In this assignment, the statement The freedom of contract has allowed courts to elevate the needs of certainty and

predictability above those of reasonableness and fairness will be discussed.

Firstly, a contract is defined as an agreement giving rise to obligations which are enforced or recognized by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. The problem of measuring the existence of the agreement has already been looked at in our discussions on the concept of freedom of contract.

The doctrine freedom of contract was developed in the 19th century. It was the central doctrine of the classical contract law. The doctrine of freedom of contract involves two main elements: (1) every person is free to enter into a contract with any other person they choose. (2) every person is free to contract on any terms they want. According to the view of Sir George Jessel in 1875 in Printing and Numerical Registering Co. v Sampson (1875) LR 19 Eq 462, it stated that: if there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty in contracting, and that their contracts, when entered freely and voluntarily, shall be held sacred and shall be enforced by the Courts of Justice.

In earlier times, a meeting of minds, consensus ad idem between the contracting parties has always been emphasized by the court for the making of contracts. This dependence on actual intention was a belief in unfettered freedom of contract. Therefore, the general rule is, there could be no contract without consensus ad idem, meeting of minds between parties. The court may find that there is no binding of contract if the intended acceptance is not in accordance with the terms of the offer even though both parties to the purported contract contend that there's a binding contract. However, this subjective approach to the making of contracts has now largely been abandoned, though its influence can still be detected in certain rules.
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In the present day, the doctrine is now conflict with the commercial and legal reality. The concept of the doctrine does not bond with 21st century business practices. The notion of freedom of contract persists only in very limited areas of commercial life as substantial inroads have been made by the courts and Parliament into limiting the powers of those who exercise economic dominance.

The judge has to balance the conflicting interests of certainty and fairness. Thus, when a case is brought to court the task of the judge is to determine objectively from all the evidence what was said, written and done. Indeed, there is a clear need for the courts to have some outward objective evidence of the existence of an agreement or else there would be great uncertainty when one attempts to bring together the theoretical basis of the law of contract with the actual intentions of the parties. An individual could escape their obligations merely by stating that they had no intention of being bound by any agreement. It is not the subjective intentions of the parties which determine the legal effect of their words or actions but the objective inference by the courts of these intentions. Therefore, any subjective element is just subsidiary to the objective one and is, to a large degree, of no consequence except where it corresponds with the intentions of the parties as ascertained by objective means. In other words, the reason for the objective approach is that it is not possible to ascertain a persons private or subjective intention when bargaining for a contract. The law of contract has to be fair to both parties to an apparent agreement. In the interests of fairness, certainty and commercial convenience, one party has to be able to rely on the words and conduct of the other, even if it turns out that they are not an accurate reflection of the other partys private or subjective intentions. There is guiding principle of the objective theory of contract throughout the law of contract. According to the objective theory, in order to determine whether a statement made by the person was intended to form the basis of a contract or not, it is construed by reference to a reasonable person in the position of the party to whom the statement is directed. In contrary, when trying to

determine whether a statement was intended to be an offer, the reasonable person will construe it in the position of the offeree. For example, when one party (A) expresses an apparent intention (objective intention) which doesn't express what he actually means in his own mind (subjective intention), an apparent meeting of the minds of the parties may suffice for a binding contract. Where A has so conducted himself that a reasonable person would believe that he is unambiguously assenting to the terms as proposed by the other party (B), A is precluded from setting up his real intention and is bound by the contract as if he'd meant to agree to B's terms. Although the law is not concerned with the subjective belief of a person making a statement, it may be concerned with the subjective beliefs of the person to whom it is addressed. When it comes to mistake as to quality the courts are less reluctant to look into the innermost mind of the parties. The mere fact that one party to the contract is mistaken in his innermost mind as to the quality of the subject matter is not sufficient of itself, automatically to render a contract void. This can be explained by the case Smith v Hughes (1871) LR 6 QB 597 .

