- English contract law
English contract law is an influential system regulating the law of
contractthat operates in England and Wales. Its doctrines form the basis of contract law across the Commonwealth, including Australia, Canada, India, New Zealandand South Africaand more generally through common lawworld and in international law.
Contract and obligations
According to legal scholar Sir
John William Salmond, a contract is "an agreement creating and defining the obligations between two or more parties".
common law, there are five key requirements for the creation of a contract. These are offer and acceptance (agreement), consideration, an intention to create legal relations, capacity and formalities. In civil law systems, the concept of consideration is not central.
Offer and acceptance
The most important feature of a contract is that one party makes an offer for a bargain that another accepts. This can be called a 'concurrence of wills' or a 'meeting of the minds' of two or more parties. There must be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, and a contract will be formed when the parties have met such a requirement. [e.g. Lord Steyn, "Contract Law: Fulfilling the Reasonable Expectations of Honest Men" (1997) 113 LQR 433; c.f. § 133 BGB in Germany, where "the actual will of the contracting party, not the literal sense of words, is to be determined"] An
objectiveperspective means that it is only necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person, not that they actually did want to contract.
One of the most famous cases on forming a contract is "
Carlill v. Carbolic Smoke Ball Company", ["Carlill v. Carbolic Smoke Ball Company"  2 QB 256] decided in nineteenth-century England. A medical firm advertised that its new wonder drug, a smoke ball, would cure people's flu, and if it did not, buyers would receive £100. When sued, Carbolic argued the ad was not to be taken as a serious, legally binding offer. It was merely an invitation to treat, and a gimmick. But the court of appealheld that it would appear to a reasonable manthat Carbolic had made a serious offer. People had given good "consideration" for it by going to the "distinct inconvenience" of using a faulty product. "Read the advertisement how you will, and twist it about as you will," said Lindley LJ, "here is a distinct promise expressed in language which is perfectly unmistakable".
Where a product in large quantities is advertised for in a newspaper or on a poster, it is generally regarded as an offer, however if the person who is to buy the advertised product is of importance, i.e. his personality etc, when buying e.g. land, it is merely an invitation to treat. In Carbolic Smoke Ball, the major difference was that a
rewardwas included in the advertisement which is a general exception to the rule and is then treated as an offer.
Fisher v. Bell"  1 QB 394
Pharmaceutical Society v. Boots Cash Chemists"  1 QB 401
Spencer v. Harding" (1870) LR 5 CP 561
Harvey v. Facey"  AC 552
Sale of Goods Act 1979, s.57(2)
Butler Machine Tool Co Ltd v Ex-cello Cpn (England) Ltd"  1 WLR 401
Felthouse v Bindley" (1862) 11 CBNS 869
Consumer Protection (Distance Selling) Regulations 2000( [http://www.opsi.gov.uk/si/si2000/20002334.htm SI 2000/2334] ) Reg 24
Henthorn v. Fraser"  2 Ch 27
Entores Ltd v. Miles Far East Corporation"  2 QB 327
Consideration and estoppel
Consideration is a controversial requirement for contracts under
common law(for example money). It is not necessary in civil law systems, [e.g. In Germany, § 311 BGB] and for that reason has come under increasing criticism. The idea is that both parties to a contract must bring something to the bargain. This can be either conferring an advantage on the other party, or incurring some kind of detriment or inconvenience. Three rules govern consideration.
*Consideration must be sufficient, but need not be adequate. For instance, agreeing to buy a car for a penny may constitute a binding contract. ["Chappell & Co Ltd v Nestle Co Ltd"  2 All ER 701.] While consideration need not be adequate, contracts in which the consideration of one party greatly exceeds that of another may nevertheless be held invalid for lack of sufficient consideration. In such cases, the fact that the consideration is exceedingly unequal can be evidence that there was no consideration at all. Such contracts may also be held invalid for other reasons such as fraud, duress, unequal bargaining power, or being contrary to public policy. In some situations, a
collateral contractmay exist, whereby the existence of one contract provides consideration for another. Critics say consideration can be so small as to make the requirement of any consideration meaningless.
*Consideration must not be from the past. For instance, in "Eastwood v. Kenyon", ["Eastwood v. Kenyon" (1840) 11 Ad&E 438] the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise as taking out the loan to raise and educate the girl was past consideration, because it was completed before the husband promised to repay it.
*Consideration must move from the promisee. For instance, it is good consideration for person A to pay person C in return for services rendered by person B. If there are joint promisees, then consideration need only to move from one of the promisees.
