Objective Principle in Law of Contract

Learning Objectives:
Students will :
a) learn about the necessity of objective principle
b) be informed about the exceptions to the objective principle

1. Void Ab Initio

2. Agreement in Contract Preeti Kana Sikder Lecturer Department of Law & Justice Jahangirnagar University

3. Clearing the Ground

4. Useful starting point – Blackburn J, in Smith v Hughes “If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”

5. Useful starting point – Blackburn J, in Smith v Hughes “ If , whatever a man ’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him , the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”

6. The Objective Principle Who decides that an agreement has been reached?

7. Know the difference Subjective based on feelings and opinions rather than on facts. Objective based on fact rather than on feelings and opinions .

8. Know the difference Subjective test Attempts to ascertain the actual intention of contracting parties Objective test Examines what the parties said and did and not what they intended to do or say

9. Why the Objective Principle? Considerable uncertainty would result if A, after inducing B reasonably to believe that he (A) had agreed to certain terms, could then escape liability merely by showing that he had no "real intention" to enter into that agreement.

10. Why the Objective Principle? This principle is based on the need of commercial convenience Purpose of this principle is to protect a promisee from the prejudice which he might suffer as a result of relying on a false appearance of agreement. This principle applies only where serious inconvenience would be caused by allowing a party to rely on his "real intention".

11. Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983)

12. Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983) In this case, the plaintiff had agreed to let the premises in question to the defendants. A letter was written to the defendants stating that the 'current market rental value' of the property was £65,000 and this was agreed to constitute an offer which the defendants then went on to accept . This offer was made by the plaintiff's solicitors and was based upon a mistake, the actual price that they had meant to feature in the offer was actually £126,000. The plaintiffs then telephoned the defendants and pointed out their mistake. The defendants, however, asserted that the contract had already been made and that they were not to know that the price offered had been a mistake . In this instance it was held that the contract was not rendered void by the mistake, as an objective approach was taken.

13. T he Objective Principle The principle is an important one; but it would be wrong to say that the law of contract has no concern at all with actual agreement I n most cases, the appearance corresponds with the fact of agreement . T he principle is not purely objective: A is not bound merely because "a reasonable man would believe that he was assenting to the terms proposed by the other party ".

14. Exceptions to the Objective Principle In the case Centrovincial Estates plc v Merchant Investors Assurance Co. Ltd , Slade LJ mentioned two situations in which the objective principle is displaced: Where the offeree knows that the offeror is suffering from a mistake as to the terms of the offer Where the offeree is at fault in failing to note that the offeror has made a mistake

15. Exceptions to the Objective Principle (Group Work) Hartog v Colin and Shields (1939) Scriven Bros v Hindley (1913)

16. Exceptions to the Objective Principle The general rule is that the intention of the parties have to be assessed objectively. There will be no contract if (in spite of the objective appearance of agreement) B actually knows that A in fact has no intention to contract with him, or to contract on the terms alleged.

17. Reasonable Reliance Leonard v Pepsico (2000)

18. Leonard v Pepsico Pepsico ran an advertisement for a promotion in which people could obtain “Pepsi points” by drinking Pepsi and then use them to purchase items from a catalog. A person could purchase Pepsi points for ten cents a point. The advertisement featured a Harrier Jet and said it cost 7,000,000 Pepsi points .

19. Pepsi Harrier Jet Commercial

20. Leonard v Pepsico Plaintiff filled out an order form, asked for the Harrier Jet, sent in fifteen Pepsi points and approximately $700,000.00 in a check drafted from his attorney’s trust account. Defendant sent a letter to Plaintiff saying the Harrier Jet is not part of the promotion. Plaintiff filed suit in state court.

21. If you assess the intention of the parties objectively what do you think the result had been?

22. Leonard v Pepsico The judge said: "Plaintiff's insistence , that the commercial appears to be a serious offer requires the court to explain why the commercial is funny...As the essayist E.B. White has remarked humor can be dissected as a frog can, but the thing dies in the process ...In light of the obvious absurdity of the commercial, the court rejects Leonard's argument that the commercial was not clearly in jest ."

23. Exceptions to the Objective Principle The attitude of the advertisement would not lead a reasonable person to believe there was an offer. Both parties need to be serious to constitute an agreement.

24. Summary (at p. 25) The test for the existence of an agreement is objective rather than subjective. The principal justification for the adoption of this test is the need to promote certainty. Where the offeree knows that the offeror is suffering from a mistake as to the terms of his offer and where the offeree is at fault in failing to note that the offeror has made a mistake, the offeree will not be entitled to enforce the contract according to his version of its terms.

25. Lord Clarke in RTS Flexible Systems Ltd v Molkerei Aois Midler GmbH & Co (2010) “ Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”

26. Sources Introduction to the Study of Law: Cases and Materials, Third Edition (LexisNexis 2009) by Michael Makdisi & John Makdisi Contract Law, Ewan McKendrick G.H. Treitel , Law of Contract

27. Contract law is a puzzle…!

28. What is a Case-Brief? Case briefs are a necessary study aid in law school. It is a tool for self-instruction and referencing A case brief represents a final product after reading a case, rereading it, taking it apart, and putting it back together again .

29. The E lements of a Case-brief Facts (name of the case and its parties, what happened factually and procedurally, and the judgment) Issues (what is in dispute) Holding (the applied rule of law) Rationale (reasons for the holding ) Comments (personal commentary)

30. How is it different from a Casebook? Self made vs Ready made

31. Why Case-Briefs? T he purpose of a brief is to remind you of the important details that make the case significant in terms of the law. A well-constructed brief will save you lots of time by removing the need to return to the case to remember the important details and also by making it easier to put together the pieces of the contract law puzzle.

32. Let’s solve the puzzle! Case Briefs to be submitted before Finals (10 marks)