English contract law
Encyclopedia
English contract law is a body of law
regulating contract
s in England and Wales. With its roots in the lex mercatoria
and the activism of the judiciary during the industrial revolution
, it shares a heritage with countries across the Commonwealth
(such as Australia
, Canada
and India
), and the United States
. While influential abroad, it is undergoing reform resulting from membership of the European Union
and international organisations like Unidroit
. Any agreement that is enforceable in court
is a contract. Because a contract is a voluntary
obligation
, in contrast to paying compensation
for a tort
and restitution
to reverse unjust enrichment
, English law places a high value on ensuring people have truly consented to the deals that bind them in court. Generally a contract forms when one person makes an offer, and another person accepts it by communicating their assent or performing the offer's terms. If the terms are certain, and the parties can be presumed from their behaviour to have intended that the terms are binding, generally the agreement is enforceable. Some contracts, particularly for large transactions such as a sale of land, also require the formalities of signatures and witnesses and English law goes further than other Europe
an countries by requiring all parties bring something of value, known as "consideration", to a bargain as a precondition to enforce it. Contracts can be made personally or through an agent
acting on behalf of a principal, if the agent acts within what a reasonable person would think they have the authority to do. In principle, English law grants people broad freedom to agree the content of a deal. Terms in an agreement are incorporated through express promises, by reference to other terms or potentially through a course of dealing between two parties. Those terms are interpreted by the courts to seek out the true intention of the parties, from the perspective of an objective observer, in the context of their bargaining environment. Where there is a gap, courts typically imply terms to fill the spaces, but also through the 20th century both the judiciary and legislature have intervened more and more to strike out surprising and unfair terms, particularly in favour of consumers, employees or tenants with weaker bargaining power
.
Contract law works best when an agreement is performed, and recourse to the courts is never needed because each party knows her rights and duties. However, where an unforeseen event renders an agreement very hard, or even impossible to perform, the courts typically will construe the parties to want to have released themselves from their obligations. It may also be that one party simply breaches a contract's terms. If a contract is not substantially performed, then the innocent party is entitled to cease her own performance and sue for damages
to put her in the position as if the contract were performed. She is under a duty to mitigate her losses and cannot claim for harm that was a remote consequence of the contractual breach, but remedies in English law are footed on the principle that full compensation
for all losses, pecuniary or not, should be made good. In exceptional circumstances, the law goes further to require a wrongdoer to make restitution
for their gain
s from breaching a contract, and may demand specific performance
of the agreement rather than monetary compensation. It is also possible that a contract becomes voidable, because, depending on the specific type of contract, one party failed to make adequate disclosure or they made misrepresentations
during negotiations. Unconscionable agreements can be escaped where a person was under duress or undue influence or their vulnerability was being exploited when they ostensibly agreed to a deal. Children, mentally incapacitated people and companies, whose representatives are acting wholly outside their authority, are protected against having agreements enforced against them where they lacked the real capacity
to make a decision to enter an agreement. Some transactions are considered illegal
, and are not enforced by courts because of a statute or on grounds of public policy. In theory, English law attempts to adhere to a principle that people should only be bound when they have given their informed and true consent to a contract.
and unjust enrichment
, contract is typically viewed as the part of the law of obligations which deals with voluntary undertakings, and accordingly gives a high priority to ensuring that only bargains to which people have given their true consent
will be enforced by the courts. While it is not always clear when people have truly agreed in a subjective sense, English law takes the view that when one person objectively manifests their consent to a bargain, they will be bound. However, not all agreements, even if they are relatively certain in subject matter, are considered enforceable. There is a rebuttable presumption that people do not wish to later have legal enforcement of agreements made socially or domestically. The general rule is that contracts require no prescribed form, such as being in writing, except where statute requires it, usually for large deals like the sale of land. In addition and in contrast to civil law systems, English common law carried a general requirement that all parties, in order to have standing to enforce an agreement, must have brought something of value, or "consideration" to the bargain. This old rule is full of exceptions, particularly where people wished to vary their agreements, through case law and the equitable doctrine of promissory estoppel. Moreover statutory reform in the Contracts (Rights of Third Parties) Act 1999
allows third parties to enforce the benefit of an agreement that they had not necessarily paid for so long as the original parties to a contract consented to them being able to do so.
is mirrored by an unequivocal acceptance
of the terms on offer. Whether an offer has been made, or it has been accepted, is an issue courts determine by asking what a reasonable person
would have thought was intended. Offers are distinguished from "invitations to treat" (or an invitatio ad offerendum, the invitation of an offer) which cannot be simply accepted by the other party. Traditionally, English law has viewed the display of goods in a shop, even with a price tag, as an invitation to treat, so that when a customer takes the product to the till it is she who is making the offer, and the shopkeeper may refuse to sell. Similarly, and as a very general rule, an advertisement, the invitation to make a bid at an auction with a reserve price, or the invitation to submit a tender bid are not considered offers. On the other hand, a person inviting tenders may fall under a duty to consider the submissions if they arrive before the deadline, so the bidder (even though there is no contract) could sue for damages if his bid is never considered. An auctioneer who publicises an auction as being without a reserve price falls under a duty to accept the highest bid. An automated vending machine constitutes a standing offer, and a court may construe an advertisement, or something on display like a deckchair, to be a serious offer if a customer would be led to believe they were accepting its terms by performing an action. Statute imposes criminal penalties for businesses that engage in misleading advertising, or not selling products at the prices they display in store, or unlawfully discriminating against customers on grounds of race, gender, sexuality, disability, belief or age. In this respect the common law is out of line with modern practice, and also the practice in European Union
states, where the Principles of European Contract Law
article 2:201 suggests that most countries count a proposal to supply any good or service by a professional as an offer.
Once an offer is made, the general rule is the offeree must communicate her acceptance in order to have a binding agreement. Notification of acceptance must actually reach a point where the offeror could reasonably be expected to know, although if the recipient is at fault, for instance, by not putting enough ink in their fax machine for a message arriving in office hours to be printed, the recipient will still be bound. This goes for all methods of communication, whether oral, by phone, through telex, fax or email, except for the post. Acceptance by letter takes place when the letter is put in the postbox. The postal exception is a product of history, and does not exist in most countries. It only exists in English law so long as it is reasonable to use the post for a reply (e.g. not in response to an email), and its operation would not create manifest inconvenience and absurdity (e.g. the letter goes missing). In all cases it is possible for the negotiating parties to stipulate a prescribed mode of acceptance. It is not possible for an offeror to impose an obligation on the offeree to reject the offer without her consent. However, it is clear that people can accept through silence, firstly, by demonstrating through their conduct that they accept. In Brogden v Metropolitan Railway Company
, although the Metropolitan Railway Company had never returned a letter from Mr Brogden formalising a long term supply arrangement for Mr Brogden's coal, they had conducted themselves for two years as if it were in effect, and Mr Brogden was bound. Secondly, the offeror may waive the need for communication of acceptance, either expressly, or implicitly, as in Carlill v Carbolic Smoke Ball Company. Here a quack medicine company advertised its "smoke ball", stating that if a customer found it did not cure them of the flu after using it thrice daily for two weeks, they would get £100. After noting the advertisement was serious enough to be an offer, not mere puff or an invitation to treat
, the Court of Appeal held the accepting party only needed to use the smokeball as prescribed to get the £100. Although the general rule was to require communication of acceptance, the advertisement had tacitly waived the need for Mrs Carlill, or anyone else, to report her acceptance first. In other cases, such as where a reward is advertised for information, the only requirement of the English courts appears to be knowledge of the offer. Where someone makes such a unilateral offer, they fall under a duty to not revoke it once someone has begun to act on the offer. Otherwise an offer may always be revoked before it is accepted. The general rule is that revocation must be communicated, even if by post, although if the offerree hears about the withdrawal from a third party, this is as good as a withdrawal from the offeror himself. Finally, an offer can be "killed off" if, rather than a mere inquiry for information, someone makes a counter offer. So in Hyde v Wrench
, when Wrench offered to sell his farm for £1000, and Hyde replied that he would buy it for £950 and Wrench refused, Hyde could not then change his mind and accept the original £1000 offer.
While the model of an offer mirroring acceptance makes sense to analyse almost all agreements, it does not fit in some cases. In The Satanita
the rules of a yacht race stipulated that the yachtsmen would be liable, beyond limits set in statute, to pay for all damage to other boats. The Court of Appeal held that there was a contract to pay arising from the rules of the competition between The Satanita's owner and the owner of Valkyrie II, which he sank, even though there was no clear offer mirrored by a clear acceptance between the parties at any point. Along with a number of other critics, in a series of cases Lord Denning MR proposed that English law ought to abandon its rigid attachment to offer and acceptance in favour of a broader rule, that the parties need to be in substantial agreement on the material points in the contract. In Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd this would have meant that during a "battle of forms" two parties were construed as having material agreement on the buyer's standard terms, and excluding a price variation clause, although the other court members reached the same view on ordinary analysis. In Gibson v Manchester CC he would have come to a different result to the House of Lords, by allowing Mr Gibson to buy his house from the council, even though the council's letter stated it "should not be regarded as a firm offer". This approach would potentially give greater discretion to a court to do what appears appropriate at the time, without being tied to what the parties may have subjectively intended, particularly where those intentions obviously conflicted.
In a number of instances, the courts avoid enforcement of contracts where, although there is a formal offer and acceptance, little objective agreement exists otherwise. In Hartog v Colin & Shields, where the seller of some Argentine hare skins quoted his prices far below what previous negotiations had suggested, the buyer could not enforce the agreement because any reasonable person would have known the offer was not serious, but a mistake. Moreover, if two parties think they reach an agreement, but their offer and acceptance concerns two entirely different things, the court will not enforce a contract. In Raffles v Wichelhaus, Raffles thought he was selling cotton aboard one ship called The Peerless, which would arrive from Bombay in Liverpool
in December, but Wichelhaus thought he was buying cotton aboard another ship called The Peerless that would arrive in September. The court held there was never consensus ad idem or a meeting of minds on any one thing. Where agreements totally fail, but one party has performed work at another's request, relying on the idea that there will be a contract, that party may make a claim for the value of the work done, or quantum meruit
. Such a restitution
claim allows recovery for the expense the claimant goes to, but will not cover her expectation of potential profits, because there is no agreement to be enforced.
, such as price, subject matter and the identity of the parties. Generally the courts endeavour to "make the agreement work", so in Hillas & Co Ltd v Arcos Ltd, the House of Lords held that an option to buy softwood of "fair specification" was sufficiently certain to be enforced, when read in the context of previous agreements between the parties. However the courts do not wish to "make contracts for people", and so in Scammell and Nephew Ltd v Ouston
, a clause stipulating the price of buying a new van as "on hire purchase terms" for two years was held unenforceable because there was no objective standard by which the court could know what price was intended or what a reasonable price might be. Similarly, in Baird Textile Holdings Ltd v M&S plc the Court of Appeal held that because the price and quantity to buy would be uncertain, in part, no term could be implied for M&S to give reasonable notice before terminating its purchasing agreement. Controversially, the House of Lords extended this idea by holding an agreement to negotiate towards a future contract in good faith
is insufficiently certain to be enforceable.
While many agreements can be certain, it is by no means certain that in the case of social and domestic affairs people want their agreements to be legally binding. In Balfour v Balfour Lord Atkin held that Mr Balfour's agreement to pay his wife £30 a month while he worked in Ceylon should be presumed unenforceable, because people do not generally intend such promises in the social sphere to create legal consequences. Similarly, an agreement between friends at a pub, or a daughter and her mother will fall into this sphere, but not a couple who are on the verge of separation, and not friends engaged in big transactions, particularly where one side relies heavily to their detriment on the assurances of the other. This presumption of unenforceability can always be rebutted by express agreement otherwise, for instance by writing the deal down. By contrast, agreements made among businesses are almost conclusively presumed to be enforceable. But again, express words, such as "This arrangement... shall not be subject to legal jurisdiction in the law courts" will be respected. In one situation, statute presumes that collective agreements between a trade union
and an employer are not intended to create legal relations, ostensibly to keep excessive litigation away from UK labour law.
In a limited number of cases, an agreement will be unenforceable unless it meets a certain form prescribed by statute. While contracts can be generally made without formality, some transactions are thought to require form either because it makes a person think carefully before they bind themselves to an agreement, or merely that it serves as clear evidence. This goes typically for large engagements, including the sale of land, a lease of property over three years, a consumer credit agreement, and a bill of exchange. A contract for guarantee must also, at some stage, be evidenced in writing. Finally, English law takes the approach that a gratuitous promise, as a matter of contract law, is not legally binding. While a gift that is delivered will transfer property irrevocably, and while someone may always bind themselves to a promise without anything in return to deliver a thing in future if they sign a deed
that is witnessed, a simple promise to do something in future can be revoked. This is result is reached, with some complexity, through a peculiarity of English law called the doctrine of consideration.
simply do not have. In reality the doctrine of consideration operates in a very small scope, and creates few difficulties in commercial practice. After reform in the United States, especially the Restatement of Contracts §90 which allows all promises to bind if it would otherwise lead to "injustice", a report in 1937 by the Law Revision Committee, Statute of Frauds and the Doctrine of Consideration, proposed that promises in writing, for past consideration, for part payments of debt, promising to perform pre-existing obligations, promising to keep an offer open, and promises that another relies on to their detriment should all be binding. The report was never enacted in legislation, but almost all of its recommendations have been put into practice through case law since, albeit with difficulty.
When a contract is formed, good consideration is needed, and so a gratuitous promise is not binding. That said, while consideration must be of sufficient value in the law's eyes, it need not reflect an adequate price. Proverbially, one may sell a house for as little as a peppercorn, even if the seller "does not like pepper and will throw away the corn." This means the courts do not generally enquire into the fairness of the exchange. Another difficulty is that consideration for a deal was said not to exist if the thing given was an act done before the promise, such as promising to pay off a loan for money already used to educate a girl. In this situation the courts have long shown themselves willing to hold that the thing done was implicitly relying on the expectation of a reward. More significant problems arise where parties to a contract wish to vary its terms. The old rule, predating the development of the protections in the law of economic duress
, was that if one side merely promises to perform a duty which she had already undertaken in return for a higher price, there is no contract. However in the leading case of Williams v Roffey Bros & Nicholls (Contractors) Ltd
, the Court of Appeal held that it would be more ready to construe someone performing essentially what they were bound to do before as giving consideration for the new deal if they conferred a "practical benefit" on the other side. So, when Williams, a carpenter, was promised by Roffey Bros, the builders, more money to complete work on time, it was held that because Roffey Bros would avoid having to pay a penalty clause for late completion of its own contract, would potentially avoid the expense of litigation and had a slightly more sensible mechanism for payments, these were enough. Speaking of consideration, Russell LJ
stated that, "courts nowadays should be more ready to find its existence... where the bargaining powers are not unequal
and where the finding of consideration reflects the true intention of the parties." In other words, in the context of contractual variations, the definition of consideration has been watered down. However, in one situation the "practical benefit" analysis cannot be invoked, namely where the agreed variation is to reduce debt repayments. In Foakes v Beer, the House of Lords held that even though Mrs Beer promised Mr Foakes he could pay back £2090 19s by instalment and without interest, she could subsequently change her mind and demand the whole sum. Despite Lord Blackburn registering a note of dissent in that case and other doubts, the Court of Appeal held in Re Selectmove Ltd
, that it was bound by the precedent of the Lords and could not deploy the "practical benefit" reasoning of Williams for any debt repayment cases.
However, consideration is a doctrine deriving from the common law, and can be suspended under the principles of equity. Historically, England had two separate court systems, and the Courts of Chancery which derived their ultimate authority from the King
via the Lord Chancellor
, took precedence over the common law
courts. So does its body of equitable principles since the systems were merged in 1875. The doctrine of promissory estoppel holds that when one person gives an assurance to another, the other relies on it and it would be inequitable to go back on the assurance, that person will be estopped from doing so. So in Hughes v Metropolitan Railway Co the House of Lords held that a tenant could not be ejected by the landlord for failing to keep up with his contractual repair duties because starting negotiations to sell the property gave the tacit assurance that the repair duties were suspended. And in Central London Properties Ltd v High Trees House Ltd Denning J held that a landlord would be estopped from claiming normal rent during the years of World War II
because he had given an assurance that half rent could be paid till the war was done. The Court of Appeal went even further in a recent debt repayment case, Collier v P&M J Wright (Holdings) Ltd. Arden LJ argued that a partner who had been assured he was only liable to repay one third of the partnership's debts, rather than be jointly and severally liable for the whole, had relied on the assurance by making repayments, and it was inequitable for the finance company to later demand full repayment of the debt. Hence, promissory estoppel could circumvent the common law rule of Foakes. Promissory estoppel, however, has been thought to be incapable of raising an independent cause of action
, so that one may only plead another party is estopped from enforcing their strict legal rights as a "shield", but cannot bring a cause of action out of estoppel as a "sword". In Australia, this rule was relaxed in Walton Stores (Interstate) Ltd v Maher, where Mr Maher was encouraged to believe he would have a contract to sell his land, and began knocking down his existing building before Walton Stores finally told him they did not wish to complete. Mr Maher got generous damages covering his loss (i.e. reliance damages, but seemingly damages for loss of expectations as if there were a contract). Yet, where an assurance concerns rights over property, a variant "proprietary estoppel
" does allow a claimant to plead estoppel as a cause of action. So in Crabb v Arun District Council
, Mr Crabbe was assured he would have the right to an access point to his land by Arun District Council, and relying on that he sold off half the property where the only existing access point was. The council was estopped from not doing what they said they would. Given the complex route of legal reasoning to reach simple solutions, it is unsurprising that a number of commentators, as well as the Principles of European Contract Law
have called for simple abandonment of the doctrine of consideration, leaving the basic requirements of agreement and an intention to create legal relations. Such a move would also dispense with the need for the common law doctrine of privity.
. Under section 1, a third party may enforce an agreement if it purports to confer a benefit on the third party, either individually or a member as a class, and there is no expressed stipulation that the person was not intended to be able to enforce it. In this respect there is a strong burden on the party claiming enforcement was not intended by a third party. A third party has the same remedies available as a person privy to an agreement, and can enforce both positive benefits, or limits on liability, such as an exclusion clause. The rights of a third party can then only be terminated or withdrawn without her consent if it is reasonably foreseeable that she would rely upon them.
The 1999 Act's reforms mean a number of old cases would be decided differently today. In Beswick v Beswick while the House of Lords held that Mrs Beswick could specifically enforce
a promise of her nephew to her deceased husband to pay her £5 weekly in her capacity as administratrix of the will, the 1999 Act would also allow her to claim as a third party. In Scruttons Ltd v Midland Silicones Ltd it would have been possible for a stevedore
firm to claim the benefit of a limitation clause in a contract between a carrier and the owner of a damaged drum of chemicals. Lord Denning dissented, arguing for abolition of the rule, and Lord Reid
gave an opinion that if a bill of lading
expressly conferred the benefit of a limitation on the stevedores, the stevedores give authority to the carrier to do that, and "difficulties about consideration moving from the stevedore were overcome" then the stevedores could benefit. In The Eurymedon, Lord Reid's inventive solution was applied where some stevedores similarly wanted the benefit of an exclusion clause after dropping a drilling machine, the consideration being found as the stevedores performing their pre-existing contractual duty for the benefit of the third party (the drilling machine owner). Now none of this considerably technical analysis is required, given that any contract purporting to confer a benefit on a third party may in principle be enforced by the third party.
Given that the 1999 Act preserves the promisee's right to enforce the contract as it stood at common law, an outstanding issue is to what extent a promisee can claim damages for a benefit on behalf of a third party, if he has suffered no personal loss. In Jackson v Horizon Holidays Ltd
, Lord Denning MR held that a father could claim damages for disappointment (beyond the financial cost) of a terrible holiday experience on behalf of his family. However, a majority of the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd
disapproved any broad ability of a party to a contract to claim damages on behalf of a third party, except perhaps in a limited set of consumer contracts. There is disagreement about whether this will remain the case. Difficulties also remain in cases involving houses built with defects, which are sold to a buyer, who subsequently sells to a third party. It appears that neither the initial buyer can claim on behalf of the third party, and nor will the third party be able to claim under the 1999 Act, as they will typically not be identified by the original contract (or known) in advance. Apart from this instance relating to tort
, in practice the doctrine of privity is entirely ignored in numerous situations, throughout the law of trusts and agency
.
