1. Introduction – What is a Contract?
Contract Law has a remarkably wide application in practice from consumer transactions to commercial sale of goods and supply of services, distribution, franchising, licensing, intellectual property transactions, finance, security, agency, employment – and whatever the specialism, a good understanding of the principles of Contract Law is essential for each of these and many other types of commercial transaction.
You will discover during this course that many modern business transactions are difficult to reconcile with some well established principles of contract law and, particularly when you reach the more advanced contract work the focus is often drafting contracts to avoid the application of the law or to test the limits of the established law. This is particuarly the case in transactions relating to the Sale of Goods.
It is worth noting that Professor Mckendrick has suggested (2008) Contract “My own view is that we are moving slowly in the direction of a law of contracts [not contract] as the ‘general principles’ decline in importance.
As the course proceeds you will also see the importance of Statutes – The Sale of Goods Act 1979, The Misrepresentation Act 1967, The Unfair Contract termas Act 1977 being but a few instances where law has been more precisely drawn. E-commerce, inevitably, will have a major influence on the development of our Law of Contract, particularly as the internt is truly international.
1.1 Definitions
Not all agreements will be contract enforceable in law – social arrangements, for example, or contracts which offend against public decency and public policy and those which involve criminal activity.
Treitel
‘A contract is an agreement giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties.’
Pollock
‘A promise or set of promises which the law will enforce.’
Anson
‘The law of contract may be provisionally described as that branch of the law which determines the circumstances in which a promise shall be legally binding on the person making it.’
1.2 Why should contracts be enforced?
As a very broad principle, agreement between individuals and between commercial entities is based on a very high degree of freedom of choice; but, in the modern era with increasing use of statute to regulate behaviour that may mislead, exclude liability or be oppressive.
Honour theory: Natural law
Wikipedia notes: Natural law or the law of nature ( Latin : lex naturalis ) is a theory that posits the existence of a law whose content is set by nature and that therefore has validity everywhere. [ 1 ] The phrase natural law is sometimes opposed to the positive law of a given political community, society , or nation-state , and thus can function as a standard by which to criticize that law. In natural law jurisprudence, on the other hand, the content of positive law cannot be known without some reference to the natural law (or something like it). Used in this way, natural law can be invoked to criticize decisions about the statutes, but less so to criticize the law itself. Some use natural law synonymously with natural justice or natural right ( Latin ius naturale ), although most contemporary political and legal theorists separate the two.
Bargain theory: laissez-faire
The economic doctrine of laissez-faire, translated to freedom of contract in terms of law has a long history. Sir George Jessel MR in printing and Numerical Registering v Sampson (1875) LR 19 Eq 462 stated:
“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, which they entered into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice.
We will see the extent to which this ideal has been eroded as we progress through the later chapters. The old idea that it is not for the judges to descend from the bench to the commercial arena to make the parties bargain for them has also been eroded by judicial activisim.
Reliance theory.
1.3 Essentials of a modern contract
Intention to create legal relations
Offer
Acceptance
Written formalities in exceptional cases
Consideration except for contracts under deed
Clear terms
Parties must have capacity to contract
The contract must not be ‘illegal’ or contrary to public policy
There must have been genuine consent, not vitiated by:
* Mistake
* Misrepresentation
* Duress
* Undue influence
1.4 Contracts may be void, voidable or unenforceable
In the absence of any of the elements referred to in s1.3 the contract may be void, voidable or unenforceable.
Void ab initio – no legal effect at all.
Voidable – legally binding, but one party has a right to set it aside
Unenforceable – valid in all respects but may not be enforced in a court of law. Money paid under such a contract cannot usually be recovered.
Limitation Act 1980
Limitation ordinarily runs from date of breach
Actions on simple contracts barred after 6 years
Actions on specialty contracts (by deed) are barred after 12 years
Where a plaintiff claims damages for personal injury the limitation period is 3 years.
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A note on the interaction between The Law of Contract and The Law of Tort
Wikipedia notes: Tort law is a body of law that addresses, and provides remedies for, civil wrongs not arising out of contractual obligations. [ 1 ] A person who suffers legal damages may be able to use tort law to receive compensation from someone who is legally responsible , or liable, for those injuries. Generally speaking, tort law defines what constitutes a legal injury and establishes the circumstances under which one person may be held liable for another’s injury. Torts cover intentional acts and accidents. In contrast to criminal law (in which the offense is against the State and the State is the plaintiff), in tort law, the offense is against a person and that person is the plaintiff….
While contracts involve the assumption of an obligation voluntarily (and remedies will be available to the other party if you fail to fulfil your obligation – damages to put you in the position you would have been in had the contract been performed or rejection of goods and damages in sale cases) tortious liability arises from the breach of a duty fixed by common law or statute. The remedy of damages in Tort is slightly different – in broad terms, to put you back into the position you were in before the tort was committed.
Tort, a word derived from the French for ‘a wrong, ‘ is a wide concept and can include, assault, battery, trespass to property, nuisance and perhaps the biggest cause of injury to person, property and reputation – negligence.
There can be concurrent liability in Contract and Tort – negligent mistatement in Tort or for breach of a contractual term in Contract.
See: Hedley Byrne v Heller [1964] AC 465 for negligent mistatement, s. 2(1) Misrepresentation Act 1967; Sale of Goods Act ss.12 – 15 for breach of implied terms.
See: Donoghue v Stevenson [1932] AC 562
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A note on the interaction between Contract and Equity
Wikipedia notes: Equity is the name given to the set of legal principles, in jurisdictions following the English common law tradition, which supplement strict rules of law where their application would operate harshly. As noted below, a historic criticism of equity as it developed was that it had no fixed rules of its own, with the Lord Chancellor from time to time judging in the main according to his own conscience. As time went on the rules of equity did lose much of their flexibility, and from the 17th century onwards equity was rapidly consolidated into a system of precedents much like its common-law cousin…
Charles Dickens ‘ Bleak House parodied the excessive time and expense associated with the Court of Chancery, the court that heard suits in equity in 19th-century England
Equity has played a considerable role in the development of the general principles of contract with equitable doctrines providing a degree of flexibility to common law rules. We shall see an example of this in the chapter on Promissory Estoppel where Lord Denning developed the intervention of equitable principles following on from his judgment in the High Trees case.
By contrast, because commerce requires certainty – and I talk about the “fair unfairness” principle – Equity has very little involvement in Sale of Goods cases, the Sale of Goods Act 1979 and caselaw, such as it is, defining obligations and rights between the parties.