Ambigious and Uncertain Agreements

From Advocatespedia, ASSN: 128995
Jump to navigation Jump to search

Introduction

‘Certainty’ in the terms of a contract is one of the essential features to declare a contract to be valid, as stated by the Indian Contract Act, 1872. Uncertainty in the language of a contract makes the terms of the contract, which forms the very basis of a contract, vague and ambiguous which ultimately makes the contract void. Thus, the agreements or contracts, the meaning of which is very uncertain and there is some kind of vagueness and ambiguity while understanding the terms of the contract, then such agreements are said to be ‘Uncertain agreements’ and in accordance to Section 29 of the Indian Contract Act, 1872, are held to be void. In the case of Scammell v. Ousto[1] , it was clearly stated by the House of Lords that for an agreement to be enforceable and binding on the parties, it is important for the terms of the contract to be definite and certain. The court must be able to derive a practical meaning of the contract and be clearly able to understand the intention of the parties. Thus, when the language of the contract is unable to express the correct meaning of the contract or when more than one interpretation can be made out of it and the meaning of which cannot be ascertained under any circumstances, then in such cases, the contract is held to void for being uncertain and ambiguous in expressing the intention of the parties, according to the general rule of the Contract law. This was observed in the case of Dhanrajmal Gobindram v. Shamji Kalidas & Co[2] in which the agreement was held to be void because of the uncertainty in the determination of the price of the white horse when two prices were mentioned without any additional information.

Sources of Uncertainty

In the language of contract, uncertainty arises from the following sources:

Ambiguity: An agreement is said to be ambiguous when it conveys more than one meaning and thus proves to be inconsistent. It arise principally either due to misplacement of the words or phrases grammatically or due to the two meanings that the word or the phrase is able to convey. To cite an example in the case of Frigaliment Importing Co. v B.N.S. International Sales Corp.[3] , the court held the contract void due to the ambiguity in the order that the “chickens” mentioned in the order meant young chickens or chickens of any age that met the requirements.

Undue Generality: When there is a lack of detail information in the contract due to which it becomes unclear to the party to determine the intention of the other party, then such contracts are said to be unduly general. This was seen in the issue of Raffles v. Wichelhaus[4] , where the contract was held void by the court due to undue generality. This was a contract to purchase cotton from a ship that was to depart from Bombay, named “Peerless”. But it was found that two ships under the same name “Peerless” were to depart from Bombay with a month’s gap. This caused confusion and made the buyer and the seller to think of different ships. Thus failing to provide all the necessary detailed information about the ships, the court held the contract unduly general and was held void.

Vagueness: This form of uncertainty arises when the words mentioned in the contract are unable to convey a specific meaning to give certainty to the contract. When the court finds no way to determine the certain meaning of the contract, the contract is held to be void. The case of Guthing v. Lynn[5] is a perfect example where the contract between the two was held to be void. The contract was to pay 5$ more than the price of the horse provided it proves lucky. The court held the contract to be vague as there was no machinery to determine how the can horse be lucky to the party.

Agreements held to be uncertain and void

Agreements to agree or negotiate

An agreement stands to be void if it is made to agree in the future, because these agreements give no certainty whether it would be agreed by the parties in the future or not. This was held in the case of May & Butcher Ltd v. R[6] in which the agreement to determine the price, manner of delivery and the dates of payment from ‘time to time’ was held to be void for uncertainty. The case laid down the principle of a concluded contract which is one in which everything is settled and nothing is left to be settled by the parties in the future and stated that only concluded contract will be held valid. A contract in which the essential or the vital part of the matter is left to be decided in the future by the parties, then such a contract is held to be void. It was further observed in the case of Courtney & Fairbairn Ltd v. Tolaini Bros (Hotels) Ltd[7] in which the Court of Appeal denied the existence of a contract on the basis that price being the vital part of a contract was neither agreed upon by the parties nor could be ascertained by any means. It was emphasized that neither a contract to enter into a future contract or agree in the future nor a contract to negotiate is valid.