If an enforceable agreement - a contract - exists, the details of the contract's terms matter if one party has allegedly broken the agreement. A contract's terms are what was promised. Yet it is up to the courts to construe evidence of what the parties said before a contract's conclusion, and construe the terms agreed. Construction of the contract starts with the express promises people make to one another, but found in other documents or notices. The general rule for incorporation of terms into agreements is that reasonable notice of the term is needed, and more notice is needed for an onerous term. The meaning of those terms must then be interpreted, and the modern approach is to construe the meaning of an agreement from the perspective of a reasonable person with knowledge of the whole context
. The courts, as well as legislation, may also imply terms into contracts generally to 'fill gaps' as necessary to fulfil the reasonable expectations of the parties, or as necessary incidents to specific contracts. English law had, since the 19th century, adhered to the laissez faire principle of "freedom of contract
" so that, in the general law of contract, people can agree to whatever terms or conditions they choose. By contrast, specific contracts, particularly for consumer
s, employees or tenants were built to carry a minimum core of rights, mostly deriving from statute, that aim to secure the fairness of contractual terms. The evolution of case law in the 20th century generally shows an ever clearer distinction between general contracts among commercial parties and those between parties of unequal bargaining power, since in these groups of transaction true choice is thought to be hampered by lack of real competition
in the market
. Hence, some terms can be found to be unfair under statutes such as the Unfair Contract Terms Act 1977
or the Unfair Terms in Consumer Contract Regulations 1999 and can be removed by the courts, with the administrative assistance of the Office of Fair Trading
.
the Court of Appeal held that when Mr Williams sold a Morris car
to a second hand dealer and wrongly (but in good faith
, relying on a forged log-book) said it was a 1948 model when it was really from 1937, the car dealer could not later claim breach of contract because they were in a better position to know. This matters because while one party may have a right to escape from a bargain, or rescind the contract, if they were induced by misrepresentations to enter a contract and can claim damages for any losses, if the statement is a term and is broken, they will be able to claim lost profit
s. So broken terms lead to damages to protect all a claimant's expectations, to put them in the position as if the contract were actually performed.
When a contract is written down, there is a basic presumption that the written document will contain all the terms of an agreement, and when people sign documents every term referred to in the document binds them (unless it is found to be merely an administrative paper, or under the very limited defence of non est factum
). This matters most in commercial dealings, where businesses place a high value on certainty. If a statement is a term, and the contracting party has not signed a document, then terms may be incorporated by reference to other sources, or through a course of dealing. The basic rule, set out in Parker v South Eastern Railway Company, is that reasonable notice of a term is required to bind someone. Here Mr Parker left his coat in the Charing Cross
railway station cloakroom and was given a ticket that on the back said liability for loss was limited to £10. The Court of Appeal sent this back to trial for a jury (as existed at the time) to determine. The modern approach is to add that if a term is particularly onerous, greater notice with greater clarity ought to be given. Denning LJ in J Spurling Ltd v Bradshaw
famously remarked that "Some clauses which I have seen would need to be printed in red
ink
on the face of the document with a red
hand
pointing to it before the notice could be held to be sufficient." In Thornton v Shoe Lane Parking Ltd a car park ticket referring to a notice inside the car park was insufficient to exclude the parking lot's liability for personal injury of customers on its premises. In Interfoto Picture Library Ltd v Stiletto Ltd Bingham LJ held that a notice inside a jiffy bag of photographic transparencies about a fee for late return of the transparencies (which would have totalled £3,783.50 for 47 transparencies after only a month) was too onerous a term to be incorporated without clear notice. By contrast in O’Brien v MGN Ltd Hale LJ held that the failure of the Daily Mirror to say in every newspaper that if there were too many winners in its free draw for £50,000 that there would be another draw was not so onerous on the disappointed "winners" as to prevent incorporation of the term. It can also be that a regular and consistent course of dealings between two parties lead the terms from previous dealings to be incorporated into future ones. In Hollier v Rambler Motors Ltd the Court of Appeal held that Mr Hollier, whose car was burnt in a fire caused by a careless employee at Rambler Motors' garage, was not bound by a clause excluding liability for "damage caused by fire" on the back of an invoice which he had seen three or four times in visits over the last five years. This was not regular or consistent enough. But in British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd
Lord Denning MR held that a company hiring a crane was bound by a term making them pay for expenses of recovering the crane when it sunk into marshland, after only one prior dealing. Of particular importance was the equal bargaining power of the parties.
the Crown's shed in Montreal
harbour burnt down, destroying goods owned by Canada Steamship lines. Lord Morton held that a clause in the contract limiting the Crown's excluding liability for "damage... to... goods... being... in the said shed" was not enough to excuse it from liability for negligence
because the clause could also be construed as referring to strict liability
under another contract clause. It would exclude that instead. Some judges, and in particular Lord Denning wished to go further by introducing a rule of "fundamental breach
of contract" whereby no liability for very serious breaches of contract could be excluded at all. While the rules remain ready for application where statute may not help, such hostile approaches to interpretation were generally felt to run contrary to the plain meaning of language.
Reflecting the modern position since unfair terms legislation was enacted, the most quoted passage in English courts on the canons of interpretation is found in Lord Hoffmann's judgment in ICS Ltd v West Browmwich BS. Lord Hoffmann restated the law that a document's meaning is what it would mean (1) to a reasonable person
(2) with knowledge of the context
, or the whole matrix of fact (3) except prior negotiations (4) and meaning does not follow what the dictionary
says but meaning understood from its context (5) and the meaning should not contradict common sense
. The objective is always to give effect to the intentions of the parties. While it remains the law for reasons of litigation cost, there is some contention over how far evidence of prior negotiations should be excluded by the courts. It appears increasingly clear that the courts may adduce evidence of negotiations where it would clearly assist in construing the meaning of an agreement. This approach to interpretation has some overlap with the right of the parties to seek "rectification
" of a document, or requesting from a court to read a document not literally but with regard to what the parties can otherwise show was really intended.
Part of the process of construction includes the courts and statute implying terms into agreements. Courts imply terms, as a general rule, when the express terms of a contract leave a gap to be filled. Given their basic attachment to contractual freedom, the courts are reluctant to override express terms for contracting parties. Legislation can also be a source of implied terms, and may be overridden by agreement of the parties, or have a compulsory character. For contracts in general, individualised terms are implied (terms "implied in fact") to reflect the "reasonable expectations of the parties", and like the process of interpretation, implication of a term of a commercial contract must follow from its commercial setting. In Equitable Life Assurance Society v Hyman
the House of Lords held (in a notorious decision) that "guaranteed annuity rate" policy holders of the life insurance
company could not have their bonus rates lowered by the directors, when the company was in financial difficulty, if it would undermine all the policy holders' "reasonable expectations". Lord Steyn said that a term should be implied in the policy contract that the directors' discretion was limited, as this term was "strictly necessary... essential to give effect to the reasonable expectations of the parties". This objective, contextual formulation of the test for individualised implied terms represents a shift from the older and subjective formulation of the implied term test, asking like an "officious bystander
" what the parties "would have contracted for" if they had applied their minds to a gap in the contract. The custom of the trade may also be a source of an implied term, if it is "certain, notorious, reasonable, recognised as legally binding and consistent with the express terms".
In specific contracts, such as those for sales of goods, between a landlord and tenant, or in employment, the courts imply standardised contractual terms (or terms "implied in law"). Such terms set out a menu of "default rules" that generally apply in absence of true agreement to the contrary. In one instance of partial codification, the Sale of Goods Act 1893
summed up all the standard contractual provisions in typical commercial sales agreements developed by the common law. This is now updated in the Sale of Goods Act 1979
, and in default of people agreeing something different in general its terms will apply. For instance, under section 12-14, any contract for sale of goods carries the implied terms that the seller has legal title, that it will match prior descriptions and that it is of satisfactory quality and fit for purpose. Similarly the Supply of Goods and Services Act 1982
section 13 says services must be performed with reasonable care and skill. As a matter of common law the test is what terms are a "necessary incident" to the specific type of contract in question. This test derives from Liverpool City Council v Irwin
where the House of Lords held that, although fulfilled on the facts of the case, a landlord owes a duty to tenants in a block of flats to keep the common parts in reasonable repair. In employment contracts, multiple standardised implied terms arise also, even before statute comes into play, for instance to give employees adequate information to make a judgment about how to take advantage of their pension entitlements. The primary standardised employment term is that both employer and worker owe one another an obligation of "mutual trust and confidence
". Mutual trust and confidence can be undermined in multiple ways, primarily where an employer's repulsive conduct means a worker can treat herself as being constructively dismissed. In Mahmud and Malik v Bank of Credit and Commerce International SA the House of Lords held the duty was breached by the employer running the business as a cover for numerous illegal activities. The House of Lords has repeated that the term may always be excluded, but this has been disputed because unlike a contract for goods or services among commercial parties, an employment relation is characterised by unequal bargaining power between employer and worker. In Johnstone v Bloomsbury Health Authority
the Court of Appeal all held that a junior doctor could not be made to work at an average of 88 hours a week, even though this was an express term of his contract, where it would damage his health. However, one judge said that result followed from application of the Unfair Contract Terms Act 1977
, one judge said it was because at common law express terms could be construed in the light of implied terms, and one judge said implied terms may override express terms. Even in employment, or in consumer affairs, English courts remain divided about the extent to which they should depart from the basic paradigm of contractual freedom, that is, in absence of legislation.
. The topic of unfair terms is vast, and could equally include specific contracts falling under the Consumer Credit Act 1974
, the Employment Rights Act 1996
or the Landlord and Tenant Act 1985
. Legislation, particularly regarding consumer protection
, is also frequently being updated by the European Union, in laws like the EU Airline Compensation Regulation, or the EU Electronic Commerce Directive, which are subsequently translated into domestic law through a statutory instrument
authorised through the European Communities Act 1972
section 2(2), as for example with the Consumer Protection (Distance Selling) Regulations 2000
. The primary legislation on unfair contract terms deriving from the EU is the Unfair Terms in Consumer Contracts Regulations 1999
. Both UCTA 1977 and UTCCR 1999 cover similar ground and can give rise to concurrent claims. For this reason the Law Commission
devised a draft Unfair Contract Terms Bill
to unify the two in one document, and make protection for small business
explicit, but Parliament has not acted yet.
The Unfair Contract Terms Act 1977
regulates clauses that exclude or limit terms implied by the common law or statute. Its general pattern is that if clauses restrict liability, particularly negligence
, of one party, the clause must pass the "reasonableness test" in section 11 and Schedule 2. This looks at the ability of either party to get insurance, their bargaining power
and their alternatives for supply, and a term's transparency. In places the Act goes further. Section 2(1) strikes down any term that would limit liability for a person's death
or personal injury
. Section 2(2) stipulates that any clause restricting liability for loss to property has to pass the "reasonableness test". One of the first cases, George Mitchell Ltd v Finney Lock Seeds Ltd saw a farmer successfully claim that a clause limiting the liability of a cabbage seed seller to damages for replacement seed, rather than the far greater loss of profits after crop failure, was unreasonable. The sellers were in a better position to get insurance for the loss than the buyers. Under section 3 businesses cannot limit their liability for breach of contract
if they are dealing with "consumers
", defined in section 12 as someone who is not dealing in the course of business with someone who is, or if they are using a written standard form contract
, unless the term passes the reasonableness test. Section 6 states the implied terms of the Sale of Goods Act 1979
cannot be limited unless reasonable. If one party is a "consumer
" then the SGA 1979 terms become compulsory. In other words, a business can never sell a consumer goods that do not work, even if the consumer signed a document with full knowledge of the exclusion clause. Under section 13, it is added that variations on straight-forward exemption clauses will still count as exemption clauses caught by the Act. So for example, in Smith v Eric S Bush the House of Lords held that a surveyor's term limiting liability for negligence was ineffective, after the chimney came crashing through Mr Smith's roof. The surveyor could get insurance more easily than Mr Smith. Even though there was no contract between them, because section 1(1)(b) applies to any notice excluding liability for negligence, and even though the surveyor's exclusion clause might prevent a duty of care arising at common law, section 13 "catches" it if liability would exist "but for" the notice excluding liability: then the exclusion is potentially unfair.
Relatively few cases are ever brought directly by consumers, given the complexity of litigation, cost, and its worth if claims are small. In order to ensure consumer protection laws are actually enforced, the Office of Fair Trading
has jurisdiction to bring consumer regulation cases on behalf of consumers after receiving complaints. Under Unfair Terms in Consumer Contracts Regulations 1999
regulations 10-12, the OFT
has jurisdiction to collect and consider complaints, and then seek injunctions in the courts to stop businesses using unfair terms (under any legislation). The UTCCR 1999 are both broader than UCTA 1977 in that they cover any unfair terms, not just exemption clauses, but narrower in that they only operate for consumer contracts. The UTCCR 1999 definition of a consumer is also narrower, under regulation 3, where a consumer must be a natural person (and never a legal person, like a company
) who contracts outside his business. However, while the United Kingdom could always opt for greater protection, when it translated the Directive into national law it opted to follow the bare minimum requirements, and not to cover every contract term. Under regulation 6(2), a court may only assess the fairness of terms which do not involve the "definition of the main subject matter of the contract", or terms which relate to "price or remuneration" of the thing sold. Outside such "core" terms, a term may be unfair, under regulation 5 if it is not one that is individually negotiated, and if contrary to good faith
it causes a significant imbalance in the rights and obligations of the parties. A list of examples of unfair terms are set out in Schedule 2. In DGFT v First National Bank plc the House of Lords held that given the purpose of consumer protection, regulation 6(2) should be construed tightly and Lord Bingham stated good faith
implies fair, open and honest dealing. This all meant that the bank's practice of charging its (higher) default interest rate to customers who had (lower) interest rate set by a court under a debt restructuring plan could, under regulation 6(2), be assessed for fairness, but that under regulation 5 the term did not create such an imbalance given the bank wished only to have its normal interest. This appeared to grant a relatively open role for the Office of Fair Trading to intervene against unfair terms. However in OFT v Abbey National plc the Supreme Court held that if a term related in any way to price, it could not by virtue of regulation 6(2) be assessed for fairness. All the High Street banks, including Abbey National
, had a practice of charging high fees if account holders, unplanned, exceeded through withdrawals their normal overdraft
limit. Overturning a unanimous Court of Appeal, the Supreme Court viewed that if the thing being charged for was part of a "package" of services, and the bank's remuneration for its services partly came from these fees, then there could be no assessment of the fairness of terms. This controversial stance was tempered by their Lordships' emphasis that any charges must be wholly transparent, though its compatibility with EU law is not yet established by the European Court of Justice
, and it appears questionable that it would be decided the same under the proposed Unfair Contract Terms Bill
.
Although promises are made to be kept, parties to an agreement are generally free to determine how a contract is concluded, can be terminated and remedial consequences for breach of contract
, just as they can generally determine a contract's content. The courts have fashioned only residual limits on the parties' autonomy to determine how a contract concludes. The courts' default, or standard rules, which are generally alterable, are first that a contract is automatically concluded if it becomes impossible for one party to perform. Second, if one party breaches her side of the bargain in a serious way, the other party may cease his own performance. If a breach is not serious, the innocent party must continue his own obligations but may claim a remedy in court for the defective or imprecise performance he has received. Third, the principle remedy for breach of contract is compensatory damages, limited to losses that one might reasonably expect to result from a breach. This means a sum of money to put the claimant in mostly the same position as if the contract breaker had performed her obligations. In a small number of contract cases, closely analogous to property or trust obligations, a court may order restitution
by the contract breaker so that any gains she has made by breaking the agreement will be stripped and given to the innocent party. Additionally where a contract's substance is for something so unique that damages would be an inadequate remedy courts may use their discretion to grant an injunction
against the contract breaker doing something or, unless it is a personal service, positively order specific performance
of the contract terms.
. Nevertheless where commercial parties of equal bargaining power wish to insist on circumstances in which a deposit will be forfeit and insist precisely on the letter of their deal, the courts will not interfere. In Union Eagle Ltd v Golden Achievement Ltd
a purchaser of a building in Hong Kong
for HK$4.2 million had a contract stipulating completion must take place by 5pm on 30 September 1991 and that if not a 10 per cent deposit would be forfeited and the contract rescinded. The purchaser was 10 minutes late only, but the Privy Council advised that given the necessity of certain rules and to remove business' fear of courts exercising unpredictable discretion, the agreement would be strictly enforced.
Agreements may also state that, as opposed to a sum fixed by the courts, a particular sum of "liquidated damages
" will be paid upon non-performance. The courts place an outer-limit on liquidated damages clauses if they became so high, or "extravagant and unconscionable" as to look like a penalty. This jurisdiction is exercised rarely, so in Murray v Leisureplay plc the Court of Appeal held that a severance payment of a whole year's salary to a company's Chief Executive in the event of dismissal before a year was not a penalty clause. Additionally, the ability of courts to strike down clauses as penalties only applies to clauses for payment of money upon the breach of the contract rather than events during its performance, though the Unfair Terms in Consumer Contracts Regulations 1999
confers jurisdiction to interfere with unfair terms used against consumers.
If the performance that is owed is merely the payment of a provable debt, then the Sale of Goods Act 1979
section 49 allows for a summary action for price of goods or services, meaning a quick set of court procedure rules are followed. Consumers also benefit under sections 48A-E, with a specific right to have a broken product to be repaired. A contract may construed as consisting of an "entire obligation", so that performance by one party is a condition precedent
, needing to be fulfilled before performance from the other side falls due. This rule also has the effect that benefits the innocent party has received may be retained if she had no choice but to accept them. In Sumpter v Hedges
a builder who abandoned a contract after performing £333 worth of work could not recover any money for the building left on the land, although he could get back the cost of some building materials, even though the buyer subsequently used the foundations to complete the job. This rule provides a powerful remedy in home construction cases to a customer. So in Bolton v Mahadeva
Mr Bolton could not recover any money for a £560 heating system that leaked and would cost £174 to correct (i.e. 31% of the price) that he installed in Mr Mahadeva's house. But where an obligation in a contract is "substantially performed", the full sum must be paid, only then deducting an amount to reflect the breach. So in Hoenig v Isaacs
Denning LJ held a builder who installed a bookcase poorly, with a price of £750 but costing only £55 to correct (i.e. 7.3% of the price), had to be paid minus the cost of correction.
While the early common law held that performance of a contract always had to take place, and no matter what hardship was encountered contracting parties had absolute liability
on their obligations, in the nineteenth century the courts developed a doctrine that contracts which became impossible to perform would be frustrated and automatically come to an end. In Taylor v Caldwell Blackburn J held that when the Surrey Gardens Music Hall unexpectedly burnt down, the owners did not have to pay compensation to the business that had leased it for an extravagant performance, because it was neither party's fault. A "condition precedent
" to or underlying all contracts is that they are possible to perform. People would not ordinarily contract to do something they knew was going to be impossible. Apart from physical impossibility, frustration could be down to a contract becoming illegal to perform, for instance if war breaks out and the government bans trade to a belligerent country, or perhaps if the whole purpose of an agreement is destroyed by another event, like renting a room to watch a cancelled coronation parade. But a contract is not frustrated merely because a subsequent event makes the agreement harder to perform than expected, as for instance in Davis Contractors Ltd v Fareham UDC where a builder unfortunately had to spend more time and money doing a job than he would be paid for because of an unforeseen shortage of labour and supplies. The House of Lords denied his claim for contract to be declared frustrated so he could claim quantum meruit
. Because the doctrine of frustration is a matter of construction of the contract, it can be contracted around, through what are called "force majeure" clauses. Similarly, a contract can have a force majeure clause that would bring a contract to an end more easily than would common law construction. In The Super Servant Two Wijsmuller BV contracted to hire out a self propelling barge to J Lauritzen AS, who wanted to tow another ship from Japan
to Rotterdam
, but had a provision stating the contract would terminate if some event made it difficult related to the ‘perils or dangers and accidents of the sea’. Wijsmuller BV also had a choice of whether to provide either The Superservant One or Two. They chose Two and it sank. The Court of Appeal held that the impossibility to perform the agreement was down to Wijsmuller's own choice, and so it was not frustrated, but that the force majeure clause did cover it. The effect of a contract being frustrated is that it is that both parties are prospectively discharged from performing their side of the bargain. If one side has already paid money over or conferred another valuable benefit, but not got anything in return yet, contrary to the prior common law position, the Law Reform (Frustrated Contracts) Act 1943
gives the court discretion to let the claimant recover a 'just sum', and that means whatever the court thinks fit in all the circumstances.
A related doctrine is "common mistake", which since the decision of Lord Phillips MR in The Great Peace is essentially the same in operation as frustration, except that the event making a contract impossible to perform takes place before, not after, a contract is concluded. A "common mistake" differs from the "mistakes" that take place between offers and acceptance (that mean there is no agreement in the first place), or the so called "mistake about identity" cases that follow from a fraudulent misrepresentation (which typically makes a contract voidable, not void, unless in a written document and concluded at a distance), because it is based on performance becoming seriously difficult to perform. For instance, in Courturier v Hastie
a corn shipment had decayed by the time two businesspeople had contracted for it, and so it was held (perhaps controversially) that the seller was not liable, because it was always physically impossible. And in Cooper v Phibbs the House of Lords held that an agreement to lease out a fishery was void because it turned out the lessee was in fact the owner. It is legally impossible to be leased something one owns. Again, the doctrine of common mistake may be contracted around, so in McRae v Commonwealth Disposals Commission
it was held that despite the fact that a wrecked ship off the Great Barrier Reef
never in fact existed, because a salvage business was actually promised by the Australian government that it was there, there was no common mistake. Like frustration, the doctrine operates only in narrow confines. In Bell v Lever Bros Ltd Lord Atkin stated that a mistake must be of such a ‘fundamental character as to constitute an underlying assumption without which the parties would not have entered into the agreements’. Post-war, Denning LJ added to the doctrine, beyond its narrow legal confines, in line with the more permissive approach recognised throughout civil law countries, most of the Commonwealth and the United States. In Solle v Butcher he held that in equity a contract could be deemed voidable (rather than outright void) if it would be 'unconscientious' for a court to hold someone to a bargain. This gave the courts some flexibility in the kind of remedy they would grant, and could be more generous in the circumstances they allowed escape. But in The Great Peace, Lord Phillips MR said that this more permissive doctrine had been contrary to the House of Lords authority in Bell v Lever Bros Ltd. Although it probably would not have been avoidable under the mistake in equity doctrine anyway, Lord Phillips MR held that a rescue company could not escape from an agreement to save a ship because both parties were mistaken that the distressed vessel was further than they originally thought. The result is that English contract law jealously prevents escape from an agreement, unless there is a serious breach because of the conduct of one party, which gives rise to the right to terminate.