A number of commentators have suggested that consideration be abandoned, and estoppel be used to replace it as a basis for contracts. [e.g. P.S. Atiyah, 'Consideration: A Restatement' in "Essays on Contract" (1986) p.195, Oxford University Press] However,
legislation, rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. Lord Justice Denning famously stated "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind." [" Central London Property Trust Ltd. v. High Trees House Ltd."  KB 130] Civil law systems take the approach that an exchange of promises, or a concurrence of wills alone, rather than an exchange in valuable rights is the correct basis. So if you promised to give me a book, and I accepted your offer without giving anything in return, I would have a legal right to the book and you could not change your mind about giving me it as a gift. However, in common law systems the concept of "culpa in contrahendo", a form of ' estoppel', is increasingly used to create obligations during pre-contractual negotiations. ["Austotel v. Franklins" (1989) 16 NSWLR 582] Estoppel is an equitable doctrine that provides for the creation of legal obligations if a party has given another an assurance and the other has relied on the assurance to his detriment.
Tweddle v. Atkinson" (1861) 1 B&S 393; 121 ER 762
Foakes v. Beer" (1884) 9 App. Cos 605
Williams v. Roffey Bros & Nicholls (Contractors) Ltd"  1 QB 1
D & C Builders v. Rees"
New Zealand Shipping Co Ltd v. A M Satterthwaite & Co Ltd"  AC 154
High Trees Case"  KB 130
Hughes v. Metropolitan Railway" (1877) 2 App. Cas 439
Waltons Stores (Interstate Ltd) v. Maher" (1988) 164 CLR 387
The doctrine of privity of contract means that only those involved in striking a bargain would have standing to enforce it. In general this is still the case, only parties to a contract may sue for the breach of a contract, although in recent years the rule of privity has eroded somewhat and third party beneficiaries have been allowed to recover damages for breaches of contracts they were not party to. There are two times where third party beneficiaries are allowed to fall under the contract. The duty owed test looks to see if the third party was agreeing to pay a debt for the original party. The intent to benefit test looks to see if circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. Any defense allowed to parties of the original contract extend to third party beneficiaries. [Beatson (1998)" Anson's Law of Contract", 27th ed. (Oxford: OUP), p.246] A recent example is in England, where the "Contract (Rights of Third Parties) Act 1999" was introduced.
Contracts (Rights of Third Parties) Act 1999
Nisshin Shipping Co Ltd v. Cleaves & Co Ltd"  1 Lloyd’s Rep 38
Beswick v. Beswick"  AC 58
Jackson v Horizon Holidays Ltd"  3 All ER 92
Woodar Investment Development Ltd v. Wimpey Construction"  1 All ER 571
Linden Gardens Trust Ltd v. Lenesta Sludge Disposals"  1 AC 85
Intention to be legally bound
There is a presumption for commercial agreements that parties intend to be legally bound (unless the parties expressly state that they do not want to be bound like in heads of agreement. On the other hand, many kinds of domestic and social agreements are unenforceable on the basis of public policy, for instance between children and parents. One early example is found in "
Balfour v. Balfour". [" Balfour v. Balfour"  2 KB 571] Using contract-like terms, Mr Balfour had agreed to give his wife £30 a month as maintenance while he was living in Ceylon ( Sri Lanka). Once he left, they separated and Mr Balfour stopped payments. Mrs Balfour brought an action to enforce the payments. At the Court of Appeal, the Court held that there was no enforceable agreement as there was not enough evidence to suggest that they were intending to be legally bound by the promise.
The case is often cited in conjunction with "Merritt v. Merritt". ["Merritt v. Merritt"  2 All ER 760;  1 WLR 1211; CA] Here the court distinguished the case from "Balfour v. Balfour" because Mr and Mrs Merritt, although married again, were estranged at the time the agreement was made. Therefore any agreement between them was made with the intention to create legal relations.
