what is commercial certainty

Commercial Certainty in Contracts In commercial contracts it is important that the parties (or their legal advisers) should be able to know immediately and unequivocally what their rights are in the event of a breach by the other party and to make their decisions accordingly.

Full Answer

Is there certainty in commercial law?

It is clear that there has to be certainty in commercial law and some of the ways in which commercial law can facilitate the commercial transaction has been generally discussed above.

What is contract certainty and why does it matter?

But contract certainty isn’t just about having policies issued on time. It is above all about clarity. Everyone knowing and understanding exactly what is covered, what is not, and how the claims process will work. And as recent events have shown with business interruption (BI) and Covid-19, this is still a live issue.

Why does the commercial community value legal certainty?

The commercial community values legal certainty because it allows for planning and anticipating of liability. Businesses need to know that courts will reliably and consistently interpret commercial transactions.

How important is certainty in the construction of wills and deeds?

The quest for certainty, which still dominated the construction of wills and deeds, was though less important than the need to give effect to the actual commercial purpose of the document. There was however one remarkable example in the 20th century of a rule of construction being evolved by the courts in a commercial context.

Why do commercial transactions need certainty?

Why is commercial law important?

How to incorporate terms into a contract?

Why is the exclusion clause important?

How do courts help commercial businesses?

Is commercial law based on freedom of contract?

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What is certainty of meaning in business law?

Contractual certainty which is also known as certainty in a contract states that every contract must be precise and not vague. The certainty here refers to the terms of the contract, in case such terms are not definite or uncertain then such an agreement between the parties to the contract will not be considered legal.

What does certainty of terms mean in a contract?

Certainty of Terms Consensus requires that the terms of the proposed contract be reasonably specific or, alternatively, be reasonably ascertainable by means of an agreed formula or principle of determination. An agreement to agree on certain terms later on is not a contract.

What is meaning of certainty in law?

Legal certainty is a principle in national and international law which holds that the law must provide those subject to it with the ability to regulate their conduct.

Why is the value of certainty important in contract law?

It is important that terms are agreed in a contract upfront or, if certain terms are to be agreed at a later date, the parties should give thought as to how supplier and distributor or principal and agent will agree and also what is the default outcome if the parties fail to agree.

What are the 7 elements of a contract?

For a contract to be valid and recognized by the common law, it must include certain elements— offer, acceptance, consideration, intention to create legal relations, authority and capacity, and certainty.

What is meant by certainty and vagueness in a contract?

The terms of an agreement may be so vague or uncertain as to be meaningless and therefore unenforceable. However, where parties have reached agreement, a court will strive to give that agreement meaning.

What are the 5 principles of the rule of law?

It requires, as well, measures to ensure adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness and procedural and legal transparency.

What is a moral certainty in law?

Moral certainty only is required, or that degree of proof which produces conviction in an unprejudiced mind. The conscience must be satisfied that the accused is responsible for the offense charged.

What are synonyms for certainty?

certaintyassurance,assuredness,certitude,cocksureness,confidence,conviction,doubtlessness,face,More items...

Why is contract certainty so important for insurers?

The objective of contract certainty is to provide clarity for both customer and insurer on the terms and conditions of the policy prior to inception/renewal.

What are the five essential elements of an enforceable contract?

5 Elements of a Legally Binding ContractThe Offer.Acceptance.Consideration.Mutuality of Obligation.Competency and Capacity.Other Considerations.Types of Contracts.Why Are Contracts Necessary?

What makes a contract legally binding?

A contract is an agreement between parties, creating mutual obligations that are enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

What constitutes certainty of performance?

The intent being exact fulfilment of an obligation (specific performance) and to make good the loss suffered by the promisee.

What is capacity to contract example?

Ans: Rajiv has attained the age of majority. Also, the doctors state that he is of a sound mind for intervals of time. Hence, he can enter into a contract during the period when his mind is sound, i.e when he has the capacity to contract.

What are the terms of an offer?

For example, as a minimum requirement for sale of goods contracts, a valid offer must include at least the following 4 terms: Delivery date, price, terms of payment that includes the date of payment and detail description of the item on offer including a fair description of the condition or type of service.

