Variations and Changes to Price in Commercial Contracts

Contracts are legally binding agreements between the parties to the contract. Once the contract has been formed, the terms of the contract cannot be changed without the agreement of all the parties to the agreement.

Price Changes by Agreement

Most often, parties to a contract will fix the price to be paid under a contract. For instance, A may agree to purchase a boat for the sum of say £10. This agreed price cannot then be unilaterally altered by a party, unless the contract contains an express right to do so. If the parties do not agree a price, the Sale of Goods Act 1979 states that the buyer is bound to pay a reasonable price which may take into consideration the custom and practice in the trade or as a result of course of dealing.

In long term contracts, the there may be good reason to build flexibility into the agreement, to take account of increases in prices of materials, currency fluctuations that affect the prices of the goods or services supplied.

Contractual Uncertainty

It is a fundamental of English contract law that a contract will be unenforceable if it is too uncertain. An agreement that certain terms are to be agreed later or from time to time may render the contract so uncertain that it cannot be enforced.

In fact, leaving major points undecided may show that the parties had no intention to be bound by the contract, and if there is no intention to be bound, there is no contract at all. Price is generally a major term in the contract.

Terms of Contracts

This does not mean that the price has to be fixed from the start.

In Foley v Classique Coaches Ltd [1934] 2 K. B. 1. the Court of Appeal held that the term “at a price to be agreed by the parties from time to time” was a valid term. A reasonable price should be paid because the agreement was stamped, both parties intended to be bound by it, and it contained an arbitration clause in the event the price could not be agreed and that the parties had been acting on the contract for a number of years.

The contractual machinery allowed the parties to fix a price through bona fide negotiation, and failing that resort to the arbitration clause. The Court of Appeal’s decision shows the judiciary’s reluctance to allow parties to escape their contractual arrangements simply because all terms have not been agreed.

Fixing Prices

If a term was intended by the parties to have legal effect, the courts are slow to declare it unenforceable because it is uncertain. Therefore the courts support as contracts which set out the machinery for deciding terms which have not been fixed with absolute certainty.

Hence, linking the price variation to market value, an official price list or an alternative purely objective standard is more likely to be ruled to be ruled enforceable, whilst a contract which sets out that the undecided matter is to be agreed by criteria to be agreed at a later date in the absence of machinery provisions to make it happen would more likely be void for uncertainty.

A contract may provide that the price is to be fixed by reference to the seller’s standard price list. Ideally, if that price list is to be updated during the course of the agreement, the contract should provide for that event explicitly, therefore the contract must allow for the seller to vary the price by reference to an update to the price list.

Concluding Remarks

An agreement is not incomplete if it sets out how unresolved matters are to be decided and when it comes to price, if the method for varying the price is clearly set out in the contract flexibility can be maintained and the contract remains enforceable.