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    Contract Law

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    Raffles (the broker) and Wichelhaus (the customer) didn't actually agree on a specific arrival date. So why do you think the court found in favor of the customer? Why do you think the customer refused to accept delivery?

    A contract is an agreement. Suppose a rancher says to his neighbor, "I'll sell you my horse for $500." The neighbor replies, "I really want that horse. I'll give you $400 for it." Clearly, the parties have not reached an agreement. No contract has been formed. In the early days of contract law, the court would say there had been no "meeting of the minds." The problem, of course, is that the parties negotiating a contract can't read one another's minds. So the courts developed what is called "the objective theory of contracts." In Hotchkiss v. National City Bank, 200 F. 287 (1911), Judge Learned Hand explained this theory.

    A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held...

    There are situations, however, when the ordinary meaning of words is not so clear. In England in 1864, a cotton importer sued his customer in the case of Raffles v. Wichelhaus in the Court of Exchequer. The customer had agreed to buy 125 bales of Surat cotton, to be shipped from Bombay to Liverpool on the ship Peerless. The customer had also agreed to pay seventeen-and-a-quarter pence per pound for the cotton, within thirty days of delivery.

    The Peerless loaded its cargo and sailed for Liverpool, expecting to arrive in October. Shortly after sailing from Bombay, however, the Peerless was lost at sea. The shipper realized that the contract required the goods to be shipped on the Peerless and somehow found another ship by that name also sailing to Liverpool. So 125 bales of Surat cotton was loaded on this second Peerless, and the second shipment reached England safely in December.

    The customer refused to accept delivery of the cotton and refused to pay the importer's bill. The importer argued that he had fulfilled all of his obligations under the contract - that the cotton had arrived in Liverpool on a ship called Peerless, that he was prepared to deliver the amount and quality of cotton agreed upon and that the price was the contract price. But the court decided in favor of the customer.

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    The court found in the favor of the customer because there may have been an implied agreement based on prior shipments that it would be expected that ...