Contractual Theories

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Contractual Theories
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• It is not enough to lambast the courts for
  reaching results that one intuitively finds
  absurd. One must burrow beneath the results to
  find the flaw in the theory or doctrine that
  produced the outcome. For, until we discover the
  theoretical or doctrinal error, we can never be
  completely sure that it is the result rather than
  our intuitions that are mistaken.
• - Professor R.E. Barnett Cornell Law Review
  (July, 1992)

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• The Promise Theory
• One has an obligation to keep ones promises
• The contract
• The offer is a promise
• The acceptance is a promise
• The consideration is a promise (to give something
  of value)

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• Freedom of Contract
• Persons should not have contractual obligations
  imposed upon them without their consent
• Persons should have the power to alter their
  legal relations by consent

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• Freedom of Contract
• If there is one thing more than another which
  public policy requires, it is that men of full
  age and competent understanding shall have the
  utmost liberty in contracting, and that their
  contracts, when entered into freely and
  voluntarily, shall be held sacred and shall be
  enforced by Courts of JusticePrinting and
  Numerical Registering Co v Sampson (1875) LR 19
  Eq 462 per Sir George Jessel MR

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• Promise Theory Freedom of Contract
• Creation of contract arises from voluntary acts
  of promisors rather than from third parties like
  the State
• Contracts should be interpreted according to the
  terms of the promise rather than by imposing
  terms on the parties

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• Promise Theory Justification
• Moral
• Reliance Theory
• Detrimental Reliance Theory
• Efficacy Rationale

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• Moral Justification
• An individual is morally bound to keep their
  promise
• To renege is to abuse a confidence he was free to
  invite or not and which he intentionally did
  invite

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• Moral Justification Problems
• Involves the State in enforcing virtue
• Commits courts to enforcing promissory
  commitments that the parties themselves may never
  have contemplated
• If the moral behaviour of the promisee is
  relevant to the issue of enforcement then other
  behaviour that may argue against enforcement must
  be taken into account

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• Promise Theory Other Problems
• How do you fill in the gaps in the promise
• Implicitly authorises a variety of gap-filling
  rules based not on the parties explicit or
  implicit consent but on policy determined by the
  Courts and Parliament

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• Reliance Theory
• People are compelled to perform their promise
  because others have relied, or will rely, upon
  it.
• Detrimental Reliance Theory
• People are compelled to perform their promise
  because others have acted to their detriment in
  reliance upon it.

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• Reliance Theory Problems
• People are compensated for damage suffered as the
  result of action or inaction
• Same as Tort
• Undermines Freedom of Contract
• People bound even when no intention to be bound
• Difficult to set limits

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• Efficacy Rationale
• An exchange of promises is enforceable because
  both parties are made better of than before the
  contract
• Advanced by economists

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• Efficacy Rationale Problems
• Permits contract to go un-enforced when
  presumption of gain on pre-contract position is
  undermined by other factors such as
• Inequality in bargaining position
• Disparities of information
• Why assess benefit by reference to pre-contract
  status and not post-contract status?
• Bad bargains would be unenforceable

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• Consent Theory
• Predates Promise Theory
• Prevalent before 20th Century
• Have the parties manifested their intention to
  create or alter their legal relations i.e. to be
  legally bound
• The existence of a bargain frequently corresponds
  to the existence of a manifest intention to be
  legally bound
• So, in practice, there is little difference
  between promise theory and consent theory

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• Modern Developments
• Consumer Protection
• Equity and Unconscionability
• Estoppel
• Economic Duress
• Unconscionable conduct
• Unjust enrichment

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• Consumer Protection
• National Review of the Law of Negligence (the
  Ipp Review,2002) recommended a number of changes
  to the Trade Practices Act.
• There was concern that the Act should not be used
  to circumvent state reforms to tort laws that
  addressed damages for injury or death.
• Amendments to the TPA were recommended
• The amendments have been opposed by the ACCC and
  legal groups

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• Consumer Protection
• Suppliers of recreational services to consumers
  can exclude their implied contractual liability
  for death or personal injury where the services
  are supplied without due care and skill.
• This has been implemented via the Trade Practices
  Amendment (Liability for Recreational Services)
  Act - came into effect in December 2002.

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• Consumer Protection
• The IPP Report recommended that the TPA be
  amended so that
• individuals could not bring actions for damages
  for personal injury and death under the unfair
  practices provisions of the TPA and
• the power of the Commission to bring
  representative actions for damages for personal
  injury and death resulting from a breach of the
  consumer protection provisions be removed.
• The legislation is currently before the Senate.

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• Consumer Protection
• The IPP Report also recommended that the
  unconscionable conduct restrictions on
  liability of manufacturers and importers for
  defective goods, and liability of manufacturers
  and importers for unsuitable goods provisions of
  the Act, which otherwise would apply to claims of
  negligently caused personal injury or death

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• Consumer Protection
• The Pendulum is swinging

Consumer Protection
Let the Buyer Beware
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• Equity and Unconscionability
• Estoppel
• Economic Duress
• Unconscionable conduct
• Unjust enrichment

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• Equity and Unconscionability
• The underlying values of equity centred on good
  conscience will almost certainly continue to be a
  driving force in the shaping of the law unless
  the underlying values and expectations of society
  undergo a fairly radical alterationChief
  Justice Sir Anthony Mason The Place of Equity
  and Equitable Remedies in the Contemporary Common
  Law World (1994) 110 Law Quarterly Review 238,
  258

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• Equity and Unconscionability
• If the present trend continues, the element of
  uncertainty which is associated with the greater
  emphasis on good conscience will be dissipated by
  an increase in the number of decisions on a wide
  range of fact situationsSir Anthony Mason
  The Place of Equity and Equitable Remedies in
  the Contemporary Common Law World (1994) 110 Law
  Quarterly Review 238, 258