Role of Consent Contracting Parties

To what exact extent does the role of ‘Consent’ of contracting parties play in Contract Law and how does this relate to what established theories tell us?

Chapters

Section 1. – Introduction …….

Section 2. – Party-Based Theories
2.1 – Will Theories ……
2.2 – Reliance Theories ……
2.3 – The problem with Party-based theories of Contract ……

Section 3. – Bargain Theory of Consideration
3.1 – Doctrine of Consideration ……
3.2 – Critique of the Bargain Theory ……

Section 4. – Consent Perspectives of Contract
4.1 – Entitlements of Consideration ……
4.2 – Consent as the moral component of a contractual transaction….
4.3 – Defining Consent ……
4.4. – Determining contractual obligations in a consent perspective…

Section 5. – Conclusion ……

1. Introduction

The era of reason is the title claimed by the enlightened world. The philosophy this world produced is essentially rationalistic, but time and again, in following out its own principles, it turns against itself and takes the form of scepticism
Lon Fuller

Contracts are a nexus of so many competing concerns and theories in the modern world that perhaps there is no-one thing as a contract. They are fundamentally a subset of the law on obligations however they exert their influence on almost every aspect of our lives. The ubiquitous nature of contracts also causes difficulty in classifying them as one or other thing; the different social spheres they are used in sometimes require them to be sensitive to the particular conditions of that sphere. The attempts at formulating a pure jurisprudence of contracts have been fraught with difficulty as we shall see. In particular the formation of a contract across all social spheres is a problem which has caused particular and this will be the focus of this work.

We will begin by discussing the traditional ‘party-based’ theories of contract formation namely the will theories and the reliance theories. Then we will relate this towards the bargain theory of consideration. This half of the work is aimed at developing an understanding of all these traditional theories so that we can evaluate the extent to which these theories account for the role of consent in Contract Law.

2. Party-Based Theories
2.1. Will Theories
The use of the concept of will, to the exclusion of all other factors, as an explanatory theory for contracts was the result of post-enlightenment scholars challenging the notions of Aristotelian and Natural Law theories . Aristotelian logic based fundamental parts of contract theory on overarching universal concepts such as the final end of man and the virtues of man in realizing good, thus flowing from these concerns a contracts binding nature was premised on the virtue of fidelity, a contract had a particular essence and implied terms flowed from that essence whether or not foreseen by the parties .

The Enlightenment writers in the form of Hobbes, Locke and Descartes deconstructed these theories in the seventeenth century and it is well documented that this had a major impact on the general direction of jurisprudence; the collective name for the movement that overthrew Natural Law thinking was that of Positivism. The idea of will theory is a subset of positivistic thinking and thus flows in a logical manner from many of the first principles that post-enlightenment writers laid down. It also would appear to suffer from the same flaws of positivistic thinking; it generally glossed over or simplified what was a complex issue. We will outline here the various doctrines that were grouped under the heading of will theories and then we will critique it in section 2.3.

The deconstruction of natural theory by these writers meant a demoralizing of legal thinking, the jurists expounding traditional will theories viewed the will / consent / agreement as the most important principle of contract formation, to the exclusion of all else. The rationale for the binding nature of the will of the parties, or the agreement thereof, was conspicuously absent. A contract was ‘obligatory simply because it is the contract’ . The will of the parties had always been acknowledged in writings upon the law but by expressing their will prior to post-enlightenment writing people were considered to be exercising Aristotelian virtues. In the eyes of the natural law scholars or ‘intuitionists’ , these scholars stated that ‘there is something inherently despicable about not keeping a promise, and that a properly organised society should not tolerate this’ . The main objection to this was evidently that it spoke of some inherent value of goodness or badness, which was rejected by the subjective approach of the will theorists. The search for some form of based morality or justification for making the will theory make external coherence is perhaps an impossible one but it never has been fully settled.