Smith v Hughes is a famous English contract law case which the judge applied objective test on it. The plaintiff, Mr. Smith brought a sample of oats to the defendant, Mr. Hughes, who was a racehorse trainer. Mr. Hughes was then made an order. When part of the oats arrived, Mr. Hughes refused to pay for the oats as those were not the oats that he thought when he made the order. In fact, Mr. Hughes wanted rolled oats which can be eat by racehorses but not the green oats which same with the sample given by Mr. Smith. Mr. Smith sued for breach of contract. In this case, it was not only focusing on the question of whether the parties were at consensus ad idem, but also on their communication by conduct and words. Generally, Mr. Smith kept silence is not a misrepresentation. Here the buyer persuaded himself that they were old oats, therefore, buyer has himself to blame since the seller did not say anything which induced him enter into the contract. Cockburn CJ said that the rule caveat emptor applies if the buyer chooses to act on his own judgement. The effect of the maxim caveat emptor is that the other party has no duty to disclose problems voluntarily. Thus if one party is labouring under a misapprehension there is no

duty on the other party to correct it. A unilateral mistake is therefore in principle no ground for rescission of a contract. The defendant in the present case intended to buy old oats and the plaintiff to sell new, so the two minds were not ad idem which can lead to no contract. However, both parties were agreed as to the sale and purchase of the particular parcel of oats, namely good oats. The defendant omitted to make the age of oats as a condition of the contract. Therefore, it can be concluded that the two minds were not ad idem as to the age of the oats; they certainly were ad idem as to the sale and purchase of the oats. If they believed the word old was used, they should find for the defendant. For the opinion of Blackburn J, he agree that on the sale of a specific article, the purchaser must take the article he has bought although it does not possess the desired quality unless there is a warranty made in the bargain that it should possess particular quality. A mere abstinence from disabusing the purchaser of that impression is not fraud or deceit, for, whatever may be the case in a court of morals as there is no legal obligation on the vendor to inform the purchaser that he is under a mistake, not induced by the act of the vendor.

The classic statement of the objective interpretation of people's conduct when entering into a contract set out by Blackburn J stated that: If whatever a mans 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 partys terms. In a nutshell, Smith v Hughes provides that the seller of goods is under no obligation to correct a mistaken belief held by the buyer about the goods he or she is buying.

There are two contrasting cases regarding the balance of the conflicting interests of certainty and fairness by the judge, which are the Centrovincial Estates plc v Merchant Investors Assurance Co Ltd 1983 and Hartog v Colin and Shields 1939. Let us first look at the case Centrovincial Estates Plc v Merchant Investors Assurance Co Ltd (1983) Com LR 158. The objective test was applied in this case to determine whether promises exchanged and expressed by parties amounted to an agreement. It was held that there cannot be a contract when the promisee knows or ought to know that the promisor does not intend to contract on the stated terms. The plaintiff might be able to go against any binding agreement by showing that the defendant ought to have known that the plaintiff's offer contained an error. In this case there was no proof that the defendants either knew or ought reasonably to have known of the plaintiffs error. The non mistaken party need not show that as a result of entering into that contract he has suffered any actual detriment. In the majority of cases there will, of course, be both actual and objective agreement. But, if one party knows either that the other has no intention of contracting with him or is mistaken as to the proposed terms, despite an objective appearance of agreement, the law will not apply the objective test. The objective test is modified to become promisor objectivity and promisee objectivity which places greater emphasis on the subjective intention of the parties when detached objectivity is involved. It is considered the subjective test. Where one party is mistaken as to the nature of the contract and the other party is aware of the mistake, or the circumstances are such that he may be taken to be aware of it, the contract is void. For the mistake to be operative, the mistake by one party must be as to the terms of the contract itself. In such situation, promisor objectivity will be used. It can be explained by the case Hartog v Colin & Shields (1939) 3 All ER 566.

In the Hartog v Collin & Shield case, the defendant Colin & Shields sold hare skins at an unbelievably low price and pleaded that their offer to Mr. Hartog was wrongly expressed by mistake. They alleged that they had intended to offer the goods sold at certain prices per piece, and not at those prices per pound, as their offer was expressed. Mr. Hartog was then claimed for
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loss of profit. The argument arose when Mr. Hartog was believed that he was aware of the defendants mistake and considered fraudulently accepted an offer which he well knew that the defendants had never intended to make the offer. The plaintiff was considered snapping up the offer as he knew that there was a mistake and sought to take advantage from that mistake. The courts applied the promisor objectivity test ruled that a reasonable man in the promisors shoes knew or ought to have known the real price and would not have offered to sell at such a low price. As such the claimants were not allowed to snatch a bargain at the promisors expense. It was held that if one party to a proposed contract knows or really ought to have known that the offeror does not intend the terms of the offer to be those that the natural meaning of the words would suggest, and that the terms offered were a mistake, he cannot, by purporting to accept the offer, bind the offeror to a contract. For the promisee objectivity test, the reasonable man will stand at the offeree point of view and judge. The Scriven Bros v Hindley (1913) 3 KB 564 will be the case on mutual mistake that promisee objectivity test is applied.