What are the elements of a contract?

A contract is an agreement between parties, creating mutual obligations that are enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

Why do commercial transactions need certainty?

The commercial community values legal certainty because it allows for planning and anticipating of liability. Businesses need to know that courts will reliably and consistently interpret commercial transactions. The English courts have consistently promoted considerations of certainty of outcome over those of fairness and justice and offer commercial community a reasonable degree of predictability. In Vallejo v Wheeler, [ 2] Lord Mansfield said, ‘in all mercantile transactions the great object should be certainty, and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.’ [ 3] Therefore, in order for there to be certainty, the law should be clear and be capable of being applied in a predictable way. For example, if a rule gives the court discretion to find a contract unreasonable, this may be unpredictable. Business people are free to make their contract and to insist on its strict performance. The goal is to enforce the true intention of the parties. Lord Devlin in Kum v Wat Tat Bank Ltd, [ 4] stated, ‘the function of the commercial law is to allow, so far as it can, commercial men to do business in the way they want to do it and not to require them to stick to forms that they may think to be outmoded. The common law is not bureaucratic.’ [ 5] This non-intervention is justified on the basis that it promotes certainty. Courts should only intervene if the contract terms are so restrictive or oppressive that it offends against public interest. Of course, freedom of contract cannot be absolute. The courts have tended to adopt a non-interventionist approach on the assumption that there is equality of bargaining power between the contracting parties. It is questionable whether this assumption is as valid today, particularly in the light of the increased use of standard terms of business and the rise of monopolies in which dominated by certain groups. Nevertheless, to the extent that the law is not concerned with the fairness of outcome, commercial law reflects the principles of freedom of contract. Factors suggest that assumption may be less than reliable today, at least as far as the consumer buyer is concerned. However, ‘pure’ commercial contracts are often excluded from such legislation, for example the Consumer Credit Act 2006 [ 6] has no application to contracts with companies or where business lending to an individual exceeds £25,000 and the UCTA 1977 [ 7] does not apply to, for example, international supply of goods nor insurance contracts.

Why is commercial law important?

Commercial law is essential to the operation of the business world. To facilitate commercial activity, the business community needs a legal system which is certain and predictable, which will give effect to its transaction, which will give legal recognition to trade customs and market prices, which is flexible in order to accommodate new practices ...

How to incorporate terms into a contract?

A party who wishes to incorporate terms into a contract by giving his contracting party notice of them must satisfy three requirements. First, notice must have been given at or before the time of contracting. In Olley v Marlborough Court Ltd, [ 44] the notice was located in a hotel bedroom. It was held that it was ineffective to exclude liability towards a guest of the hotel on the basis that the contract between the hotel and the guest had been concluded before she set foot in the hotel bedroom. It was therefore too late to be effective. Of course, if it could have been shown that if the claimants had visited the hotel regularly, and that they were aware of the terms under which it did business, the clause may have been allowed to stand. [ 45] In the era of contracts via the internet, great care must be taken in constructing websites so that notice of any exemption clauses is given to a person entering into a contract. With the possibility of a purchaser being able to jump pages by way of links, it is necessary to ensure that the pages including the exclusion clauses is not capable of being bypassed by such links. The consequences of this arising may mean that a contracting party will not be bound by an exclusion clause and this may facilitate commercial transaction for the commercial community as it gives protection to consumers who enter into contracts not wholly appreciating or understanding the full implications of the contract. The second requirement is that the terms must have been contained or referred to in a document that was intended to have contractual effect. In Chapelton v Barry UDC, [ 46] a ticket was given to someone who hired a deckchair was held not to be a contractual document and so was not effective to give the hirer notice of the terms. [ 47] The third requirement is that reasonable steps must have been taken to bring the terms to the attention of the other party. This requirement has generated a considerable amount of case law which dates back to the decision of the Court of Appeal in Parker v South Eastern Railway, [ 48] where the claimant had deposited a bag in the cloakroom of a railway station belonging to the defendants. He was given a ticket with conditions including a clause limiting liability. The claimant had not read the clause but was bound by it. The defendant had done enough to notify the claimants of the clause. [ 49] In this case, the test applied by the court is not whether the recipient has read the terms or taken reasonable steps to discover their existence. Instead the court focus attention upon the party relying upon the terms and ask themselves whether that party has taken reasonable steps to bring notice of the term or terms to the attention of the party. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd. [ 50] was a case which did not focus on exclusion clauses but has implications for them. A clause stating that a charge of £5 per transparency per day was to be levied if they were not returned by a certain date. The defendant forgot about the transparencies and was eventually given a bill of £3,783.50. The Court held that this condition was unreasonable and extortionate, and as such special attention should have been drawn to it. [ 51] The need to draw attention to unusual clauses is not a recent development in contractual exclusion clauses, in Hood v Anchor Line (Henderson Brothers) [ 52] Lord Dunedin stated “Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party”. [ 53] In this particular case it was found that the conditions were not unusual and therefore did not require explicit attention to be drawn to them. [ 54] Lord Dunedin’s inference that unusual conditions could require extraordinary notices draws similarities to Lord Denning’s obiter in J Spurling Ltd v Bradshaw [ 55] where he famously referred to the need for the ‘red hand’ pointing to the clause. [ 56] While his comment may have its mark on the judicial memory and on textbook writers, it has not been translated into commercial practice. Little red hands are not to be found in commercial contracts in the UK. A more realistic step to take is to put the clause in bold print. A court may be more likely to conclude that reasonable steps have been taken where there has been ‘an express acknowledgment in the contractual document that the terms and conditions in question were incorporated. (Ocean Chemical Transport Inc v Exnor Craggs Ltd). [ 57]