The justification given by Cohen is that the will theory views the will of the parties as something inherently worthy of respect , this view is perhaps controversial because of the use of the word inherent, this would in effect subsume into the natural law argumentation. The nineteenth century scholars who were the leading lights of the will theory such as Savigny, Pollock and Landell were arguably concentrating on will as the definition of a contract without any consideration of why the will of the parties ought to be the defining factor for the basis of contract.

The action of the seventeenth century writers was to strip the theory of contract down to one item namely the will of the parties. This meant that at the centre of their ideas about contract was the requirement for consensus in idem or a ‘meeting of the minds’ . This approach has a correlative effect on the expansion of ideas such as freedom of contract and privity of contract that began to be explained in famous cases such as Lochner v. New York and Winterbottom v Wright . However, the interest, and the difficulties of the will theory lie not in the concept itself but in its application. As Gordley makes clear the vacuum left by many of the Natural Law concepts was trying to be filled by one universal concept, that being the will of the parties, as we shall see in section 2.3 this lead to a situation where contracts were simple in theory but incredibly oppressive in practice.

The objective will theories lead to the requirement for an offer to be accepted, the natural lawyers had to a degree accepted this condition although there was a large school of thought that the sine qua non of any offer was the agreement to be bound therefore duties of fidelity and virtue meant a unilateral offer could be binding. However, when these extraneous concerns were swept aside by nineteenth century will theorists then the acceptance of an offer was fundamental to an act being a contract and thus an unaccepted offer couldn’t form a contract . The incoherence that can flow from some of these tenets will be discussed below.

The issues over fraud and duress had to be reformulated; there was considerable difficulty in incorporating what was an obviously equitable concern into a logical and holistic jurisprudence on the nature of contracts. It was well understood that fraud or duress couldn’t for logical reasons be considered to nullify the will of a party because relief for fraud or duress flows from the wrongful behaviour of a party and not from the state of mind of the person who consents to the contract. There never seemed to be any real logical basis for this exception if we premised everything on will theory.

The same sort of problems were mirrored in their treatment of mistake or error and its effect on the consent of each parties, this lead to a refocusing on the types of relief that ought to be given for error. In relation to this particular problem Holmes made a famous declaration to the effect that ‘the life of the law has not been logic: it has been experience’ , this is because the concept of mistake as understood through the lens of will. There was amazing variety in the proposed theories that attempted to deal with the problems of mistake, the main reason for the difficulty related to the fact that the theories struggled to explain fully when a party willed to contract furthermore they couldn’t account for the existence of implied terms in contracts , in fact these seemingly ‘intractable’ problem were some of the main reasons for later nineteenth century writers such as Justice Oliver-Wendell Holmes and Siegmund Schlossmann developing another dominant theory known as the ‘objective theory’ which we will discuss in greater detail throughout this work.

One of the main ideas that flowed from the veneration of the parties wills was the idea that:

‘…[t]hose who make promises and contracts do so because they want or desire the terms which they undertake, and that respect for their wills (their wishes) justifies, indeed demands, that they be forced to do what they undertook to do’

This lead to a number of fundamental assumptions about the content of contracts that we find appearing in modern contract doctrine. A good example was the doctrine of equality in exchange to give relief in situations where a person had to sell at under value. This was an alien concept in itself to will theorists because it imputed that things had a universal intrinsic worth, the view of writers such as Hobbes was that value could be ‘measured by the appetite of the contractors’ i.e. it was subjective to the individual parties.

The objective approach to contractual obligations is a confusing aside to the party-based theories and in its own way neither negates nor equates with either the reliance or will theories. It was originally contemplated as flowing from the will theory. Joseph Chitty, the notable contract scholar, in England and Roscoe Pound in America both recognised that consensus in idem was rarely what it may have seemed, whilst certainly parties may have willed a contract into existence that didn’t mean they had considered every aspect. In the vast majority of cases the parties would have agreed on something’s, assumed others and occasionally outright disagreed. The classic explanation for the objective approach was to synergise this with the will theory by saying the objective approach was ‘a rule of evidence rather than a rule of substance, parties being estopped from denying that their words meant what they appeared to mean’ . If we were to stretch credulity in order to believe that this is what courts do then it would undoubtedly present the argument that unfortunately it is not what the parties say. Chitty specifically outlines that the courts take an objective approach and Cheshire, Fifoot and Furmston specifically state ‘agreement is not a mental state but an act, and…is a matter of inference from conduct. The parties are judged…by what they have said or written or done’ .