The plaintiffs instructed an auctioneer to sell by auction a number of bales of hemp and of tow. The goods were described in the auctioneer's catalogue as so many bales in different lots with the same shipping marks and without disclosing the difference in the commodities. The defendant in the case bid at an auction for two lots, believing both to be hemp. In fact Lot A was hemp but Lot B was tow, a different commodity in commerce and of very little value. The defendants declined to pay for Lot B and the sellers sued for the price. The defendants' mistake arose from the fact that both lots contained the same shipping mark, "SL", and witnesses stated that in their experience hemp and tow were never landed from the same ship under the same shipping mark. The defendants' manager had been shown bales of hemp as "samples of the 'SL' goods". The auctioneer believed that the bid was made under a mistake as to the value of the tow.

Lawrence J said that as the parties were not ad idem, the plaintiffs could recover only if the defendants were estopped from relying upon what was now admittedly the truth. He held that the defendants were not estopped since their mistake had been caused by or contributed to by the negligence of the plaintiffs. As such there was no agreement and the contract for sale was null and void as to go through with it would mean that the auctioneers would profiteer from his own mistake.

The concept of objectivity in this context has, however, to be given some balance, since it is clearly not desirable for the law to impose an agreement where none existed simply because some hypothetical reasonable person says that there is such an agreement. Thus, it is important that within the general objective structure of contractual intentions, the subjective view of the parties may still be significant. The objective test would still apply to agreements which were absent of any mistake by any of the parties and where the agreements were expressly stated.

In addition, there are some declarations of subjective intent stated that, prior negotiations and subsequent conduct should not be ruled out as irrelevant where they could be a valuable aid to interpretation. In fact, evidence of prior negotiations and conduct subsequent to the conclusion of a contract are already admissible for cases on rectification. It has been argued that the courts are well accustomed to determining what weight should be place on admissible evidence. In my opinion, there are pros n cons by applying objective test or subjective test in the court. However, because of the law of contract has to be fair to both parties to an apparent agreement, as a result, objective interpretation is more preferred /often applied in the court. The judge will also apply subjective test for some exception cases which have been discussed above.

In conclusion, in the interests of fairness, certainty and commercial convenience, one party has to be able to rely on the words and conduct of the others; even if it turns out that they are not an accurate reflection of the other partys private or subjective intentions. I am personally agreed with the statement that freedom of contract has allowed courts to elevate the needs of certainty and predictability above those of reasonableness and fairness.

References: 1. Hugh Collins(2003) The Law of Contract, Fourth edition. 2. Dr. Robert N Moles, Networked Knowledge- Contract Law Lecture http://netk.net.au/Contract/02Formation.asp 3. Chapter 9- The Doctrine of Freedom of Contract, The Cult of the Market: Economic Fundamentalism and its Discontents http://epress.anu.edu.au/cotm/mobile_devices/ch09.html 4. Objective Theory of Contract http://law.jrank.org/pages/8883/Objective-Theory-Contract.html 5. Mistake regarding terms of the contract- Law of Contract http://www.lawofcontract.co.uk/formation/mistake-terms.php 6. Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 All ER 34, Law and Sea http://www.lawandsea.net/List_of_Cases/P/Paal_Wilson_v_Partenreederei_Hannah_Hannah_Bl umenthal_1983_1AllER34.html 7. Common law limits on the freedom of contract http://www.vanuatu.usp.ac.fj/courses/LA317_Labour_Law/LA317_topic5.html

8. Interpreting contracts in English law

http://en.wikipedia.org/wiki/Interpreting_contracts_in_English_law