In the cases so far considered, the parties are free to decide whether or not to

enter into the relationship (though the law may fix some or all of its incidents),

but there are other cases in which the law, to some extent, restricts even this

freedom. For example, at common law, a common innkeeper may be liable

criminally or in tort for refusing, without sufficient excuse, to accommodate a

guest. By statute, injunctions may be granted, and damages awarded, against

persons who withhold supplies from retailers on the ground of price-cutting,

and against persons whose refusal to make certain contracts amounts to

unlawful discrimination on grounds of race or sex; and it is unlawful to refuse

a person employment because he is, or is not, a member of a trade union.

In Treitel’s opinion, however, despite the above qualifications, it remains

broadly true that the law of contract is concerned with the circumstances in

which agreements are legally binding. Thus, it deals mainly with the two

questions of agreement and legal effects or enforceability.

23

Chapter 2: Sourcebook on Contract Law

The tension between the conventional view of contract as being agreement

or promise based and the pragmatism often exhibited by the courts in practice

will feature at many points during this chapter.6

However, on the assumption that contract is, in some sense, based on

agreement, it is necessary to examine how such agreements are formed.

OFFER AND ACCEPTANCE

Agreements in the above sense are usually thought to arise via a process of

offer and acceptance; a proposal by one party which is, eventually, assented to

in broadly the same terms by the other party. It might be thought that the law

would require an actual subjective intent to be bound (on either side) by the

proposed contract, for there to be in the well known (if misleading) phrase, a

consensus ad idem (or meeting of minds) However, the overwhelming weight

of opinion, both academic and judicial, is that an objective approach is

preferred, and a party’s intentions are to be judged by the way a reasonable

person in the other party’s position would have understood them. In the

words of Blackburn J:

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.7

There is some dispute as to whether the objective position to be adopted is

that of a reasonable person in the promisee position (broadly, the approach

adopted by Blackburn J in the above passage) or the detached objectivity or

‘fly on the wall’ perspective of the (supposedly) disinterested third party

observer (most typically, the court).8 However, the general approach, both

academic and judicial, is in line with the views of Blackburn J.9

The process of negotiation or interaction by which agreement

conventionally arises (the process of offer and acceptance) does not neatly

encompass all contracting situations, particularly where standard forms are

utilised or where the execution of a contract is virtually contemporaneous

6

Equally ‘tense’ is the often fierce debate between those writers adopting a broadly

Atiyah influenced approach, and those (like Treitel) propounding the continued vitality

of the classical model. A recent example is the response by Atiyah himself (1986, p 363)

to an observation by Beatson, 1986, p 19 that recent judicial decisions indicated that the

‘classical law of contract’ was far from dead.

7

Blackburn J in Smith v Hughes [1871] LR 6 QB 597.

8

Contrast the views of Howarth, 1984, p 265 with those of Vorster, 1987, p 274.

9

See Treitel, above.

24

Agreement

with its completion. On a number of occasions, Lord Denning expressed the

view that the ‘offer and acceptance’ perspective was often artificial. For

example, in Gibson v Manchester City Council,10 a dispute arose over whether a

binding contract to sell a council house had been formed, despite apparently

incomplete ‘accord’ via the offer and acceptance process. Lord Denning stated

that, instead, one ought to ‘look at the correspondence as a whole and at the

conduct of the parties, and see therefrom whether the parties have come to an

agreement on everything that was material’.

In general, Lord Denning’s views have not been received sympathetically,

as the following passage from Lord Diplock’s judgment in the House of Lords

in the same case makes only too clear:

Gibson v Manchester City Council [1979] 1 WLR 294, HL, p 297

Lord Diplock: My Lords, there may be certain types of contract, though I think

they are exceptional, which do not fit easily into the normal analysis of a

contract as being constituted by offer and acceptance; but a contract alleged to

have been made by an exchange of correspondence between the parties in

which the successive communications other than the first are in reply to one

another, is not one of these. I can see no reason in the instant case for departing

from the conventional approach of looking at the handful of documents relied

upon as constituting the contract sued upon and seeing whether upon their

true construction there is to be found in them a contractual offer by the

corporation to sell the house to Mr Gibson and an acceptance of that offer by

Mr Gibson. I venture to think that it was by departing from this conventional

approach that the majority of the Court of Appeal was led into error.11