Unilateral and bilateral contracts - Article Example

A dichotomy of law exists between unilateral and bilateral contracts. Whilst both are separate species of the common law relating to the formation ofcontracts they possess some similarities. Evaluate this statement with reference to decided cases and other authorities. Word Count: 2463. The distinction between bilateral and unilateral contracts has been considered a fundamental principle of contract law and essential to the order of the contractual system1. In general terms, a bilateral contract is one where a promise by one party is exchanged for a promise or exchange of promises, referred to as "mutuality of undertakings"2. Conversely, unilateral contracts operate on the basis that one party promises to do something in return for an act of the other party as opposed to any promise. The essence of the unilateral contract is that only one party is bound to perform an obligation in return for the "reward"3. The focus of this analysis is to critically evaluate the theoretical legal dichotomy between unilateral and bilateral contracts and consider the practical similarities between the two. If we firstly consider unilateral contracts, the concept of a unilateral contract is illustrated by reference to a classic contract law case of Carlil v Carbolic Smoke Ball Limited4. In this case, the defendant was the proprietor of a medical substance and placed and advert in the Pall Mall Gazette promising to pay $100 to anyone who used the carbolic smoke ball for two weeks and who for a limited time after contracted the flu virus. Mrs Carlil took the substance and contracted the flu virus and sued for the $100. Mrs Carlil's claim succeeded and on appeal, Carbolic Smoke Ball Limited argued that the advert did not constitute an offer but was rather an invitation to treat. The Court of Appeal rejected this argument and held that there was a legally enforceable contract. The advertisement constituted an offer to the whole world and was capable of amounting to an offer of a unilateral contract without the requirement for acceptance. Moreover, this decision was the first case to highlight the requirement of intention to create legal relations. The Carlil decision had far reaching implications for contract law, with some commentators arguing that there is no difference between an "invitation to treat" and a contractual "offer"5. The law of contract stipulates three fundamental requirements for the formation of a legally enforceable contract; namely; offer, acceptance and consideration (it is important to note that contracting parties must have legal capacity to enter into a contract). Lord Wilberforce presiding in the case of New Zealand Shipping Co Limited v A M Satterhwaite, The Eurymedon6 asserted the rule for contract formation thus: "English law having committed itself to a rather technical'' doctrine of contract, in application takes a practical approach''. Into the market slots of offer, acceptance and consideration7. An "offer" in the context of contract law has been described as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the "offeree.8" The "expression9" may take different forms and the intention element is an objective consideration and the case of Smith v Hughes 10emphasised the relevant consideration as being a focus on how a reasonable person would view the situation. Furthermore, the law distinguishes between an offer and an invitation to treat, which is not an offer but an indication of willingness to negotiate a contract11. For example, in the case of Gibson v Manchester City Council12, the words "may be prepared to sell" constituted an invitation to treat and not a distinct offer. Moreover, an invitation to treat is an action inviting others to make an offer. Whereas an offer is itself binding, accepting an invitation to treat is making an offer13. This is particularly evident in the construction industry where tender enquiries are submitted inviting quotations for works. A tender enquiry is a prime example of an invitation to treat and will not create a contract per se14. Nevertheless, such contracts require the performance of obligations which will ultimately result in a bilateral contract, thereby undermining the somewhat entrenched categorisation of unilateral and bilateral contracts. For example, in the case of Partridge v Crittenden15, the defendant advertised in a newspaper "framble finch cocks and hens 25 shillings each16". It was held that this was an invitation to treat not an offer in contractual terms. Whilst this case is clearly a logical conclusion based on the fact that the offeror had to accept any offers to purchase, the judicial rationale in Carlil based the decision on the fact that the contractual offer required performance of an obligation, which therefore created a unilateral contract. Moreover, the consideration element has been problematic in unilateral contracts. In the Carlil decision, the Court of Appeal asserted that the consideration in the case was found by Mrs Carlil taking and using the smoke ball for two weeks and it was once this period had been complete that the promise became legally binding in accordance with the terms of the offer. On this basis, the Court of Appeal argued that the company could have terminated the contract at any point in the two week period. Moreover, with regard to the consideration doctrine, the Court of Appeal asserted that catching influenza did not constitute consideration, but was rather a condition. The consideration was the use of the smoke ball. Moreover, the deposit of money by the company