract shall be
made with full mutual consent of the contracting parties and the purpose is to legally bind the
contracting parties in order to sanction the legal remedies to the injured party on the non-performance
of any party, as per the terms of the Contract

The core essence of the contract law is to let the people decide for themselves. Thus the courts
have experienced difficulty in ascertaining the terms of the agreement as the judges are not empower
to alter the deal, undertaking or bargain of the parties and generally do not wish to deny the legal effect
of the contract especially in the commercial contract as they consists of extensive terms and conditions
and involves vast pecuniary elements which may impact huge loss to someone. Moreover, the
commercial contracts are mostly executory in nature and encompassing different economic and
commercial aspects which are based on assumption and may leads to uncertainty.

Thus in light of English and Pakistan case law uncertainty in the contract has been studied and
brief summary of same is produced:

English Law Precedents

May and Butcher Ltd v The King [1934] 2 KB 17

Facts

After the end of the First World War, the Government had a surplus of tents. A disposal board was set
up by the Government to sell them. They agreed to sell tents to May and Butcher Ltd who deposited
£1,000 as a security. According to the written agreement between the disposals board and the
company, the price for the tents, and the dates on which payment was to be made were to be agreed
between the parties, as and when the tents became available. In 1923 a new disposal’s board took over
and refused to sell the tents. May and Butcher sued but were unsuccessful. They appealed to the House
of Lords.

Issues

Were the terms of the agreement sufficiently certain to constitute a legally binding agreement between
the parties?

Held

There was no agreement between the parties. A contract for the sale of the tents had never in fact been
concluded. This was because a fundamental term of the agreement that was necessary for the sale to be
completed had not been agreed. Though s8 of Sale of Goods Act 1893 provides that a price could be
fixed in the future, s9 Sale of Goods Act 1893 also provides that if that price could not be fixed by a third
party, then no agreement could be made. No third party could set the price for the tents, and the court
could not imply a price into the agreement. Therefore, no agreement had been made. The agreement
between the claimants and defendant therefore was simply an agreement to agree, and not
enforceable. Appeal Dismissed.

Hillas and Co v Arcos Ltd (1932) 147 LT 503

Facts

Hillas bought some timber from the timer merchants Arcos Ltd. They purchased 22,000 units of timber,
and the agreement also contained an option that they would be able to buy up to 100,000 units the next
year at a discounted rate of 5%. The next year, Arcos refused to sell them the timber at this rate and
Hillas sued for breach of contract. Arcos claimed that the agreement could not be valid because it
required further agreement in the future.

Issues

Whether or not the agreement to enter into another agreement was an enforceable term of the first
agreement. Whether or not the contract to enter into a future contract was valid.

Held

There was a valid and enforceable agreement that allowed Hillas to purchase 100,000 staves of wood
for at a reduced rate. This was more than a mere ‘agreement to agree’ because the only thing necessary
for the agreement to be brought into existence was for the buyers to decide to exercise their option to
purchase the wood. Whilst the price had yet to be agreed, this was only because it naturally fluctuated
as a commodity depending on market conditions. Where the issue was in the balance, as here, it was
held that the court should try to interpret the words of the agreement in such a way as to preserve the
subject matter of the agreement rather than destroying it, and contracts made between merchants in
this way should be upheld where the court can interpret the terms in order to do so.

Pakistan Law Precedents

1986 CLC 879 Karachi

M/s Jugotekstil Impex (Petitioner) VS M/s Shams Textile Mills (Respondent) in the court of Haider Ali
Pirzada. J

Facts:

The Respondents sold the Petitioner 200,000/- yards of gray cloth on certain terms and conditions
specified in the contract. By a further contract No. 213, dated 5th April 1974, the Respondents sold the
Petitioner 150,000/- yards cotton bleached cloth on terms and conditions specified therein. Both the
contract contain clause for Arbitration between the parties which is as follows:

“Any dispute or difference will be referred to the Federation of Pakistan Chamber of Commerce and
Industry, Karachi (Pakistan) or Manchester Chamber of Commerce, Manchester.”

