• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

contract essay

Free essay example:

94004677501G

Word Count:

“English law….adopt[s] as its general position an objective approach to contract. By protecting good faith reliance on another’s apparent meaning, the objective approach promotes both commerce and fairness” (Adams and Brownsword (2004) Understanding Contract Law, 4th ed, Sweet and Maxwell, p 48)

To assume an objective approach is the most dependable way of protecting ‘good faith reliance’ and ‘promotes both commerce and fairness’is a reasonable assumption to propose but not necessarily wholly accurate. Adoption of objectivity in English law in the position of contract law is not a stance that should be applied in totality in contract cases as it has flaws especially in relation to Commercial transactions, thus to assert that it promotes both commerce and fairness is questionable. Underpinning this notion are contract ideologies within the realm of contract law, which explains and analyses the various ways in which contractual relationships can be considered. Two of these ideologies, commerce and fairness are linked to two different areas of contract; commerce benefits the market individualist and fairness appeals to the consumer welfarist. This discussion shall examine the problems of objectivity, and if commerce and fairness are concepts that are equally balanced in contracts fairly. Also, it will examine whether objectivity is the most efficient way for the courts to adjudicate contracts as a whole, or whether a subjective approach could be used with the law of contract.

It is unfeasible to completely disagree with Adams and Brownsword on the notion of objectivity. Scrutinizing outward appearances to challenge the intentions of contractors rather than ‘speculating upon the actual state of mind of the parties,’[1] stands as the most pragmatic and dependable way in viewing contracts. Supporters such as Lord Denning illustrated this idea as such in Storer vs. Manchester City council[2]. Nevertheless objectivity does have a key role in contract law since it helps adjudicate the way in which business should be conducted in the market place and can create a sense of certainty and independence amongst parties. However, the objective approach is open to criticism in that it is a position to be abused and exploited for its own gain. It can thus be seen as not agreeing with Adams and Brownsword in that it promotes both commerce and fairness for reason that being absolutely objective is a near impossible concept. One is then persuaded by the arguments put forward by Howarth in that ‘objectivity is in the opinion of different courts.’ [3] .Thus objectivity is in the hands of the law to give reign to interpret as it desires, and it also allows the judiciary to display a broad power of discretion when enforcing contracts which one supposes can be a hindrance as much as a help. The destabilization effect of objectivity is caught up in the tension between the ideology of formulism and the ideology of realism.[4] The formalist judge applies the rules of Law, the precedents are followed and so on. The ‘rule book’[5] becomes the embodiment of the market individualist values; therefore the formalist judge will inadvertently implement market individualism. Market individualism is the belief that the function of contract law is simply a function to establish a regulated market place in which contractors are able to deal with security and confidence and the self interested aspect designed for competitive trading. On the contrary, Realism demands cases should be determined according to their merits[6], and arguably provides a more human face to contract adjudication. Realist judges thrive on consumer protection to develop the rule book to fit their features, making the result to be fair, so if the rules direct judges to decide according to the canons of reasonableness, fairness, conscionability[7] there will be limited issue; for it will be specifically how a realist judge would want to decide anyway. Brownsword claims, ‘consumer welfarism has superseded that of market individualism’ on the basis that it is a more popular notion.[8]  whereas formalism takes the idea that ‘justice is (always) blind’[9] which in everyday society, especially in relation to the poor and disadvantaged. Therefore formalist cases are reviewed objectively not looking at a person’s ‘inner intention’[10] however reasonable, but outward appearance as demonstrated in the Smith vs. Hughes[11] case. In this sense an objective approach can lead to upholding an apparent agreement, despite one party’s mistaken acceptance, which can lead to manifestly unfair outcomes. Within Smith v Hughes[12]The plaintiff bought new oats under the mistaken belief that he was buying old oats and refused to pay the defendant even though they were contractually bound. Irrespective of this mistake courts believed an existence of a valid contract, since the objective principle enables the party who has reasonable grounds to assume that the other party agreed to certain terms.[13] The objective test upholds certainty in that parties know that when they enter into a contract they are certain to be bound commercially since the defendant would have been required to pay for oats an amount that greatly exceeded its value, as a result the other party would have been enriched at his expense. Indeed this would affect the consumer with regards to the principle of unjust enrichment where no party should be allowed to unjustly to enrich them self at the expense of another. Such a system is profitable for the market individualist as contractors who enter ‘bad bargains’[14] cannot deny a contract is formed on the basis that the other side did not warn them away from the mistaken bargain given. Consumers see the objective test as a ‘Commercial advantage’[15] as the principle that no man should profit from his wrong was not considered within this case. Therefore this disputes with the Adams and Brownsword statement as fairness is not promoted.