indicated contractual intention. Additionally in Shuey v US17 it was held that a unilateral offer to unascertained offerees can be revoked until acceptance if adequate notice is given. Whilst such an approach makes sense logically, it is evident that under contract law an offer can validly be revoked prior to acceptance provided such revocation is communicated18. This applies even with bilateral contracts, which highlights the similarities between the two contracts and Stoljar's arguments of "the false distinction between bilateral and unilateral contracts"19. Conversely, the bilateral contract's enforceability theoretically differs in requiring both parties to perform their promises and obligations20. A bilateral contract may include mutuality of obligations however can also involve conditional performance of obligation by one party prior to acceptance as highlighted by tenders in construction contracts21. However, this arguably obfuscates the distinction between unilateral and bilateral contracts as in Carlil, the judicial rationale indicates that enforceability of contractual obligations in the case was dependant on the completion of the two week trial of the smoke ball. Moreover, the distinction between bilateral and unilateral contracts appears slightly artificial on the Carlil justification as theoretically there was a requirement for both parties to perform promises and obligations as is required in bilateral contracts. It is submitted the distinction between offer and invitation to treat has further been confused to create a distinction between unilateral and bilateral contracts. Additionally, in the case of Thornton v Shoe Lane Parking22, a professional musician had parked his car at multi-storey car park in Shoe Lane Parking. On return to the car park, the plaintiff suffered an accident partly due to his own fault and partly due to the negligence of the car park attendant. The Court of Appeal awarded the plaintiff damages for his personal injuries, but nothing for damage to the car. It was determined that there had been a contract formed as soon as the plaintiff passed the ticket barrier, thereby constituting offer and acceptance and agreement. The contract was held to be bilateral as the plaintiff had agreed to pay for parking in return for the defendants looking after his car. As a bilateral contract, both defendant and plaintiff were bound instantly. The main issue of contention in the case was whether attempts by the defendant to exclude liability for personal injury and damage to the car had been expressly incorporated into the contract. In this case, there were various signs excluding liability. It was asserted that anything agreed post acceptance was invalid, however the notice outside the car park prior to entry was included in the contract. Simpson23 propounds the concept of intention as an essential requirement of a legally binding agreement, which was introduced into contract law by the decision in the landmark case of Carlil v Carbolic Smokeball24as discussed above. Furthermore, the focus on intention to create legal relations is central to determining the scope of legal consequences of any resulting agreement and case law demonstrates a judicial predisposition towards considering the subjective element on case- by-case basis, which has arguably fuelled the blurring of theoretical distinctions between unilateral and bilateral contracts25. Whilst such an approach has been criticised for perpetuating uncertainty and lack of precedent by virtue of ad hoc judicial decisions,26 the concept of intention has varied according to context, distinguishing between social and domestic arrangements and commercial contracts. As an initial observation, it has been propounded as a general principle of contract law that the development of social and domestic agreements to which parties may not intend to be bound has in fact resulted in the presumption of no intention to contract27. Conversely, general commercial law principles advocate that commercial agreements are treated with an implied presumption that legal relations are intended28. This was further affirmed in the decision of Edward v Skyways29. Moreover, with regard to commercial contracts, issues regarding intent become contentious in the event of contractual dispute30 and Collins argues that the judicial focus has been to import intention through the back door and effectively "falsify" legal intentions on grounds of policy considerations31. This is further evidenced by the "false" dichotomy between unilateral and bilateral contracts, which appears to be ignored, applied ad hoc and ultimately dependent on overriding considerations of whether there is intention to create legal relations. Collins argues that such an approach is unsuitable as one "cannot lead evidence on one's own subjective intuitions32" and that intention to create legal relations should be objectively judged with "the different presumptions for domestic and commercial arrangements"33. This further highlights the fact that it is the very nature of the presumption accorded to intent to enter legal relations in commercial contracts that has enabled judicial discretion in defining and expanding the distinctions between unilateral and bilateral contracts. Indeed, Chen-Wishart further asserts that "it is now widely accepted that the presumptions of intention to create legal relations are based on public policy"34, which are imported into implied presumptions regarding intent to create contractual relations35. Moreover, Chen-Wishart highlights the inherent irony in public policy considerations