Commercial Contract Assessment - Essay Example

Introduction: For a valid contract, intention of the partie, offer and acceptance, objectivity are important elements where court will take into cognisance. For instance, there will not exist a valid contract when a counter offer is made. Further, intention of party will be primarily looked into by the arbitrators to decide whether there is a valid contract or not. This research essay dwells into important ingredients of a valid contract with decided case laws on the subject. 1. Why do the courts prefer an objective test for intention rather than a subjective test? What are the drawbacks of the subjective test? The mind of a party is being looked into in a subjective point of view, and it intends to find out what the party really understood or intended. A reasonable person is an imaginary person created by judges. Thus, a reasonable man is one who is an ordinary “Joe" type of character. According to Howarth (1984), promisor or promisee objectivity is one where a reliable person stands on the shoes of either the promisor or promisee and looks at the incidents from that angle. A detached objective is one where a reasonable person sees if he were in other person’s position, but looks at the incidents, as if “ he is a fly on the wall”. (Taylor & Taylor 2007:22). As per Spencer, the intent analysis of contract formation involves that phrases are to be scrutinised as they will be rationally interpreted by the individual to whom they are addressed. Spencer also recognised a “ fly on the wall theory” and also known as “ detached objectivity” by Howarth, according to which the phrases employed by one contracting party must be assessed, not as they seemed to his co-contracting party, but as they would have seemed to a rational man following the negotiations. (Vorster, 1987). In Upton-on-Severn R.D.C. v. Powell, where D was authorised to have the services of the fire brigade specified to his province free of charge, whereas he had no such privilege to the assistance of fire brigades from other areas. D, in the mistaken belief, called upon the Upton fire brigade that he resided in their region. The Court of Appeal held D was needed to pay for the services enjoyed contractually. Thus, Lord Greene M.R.s verdict “appears to be most exceptionally destitute of any ratio decidendi.” The verdict is in tune with the “fly on the wall” theory, as the fire brigade had not come to a conclusion, nor would a reasonable person in his status have come to a conclusion, from Ds demand for assistance that an offer to reimburse for their services was being made. (Vorster 1987). 2. Why was there a contract in Butler? In “Butler Machine Tool Co. Ltd. v Ex-Cell-O Corporation (England) Ltd [ 1979] 1 ER 965” the vendor delivered to the purchaser the printed, tear-off acknowledgement slip which was part and parcel of the order. It read as “we acknowledge your order on the conditions and terms reflected thereon. However, the vendor did so with a covering letter which illustrated thereon the order was being initiated in tune with their revised quotation of 23rd May. Moreover, the vendor’s conditions and terms of that quotation varied from that of the purchaser. Court of Appeal viewed that the buyer’s order was a counter –offer which the seller acknowledged by forwarding back the acknowledgment slip. (Marsh 2000:79). In our customary process, if those documents are examined, the outcome would appear to be the following: the quote dated May 23, 1969, was an offer by the vendors to the purchasers containing the stipulations and terms on the rear side. The document dated May 27, 1969, intended to be an acknowledgement of that offer in that it was for the same old machine at the same old price, but it comprised such cost of installation as to additions, different date of dispatch and so forth that it was in law a dismissal of the original offer and tantamount to a counter-offer. The same principle was laid down in Hyde v. Wrench .It is to be noted that in “Trollope & Colls Ltd. v. Atomic Power Constructions Ltd”, it was held by Megaw J, “the counter-offer obliterates the earlier offer.” The letter of the vendors dated June 5, 1969, was an acknowledgement of that counter-offer, as is corroborated by the acceptance which was signed by vendors and delivered to the purchasers. The accompanying letter from the vendor was held to be immaterial as it just mentioned to the delivery period and identity for the products. Hence, in Butler, there existed a valid contract. 3. Why was there no contract in BSC v Cleveland Bridge? In a project, a purchaser will normally issue a letter of the proposal to the proposed service provider so that the service provider can start preparations for the agreement without looking for the finishing of agreement’s formalities. The main purpose is to save the precious time .It is to be noted that probable risks established by a letter of proposal will be depending upon its substance. In some scenario, where the supplier informs that if some deeds are initiated by the receiver, then reimbursement for those deeds will be made as an accord may be deduced from the correspondence made between parties and at times mentioned to as an “if” accord or contract. However, for a letter of the proposal to be turn to an “if” accord or contract, it must be explained in a separate correspondence. Hence, letter of proposal must be outlined with some care and thought, and the case of “British Steel Corporation v Cleveland Bridge & Engineering Co Ltd” describes about the kind of issues that can emanate from such correspondence if ill conceived and not properly phrased. The respondent CBE was involved in an assignment in the Middle East for which they needed steel nodes. They forwarded one letter of intent on 21st Feb 1979 to BSC. The letter of intent stated that they want to enter into a subcontract, and they want BSC to start the work and an official form of a subcontract will be issued later. BSC started work on the basis of the letter of proposal. On February 27, 1979, CBE forwarded a telex to BSC mentioning a cycle in which they were needed the nodes to be produced and dispatched .It is to be noted that this being initial notice that BSC obtained of any particular needs in this regard. Between the two companies, there were no forms of subcontract and there was no meeting of minds about price and terms of deliveries. After the completion of the job, CBE claimed £229,833 toward the cost of nodes supplied from BSC. However, BSC made a counterclaim of £ 867,736 for late delivery and out of sequence supplies. It was contended by the CBE that the contract between the two corporate was comprised in the telex detailing out order and the letter of 21 February and BSC’s demeanour. However, it was held by the court that there was no contract came into subsistence on the footing of the letter of proposal and BSC were permitted to be reimbursed on a “quantum meruit.” Thus , BSC case illustrates the perils sustained by a contractor who relies on a letter of proposal and the doubtfulness for the beneficiary are palpable from the above-said elucidation of how the right to compensation will be evaluated in case if no contract is completed.