Why is the exclusion clause important?

Exclusion clause can play a very important role in the regulation of risk.

How do courts help commercial businesses?

For example, if the contracting parties are in particular trade where there is settled custom in usage, a term giving effect to that custom or usage may be implied into their contract. In order for the custom or usage to be judicially recognised, it needs to be certain, that is, be well established so the assumption is that parties contracted on the basis of it and reasonable, so that reasonable, honest people would accept it. Business people want flexibility as well as predictability in order to accommodate new practices and development in business. The need for flexibility to accommodate new commercial practices has been met historically by judges recognising mercantile custom and incorporating it within the common law. As commercial people find new ways of doing business, the law needs to adapt to and accommodate these changing commercial practices. For example, with the new technology being used in business, the special problems of e-commerce are factors influencing the development of Commercial law. The law therefore needs to be flexible, although flexibility is often at the expenses of certainty. Legislature also seeks to respond to and accommodate the needs of the commercial community. For example, whenever the reform is proposed extensive consultation with the commercial community will take place before production of the Law Commission report. For example, the Sale of Goods Act 1995. [ 8]

Is commercial law based on freedom of contract?

Nevertheless, to the extent that the law is not concerned with the fairness of outcome, commercial law reflects the principles of freedom of contract. Factors suggest that assumption may be less than reliable today, at least as far as the consumer buyer is concerned.

What is the December 2020 issue of Property Lawyer Magazine?

In the December 2020 issue of The Property Lawyer Magazine, our expert and real estate partner reflects on commercial lease negotiation issues highlighted by COVID-19 and, in particular, the significance of choosing flexibility or certainty of lease provisions when negotiating commercial leases in our ever-changing world.

Is the information provided herein applicable in all situations?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

What is the definition of certainty?

Certainty can be defined as being free from any doubt, a state of being absolutely certain, as in the certainty of death. In terms of contract law, a contract is certain when the provisions are properly described and explained and clearly set forth.

Who laid the groundwork for some fundamental principles for interpreting unclear wording in contracts?

In 1997, through a frequently-cited English contract law case (Investors Compensation Scheme Ltd. v. West Bromwich Building Society), Lord Hoffman laid the groundwork for some fundamental principles for interpreting unclear wording in contracts. He determined the principles of contractual interpretation should be interpreted in the following way:

What do courts believe about interpreting policy wordings?

The courts believe a certain amount of flexibility and common sense should be utilized when interpreting any kind of policy wordings. Determining what losses are covered is often disputed. The noticeable lessons are to make sure:

What are the laws governing insurance coverage?