I mentioned at the beginning that much of will theory owes a lot to positivistic thinking and liberal ideas about the way that law ought to function. However, as with a lot of positivism it is guilty of what post-modern writers call meta-narratives. These are grand theories that try to reduce infinitely complex concepts into understandable coherent theories, as we shall see this particular facet of the will theories has been one of its main criticisms.

2.2. Reliance Theories
At its most basic this is described as the view that ‘it is proper for the state to enforce an obligation not to disappoint those whom you have induced to rely upon you’ . This narrative for contract theories was famously expounded by Lon Fuller in an Article which has been the subject of numerous reviews; however there are other versions of these theories. However, Fuller’s analysis tells us something about the position of this theory in relation to the previously defined will theory. Fuller was interested in re-moralising the basis of legal theory and this is manifest in his work on the reliance theory. The underlying rationale of his work was to argue that will theories were morally objectionable and that reliance theories provided a more legitimate moralisation of state enforcement of contractual relationships . However, as we shall see in section 2.3 the usefulness of the reliance theory as a meta-narrative is limited. Reliance theories ‘At best… might fit the law equally well’ .

Again as with the discussion the reliance theory is a meta-narrative, it reduces complexity into a coherent theory and the only real way of testing the validity of such narratives is to test it against well established legal rules and principles. Smith, in a considerably erudite piece of work, has pinpointed one of the significant distinctions between this theory and the will theories in section 2.1. Reliance theory is not focused on the duty to perform a contract, as it is the focus will theories. This is because otherwise it would be fundamentally the same; the distinction between upholding contractual liabilities because a party relied on a promise and upholding it because of the promise is tautologous. Thus Smith surmises that the distinction lies in the fact that ‘a contracting party’s duty…is not to perform a contract but rather to compensate the other party if she does not perform and causes harm thereby’.

The judicial act of rescission is imbued with this theory and there are plenty of judicial dicta to the effect that ‘provided that the innocent party did in part at least rely on the false statements, he is entitled to have the contract rescinded’ . Rescission is not however an action that the courts enter into lightly and is generally reserved for serious breaches of contract based on fraud, misrepresentation and undue influence. As we will recall from the previous section these doctrines were the ones that caused the will theory to be so maligned.

Thus the moral basis for the reliance theory isn’t on the duty to perform as it is in will theories but on the duty to compensate from loss for arising from non-performance. However, in establishing the positive moral basis of punishing people who make statements that another party relies upon it becomes a very difficult line to tread between distinguishing between reliance theory and will theory on the one side; on the other you have to coherently marry this with the fact that courts predominantly focus on promise-induced reliance. The lack of moral basis for this concept has always been a predominant feature and its apparent synergy with the law of tort seemed to lend it an artificial strength. This point was made by Barnett:

‘What exactly a “reliance theory” is has never been made clear…apart from their insistence that, just as tort law rectified the harm caused by physical misconduct, the purpose of contract law was to rectify detrimental reliance caused by verbal misconduct’ .

The attractiveness of subsuming the whole of law of obligations under a super meta-narrative is obvious, it makes internal sense. However, as we pointed out above the external morality of the thesis is far from clear, either it is subsumed under the will theories by reliance on the key concept of promise or it becomes removed form the reality of practice. This problem has never been fully dealt with and furthermore the doctrine has to account for certain rules in contract law that don’t sit well with the duty to compensate for loss arising from non-performance.

On a more practical angle one of the most difficult doctrines in practice to fit into the reliance theory narrative is the use of specific performance as a remedy for breach of contract. However, the general position on specific performance, that it is a doctrine to be reserved for rare occasions and not as a normal remedy for breach of contract, does sit well with the theory of reliance. The problem is that it gives no coherent reason for the exceptional cases where specific performance is required.