shaping the presumption of intention in commercial contracts as being in direct conflict with the fundamental common law doctrine of freedom to contract36. Chen-Wishart attacks the "falsity" of court presumed intention in commercial relationships by a comparative analysis with the social relationships where no such intentions are presumed37. For example, in the case of Parker v Clarke38 it was held that if a social agreement had serious consequences for the parties, this could rebut the presumption, which highlights that central to the concept of intention to create legal relations is the consideration of the legal consequences of the intended arrangement. For example, in the Parker case it was held that39 whilst there was a presumption that there was no intention to create legal relations in social relationships, this could be rebutted in cases where the contract was between friends but made in respect of a competition. This was also evidenced in the case of Simpkins v Pays40 (here the parties to the agreement shared a household but were not related). Some commentators have argued that whilst policy justifications for keeping legal interference out of social and domestic contracts are sound, the presumption has resulted in gender inequality and further undermines the theoretical distinction between unilateral and bilateral contracts41. However, it is submitted that a reversal of the burden of proof in social contracts would be difficult to implement and could lend itself to undue state interference in private matters. Alternatively, Freeman argues that the societal change in the family nucleus coupled with the changing dynamic of relationships and gender means that marriage is less regulated and dependent on individual choice42. "Marriage becomes a personal rather than social institution43" and therefore the presumption that there is no intention to create legal relations should nevertheless remain subject to rebuttal dependant on the circumstances44. Moreover, when contrasted with the presumption of intention in commercial contracts, whilst criticisms of judicial interpretation of intention are sound, it is submitted that the underlying justification for the presumption is necessary to promote commercial certainty, particularly where there is inequality of bargaining power and confidence between contracting parties45. Alternatively, a rebuttal of the presumption would effectively operate as a get out clause. Nevertheless, it is necessary to protect against abuse of the presumption and case law acknowledges that the presumption in commercial contracts can be rebutted. For example, in the case of JH Milner v Percy Bilton46it was determined that the presumption of intention could be rebutted if there was uncertainty and ambiguity regarding the nature of the contractual obligation itself. Furthermore, the assumption regarding intention in commercial contracts can be rebutted if there is an express stipulation by the parties in the contract itself as determined in the case of Rose & Frank Co v JR Crompton & Bros Limited. 47 Additionally, the presumption has been varied and developed depending on the nature of contract48. For example, in the case of Ford Motor Co v. Amalgamated Union of Engineering and Foundry Workers49 it was held that there was no presumption of intention to create legal relations regarding the negotiation of collective agreements with the Trade Union as notwithstanding the commercial aims of the contract, the core of the agreement was rooted in social obligations, which negated the presumption of intention. In conclusion, the above analysis demonstrates that whilst the theoretical dichotomy between unilateral contracts and bilateral contracts remain, the judicial rationale for enforcing contractual obligations have often blurred the distinction, often being motivated by policy considerations. As such, this lends itself to support Stoljar's proposition of the "false dichotomy" between the two contracts, which have created tensions with existing contract law principles in certain cases. The somewhat artificial distinction between the two contracts is particularly highlighted by the contractual requirement of intention to create legal relations. Indeed, case law demonstrates that intention is an essential element in determining the parameters of legal obligations. Moreover, the notion of "intent" is intrinsically intertwined with the impact of the legal consequences of the arrangement. BIBLIOGRAPHY Brownsword., Roger (2004) Understanding Contract Law Sweet & Maxwell Chen-Wishart., Mindy (2005) Contract law. 7th Edition Oxford University Press Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. Collins., Hugh (2003) The Law of Contract. 4th Edition Butterworths Tolley Freeman., Michael (1996) Contracting in the Haven: Balfour v Balfour re-visited In "Exploring the Boundaries of Contract" Dartmouth. M. P. Furmston (2007). Cheshire, Fifoot and Furmston's Law of Contract. 15th Edition Oxford University Press. Uff., John (2005). Construction Law. 9th Edition Sweet & Maxwell. Hackett., M & Robinson., I (2002) Pre-contract Practice and Contract Administration for Building. Blackwell Publishing. Murdoch., J (2000). Construction Contracts: Law and Management. 3rd Edition Spon Press. Simpson, A.W.B (1975) Innovations in Nineteenth Century Contract law 91 Law Quarterly Review 247. Samuel Stoljar (1955). The False Distinction between Bilateral and Unilateral Contracts. The Yale Law Journal Volume 64 (No.4) pp.515-536. All ER 686. G H. Treitel., (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. Read More