( Davison 2003:217). 4. What does “Objectivity” mean in this context? Objectivity is inherent to contracting and the subjectivity obviously immaterial to it. Concluding a contract is basically an exercise in the communication of option, and communication is not possible without objectivity and the framework of conventions, which offers significance to conduct. Objectivity is crucial when one tries to narrate to others in any manner. One has to shelve his own connotation, delve creatively into other worlds and inquire “what connotation do they conceive, they’re assigning? What will they contemplate what I am meaning? (Kronman 1983:92). Ironically, despite valid contracts are essentially in the subjective sense , voluntariness can still symbolise the unique attribute of contractual liability due to its significance in attaining other objectives, which are in uniformity with the objective analysis. For instance, as per “Raz’s theory of contractual liability”, “encourage autonomy” is footed on safeguarding the practice of attempting voluntary commitments. The main goal is to safeguard the practice of assuming voluntary commitments. 5. What is meant by the term “Promisor Objectivity”? Promisor objectivity employs the rendition of the reasonable and honest promisor. As stressed by Howarth and McClintock, there are various types of objectivity. Promisor objectivity is one where the court attempts to settle what the reasonable promisor would have contemplated for. These arrangements are needlessly puzzling as in a bilateral accord, each party is both a promisee and a promisor. It is desirable to differentiate between ‘observer objectivity’ and ‘actor objectivity.’ Under this category, actions of each party should be construed as it would realistically have comprehended by a reasonable and an honest observer in the observer’s status, and it was not reasonably and honestly implied by the actor. It is not the ‘actor objectivity ‘but the observer’s objectivity that reckons in deciding what commitments each party has assumed. (Chen-Wiscart 2007:56). 6. What is meant by the term “Promisee Objectivity”? Promisee objectivity also employs the rendition of the reasonable and honest promisee. Promisee objectivity is one that focus on what a reasonable individual who has made a promise would have thought and intended. For instance, in “Smith v Hughes”, where the argument was over what class of oats the parties were in agreement about, the test was said to be whether the party who wants to refute the contract acted so that a sensible man would consider that he was accepting to the conditions suggested by the other person. (Stone 2005:24). 7. What is meant by the term “Detached Objectivity”? “Fly on the wall “or “detached objectivity “employs a standpoint which is independent of either of the contracting parties. It is disagreeable as it does not cater for any of the rationalisations for objectivity, for instance, safeguarding the interests of the promisee’s. In Upton on Severn UDC v Powell, it was held by the Court that there existed a contract though either of the party signified that the services to be paid for. (Chen-Wiscart 2007:56). 8. What is the approach to intention taken in each of the cases? In ‘Andrie et Compagnie SA v Marine Transocean Ltd” « The Splendid Sun »,1 it was held that an arbitration accord was held to have been implicitly deserted by inaction of parties concerned. It was held in « Excomm Ltd v Guan Guan Shipping (PTE) Ltd (The Golden Bear”) 2 that A is adhered to his “intent” provided a sensible individual trusted it and as long as the B did not really distrust it. The injurious theory has been corroborated in “Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal)”3 which briefs that all kinds of promises as to privileges from which one party search to abjure can be resulted into a doctrine of injurious theory. In “Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA” (The Leonidas D)4, it was held by the arbitrator that under a time charter, silence alone for five years did not result in implied abandonment. In “Food Corpn of India v Antclizo Shipping Corpn (The Antclizo”5), it was held by the House of Lords that where an arbitration was permitted to be kept in lull stage for many years , the concerned parties should be prevented from going on further with it 9. Can we draw any general conclusions? Or are the decisions’ contexts specific? Instead of general conclusion, decisions on the context specific are to be made. For instance, in “Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation”6 , it was held by Lord Wilberforce where the parties had made on explicit choice of law, the existence of an arbitration agreement is a strong substantiation of an inclination to apply the law of place of arbitration but such an accord should not be construed as giving rise to an irresistible or a conclusive inference. (Lew 1987:106). In Final Award of ICC Case No 6379 of 1990, ICC held that the general intention of the parties defined in Clause 27 of the Contract which referred Italian law as the law applicable in case if any dispute arose.ICC held that the contract is overseen by Italian law and hence the legality of an arbitration clause has to be determined as per Italian law. (Born 2001:561). The above cases clearly demonstrate that Courts will make decisions on context specific and will not arrive at any verdict on intention of the parties in a contract on general conclusions. List of References Born, Gary. (2001). International Commercial Arbitration. London: Kluwer Law International. Chen-Wishart, Mindy. (2007) Contract Law .Oxford: Oxford University Press. Davison, R Peter. (2003). Evaluating Contract Claims. New York: Wiley-Blackwell. Kronman A. (1983). Paternalism and Law of Contracts, 92, Yale I.J, 763. Lew, Julian D.M. (1987). Contemporary Problems in International Arbitration, Volume 1985. London: Brill Archive. Marsh P.D.V. (2000) Contracting For Engineering and Construction Projects. New York: Grover Publishing Ltd. Raz, J. (1982). Promises in Morality and Law. 95 Harvard Law Review. 916, 928-938. Stone, Richard. (2005). The Modern Law of Contract. London: Routledge –Cavendish. Taylor Richard & Taylor Damian. (2007). Contract Law Directors. Oxford: Oxford University Press. Read More