Theory of contract law - Essay Example

Introduction: The primary object of courts while construction of a contract is to determine and give effect to the intention of the parties. This fact is elucidated by the eminent judges such as Chief Justice Brian in 1478 held 'that the intention of a man cannot be tried, for the Devil himself knows not the intent of a man'1. And nineteenth century judges such as Lord Eldon who in kennedy v Lee said that it was not the task of his 'to see that both parties really meant the same thing, but only that both gave their assent to that proposition which, be it what it may, defacto arises out the terms of their corresondence.2 And Austin said that 'when we speak of the intention of contracting parties, we mean the intention of the promissor or the intention of the promisee' and he also added that 'the sense in which it is to be inferred from the words used or from the transaction or from both that the one party gave and the other received it'3. Before essaying the subject it is significant to discuss concisely on other prime factors of a valid contract to which intention of the parties is related to, such as Offer and acceptance and consideration. Offer: Consensus ad idem is the maxim on the offer and acceptance, which means meeting of minds. A contract is made out of an agreement and an agreement is made out of offer and acceptance that means in an agreement one party makes an offer and the other party accepts it. An offer may be an advertisement or a definite offer either to a particular person or to public at large. The law is settled in this respect in Carlill v Carbolic Smoke Ball Co4 in which the company made an offer through an advertisement offering 100 to any person who is affected with influenza after using smoke balls. The plaintiff Carlill has claimed for 100 from the company since she was effected influenza. The company defended that (i) the transaction was only a bet with in the meaning of gaming acts (ii) the advertisement was not intended to create a binding obligation (iii) there was no offer to any particular person (iv) no acceptance is notified by the plaintiff. The court of appeal has rejected the grounds taken by the defendant and allowed in favour of the plaintiff. The court while allowing held that there was an offer to the world at large, an offer can be made to the world at large and it also held that by making an offer to the world a contract is made with a limited parties who perform the conditions. Here we can observe that the intention of the advertisement was with an intention to create a legal obligation that is the reason the court has come to a conclusion of existence contract. Offer and an invitation to treat - Intention: The law of contract makes a distinction between offer and an invitation to treat. An invitation to treat does not make a binding contract. When a person responds to an invitation to treat makes an offer. The courts have made distinction between offer and an invitation to treat in auction sale and advertisements. In offer the intention of the parties to create legal obligation where as the in invitation to treat this intention to create legal obligation is premature. Harris v Nickerson5 In this case it was held that an advertisement specifying that goods will be sold by auction do not constitute a promise or offer. It is settled law that an advertisement without further qualification is not an offer to sell the goods but it is only an invitation to treat. The court observed the fact that the intention of the party making an advertisement is to receive the offers from the willing parties and he would select the best offer and intends to withdraw his invitation if he is not receiving the offer he is anticipating or he could accept, therefore there is no legal relationship exists at that particular point of time. The distinction between the offer and invitation to treat was clearly illustrated in Gibson v Manchester City of Council6. Acceptance: When one person makes an offer and such offer is accepted then becomes an agreement. Acceptance is an essential element like an offer to form a contract. Acceptance may be in the form of words or documents or may be inferred from the conduct of the party. This is illustrated in Brogden v Metropolitan Rly Co7. In this case the defendant Brogden supplied coal to the plaintiff Metropolitan Rly Co without formal agreement, one part of the agreement that is an offer was signed and the acceptance was not completed. The defendant took the shelter under non-existence of formal agreement between the plaintiff and the defendant. The House of Lords held that the contract has come into existence by virtue of conduct of the defendant. We can understand that the court has found in the conduct of the defendant the intention of creating a legal relationship and making a binding contract. Cheshire, Fifoot & Furmston, (Law of Contract 1996) Intention: It is the criterion approach of the common law of contract that requires offer and Acceptance with an intention to create legal relationship to form a valid contract. Contract is an agreement between two parties after a bargain. On promises to give something in return of other as consideration and the other accepting it. Every contract is made out of the essential elements such (i) Offer (ii) Acceptance (iii) Consideration (iv) Intention. Out of these essential features of the contract the primary object of the court is to determine and give effect to the intention of the parties in adjudicating the litigation on contract. What is