Balfour v. Balfour"  2 KB 571
Jones v. Padavatton"  1 WLR 328
Merritt v. Merritt"  1 WLR 1211
Rose & Frank v. Crompton Bros"  AC 445
Kleinwort Benson Ltd v. Malaysia Mining Corp Berhad"  1 WLR 379
Baird Textile Holdings Ltd v. Marks & Spencer plc"  1 All ER (Comm.) 737
Uncertainty and incompleteness
If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law. [Fry v. Barnes (1953) 2 D.L.R. 817 (B.C.S.C)] An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as price or safety, may cause the entire contract to fail. However, a court will attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract. ["
Hillas and Co. Ltd. v. Arcos Ltd." (1932) 147 LT 503]
Courts may also look to external standards, which are either mentioned explicitly in the contract ["Whitlock v. Brew" (1968) 118 CLR 445] or implied by common practice in a certain field. ["Three Rivers Trading Co., Ltd. v. Gwinear & District Farmers, Ltd." (1967) 111 Sol. J. 831] In addition, the court may also imply a term; if price is excluded, the court may imply a reasonable price, with the exception of land, and second-hand goods, which are unique.
If there are uncertain or incomplete clauses in the contract, and all options in resolving its true meaning have failed, it may be possible to sever and void just those affected clauses if the contract includes a
severability clause. The test of whether a clause is severable is an objective test—whether a reasonable person would see the contract standing even without the clauses.
Hillas v. Arcos Ltd" (1832) 147 LT 503
Sale of Goods Act 1979, s.8(2), 9
contractual termis " [a] ny provision forming part of a contract" [Martin, E [ed] & Law, J [ed] , "Oxford Dictionary of Law", ed6 (2006, London:OUP).] Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract.
*Condition or Warranty. [Not to be confused with a product
warranty, which is always referred to as a 'guarantee' in law.] Conditions are terms which go to the very root of a contract. Breach of these terms repudiate the contract, allowing the other party to discharge the contract. A warranty is not so imperative so the contract will subsist after a breach. Breach of either will give rise to damages.
It is an objective matter of fact whether a term goes to the root of a contract. By way of illustration, an actress' obligation to perform the opening night of a theatrical production is a condition, ["Poussard v. Spiers and Pond" (1876) 1 QBD 410] whereas a singers obligation to perform during the first three days of rehearsal is a warranty. ["Bettini v Gye" (1876) 1 QBD 183]
Statutemay also declare a term or nature of term to be a condition or warranty; for example the Sale of Goods Act 1979s15A [As added by the Sale of Goods Act 1994 s4(1).] provides that terms as to title, description, quality and sample (as described in the Act) are conditions save in certain defined circumstances.
Lord Diplock, in "Hong Kong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd.", [  1 All ER 474] created the concept of an innominate term, breach of which may or not go to the root of the contract depending upon the nature of the breach. Breach of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract depends upon whether legal benefit of the contract has been removed from the innocent party. Megaw LJ, in 1970, preferred the use of the classic categorising into condition or warranty due to legal certainty. ["Maredelanto Compania Naviera SA v Bergbau-Handel GmbH. The Mihalis Angelos"  3 All ER 125.] This was interpreted by the House of Lords as merely restricting its application in "Reardon Smith Line Ltd. v Hansen-Tangen". [  3 All ER 570]
Status as a term is important as a party can only take legal action for the non fulfillment of a term as opposed to representations or mere puffs. Legally speaking only statements that amount to a term create contractual obligations. There are various factor that a
courtmay take into account in determining the nature of a statement
A Term is implied when the courts deem a provision to be reasonable to be included in all contracts. Statutes may also imply terms, and this is particularly common for
employment contractsor consumer contracts. Terms may be implied due to the facts of the proceedings by which the contract was formed. The Privy Councilestablished a five stage test in "BP Refinery Western Port v. Shire of Hastings". [(1977) 180 CLR 266] to determine situations where the facts of a case may imply terms (this only applies to formal contracts in Australia). ['Byrne and Frew v. Australian Airlines Ltd" (1995) 185 CLR 410]
Liverpool City Council v. Irwin" [  2 WLR 562] established a term to be implied into all contracts between tenant and landlord that the landlord is obliged to keep the common areas in a reasonable state of repair.
*"Wong Mee Wan v Kwan Kin Travel Services Ltd." [  4 All ER 745] established that when a tour operator contracts to for the sale of goods. The most important
legislationunder United Kingdom lawis the Sale of Goods Act 1979, the Consumer Protection (Distance Selling) Regulations 2000and the Supply of Goods and Services Act 1982which imply terms into all contracts whereby goods are sold or services provided.
These terms will be implied into all contracts of the same nature as a matter of law.
Unfair Contract Terms Act 1977
The 1977 Unfair Contract Terms Act regulates unreasonable unfair contract terms such as exclusions for liability.