Laws governing policy coverage have been established in all states. Regulators negotiate with insurance providers on the behalf of consumers using the backdrop of English law. The most complicated aspect of the negotiations revolves around the sense of what the established laws provide and how they'll govern conditions precedent, good faith, and warranties.

When is the wording of a contract analyzed?

It's only when there is a loss that the wording of a contract is analyzed. Contract certainty is achieved by having parties agree to the wording before formally committing to the contract. However, cases of contract interpretation still occur. How do courts interpret policy terms? There is a perception that courts interpret contracts quite literally, agonizing over every single detail. Although clear drafting is still essential, it does not correctly reflect their approach.

Is one party's subjective understanding of the contract or any evidence of previous negotiations acceptable proof of what the contract means?

One party's subjective understanding of the contract or any evidence of previous negotiations is unacceptable proof of what the contract means .

Why do commercial transactions need certainty?

The commercial community values legal certainty because it allows for planning and anticipating of liability. Businesses need to know that courts will reliably and consistently interpret commercial transactions. The English courts have consistently promoted considerations of certainty of outcome over those of fairness and justice and offer commercial community a reasonable degree of predictability. In Vallejo v Wheeler, [ 2] Lord Mansfield said, ‘in all mercantile transactions the great object should be certainty, and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.’ [ 3] Therefore, in order for there to be certainty, the law should be clear and be capable of being applied in a predictable way. For example, if a rule gives the court discretion to find a contract unreasonable, this may be unpredictable. Business people are free to make their contract and to insist on its strict performance. The goal is to enforce the true intention of the parties. Lord Devlin in Kum v Wat Tat Bank Ltd, [ 4] stated, ‘the function of the commercial law is to allow, so far as it can, commercial men to do business in the way they want to do it and not to require them to stick to forms that they may think to be outmoded. The common law is not bureaucratic.’ [ 5] This non-intervention is justified on the basis that it promotes certainty. Courts should only intervene if the contract terms are so restrictive or oppressive that it offends against public interest. Of course, freedom of contract cannot be absolute. The courts have tended to adopt a non-interventionist approach on the assumption that there is equality of bargaining power between the contracting parties. It is questionable whether this assumption is as valid today, particularly in the light of the increased use of standard terms of business and the rise of monopolies in which dominated by certain groups. Nevertheless, to the extent that the law is not concerned with the fairness of outcome, commercial law reflects the principles of freedom of contract. Factors suggest that assumption may be less than reliable today, at least as far as the consumer buyer is concerned. However, ‘pure’ commercial contracts are often excluded from such legislation, for example the Consumer Credit Act 2006 [ 6] has no application to contracts with companies or where business lending to an individual exceeds £25,000 and the UCTA 1977 [ 7] does not apply to, for example, international supply of goods nor insurance contracts.

Why is commercial law important?

Commercial law is essential to the operation of the business world. To facilitate commercial activity, the business community needs a legal system which is certain and predictable, which will give effect to its transaction, which will give legal recognition to trade customs and market prices, which is flexible in order to accommodate new practices ...

How to incorporate terms into a contract?