The primary way in which contracts are brought to an untimely end is through one party not performing the major primary obligations on her side of the bargain. As a rule, if a breach is small the other party must still go ahead and perform his obligations, but will then be able to claim compensation, or a "secondary obligation" from the party in breach. If, however, the breach is very big, "fundamental" or goes "to the root of the contract", then the innocent party gets the right to elect to terminate his own performance for the future. The same goes where one party makes clear they have no intention of performing their side of the bargain, in an "anticipatory repudiation
", so the innocent party can go straight to court to claim a remedy, rather than waiting till the contract's date for performance which never arrives. The test for whether a term's breach will allow for termination essentially depends on construction of the contract's terms as a whole by the court, following the same rules as for any other term. In Bettini v Gye
, Blackburn J held that although an opera singer arrived 4 days late for rehearsals, given that the contract was to last three and a half months, and only the first week of performance would be slightly affected, the Opera House owner was not entitled to turn the singer away. The opera owner could have withheld some payment to reflect his loss from the breach, but should have let the show go on. The intentions of the parties manifested in the contract showed that such a breach was not so serious as to give rise to the right to terminate. As Lord Wilberforce said in The Diana Prosperity the Court must, ‘place itself in thought in the same factual matrix as that in which the parties were.’
While when a contract is silent a court must essentially make an informed choice about whether a right to terminate should exist, if a contract deals with the matter the courts' general approach is to follow the parties' wishes. The drafters of the old Sale of Goods Act 1893
distinguished between "conditions" (major terms, which when breached confer a right to terminate) and "warranties" (minor terms, which do not), and under the present Sale of Goods Act 1979
some terms, such as descriptions about quality, are conditions by default. A third kind is an "innominate term", which is typically a vague term like citrus pulp pellets being "in good condition", or a ship having to be "seaworthy". Because such a term could be breached in both a major way (e.g. the ship sinks) or a trivial way (e.g. a lifejacket is missing) the court will determine whether the right to terminate arises based on how serious in fact the consequences of the breach were. So in The Hong Kong Fir, Lord Diplock held that a ship crew being too incompetent to properly operate the vessel did not breach the contract's "seaworthiness" term in a serious enough way as to allow for termination, because the charterers still got a working boat and could have replaced the crew. If a contract specifies that a particular obligation is a "condition" the dominant approach of the courts is to treat it as such. Nevertheless, concerned with the ability of a stronger party to specify the terms it finds most convenient as "conditions" at the expense of the weaker, courts retain the ability to construe an agreement contra proferentum. In L Schuler AG v Wickman Machine Tool Sales Ltd
the majority of the House of Lords held that clause 7 of a contract, stating it was "a condition of this agreement" that Mr Wickman would visit 6 major car companies "at least once in every week" to try selling panel presses, was not really a condition in the technical sense. So when Mr Wickman was found to have visited much less, Schuler AG could not dismiss him. This was because clause 11 said that 60 days of warning was needed before Schuler AG could terminate, so the whole contract read together meant the clause 7 had to be subject to clause 11. The language in the contract is not decisive. If the word "condition" is not used, but the contract describes a right to terminate, such as the contract being terminable for "any breach" of obligation, the issue is, again, one of construction and the courts may be reluctant to give effect to the plain meaning if it would have "draconian consequences" for the weaker party. By contrast, in Bunge Corporation v Tradax SA
the House of Lords held that giving notice for a ship to start loading the soya bean cargo four days late, when the contract expressly stipulated the date, should allow the right to terminate regardless of the actual consequences of the breach. In mercantile contracts, ‘broadly speaking time will be considered of the essence’, and so it is highly likely the courts will enforce obligations to the letter.
" with an award of £2,500. Greater recognition of benefits in contracts other than purely financial ones has also been seen in cases concerning contracts where pleasure, enjoyment, relaxation or the avoidance of stress are construed as being "important terms". In Jarvis v Swans Tours Ltd
Lord Denning MR held that a council worker could get not just his money back, but also a small sum to reflect his disappointment after his dream-holiday to the Swiss Alps, contrary to the promises in Swan Tours' travel brochure, proved a boring disaster, complete with sub-standard yodelling. And in Farley v Skinner
the House of Lords held that a homebuyer close to Gatwick airport could recover money for lack of peaceful enjoyment, and the disruption of what would otherwise be his "quiet contemplative breakfast" from the house surveyor who assured there would be no noise. The market value of the property was unchanged, but ensuring peace and quiet had been an important term in their agreement. The courts have, however, remained reluctant to allow recovery for disappointment over any breach of contract, particularly in employment where a flood of people might claim damages for stress and upset after a wrongful dismissal
.
In addition to damages for not getting the thing promised itself, a contract breaker must compensate for the costly consequences of the breach that one would reasonably expect to exist. There must be a causal connection between the breach and the consequence complained of. In Saamco v York Montague Ltd it was held a bank could not recover damages from property valuer for all of the difference in what the properties it bought after getting the valuations were assured to be and actual property values, because a large part of the difference resulted from generally depressed market prices following "Black Wednesday
" in 1992. In a business deal, calculation will typically be based on the forgone profits that one could reasonably have expected to make. This could also include the "loss of a chance
" to profit, so in Chaplin v Hicks an entrant in a beauty contest wrongfully excluded from the final round was awarded 25% of the final prize money to reflect her 1 in 4 chance of having won. One limit lies at consequential losses that are too "remote", or are not a natural result of the breach, and are not in the parties' contemplation. In Hadley v Baxendale a miller tried to recover damages from Baxendale's delivery company for the lost profits from his mill grinding to a halt, after they were late delivering a crankshaft back from being fixed. But Alderson B held that because millers would usually be expected to keep spare crank shafts, and because he had not informed Baxendale of the importance of the timely delivery, an award for profits could not be compensated. More recently in The Achilleas the majority of the House of Lords preferred to express the remoteness rule as one of construing the contract to reflect the parties' "background of market expectations". Transfield Shipping returned The Achilleas late to its owner, Mercator, which led Mercator to lose a lucrative contract with Cargill
that would make over $1.3 million, an occurrence that was plainly a natural consequence of the breach and easily foreseeable. Yet because the standard practice and expectation in the shipping industry was that if a ship were returned late only the ordinary sum for hire would be due, this was the limit on recovery. It is also possible to lose one's entitlement to damages if steps are not taken to mitigate further losses, that any prudent person would, rather than sitting back and letting losses run up. But the burden of proof of a failure to mitigate is on a contract breaker, to whom the courts are unlikely to be sympathetic. A contract breaker could may also, if a concurrent liability arises in tort, argue a claimant's damages should be reduced to reflect their contributory fault, and the courts can reduce an award to achieve a just and equitable result. Sometimes potential profits will be too uncertain, or a general fall in market prices means that even claiming damages for the thing itself would leave one in a negative position, and so the courts allow a claimant to choose whether to sue, not for a failure in expectations, but to cover her expenses in preparing for the contract, or the "reliance interest". In Anglia Television Ltd v Reed a TV channel successfully sued Robert Reed
for not turning up for shooting a film. It was unclear whether the film would make any profits at all, and so Anglia TV got compensated for its wasted expenses in preparing the set. The level of damages is generally assessed at the date of the breach, but this is variable if the court thinks another time would be fairer.
By way of exception, alternative remedies to compensatory damages are available depending on the contract's nature. If damages would be an inadequate remedy, for instance, because the subject matter was a unique painting, or a piece of land, or was to deliver petrol during an oil crisis, a court may compel literal or specific performance
of the contract's terms. It can also compel a defendant to refrain from actions that would continue a breach of contract. Injunction
s are discretionary remedies, and so they are not awarded in cases where it might cause hardship, like compelling conveyance of property when it would mean an unexpectedly disabled inhabitant would lose her home. Additionally, the courts have, at least since the Slavery Abolition Act 1833, refused to grant specific performance of contracts involving personal services. This is part of a more general principle that two (potentially hostile) parties to litigation should not be made to work in a long term relationship. In Cooperative Insurance Ltd v Argyll Ltd although a shop broke its contract with a shopping centre to keep its business operating, and actual performance was important to keep flagship businesses and so attract more customers to the centre generally, specific performance was not granted because compelling a potentially loss making business to keep operating was draconian and probably not capable of being policed by the court. No award can be made which punishes, or makes an example of a defendant, even for a cynical and calculated breach of contract. However, in limited situations, a claimant may succeed in a claim for restitution of the contract breaker's gains, as is routinely available in cases involving trustees or other fiduciaries who profit from transactions where they have a conflict of interest
. In the leading case, Attorney General v Blake
a former secret service agent's profits from book sales, which recounted government information in breach of Blake's employment contract, were stripped. While Lord Nicholls stated, other than compensatory damages are not an adequate remedy, that "no fixed rules can be prescribed" and their Lordships were eager to not hamper the development of the law, the cases where such awards have been made in contract have all involved some quasi-proprietary element. In an earlier case, Wrotham Park Ltd v Parkside Homes Ltd, Brightman J awarded a percentage of gains resulting from building a lot of homes in breach of a restrictive covenant, based on a sum that the parties would have been likely to contract for had they struck a bargain. More recently in Experience Hendrix LLC v PPX Enterprises Inc Mance LJ held that a percentage of profits made by PPX breaching the intellectual property rights on songs by Jimi Hendrix
would have to be paid up. So if in the course of a contract one party is in a position to take advantage of another's rights without their fully informed consent, a restitutionary remedy can be awarded.
or was put under physical duress
, or suffered from a lack of legal capacity. The courts of equity, however, were significantly more generous because they allowed "rescission
" (i.e. cancellation) of a contract if a person was the victim of any misrepresentation, even an innocent one, and any "undue influence", beyond influence by physical threats. In these situations the victim of the misrepresentation or unconscionable behaviour has the option to avoid the contract. If avoided, the parties are both entitled to have returned whatever property they had already conveyed, so nobody remains unjustly enriched (though this terminology was not used till the 20th century). As the 20th century unfolded, the courts and statute expanded on the range of circumstances in which a person could claim damages
for negligent misrepresentation, on top of fraud. As concern over the use of unfair terms grew, there were calls to recognise a positive duty on contracting parties to disclose material facts as part of a broader duty of "good faith
" and some judges attempted to follow the American Uniform Commercial Code
by fashioning a broader doctrine of "unconscionable" bargains, procured through inequality of bargaining power
. This development was, however, stopped by the House of Lords, so that problems of unfair contract terms continued to be dealt with through targeted legislation. The courts also declare contracts void if they were for an illegal purpose, and refuse to enforce the agreement, or give any legal remedy if doing so would require a person to rely on their illegal act.
In a specific set of contracts, negotiating parties must conduct themselves in utmost good faith (or "uberrima fides
") by disclosing all material facts to one another. In one of the earliest cases, Carter v Boehm
, Mr Carter bought an insurance
policy for any losses to a naval fort of the British East India Company
in Sumatra
, but failed to tell his insurer, Boehm, that the fort was only built to resist attacks from locals, and the French were likely to invade. Lord Mansfield held the policy was invalid. Since insurance is a contract based on speculation
and the special facts "lie most commonly in the knowledge of the insured only", good faith
precluded Mr Carter "concealing what he privately knows". The same policy was extended for sale of shares in a company. So in Erlanger v New Sombrero Phosphate Co
the promoter and director-to-be of a guano
mining business failed to disclose he had paid for the mining rights on the island of Sombrero
half as much as he subsequently was valuing the company at. The House of Lords held that, despite a delay in making a claim, the purchasers of the shares had a right to their money back. Lord Blackburn held, further, that it was no barrier to rescission that the guano could not be put back in the ground. Counter-restitution (i.e. both parties giving back what they had got), if it could be substantially made in its monetary equivalent, was enough. However, outside insurance
, partnership
s, surety
, fiduciary relations, company shares, a narrow range of regulated securities, and consumer credit agreements, the duty on negotiating parties to disclose material facts does not extend to most contracts. Even though there is a duty to correct previous false statements, in Smith v Hughes, it was held that the general duty is merely to not make active misrepresentations
.
Hence, in the general law of contract, negotiating parties have a duty to not make false statements of fact or law, or misrepresent themselves through conduct. Statements of opinion, "mere puff" or vague "sales talk" (e.g. "this washing powder will make your clothes whiter than white!"), are generally not considered factual. However representations of people who profess special skill or knowledge are more likely to be actionable, as they warrant their opinions are based on concrete facts. So in Esso Petroleum Co Ltd v Mardon
Lord Denning MR held that Esso
's expert opinion that a petrol station would have 200,000 gallons worth of business was an actionable misrepresentation. If someone is induced to enter a contract by any misrepresentation, whether fraudulent, negligent or innocent, they are entitled to rescind the contract and get back the property they have conveyed. As a remedy originating in the courts of equity, this right to rescind could be lost, in four situations that courts regard as unfair to allow a claim. First, if a claimant takes too long to claim, the lapse of time (or "laches
") will create a bar to rescission
. Second, if a claimant affirms a contract by expressly showing they still consent to a deal even though they are aware of a misrepresentation, rescission is barred. Third, if a third party's rights have intervened, when that third party is a bona fide purchaser
rescission will be barred to the extent that property cannot be recovered from the third party (although a claim in damages can still exist against the misrepresentor). Fourth, and important in practice to prevent unjust enrichment
is that counter-restitution must be possible. There is confusion over whether in cases at law, rather than in equity, counter-restitution must be precise (i.e. a thing received must be given back in specie) or whether, as in Erlanger
, substantial counter-restitution may be in money.
Depending on how a court construes negotiations, a representation could become a term of the contract, as well as one giving rise to the right to rescind. A misrepresentation that is a term, will entitle the misrepresentee to a simple breach of contract claim, with "expectation damages" for loss of potential profits (subject to remoteness and the duty to mitigate). If the misrepresentation is not a term, then damages may also be available, but only "reliance damages" for losses that have been incurred. Until 1963, the general rule was that only for fraud
(i.e. an intentional or reckless misrepresentation) were damages available. For fraud, damages are available for all losses that flow directly from the misrepresentation. However, in its Tenth Report the Law Reform Committee recommended that damages should also be available for negligent misrepresentations. This led to the drafting of the Misrepresentation Act 1967
, and just before the Act was passed, the House of Lords also decided in Hedley Byrne & Co Ltd v Heller & Partners Ltd there should be a new claim for negligent misrepresentation at common law. While Hedley Byrne remains an important case for an independent action in tort
, MA 1967 section 2(1) was instantly more generous than the common law. It allows damages if the claimant shows a defendant has made a false representation, and then the defendant cannot prove that they had reasonable grounds for making a statement and honestly believed it was true. So while the common law would put the burden of proof on a claimant to show a defendant made a negligent misstatement, MA 1967 s 2(1) shifts the burden of proof to the defendant. The measure of damages is also more generous under the Act than at common law, because just as the Law Reform Report was drafted, the House of Lords was introducing a limit on the quantum of damages for negligence to losses that are reasonably foreseeable. MA 1967 section 2(1), however, was drafted by reference to state the same damages were available as for fraud. So in Royscot Trust Ltd v Rogerson
, the Court of Appeal held that even where a representation is negligent, and not fraud, the same quantum of damages is available as for fraud. This is controversial among academics who argue that fraud is more morally culpable than negligent behaviour, and should therefore deserve a more severe limit on compensation, though it is not entirely resolved what the proper circumstances for remoteness ought to be. Under section 2(2) the court has the discretion to substitute the right to rescind a contract for a small misrepresentation with an award of damages. Under section 3, a court has the power to strike down clauses excluding remedies for misrepresentation if they fail the reasonableness test in the Unfair Contract Terms Act 1977
.
An exception to the law on misrepresentation - that contracts are voidable at the instance of the misrepresentee, but the right to rescission can be barred inter alia
by the intervention of third party rights - arises when someone is induced by the fraudulent misrepresentation to enter an agreement through a written document at a distance (and not when a transaction is face to face). In Shogun Finance Ltd v Hudson
a crook obtained Mr Patel's credit details and bought a Mitsubishi Shogun on hire purchase
contract at a car dealer. Shogun Finance was faxed through Mr Patel's details, and agreed to finance the purchase of the car, letting the crook drive away. Subsequently Mrs Hudson bought the car from the crook. The crook disappeared. Then Shogun Finance, who had predictably never been paid, found Mrs Hudson and sued to retrieve the car. A bare majority in the House of Lords held that to protect the certainty of commercial dealings through a signed document, the contract between the finance company and the crook was void (the same consequence as if there had never been any offer mirrored by an acceptance). They had only ever intended to contract with Mr Patel. And because nobody can convey property they do not have (nemo dat quod non habet
) Mrs Hudson never acquired legitimate title to the car from the crook and had to give back the car. The minority held that this situation should follow ordinary law of misrepresentation, and should mean that the right of the finance company to rescind the contract would be barred by the intervention of Mrs Hudson's rights as a bona fide
third party purchaser, just like all of Europe, the United States, and previous decisions of the Court of Appeal suggest. However, because of the majority's decision this special category of "mistake about identity" cases remains a general exception to the English law on misrepresentation.
Guidance can be found:
http://www.airmic.com/research/guides/disclosure-material-facts-and-information-business-insurance
was impaired. Complete exercise of "free will" is rare for most people, because they make choices within a constrained range of alternatives. The law still holds people to nearly all contracts (if consumer, employment, tenancy, etc. legislation is not activated) except where someone was under duress, unduly influenced or exploited while in a vulnerable position. Like misrepresentation, the victim may avoid the contract, and the parties restore their property to reverse unjust enrichment
, subject to the victim's claim for damages, so long as none of the four equitable bars to rescission lie (i.e. no excessive lapse of time, affirmation of the contract, intervention of an innocent third party's rights and counter-restitution is possible). The most straight forward claim, for duress, involves illegitimate threats. The common law long allowed a claim if duress was of a physical nature. So long as a threat is just one of the reasons a person enters an agreement, even if not the main reason, the agreement may be avoided. Only late in the 20th century was escape allowed if the threat involved illegitimate economic harm. A threat is always "illegitimate" if it is to do an unlawful act, such as breaking a contract knowing non-payment may push someone out of business. However, threatening to do a lawful act will usually not be illegitimate. In Pao On v Lau Yiu Long
the Pao family threatened to not complete a share swap deal, aimed at selling their company's building, unless the Lau family agreed to change a part of the proposed agreement to guarantee the Paos would receive rises in the swapped shares' prices on repurchase. The Laus signed the guarantee agreement after this threat, and then claimed it was not binding. But the Privy Council advised their signature was only a result of "commercial pressure", not economic duress. The Laus' considered the situation before signing, and did not behave like someone under duress, so there was no coercion
amounting to a vitiation of consent. However, contrasting to cases involving business parties, the threat to do a lawful act will probably be duress if used against a vulnerable person. An obvious case involving "lawful act duress" is blackmail
. The blackmailer has to justify, not doing the lawful act they threaten, but against a person highly vulnerable to them, the demand of money.
Parallel to the slow development of common law duress, the courts of equity allowed escape from a contract if any form of undue influence
was used against a contracting party. "Actual undue influence" is now essentially the same thing as duress in its wider form. In these "class 1" cases, a claimant proves they were actually put under undue influence. Most relevant are the cases on "presumed undue influence", of which there are two sub-classes. "Class 2A" cases involve someone being in a pre-defined relation of trust and confidence with another, before which they enter a very disadvantageous transaction. In Allcard v Skinner
, Miss Allcard joined a Christian sect, the "Protestant Sisters of the Poor", run by her spiritual adviser, Miss Skinner. After taking vows of poverty
and obedience
she gave the sect almost all her property. Lindley LJ held that if she had not been barred from the claim by letting 6 years lapse, it could be presumed that Miss Allcard was unduly influenced and she would have been able to rescind the transfer. Other class 2A relationships include doctor and patient, parent and child, solicitor and client, or any fiduciary relation (but not wife and husband). Where the relation does not fall into one of these, it stands with "class 2B" cases. Here, a claimant may first prove that there was in fact a strong relation of trust and confidence. If that is done, and there is a disadvantageous transaction, it will be presumed to result from undue influence. It will then be up to the recipient of the property to rebut the presumption. This takes on greatest significance in cases involving banks typically lending money to a husband for his business, and securing a mortgage over the husband and wife's jointly owned home. Significant problems arose, particularly after the early 1990s housing, stock market and currency crashes, where the husband's business failed, the bank attempted to repossess the house, and the wife claimed she never understood the implications of the mortgage or was pressured into it. Even though a bank may have played no illegitimate role, if it had "constructive notice" of undue influence (i.e. if it was aware that something was potentially wrong) the bank would lose its security and could not repossess the house. In Royal Bank of Scotland plc v Etridge (No 2)
the House of Lords decided that in such situations a bank should ensure that the spouse has been independently advised by a solicitor, who in turn confirms in writing there is no question of undue influence, before giving out a loan.
