CONTRACT FORMATION (+ Intro)
Introduction
Until 1875, Common Law and Equity courts were separate; today, this influences jurisdictional sources
(eg equitable doctrines). Equitable remedies are discretionary, not of right. Injunctions, specific
performance, doctrine of account are all important equitable doctrines.
Several cases have diminished the CL/equity distinction – The Great Peace (2003), BCCI v Ali (2001)
(when interpreting written contracts, use CL – no equitable principles). Burrows (2002) argues that
equity should be abolished – there should be a single, unified law of obligations and property.
General Principles
Freedom of contract – Freedom of contract is the fundamental principles of contract law – the court will
respect parties’ agreements and will not attempt to re-write them. There are three aspects:
1. All parties must make free, voluntary decisions when entering the transaction
2. Parties can, by agreement, stipulate that the agreement is not legally binding
3. Parties can and do shape the contents of the contract (assuming non-mandatory terms exist in
the contract)
Objective principle – Parties’ language or conduct must be assessed according to outward reasonable
meaning or appearance.
- Crest Nicholson (Londinium) Limited v Akaria Investments Ltd (2010) (issue of whether a party
has made an offer is to be objectively determined)
Leggatt notes this principle enables courts and third parties to make sense of an agreement without
exploring the messy subjective aspects of the deal (parties’ intentions).
Promisee-objectivity means considering how the matter appears from the reasonable and objective
perspective of the promisee
- McCutcheon v David MacBrayne Ltd (1964) (Reid – what A was reasonably entitled to conclude
from B’s attitude)
- The Hannah Blumenthal (1983) (Diplock – objectivity only requires us to determine whether the
recipient drew a psychological inference and whether psychological reliance can be imputed)
Detached observer objectivity means the court considers the matter from the perspective of a detached
third-party observer (rather than promisee). Since the text of contracts acquires a legal life of its own,
external objectivity is used to interpret written contracts. This involves reading the whole text,
considering context, and applying commercial common sense to give it effect.
Objectivity is only how it would look to a reasonable person, not how it did look to a party
- Thake v Maurice (1986) (therapeutic comfort for vasectomy ≠ promise)
B is not obliged to bring to A’s attention the fact that A is in error concerning the nature or quality of the
contract’s subject matter; however, if B is aware of A’s mistaken belief that there is an implied term or
warranty of the contract protecting A, the court will give effect to A’s belief (B cannot use objective
principle to prevent A from taking advantage of the term)
Introduction
Until 1875, Common Law and Equity courts were separate; today, this influences jurisdictional sources
(eg equitable doctrines). Equitable remedies are discretionary, not of right. Injunctions, specific
performance, doctrine of account are all important equitable doctrines.
Several cases have diminished the CL/equity distinction – The Great Peace (2003), BCCI v Ali (2001)
(when interpreting written contracts, use CL – no equitable principles). Burrows (2002) argues that
equity should be abolished – there should be a single, unified law of obligations and property.
General Principles
Freedom of contract – Freedom of contract is the fundamental principles of contract law – the court will
respect parties’ agreements and will not attempt to re-write them. There are three aspects:
1. All parties must make free, voluntary decisions when entering the transaction
2. Parties can, by agreement, stipulate that the agreement is not legally binding
3. Parties can and do shape the contents of the contract (assuming non-mandatory terms exist in
the contract)
Objective principle – Parties’ language or conduct must be assessed according to outward reasonable
meaning or appearance.
- Crest Nicholson (Londinium) Limited v Akaria Investments Ltd (2010) (issue of whether a party
has made an offer is to be objectively determined)
Leggatt notes this principle enables courts and third parties to make sense of an agreement without
exploring the messy subjective aspects of the deal (parties’ intentions).
Promisee-objectivity means considering how the matter appears from the reasonable and objective
perspective of the promisee
- McCutcheon v David MacBrayne Ltd (1964) (Reid – what A was reasonably entitled to conclude
from B’s attitude)
- The Hannah Blumenthal (1983) (Diplock – objectivity only requires us to determine whether the
recipient drew a psychological inference and whether psychological reliance can be imputed)
Detached observer objectivity means the court considers the matter from the perspective of a detached
third-party observer (rather than promisee). Since the text of contracts acquires a legal life of its own,
external objectivity is used to interpret written contracts. This involves reading the whole text,
considering context, and applying commercial common sense to give it effect.
Objectivity is only how it would look to a reasonable person, not how it did look to a party
- Thake v Maurice (1986) (therapeutic comfort for vasectomy ≠ promise)
B is not obliged to bring to A’s attention the fact that A is in error concerning the nature or quality of the
contract’s subject matter; however, if B is aware of A’s mistaken belief that there is an implied term or
warranty of the contract protecting A, the court will give effect to A’s belief (B cannot use objective
principle to prevent A from taking advantage of the term)
