An offer that states the final price will be cost plus 15% is too uncertain to form the basis of a valid contract.
a) True b) False
The correct answer and explanation is:
The correct answer is b) False.
An offer stating that the final price will be “cost plus 15%” is not too uncertain to form the basis of a valid contract. While such an offer does not specify a precise final price, the mechanism for determining the price is clear and objective. The cost and the 15% markup can be calculated, which makes the contract enforceable. This type of agreement falls under what is called a “cost-plus” contract, commonly used in construction, manufacturing, and service industries.
In a cost-plus contract, the buyer agrees to pay for the actual costs incurred by the seller plus a specified margin, often expressed as a percentage. While the exact amount to be paid is not known at the time the contract is formed, the formula for calculating it is clear. The seller can provide a detailed breakdown of costs, which makes the contract enforceable even without knowing the exact final price upfront.
Courts generally hold that contracts with terms that provide a clear method for determining price, even if not fixed, are valid because the parties can calculate the total amount due when performance occurs. In the context of a “cost-plus 15%” contract, the cost of goods or services provided would be determined by the seller’s actual expenses, and the buyer would pay 15% of that cost. The key element here is that both parties have a mutual understanding of how the price will be set, which meets the necessary criteria for contract formation under contract law. Therefore, such an offer is not too uncertain to form a valid contract.