As opposed to duress and actual undue influence, where illegitimate pressure is applied, or presumed undue influence which depends on a relationship of trust and confidence being abused, further cases allow a vulnerable person to avoid an agreement merely on the basis that they were vulnerable and exploited. In The Medina
the Court of Appeal found that a group of pilgrims shipwrecked on a rock in the Red Sea
did not need to pay £4000 they promised to a rescue ship, because the "rescuers" had exploited the pilgrims vulnerable position. To prevent unjust enrichment, the Court substituted an award of £1800. Similarly, in Cresswell v Potter
, Ms Cresswell conveyed her ex-husband her share of their joint property in return for release from mortgage repayments, later making him £1400 profit. Because Potter took advantage of Ms Creswell's ignorance of property transactions, Megarry J held the agreement was voidable. One potential exception to this pattern, and now very heavily restricted, is the defence of "non est factum
", which originally applied in favour of illiterate people in the 19th century allowed a person to have a signed contract declared void if it is radically different from what was envisaged. In Lloyds Bank Ltd v Bundy
, Lord Denning MR proposed it was time that all cases be placed into one unified doctrine of "inequality of bargaining power
". This would have allowed escape from an agreement if without independent advice one person's ability to bargain for better terms had been heavily impaired, and would have essentially given courts broader scope to change contracts to the advantage of weaker parties. The idea was disapproved by some members of the House of Lords from 1979. There is specific legislation, such as the Consumer Credit Act 1974
, the Landlord and Tenant Act 1985
, or the Employment Rights Act 1996
which create targeted rights for vulnerable contracting parties, in the same way specific legislation circumscribes a duty of disclosure and good faith
. The common law, subject to the existing exceptions, nevertheless retains an essential foundation of freedom of contract
.
. First, a person may be too young to be bound by large or onerous contracts. Minors, under 18 years, can bind themselves to contracts for "necessaries" to pay a reasonable price, but only unusual contracts, such as for eleven luxury waistcoats will not be deemed "necessaries". While the adult contracting party is bound, the minor has the option to rescind the contract, so long as one of the four equitable bars (lapse of time, affirmation, third party rights, counter-restitution possible) is not present. Second, people who are mentally incapacitated, for instance because they are sectioned under the Mental Health Act 1983
or they are completely intoxicated, are in principle bound to agreements when the other person could not or did not know they lacked mental capacity. But if the other person did know or should have known, then the mentally incapacitated individual can be bound to agreements for non-necessaries. Third, companies can generally bind themselves to any agreement, even though many (particularly older) companies have a limited range of objects that their members (in most companies this means shareholders) have consented that the business is for. Under the Companies Act 2006
sections 39 and 40, if a third party contracting with the company in bad faith takes advantage of a director or officer to procure an agreement, that contract will be wholly void. This is a high threshold, and in practice no longer relevant, particularly since 2006 companies may elect to have unrestricted objects. It is more likely that a contract ceases to be enforceable because, as a matter of the law of agency
the third party should have reasonably known that the person contracting lacked authority to enter an agreement. In this situation a contract is voidable at the instance of the company, and could only be enforced against the (probably less solvent) employee.
In a fourth case, the consequences of incapacity are more drastic. Although the Crown Proceedings Act 1947
made it possible for the government or emanations of the state to be sued on contracts in the same way as a normal individual, where statute confers power on a public body to do certain acts, actions by representatives beyond that power will be ultra vires
and void. The result is the same as it was for companies before reform in 1989, so that whole chains of agreements could be declared as non-existent.
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
regulating contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s in England and Wales. With its roots in the lex mercatoria
Lex mercatoria
Lex mercatoria is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. It functioned as the...
and the activism of the judiciary during the industrial revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
, it shares a heritage with countries across the Commonwealth
Commonwealth
Commonwealth is a traditional English term for a political community founded for the common good. Historically, it has sometimes been synonymous with "republic."More recently it has been used for fraternal associations of some sovereign nations...
(such as Australia
Australian contract law
Australian contract law is based on the inherited English contract law, with specific statutory modifications of principles in some areas. Australian law has developed through the decisions of Australian courts, especially since the 1980s, and various pieces of legislation passed by the Parliament...
, Canada
Canadian contract law
Canadian contract law has its foundation in the English legal tradition of the 19th and early 20th century. It remains largely rooted in the old English common law and equity. Individual provinces have codified many of the principles in a Sale of Goods Act, which was also modeled on early English...
and India
Indian contract law
Indian contract law regulates contract law in India. The main contract law in India is codified in the Indian Contract Act which came into effect on September 1, 1872 and extends to whole of India except the state of Jammu and Kashmir. It governs entering into contract, execution of contract, and...
), and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. While influential abroad, it is undergoing reform resulting from membership of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
and international organisations like Unidroit
UNIDROIT
The International Institute for the Unification of Private Law, also known as UNIDROIT, is an independent intergovernmental Organisation based in Rome, Italy...
. Any agreement that is enforceable in court
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
is a contract. Because a contract is a voluntary
Voluntariness
Voluntariness is a legal and philosophical concept referring to a choice being made of a person's free will, as opposed to being made as the result of coercion or duress. Philosophies such as libertarianism and voluntaryism, as well as many legal systems, hold that a contract must be voluntarily...
obligation
Law of obligations
The law of obligations is one of the component private law elements of the civil system of law. It includes contract law, delict law, quasi-contract law, and quasi-delict law...
, in contrast to paying compensation
Compensation
Compensation can refer to:*Financial compensation, various meanings*Compensation , various advantages a player has in exchange for a disadvantage*Compensation *Compensation , by Ralph Waldo Emerson...
for a tort
English tort law
English tort law concerns civil wrongs, as distinguished from criminal wrongs, in the law of England and Wales. Some wrongs are the concern of the state, and so the police can enforce the law on the wrongdoers in court – in a criminal case...
and restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
to reverse unjust enrichment
English unjust enrichment law
English unjust enrichment law is a developing area of law in unjust enrichment. Traditionally, work on unjust enrichment has been dealt with under the title of "restitution". Restitution is a gain-based remedy, the opposite of compensation, as a loss-based remedy...
, English law places a high value on ensuring people have truly consented to the deals that bind them in court. Generally a contract forms when one person makes an offer, and another person accepts it by communicating their assent or performing the offer's terms. If the terms are certain, and the parties can be presumed from their behaviour to have intended that the terms are binding, generally the agreement is enforceable. Some contracts, particularly for large transactions such as a sale of land, also require the formalities of signatures and witnesses and English law goes further than other Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an countries by requiring all parties bring something of value, known as "consideration", to a bargain as a precondition to enforce it. Contracts can be made personally or through an agent
Agency in English law
Agency in English law is a component of UK commercial law, and forms a core set of rules necessary for the smooth functioning of business.-Authority:...
acting on behalf of a principal, if the agent acts within what a reasonable person would think they have the authority to do. In principle, English law grants people broad freedom to agree the content of a deal. Terms in an agreement are incorporated through express promises, by reference to other terms or potentially through a course of dealing between two parties. Those terms are interpreted by the courts to seek out the true intention of the parties, from the perspective of an objective observer, in the context of their bargaining environment. Where there is a gap, courts typically imply terms to fill the spaces, but also through the 20th century both the judiciary and legislature have intervened more and more to strike out surprising and unfair terms, particularly in favour of consumers, employees or tenants with weaker bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....
.
Contract law works best when an agreement is performed, and recourse to the courts is never needed because each party knows her rights and duties. However, where an unforeseen event renders an agreement very hard, or even impossible to perform, the courts typically will construe the parties to want to have released themselves from their obligations. It may also be that one party simply breaches a contract's terms. If a contract is not substantially performed, then the innocent party is entitled to cease her own performance and sue for damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
to put her in the position as if the contract were performed. She is under a duty to mitigate her losses and cannot claim for harm that was a remote consequence of the contractual breach, but remedies in English law are footed on the principle that full compensation
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
for all losses, pecuniary or not, should be made good. In exceptional circumstances, the law goes further to require a wrongdoer to make restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
for their gain
Gain
In electronics, gain is a measure of the ability of a circuit to increase the power or amplitude of a signal from the input to the output. It is usually defined as the mean ratio of the signal output of a system to the signal input of the same system. It may also be defined on a logarithmic scale,...
s from breaching a contract, and may demand specific performance
Specific performance
Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to award/ for awarding damages, and is classed as an equitable remedy commonly used in the form of injunctive relief concerning confidential...
of the agreement rather than monetary compensation. It is also possible that a contract becomes voidable, because, depending on the specific type of contract, one party failed to make adequate disclosure or they made misrepresentations
Misrepresentation in English law
Misrepresentation in English law is an area of English contract law, which allows a person to escape a contractual obligation or claim compensation for losses. If one person can show that she entered an agreement because of another person's false assurances, then the other person will be unable to...
during negotiations. Unconscionable agreements can be escaped where a person was under duress or undue influence or their vulnerability was being exploited when they ostensibly agreed to a deal. Children, mentally incapacitated people and companies, whose representatives are acting wholly outside their authority, are protected against having agreements enforced against them where they lacked the real capacity
Capacity in English law
--------Capacity in English law refers to the ability of a contracting party to enter into legally binding relations. If a party does not have the capacity to do so, then subsequent contracts may be invalid; however, in the interests of certainty, there is a prima facie presumption that both...
to make a decision to enter an agreement. Some transactions are considered illegal
Illegality in English law
Illegality in English law is a potential ground in English contract law, tort or trusts for a court to refuse to enforce an obligation. The illegality of a transaction, either because of public policy under the common law, or because of legislation, potentially means no action directly concerning...
, and are not enforced by courts because of a statute or on grounds of public policy. In theory, English law attempts to adhere to a principle that people should only be bound when they have given their informed and true consent to a contract.
History
- Roman lawRoman lawRoman law is the legal system of ancient Rome, and the legal developments which occurred before the 7th century AD — when the Roman–Byzantine state adopted Greek as the language of government. The development of Roman law comprises more than a thousand years of jurisprudence — from the Twelve...
and pacta sunt servandaPacta sunt servandaPacta sunt servanda , is a brocard, a basic principle of civil law and of international law.In its most common sense, the principle refers to private contracts, stressing that contained clauses are law between the parties, and implies that nonfulfilment of respective obligations is a breach of the... - AssumpsitAssumpsitAssumpsit is a form of action at common law for the recovery of damages caused by the breach or non-performance of a simple contract, either express or implied, and whether made orally or in writing....
, Slade's caseSlade's CaseSlade's Case was a case in English contract law that ran from 1596 to 1602. Under the medieval common law, claims seeking the repayment of a debt or other matters could only be pursued through a writ of debt in the Court of Common Pleas, a problematic and archaic process...
(1602) 76 ER 1074, Bret v JSBret v JSBret v JS & Wife Cro Eliz 756 is a formative English contract law, which held that a good consideration for courts to enforce contracts did not include promises for "natural affection".-Facts:...
(1600) Cro Eliz 756 and Assumption of responsibility - Courts of Chancery
- Forms of action
- Lex mercatoriaLex mercatoriaLex mercatoria is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. It functioned as the...
and the Hanseatic LeagueHanseatic LeagueThe Hanseatic League was an economic alliance of trading cities and their merchant guilds that dominated trade along the coast of Northern Europe... - Sir Edward Coke
- Sir John Holt (Chief Justice 1689 to 1710) and Lord Mansfield
- FaustFaustFaust is the protagonist of a classic German legend; a highly successful scholar, but also dissatisfied with his life, and so makes a deal with the devil, exchanging his soul for unlimited knowledge and worldly pleasures. Faust's tale is the basis for many literary, artistic, cinematic, and musical...
and Christopher MarloweChristopher MarloweChristopher Marlowe was an English dramatist, poet and translator of the Elizabethan era. As the foremost Elizabethan tragedian, next to William Shakespeare, he is known for his blank verse, his overreaching protagonists, and his mysterious death.A warrant was issued for Marlowe's arrest on 18 May...
, The Tragicall History of the Life and Death of Doctor Faustus (1604) - Robert BrowningRobert BrowningRobert Browning was an English poet and playwright whose mastery of dramatic verse, especially dramatic monologues, made him one of the foremost Victorian poets.-Early years:...
Pied Piper of Hamelin (1842) - Laissez faire
- Indian Contract Act 1872Indian Contract Act 1872Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended.It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or...
(c 9)
- F Kessler, 'Contracts of Adhesion—Some Thoughts About Freedom of Contract (1943) 43(5) Columbia Law Review 629
- MJ Horwitz, 'The historical foundations of modern contract law' (1974) 87(5) Harvard Law Review 917
- AWB Simpson, 'The Horwitz Thesis and the History of Contracts' (1979) 46(3) The University of Chicago Law Review 533
- PS Atiyah, The Rise and Fall of Freedom of ContractThe Rise and Fall of Freedom of ContractThe Rise and Fall of Freedom of Contract is a legal-historical text on the changes in the concept of freedom of contract by English Professor Patrick Atiyah...
(Oxford 1979) - AWB Simpson, A History of the Common Law of Contract: the Rise of the Action of Assumpsit (1987)
- European UnionEuropean UnionThe European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
and the Principles of European Contract LawPrinciples of European Contract Law-Definition:The Principles of European Contract Law is a set of model rules drawn up by leading contract law academics in Europe. It attempts to elucidate basic rules of contract law and more generally the law of obligations which most legal systems of the member states of the European Union hold...
2003 - UNIDROITUNIDROITThe International Institute for the Unification of Private Law, also known as UNIDROIT, is an independent intergovernmental Organisation based in Rome, Italy...
Principles of International Commercial ContractsPrinciples of International Commercial ContractsThe Principles of International Commercial Contracts of 2004 is a document drawn up by UNIDROIT intended to help harmonise international commercial contracts law. The first edition of which was published in 1994, and the second, enlarged edition of which was published in 2004...
Formation
In its essence a contract is an agreement which the law recognises as giving rise to enforceable obligations. As opposed to tortTort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
and unjust enrichment
Unjust enrichment
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing.Definition:...
, contract is typically viewed as the part of the law of obligations which deals with voluntary undertakings, and accordingly gives a high priority to ensuring that only bargains to which people have given their true consent
Consent
Consent refers to the provision of approval or agreement, particularly and especially after thoughtful consideration.- Types of consent :*Implied consent is a controversial form of consent which is not expressly granted by a person, but rather inferred from a person's actions and the facts and...
will be enforced by the courts. While it is not always clear when people have truly agreed in a subjective sense, English law takes the view that when one person objectively manifests their consent to a bargain, they will be bound. However, not all agreements, even if they are relatively certain in subject matter, are considered enforceable. There is a rebuttable presumption that people do not wish to later have legal enforcement of agreements made socially or domestically. The general rule is that contracts require no prescribed form, such as being in writing, except where statute requires it, usually for large deals like the sale of land. In addition and in contrast to civil law systems, English common law carried a general requirement that all parties, in order to have standing to enforce an agreement, must have brought something of value, or "consideration" to the bargain. This old rule is full of exceptions, particularly where people wished to vary their agreements, through case law and the equitable doctrine of promissory estoppel. Moreover statutory reform in the Contracts (Rights of Third Parties) Act 1999
Contracts (Rights of Third Parties) Act 1999
The Contracts Act 1999 was an Act of the Parliament of the United Kingdom that significantly reformed the common law Doctrine of Privity and "thereby [removed] one of the most universally disliked and criticised blots on the legal landscape"...
allows third parties to enforce the benefit of an agreement that they had not necessarily paid for so long as the original parties to a contract consented to them being able to do so.
Agreement
The formal approach of English courts is that agreement exists when an offerOffer and acceptance
Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. Agreement consists of an offer by an indication of one person to another of the offeror's willingness to enter into a contract on certain terms without...
is mirrored by an unequivocal acceptance
Acceptance
Acceptance is a person's agreement to experience a situation, to follow a process or condition without attempting to change it, protest, or exit....
of the terms on offer. Whether an offer has been made, or it has been accepted, is an issue courts determine by asking what a reasonable person
Reasonable person
The reasonable person is a legal fiction of the common law that represents an objective standard against which any individual's conduct can be measured...
would have thought was intended. Offers are distinguished from "invitations to treat" (or an invitatio ad offerendum, the invitation of an offer) which cannot be simply accepted by the other party. Traditionally, English law has viewed the display of goods in a shop, even with a price tag, as an invitation to treat, so that when a customer takes the product to the till it is she who is making the offer, and the shopkeeper may refuse to sell. Similarly, and as a very general rule, an advertisement, the invitation to make a bid at an auction with a reserve price, or the invitation to submit a tender bid are not considered offers. On the other hand, a person inviting tenders may fall under a duty to consider the submissions if they arrive before the deadline, so the bidder (even though there is no contract) could sue for damages if his bid is never considered. An auctioneer who publicises an auction as being without a reserve price falls under a duty to accept the highest bid. An automated vending machine constitutes a standing offer, and a court may construe an advertisement, or something on display like a deckchair, to be a serious offer if a customer would be led to believe they were accepting its terms by performing an action. Statute imposes criminal penalties for businesses that engage in misleading advertising, or not selling products at the prices they display in store, or unlawfully discriminating against customers on grounds of race, gender, sexuality, disability, belief or age. In this respect the common law is out of line with modern practice, and also the practice in European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
states, where the Principles of European Contract Law
Principles of European Contract Law
-Definition:The Principles of European Contract Law is a set of model rules drawn up by leading contract law academics in Europe. It attempts to elucidate basic rules of contract law and more generally the law of obligations which most legal systems of the member states of the European Union hold...
article 2:201 suggests that most countries count a proposal to supply any good or service by a professional as an offer.
Brogden v Metropolitan Railway Company
Brogden v Metropolitan Railway Company L.R. 2 App. Cas. 666 is an English contract law case, which established that a contract can be accepted by the conduct of the parties.-Facts:...
, although the Metropolitan Railway Company had never returned a letter from Mr Brogden formalising a long term supply arrangement for Mr Brogden's coal, they had conducted themselves for two years as if it were in effect, and Mr Brogden was bound. Secondly, the offeror may waive the need for communication of acceptance, either expressly, or implicitly, as in Carlill v Carbolic Smoke Ball Company. Here a quack medicine company advertised its "smoke ball", stating that if a customer found it did not cure them of the flu after using it thrice daily for two weeks, they would get £100. After noting the advertisement was serious enough to be an offer, not mere puff or an invitation to treat
Invitation to treat
Invitation to treat is a contract law term. It comes from the Latin phrase invitatio ad offerendum and means "inviting an offer". Or as Andrew Burrows writes, an invitation to treat is...
, the Court of Appeal held the accepting party only needed to use the smokeball as prescribed to get the £100. Although the general rule was to require communication of acceptance, the advertisement had tacitly waived the need for Mrs Carlill, or anyone else, to report her acceptance first. In other cases, such as where a reward is advertised for information, the only requirement of the English courts appears to be knowledge of the offer. Where someone makes such a unilateral offer, they fall under a duty to not revoke it once someone has begun to act on the offer. Otherwise an offer may always be revoked before it is accepted. The general rule is that revocation must be communicated, even if by post, although if the offerree hears about the withdrawal from a third party, this is as good as a withdrawal from the offeror himself. Finally, an offer can be "killed off" if, rather than a mere inquiry for information, someone makes a counter offer. So in Hyde v Wrench
Hyde v Wrench
Hyde v Wrench [1840] is a leading English contract law case on the issue of counter-offers and their relation to initial offers. In it Lord Langdale ruled that any counter-offer cancels the original offer.-Facts:...
, when Wrench offered to sell his farm for £1000, and Hyde replied that he would buy it for £950 and Wrench refused, Hyde could not then change his mind and accept the original £1000 offer.
While the model of an offer mirroring acceptance makes sense to analyse almost all agreements, it does not fit in some cases. In The Satanita
The Satanita
The Satanita [1897] AC 59 is an English contract law case, which in the Court of Appeal, concerned the formation of a contract. It is notable because it stands as an example of a case which does not fit the typical pattern of offer and acceptance that English law purports to require to find...
the rules of a yacht race stipulated that the yachtsmen would be liable, beyond limits set in statute, to pay for all damage to other boats. The Court of Appeal held that there was a contract to pay arising from the rules of the competition between The Satanita's owner and the owner of Valkyrie II, which he sank, even though there was no clear offer mirrored by a clear acceptance between the parties at any point. Along with a number of other critics, in a series of cases Lord Denning MR proposed that English law ought to abandon its rigid attachment to offer and acceptance in favour of a broader rule, that the parties need to be in substantial agreement on the material points in the contract. In Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd this would have meant that during a "battle of forms" two parties were construed as having material agreement on the buyer's standard terms, and excluding a price variation clause, although the other court members reached the same view on ordinary analysis. In Gibson v Manchester CC he would have come to a different result to the House of Lords, by allowing Mr Gibson to buy his house from the council, even though the council's letter stated it "should not be regarded as a firm offer". This approach would potentially give greater discretion to a court to do what appears appropriate at the time, without being tied to what the parties may have subjectively intended, particularly where those intentions obviously conflicted.