Undefined Property

In the agreement for sale of properties, it is essential that the particular land to be sold should be should be clearly mentioned in the contract along with the correct Khasra number and the fixation of price for the sale should not be left to be decided on a later date. Any type of uncertainty as to identification of land and price fixation will make the contract void. In the case of William Graham v. Krishna Chandra Dey[8] , the contract was held to be void of absolute vagueness and uncertainty in determining the land to be sold due to the five Khasra numbers mentioned by the party that were of the same land. It was further held in Surendra Kumar Gupta v. Narayan Ram [9] that an agreement of sale cannot be specifically enforced if it has been held void for uncertainty. But at the same time in the case of S.R. Varadaraja Reddiar v Francis Xavier Joseph Periaria[10] , the mere absence of the survey number, the boundaries or location of the property in the terms of the agreement, did not render the contract void for uncertainty because the parties were fully aware of the details of the property to be sold under the contract and hence were certain about the identity of the property. In another case of Deojit v Pitambar[11] , the party constituting the contract was the resident of a property and a bond was executed by them, hypothecating their property as security with all the interests and rights. But this hypothecation was held to very vague because of the fact of being a mere resident of the place was not enough to determine with certainty that the property to be hypothecated was the same as the property they resided in. Thus, the agreement for the property was held to be void. Had the parties described themselves as the true owners of the property, there would have been certainty in determining the property hypothecated.

Commercial agreements

Commercial agreement which mainly involves “agreements to agree” becomes questionable when it comes to determining whether they are legally enforceable or not. It often happens that businesses enter into the contracts with an understanding to settle upon a further agreement in the future based on their future terms. Thus, rather than negotiating the further contracts at the time of first contract, they leave it to be determined in the future. But since the contracts negotiated in the future are held to be void for uncertainty, therefore it makes it necessary for them to lay out the details of the terms for entering into further arrangements rather than just mentioning it. In the case of Morris v Swanton Care & Community Ltd.[12] the court laid the difference between the unenforceable obligations arising from the negotiations of the parties to agree in the future, and the potentially enforceable obligations when only certain elements, not the vital ones, are left to be determined in the future. Thus, the mere mentioning of the ‘agreement to agree in the future’ in the contract without any further detail of the conditions will render the said void for uncertainty.

Agreements for sale of goods

Agreements for sale of goods are generally held to void in the case of uncertainty in the determination of the prices of the goods to be sold. In the case of Scammell v Ousto[13] it was agreed that the purchase price would be determined on a hire purchase basis over a period of two years. But the court found the terms of the hire purchase to be too vague to bind the parties and the contract. Since no precise meaning could be derived from it, the contract was held void for uncertainty in the determination of price. In another case of May & Butcher Ltd v The King[14] it was agreed between the parties that the price of the tents to be sold and also the date of payment, the two important terms of the contract, was to be determined when the tents were available to them. Such a contract was held void by the courts because the fundamental term of the agreement for sale of goods was not determined in the starting. Hence the agreement was unenforceable and again void for uncertainty in price determination. However, if the price is left to be determined by the third party, then in such cases the contract would be held enforceable and certain. Similarly, when there is nothing mentioned about the determination of price then also the contract would be enforceable based on section 9 of the Sales of Goods Act, 1930. Thus, the uncertainty would occur only when the price is left to be determined in the future.

Agreements without time limit of performance

Another type of agreements that are held to be too uncertain to be enforceable by the parties and the court are those in which the time limit for the performance of the contract is neither expressed nor can be implied from the nature of the contract. It was seen in a case (Carter v. The Agra Savings Bank) that an instrument promising to pay a certain amount every succeeding month was not regarded to fall in the category of a promissory note because the time for which the money had to be paid monthly was not specified anywhere in the contract and also it was impossible to deduce from the contract language the time limit of the performance. Hence the agreement was held to be void. Similarly an agreement between the parties to not enforce the payment of the cheque till the time of the receipt of the goods was held to be void on the grounds of uncertainty in the determination of the period within which the goods were to be received.

Agreements with option clause for renewal of tenancy

Generally, the agreement involving the option clause for the renewal of the lease or tenancy is held to be enforceable. But in the case when the option clause is mentioned in the contract to be renewed at the time of the renewal of the lease, as agreed upon by the parties, is held to be vod and hence unenforceable for being uncertain as was in the case of Aboobacker Keyi v Govindan Sons[15] .

