contract essay

Thus the market economy is left up to the businesses and consumers to decide what they want. The exchanges between contracting parties are based on a set of promises and good faith. The promise theory provides the moral ground for the formation of contracts, enabling the individual to freely impose on himself obligations placing this understanding at the heart of liberalism. As previously alluded to, the corollary of this is an assumption that objectivity is inherent in law so contractors feel assured they understand the contract.

 If you make a promise, you are morally and in the case of a contract legally bound to act on that promise for reasons of this interpretation necessarily calls for objectivity. Evidently communication is built into the idea of promise,  when communicating in a contract you are uncovering objective meanings rather than uncovering the speaker’s inner or subjective intentions. This potentially allows the courts to propose a different meaning to what the party intended and discount the meaning the contract had. In Centrovincial Estates Plc. V Merchant Investors Assurance Co, for example, the solicitors of the plaintiff landlord stated in a letter to the defendant lessee that the landlord was prepared to renew the existing lease at a yearly rent of £65,000, a sum which was lower than the current rent. The tenants had previously complained about the premises and believed the reduced rent was as a result of their complaint. However despite the landlord being able to claim, it seems truthfully, that he intended his proposal to mean something different i.e. an offer of the lease at a much higher price, yet contract became valid irrespective of the landlords mistaken offer. By and large an objective approach to questions of interpretation serves the needs of commerce, once more the support in certainty in the law and predictability. So the objective principle seems to operate as a principal of interpretation of the words of the contracting party, the courts applying the words to be understood in their context. Judges simply do the best they can with the ‘raw materials’ they are given evidently accommodating commercial practice on laissez faire principles.

On the other hand, Objectivity has been argued to have many different interpretations, and can at times be confusing, as some commentators have argued that there is more than one way to examine objectivity. Howarth for example, argues that there are three interpretations to objectivity, ‘Promisor,’ ‘Promisee’ and ‘Detached.’ Howarth is convinced that this is the way contracts are viewed, however this exaggerates the problematic nature of objectivity since judges can only do their best with what they are given. The unconstructiveness of this dichotomy has been subject to academic criticism namely by Vorster. Vorster criticises Howarth in that dealing with the formation of contract is to ‘view the matter from the perspectives of each of the parties,’ therefore removing any aspect of subjectivity as Howarth would pave way for courts to intervene to much preferably decrease in commerce and increase in fairness.

Furthermore, objectivity is inconsistent with the idea of promises. The idea that contracts are truly based on promises would require judges to look at the parties ‘subjective’ intentions. As objectivity supports the reliance on ‘another’s apparent meaning’ rather than the actual meaning of contracts, some commentators cannot see this to be compatible with the market individualism, as contracts viewed from a market individualist gives affect to the ‘will of the parties’. Therefore, these commentators argue that the objective test is essentially incompatible with market individualism and that a subjective test is preferable. Smith, however, argues that these commentators adopt a narrow interpretation of market individualism and that, in reality, there is no incompatibility between the objective test and market individualism. A broad interpretation of objectivity would indicate that apart from giving effect to the will of the parties, market individualism also places emphasis on certainty in commercial transactions, so certainty can only be achieved by adopting an objective test. Moreover, the market individualist believes it is up to individual contractors to ensure that the objective conduct reflects the ‘will’ of the parties.

As to the protection of ‘good faith’, objectivity delivers to an extent, but one cannot be seduced by Adams and Brownsword’s statement. Good faith tends to favour consumers by emphasizing fairness in contracts, one of the consumer welfarist requirements. The enforcement of restrictions become moral standards against which the contractors are to be judged thus the courts adopt a more inter subjective tone. Based on the reliance model, the law protects those who reasonably rely, to their detriment, on the misleading statements of others by imposing a duty of reasonable care. As a result one party will not be able to exploit another’s misunderstanding.  Demonstrated in Hartog vs. Colin and Shields summarised by the judge the ‘plaintiff must have realised and did in fact know a mistake had occurred,’ prevented from ‘snatching up’ a bargain which they knew was not intended. The exception of this case is that the plaintiff must have known the defendant had made a mistake. This contradicts the Smith vs. Hughescase as the principle of good faith was not upheld.