In a number of instances, the courts avoid enforcement of contracts where, although there is a formal offer and acceptance, little objective agreement exists otherwise. In Hartog v Colin & Shields, where the seller of some Argentine hare skins quoted his prices far below what previous negotiations had suggested, the buyer could not enforce the agreement because any reasonable person would have known the offer was not serious, but a mistake. Moreover, if two parties think they reach an agreement, but their offer and acceptance concerns two entirely different things, the court will not enforce a contract. In Raffles v Wichelhaus, Raffles thought he was selling cotton aboard one ship called The Peerless, which would arrive from Bombay in Liverpool
Liverpool
Liverpool is a city and metropolitan borough of Merseyside, England, along the eastern side of the Mersey Estuary. It was founded as a borough in 1207 and was granted city status in 1880...
in December, but Wichelhaus thought he was buying cotton aboard another ship called The Peerless that would arrive in September. The court held there was never consensus ad idem or a meeting of minds on any one thing. Where agreements totally fail, but one party has performed work at another's request, relying on the idea that there will be a contract, that party may make a claim for the value of the work done, or quantum meruit
Quantum meruit
Quantum meruit is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services".In the United States, the elements of quantum meruit are determined by state common law...
. Such a restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
claim allows recovery for the expense the claimant goes to, but will not cover her expectation of potential profits, because there is no agreement to be enforced.
Certainty and enforceability
While agreement is the basis for all contracts, not all agreements are enforceable. A preliminary question is whether the contract is reasonably certain in its essential terms, or essentialia negotiiEssentialia negotii
Essentialia negotii is a Latin legal term used in contract law. It denotes the minimum contents of a contract in order for it to be held effective and legally binding.-General contracts:...
, such as price, subject matter and the identity of the parties. Generally the courts endeavour to "make the agreement work", so in Hillas & Co Ltd v Arcos Ltd, the House of Lords held that an option to buy softwood of "fair specification" was sufficiently certain to be enforced, when read in the context of previous agreements between the parties. However the courts do not wish to "make contracts for people", and so in Scammell and Nephew Ltd v Ouston
Scammell and Nephew Ltd v Ouston
Scammell and Nephew Ltd v Ouston [1941] 1 AC 251 is an English contract law case, concerning the certainty of an agreement. It stands as an example of a relatively rare case where a court cannot find some way in which a contract can be made to work....
, a clause stipulating the price of buying a new van as "on hire purchase terms" for two years was held unenforceable because there was no objective standard by which the court could know what price was intended or what a reasonable price might be. Similarly, in Baird Textile Holdings Ltd v M&S plc the Court of Appeal held that because the price and quantity to buy would be uncertain, in part, no term could be implied for M&S to give reasonable notice before terminating its purchasing agreement. Controversially, the House of Lords extended this idea by holding an agreement to negotiate towards a future contract in good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
is insufficiently certain to be enforceable.
While many agreements can be certain, it is by no means certain that in the case of social and domestic affairs people want their agreements to be legally binding. In Balfour v Balfour Lord Atkin held that Mr Balfour's agreement to pay his wife £30 a month while he worked in Ceylon should be presumed unenforceable, because people do not generally intend such promises in the social sphere to create legal consequences. Similarly, an agreement between friends at a pub, or a daughter and her mother will fall into this sphere, but not a couple who are on the verge of separation, and not friends engaged in big transactions, particularly where one side relies heavily to their detriment on the assurances of the other. This presumption of unenforceability can always be rebutted by express agreement otherwise, for instance by writing the deal down. By contrast, agreements made among businesses are almost conclusively presumed to be enforceable. But again, express words, such as "This arrangement... shall not be subject to legal jurisdiction in the law courts" will be respected. In one situation, statute presumes that collective agreements between a trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
and an employer are not intended to create legal relations, ostensibly to keep excessive litigation away from UK labour law.
In a limited number of cases, an agreement will be unenforceable unless it meets a certain form prescribed by statute. While contracts can be generally made without formality, some transactions are thought to require form either because it makes a person think carefully before they bind themselves to an agreement, or merely that it serves as clear evidence. This goes typically for large engagements, including the sale of land, a lease of property over three years, a consumer credit agreement, and a bill of exchange. A contract for guarantee must also, at some stage, be evidenced in writing. Finally, English law takes the approach that a gratuitous promise, as a matter of contract law, is not legally binding. While a gift that is delivered will transfer property irrevocably, and while someone may always bind themselves to a promise without anything in return to deliver a thing in future if they sign a deed
Deed
A deed is any legal instrument in writing which passes, or affirms or confirms something which passes, an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions sealed...
that is witnessed, a simple promise to do something in future can be revoked. This is result is reached, with some complexity, through a peculiarity of English law called the doctrine of consideration.
Consideration and estoppel
Consideration is an additional requirement in English law before a contract is enforceable. A person wishing to enforce an agreement must show that they have brought something to the bargain which has "something of value in the eyes of the law", either by conferring a benefit on another person or incurring a detriment at their request. In practice this means not simple gratitude or love, not things already done in the past, and not promising to perform a pre-existing duty unless performance takes place for a third party. Metaphorically speaking consideration is "the price for which the promise is bought". It is contentious in the sense that it gives rise to a level of complexity that legal systems which do not take their heritage from English lawEnglish law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
simply do not have. In reality the doctrine of consideration operates in a very small scope, and creates few difficulties in commercial practice. After reform in the United States, especially the Restatement of Contracts §90 which allows all promises to bind if it would otherwise lead to "injustice", a report in 1937 by the Law Revision Committee, Statute of Frauds and the Doctrine of Consideration, proposed that promises in writing, for past consideration, for part payments of debt, promising to perform pre-existing obligations, promising to keep an offer open, and promises that another relies on to their detriment should all be binding. The report was never enacted in legislation, but almost all of its recommendations have been put into practice through case law since, albeit with difficulty.
Duress
In jurisprudence, duress or coercion refers to a situation whereby a person performs an act as a result of violence, threat or other pressure against the person. Black's Law Dictionary defines duress as "any unlawful threat or coercion used... to induce another to act [or not act] in a manner...
, was that if one side merely promises to perform a duty which she had already undertaken in return for a higher price, there is no contract. However in the leading case of Williams v Roffey Bros & Nicholls (Contractors) Ltd
Williams v Roffey Bros & Nicholls (Contractors) Ltd
Williams v Roffey Bros & Nicholls Ltd [1989] is a leading English contract law case, which decided that in varying a contract, the court will be quick to find consideration, if "factual benefits" are given from one to another party.-Facts:...
, the Court of Appeal held that it would be more ready to construe someone performing essentially what they were bound to do before as giving consideration for the new deal if they conferred a "practical benefit" on the other side. So, when Williams, a carpenter, was promised by Roffey Bros, the builders, more money to complete work on time, it was held that because Roffey Bros would avoid having to pay a penalty clause for late completion of its own contract, would potentially avoid the expense of litigation and had a slightly more sensible mechanism for payments, these were enough. Speaking of consideration, Russell LJ
Thomas Patrick Russell
Sir Thomas Patrick Russell PC, QC , styled The Rt Hon Lord Justice Russell was a British high court judge and Lord Justice....
stated that, "courts nowadays should be more ready to find its existence... where the bargaining powers are not unequal
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....
and where the finding of consideration reflects the true intention of the parties." In other words, in the context of contractual variations, the definition of consideration has been watered down. However, in one situation the "practical benefit" analysis cannot be invoked, namely where the agreed variation is to reduce debt repayments. In Foakes v Beer, the House of Lords held that even though Mrs Beer promised Mr Foakes he could pay back £2090 19s by instalment and without interest, she could subsequently change her mind and demand the whole sum. Despite Lord Blackburn registering a note of dissent in that case and other doubts, the Court of Appeal held in Re Selectmove Ltd
Re Selectmove Ltd
Re Selectmove Ltd [1995] 1 WLR 474 is an English contract law case, concerning the doctrine of consideration, and part payments of debt.-Facts:Selectmove Ltd owed the Inland Revenue substantial sums in outstanding tax and national insurance...
, that it was bound by the precedent of the Lords and could not deploy the "practical benefit" reasoning of Williams for any debt repayment cases.
However, consideration is a doctrine deriving from the common law, and can be suspended under the principles of equity. Historically, England had two separate court systems, and the Courts of Chancery which derived their ultimate authority from the King
King
- Centers of population :* King, Ontario, CanadaIn USA:* King, Indiana* King, North Carolina* King, Lincoln County, Wisconsin* King, Waupaca County, Wisconsin* King County, Washington- Moving-image works :Television:...
via the Lord Chancellor
Lord Chancellor
The Lord High Chancellor of Great Britain, or Lord Chancellor, is a senior and important functionary in the government of the United Kingdom. He is the second highest ranking of the Great Officers of State, ranking only after the Lord High Steward. The Lord Chancellor is appointed by the Sovereign...
, took precedence over the common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
courts. So does its body of equitable principles since the systems were merged in 1875. The doctrine of promissory estoppel holds that when one person gives an assurance to another, the other relies on it and it would be inequitable to go back on the assurance, that person will be estopped from doing so. So in Hughes v Metropolitan Railway Co the House of Lords held that a tenant could not be ejected by the landlord for failing to keep up with his contractual repair duties because starting negotiations to sell the property gave the tacit assurance that the repair duties were suspended. And in Central London Properties Ltd v High Trees House Ltd Denning J held that a landlord would be estopped from claiming normal rent during the years of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
because he had given an assurance that half rent could be paid till the war was done. The Court of Appeal went even further in a recent debt repayment case, Collier v P&M J Wright (Holdings) Ltd. Arden LJ argued that a partner who had been assured he was only liable to repay one third of the partnership's debts, rather than be jointly and severally liable for the whole, had relied on the assurance by making repayments, and it was inequitable for the finance company to later demand full repayment of the debt. Hence, promissory estoppel could circumvent the common law rule of Foakes. Promissory estoppel, however, has been thought to be incapable of raising an independent cause of action
Cause of action
In the law, a cause of action is a set of facts sufficient to justify a right to sue to obtain money, property, or the enforcement of a right against another party. The term also refers to the legal theory upon which a plaintiff brings suit...
, so that one may only plead another party is estopped from enforcing their strict legal rights as a "shield", but cannot bring a cause of action out of estoppel as a "sword". In Australia, this rule was relaxed in Walton Stores (Interstate) Ltd v Maher, where Mr Maher was encouraged to believe he would have a contract to sell his land, and began knocking down his existing building before Walton Stores finally told him they did not wish to complete. Mr Maher got generous damages covering his loss (i.e. reliance damages, but seemingly damages for loss of expectations as if there were a contract). Yet, where an assurance concerns rights over property, a variant "proprietary estoppel
Proprietary estoppel
Proprietary estoppel is a legal claim, which may arise in relation to rights to use the land of the owner, and may even be effective in connection with disputed transfers of ownership.-Outline:Proprietary estoppel can be broken into a number of steps...
" does allow a claimant to plead estoppel as a cause of action. So in Crabb v Arun District Council
Crabb v Arun District Council
Crabb v Arun District Council [1975] is a leading property and contract case concerning "proprietary estoppel". Lord Denning MR affirmed that where agreements concern the acquisition of rights over land, there is no need for both parties to provide a consideration for upholding the bargain...
, Mr Crabbe was assured he would have the right to an access point to his land by Arun District Council, and relying on that he sold off half the property where the only existing access point was. The council was estopped from not doing what they said they would. Given the complex route of legal reasoning to reach simple solutions, it is unsurprising that a number of commentators, as well as the Principles of European Contract Law
Principles of European Contract Law
-Definition:The Principles of European Contract Law is a set of model rules drawn up by leading contract law academics in Europe. It attempts to elucidate basic rules of contract law and more generally the law of obligations which most legal systems of the member states of the European Union hold...
have called for simple abandonment of the doctrine of consideration, leaving the basic requirements of agreement and an intention to create legal relations. Such a move would also dispense with the need for the common law doctrine of privity.
Privity
The common law of privity of contract is a sub-rule of consideration because it restricts who can enforce an agreement to those who have brought consideration to the bargain. In an early case, Tweddle v Atkinson, it was held that a because a son had not given any consideration for his father in law's promise to his father to pay the son £200, he could not enforce the promise. Given the principle that standing to enforce an obligation should reflect whoever has a legitimate interest in its performance, a 1996 report by the Law Commission entitled Privity of Contract: Contracts for the Benefit of Third Parties, recommended that while courts should be left free to develop the common law, some of the more glaring injustices should be removed. This led to the Contracts (Rights of Third Parties) Act 1999Contracts (Rights of Third Parties) Act 1999
The Contracts Act 1999 was an Act of the Parliament of the United Kingdom that significantly reformed the common law Doctrine of Privity and "thereby [removed] one of the most universally disliked and criticised blots on the legal landscape"...
. Under section 1, a third party may enforce an agreement if it purports to confer a benefit on the third party, either individually or a member as a class, and there is no expressed stipulation that the person was not intended to be able to enforce it. In this respect there is a strong burden on the party claiming enforcement was not intended by a third party. A third party has the same remedies available as a person privy to an agreement, and can enforce both positive benefits, or limits on liability, such as an exclusion clause. The rights of a third party can then only be terminated or withdrawn without her consent if it is reasonably foreseeable that she would rely upon them.
Specific performance
Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to award/ for awarding damages, and is classed as an equitable remedy commonly used in the form of injunctive relief concerning confidential...
a promise of her nephew to her deceased husband to pay her £5 weekly in her capacity as administratrix of the will, the 1999 Act would also allow her to claim as a third party. In Scruttons Ltd v Midland Silicones Ltd it would have been possible for a stevedore
Stevedore
Stevedore, dockworker, docker, dock labourer, wharfie and longshoreman can have various waterfront-related meanings concerning loading and unloading ships, according to place and country....
firm to claim the benefit of a limitation clause in a contract between a carrier and the owner of a damaged drum of chemicals. Lord Denning dissented, arguing for abolition of the rule, and Lord Reid
Lord Reid
Lord Reid may refer to :* James Reid, Baron Reid, a Scottish Unionist politician and judge .* John Reid, Baron Reid of Cardowan, a Scottish Labour politician, cabinet minister and chairman of Celtic F.C....
gave an opinion that if a bill of lading
Bill of lading
A bill of lading is a document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified...
expressly conferred the benefit of a limitation on the stevedores, the stevedores give authority to the carrier to do that, and "difficulties about consideration moving from the stevedore were overcome" then the stevedores could benefit. In The Eurymedon, Lord Reid's inventive solution was applied where some stevedores similarly wanted the benefit of an exclusion clause after dropping a drilling machine, the consideration being found as the stevedores performing their pre-existing contractual duty for the benefit of the third party (the drilling machine owner). Now none of this considerably technical analysis is required, given that any contract purporting to confer a benefit on a third party may in principle be enforced by the third party.
Given that the 1999 Act preserves the promisee's right to enforce the contract as it stood at common law, an outstanding issue is to what extent a promisee can claim damages for a benefit on behalf of a third party, if he has suffered no personal loss. In Jackson v Horizon Holidays Ltd
Jackson v Horizon Holidays Ltd
Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 is an English contract law case, concerning the doctrine of Privity. The case would now be partly resolved by the Contracts Act 1999 section 1, allowing a third party to claim independently...
, Lord Denning MR held that a father could claim damages for disappointment (beyond the financial cost) of a terrible holiday experience on behalf of his family. However, a majority of the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd
Woodar Investment Development Ltd v Wimpey Construction UK Ltd
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 is an English contract law case, concerning the doctrine of Privity-Facts:...
disapproved any broad ability of a party to a contract to claim damages on behalf of a third party, except perhaps in a limited set of consumer contracts. There is disagreement about whether this will remain the case. Difficulties also remain in cases involving houses built with defects, which are sold to a buyer, who subsequently sells to a third party. It appears that neither the initial buyer can claim on behalf of the third party, and nor will the third party be able to claim under the 1999 Act, as they will typically not be identified by the original contract (or known) in advance. Apart from this instance relating to tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
, in practice the doctrine of privity is entirely ignored in numerous situations, throughout the law of trusts and agency
Agency (law)
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
.
Agency
In the case of Watteau v Fenwick, Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did know about when he sold cigars to an agent that was acting outside of its authority. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority." This decision is heavily criticised and doubted, though not entirely overruled in the UK. It is sometimes referred to as "usual authority" (though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority"). It has been explained as a form of apparent authority, or "inherent agency power".- Hely-Hutchinson v Brayhead LtdHely-Hutchinson v Brayhead LtdHely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 is a UK company law case on the authority of agents to act for a company.-Facts:Lord Suirdale sued Brayhead Ltd for losses incurred after a failed takeover deal...
[1968] 1 QB 549
Construction
Context (language use)
Context is a notion used in the language sciences in two different ways, namely as* verbal context* social context- Verbal context :...
. The courts, as well as legislation, may also imply terms into contracts generally to 'fill gaps' as necessary to fulfil the reasonable expectations of the parties, or as necessary incidents to specific contracts. English law had, since the 19th century, adhered to the laissez faire principle of "freedom of contract
Freedom of contract
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing...
" so that, in the general law of contract, people can agree to whatever terms or conditions they choose. By contrast, specific contracts, particularly for consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
s, employees or tenants were built to carry a minimum core of rights, mostly deriving from statute, that aim to secure the fairness of contractual terms. The evolution of case law in the 20th century generally shows an ever clearer distinction between general contracts among commercial parties and those between parties of unequal bargaining power, since in these groups of transaction true choice is thought to be hampered by lack of real competition
Competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
in the market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
. Hence, some terms can be found to be unfair under statutes such as the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
or the Unfair Terms in Consumer Contract Regulations 1999 and can be removed by the courts, with the administrative assistance of the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
.
Incorporation of terms
The promises offered by one person to another are the terms of a contract, but not every representation before an acceptance will always count as a term. The basic rule of construction is that a representation is a term if it looked like it was "intended" to be from the viewpoint of a reasonable person. It matters how much importance is attached to the term by the parties themselves, but also as a way to protect parties of lesser means, the courts added that someone who is in a more knowledgeable position will be more likely to taken to have made a promise, rather than a mere representation. So in Oscar Chess Ltd v WilliamsOscar Chess Ltd v Williams
Oscar Chess Ltd v Williams [1957] 1 WLR 370 is an English contract law case, concerning the difference between a term and a representation.-Facts:...
the Court of Appeal held that when Mr Williams sold a Morris car
Morris Motor Company
The Morris Motor Company was a British car manufacturing company. After the incorporation of the company into larger corporations, the Morris name remained in use as a marque until 1984 when British Leyland's Austin Rover Group decided to concentrate on the more popular Austin marque...
to a second hand dealer and wrongly (but in good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
, relying on a forged log-book) said it was a 1948 model when it was really from 1937, the car dealer could not later claim breach of contract because they were in a better position to know. This matters because while one party may have a right to escape from a bargain, or rescind the contract, if they were induced by misrepresentations to enter a contract and can claim damages for any losses, if the statement is a term and is broken, they will be able to claim lost profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
s. So broken terms lead to damages to protect all a claimant's expectations, to put them in the position as if the contract were actually performed.
When a contract is written down, there is a basic presumption that the written document will contain all the terms of an agreement, and when people sign documents every term referred to in the document binds them (unless it is found to be merely an administrative paper, or under the very limited defence of non est factum
Non est factum
Non est factum is a doctrine in contract law that allows a signing party to escape performance of the agreement. A claim of non est factum means that the signature on the contract was signed by mistake, without knowledge of its meaning, but was not done so negligently...