A party who wishes to incorporate terms into a contract by giving his contracting party notice of them must satisfy three requirements. First, notice must have been given at or before the time of contracting. In Olley v Marlborough Court Ltd, [ 44] the notice was located in a hotel bedroom. It was held that it was ineffective to exclude liability towards a guest of the hotel on the basis that the contract between the hotel and the guest had been concluded before she set foot in the hotel bedroom. It was therefore too late to be effective. Of course, if it could have been shown that if the claimants had visited the hotel regularly, and that they were aware of the terms under which it did business, the clause may have been allowed to stand. [ 45] In the era of contracts via the internet, great care must be taken in constructing websites so that notice of any exemption clauses is given to a person entering into a contract. With the possibility of a purchaser being able to jump pages by way of links, it is necessary to ensure that the pages including the exclusion clauses is not capable of being bypassed by such links. The consequences of this arising may mean that a contracting party will not be bound by an exclusion clause and this may facilitate commercial transaction for the commercial community as it gives protection to consumers who enter into contracts not wholly appreciating or understanding the full implications of the contract. The second requirement is that the terms must have been contained or referred to in a document that was intended to have contractual effect. In Chapelton v Barry UDC, [ 46] a ticket was given to someone who hired a deckchair was held not to be a contractual document and so was not effective to give the hirer notice of the terms. [ 47] The third requirement is that reasonable steps must have been taken to bring the terms to the attention of the other party. This requirement has generated a considerable amount of case law which dates back to the decision of the Court of Appeal in Parker v South Eastern Railway, [ 48] where the claimant had deposited a bag in the cloakroom of a railway station belonging to the defendants. He was given a ticket with conditions including a clause limiting liability. The claimant had not read the clause but was bound by it. The defendant had done enough to notify the claimants of the clause. [ 49] In this case, the test applied by the court is not whether the recipient has read the terms or taken reasonable steps to discover their existence. Instead the court focus attention upon the party relying upon the terms and ask themselves whether that party has taken reasonable steps to bring notice of the term or terms to the attention of the party. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd. [ 50] was a case which did not focus on exclusion clauses but has implications for them. A clause stating that a charge of £5 per transparency per day was to be levied if they were not returned by a certain date. The defendant forgot about the transparencies and was eventually given a bill of £3,783.50. The Court held that this condition was unreasonable and extortionate, and as such special attention should have been drawn to it. [ 51] The need to draw attention to unusual clauses is not a recent development in contractual exclusion clauses, in Hood v Anchor Line (Henderson Brothers) [ 52] Lord Dunedin stated “Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party”. [ 53] In this particular case it was found that the conditions were not unusual and therefore did not require explicit attention to be drawn to them. [ 54] Lord Dunedin’s inference that unusual conditions could require extraordinary notices draws similarities to Lord Denning’s obiter in J Spurling Ltd v Bradshaw [ 55] where he famously referred to the need for the ‘red hand’ pointing to the clause. [ 56] While his comment may have its mark on the judicial memory and on textbook writers, it has not been translated into commercial practice. Little red hands are not to be found in commercial contracts in the UK. A more realistic step to take is to put the clause in bold print. A court may be more likely to conclude that reasonable steps have been taken where there has been ‘an express acknowledgment in the contractual document that the terms and conditions in question were incorporated. (Ocean Chemical Transport Inc v Exnor Craggs Ltd). [ 57]

Why is the exclusion clause important?

Exclusion clause can play a very important role in the regulation of risk.

How do courts help commercial businesses?

For example, if the contracting parties are in particular trade where there is settled custom in usage, a term giving effect to that custom or usage may be implied into their contract. In order for the custom or usage to be judicially recognised, it needs to be certain, that is, be well established so the assumption is that parties contracted on the basis of it and reasonable, so that reasonable, honest people would accept it. Business people want flexibility as well as predictability in order to accommodate new practices and development in business. The need for flexibility to accommodate new commercial practices has been met historically by judges recognising mercantile custom and incorporating it within the common law. As commercial people find new ways of doing business, the law needs to adapt to and accommodate these changing commercial practices. For example, with the new technology being used in business, the special problems of e-commerce are factors influencing the development of Commercial law. The law therefore needs to be flexible, although flexibility is often at the expenses of certainty. Legislature also seeks to respond to and accommodate the needs of the commercial community. For example, whenever the reform is proposed extensive consultation with the commercial community will take place before production of the Law Commission report. For example, the Sale of Goods Act 1995. [ 8]

Is commercial law based on freedom of contract?

Nevertheless, to the extent that the law is not concerned with the fairness of outcome, commercial law reflects the principles of freedom of contract. Factors suggest that assumption may be less than reliable today, at least as far as the consumer buyer is concerned.

Certainty in Commercial Law

• Many transactions are undertaken on the basis that courts will continue to follow the rules laid down in previous contract case laws. The commercial community values legal certainty because it allows for planning and anticipating of liability. Businesses need to know that courts will reliably and consistently interpret commercial transactions. The ...

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Exclusion Clauses

I.Incorporation by Signature

Ii.Incorporation by Notice

Iii.Incorporation by Course of Dealing