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[16]. 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, [17] when communicating in a contract you are uncovering objective meanings rather than uncovering the speaker’s inner or subjective intentions[18]. 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[19], 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[20]. 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[21] 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.’[22] 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,’[23] 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[24]. 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’[25]. 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[26] 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[27] 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[28] summarised by the judge the ‘plaintiff must have realised and did in fact know a mistake had occurred,’[29]prevented from ‘snatching up’[30] 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. Hughes[31]case 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[32]. Fundamentally, a degree of ‘bad faith’[33] 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[34] dismissed ‘good faith’ as “inherently repugnant to the adversarial position of the parties[35]”. 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[36] 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[37].’ 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[38]. 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’.[39]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[40]. 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[41]. 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.[42]”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.[43]However Adam and Brownsword feel it will ‘impede commerce, invite fraud, and unfairly defeat good faith reliance on the natural meaning of a promise.[44]’ Yet having seen that objectivity is not consistent in some cases, Arson argues that ‘law does not, and cannot, adopt a completely objective attitude.’[45] For example in Scriven vs. Hindley[46], 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[47].

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.


[1] Collins, H Law of Contract [4th edition] London: Buttersworth 2003 pg 118

[2] Storer vs Manchester city council [1974] 1 WLR 1403

[3] Howarth,W The Meaning of Objectivity In Contract [1984] Law Quartely Review Vol 100  pg

[4] Brownsword, R Contract Law Themes For the Twenty First Century [2nd Edition] London: Buttersworth 2000 pg 138

[5] Adams,J and Brownsword, R Understanding Contract Law [4th edition]  London: Sweet Maxwell 2004 pg 185

[6] Brownsword, R Contract Law Themes For the Twenty First Century [2nd Edition] London: Buttersworth 2000 pg 138

[7] idem

[8] idem

[9] Adams,J and Brownsword, R Understanding Contract Law [4th edition]  London: Sweet Maxwell 2004 pg 186

[10] idem

[11] Smith vs Hughes [1870] LR6 QB 597

[12] idem

[13] Friedman D, The Objective Principle And Mistake And Involuntariness In Contract And Restitution Law Quarterly Review 2003 pg

[14] Adams,J and Brownsword, R Understanding Contract Law [4th edition]  London: Sweet Maxwell 2004

[15] Steyn Johan Contract Law Fulfilling the Reasonable Expectations of Honest Men Law Quarterly Review 1997 pg 433-442

[16] Fried

[17] Smith, A.S Contract Theory Oxford University Press 2004 pg 273

[18] idem

[19] Centrovincial Estates Plc. V Merchant Investors AssuranceCo [1983]Com LR 158

[20] Styen J Contract Law Fulfilling the Reasonable Expectations of Honest Men Law Quarterly Review 1997 pg 433-442

[21]idem

[22] Howarth,W The Meaning of Objectivity In Contract Law Quartely Review Vol 100 April 1984 pg

[23] Vorster J.P A Comment On The Meaning of Objectivity in Contract Law Quarterly Review Vol 104  1987 pg 274 -287