). This matters most in commercial dealings, where businesses place a high value on certainty. If a statement is a term, and the contracting party has not signed a document, then terms may be incorporated by reference to other sources, or through a course of dealing. The basic rule, set out in Parker v South Eastern Railway Company, is that reasonable notice of a term is required to bind someone. Here Mr Parker left his coat in the Charing Cross
Charing Cross
Charing Cross denotes the junction of Strand, Whitehall and Cockspur Street, just south of Trafalgar Square in central London, England. It is named after the now demolished Eleanor cross that stood there, in what was once the hamlet of Charing. The site of the cross is now occupied by an equestrian...
railway station cloakroom and was given a ticket that on the back said liability for loss was limited to £10. The Court of Appeal sent this back to trial for a jury (as existed at the time) to determine. The modern approach is to add that if a term is particularly onerous, greater notice with greater clarity ought to be given. Denning LJ in J Spurling Ltd v Bradshaw
J Spurling Ltd v Bradshaw
J Spurling Ltd v Bradshaw [1956] is an English contract law and English property law case on exclusion clauses and bailment. It is best known for Denning LJ's red hand rule comment where he said,-Facts:...
famously remarked that "Some clauses which I have seen would need to be printed in red
Red
Red is any of a number of similar colors evoked by light consisting predominantly of the longest wavelengths of light discernible by the human eye, in the wavelength range of roughly 630–740 nm. Longer wavelengths than this are called infrared , and cannot be seen by the naked eye...
ink
Ink
Ink is a liquid or paste that contains pigments and/or dyes and is used to color a surface to produce an image, text, or design. Ink is used for drawing and/or writing with a pen, brush, or quill...
on the face of the document with a red
Red
Red is any of a number of similar colors evoked by light consisting predominantly of the longest wavelengths of light discernible by the human eye, in the wavelength range of roughly 630–740 nm. Longer wavelengths than this are called infrared , and cannot be seen by the naked eye...
hand
Hand
A hand is a prehensile, multi-fingered extremity located at the end of an arm or forelimb of primates such as humans, chimpanzees, monkeys, and lemurs...
pointing to it before the notice could be held to be sufficient." In Thornton v Shoe Lane Parking Ltd a car park ticket referring to a notice inside the car park was insufficient to exclude the parking lot's liability for personal injury of customers on its premises. In Interfoto Picture Library Ltd v Stiletto Ltd Bingham LJ held that a notice inside a jiffy bag of photographic transparencies about a fee for late return of the transparencies (which would have totalled £3,783.50 for 47 transparencies after only a month) was too onerous a term to be incorporated without clear notice. By contrast in O’Brien v MGN Ltd Hale LJ held that the failure of the Daily Mirror to say in every newspaper that if there were too many winners in its free draw for £50,000 that there would be another draw was not so onerous on the disappointed "winners" as to prevent incorporation of the term. It can also be that a regular and consistent course of dealings between two parties lead the terms from previous dealings to be incorporated into future ones. In Hollier v Rambler Motors Ltd the Court of Appeal held that Mr Hollier, whose car was burnt in a fire caused by a careless employee at Rambler Motors' garage, was not bound by a clause excluding liability for "damage caused by fire" on the back of an invoice which he had seen three or four times in visits over the last five years. This was not regular or consistent enough. But in British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1973] is an English contract law case concerning-Facts:British Crane Hire Corporation Ltd and Ipswich Plant Hire Ltd carried on plant hire businesses. They had contracted with one another previously in February and October 1969, when a...
Lord Denning MR held that a company hiring a crane was bound by a term making them pay for expenses of recovering the crane when it sunk into marshland, after only one prior dealing. Of particular importance was the equal bargaining power of the parties.
Interpretation
Once it is established which terms are incorporated into an agreement, their meaning must be determined. Since the introduction of legislation regulating unfair terms, English courts have become firmer in their general guiding principle that agreements are construed to give effect to the intentions of the parties from the standpoint of a reasonable person. This changed significantly from the early 20th century, when English courts had become enamoured with a literalist theory of interpretation, championed in part by Lord Halsbury. As greater concern grew around the mid-20th century over unfair terms, and particularly exclusion clauses, the courts swung to the opposite position, utilising heavily the doctrine of contra proferentum. Ambiguities in clauses excluding or limiting one party's liability would be construed against the person relying on it. In the leading case, Canada Steamship Lines Ltd v RCanada Steamship Lines Ltd v R
Canada Steamship Lines Ltd v The King is a Canadian contract law case concerning the interpretation of unfair terms contra proferentum. The case was decided by the Judicial Committee of the Privy Council, at that time the court of last resort for Canada, as part of the British Empire and...
the Crown's shed in Montreal
Montreal
Montreal is a city in Canada. It is the largest city in the province of Quebec, the second-largest city in Canada and the seventh largest in North America...
harbour burnt down, destroying goods owned by Canada Steamship lines. Lord Morton held that a clause in the contract limiting the Crown's excluding liability for "damage... to... goods... being... in the said shed" was not enough to excuse it from liability for negligence
Negligence
Negligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...
because the clause could also be construed as referring to strict liability
Strict liability
In law, strict liability is a standard for liability which may exist in either a criminal or civil context. A rule specifying strict liability makes a person legally responsible for the damage and loss caused by his or her acts and omissions regardless of culpability...
under another contract clause. It would exclude that instead. Some judges, and in particular Lord Denning wished to go further by introducing a rule of "fundamental breach
Fundamental breach
A fundamental breach of a contract, sometimes known as a repudiatory breach, is a breach so fundamental that it permits the distressed party to terminate performance of the contract, in addition to entitling that party to sue for damages.-History:...
of contract" whereby no liability for very serious breaches of contract could be excluded at all. While the rules remain ready for application where statute may not help, such hostile approaches to interpretation were generally felt to run contrary to the plain meaning of language.
Reflecting the modern position since unfair terms legislation was enacted, the most quoted passage in English courts on the canons of interpretation is found in Lord Hoffmann's judgment in ICS Ltd v West Browmwich BS. Lord Hoffmann restated the law that a document's meaning is what it would mean (1) to a reasonable person
Reasonable person
The reasonable person is a legal fiction of the common law that represents an objective standard against which any individual's conduct can be measured...
(2) with knowledge of the context
Context (language use)
Context is a notion used in the language sciences in two different ways, namely as* verbal context* social context- Verbal context :...
, or the whole matrix of fact (3) except prior negotiations (4) and meaning does not follow what the dictionary
Dictionary
A dictionary is a collection of words in one or more specific languages, often listed alphabetically, with usage information, definitions, etymologies, phonetics, pronunciations, and other information; or a book of words in one language with their equivalents in another, also known as a lexicon...
says but meaning understood from its context (5) and the meaning should not contradict common sense
Common sense
Common sense is defined by Merriam-Webster as, "sound and prudent judgment based on a simple perception of the situation or facts." Thus, "common sense" equates to the knowledge and experience which most people already have, or which the person using the term believes that they do or should have...
. The objective is always to give effect to the intentions of the parties. While it remains the law for reasons of litigation cost, there is some contention over how far evidence of prior negotiations should be excluded by the courts. It appears increasingly clear that the courts may adduce evidence of negotiations where it would clearly assist in construing the meaning of an agreement. This approach to interpretation has some overlap with the right of the parties to seek "rectification
Rectification (law)
Rectification is a remedy whereby a court orders a change in a written document to reflect what it ought to have said in the first place. It is an equitable remedy, which means the circumstances where it can be applied are limited....
" of a document, or requesting from a court to read a document not literally but with regard to what the parties can otherwise show was really intended.
Implied terms
Equitable Life Assurance Society v Hyman
Equitable Life Assurance Society v Hyman [2000] is an English contract law case, concerning implied terms.-Facts:Equitable Life issued ‘with profits’ life assurance policies, which are a way of saving for retirement. If policy holders took benefits as a taxable annuity Equitable Life Assurance...
the House of Lords held (in a notorious decision) that "guaranteed annuity rate" policy holders of the life insurance
Life insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...
company could not have their bonus rates lowered by the directors, when the company was in financial difficulty, if it would undermine all the policy holders' "reasonable expectations". Lord Steyn said that a term should be implied in the policy contract that the directors' discretion was limited, as this term was "strictly necessary... essential to give effect to the reasonable expectations of the parties". This objective, contextual formulation of the test for individualised implied terms represents a shift from the older and subjective formulation of the implied term test, asking like an "officious bystander
Officious bystander
The officious bystander is a metaphorical figure of English law, developed by MacKinnon LJ in Southern Foundries Ltd v Shirlaw to assist in determining when a term should be implied into an agreement. While the officious bystander test is not the overriding formulation in English law today, it...
" what the parties "would have contracted for" if they had applied their minds to a gap in the contract. The custom of the trade may also be a source of an implied term, if it is "certain, notorious, reasonable, recognised as legally binding and consistent with the express terms".
In specific contracts, such as those for sales of goods, between a landlord and tenant, or in employment, the courts imply standardised contractual terms (or terms "implied in law"). Such terms set out a menu of "default rules" that generally apply in absence of true agreement to the contrary. In one instance of partial codification, the Sale of Goods Act 1893
Sale of Goods Act 1893
The Sale of Goods Act 1893 was an Act of the Parliament of the United Kingdom of Great Britain and Ireland which regulated contracts in which goods are sold and bought...
summed up all the standard contractual provisions in typical commercial sales agreements developed by the common law. This is now updated in the Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
, and in default of people agreeing something different in general its terms will apply. For instance, under section 12-14, any contract for sale of goods carries the implied terms that the seller has legal title, that it will match prior descriptions and that it is of satisfactory quality and fit for purpose. Similarly the Supply of Goods and Services Act 1982
Supply of Goods and Services Act 1982
The Supply of Goods and Services Act 1982 is an Act of the Parliament of the United Kingdom that requires traders to provide services to a proper standard of workmanship...
section 13 says services must be performed with reasonable care and skill. As a matter of common law the test is what terms are a "necessary incident" to the specific type of contract in question. This test derives from Liverpool City Council v Irwin
Liverpool City Council v Irwin
Liverpool City Council v Irwin [1976] is a leading English contract law case, concerning the basis on which courts may imply terms into contracts.-Facts:...
where the House of Lords held that, although fulfilled on the facts of the case, a landlord owes a duty to tenants in a block of flats to keep the common parts in reasonable repair. In employment contracts, multiple standardised implied terms arise also, even before statute comes into play, for instance to give employees adequate information to make a judgment about how to take advantage of their pension entitlements. The primary standardised employment term is that both employer and worker owe one another an obligation of "mutual trust and confidence
Mutual trust and confidence
Mutual trust and confidence is a phrase used in English law, particularly with reference to contracts in UK labour law, to refer to the obligations owed in an employment relationship between the employer and the worker....
". Mutual trust and confidence can be undermined in multiple ways, primarily where an employer's repulsive conduct means a worker can treat herself as being constructively dismissed. In Mahmud and Malik v Bank of Credit and Commerce International SA the House of Lords held the duty was breached by the employer running the business as a cover for numerous illegal activities. The House of Lords has repeated that the term may always be excluded, but this has been disputed because unlike a contract for goods or services among commercial parties, an employment relation is characterised by unequal bargaining power between employer and worker. In Johnstone v Bloomsbury Health Authority
Johnstone v Bloomsbury Health Authority
Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 is an English contract law case, concerning implied terms and unfair terms under the Unfair Contract Terms Act 1977.-Facts:...
the Court of Appeal all held that a junior doctor could not be made to work at an average of 88 hours a week, even though this was an express term of his contract, where it would damage his health. However, one judge said that result followed from application of the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
, one judge said it was because at common law express terms could be construed in the light of implied terms, and one judge said implied terms may override express terms. Even in employment, or in consumer affairs, English courts remain divided about the extent to which they should depart from the basic paradigm of contractual freedom, that is, in absence of legislation.
Unfair terms
In the late 20th century, Parliament passed its first comprehensive incursion into the doctrine of contractual freedom in the Unfair Contract Terms Act 1977Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
. The topic of unfair terms is vast, and could equally include specific contracts falling under the Consumer Credit Act 1974
Consumer Credit Act 1974
The Consumer Credit Act 1974 is an Act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom....
, the Employment Rights Act 1996
Employment Rights Act 1996
The Employment Rights Act 1996 is a United Kingdom Act of Parliament passed by the Conservative government to codify the existing law on individual rights in UK labour law. Previous statutes, dating from the Contracts of Employment Act 1963, included the Redundancy Payments Act 1965, the...
or the Landlord and Tenant Act 1985
Landlord and Tenant Act 1985
The Landlord and Tenant Act 1985 is a UK Act of Parliament, which is primarily responsible for laying down bare minimum standards in tenants' rights against their landlords....
. Legislation, particularly regarding consumer protection
Consumer protection
Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional...
, is also frequently being updated by the European Union, in laws like the EU Airline Compensation Regulation, or the EU Electronic Commerce Directive, which are subsequently translated into domestic law through a statutory instrument
Statutory Instrument
A Statutory Instrument is the principal form in which delegated or secondary legislation is made in Great Britain.Statutory Instruments are governed by the Statutory Instruments Act 1946. They replaced Statutory Rules and Orders, made under the Rules Publication Act 1893, in 1948.Most delegated...
authorised through the European Communities Act 1972
European Communities Act 1972 (UK)
The European Communities Act 1972 is an Act of the Parliament of the United Kingdom providing for the incorporation of European Community law into the domestic law of the United Kingdom. It is not to be confused with the Irish law of the same name, Act No...
section 2(2), as for example with the Consumer Protection (Distance Selling) Regulations 2000
Consumer Protection (Distance Selling) Regulations 2000
The Consumer Protection Regulations 2000, SI 2000/2334, incorporates Directive into law of the United Kingdom. They apply to contracts "concluded between a supplier and a consumer under an organised distance sales or services provision scheme run by the supplier who, for the purposes of the...
. The primary legislation on unfair contract terms deriving from the EU is the Unfair Terms in Consumer Contracts Regulations 1999
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999 is a UK statutory instrument, which implements the EU Unfair Consumer Contract Terms Directive into domestic law.Implemented under the European Communities Act 1972. See also, L95 OJ 29...
. Both UCTA 1977 and UTCCR 1999 cover similar ground and can give rise to concurrent claims. For this reason the Law Commission
Law Commission
A Law Commission or Law Reform Commission is an independent body set up by a government to conduct law reform; that is, to consider the state of laws in a jurisdiction and make recommendations or proposals for legal changes or restructuring...
devised a draft Unfair Contract Terms Bill
Unfair Contract Terms Bill
The Unfair Contract Terms Bill is a proposed Act of Parliament of the United Kingdom, which would consolidate two existing pieces of consumer protection legislation, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 into one Act...
to unify the two in one document, and make protection for small business
Small business
A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships...
explicit, but Parliament has not acted yet.
The Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
regulates clauses that exclude or limit terms implied by the common law or statute. Its general pattern is that if clauses restrict liability, particularly negligence
Negligence
Negligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...
, of one party, the clause must pass the "reasonableness test" in section 11 and Schedule 2. This looks at the ability of either party to get insurance, their bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....
and their alternatives for supply, and a term's transparency. In places the Act goes further. Section 2(1) strikes down any term that would limit liability for a person's death
Death
Death is the permanent termination of the biological functions that sustain a living organism. Phenomena which commonly bring about death include old age, predation, malnutrition, disease, and accidents or trauma resulting in terminal injury....
or personal injury
Personal injury
Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. The term is most commonly used to refer to a type of tort lawsuit alleging that the plaintiff's injury has been caused by the negligence of another, but also arises in defamation...
. Section 2(2) stipulates that any clause restricting liability for loss to property has to pass the "reasonableness test". One of the first cases, George Mitchell Ltd v Finney Lock Seeds Ltd saw a farmer successfully claim that a clause limiting the liability of a cabbage seed seller to damages for replacement seed, rather than the far greater loss of profits after crop failure, was unreasonable. The sellers were in a better position to get insurance for the loss than the buyers. Under section 3 businesses cannot limit their liability for breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
if they are dealing with "consumers
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
", defined in section 12 as someone who is not dealing in the course of business with someone who is, or if they are using a written standard form contract
Standard form contract
A standard form contract is a contract between two parties where the terms and conditions of the contract are set by one of the parties, and the other party is placed in a "take it or leave it" position with little or no ability to negotiate terms more favorable to it.Examples of standard form...
, unless the term passes the reasonableness test. Section 6 states the implied terms of the Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
cannot be limited unless reasonable. If one party is a "consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
" then the SGA 1979 terms become compulsory. In other words, a business can never sell a consumer goods that do not work, even if the consumer signed a document with full knowledge of the exclusion clause. Under section 13, it is added that variations on straight-forward exemption clauses will still count as exemption clauses caught by the Act. So for example, in Smith v Eric S Bush the House of Lords held that a surveyor's term limiting liability for negligence was ineffective, after the chimney came crashing through Mr Smith's roof. The surveyor could get insurance more easily than Mr Smith. Even though there was no contract between them, because section 1(1)(b) applies to any notice excluding liability for negligence, and even though the surveyor's exclusion clause might prevent a duty of care arising at common law, section 13 "catches" it if liability would exist "but for" the notice excluding liability: then the exclusion is potentially unfair.
Relatively few cases are ever brought directly by consumers, given the complexity of litigation, cost, and its worth if claims are small. In order to ensure consumer protection laws are actually enforced, the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
has jurisdiction to bring consumer regulation cases on behalf of consumers after receiving complaints. Under Unfair Terms in Consumer Contracts Regulations 1999
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999 is a UK statutory instrument, which implements the EU Unfair Consumer Contract Terms Directive into domestic law.Implemented under the European Communities Act 1972. See also, L95 OJ 29...
regulations 10-12, the OFT
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
has jurisdiction to collect and consider complaints, and then seek injunctions in the courts to stop businesses using unfair terms (under any legislation). The UTCCR 1999 are both broader than UCTA 1977 in that they cover any unfair terms, not just exemption clauses, but narrower in that they only operate for consumer contracts. The UTCCR 1999 definition of a consumer is also narrower, under regulation 3, where a consumer must be a natural person (and never a legal person, like a company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
) who contracts outside his business. However, while the United Kingdom could always opt for greater protection, when it translated the Directive into national law it opted to follow the bare minimum requirements, and not to cover every contract term. Under regulation 6(2), a court may only assess the fairness of terms which do not involve the "definition of the main subject matter of the contract", or terms which relate to "price or remuneration" of the thing sold. Outside such "core" terms, a term may be unfair, under regulation 5 if it is not one that is individually negotiated, and if contrary to good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
it causes a significant imbalance in the rights and obligations of the parties. A list of examples of unfair terms are set out in Schedule 2. In DGFT v First National Bank plc the House of Lords held that given the purpose of consumer protection, regulation 6(2) should be construed tightly and Lord Bingham stated good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
implies fair, open and honest dealing. This all meant that the bank's practice of charging its (higher) default interest rate to customers who had (lower) interest rate set by a court under a debt restructuring plan could, under regulation 6(2), be assessed for fairness, but that under regulation 5 the term did not create such an imbalance given the bank wished only to have its normal interest. This appeared to grant a relatively open role for the Office of Fair Trading to intervene against unfair terms. However in OFT v Abbey National plc the Supreme Court held that if a term related in any way to price, it could not by virtue of regulation 6(2) be assessed for fairness. All the High Street banks, including Abbey National
Abbey National
Abbey National plc was a UK-based bank and former building society, which latterly traded under the Abbey brand name. It became a wholly owned subsidiary of Grupo Santander of Spain in 2004, and was rebranded as Santander in January 2010, forming Santander UK along with the savings business of the...
, had a practice of charging high fees if account holders, unplanned, exceeded through withdrawals their normal overdraft
Overdraft
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft...
limit. Overturning a unanimous Court of Appeal, the Supreme Court viewed that if the thing being charged for was part of a "package" of services, and the bank's remuneration for its services partly came from these fees, then there could be no assessment of the fairness of terms. This controversial stance was tempered by their Lordships' emphasis that any charges must be wholly transparent, though its compatibility with EU law is not yet established by the European Court of Justice
European Court of Justice
The Court can sit in plenary session, as a Grand Chamber of 13 judges, or in chambers of three or five judges. Plenary sitting are now very rare, and the court mostly sits in chambers of three or five judges...
, and it appears questionable that it would be decided the same under the proposed Unfair Contract Terms Bill
Unfair Contract Terms Bill
The Unfair Contract Terms Bill is a proposed Act of Parliament of the United Kingdom, which would consolidate two existing pieces of consumer protection legislation, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 into one Act...
.
Conclusion and remedies
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
, just as they can generally determine a contract's content. The courts have fashioned only residual limits on the parties' autonomy to determine how a contract concludes. The courts' default, or standard rules, which are generally alterable, are first that a contract is automatically concluded if it becomes impossible for one party to perform. Second, if one party breaches her side of the bargain in a serious way, the other party may cease his own performance. If a breach is not serious, the innocent party must continue his own obligations but may claim a remedy in court for the defective or imprecise performance he has received. Third, the principle remedy for breach of contract is compensatory damages, limited to losses that one might reasonably expect to result from a breach. This means a sum of money to put the claimant in mostly the same position as if the contract breaker had performed her obligations. In a small number of contract cases, closely analogous to property or trust obligations, a court may order restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
by the contract breaker so that any gains she has made by breaking the agreement will be stripped and given to the innocent party. Additionally where a contract's substance is for something so unique that damages would be an inadequate remedy courts may use their discretion to grant an injunction
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
against the contract breaker doing something or, unless it is a personal service, positively order specific performance
Specific performance
Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to award/ for awarding damages, and is classed as an equitable remedy commonly used in the form of injunctive relief concerning confidential...
of the contract terms.