If we recall, the offer and acceptance model came about primarily from the nineteenth century writer’s insistence that the will of the parties was paramount. Thus it is not surprising that this doctrine is one of the more difficult to fit logically within the reliance theory narrative. The offer and acceptance model is not necessary for proving reliance thus it is prima facie the case that a situation of offer and acceptance may or may not induce reliance. If it weren’t necessary to induce reliance then the law is making an arbitrary distinction between those interactions that conform to the offer and acceptance model and those that don’t. The main problem is that on the corpus of contract law cases available to scholars it is impossible to construe the decisions to mean that ‘courts impose liability generally for reliance-inducing statements regardless of whether those statements are promissory or not’ . The hegemony presented by will theorists, rightly or wrongly, holds force with the judiciary and it is unsurprising that reliance theory doesn’t sit well with this model.

The theorists who attempt to support the reliance theory have tried to argue that whilst an offer followed by an acceptance isn’t per se the only reliance-inducing statements that as a matter of practicality it is the best evidence of subjective reliance by one of the parties. This seems to be an illusory distinction and also there is scant evidence of any other standard being applied by the courts to determine reliance other than by promise. It also begs the question of whether we ought to have a theory that is divorced from reality; furthermore the lack of judicial obiter dicta to support the reliance theory interpretation makes this unappealing.

However, as a descriptive theory this may be poor this doesn’t alter that it has idealist potential. It could be a normative theory that argues this is what the law of contract ought to be about, this is effectively what the nineteenth century scholars did to the natural law assumptions. However, for whatever reason the positivistic thinking that spurred will theories wasn’t replicated by reliance theories and they have never received widespread academic and judicial support. There have been such idealistic diatribes as I have suggested here but Barnett thinks that all have failed to outline anything that fundamentally moves us away from a promissory-oriented system. The classic submission of reliance theorists is the advocating of a ‘reasonable, justified, or foreseeable reliance’ test. Barnett argues that there is yet to be a significantly sophisticated account of reliance so as to lend this theory credence. Inevitably for scholars who were taught the will theory paradigms it is incredibly difficult to abandon the will of the parties as an organising event around which contractual liabilities are centred. The nebulous reliance test suggested above is most likely to dissolve into exactly the same thing as will theory, which in order for a reliance to be fair, reasonable and foreseeable there must have been offer and acceptance.

Barnett also touches on an interesting tangent, which illuminates why the reliance theorists have failed to establish a satisfactory test or incorporate standard legal concepts into their narrative. In attempting to bridge the gap between contractual and tortuous liability the reliance theory does grievous harm to liberal principles of freedom of contract. The liberal nature of contract law is so deeply embedded in the rules and paradigms of contract law, mainly because of its development with positivism which in a lot of senses has an affinity for liberalism. The reliance theory whilst still being party-centric like the will theory attempts to move us from a fundamental system of personal law to a system of interpersonal liability. The Romans considered contracts to be properly designated Lex and up until the mid-1950’s the will theories recognised that part of the enlightenment was tied up with ideas of liberalism. Humans could determine what to do by consulting themselves rather than priests or god, the autonomy of man is fundamental to post-enlightenment thought and law has recognised from time immemorial ‘that the law views private individuals as possessing a power to effect, within certain limits, changes in their legal relations’ .

We will discuss the flaws of the will theory in greater depth in the next section but it is worthwhile noting that the basis of the reliance theory is its attempt to move away from the will theory and its attendant flaws. The tailoring of a theory to the faults of an old one ignores the very deep philosophical premises that occasioned the will theory.