[24]  Endicott, A.O T, Objectivity, Subjectivity, Incomplete Agreements

[25] Smith, A.S Contract Theory Oxford University Press 2004 pg 272

[26] Ibid at 276

[27] Brownsword , R Contract Law Themes For the Twenty First Century [2nd Edition] London: Buttersworth 2000 pg 115

[28] Hartog vs Collins and Shields [1939]3 All ER 566

[29] Mckendrick, Contract Law Text Cases and Materials[ 2nd edition] Oxford University Press 2005 pg

[30]Ibid at pg 39

[31] Smith vs Hughes [1871] LR 6 QB 597

[32] Brownsword , R Contract Law Themes For the Twenty First Century [2nd Edition] London: Buttersworth 2000 pg 140

[33] In my own opinion

[34] Walford Vs Miles [1992] 2 AC 128

[35]

[36]

[37]

[38]

[39] Adams Adams,J and Brownsword, R Understanding Contract Law [4th edition]  London: Sweet Maxwell 2004 pg 34

[40]

[41] Collins, H The Law of Contract [ ] London Weindenfield and Nicholson 1986 pg 19

[42] Ibid at pg

[43] Friedman D, The Objective Principle And Mistake And Involuntariness In Contract And Restitution Law Quarterly Review 2003 pg 68-93

[44] Adams,J and Brownsword, R Understanding Contract Law [4th edition]  London: Sweet Maxwell 2004 pg

[45] Anson ,R Principles of English Law of Contract And Agency in its relation to Contract London Oxford Press 1964 pg 5

[46] Scriven Brothers & Co vs Hindley &

[47]

This student written piece of work is one of many that can be found in our University Degree Contract Law section.

(?)
Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Related University Degree Law Skills and Knowledge Essays

See our best essays

Related University Degree Contract Law essays

  1. Consideration Essay

    Many have argued that the doctrine is too old fashioned and it is difficult to reconcile the doctrine with modern contract law, which asks the question if the promise is based on the will of the parties, why insist on consideration?

  2. CONTRACT ESSAY - FREEDOM TO CONTRACT

    Freedom to contract must surely imply some choice or room for bargaining." This illustrates that for the lay person freedom of contract is not important. Despite such new regulations and legislations I think that in the majority of cases, the freedom of contract remains.

  1. Free essay

    Postal rule was an arbitrary choice in the 19th Century. Modern technologies make it ...

    Loss or delay of the letter of acceptance is immaterial and subsequent death of either party can have no effect on its formation"7. In other words, the letter of revocation is effective only on delivery8. Reasons for the Establishment of the Postal Rule Generally, the reason for the establishment of the postal rule was to promote certainty within contractual formation9.

  2. This paper discusses the start-up, organisation and conduct of the company "Anders & Birgitte" ...

    21 (2). S could potentially argue that the delay in this case is not of substantial material importance to B as no one at midday 7th had placed an order for Valentine's T-shirts, for which reason B would not need it anyway.

  1. Free essay

    English sales law is driven by the need for fairness and reasonableness rather than ...

    2(2)) and (b) a term by which the seller excludes or restricts liability for breach of contract, claims to be entitled to perform a markedly different contract, or claims to be entitled to no performance of the contract (s.

  2. All contracts are agreements but all agreements are not contracts. Discuss.

    In (Chappell & Co. Ltd v Nestle Co. Ltd (1960), the chocolate wrappers were said to be a part of consideration as Nestle received benefit from the purchase of an extra chocolate. In Chappell& Co. Ltd v Nestle Co. Ltd, the H Co.

  1. Contract law - review of cases.

    And if after having offer and acceptance, the offeror wants to add a value to his offer, that will not be considered as a consideration. There is a doctrine related to consideration called ?promissory estoppel? (case Ward v Byham ? 1956).

  2. Does the UCTA and UCTTR impede on the freedom of contract.

    Absence of choice in this sense does not negate consent in law: for this the pressure must be one of the kind which the law does not regard as legitimate.?[11] This suggests that there is a small gap towards what can be considered as duress, possibly extreme circumstances such as the knife illustration.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work