Agreement Contract

Chapter 2 Agreement
Test for existence of agreement = Objective

Objective: examines what the parties said and did and not what they actually
intended to say or do
Commercial justification for objective test: Avoid great uncertainty
Centrovincial Estates v Merchant Investors Assurance: C let premises to the
defendants at a yearly rent of 138,320. subject to review from 25 December I982.
Parties were obliged by their contract to endevour to reach agreement before 25
December I982 on the then current market rental value of the
property and to certify the amount of the current market rental value. In June 1982
the
claimants wrote to the defendants inviting them to agree that the current market
rental
value should be 65,000. The defendants accepted.
In many cases the subjective intentions of the parties will be useful
2 situations where objective test is displaced or modified by a test uses subjective
intention of parties
1. Where the offeree knows that the offeror is suffering from a mistake
as to the terms of the offer. Cannot create a contract between the parties
by purporting to accept the offer.
Does not apply when mistake relates to terms not within contract, but on
facts on which offeror based his decision to enter agreement = contract
remains valid, even in the case where the offeree was aware of the mistake
But where the offerors mistake relates to the terms of the offer or to the
terms of the contract. and the offeree knows that the offeror is so mistaken =
no contract
Courts will have regard to the subjective understanding at the offeree.
Usually adopt reasonable person
E.g Hartog v Colin and Shields: claimants could not reasonably have thought
D offer matched true intention = claimants prevented from snatching a
bargain, not intended by D
2. Where the offeree is at fault in failing to note that the offeror has
made a mistake.
Scriven Bros v Hindley: auctioneer acting for the claimants put up for sale lots
of hemp and tow. The auction catalogue was misleading because it implied
that the lots were the same when, in
fact, the second lot only contained tow. Tow was considerably cheaper than
hemp.
The defendants bid for the lot, thinking that it was hemp when in fact it was
tow. The auctioneer did not realise that the defendants had misunderstood
what was being auctioned; he merely thought that they had overvalued the
tow. When the defendants discovered their mistake, they refused to pay the
price and so the claimants sued them for the price. Held = no contract for the
sale of the tow had been concluded, auctioneer intended to sell tow,
defendants intended to purchase hemp and the defendants mistake had
been induced by the carelessness of the claimants in preparing the auction
catalogue. The had the catalogue not been misleading, a contract would have
been concluded on the claimants terms because, in the usual case, an

auctioneer is entitled to assume that a bidder knows what he is bidding for.
3. Where the parties are subjectively agreed by that subjective
agreement is at variance with the result achieved by applying the
objective test
e.g immigrants agree to buy bull known as a cow to them. Objective test
would mean a real bull not a cow, going against the intention of the parties
Objective test:
3 interpretations:
- Standard of detached objectivity: perspective of the detached observer or the
fly on the wall. What would a person watching the behaviour of the
contracting parties place upon their words and actions?
- Promisee objectivity Howarth: interpret words as they were reasonably
understood by the promisee. Most support in case law.(Smith v Hughes)
- Promisor objectivity Howarth: standard of the reasonable person in the
shoes of the person making the offer
Distinction drawn between promisor and promise criticised on grounds that it is
misleading. Because in a bilateral contract, the parties are both a promisor and
promisee.
E.g. Scriven Bro
Has an agreement been reached?
Butler v Ex-Cell- O-Corp
The sellers, Butler, offered to sell a machine tool to the buyers, the offer being
made on Butler's standard terms of business, which included, a price variation
clause.
The buyers sent an order for the machine tool which was on their own standard
terms of business, which made no provision for a price variation clause and stated
that the price of the machine tool was to be fixed. The buyersorder form contained
a tear-off acknowledgement slip, which stated that we
[the sellers] accept your order on the terms and conditions stated thereon. The
sellers
signed and retumed this slip to the buyers, together with a letter that they were
carrying out the order on the terms of their original offer.
Sellers sought to invoke the price variation clause contained in their original offer
and claimed the additional sum of 2,892. Buyers refused. Sellers Sued
The Court of Appeal held that they were not entitled to recover the sum claimed
because a contract
lad been concluded on the buyers terms which did not include the price variation
clause.
The reasoning of the majority: traditional mirror image' rule of contractual
formation.
court must be able to find in the documents which passed between the parties a
clear and unequivocal offer which is matched or mirrored by an equally clear and
unequivocal acceptance.
A purported acceptance which does not accept all the terms is not a true
acceptance but a counter-offer
Buyersorder could not be acceptance because it did not mirror terms instead =
Counter offer
Counter offer accepted by sellers with tear off acknowledgement
Mirror image approach advantages:
- Certainty for legal advisers
- No separation between the formation of the contract and the ascertainment
of the terms because offer and acceptance must be mirrored. clear standard
for parties against which to measure conduct
- Standard which can be applied to every contract
Disadvantages:
- Rigid all or nothing result court cannot pick and choose between the
respective stes of terms and conditions or seek to find compromise.
Unfortunate in battle of the forms: where both parties reasonably believe that
their terms are the ones that govern
- Encourages business to continue to exchange their standard terms of
business in the hope of getting the last shot. Places party of receipt in diff
position.
Denning preferred other approach:
- held that, where the terms used by the parties were mutually contradictory,
possible for court to scrap the terms and replace them by a reasonable
implication.
held that the signing of the tear-off by the sellers was the decisive
document, which made it clear that the contract was concluded on the
buyers terms.
GHSP Inc v AB Electronic Ltd [2010]
Conflict between the parties standard terms of business and that neither
party had accepted the other's terms.
held that the tenns of the contract were to be found in the terms to be
implied into the contract by the Sale of Goods Act 1979.
important that there was plainly a contract between the parties. Had it not
been, Burton might not have been so willing to find the existence of a
contract
Approach adopted by Lord Denning conflicts with the mirror image, it is a
two-stage approach. 1. Must be decided whether a contract has been
2. Must be decided what the terms of the contract are.- court has
considerable discretion in filling the gaps. More flexible framework for the law
of contract.
-
Disadvantages:
uncertainty, gives too little guidance to the courts, or to legal advisers,
Certainty is important because business people will often want to know the
standard which the law applies so that they can plan their affairs accordingly.
Courts still follow traditional approach. Confirmed by Lord Diplock in Gibson v

Manchester City Council [I979] there may be certain exceptional cases which
do not fit easily into the normal analysis of a contract
Traditional rule not always rigidly applied:
The Euryrmedon [1975] AC 154. 167 Lord Wilberforce stated that English
law, takes a practical approach, often at the cost of forcing the facts to fit
uneasily into the marked slots of offer, acceptance and consideration.
courts do have some discretion and some flexibility

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Chapter 2 Agreement

Test for existence of agreement = Objective

been concluded on the claimants terms because, in the usual case, an

Courts still follow traditional approach. Confirmed by Lord Diplock in Gibson v

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