Introduction
Certainty of subject matter is a fundamental principle in both contract and trust law, dictating that for an agreement to be valid or a trust to be enforceable, the assets or subject matter must be defined with sufficient clarity. This doctrine ensures that parties understand the obligations they are undertaking, and that a court can readily identify the specific items at stake. Technically, the principle requires an unambiguous description of the property, goods, or rights involved in the legal relationship. Key requirements include a specific, determinable description that eliminates ambiguity. Formal language in this context demands precision to prevent disputes arising from vague or unclear terms. The absence of such certainty can invalidate the agreement or trust, rendering it legally ineffective.
Defining Certainty of Subject Matter in Contracts
In contract law, certainty of subject matter ensures that the obligations of the parties are clear and enforceable. The subject matter of a contract can range from tangible goods to intangible services or intellectual property rights. For an agreement to be binding, the parties must have a clear, mutual understanding of what is being exchanged, sold, or provided. This requirement of certainty prevents contracts from being vague or ambiguous, thereby fostering mutual understanding between the parties and preventing a potential for disagreements regarding the subject matter.
Requirements for Certainty
Several factors contribute to certainty of subject matter in contracts. Firstly, the subject matter should be adequately described. If a contract involves the sale of goods, this description should include quantity and specific identifiers to delineate the particular goods from a general class. For example, specifying “5000 tonnes of grapes” is more descriptive but should also include additional information about the variety, source or date of harvest to be truly effective. Secondly, the subject matter should exist or be capable of coming into existence. Contracts that pertain to non-existent or ill-defined subject matter are generally unenforceable. Thirdly, an agreement should not be subject to open terms, which render the obligations unclear. A contract for “some bottles,” without any further description of quantity, type, or size would be considered too vague to be enforceable.
Case Examples of Contractual Certainty
The case of Pagnan SpA v Feed Products [1987] 2 Lloyd’s Rep. 601 illustrates a situation where although the main terms of a contract, such as price and quantity, were agreed, several other essential aspects remained undecided, which resulted in a finding that the agreement was binding despite some uncertainty. The court determined that the missing terms did not render the contract 'unworkable', emphasising that the intention of the parties as a whole should be taken into account. This is further emphasised where parties proceed with performance of the contract, where this becomes an indication that the contract is binding. However, in Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401, the court determined that a battle of forms where no consensus had occurred would result in the ‘last shot’ prevailing, demonstrating a requirement for concrete certainty even where a contract had been partially performed.
Certainty of Subject Matter in Trusts
Similar to contract law, trust law mandates certainty of subject matter to ensure that trust arrangements are valid and enforceable. A trust involves a legal separation of ownership and benefit, with trustees holding legal title to assets for the benefit of identified beneficiaries. The assets, known as the subject matter of the trust, must be defined with sufficient clarity for the trust to operate effectively. As seen in cases like Re Goldcorp Exchange Ltd [1995] 1 AC 74, the lack of segregation of subject matter prevents the creation of a trust due to an absence of certainty in what is to be subject to the trust.
The Requirement for Segregation and Definition
A fundamental rule in trust law is that the subject matter of a trust must be identifiable. This often requires that trust property be segregated from other property. For tangible items, such as shares or goods, this means that they must be specifically designated to a trust. For example, simply declaring a trust over “some wine” would be insufficiently certain, as seen in Re London Wine Co [1986] PCC 121. This case held that the wine that was meant to be held in trust had not been separated and thus could not be subject to a trust and that a lack of certainty will prevent the imposition of a trust. Conversely, a trust declared over “2000 bottles of 1982 Chateau Margaux, located in Cellar A” would fulfill this requirement.
Where a trust is made in respect of intangible assets, such as shares or bank accounts, specificity is equally paramount. The trust deed must clearly identify the particular shares or accounts to which the trust relates, and a distinction was drawn between chattels and choses in action in Re Harvard Securities, Holland v Newbury [1997] 2 BCLC 369. In this instance, the shares were not allocated to specific clients and despite them having not been separated the fact they were intangible was deemed sufficient to be certain.
The Problem of ‘Expectancies’
The principle of certainty applies not only to current assets but also to future rights. A trust must concern something capable of being held on trust, which cannot include mere expectancies. Re Ellenborough [1903] 1 Ch 697, confirms that a mere expectation of future property, such as a potential inheritance, cannot form the subject of a trust. If an expectancy is backed by a contractual right, it can then form the subject of the trust due to the nature of this right being more than a mere expectation. In other words, any intangible right must be more than a ‘hope’ for something in the future.
Overlap Between Contract and Trust Certainty
While contract and trust law operate in distinct contexts, the principle of certainty of subject matter serves a similar purpose in both. In contracts, it enables the enforcement of obligations by making clear to the parties what it is that is subject to the agreement; in trusts, it ensures that the trust operates fairly and effectively. This shared principle highlights a common concern across these two areas of law – that legal obligations must be based on a firm, unambiguous understanding of the subject matter, which prevents manipulation or avoidance of obligations by creating loopholes.
Objective Standards
Both in contract and trust law the courts apply an objective standard when determining if certainty of subject matter has been met. This means the courts do not rely upon the subjective intentions of the parties. Instead, they look to whether a reasonable person would be able to understand the subject matter of the contract or trust based on the language and description used. The legal system, as seen in Smith v Hughes, [1871] LR 6 QB 597, is more interested in the objective meaning of the words and actions of the parties rather than what was going on in their respective minds. The objective test ensures uniformity and predictability in judicial decision making.
Practical Consequences
If there is not certainty of subject matter in a contract, it will be deemed unenforceable, thus leaving the parties with limited options for resolving the dispute outside of forming a fresh contract. Similarly, in trusts, if the property is inadequately described, or not defined with any accuracy, then there will not be a legally valid trust and the property is unlikely to be passed onto the intended beneficiary. These legal doctrines are based upon common sense: to avoid conflict, the parties must clearly understand the subject matter of their agreement or the property they have agreed to transfer. This serves as a reminder of the importance of precision in drafting both contracts and trust deeds.
Conclusion
Certainty of subject matter is an essential tenet of both contract and trust law, ensuring that legal obligations and rights are founded on a clear, unambiguous understanding of what is at stake. The requirement for a specific, determinable description serves to prevent disputes arising from vagueness or ambiguity. Through cases such as Pagnan, Re Goldcorp, and Re London Wine, the courts have developed a body of law that demands that the core subject of any legally binding agreement should be clearly defined. While the specific rules and their application vary based on the context, the overall objective remains consistent: to ensure fairness, predictability and justice in legal transactions. This focus on certainty underscores the critical role of clarity in the legal environment, requiring those who engage in contract or trust work to provide sufficient detail in the subject matter of their agreement. The technical requirements of legal drafting should focus on practical outcomes, namely, a clear and precise agreement and a legally enforceable trust.