Petitioner averred that the cloth exported is not of a quality stipulated in the contact. Consequently
Petitioner invoked the arbitration clause in the contract and referred toward Manchester Chamber of
Commerce, Manchester. Whereupon the claim with regards to the first contract was dismissed as being
time barred. While allowed the damages to the Petitioner in respect of second contract. It has been
averred in this case that Respondents has failed to fulfill its obligation and make payment under the said
award despite repeated requests. On the basis of the above assertion the Petitioner has prayed for the
reliefs already quoted above.

Issues

Whether or not the Manchester Chamber of Commerce, Manchester have the jurisdiction to decide the
matter as an Arbitrator.

Whether in an Arbitration Agreement two Arbitration Tribunals can have jurisdiction over the identical
subject matter at the same time.

Held

The Arbitration clause is bad as being vague and uncertain, the arbitration agreement is invalid. The
award is also invalid.

PLD 1965 (W.P) Karachi 374

M/s A.C Yusuf & Co (Plaintiff) Vs M/s K.B H.M Habibullah & Co (Defandants)

Facts:

The Plaintiff (Buyer) entered into an agreement with the Defendants (Sellers) for the Sale to the Plaintiff
of 100,000/- Yards of Japanese white shirting No. 16000/-, June/July 1951 shipment at Rs. 78-4-0 per
price including sales tax. The terms of this agreement are contained in the indent bearing No. 9/51
which is on the printed form of the sellers at the time of the signing of the indent the buyers paid 10% of
the price as deposit.

There was provision in the printed indent that the buyers agrees to accept the execution of the whole or
any part of this contract, and it is understood that each shipment is to be treated as if a separate
contract and has been made for the same. In no case shall non- shipment or delay in shipment of any
one lot of the said goods cancel the contract as to other lots shipped or to be shipped.

There was another provision in the printed indent that when the contract is made for the two or more
months of the shipment it is to be understood unless otherwise mentioned that the quantity is divided
equally on the months.

The defendant delayed the delivery and part shipment was offered. The plaintiff averred that agreement
suffers from uncertainty.

Issues

Whether the agreement is void and suffers from want of mutuality?

Whether the contracted goods were shipped in terms of the agreement?

Whether the defendants clear the good within a reasonable time?

Whether the Plaintiffs are entitled to refund the deposit?

Held
In the case of this contract the shipment clause provides from June/July. Therefore, the terms of the
contract entitled the sellers to ship the whole or any part of the goods in either of these months and
they would fulfill their contract so long the whole quantity is shipped before July 1951. This was done in
this case. Therefore, the terms of this contract are ascertainable and not hit by the section 29 of the
Contract Act 1872.

Conclusion

In the light of the above, certainty in the essential terms of the contract is very important. The
consensus ad idem shall be reflected in the terms of the agreement. In my opinion uncertainty can be
divided into two general terms: (i) Severable Uncertainty and (ii) Inseverable Uncertainty. The first is
where the doctrine of severability can be applied and the latter is where the same cannot be applied.
The parties to the contract lands into uncertainty due to several reasons which are: error/mistake,
misunderstanding, assumptions or understanding. There is, however, an exception to this rule when the
uncertainty is due to the negligence, knowingness or misrepresentation of one party then such party will
be held bound by the agreement in the sense in which the other party understood it or will make an
agreement voidable at the option of the mistaken party, in case of misrepresentation.

In order to avoid ambiguity, some important matters are required to be carefully reviewed prior to
execution of the contract:

(i) Sets of Promises;

(ii) Material terms;
(iii) bargain and conditions;
(iv) facts and laws.

As certainty is linked with clarity and some contracts consist of many promises in it thus in order to build
clarity in the transaction all of them must be clear. However, contracts are based on terms and condition
and contain some material terms which are inseparable terms, thus, these terms shall be studied
carefully by both the parties prior to execution in order to depict a consensus ad idem.
Another significant portion is bargain, conditions, facts and laws as they are very confusing and create
misunderstanding in the later stage. The parties in the contract shall list down all the terms and carefully
examined them whether they are bargain, condition, fact or law and there shall be a consensus ad idem
that what is Fact, law, bargain and condition. Moreover, the parties to the contract can add severability
clauses in the contract.