Intention to contract

"The intent of man cannot be tried for the devil himself knows not the intent of man" - Justin Santiago

Generally it is held that contracts are valid based on the objective intention or reasonable man test in order that there be a reasonable degree of certainty as to whether parties have shown or expressed intention to contract through their contract or words. This requirement as expressed in Scammell and Newphew Ltd v Ouston which emphasizes the individualistic philosophy of English law of contract which militates against any subjective intention being used as an easy escape from an imprudent bargain. However the courts would try to put into effect what they believe to be the intention of the parties (or conversely to prevent an injustice) by looking into the subjective intention in certain exceptional situations. This occurs when there is a mistake as to the terms of the offer as well as to disagreements as to when an agreement was reached.

The wills theory of contract seeks to enforce the will of the parties and is closely associated with the laissez-faire philosophy and attributes contractual obligations to the will of the parties entering into agreements of their own choice on terms that have been agreed upon. Closely linked with this obligation is that there must be an agreement between parties. This is known as consensus at idem or meeting of minds. If there is a meeting of minds there is agreement. Only if an agreement is reached can the courts consider what action to take if either one of the parties refuse to perform according to their agreement. To know whether an agreement is reached or not is determined by the objective test.

An application of this objective test to decide whether promises exchanged and expressed by parties amounted to an agreement was found in the case of Centrovincial Estates plc v Merchant Investors Assurance where it was held that an offeree may accept an offer in the sense which a reasonable man would give it, despite clear evidence that the offer did not represent the offeror's true intention, and had not in any way been acted upon by the offeree.

The justification for an objective test in Centrovincial Estates was to give certainty to the law and prevent any one party to suddenly turn around and saying that the terms that were agreed upon were not intended or was a mistake. The real intention of the parties or the subjective intentions of the parties would be irrelevant when deciding if there is a contract.

However the decision in this case has been criticized by Prof Atiyah for not taking into account detrimental reliance as an indication of whether an agreement had been reached. His argument was based on the fact that mutual promises between parties alone would not suffice to conclude a contract. There was a need for the party accepting the promise by the other party to have detrimentally relied on the promise by the other party to have detrimentally relied on the promise before the court would conclude there was a legally binding agreement. In Centrovincial Estates there was no detrimental reliance hence there was no agreement His views were based on the case of The Hannah Blumenthal which he says lends support to his argument that Centrovincial Estates was wrongly decided. In The Hannah Blumenthal case an agreement to abandon a contract to arbitrate was allowed where one party created a situation in which he was estopped from asserting that he had abandoned the contact because he had caused the other party to alter their position in reliance upon the belief that the contract had been abandoned. However it was argued that the reliance was merely to provide evidence of that fact that the sellers had accepted the buyers offer (acceptance by conduct – Brogden v Metropolitan Railway) and not any prerequisite to the formation of any contract which leaves the law in Centrovincial Estates intact.

While this decision lent some certainty to the law at the same time it also imposed some rigidity there was the problem of being insufficient to cover all situations. This is when the objective test which involves detached objectivity is modified so that it becomes promisor objectivity and promisee objectivity which places greater emphasis on the subjective intention of the parties (quoting Howarth, The Meaning of Objectivity in Contract, Law Quarterly Review).

Promisor objectivity is used in situations where the offeree knows that the offeror is suffering from a mistake as to the terms of the offer. This is illustrated in the case of Hartog v Colins and Shields where the defendant sold hare skins at an unbelievably low price. The courts using the promisor objectivity test ruled that a reasonable man in the promisor’s shoes knew or ought to have known the real price and would not have offered to sell at such a low price. As such the claimants were not allowed to snatch a bargain at the promisor’s expense.

Promisee objectivity was relevant in Scriven Bros v Hindley where the offeror offered a price from an auction catalogue which was overvalued and the offeree failed to take note of the error. The courts using the promisee objectivity test ruled that a reasonable man in the offeree’s shoes would have known that the price being offered was far too high. As such there was no agreement and the contract for sale was null and void as to go through with it would mean that the auctioneers would profiteer from his own mistake.

When it comes to mistake as to quality the courts are less reluctant to look into the innermost mind of the parties. The mere fact that one party to the contract is mistaken in his innermost mind as to the quality of the subject matter is not sufficient of itself, automatically to render a contract void. In Smith v Hughes it was decided that a person’s conduct with regard to the quality of the subject matter proposed by the other party is determined by the reasonable man regardless of the person’s actual intentions. What determines quality of subject matter is however subject to debate and there is some difficulty in assessing what exactly amounts to quality which makes it the thing essentially different from what it was believed to be : Bell v. Lever Brothers.

The next issue to be tackled would be to know when is an agreement reached. The courts have preferred to use the ‘mirror-image’ rule of contract formation which is to find in the documents that passed between the parties a clear and unconditional offer which is matched or mirrored by an equally clear an unequivocal acceptance. This was the decision of the majority in Butler Machine tools Co. Ltd v Ex-Cell-O Corporation. The difficulty of battle of the forms offer-counter offer situations would be resolved by the “last shot” principle where a contract is formed as soon as the last of the forms is sent without objection. This can be viewed as the objective approach.

Lord Denning’s dissenting opinion centered on the mirror image rule being out of date and that the intention of the parties was more important. He held that all the multiple documents passing between the parties should be read as a single document and gleaned from it together with the conduct of the parties whether they have reached an agreement on all material points and this opinion was reiterated in Gibson v Manchester City Council but was rejected by the majority. It would appear that the mirror-image rule would still apply in determining when an agreement is reached and this appears to not take the subjective intention of the parties into account.

A further situation which lends credence to the argument that the subjective intentions of the parties is relevant is put forward by Spencer in his article "Signature, Consent and the Rule in L’Estrange v Graucob" where he states that that two parties’ subjective agreement is at variance with the result achieved by applying the objective test. So in practical terms if one party wanted to sell a bull but actually wanted to sell a cow and the other party wanted to buy a bull but actually wanted to buy a cow both parties would end up with a situation that neither party wanted. This is a situation of cross purpose mistake and on the basis of latent ambiquity in the terms of an offer and acceptance operate to negative consent : Raffles v Wichelhaus emphasizing the importance of the subjective intention of the parties in contract formation.

Thus it is important that within the general objective framework of contractual intentions, the inter subjective perception of the parties may still be significant although in the majority of cases Centrovincial Estates is still good law and that the objective test would still apply to agreements which were absent of any mistake by any of the parties and where the agreements were expressly stated.