Consequently, Brownsword suggests English Law predicated on adversarial self-interest deals the ‘dynamic’ aspect of market individualism. Fundamentally, a degree of ‘bad faith’ is used to a profit-making capitalist economy. If parties were bound to disclose all material information before contracting, there would be no incentive to obtain that information in the first place. Without market information, exchanges take place at a sub-optimal level and resources do not efficiently migrate to where they are most needed. Lock Ackner in Walford v Miles dismissed ‘good faith’ as “inherently repugnant to the adversarial position of the parties”. In addition, some market individualists criticise ‘good faith’ as simply being too vague, leading to legal uncertainty, as opposed to allowing judges to fill in the gaps where a situation would require a subjective standing. Principally equipping the courts to respond to variable contexts and rules in unity with reasonable expectations of parties not covered by a solution, with the temptation to fill in the gaps, may however create a negative precedent in order to reach a fair and just conclusion in a particular case. Such an approach will of course give greater liberty to judges by widening the scope of their powers in allowing them to adjudicate by moral standards of fairness outside of customary law in which becomes a hindrance of the market individualist.

Freedom of contract is certainly upheld by the doctrine of objectivity and admittedly favours the commerce aspect of market. This freedom will allow contracting parties set their own terms, pursue their own interests, which enables security of transactions, giving the parties what they bargained for. Evidently agreements are freely made and then held between the parties realising the ‘sanctity of contracts.’ The freedom to contract emphasises the need for stability, certainty and predictability. Market individualists adhere strongly to the principle of freedom of contract. They see the function of law as facilitating competitive exchange in the market place. It follows that courts should employ a non interventionist stand in the economic activity of individuals in the market place the, individualist ideology of market individualism. However, by contrast, consumers are communitarians. They want the function of contract law to be regulating the economic activity of individuals in the market place. ‘Closely regulated and be subjected to more regulation than market individualist would allow’.So the courts should readily intervene in order to protect weaker parties, consumers, from the unfair and unreasonable use of the economic power by stronger parties, especially considering consumers are usually the receivers of standard form contracts and are not party to contract formation. The regulatory approach also tackles the injustice inherent in the market; additionally it identifies the broadening of the law’s responsibility and the imposition of duties upon more powerful parties as ways in which domination can be limited to ensure a level playing field for disadvantaged parties entering a contract and provides a modern context for communitarian reasoning. This principle of ‘freedom of contract’ has lost faith in a modern day society lacking trust, as this principle is no longer congruent with societal attitudes, as communitarian ideals of “paternalism, fairness and co-operation infuse the modern law of contract.”Therefore Adams and Brownsword statement cannot be seen as accurate since objectivity cannot promote both.

Whether a subjective approach would be a better method in assessing contracts is again debatable. Adopting objectivity or subjectivity is simply the matter of individual preference, given that objectivity reflects the quest for certainty and stability and has gained preference over the subjective theory that is founded on the communitarian notion of fairness and justice. However Adam and Brownsword feel it will ‘impede commerce, invite fraud, and unfairly defeat good faith reliance on the natural meaning of a promise.’ Yet having seen that objectivity is not consistent in some cases, Arson argues that ‘law does not, and cannot, adopt a completely objective attitude.’ For example in Scriven vs. Hindley, the buyer mistakenly brought tow instead of hemp. This decision to buy was induced by the auctioneer who used the same label for the boxes of hemp and tow, even though hemp and tow are different commodities in commerce. The contract could not stand. In this sense courts so regard subjectivity. So the idea of fairness and protection of the consumer cannot be demonised as a bad thing. In adopting a subjective approach it paves a great deal of the way for eliminating at least potential uncertainty, and on occasion as in the example above, ensures a measure of fairness. Since promises can only be made intentionally, therefore, a search for intent is necessarily going to be subjective. However, if contract becomes too subjective society will lose faith in its operation. When the courts are able to use excessive discretion certainty will be adversely affected. Certainty is essential to contract law due to the commercial nature. Commerce or the market would be adversely affected if legal certainty is undermined, litigation would presumably increase and the effectiveness of contract law would be diminished.

To conclude throughout this discussion it has been argued that objectivity does not automatically promote both commerce and fairness. It may serve to facilitate individual contract dealings but is not sufficiently extensive in dealing with deceptively unfair contracts. It would be difficult to completely reform the law and propose completely new ways in interpreting contracts. As it stands objectivity fulfils the needs of the market individualist since contracts cannot be coherently realistic for the consumer since they cannot really be part of market competition, and does not account for the average consumer who requires legal protection and reassurance that a remedy will be found when circumstances are found to be unfair.

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