Performance and breach
Performance of a contract must be precise, complying exactly with all contract terms, or there is a breach of contract. If the contract is silent, then the consequences will be determined by ordinary principles of compensatory damages, but remedies may also be agreed. A simple, common and automatic remedy is to have taken a deposit, and to retain it in the event of non-performance. As a rule, the common law courts view any deposit that exceeds 10 per cent of the contract price as excessive, and so special justification will be required. The courts will view a large deposit, even if expressed in crystal clear language, as a part payment of the contract which if unperformed must be restored in order to prevent unjust enrichmentUnjust enrichment
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing.Definition:...
. Nevertheless where commercial parties of equal bargaining power wish to insist on circumstances in which a deposit will be forfeit and insist precisely on the letter of their deal, the courts will not interfere. In Union Eagle Ltd v Golden Achievement Ltd
Union Eagle Ltd v Golden Achievement Ltd
Union Eagle Ltd v Golden Achievement Ltd [1997] is an English contract law case, concerning the right to terminate performance of a contract.-Facts:...
a purchaser of a building in Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
for HK$4.2 million had a contract stipulating completion must take place by 5pm on 30 September 1991 and that if not a 10 per cent deposit would be forfeited and the contract rescinded. The purchaser was 10 minutes late only, but the Privy Council advised that given the necessity of certain rules and to remove business' fear of courts exercising unpredictable discretion, the agreement would be strictly enforced.
Agreements may also state that, as opposed to a sum fixed by the courts, a particular sum of "liquidated damages
Liquidated damages
Liquidated damages are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach ....
" will be paid upon non-performance. The courts place an outer-limit on liquidated damages clauses if they became so high, or "extravagant and unconscionable" as to look like a penalty. This jurisdiction is exercised rarely, so in Murray v Leisureplay plc the Court of Appeal held that a severance payment of a whole year's salary to a company's Chief Executive in the event of dismissal before a year was not a penalty clause. Additionally, the ability of courts to strike down clauses as penalties only applies to clauses for payment of money upon the breach of the contract rather than events during its performance, though the Unfair Terms in Consumer Contracts Regulations 1999
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999 is a UK statutory instrument, which implements the EU Unfair Consumer Contract Terms Directive into domestic law.Implemented under the European Communities Act 1972. See also, L95 OJ 29...
confers jurisdiction to interfere with unfair terms used against consumers.
If the performance that is owed is merely the payment of a provable debt, then the Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
section 49 allows for a summary action for price of goods or services, meaning a quick set of court procedure rules are followed. Consumers also benefit under sections 48A-E, with a specific right to have a broken product to be repaired. A contract may construed as consisting of an "entire obligation", so that performance by one party is a condition precedent
Condition precedent
Condition precedent refers to an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual...
, needing to be fulfilled before performance from the other side falls due. This rule also has the effect that benefits the innocent party has received may be retained if she had no choice but to accept them. In Sumpter v Hedges
Sumpter v Hedges
Sumpter v Hedges [1898] 1 QB 673 is an English contract law case, concerning substantial performance of a contract and restitution for unjust enrichment.-Facts:...
a builder who abandoned a contract after performing £333 worth of work could not recover any money for the building left on the land, although he could get back the cost of some building materials, even though the buyer subsequently used the foundations to complete the job. This rule provides a powerful remedy in home construction cases to a customer. So in Bolton v Mahadeva
Bolton v Mahadeva
Bolton v Mahadeva [1972] 2 All ER 1322 is an English contract law case, concerning substantial performance of an obligation.-Facts:Mr Walter Charles Bolton installed central heating for £560 in Mr T Mahadeva’s house. It was too cold, the heat came unevenly and it all gave off fumes. Bolton refused...
Mr Bolton could not recover any money for a £560 heating system that leaked and would cost £174 to correct (i.e. 31% of the price) that he installed in Mr Mahadeva's house. But where an obligation in a contract is "substantially performed", the full sum must be paid, only then deducting an amount to reflect the breach. So in Hoenig v Isaacs
Hoenig v Isaacs
Hoenig v Isaacs [1952] is an English contract law case, concerning substantial performance of an entire obligation.-Facts:Mr Hoenig was meant to decorate and furnish Mr Isaac’s flat for £750. When the work was done, there were problems with a bookcase and wardrobe, which would cost £55 to fix...
Denning LJ held a builder who installed a bookcase poorly, with a price of £750 but costing only £55 to correct (i.e. 7.3% of the price), had to be paid minus the cost of correction.
- Rowland v Divall [1923] 2 KB 500
- Dies v British Mining and Finance Corp Ltd [1939] 1 KB 724
- Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129
- National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8
- Metropolitan Water Board v Dick, Kerr & Co LtdMetropolitan Water Board v Dick, Kerr & Co LtdMetropolitan Water Board v Dick Kerr and Co Ltd [1918] AC 119 is an English contract law case, concerning the frustration of an agreement.-Facts:Dick Kerr agreed to build a reservoir in six years for the Metropolitan Water Board...
[1917] UKHL 2, [1918] AC 119
Frustration and common mistake
Absolute liability
Absolute liability is a standard of legal liability found in tort and criminal law of various legal jurisdictions.To be convicted of an ordinary crime, in certain jurisdictions, a person must not only have committed a criminal action, but also have had a deliberate intention or guilty mind...
on their obligations, in the nineteenth century the courts developed a doctrine that contracts which became impossible to perform would be frustrated and automatically come to an end. In Taylor v Caldwell Blackburn J held that when the Surrey Gardens Music Hall unexpectedly burnt down, the owners did not have to pay compensation to the business that had leased it for an extravagant performance, because it was neither party's fault. A "condition precedent
Condition precedent
Condition precedent refers to an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual...
" to or underlying all contracts is that they are possible to perform. People would not ordinarily contract to do something they knew was going to be impossible. Apart from physical impossibility, frustration could be down to a contract becoming illegal to perform, for instance if war breaks out and the government bans trade to a belligerent country, or perhaps if the whole purpose of an agreement is destroyed by another event, like renting a room to watch a cancelled coronation parade. But a contract is not frustrated merely because a subsequent event makes the agreement harder to perform than expected, as for instance in Davis Contractors Ltd v Fareham UDC where a builder unfortunately had to spend more time and money doing a job than he would be paid for because of an unforeseen shortage of labour and supplies. The House of Lords denied his claim for contract to be declared frustrated so he could claim quantum meruit
Quantum meruit
Quantum meruit is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services".In the United States, the elements of quantum meruit are determined by state common law...
. Because the doctrine of frustration is a matter of construction of the contract, it can be contracted around, through what are called "force majeure" clauses. Similarly, a contract can have a force majeure clause that would bring a contract to an end more easily than would common law construction. In The Super Servant Two Wijsmuller BV contracted to hire out a self propelling barge to J Lauritzen AS, who wanted to tow another ship from Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
to Rotterdam
Rotterdam
Rotterdam is the second-largest city in the Netherlands and one of the largest ports in the world. Starting as a dam on the Rotte river, Rotterdam has grown into a major international commercial centre...
, but had a provision stating the contract would terminate if some event made it difficult related to the ‘perils or dangers and accidents of the sea’. Wijsmuller BV also had a choice of whether to provide either The Superservant One or Two. They chose Two and it sank. The Court of Appeal held that the impossibility to perform the agreement was down to Wijsmuller's own choice, and so it was not frustrated, but that the force majeure clause did cover it. The effect of a contract being frustrated is that it is that both parties are prospectively discharged from performing their side of the bargain. If one side has already paid money over or conferred another valuable benefit, but not got anything in return yet, contrary to the prior common law position, the Law Reform (Frustrated Contracts) Act 1943
Law Reform (Frustrated Contracts) Act 1943
The Law Reform Act 1943 is an Act of the Parliament of the United Kingdom which establishes the rights and liabilities of parties involved in frustrated contracts...
gives the court discretion to let the claimant recover a 'just sum', and that means whatever the court thinks fit in all the circumstances.
Courturier v Hastie
Courturier v Hastie [1856] is an English contract law case, concerning common mistake between two contracting parties about the possibility of performance of an agreement.-Facts:...
a corn shipment had decayed by the time two businesspeople had contracted for it, and so it was held (perhaps controversially) that the seller was not liable, because it was always physically impossible. And in Cooper v Phibbs the House of Lords held that an agreement to lease out a fishery was void because it turned out the lessee was in fact the owner. It is legally impossible to be leased something one owns. Again, the doctrine of common mistake may be contracted around, so in McRae v Commonwealth Disposals Commission
McRae v Commonwealth Disposals Commission
McRae v Commonwealth Disposals Commission [1951] is an Australian contract law case, relevant for English contract law, concerning the common mistake about the possibility of performing an agreement.-Facts:...
it was held that despite the fact that a wrecked ship off the Great Barrier Reef
Great Barrier Reef
The Great Barrier Reef is the world'slargest reef system composed of over 2,900 individual reefs and 900 islands stretching for over 2,600 kilometres over an area of approximately...
never in fact existed, because a salvage business was actually promised by the Australian government that it was there, there was no common mistake. Like frustration, the doctrine operates only in narrow confines. In Bell v Lever Bros Ltd Lord Atkin stated that a mistake must be of such a ‘fundamental character as to constitute an underlying assumption without which the parties would not have entered into the agreements’. Post-war, Denning LJ added to the doctrine, beyond its narrow legal confines, in line with the more permissive approach recognised throughout civil law countries, most of the Commonwealth and the United States. In Solle v Butcher he held that in equity a contract could be deemed voidable (rather than outright void) if it would be 'unconscientious' for a court to hold someone to a bargain. This gave the courts some flexibility in the kind of remedy they would grant, and could be more generous in the circumstances they allowed escape. But in The Great Peace, Lord Phillips MR said that this more permissive doctrine had been contrary to the House of Lords authority in Bell v Lever Bros Ltd. Although it probably would not have been avoidable under the mistake in equity doctrine anyway, Lord Phillips MR held that a rescue company could not escape from an agreement to save a ship because both parties were mistaken that the distressed vessel was further than they originally thought. The result is that English contract law jealously prevents escape from an agreement, unless there is a serious breach because of the conduct of one party, which gives rise to the right to terminate.
Termination
Anticipatory repudiation
Anticipatory repudiation, also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract....
", so the innocent party can go straight to court to claim a remedy, rather than waiting till the contract's date for performance which never arrives. The test for whether a term's breach will allow for termination essentially depends on construction of the contract's terms as a whole by the court, following the same rules as for any other term. In Bettini v Gye
Bettini v Gye
Bettini v Gye 1 QBD 183 is an English contract law case, concerning the right to terminate performance of a contract.-Facts:Mr Bettini agreed with Frederick Gye that he would not sing anywhere within fifty miles of London except at the Royal Italian Opera, Covent Garden , from 1 January to 1...
, Blackburn J held that although an opera singer arrived 4 days late for rehearsals, given that the contract was to last three and a half months, and only the first week of performance would be slightly affected, the Opera House owner was not entitled to turn the singer away. The opera owner could have withheld some payment to reflect his loss from the breach, but should have let the show go on. The intentions of the parties manifested in the contract showed that such a breach was not so serious as to give rise to the right to terminate. As Lord Wilberforce said in The Diana Prosperity the Court must, ‘place itself in thought in the same factual matrix as that in which the parties were.’
While when a contract is silent a court must essentially make an informed choice about whether a right to terminate should exist, if a contract deals with the matter the courts' general approach is to follow the parties' wishes. The drafters of the old Sale of Goods Act 1893
Sale of Goods Act 1893
The Sale of Goods Act 1893 was an Act of the Parliament of the United Kingdom of Great Britain and Ireland which regulated contracts in which goods are sold and bought...
distinguished between "conditions" (major terms, which when breached confer a right to terminate) and "warranties" (minor terms, which do not), and under the present Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
some terms, such as descriptions about quality, are conditions by default. A third kind is an "innominate term", which is typically a vague term like citrus pulp pellets being "in good condition", or a ship having to be "seaworthy". Because such a term could be breached in both a major way (e.g. the ship sinks) or a trivial way (e.g. a lifejacket is missing) the court will determine whether the right to terminate arises based on how serious in fact the consequences of the breach were. So in The Hong Kong Fir, Lord Diplock held that a ship crew being too incompetent to properly operate the vessel did not breach the contract's "seaworthiness" term in a serious enough way as to allow for termination, because the charterers still got a working boat and could have replaced the crew. If a contract specifies that a particular obligation is a "condition" the dominant approach of the courts is to treat it as such. Nevertheless, concerned with the ability of a stronger party to specify the terms it finds most convenient as "conditions" at the expense of the weaker, courts retain the ability to construe an agreement contra proferentum. In L Schuler AG v Wickman Machine Tool Sales Ltd
L Schuler AG v Wickman Machine Tool Sales Ltd
L Schuler AG v Wickman Machine Tool Sales Ltd [1973] is an English contract law case, concerning the right to terminate performance of a contract.-Facts:...
the majority of the House of Lords held that clause 7 of a contract, stating it was "a condition of this agreement" that Mr Wickman would visit 6 major car companies "at least once in every week" to try selling panel presses, was not really a condition in the technical sense. So when Mr Wickman was found to have visited much less, Schuler AG could not dismiss him. This was because clause 11 said that 60 days of warning was needed before Schuler AG could terminate, so the whole contract read together meant the clause 7 had to be subject to clause 11. The language in the contract is not decisive. If the word "condition" is not used, but the contract describes a right to terminate, such as the contract being terminable for "any breach" of obligation, the issue is, again, one of construction and the courts may be reluctant to give effect to the plain meaning if it would have "draconian consequences" for the weaker party. By contrast, in Bunge Corporation v Tradax SA
Bunge Corporation v Tradax SA
Bunge Corporation v Tradax Export SA [1981] is an English contract law case, concerning the right to terminate performance of a contract.-Facts:...
the House of Lords held that giving notice for a ship to start loading the soya bean cargo four days late, when the contract expressly stipulated the date, should allow the right to terminate regardless of the actual consequences of the breach. In mercantile contracts, ‘broadly speaking time will be considered of the essence’, and so it is highly likely the courts will enforce obligations to the letter.
Damages and injunctions
Whether or not a contract is terminated, every breach of contract gives rise to the right to a remedy. A court's power to award remedies is the final sanction against non-performance and, unless the defendant is insolvent, the objective is to achieve full compensation for the innocent party as if the contract were performed. This measure of the remedy to protect "expectations" forms a principal distinction between contracts as obligations from torts or unjust enrichment. In cases where performance is defective, the courts generally award money for the cost of curing the defect, unless the sum would be disproportionate and another sum would adequately achieve the same compensatory objective. In Ruxley Electronics Ltd v Forsyth although a £17,797 swimming pool was built 18 inches too shallow, the land's market value was exactly the same. The House of Lords' solution, rather than awarding the cost of rebuilding it at £21,560 and rather than reject any award at all, was to reflect the forgone "consumer surplus" or the "loss of amenityAmenity
In real property and lodging, amenities are any tangible or untangible benefits of a property, especially those that increase its attractiveness or value or that contribute to its comfort or convenience...
" with an award of £2,500. Greater recognition of benefits in contracts other than purely financial ones has also been seen in cases concerning contracts where pleasure, enjoyment, relaxation or the avoidance of stress are construed as being "important terms". In Jarvis v Swans Tours Ltd
Jarvis v Swans Tours Ltd
Jarvis v Swans Tours Ltd [1972] is an English contract law case on the measure of damages for disappointing breaches of contract.-Facts:Mr. Jarvis was a solicitor for Barking Council. He chose to go for Christmas holiday in Switzerland. He got a brochure from Swan Tours Ltd, which for Mörlialp,...
Lord Denning MR held that a council worker could get not just his money back, but also a small sum to reflect his disappointment after his dream-holiday to the Swiss Alps, contrary to the promises in Swan Tours' travel brochure, proved a boring disaster, complete with sub-standard yodelling. And in Farley v Skinner
Farley v Skinner
Farley v Skinner [2001] is an English contract law case, concerning the measure and availability of damages for distress.-Facts:Mr Farley bought a big house - Riverside House - in Blackboys, Sussex, not far from Gatwick. It had a croquet lawn, tennis court, orchard, paddock and swimming pool...
the House of Lords held that a homebuyer close to Gatwick airport could recover money for lack of peaceful enjoyment, and the disruption of what would otherwise be his "quiet contemplative breakfast" from the house surveyor who assured there would be no noise. The market value of the property was unchanged, but ensuring peace and quiet had been an important term in their agreement. The courts have, however, remained reluctant to allow recovery for disappointment over any breach of contract, particularly in employment where a flood of people might claim damages for stress and upset after a wrongful dismissal
Wrongful dismissal
Wrongful dismissal, also called wrongful termination or wrongful discharge, is an idiom and legal phrase, describing a situation in which an employee's contract of employment has been terminated by the employer in circumstances where the termination breaches one or more terms of the contract of...
.
In addition to damages for not getting the thing promised itself, a contract breaker must compensate for the costly consequences of the breach that one would reasonably expect to exist. There must be a causal connection between the breach and the consequence complained of. In Saamco v York Montague Ltd it was held a bank could not recover damages from property valuer for all of the difference in what the properties it bought after getting the valuations were assured to be and actual property values, because a large part of the difference resulted from generally depressed market prices following "Black Wednesday
Black Wednesday
In politics and economics, Black Wednesday refers to the events of 16 September 1992 when the British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism after they were unable to keep it above its agreed lower limit...
" in 1992. In a business deal, calculation will typically be based on the forgone profits that one could reasonably have expected to make. This could also include the "loss of a chance
Loss of chance in English law
Loss of chance in English law refers to a particular problem of causation, which arises in tort and contract. The law is invited to assess hypothetical outcomes, either affecting the claimant or a third party, where the defendant's breach of contract or of the duty of care for the purposes of...
" to profit, so in Chaplin v Hicks an entrant in a beauty contest wrongfully excluded from the final round was awarded 25% of the final prize money to reflect her 1 in 4 chance of having won. One limit lies at consequential losses that are too "remote", or are not a natural result of the breach, and are not in the parties' contemplation. In Hadley v Baxendale a miller tried to recover damages from Baxendale's delivery company for the lost profits from his mill grinding to a halt, after they were late delivering a crankshaft back from being fixed. But Alderson B held that because millers would usually be expected to keep spare crank shafts, and because he had not informed Baxendale of the importance of the timely delivery, an award for profits could not be compensated. More recently in The Achilleas the majority of the House of Lords preferred to express the remoteness rule as one of construing the contract to reflect the parties' "background of market expectations". Transfield Shipping returned The Achilleas late to its owner, Mercator, which led Mercator to lose a lucrative contract with Cargill
Cargill
Cargill, Incorporated is a privately held, multinational corporation based in Minnetonka, Minnesota. Founded in 1865, it is now the largest privately held corporation in the United States in terms of revenue. If it were a public company, it would rank, as of 2011, number 13 on the Fortune 500,...
that would make over $1.3 million, an occurrence that was plainly a natural consequence of the breach and easily foreseeable. Yet because the standard practice and expectation in the shipping industry was that if a ship were returned late only the ordinary sum for hire would be due, this was the limit on recovery. It is also possible to lose one's entitlement to damages if steps are not taken to mitigate further losses, that any prudent person would, rather than sitting back and letting losses run up. But the burden of proof of a failure to mitigate is on a contract breaker, to whom the courts are unlikely to be sympathetic. A contract breaker could may also, if a concurrent liability arises in tort, argue a claimant's damages should be reduced to reflect their contributory fault, and the courts can reduce an award to achieve a just and equitable result. Sometimes potential profits will be too uncertain, or a general fall in market prices means that even claiming damages for the thing itself would leave one in a negative position, and so the courts allow a claimant to choose whether to sue, not for a failure in expectations, but to cover her expenses in preparing for the contract, or the "reliance interest". In Anglia Television Ltd v Reed a TV channel successfully sued Robert Reed
Robert Reed
Robert Reed was a prolific American character actor of stage, film and television. In his first big break, he played Kenneth Preston on the popular 1960s TV legal drama, The Defenders, alongside E. G. Marshall. But he was best remembered for portraying the father, Mike Brady, on the popular...
for not turning up for shooting a film. It was unclear whether the film would make any profits at all, and so Anglia TV got compensated for its wasted expenses in preparing the set. The level of damages is generally assessed at the date of the breach, but this is variable if the court thinks another time would be fairer.