more important for the judges to see is whether both the parties to the contract are clear in their mind about the offer and acceptance they are making in the process of the an agreement to enter into a contract. It is important that both the parties mean same thing about the proposals, which is to say there, must of consensus ad idem, and also an intention to create legal relationship, which is more important. Intention in a contract means intention to create legal obligation on the parties to an agreement. The parties when making an agreement they must intend to be legally binding on the agreement. The intention whether it creates legal obligation or not depends upon the category of agreements such Social & Domestic agreements and Business agreements. Intention in Social & Domestic Agreement: Social & Domestic agreements are made between family, friends, and workmen etc. The presumption of law in these agreements is that the intention does not create any legal obligation on parties to the agreement and it is not binding but it creates only social obligation, which do not form a contract. Where a specific condition is inserted in the Social & Domestic agreements to give rise to the legal obligation this presumption will be rebutted. Lens v Devonshire Club8 : The court presumed that the agreement between a wife and husband living together as one household do not intend to create legal obligation and they are legally not bound unless the agreement states to the contrary. Balfour v Balfour9: In this case the husband promised to pay 30 a month as maintenance for keeping apart on the grounds of his wife's health. The court of appeal held that there is no legal relationship hence it is not a valid contract. Merritt v Merritt10: In this case the wife and husband made an agreement relating the transfer of property on certain mutually agreed conditions. The court of appeal held that the intention of the parties is to create legal relations and allowed the claim rebutting the presumption in social agreement. The other similar cases are Parker v Clark11, Tanner v Tanner12, Jones v Padavatton13, Simkins v Pays14 Intention in Business and Commercial Agreements: In Business and Commercial agreements the presumption of law is that the agreements intends to create a legal obligation, unless it is specifically mention contrary, then the court rebuts the presumption. Appleson v. Littlewood Ltd15: In this case there was a commercial agreement, in that agreement there was a specific condition "the conduct of pools and everything done in connection therewith was not to be attended by or give rise to any legal relationship whatsoever'. The court rebutted the presumption of law and disallowed the claim on the ground that the presumption is overridden by the condition contrary to the presumption. The other cases which court has decided similarly are Jones v Vernons Pools16 Orion Insurance v Sphere Drake Insurance17 , Edwards v Skyways18, JH Milner v Percy Bilton19. The courts adopted objective approach while identifying intention where there is a document that purports to contain the contract. Judges while interpreting the consensus ad idem they do not mean as technical they mean it a logical and reasonable. If both the parties think the same but there is no intention to create any contract then it is incomplete. There fore the courts approach in judging the intention was objective rather than a subjective. Hillas & Co v Arcos Ltd20 The House of Lords in this case held that language used and interpreted in the course of dealing between the parties is the sufficient proof of intention of the party to make a contract. Scammell v Ouston21 The House of Lords in this case held that there is no contract on two grounds. (i) that the language used in the correspondence was obscure and incapable of any definite or precise meaning (ii) that the parties neither in appearance nor in intention reached an agreement. The judges while dealing with the litigations on existence of an offer they may have an objective meaning to offer rather than a mystical. When the intention is judged by the words and other conduct of the person is known as objective test. Subjected test is done by ascertaining a person's real state of mind. Subjective test concentrates on the state of mind of a person where as objective test concentrates on the intention of a person. By applying subjective test Judges may seek and satisfy some elusive mental element but to ensure, that the reasonable expectations of honest men are not disappointed the judges apply objective test. Cundy v Lindsay22 In this case the plaintiff believing that rogue' claim as a reputable firm supplied goods to him, rogue in tern rogue had disposed of the goods to the defendant. But the rogue has not paid to the plaintiff the price. The question arises before the court was who could claim ownership of the goods It was held that the plaintiff had no knowledge of rogue he believed him as a reputed firm and his intention to deal with the a reputed firm but not with rogue therefore there is no consensus ad idem, hence there no contract there by the property in the goods remains with the plaintiff. Here in this case also the judges applied the objective test and gave the judgment on examination of the intention rather than mere mechanical meeting of minds, and also applied the maxim of 'consensus as idem' in a reasonable manner to protect the honest man without disappointing. Bell v Lever Bros23 [1932] In this case the court held that where the parties to the contract are honest and