Agreements with partial uncertainty-“Capable of being made certain”

When only a part or some clause of an agreement seems to be uncertain, but the rest of the terms of the contract are capable of communicating the certain meaning of the contract, then such agreements are held to be enforceable and binding on the parties. When it is possible to ascertain the terms and remove the ambiguity by applying various rules of interpretation by the courts, then in such cases the contracts are said to be valid and binding. Thus if the terms of the contract are capable of being certain, then the contract is held valid as stated in Bahadur Singh v. Fuleshwar Singh[16] . It is to be noted that in Bushwall Properties Ltd. v. Vortex Properties Ltd[17] , a contract for land purchase, it was agreed that price will be paid in three phases and accordingly the land will be released in three phases. But the contract was held void for uncertainty because there were no means to determine the part of the land to be released in a particular phase. But in case of Kandamath Cine Enterprises (P) Ltd v John Philipose [18], the contract of sale was held to be certain and valid because it was possible to find out the “one acre of front land” in a 5 acre property. It was held by the courts in Damodhar Tukaram Mangalmurti and Others v State of Bombay[19] that if the contract provides a machinery to ascertain the terms of the contracts thought to be uncertain, then such contracts are held to be valid. The provision mentioned in the contract, “subject to such fair and equitable enforcement as the lessor shall determine”, was held to be capable enough to ascertain the provisions of the renewal clause in the contract and hence was held to be valid and certain.

Treatment by the Courts

When a case of uncertainty in the terms of the contract comes to the court, the court takes all measures and uses all kind of machinery to resolve the uncertainty and hold the contract valid. It makes use of the various rules of interpretations upon various unclear terms. When the clarity in the terms of the contract is obtained and the intention of parties is made clear, the contract is held valid, otherwise if the courts are still unable to determine the true meaning, then the contract is held to be void. These various rules of interpretations used by the courts include: 1. Plain Meaning: The court may use the commonly used meaning or the dictionary meaning to resolve vagueness in the meaning of certain terms. When the contract involves technicalities of a specific industry, then the courts rely on the meaning commonly used in that industry. 2. Course of Performance: For removing the ambiguities in the contract, the court may rely on ascertaining the intention of the parties through examining the application of the words in the course of performances of previous agreements. But this interpretation can be relied upon only in case the parties had consistency in the agreements in the past. 3. Trade usage: This concept helps in recognizing the meaning of the various words and phrases used in different businesses and having specialized meanings not used in the day to day life. The particular meanings given to the technical words of a contract help the court in the interpretation of the contracts especially sales agreements and thereby resolve the uncertainty as to the meaning of the terms. 4. Parol Evidence: This rule helps the court in understanding the language of the contract. If there is some ambiguity in understanding the contract, then Parol Evidence allow the parties to introduce some outside evidence to explain the parties intention and also to resolve the ambiguity in the contract language. But courts take special care to see that it only helps in interpreting the language and do not lead to adding, contradicting or changing any terms of the contracts.

Conclusion

Thus, section 29 of the Indian Contract Act covers all the cases which involve ambiguity and vagueness in determining the true meaning of the contract or the intention of the parties. When such ambiguity arises in a contract due to absence of some important detail information, or due to absence of some vital terms of the contract, or due to the incapability of the terms to convey a particular and definite meaning or due to other above mentioned reasons, then such contracts are rendered void by the courts for uncertainty. They become unenforceable when they are unable to provide any machinery for determining the true meaning of the contract and thereby resolving the ambiguity.

But, when the contracts are capable of being made certain by using various rules of interpretations, then such contracts are held to be valid. The courts also try to remove the ambiguity from the contract by using various machineries, as mentioned above, for the interpretation of the contract to extract the true and definite meaning of the contract and to understand the intention of the parties. Thus, if the court is successful in removing the ambiguity, the contract is held to be valid, otherwise the contract remains void and unenforceable under Section 29 of the Indian Contract Act, 1872.

  1. 1941 AC 251, 268-69 per Lord Wright.
  2. AIR 1961 SC 1285: (1961) 3 SCR 2281
  3. 190 F. Supp. 166 (S.D.N.Y. 1960)
  4. 2 Hurl. & C. 906, 159 Eng. Rep. 375 (Ex 1864)
  5. (1831) 2 B & Ad 232
  6. (1934) 2 KB 17n
  7. (1975) 1 WLR 297 (CA)
  8. (1925) 27 BOMLR 740
  9. AIR 2011 Chh 138
  10. AIR 1991 Ker 288
  11. (1875) ILR 1 All 275
  12. (2018) EWCA Civ 2763
  13. 1941 AC 251
  14. (1934) 2 KB 17
  15. (1990) 2 KLT 551
  16. AIR 1969 Pat 114
  17. (1976) 1 WLR 591 (CA)
  18. AIR 1990 Ker 188.
  19. 1959 AIR 639