5 APPROACHES TO FINDING AGREEMENT AND PRE-CONTRACTUAL NEGOTIATIONS
CHAPTER 5
APPROACHES TO FINDING AGREEMENT AND PRE-CONTRACTUAL NEGOTIATIONS
INTRODUCTION
The rules relating to the formation of contracts are designed to establish the moment a contract comes into existence so that the parties are clear about the exact time and place that their obligations to each other begin. This is clearly important if people are to be able to rely on agreements and plan other deals on the back of them. If a contractual relationship breaks down and one of the parties seeks to be compensated, it is also critical to be able to trace back when the parties first became beholden to each other. In considering whether a contract has been formed, English law looks for agreement between the parties. The typical contract is conceived of as a two-sided bargain voluntarily and deliberately entered into by two people. This chapter focuses on agreement and is concerned with the following questions. First, how do lawyers analyse the process by which the parties to a contract reach agreement? Second, how does business practice relate to the legal analysis of agreement?
Most lawyers would say that the answer to the first question is well settled by the leading cases, which provide a rational and structured account of the negotiation and agreement process. However, others whose views were rehearsed in the last chapter, would say that the ‘rules’ of offer and acceptance, on which the legal concept of agreement rests, are unsatisfactory. This is because it has been argued that they are largely irrelevant to the conduct of business today. Moreover, they are often awkward tools which are only rarely used by the courts in the settlement of disputes. Who is right?
DEFINITIONS, FORM AND OBJECTIVITY
In the search for agreement, the courts have for some time looked for an ‘offer’ and an ‘acceptance’. Offers have traditionally been defined by the courts as expressions of a willingness to enter into a legally binding contract on certain terms. The expression may manifest itself in words or in conduct. A contract formed during the purchase of a daily newspaper may, for instance, be completed without the buyer or seller saying anything to each other. However, they must do something which indicates expressly or by implication that the offer is to become binding on the person making it (the offeror) as soon as it has been accepted by the offeree. An acceptance is a final and unqualified expression of assent to the terms of an offer. So, if Sally emails Carl to say ‘Would you like to buy a consignment of 20 of the latest skateboards for £2,000? I can deliver next Thursday’, and Carl emails back the response ‘Great. I promise to send you a cheque for £2,000 and will stay in on Thursday’, there is an agreement which would be recognised by English law. It can be seen from this simple example that acceptance turns an offer into agreement. Figure 5.1 shows this transaction in pictorial form.
Traditionally, the courts have not sought to protect the expectations of parties as they negotiate with each other during the pre-contractual stage. This distinction
Figure 5.1 : Elements of a contract
has a logical basis. It is not until a contract is formed that the law of contract has a role in governing the relationship. It is also the case that English law recognises contracts in which the exchange agreed upon is completed at the same time as the acceptance matches the offer (executed contracts). It also recognises exchanges of promises about future conduct (executory contracts). By way of example, the law would recognise as a contract the purchase of a newspaper in which money and a newspaper exchanged hands as the purchaser indicated the price they were prepared to pay and the shopkeeper made clear that the paper could be taken away. It would also recognise as a contract an agreement in which the shopkeeper agreed to deliver a daily newspaper to the customer’s address every day and the customer agreed to settle their bill every month. In both cases, a contract is made as soon as the agreement is reached. If the shopkeeper fails to deliver the paper or the customer refuses to pay their bill, then there is a breach of contract.
It often comes as a surprise to students to discover that only in certain cases does the law require contracts to be in writing. Carl and Sally’s agreement discussed earlier in this chapter would have been just as valid if they had communicated by telephone or had the conversation face to face over coffee. Although written contracts are common, the fact that transactions are frequently conducted on the basis of standard forms of printed contract is a matter of business expediency and is not a legal requirement. A contract may be in writing. It may be signed by the parties, but it could also be concluded verbally, by conduct, or some mixture of all three. What marks out a written contract and makes it attractive is that having something in writing is often the best evidence of the terms agreed by the parties. For this reason the Consumer Credit Act 1974 requires that hire purchase and other credit transactions are in writing and signed by the parties as a consumer protection measure.
When looking for agreement, the courts are not concerned with what the parties were thinking or really intended to do. The tests imposed by the courts are objective. This means that, for practical reasons, the courts infer intention from what the parties do and say rather than from what they are actually thinking. If the parties have, to all outward appearances, agreed to the same terms on the same subject matter, generally neither could deny that they intended to agree. So, in the email transaction between Carl and Sally discussed above, the court would not be concerned with Carl’s objection that he never really intended to buy Sally’s skateboards but was just exploring possibilities. They would focus instead on what the reasonable person would assume to have been his intention on reading the email exchange. The subjective consensus ad idem theory, popular in the nineteenth century, which required that there could be no contract without a genuine ‘meeting of the minds’ has largely passed from the law, although we shall see that it continues to have some influence in cases where mistakes are made in the pre-contractual negotiations. But, whatever the test in looking for agreement, it commonly involves construing the language used by the parties in order to establish whether the parties have, from an objective viewpoint, reached agreement.
In reality, finding an offer and acceptance may not always be as straightforward as the examples involving Carl and Sally suggest. Often this is because negotiations leading to a contract may be prolonged and involve a series of statements made by the parties as they move slowly towards agreement. For instance, before sending the email in which he accepts Sally’s offer, Carl may have asked for further information about the specifications of the skateboards or their colour. By the same token Sally may have specified convenient collection times and methods of payment which were not acceptable to her. But greater levels of complexity are also introduced when one begins to study the context in which commercial transactions take place.
WHAT ARE THE COURTS LOOKING FOR?
The exact moments when offer and acceptance occurs are not always clear, as the parties often proceed towards contractual responsibility in a haphazard fashion. You probably know enough about the operation of contract law by now to be able to predict that the notions of offer, counter offer, invitation to treat and acceptance are elusive. When people carry out lengthy negotiations it may be hard to say exactly when an offer has been made and accepted. Neither the courts nor business people find it easy to determine exactly when an agreement has been concluded.