Certainty of Subject Matter: Contract and Trust Law

Introduction

Certainty of subject matter is a basic requirement in both contract and trust law. In simple terms, the property, goods, services, or rights at issue must be described clearly enough that a court can tell exactly what they are, and who is entitled to them. Where the description is vague or the property cannot be identified, a contract may be unenforceable and a trust may fail.

In contracts, certainty ensures the parties know what is being exchanged. In trusts, it ensures trustees know what they hold and beneficiaries know what they can claim. The law therefore expects precise descriptions, workable mechanisms for identifying goods or rights, and—for many trusts—segregation of property from a wider bulk.

What You'll Learn

• What counts as a sufficiently clear description of subject matter in contracts
• When courts tolerate missing terms and when they do not
• How the “battle of forms” interacts with certainty
• How trusts handle tangible property, bulk goods, and intangible assets
• When segregation is needed and when it is not
• Why mere expectancies cannot be held on trust
• The objective test the courts apply across both areas
• Practical drafting steps to avoid uncertainty

Core Concepts

Contracts: What counts as certain subject matter

A contract needs a clear and workable description of what is to be bought, sold, supplied, licensed, or performed. Precision reduces scope for disputes and helps a court enforce the deal if needed.

Key points

• Description: Identify goods, services, or rights with enough detail (for goods, include quantity and, where relevant, model, grade, batch, harvest, source, or SKU). “Some bottles” is too vague; “500 bottles of 2018 Estate Pinot Noir, Lot X, from Warehouse A” is much clearer.
• Quantity and identifiers: Quantity is usually essential. Identifiers matter where items are part of a larger class.
• Existence or ascertainability: The subject matter must exist or be capable of being ascertained by a clear mechanism. A contract for goods “to be selected from the 10,000 tonnes stored in Silo 3” is workable if there is a method for appropriation to the contract.
• No open-ended essentials: An agreement to agree, or vague wording on essentials (e.g., “price to be agreed later” with no mechanism), generally fails. A formula, index, or third-party determination can rescue an otherwise open point.
• Performance as evidence: If parties proceed with performance and act as if a contract exists, this can support a finding that enough was agreed to make it binding.

Practical drafting points

• Give concrete descriptions (use product codes, specifications, or schedules).
• Provide mechanisms for any variables (e.g., price by index; quantity by minimum/maximum and call-offs).
• Avoid bare “to be agreed” clauses; add a fallback or expert determination.
• State the acceptance process clearly to reduce “battle of forms” problems.

Trusts: Identifiable property and segregation

A trust requires certainty about what property is subject to the trust. If the property cannot be identified, the trust fails.

Key points

• Identifiable property: The trust asset must be described so it is clear what the trustee holds for beneficiaries.
• Tangible goods and bulk: For physical items forming part of a larger bulk, the items intended for the trust usually need to be segregated or otherwise appropriated. Cases such as Re London Wine Co and Re Goldcorp show that unallocated portions of a bulk of goods or bullion will not support a trust for individual customers.
• Intangible, identical property: Courts have treated shares of the same class differently. Following the approach endorsed in Re Harvard Securities (drawing on Hunter v Moss), a trust may be valid without segregation where the intangible assets are identical and a defined number is allocated on the records to a beneficiary.
• Bank accounts: A trust over a specific account balance can be clear, but a trust over “part of” a mixed account without ring-fencing is risky.

Practical drafting points

• For physical items, segregate the goods or appropriate them to the trust and keep clear records.
• For shares or other identical intangible property, keep precise ledgers allocating numbers to beneficiaries.
• Use schedules to list assets, account numbers, ISINs, or certificate details.

Objective approach and future rights

Courts apply an objective test across contract and trust disputes: they ask what a reasonable person would understand from the words and conduct used, not what parties privately meant. In contract formation, the classic authority is Smith v Hughes. The same objective approach helps in assessing whether subject matter is sufficiently clear.

Future rights and expectancies

• Mere expectancies cannot be held on trust: Re Ellenborough confirms that a bare hope of future inheritance cannot form present trust property.
• Assignment of future property: A present agreement to assign future property for value can “attach” when the property comes into existence (in equity). If you intend to deal with future assets, use a clear assignment clause or a fixed charge with suitable wording so the interest takes effect once the asset exists.

Key Examples or Case Studies

Pagnan SpA v Feed Products [1987] 2 Lloyd’s Rep 601

• Issue: Some terms were left open while price and quantity were agreed.
• Held: There was a binding contract. The missing items did not make the agreement unworkable, especially where conduct showed the parties proceeded on the basis of a deal.
• Point: Courts can uphold a contract if essentials are clear and any gaps are manageable.

Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401

• Issue: Competing standard terms (a battle of forms).
• Held: Using orthodox offer and acceptance analysis, the buyer’s terms governed. Often the “last shot” can prevail where it is the final set of terms accepted by conduct.
• Point: Certainty depends on which terms were accepted; make acceptances explicit and consistent.

Re London Wine Co (Shippers) Ltd [1986] PCC 121

• Issue: Wine purchased by customers was not segregated.
• Held: No trust arose over unallocated bottles in a bulk.
• Point: For tangible goods, segregation or appropriation is usually needed.

Re Goldcorp Exchange Ltd [1995] 1 AC 74

• Issue: Unallocated bullion; customers thought they had specific holdings.
• Held: No trust for customers whose bullion was not set aside.
• Point: Unsegregated shares of a bulk of physical goods are not certain enough for a trust.

Re Harvard Securities; Holland v Newbury [1997] 2 BCLC 369

• Issue: Clients’ shares of the same class were recorded on internal ledgers but not identified certificate by certificate.
• Held: Clients had beneficial ownership without physical segregation of identical intangibles.
• Point: Identical intangible property can be sufficiently certain if records allocate numbers to beneficiaries.

Re Ellenborough [1903] 1 Ch 697

• Issue: Trust over a hoped-for inheritance.
• Held: Invalid. A mere expectancy cannot be the subject matter of a present trust.
• Point: Use an assignment of future property if you wish to capture assets when they come into existence.

Smith v Hughes [1871] LR 6 QB 597

• Issue: Objective test for agreement.
• Held: The court looks to outward words and conduct, not secret intentions.
• Point: The objective test supports clarity in both contract and trust settings.

Practical Applications

Contract drafting

• Describe the subject matter precisely:
  • Goods: quantity, model/grade, batch/lot, source, delivery point, and acceptance criteria.
  • Services: scope, deliverables, milestones, service levels, and measurement methods.
  • IP/licences: licence scope, fields of use, territory, duration, and any exclusivity.
• Deal with variables:
  • Price: indices, formulae, or expert determination.
  • Quantity: minimums/maximums, call-off procedures, and appropriation rules for bulk goods.
• Avoid vague essentials:
  • Replace “to be agreed” with a clear mechanism or fallback.
  • Use “subject to contract” on drafts to prevent premature formation.
• Manage forms and acceptances:
  • Include an order of precedence clause.
  • State that acceptance is only valid on specified terms and by a specified method.
  • Confirm receipt and acceptance in writing, referencing the agreed terms.

Trust setup and administration

• Identify the property:
  • Use schedules listing assets, account numbers, certificate details, or ISINs.
  • For bank monies, open separate accounts rather than a general mixed account.
• Segregate where needed:
  • For physical goods or bullion, allocate and label items; issue warehouse receipts tied to the trust.
  • Keep inventory logs and reconciliation records.
• Handle intangibles properly:
  • For identical shares, maintain accurate ledgers showing numbers allocated to each beneficiary.
  • For mixed or non-identical intangibles, consider explicit appropriation or sub-accounts.
• Avoid trusts over expectancies:
  • If you need to cover future assets, use present assignments of future property or a fixed charge that attaches when assets arise.

Transaction checks

• For contracts:
  • Is the description specific enough that a third party could identify the subject matter?
  • Are price and quantity certain, or fixed by a clear method?
  • Does the contract state how and when goods from a bulk are appropriated?
  • Do all documents (offer, PO, acknowledgement) match on key terms?
• For trusts:
  • Can you point to the exact property held on trust?
  • Are physical goods segregated? Are records complete and up to date?
  • For shares, do ledgers show precise numbers per beneficiary?

Common pitfalls to avoid

• “Some of the goods” without quantity or identifiers.
• Trusts declared over an unallocated portion of a bulk of tangible goods.
• Relying on a hoped-for inheritance or windfall.
• Battle-of-forms confusion where no clear acceptance of one set of terms is recorded.

Summary Checklist

• Contracts: describe goods/services/rights with quantity and identifiers
• Contracts: provide mechanisms for any open variables (price, quantity, quality)
• Contracts: align offer, acceptance, and order of precedence to avoid “last shot” issues
• Trusts: ensure the property is identifiable; segregate tangible items or clearly appropriate from a bulk
• Trusts: for identical intangibles, keep accurate allocation records (numbers per beneficiary)
• Do not create trusts over mere expectancies; use assignments for future property
• Apply the objective test: focus on clear wording and recorded conduct
• Keep complete schedules, ledgers, and reconciliation records

Quick Reference