2.3. The problem with party-based theories of Contract

The will theories and reliance theories are party-centric or subjective in their nature. They concentrate on meta-physical attributes such as reliance and consent which in real life can be incredibly difficult to comprehend to any real extent. Cohen made this point in relation to the will theory:

‘Minds or wills are not in themselves existing things that we can look at and recognise. We are restricted in our earthly experience to the observations and changes or actions of more or less animated bodies in time and space’

This is one of the fundamental natures of the party-based theories and in turn leads to a number of problems with the theories which may seem obvious to many students of the law because they have been brought up in the era of objective theories of contract. The will theory and the reliance theory are traditionally understood to favour one side of the contractual nexus over the other; the will theory concentrates on the promisor and the reliance theory concentrates on the promise .

There are a number of problems with both the reliance and the will theories which have caused them to be considered as unworkable by numerous writers. The main criticisms will be replicated here so that later on we can have a better appreciation of how theories concerning the consent of the parties adequately deal with the problems as presented by these theories.

One of the major problems for the party-based theories is to provide a moral basis for the distinctions that law makes between contractual and non-contractual obligations. The will theory relies on the moral basis ‘that contractual duties are binding because they are freely assumed by those who are required to discharge them’ . When we analyse this approach it becomes visible that the moral problems of the will theory were considerable, liberal thinking posited a requirement that ‘it is illegitimate for the state to interfere with an individual’s liberty unless that individual has harmed another individual’ . Thus enforcing a contract on the basis that someone promised something, simply because it is de facto a promise, is against this principle, contractual liability doesn’t rely on a harm but on freely given consent. This moral objection to the will principle is what is called the ‘harm principle objection’. Fundamentally this is because liability operates independently of any harm caused by the person; I am bound to honour a contract whether or not I choose to do so. This is not an attempt at saying that law should not regulate contracts but it exemplifies that a justification solely based on the will of the parties .

The extent of the problems of the will theory were not limited to only external moral problems but also internal coherence problems. The justification given above for the will theory causes a problem because the discovery of subjective intent could be impossible or if not it may defeat the legitimate expectations of a person who has relied upon a contract. We can see that many of the scholars in the nineteenth century struggled to cope with this, the objective ‘inherent’ standards of the natural lawyers were attempted to be replaced by subjective will of the parties. These difficulties were, as I suggested in section 2.1, replicated on issues such as fraud, duress, mistake and error which didn’t logically comply with the will of the party as the sole determinant.

A classic example is the issues over whether a contract was gratuitous or onerous are not adequately dealt with by the will theory. The natural theorists had distinguished between them based upon the idea that you could define a transaction by its single purpose or end, in particular one was a liberal transfer of property and the other was an exchange of one thing for another. The end of a contract was known as the ‘final cause’ which was the end of the contract which the parties had in view when they entered the contract, even though they may have had other ends as well . The difficulty for will theorists is to account for how a transaction could be defined by an end which might never be achieved solely by the concept of will. The problem was for the will theorist it was difficult to explain how on the basis of will they could distinguish between the end of the contract and other motives or ends of the particular party, thus if a party entered a contract intending to give it to a third party the contract is still onerous. In many ways the will theory was paid lip service to because and whilst the courts and the academics stated that the justification for the law of contract lay in the will of the parties they were invariably using objective methods to prove that will

The will theory was excellent in its time and in many ways still has its impact on current approaches to contractual doctrine. It suffered greatly for the benefit it gave but the will theory cannot be consigned away as being completely foolish. Professor Ibbetson made the point that ‘the great merit of the will theory was that it had a measure of intellectual coherence that the traditional Common law wholly lacked, though this coherence had been to some extent bought at the expense of common sense’

The reliance theory has always been part of contract theory, true enough it declined significantly when the nineteenth century scholars were extolling the values of the will theory but it still had its place. Atiyah makes the point that ‘the vaguely delictual idea, that an act of reasonable reliance on a promise can create a liability for subsequent loss, never disappeared’ . This hardly surprising when we consider that the will theory and the reliance theory are interlinked in many senses because where the one stops the other takes off. The lack of moral basis of the will theory was partly induced because promises and offers didn’t require reliance as a condition, all that mattered was that the parties had in fact willed there to be a contract. However, if there were no reliance then there is no harm and thus is incompatible with the classical liberal harm principle. So reliance becomes the obvious next step because it circumvents the moral objections against the will theory. However, the major problem, as we identified with will theory in section 2.2, was that it didn’t provide in itself a guide to when reliance was to be protected by law and when it was deemed insufficient to attract legal consequences.

