Objective Approach to Contract

The Objective Approach to Contract

Agreement occurs when one person makes an offer that is accepted by the other person. Provided consideration and intention to create legal relations are also present, there is a contract.

“A contract is an agreement giving rise to obligations which are enforced or recognised by law. The factor that distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. This proposition remains generally true, even though it is subject to a number of important qualifications.” (Treitel: 13th Revised Edition 2011) Chapter 1 – 1-001.

However, the law applies an objective test rather than a subjective one - if there appears to be an agreement and one person believes there to be one, the other person will not be allowed to say there is not one. There are two exceptions to this. The court will look at the subjective reality, rather than the objective appearance, of agreement if:

1. One party knows that the other party has made a mistake in the terms of agreement - Hartog v Colin and Shields [1939] 3 All ER 566

Hartog v. Colin and Shields [1939] 3 All ER 566

Facts: The defendants, Colin and Shields, sold animal hides. Hartog was a furrier (someone who sells fur products). Colin and Shields talked about selling Hartog 30,000 skins taken from Argentinian hares at “10d per skin” (equivalent to £1,250 today). As they were writing up their final offer, Colin and Shields accidentally wrote “30,000 skins at 10d per lb”. It was common knowledge in the industry that the skins of hares weigh, on average, 5oz. The final offer amounted to a third of the price originally talked about and verbally agreed to. Hartog attempted to make Shields and Colin honour this offer, which was extremely favourable for him. Ratio: The Court held that the claimant must have realised the defendants’ mistake. Since this mistake related to a term of the contract, the contract became null and void. Application: Hartog v Colin and Shields has gradually evolved into a very important precedent (something binding on all courts to apply in practice in future cases). This is especially true in modern society, where much of our shopping is now done on the internet. This is because many online businesses accidentally misprint the prices for their products. A lot of these websites use computer servers to automatically process customer details and payments that they make at the time, thereby creating the contract. All this can happen before the actual company owners find out that there have been misprints on their websites and, as such, the automated systems are selling products far below their actual value. For example, an online computer products retailer such as Amazon™ could advertise a tablet PC, which normally costs £300, for £30 or perhaps even £3. Any company that retails on the high street or online, can evade supplying goods of the misstated lower price if a court is able to find that the would-be purchasers must have known that the advertised price was clearly a mistake and were trying to take advantage of the situation.

1. The second exception is as seen in the cases of Scriven Bros v Hindley [1913] 3 KB 564

Scriven Bros v. Hindley [1913] 3 KB 564

Facts: Scriven Bros. lodged a bid at an auction hosted by Hindley and Co., where bales of hemp and tow were offered for auction. Their catalogue made the suggestion that one of the bundles of farm produce contained bales of hemp and tow. In reality, however, the bundle for auction only contained tow. Ratio: Lawrence J held that the auctioneer was unable to accept the highest (winning) bid because the bid was placed under misapprehension and mistake. Application: Two parties cannot create a legal binding contract when the terms of the offer and acceptance do not match.

General Principle: You cannot escape a contractual agreement by saying you did not intend to form a contract.

Storer v Manchester City Council [1974] UKHL 6

Facts: Mr. Storer made an application to purchase the council house he was living in. The Manchester City Council sent him an agreement of sale. The Agreement for Sale had been completed and signed. However, the date on which the tenancy was to end and the beginning of the mortgage repayment period had not been filled. On 20th March, when Mr. Storer signed and returned the agreement, a new political party came into power and the local council’s policies changed.  They decided to stop selling the properties unless the contracts had already been exchanged. Mr. Storer wanted to get a remedy to enforce what he believed to be an already binding contract. Manchester City Council argued that the clerk did not intend to offer the council house for sale when he sent the agreement of sale. Ratio: The court held that agreement of sale was a firm offer which Mr. Storer had accepted. Lord Denning stated, "In contracts, you do not look into the actual intent of a man’s mind. You look at what he said and did." Application: As Lord Denning says, “A contact exists when there is, to all outward appearances, a contract.” Saying you did not intend to create a contract is not a valid defence if all evidence provided demonstrates a willingness to be bound.

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