‘All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration, and with a lawful object,’ states Section 10 of the Indian Contract Act of 1872.
Section 13 defines consent wherein though not expressly but it gives the concept of consensus ad idem by stating ‘they agree upon the same thing in the same sense’. Consensus ad idem is a Latin phrase which literally translates to meeting of the minds. It is used in contract law to display synchronicity of thought and object between parties to an agreement and is the fundamental jurisprudential base of contract. In simple words, it depicts that both the parties to a contract have agreed upon the same conditions in the same sense whilst understanding the obligations and consequences arising out of the agreement. In the case of Dickinson v Dodds[1] the court held that “existence of the same mind between the two parties… essential in point of law to the making of agreement”.
Take for example, you are Ramesh. You have two scooters; one with black body and red seat and second with red body and black seat. You want to sell your first scooter with the black body. You contacted Somesh for this and said, “I want to sell my black scooter for 15 thousand rupees”. Somesh mistook it for the second scooter with the black seat and agreed to your offer. This comprised of an agreement as both the parties are mistaken for the object subject in the contracts. This is an example of mistake of fact and contracts which are a result of mistake of fact are considered void. But, if you would have specified and expressed that you wanted to sell your scooter with the black body for a said amount and Somesh would have agreed, then this would have amounted to consensus ad idem.
But complicated situations can arise where a party could use blur lines and make an agreement for malicious reasons with principle of consensus ad idem to be contended to declare the contract void ab initio to escape contractual obligations arising out of the contract. So, the question arises how can you determine the consensus ad idem of the parties?
In Australian law there exists two tests for determining consensus ad idem. The subjective test focuses on the intentions of the parties to an agreement, from the perspective of their own, as to whether they shared a common intention of agreement or not. The idea that a Court can grasp another person’s private and personal thoughts is illogical. It is self-evident that an individual’s true thoughts are not accessible to an outside observer, as they are contained solely within the individual’s head. An example of subjective test can be seen in the following case.
In the case of Crown v Clarke[2], the Crown made a unilateral offer of a reward and pardon to an individual accomplice who provided information that led to the conviction of two police officers for murder. The defendant was arrested and charged with the murder of another individual. The defendant was released four days later after making a statement that led to the arrest of a third man who was also charged with the crime. The defendant claimed the reward after his release because his statement had led to the conviction of the other accomplice. The defendant provided evidence that he made the statement with the intent of proving his innocence rather than accepting the Crown’s offer of a reward. The court determined that, while the defendant’s actions appeared to be consistent with an individual intending to enter into legal relations and thus accept the unilateral contract through performance by making the statement, his true intentions for making the statement were to prove his innocence rather than to accept the offer of a unilateral contract. As a result, the court relied on the defendant’s stated subjective intentions rather than his actions (which would be interpreted as acceptance if viewed objectively).
The most common method for determining the existence and content of a contract is objective. The objective approach can be used to protect the sanctity and security of the contract. High Court explicitly defines in obiter dictum in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd[3]., that, “contractual relations are not governed by the subjective beliefs or understandings of the parties, but by what each party by words or conduct would have led a reasonable person in the position of the other party to believe.”
By using an objective approach, the court focuses on determining the manifest existence of evidence that represents consensus ad idem, rather than just a true meeting of the minds that would be described as actual consensus ad idem. The development of the objective approach can be traced all the way back to the equitable doctrine of estoppel. McLachlan’s central argument in Objectivity in Contract is that without the objective approach, “the security and sanctity of contract would be seriously undermined.”[4] The objective method asserts that the outward expression of intent and terminology through acts and words, as understood by a reasonable person, provides this systematic answer. What this method frequently overlooks is that the understanding of the outward expression of terms or intent is in itself, subjective analysis by the assessor.
While there are problems and issues in using either the objective or subjective approach for assessing the structure and components of a contract, and neither approach is perfectly acceptable, the balanced use of both methodologies in a complementary fashion, as in Ryledar Pty Ltd v Euphoric Pty Ltd, where Tobias JA neatly noted, ” evidence of … intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind”[5]. The security as well as sanctity of the contract will be best ensured under this approach.
Hence, while there are faults and challenges with using either the objective or subjective methodology to determine the formation and contents of a contract and establishing consensus ad idem of both the parties to the contract, neither approach is completely acceptable and the measured and balanced use of both approaches in a complementary manner may offer the best way forward while applying to Indian cases.
[1] Dickinson v Dodds (1876) LR 2 Ch D 463, 473
[2] (1927) 40 CLR 227.
[3] (2002) 209 CLR 95, 106–6
[4] D W McLachlan, Objectivity in Contract (2005) 24 University of Queensland Law Journal p.479
[5] [2007] NSWCA 65, [182] – [187].
Author – Dimpal Khotele
BBALLB, 4th semester, Amity University Chhattisgarh