The inability to account for the substantive requirements of the law and how they equated with the reliance theory are the most cited problems , one of the interesting things about the reliance theory is that there is universal academic consensus seems to be that the reliance theory suffers from this fatal flaw however there is a differing opinions over whether there is a potential way of threading the needle, to speak allegorically, between will theory and reliance theory being subsumed into each other .

An obvious solution would appear to rest in the conglomeration of the two dominant party-based theories into a larger meta-narrative which took account of both narratives. It makes logical sense given the interlinked nature identified above. However, as I pointed out in section 2.1 the major reason why the will theory, and the reliance theory puts up no defence to this argument, was never followed in practice is that it requires subjective reasoning. The objective approach of the courts is too enshrined and perhaps too efficacious to be removed or ignored by any theory of contract. The ‘moral vacuum’ in which the theories operate causes tensions with this approach. Barnett premises his rejection on an equally strong ground, namely that because each theory favours one side of the contracting relationship it inherently misses the interrelationship dimension. He argues that dominant jurisprudence shows that ‘the interrelational quality of social life is facilitated by identifying the entitlements or property rights of individuals in society’ . The failure of the will theories to take account of any of the intersecting rights of the parties is yet another reason to set aside party-based justifications of contract law .

3. Bargain Theory of Consideration

3.1. Doctrine of Consideration
Just as the objective approach to contract is found in relation to the doctrine of Agreement so is the Bargain Theory of Consideration found in the doctrine of Consideration. This is not the place for a detailed analysis of all the nuances of the laws approach to consideration but its importance in the law of contract has to be fully understood . It is commonly explained as being the distinguishing feature between a promise and a contract, we all make promises on a daily basis and unfortunately it would be impracticable and undesirable for the law to attach legal consequences to absolutely every promise and thus ‘the purpose of the doctrine of consideration is to put some legal limits on the enforceability of agreements even where they are intended to be legally binding’ .

However, it wouldn’t be feasible to leave the issue at that, the concept of consideration is not an objectively identifiable phenomena but as with any object within law is the subject of jurisprudence. The most commonly extolled jurisprudence of consideration was first articulated by Oliver-Wendell Holmes and Langdell . Whilst Holmes was a major proponent of the objective approach to contract and decidedly negative when it came to the will theory he was by no means using natural law argumentation. He also didn’t believe that corporeal matter had an intrinsic view and was very much influenced by the views of Thomas Hobbes:

‘[T]he value of all things contracted for, and therefore the just value, is that which they be contented to give’

Thus Holmes, Pollock and Langdell all proposed a theory of consideration very much premised on a liberal caveat emptor approach. Pollock, whose writings are said to have influenced Holmes to a large extent , gave the classical explanation of what has become known by the name of the ‘Bargain theory of consideration” when he stated:
‘Consideration means not so much that one party is profited as that the other abandons some legal right in the present…as an inducement for the promise of the first. It does not matter whether the party…has any benefit thereby’

The fundamental idea that flows from this consideration is that ‘the courts do not concern themselves with the question whether ‘adequate’ value has been given’ . It is sufficient under the Bargain theory of Consideration that a legal ‘detriment’ is incurred as an inducement for the making of a promise AND that promise is given in order to induce the detriment. The Bargain theory can be very complicated to understand but it is fundamentally premised on the idea of mutuality between the parties. The detriment and the benefit usually reflect that mutuality in that they are the same thing viewed from different angles. Thus in a typical contract for sale the payment is a detriment to the buyer and a benefit to the seller, whereas the delivery of the item is a detriment to the seller and a benefit to the buyer . However it must not be forgotten, as it seems to be by many members of the judiciary , that the