When does a contract exist?

Eversheds reported in Facilities Management Legal Update (Vol.4, Iss.6) about recent court cases concerning the confusion that can arise over whether a contract has come into existence.

The High Court has now held that an agreement containing a provision that the price of the contract goods should be "fair and reasonable" was insufficiently certain for a contract to have been formed, (Easat Antennas Ltd -v- Racal Defence Electronics Ltd, 21 June 2000). The court held that in this case, which concerned the design of a unique article, there was a considerable number of possible criteria to judge whether a price was "fair and reasonable". This meant that the true meaning of the phrase was, in fact, to "leave the door open to further negotiations and to indicate the spirit in which these negotiations should take place" rather than forming a contract.

Whether such a price clause is sufficiently certain for any given contract would depend upon the facts of that case. A provision in a contract setting out that a price is to be "reasonable" can be acceptable and can be implied by the Sale of Goods Act 1979 into a sale of goods contract where there is no other price provision. This case again emphasises the importance of ensuring that negotiations for contracts are fully completed as to the essential terms before either party relies on it being enforceable.
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