Unfair Terms in Consumer Contracts Regulations 1999
Unfair Terms in Consumer Contracts Regulations 1999(SI 1999/2083)
etting aside the contract
There can be three different ways in which contracts can be set aside. A contract may be deemed 'void', '
voidable' or ' unenforceable'. Voidness implies that a contract never came into existence. Voidability implies that one or both parties may declare a contract ineffective at their wish. Unenforceability implies that neither party may have recourse to a court for a remedy. Recission is a term which means to take a contract back.
Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.
There are two types of misrepresentation in contract law, fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party in question knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable.
According to "
Gordon v. Selico" ["Gordon v. Selico" (1986) 18 HLR 219] it is possible to make a misrepresentation either by words or by conduct, although not everything said or done is capable of constituting a misrepresentation. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation. [" Bisset v. Wilkinson" and others  AC 177] If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact. [" Esso Petroleum Co Ltd v. Mardon"  2 Lloyd's Rep. 305]
A mistake is an incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. Common law has identified three different types of mistake in contract: unilateral mistake, mutual mistake, and common mistake.
*A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake. [
Smith v. Hughes ] It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. An example is in "Lewis v. Avery" ["Lewis v. Avery"  3 All ER 907] where Lord Denning MR held that the contract can only be avoided if the plaintiff can show that, at the time of agreement, the plaintiff believed the other party's identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient.
*A mutual mistake is when both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different. The court usually tries to uphold such a mistake if a reasonable interpretation of the terms can be found. However, a contract based on a mutual mistake in judgement does not cause the contract to be voidable by the party that is adversely affected. See "
Raffles v. Wichelhaus". [" Raffles v. Wichelhaus" (1864) 2 Hurl. & C. 906.]
*A common mistake is where both parties hold the same mistaken belief of the facts. This is demonstrated in the case of "
Bell v. Lever Brothers Ltd.", [" Bell v. Lever Brothers Ltd."  ALL E.R. Rep. 1,  A.C. 161] which established that common mistake can only void a contract if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible.
Duress and undue influence
Duress has been defined as a "threat of harm made to compel a person to do something against his or her will or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition." [
Black's Law Dictionary(8th ed. 2004)] An example is in "Barton v. Armstrong", ["Barton v. Armstrong"  AC 104] a decision of the Privy Council. Armstrong threatened to kill Barton if he did not sign a contract, so the court set the contract aside. An innocent party wishing to set aside a contract for duress to the person need only to prove that the threat was made and that it was a reason for entry into the contract; the onus of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. There can also be duress to goods and sometimes, the concept of 'economic duress' is used to vitiate contracts.
Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. The law presumes that in certain classes of special relationship, such as between parent and child, or solicitor and client, there will be a special risk of one party unduly influencing their conduct and motives for contracting. As an equitable doctrine, the court has the discretion to vitiate such a contract. When no special relationship exists, the general rule is whether there was a relationship of such trust and confidence that it should give rise to such a presumption. ["Johnson v. Buttress" (1936) 56 CLR 113] See "Odorizzi v. Bloomfield School District".
Baird Textile Holdings Ltd v. Marks & Spencer plc."
Sometimes the capacity of either natural or artificial persons to either enforce contracts, or have contracts enforced against them is restricted. For instance, very small children may not be held to bargains they have made, or errant directors may be prevented from contracting for their company, because they have acted "
ultra vires" (beyond their power). Another example might be people who are mentally incapacitated, either by disability or drunkenness. [see in the UK e.g. s.3(2) Sale of Goods Act 1979] When the lawlimits or bars a person from engaging in specified activities, any agreements or contracts to do so are either voidable or void for incapacity. The law on capacity can serve either a protective function or can be a way of restraining people who act as agents for others.
Remedies for breach of contract
A breach of contract is failure to perform as stated in the contract. There are many ways to remedy a breached contract assuming it has not been waived. Typically, the remedy for
breach of contractis an award of money damages. When dealing with unique subject matter, specific performance may be ordered.
As for many governments, it was not possible to sue
the Crownin the UK for breach of contract before 1948. However, it was appreciated that contractors might be reluctant to deal on such a basis and claims were entertained under a petition of rightthat needed to be endorsed by the Home Secretaryand Attorney-General. S.1 Crown Proceedings Act 1947opened the Crown to ordinary contractual claims through the courts as for any other person.
There are four different types of damages.
*Compensatory damages" which are given to the party which was detrimented by the breach of contract. With compensatory damages, there are two kinds of branches, consequential damages and direct damages.