comply essential of the contract and are clear in their mind what they are intends then they are bound to follow and perform the contract the court do not interpret anything extra and the court need not investigate deep in the facts. And the parties at default are estopped from expressing their ignorance. Intention - Offer: Intention and Offer are inter related terms in an agreement intention of the party is important to make the offer a valid it is to seen whether there is an intention to create legal relations between the parties to the agreement. Offer imposes responsibility on the person making such offer. To decide the statement whether it is offer or not the court prefers an objective test. The objective test shall disclose that (i) the offeror's conduct must be that which is to be believed by a reasonable person that he is making the offer. (ii) the offeree must believe that the offer made by the offeror is a genuine offer. Harvey v Facey24 (1893) Privy Council in this case the communication between the parties was on telegraphy which stated a mere statements which do not satisfy the objective test as the courts apply while deciding the intention of the parties and the offer. The plaintiff enquired the defendant about his willingness to sell the goods in reply to his enquiries the defendant sent a mere statement of price, then the plaintiff accepted to purchase the goods for the price stated. It was held that there was no contract and statement of price does not constitute the contract it was mere information. Pharmaceutical Society v Boots Chemists25 (1953) In this case the plaintiff contended that the shop keeper has made an offer by displaying the books in the shelves and he accepted by selecting and bringing to the cash counter and there by there is a contract and the book seller is bound to sell the books without refusing. The court held that displaying of the books in the shelves does not constitute an offer but it is solicitation to offer or an invitation to treat. The court has given a reasoning that the suppose if it is treated as an offer as contended by the plaintiff the buyer will not have a right to replace back in the shelf if he notices another book better than it. The buyer once picks up the book will have no choice but to purchase the same. The judges have interpreted the law so reasonably and to do justice to both the parties to the agreement rather than stringently applying the principle of the contract. The law has established that display of goods does not constitute an offer and it is an invitation to treat since the intention is to invite the offer from interested parties and the intention to create legal obligation is premature. It was similarly decided in Fisher v Bell26 (1961) Conclusion: It seen that the courts always gave critical view on the object of the agreement while deciding the intention of the parties. Whether there is an intention to create legal obligation or not was decided by the courts on the object of the agreement rather than strict observation of the essential elements of a valid contract. When the law presumed that in social and family agreements there is no intention to create legal obligations the courts rebutted the presumption applying the objective approach. Similarly in Business and Commercial agreements when the law presumed that there is an intention creates legal obligation, the courts rebutted the presumption. It is an established that the primary object of the court in the construction of contract is to determine and give effect to the intention of the parties and the courts apply an objective approach identifying intention where there is a document that purports to contain the contract. Foot Notes: 1. Cheshire, Fifoot & Furmston, 'Law of Contract', p.29 2. Cheshire, Fifoot & Furmston, 'Law of Contract', p.30 3. Cheshire, Fifoot & Furmston, 'Law of Contract', p.30 4. Carlill v Carbolic Smoke Ball Co(1892) 2 QB 484; affe (1893) 1 QB 256 5. Harris v Nickerson (1873) LR 8 QB 286 6. Gibson v Manchester City of Council (1979)1 All ER 972, (1979) 1 WLR 294 7. Brogden v Metropolitan Rly Co (1877) 2 App Cas 666 8. Lens v Devonshire Club (1914: The Times, December 4 Cheshire, Fifoot & Furmston, 'Law of Contract', p.115. 9. Balfour v Balfour [1919] 2 KB 571 Cheshire, Fifoot & Furmston, 'Law of Contract', p.116. 10. Merritt v Merritt [1970] 2 All ER 760. Cheshire, Fifoot & Furmston, 'Law of Contract', p.116 11. Parker v Clark [1960] 1 W.I.R 286/ J.Beatson, Anson's Law of Contract p.72 12. Tanner v Tanner [1975] 1 W.I.R 1346 J.Beatson, Anson's Law of Contract p.72 13. Jones v Padavatton [1969] 1 W.I.R 328 J.Beatson, Anson's Law of Contract p.72 14. Simkins v Pays [1955] 1 W.L.R. 975 J.Beatson, Anson's Law of Contract p.72 15. Appleson v. Littlewood Ltd [1939] 1 All E.R 464 J.Beatson, Anson's Law of Contract p.71: 16. Jones v Vernons Pools [1938] 2 All ER 626 17. Orion Insurance v Sphere Drake Insurance [1990] 1 Lloyd's Rep 465 18. Edwards v Skyways [1964] 1 All ER 494 19. JH Milner v Percy Bilton [1966] 1 WLR 1582. 20. Hillas & Co v Arcos Ltd (1932) 38 Com Cas 23 21. Scammell v Ouston (1941)AC 251, (1941) All ER 14 22. Cundy v Lindsay (1878) 3 App Cas 459 23. Bell v Lever Bros [1932] AC 161 24. Harvey v Facey(1893) AC 552 25. Pharmaceutical Society v Boots Chemists (1953) 1 QB 401 26. Fisher v Bell16 (1961) 1 QB394 ( Cheshire, Fifoot & Furmston, 'Law of Contract') Bibliography 1.Cheshire, Fifoot & Furmston's, Law of Contract (13th Ed.) 2. J.C.Smith, The Law of Contract (2nd Ed.) 3. J.Beatson, Anson's Law of Contract (28th Ed.) Read More