Chapter 2
Agreement: clearing the ground:
2.1 Who decides that an agreement has been reached?
- Defined in the judgement of Blackburn in Smith v Hughes 1871; ‘whatever a man’s real
intention may be, he so conducts himself so that a reasonable man would believe that he
was assenting to the terms proposed by the other party, and that other party would upon
that belief enters into the contract with him, the man thus conducting himself would be
equally as bound’.
- Lord Clarke; 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’.
- Objective test: examines what the parties said and did and not what they actually intended
to say or do.
- Objective test ensures certainty.
- Objective test based on estoppel
- Atiyah criticises the outcome of the Centrovincial case
- Lord Brandon-> there are two ways in which the parties could agree to abandon a contract
to arbitrate:
1. Where they actually agreed to do so
2. Where one party created a situation in which he was estopped from asserting that he
had not abandoned the contract-> the sellers much have ‘significantly altered their
position in reliance upon their belief that the contract had been abandoned’.
- Hannah Blumenthal case-> unusual-> alleged that the parties had entered into a contract to
abandon an arbitration by mere inactivity on both sides.
2.2 A residual role for a subjective approach?
- Shouldn’t be assumed that the subjective intentions of the parties are irrelevant to the law
of contract.
- The subjective intentions of the parties will coincide with the interpretation put upon their
intentions by the objective test-> subjective intentions are thus protected
- Two situations in which the objective test is either displaced or modified by a test:
1. The offeree knows that the offeror is suffering from a mistake as to the terms of the
offer-> the oferee cannot create a contract between the parties by purporting to accept
the offer. The mistake may not be to the terms of the contract but to the facts on which
the offeror based his decision to enter into the agreement. In this case, the contract
remains binding, but where the offeror’s mistake relates to the terms of the offer or to
the terms of the contract, and the offeree knows that the terms are mistaken, then
there is no contract between the two.
2. The offeree is at fault for failing to let the oferror know that he has made a mistake.
- Spencer: ‘it may be acceptable for the law occasionally to force upon one of the parties an
agreement he did not want… surely there is something wrong with a theory which forces
upon both of the parties an agreement which neither of them wants.’
- The subjective understandings of the parties will not generally prevail over their intention
objectively ascertained.
2.3 The objective test:
- Three different interpretations of the objective test (suggested by Howarth 1984):
Agreement: clearing the ground:
2.1 Who decides that an agreement has been reached?
- Defined in the judgement of Blackburn in Smith v Hughes 1871; ‘whatever a man’s real
intention may be, he so conducts himself so that a reasonable man would believe that he
was assenting to the terms proposed by the other party, and that other party would upon
that belief enters into the contract with him, the man thus conducting himself would be
equally as bound’.
- Lord Clarke; 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’.
- Objective test: examines what the parties said and did and not what they actually intended
to say or do.
- Objective test ensures certainty.
- Objective test based on estoppel
- Atiyah criticises the outcome of the Centrovincial case
- Lord Brandon-> there are two ways in which the parties could agree to abandon a contract
to arbitrate:
1. Where they actually agreed to do so
2. Where one party created a situation in which he was estopped from asserting that he
had not abandoned the contract-> the sellers much have ‘significantly altered their
position in reliance upon their belief that the contract had been abandoned’.
- Hannah Blumenthal case-> unusual-> alleged that the parties had entered into a contract to
abandon an arbitration by mere inactivity on both sides.
2.2 A residual role for a subjective approach?
- Shouldn’t be assumed that the subjective intentions of the parties are irrelevant to the law
of contract.
- The subjective intentions of the parties will coincide with the interpretation put upon their
intentions by the objective test-> subjective intentions are thus protected
- Two situations in which the objective test is either displaced or modified by a test:
1. The offeree knows that the offeror is suffering from a mistake as to the terms of the
offer-> the oferee cannot create a contract between the parties by purporting to accept
the offer. The mistake may not be to the terms of the contract but to the facts on which
the offeror based his decision to enter into the agreement. In this case, the contract
remains binding, but where the offeror’s mistake relates to the terms of the offer or to
the terms of the contract, and the offeree knows that the terms are mistaken, then
there is no contract between the two.
2. The offeree is at fault for failing to let the oferror know that he has made a mistake.
- Spencer: ‘it may be acceptable for the law occasionally to force upon one of the parties an
agreement he did not want… surely there is something wrong with a theory which forces
upon both of the parties an agreement which neither of them wants.’
- The subjective understandings of the parties will not generally prevail over their intention
objectively ascertained.
2.3 The objective test:
- Three different interpretations of the objective test (suggested by Howarth 1984):