*Nominal damages" which include minimal dollar amounts (often sought to obtain a legal record of who was at fault).
*Punitive damages" which are used to punish the party at fault. These are not usually given regarding contracts but possible in a fraudulent situation.
*Exemplary damages" which are used to make an example of the party at fault to discourage similar crimes. Fines can be multiplied by factors of up to 50 for such damages.
Compensatory damages (or expectation damages) are awarded to put the party in as good of a position as the party would have been in, had the contract been performed as promised. They must be certain, not estimates of what the party could have benefited if the contract had been performed. Furthermore, once a breach has occurred, the non-breaching party has a duty to mitigate damages, or cover. Damages are not recoverable for harm that the plaintiff should have foreseen and could have avoided by reasonable effort without undue risk, expense, or humiliation. The
UCCstates, "Consequential damages... include any loss... which could not reasonably be prevented by cover or otherwise." UCC 2-715.
Hadley v. Baxendale" establishes general and consequential damages. General damages are those damages which naturally flow from a breach of contract. Consequential damages are those damages which, although not naturally flowing from a breach, are naturally supposed by both parties at the time of contract formation. An example would be when someone rents a car to get to a business meeting, but when that person arrives to pick up the car, it is not there. General damages would be the cost of renting a different car. Consequential damages would be the lost business if that person was unable to get to the meeting, if both parties knew the reason the party was renting the car. However, there is still a duty to cover; the fact that the car was not there does not give the party a right to not attempt to rent another car.
Whenever you have a contract that requires completing something, and a person informs you that it will not be completed before they begin your project, this is referred to
anticipatory breach. When it is either not possible or desirable to award damages measured in that way, a court may award money damages designed to restore the injured party to the economic position that he or she had occupied at the time the contract was entered (known as the "reliance measure"), or designed to prevent the breaching party from being unjustly enriched (" restitution").
There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages. For example where an art collector purchases a rare painting and the vendor refuses to deliver, the collector's damages would be equal to the sum paid.
The court may make an order of what is called "specific performance", requiring that the contract be performed. In some circumstances a court will order a party to perform his or her promise (an order of "
specific performance") or issue an order, known as an "injunction," that a party refrain from doing something that would breach the contract. A specific performance is obtainable for the breach of a contract to sell land or real estate on such grounds that the property has a unique value.
Both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity. Neither is available as of right and in most jurisdictions and most circumstances a court will not normally order specific performance. A contract for the sale of real property is a notable exception. In most jurisdictions it is enforceable by specific performance. However, even in this case the defenses to an action in equity (such as laches, the "bona fide" purchaser rule, or
unclean hands) may act as a bar to specific performance.
Related to orders for specific performance, an injunction may be requested when the contract prohibits a certain action. Action for injunction would prohibit the person from performing the act specified in the contract.
Uniform Commercial Code
Patrick Atiyah, "An Introduction to the Law of Contract" (2000) Clarendon Press
*Janet O’Sullivan and Jonathan Hilliard, "The Law of Contract" (2006) 2nd Ed., Oxford University Press
*Randy E. Barnett, "Contracts" (2003) Aspen Publishers ISBN 0-7355-6535-2
;Cases and Materials
*Jill Poole, "Casebook on Contract Law" (2006) 8th Ed., Oxford University Press
*Ewan McKendrick, "Contract Law - Text, Cases and Materials" (2005) Oxford University Press ISBN 0-19-927480-0
*Beatson, "Anson’s Law of Contract" (1998) 27th ed. OUP
Patrick Atiyah, "The Rise and Fall of Freedom of Contract" (1979) Clarendon Press ISBN 0198253427
Hans Wehberg, "Pacta Sunt Servanda" (Oct., 1959) " The American Journal of International Law", Vol. 53, No. 4, p.775.
Patrick Atiyah, 'Consideration: A Restatement' in "Essays on Contract" (1986) p.195, Oxford University Press
Lord Steyn, 'Contract Law: Fulfilling the Reasonable Expectations of Honest Men' (1997) 113 "Law Quarterly Review"
* [http://www.jus.uio.no/lm/eu.contract.principles.part1.1995/ Principles of European Contract Law]
* [http://www.law-essays-uk.com/contract-study-area-caselist.php Contract Law Cases] "Contract Law Cases, On UK Law"
* [http://www.law-bulletin.com/z/united_nations_convention_international_sale_goods.htm United Nations Convention on Contracts for the International Sale of Goods, Vienna,
11 April 1980]
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