By way of exception, alternative remedies to compensatory damages are available depending on the contract's nature. If damages would be an inadequate remedy, for instance, because the subject matter was a unique painting, or a piece of land, or was to deliver petrol during an oil crisis, a court may compel literal or specific performance
Specific performance
Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to award/ for awarding damages, and is classed as an equitable remedy commonly used in the form of injunctive relief concerning confidential...
of the contract's terms. It can also compel a defendant to refrain from actions that would continue a breach of contract. Injunction
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
s are discretionary remedies, and so they are not awarded in cases where it might cause hardship, like compelling conveyance of property when it would mean an unexpectedly disabled inhabitant would lose her home. Additionally, the courts have, at least since the Slavery Abolition Act 1833, refused to grant specific performance of contracts involving personal services. This is part of a more general principle that two (potentially hostile) parties to litigation should not be made to work in a long term relationship. In Cooperative Insurance Ltd v Argyll Ltd although a shop broke its contract with a shopping centre to keep its business operating, and actual performance was important to keep flagship businesses and so attract more customers to the centre generally, specific performance was not granted because compelling a potentially loss making business to keep operating was draconian and probably not capable of being policed by the court. No award can be made which punishes, or makes an example of a defendant, even for a cynical and calculated breach of contract. However, in limited situations, a claimant may succeed in a claim for restitution of the contract breaker's gains, as is routinely available in cases involving trustees or other fiduciaries who profit from transactions where they have a conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
. In the leading case, Attorney General v Blake
Attorney General v Blake
Attorney General v Blake [2000] is a leading English contract law case on damages for breach of contract. It established that in some circumstances where ordinary remedies are inadequate, restitutionary damages may be awarded.-Facts:...
a former secret service agent's profits from book sales, which recounted government information in breach of Blake's employment contract, were stripped. While Lord Nicholls stated, other than compensatory damages are not an adequate remedy, that "no fixed rules can be prescribed" and their Lordships were eager to not hamper the development of the law, the cases where such awards have been made in contract have all involved some quasi-proprietary element. In an earlier case, Wrotham Park Ltd v Parkside Homes Ltd, Brightman J awarded a percentage of gains resulting from building a lot of homes in breach of a restrictive covenant, based on a sum that the parties would have been likely to contract for had they struck a bargain. More recently in Experience Hendrix LLC v PPX Enterprises Inc Mance LJ held that a percentage of profits made by PPX breaching the intellectual property rights on songs by Jimi Hendrix
Jimi Hendrix
James Marshall "Jimi" Hendrix was an American guitarist and singer-songwriter...
would have to be paid up. So if in the course of a contract one party is in a position to take advantage of another's rights without their fully informed consent, a restitutionary remedy can be awarded.
Cancelling the contract
Because contracts concern voluntary obligations, the courts employ a number of protections to ensure only people who give informed and true consent are legally bound. Before 1875, the common law courts only allowed escape from an agreement and damages if someone was induced to enter an agreement by fraudFraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
or was put under physical duress
Duress
In jurisprudence, duress or coercion refers to a situation whereby a person performs an act as a result of violence, threat or other pressure against the person. Black's Law Dictionary defines duress as "any unlawful threat or coercion used... to induce another to act [or not act] in a manner...
, or suffered from a lack of legal capacity. The courts of equity, however, were significantly more generous because they allowed "rescission
Rescission
In contract law, rescission has been defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract .-In court:Rescission is an...
" (i.e. cancellation) of a contract if a person was the victim of any misrepresentation, even an innocent one, and any "undue influence", beyond influence by physical threats. In these situations the victim of the misrepresentation or unconscionable behaviour has the option to avoid the contract. If avoided, the parties are both entitled to have returned whatever property they had already conveyed, so nobody remains unjustly enriched (though this terminology was not used till the 20th century). As the 20th century unfolded, the courts and statute expanded on the range of circumstances in which a person could claim damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
for negligent misrepresentation, on top of fraud. As concern over the use of unfair terms grew, there were calls to recognise a positive duty on contracting parties to disclose material facts as part of a broader duty of "good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
" and some judges attempted to follow the American Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
by fashioning a broader doctrine of "unconscionable" bargains, procured through inequality of bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....
. This development was, however, stopped by the House of Lords, so that problems of unfair contract terms continued to be dealt with through targeted legislation. The courts also declare contracts void if they were for an illegal purpose, and refuse to enforce the agreement, or give any legal remedy if doing so would require a person to rely on their illegal act.
Disclosure and misrepresentation
Uberrima fides
Uberrima fides is a Latin phrase meaning "utmost good faith" . It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal...
") by disclosing all material facts to one another. In one of the earliest cases, Carter v Boehm
Carter v Boehm
Carter v Boehm 3 Burr 1905 is a landmark English contract law case, in which Lord Mansfield established the duty of utmost good faith or uberrimae fidei in insurance contracts.-Facts:...
, Mr Carter bought an insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
policy for any losses to a naval fort of the British East India Company
British East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
in Sumatra
Sumatra
Sumatra is an island in western Indonesia, westernmost of the Sunda Islands. It is the largest island entirely in Indonesia , and the sixth largest island in the world at 473,481 km2 with a population of 50,365,538...
, but failed to tell his insurer, Boehm, that the fort was only built to resist attacks from locals, and the French were likely to invade. Lord Mansfield held the policy was invalid. Since insurance is a contract based on speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
and the special facts "lie most commonly in the knowledge of the insured only", good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
precluded Mr Carter "concealing what he privately knows". The same policy was extended for sale of shares in a company. So in Erlanger v New Sombrero Phosphate Co
Erlanger v New Sombrero Phosphate Co
Erlanger v New Sombrero Phosphate Co 3 App Cas 1218 is a landmark English contract law, restitution and UK company law case. It concerned rescission for misrepresentation and how the impossibility of counter restitution may be a bar to rescission...
the promoter and director-to-be of a guano
Guano
Guano is the excrement of seabirds, cave dwelling bats, and seals. Guano manure is an effective fertilizer due to its high levels of phosphorus and nitrogen and also its lack of odor. It was an important source of nitrates for gunpowder...
mining business failed to disclose he had paid for the mining rights on the island of Sombrero
Sombrero
Sombrero in English refers to a type of wide-brimmed hat originating in Mexico. In Spanish, however, it is the generic word for "hat", which originates from "sombra", meaning "shade"....
half as much as he subsequently was valuing the company at. The House of Lords held that, despite a delay in making a claim, the purchasers of the shares had a right to their money back. Lord Blackburn held, further, that it was no barrier to rescission that the guano could not be put back in the ground. Counter-restitution (i.e. both parties giving back what they had got), if it could be substantially made in its monetary equivalent, was enough. However, outside insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
, partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
s, surety
Surety
A surety or guarantee, in finance, is a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults...
, fiduciary relations, company shares, a narrow range of regulated securities, and consumer credit agreements, the duty on negotiating parties to disclose material facts does not extend to most contracts. Even though there is a duty to correct previous false statements, in Smith v Hughes, it was held that the general duty is merely to not make active misrepresentations
Misrepresentation in English law
Misrepresentation in English law is an area of English contract law, which allows a person to escape a contractual obligation or claim compensation for losses. If one person can show that she entered an agreement because of another person's false assurances, then the other person will be unable to...
.
Hence, in the general law of contract, negotiating parties have a duty to not make false statements of fact or law, or misrepresent themselves through conduct. Statements of opinion, "mere puff" or vague "sales talk" (e.g. "this washing powder will make your clothes whiter than white!"), are generally not considered factual. However representations of people who profess special skill or knowledge are more likely to be actionable, as they warrant their opinions are based on concrete facts. So in Esso Petroleum Co Ltd v Mardon
Esso Petroleum Co Ltd v Mardon
Esso Petroleum Co Ltd v Mardon [1976] is an English contract law case, concerning misrepresentation. It holds that the divide between a statement of opinion and fact becomes more factual if one holds himself out as having expert knowledge.-Facts:...
Lord Denning MR held that Esso
Esso
Esso is an international trade name for ExxonMobil and its related companies. Pronounced , it is derived from the initials of the pre-1911 Standard Oil, and as such became the focus of much litigation and regulatory restriction in the United States. In 1972, it was largely replaced in the U.S. by...
's expert opinion that a petrol station would have 200,000 gallons worth of business was an actionable misrepresentation. If someone is induced to enter a contract by any misrepresentation, whether fraudulent, negligent or innocent, they are entitled to rescind the contract and get back the property they have conveyed. As a remedy originating in the courts of equity, this right to rescind could be lost, in four situations that courts regard as unfair to allow a claim. First, if a claimant takes too long to claim, the lapse of time (or "laches
Laches (equity)
Laches is an "unreasonable delay pursuing a right or claim...in a way that prejudices the [opposing] party" When asserted in litigation, it is an equitable defense, or doctrine...
") will create a bar to rescission
Rescission
In contract law, rescission has been defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract .-In court:Rescission is an...
. Second, if a claimant affirms a contract by expressly showing they still consent to a deal even though they are aware of a misrepresentation, rescission is barred. Third, if a third party's rights have intervened, when that third party is a bona fide purchaser
Bona fide purchaser
A bona fide purchaser referred to more completely as a bona fide purchaser for value without notice is a term used in the law of real property and personal property to refer to an innocent party who purchases property without notice of any other party's claim to the title of that property...
rescission will be barred to the extent that property cannot be recovered from the third party (although a claim in damages can still exist against the misrepresentor). Fourth, and important in practice to prevent unjust enrichment
Unjust enrichment
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing.Definition:...
is that counter-restitution must be possible. There is confusion over whether in cases at law, rather than in equity, counter-restitution must be precise (i.e. a thing received must be given back in specie) or whether, as in Erlanger
Erlanger v New Sombrero Phosphate Co
Erlanger v New Sombrero Phosphate Co 3 App Cas 1218 is a landmark English contract law, restitution and UK company law case. It concerned rescission for misrepresentation and how the impossibility of counter restitution may be a bar to rescission...
, substantial counter-restitution may be in money.
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
(i.e. an intentional or reckless misrepresentation) were damages available. For fraud, damages are available for all losses that flow directly from the misrepresentation. However, in its Tenth Report the Law Reform Committee recommended that damages should also be available for negligent misrepresentations. This led to the drafting of the Misrepresentation Act 1967
Misrepresentation Act 1967
Misrepresentation Act 1967 is an Act of the Parliament of the United Kingdom, which regulates English contract law and unjust enrichment, so far as relevant for misrepresentations.-Section 1:-Section 2:...
, and just before the Act was passed, the House of Lords also decided in Hedley Byrne & Co Ltd v Heller & Partners Ltd there should be a new claim for negligent misrepresentation at common law. While Hedley Byrne remains an important case for an independent action in tort
English tort law
English tort law concerns civil wrongs, as distinguished from criminal wrongs, in the law of England and Wales. Some wrongs are the concern of the state, and so the police can enforce the law on the wrongdoers in court – in a criminal case...
, MA 1967 section 2(1) was instantly more generous than the common law. It allows damages if the claimant shows a defendant has made a false representation, and then the defendant cannot prove that they had reasonable grounds for making a statement and honestly believed it was true. So while the common law would put the burden of proof on a claimant to show a defendant made a negligent misstatement, MA 1967 s 2(1) shifts the burden of proof to the defendant. The measure of damages is also more generous under the Act than at common law, because just as the Law Reform Report was drafted, the House of Lords was introducing a limit on the quantum of damages for negligence to losses that are reasonably foreseeable. MA 1967 section 2(1), however, was drafted by reference to state the same damages were available as for fraud. So in Royscot Trust Ltd v Rogerson
Royscot Trust Ltd v Rogerson
Royscot Trust Ltd v Rogerson [1991] is an English contract law case, concerning the Misrepresentation Act 1967 and the extent of damages available under s 2 for negligent misrepresentation...
, the Court of Appeal held that even where a representation is negligent, and not fraud, the same quantum of damages is available as for fraud. This is controversial among academics who argue that fraud is more morally culpable than negligent behaviour, and should therefore deserve a more severe limit on compensation, though it is not entirely resolved what the proper circumstances for remoteness ought to be. Under section 2(2) the court has the discretion to substitute the right to rescind a contract for a small misrepresentation with an award of damages. Under section 3, a court has the power to strike down clauses excluding remedies for misrepresentation if they fail the reasonableness test in the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
.
An exception to the law on misrepresentation - that contracts are voidable at the instance of the misrepresentee, but the right to rescission can be barred inter alia
Inter Alia
-Track listing:# Inter Alia# Outfox'd # Righteous Badass # The Altogether feat. Bix, Apt, UNIVERSE ARM and Cal# The Day-to-Daily# Trouble Brewing # The Prestidigitator# The Force...
by the intervention of third party rights - arises when someone is induced by the fraudulent misrepresentation to enter an agreement through a written document at a distance (and not when a transaction is face to face). In Shogun Finance Ltd v Hudson
Shogun Finance Ltd v Hudson
Shogun Finance Ltd v Hudson [2003] is an English contract law decided in the House of Lords, on the subject of mistaken identity as a basis for rescission of a contract. The case has been the subject of much criticism in failing to effectively clarify the area of mistake to identity.-Facts:A rogue...
a crook obtained Mr Patel's credit details and bought a Mitsubishi Shogun on hire purchase
Hire purchase
Hire purchase is the legal term for a contract, in this persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in China, Japan, Malaysia, India, South Africa, Australia, Jamaica and New Zealand. It is also called...
contract at a car dealer. Shogun Finance was faxed through Mr Patel's details, and agreed to finance the purchase of the car, letting the crook drive away. Subsequently Mrs Hudson bought the car from the crook. The crook disappeared. Then Shogun Finance, who had predictably never been paid, found Mrs Hudson and sued to retrieve the car. A bare majority in the House of Lords held that to protect the certainty of commercial dealings through a signed document, the contract between the finance company and the crook was void (the same consequence as if there had never been any offer mirrored by an acceptance). They had only ever intended to contract with Mr Patel. And because nobody can convey property they do not have (nemo dat quod non habet
Nemo dat quod non habet
Nemo dat quod non habet, literally meaning "no one [can] give what he does not have" is a legal rule, sometimes called the nemo dat rule, that states that the purchase of a possession from someone who has no ownership right to it also denies the purchaser any ownership title...
) Mrs Hudson never acquired legitimate title to the car from the crook and had to give back the car. The minority held that this situation should follow ordinary law of misrepresentation, and should mean that the right of the finance company to rescind the contract would be barred by the intervention of Mrs Hudson's rights as a bona fide
Bona Fide
Bona Fide is a studio album from rock band Wishbone Ash. It is the first studio album in six years and is the only studio album to feature guitarist Ben Granfelt...
third party purchaser, just like all of Europe, the United States, and previous decisions of the Court of Appeal suggest. However, because of the majority's decision this special category of "mistake about identity" cases remains a general exception to the English law on misrepresentation.
Guidance can be found:
http://www.airmic.com/research/guides/disclosure-material-facts-and-information-business-insurance
Unconscionability
While law on disclosure and misrepresentation aims to make contracting parties informed (or not disinformed), the law on "unconscionable" bargains says agreements may be avoided when, in a very general sense, a person's free willFree will
"To make my own decisions whether I am successful or not due to uncontrollable forces" -Troy MorrisonA pragmatic definition of free willFree will is the ability of agents to make choices free from certain kinds of constraints. The existence of free will and its exact nature and definition have long...
was impaired. Complete exercise of "free will" is rare for most people, because they make choices within a constrained range of alternatives. The law still holds people to nearly all contracts (if consumer, employment, tenancy, etc. legislation is not activated) except where someone was under duress, unduly influenced or exploited while in a vulnerable position. Like misrepresentation, the victim may avoid the contract, and the parties restore their property to reverse unjust enrichment
Unjust enrichment
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing.Definition:...
, subject to the victim's claim for damages, so long as none of the four equitable bars to rescission lie (i.e. no excessive lapse of time, affirmation of the contract, intervention of an innocent third party's rights and counter-restitution is possible). The most straight forward claim, for duress, involves illegitimate threats. The common law long allowed a claim if duress was of a physical nature. So long as a threat is just one of the reasons a person enters an agreement, even if not the main reason, the agreement may be avoided. Only late in the 20th century was escape allowed if the threat involved illegitimate economic harm. A threat is always "illegitimate" if it is to do an unlawful act, such as breaking a contract knowing non-payment may push someone out of business. However, threatening to do a lawful act will usually not be illegitimate. In Pao On v Lau Yiu Long
Pao On v Lau Yiu Long
Pao On v Lau Yiu Long [1979] is an contract law appeal case from the Court of Appeal of Hong Kong decided by the Privy Council, concerning duress.-Facts:...
the Pao family threatened to not complete a share swap deal, aimed at selling their company's building, unless the Lau family agreed to change a part of the proposed agreement to guarantee the Paos would receive rises in the swapped shares' prices on repurchase. The Laus signed the guarantee agreement after this threat, and then claimed it was not binding. But the Privy Council advised their signature was only a result of "commercial pressure", not economic duress. The Laus' considered the situation before signing, and did not behave like someone under duress, so there was no coercion
Coercion
Coercion is the practice of forcing another party to behave in an involuntary manner by use of threats or intimidation or some other form of pressure or force. In law, coercion is codified as the duress crime. Such actions are used as leverage, to force the victim to act in the desired way...
amounting to a vitiation of consent. However, contrasting to cases involving business parties, the threat to do a lawful act will probably be duress if used against a vulnerable person. An obvious case involving "lawful act duress" is blackmail
Blackmail
In common usage, blackmail is a crime involving threats to reveal substantially true or false information about a person to the public, a family member, or associates unless a demand is met. It may be defined as coercion involving threats of physical harm, threat of criminal prosecution, or threats...
. The blackmailer has to justify, not doing the lawful act they threaten, but against a person highly vulnerable to them, the demand of money.
Undue influence
Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible.-Undue influence in contract law:...
was used against a contracting party. "Actual undue influence" is now essentially the same thing as duress in its wider form. In these "class 1" cases, a claimant proves they were actually put under undue influence. Most relevant are the cases on "presumed undue influence", of which there are two sub-classes. "Class 2A" cases involve someone being in a pre-defined relation of trust and confidence with another, before which they enter a very disadvantageous transaction. In Allcard v Skinner
Allcard v Skinner
Allcard v Skinner 36 Ch D 145 is an English contract law case dealing with undue influence. It is one of the leading cases in the area and in English unjust enrichment law.-Facts:...
, Miss Allcard joined a Christian sect, the "Protestant Sisters of the Poor", run by her spiritual adviser, Miss Skinner. After taking vows of poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
and obedience
Obedience (human behavior)
In human behavior, obedience is the quality of being obedient, which describes the act of carrying-out commands or being actuated. Obedience differs from compliance, which is behavior influenced by peers, and from conformity, which is behavior intended to match that of the majority. Obedience can...
she gave the sect almost all her property. Lindley LJ held that if she had not been barred from the claim by letting 6 years lapse, it could be presumed that Miss Allcard was unduly influenced and she would have been able to rescind the transfer. Other class 2A relationships include doctor and patient, parent and child, solicitor and client, or any fiduciary relation (but not wife and husband). Where the relation does not fall into one of these, it stands with "class 2B" cases. Here, a claimant may first prove that there was in fact a strong relation of trust and confidence. If that is done, and there is a disadvantageous transaction, it will be presumed to result from undue influence. It will then be up to the recipient of the property to rebut the presumption. This takes on greatest significance in cases involving banks typically lending money to a husband for his business, and securing a mortgage over the husband and wife's jointly owned home. Significant problems arose, particularly after the early 1990s housing, stock market and currency crashes, where the husband's business failed, the bank attempted to repossess the house, and the wife claimed she never understood the implications of the mortgage or was pressured into it. Even though a bank may have played no illegitimate role, if it had "constructive notice" of undue influence (i.e. if it was aware that something was potentially wrong) the bank would lose its security and could not repossess the house. In Royal Bank of Scotland plc v Etridge (No 2)
Royal Bank of Scotland plc v Etridge (No 2)
Royal Bank of Scotland plc v Etridge [2001] is a leading case relevant for English property law and English contract law on the circumstances under which actual and presumed undue influence can be argued to vitiate consent to a contract.-Facts:...
the House of Lords decided that in such situations a bank should ensure that the spouse has been independently advised by a solicitor, who in turn confirms in writing there is no question of undue influence, before giving out a loan.
As opposed to duress and actual undue influence, where illegitimate pressure is applied, or presumed undue influence which depends on a relationship of trust and confidence being abused, further cases allow a vulnerable person to avoid an agreement merely on the basis that they were vulnerable and exploited. In The Medina
The Medina
The Medina 2 PD 5 is an English contract law case, regarding the voidability of an agreement and a restitutionary award where the court finds that agreement is procured under extortionate circumstances.-Facts:...
the Court of Appeal found that a group of pilgrims shipwrecked on a rock in the Red Sea
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
did not need to pay £4000 they promised to a rescue ship, because the "rescuers" had exploited the pilgrims vulnerable position. To prevent unjust enrichment, the Court substituted an award of £1800. Similarly, in Cresswell v Potter
Cresswell v Potter
Cresswell v Potter [1978] 1 WLR 255 is an English contract law case relating to exploitation of weakness allowing escape from a contract.-Facts:...
, Ms Cresswell conveyed her ex-husband her share of their joint property in return for release from mortgage repayments, later making him £1400 profit. Because Potter took advantage of Ms Creswell's ignorance of property transactions, Megarry J held the agreement was voidable. One potential exception to this pattern, and now very heavily restricted, is the defence of "non est factum
Non est factum
Non est factum is a doctrine in contract law that allows a signing party to escape performance of the agreement. A claim of non est factum means that the signature on the contract was signed by mistake, without knowledge of its meaning, but was not done so negligently...
", which originally applied in favour of illiterate people in the 19th century allowed a person to have a signed contract declared void if it is radically different from what was envisaged. In Lloyds Bank Ltd v Bundy
Lloyds Bank Ltd v Bundy
Lloyds Bank Ltd v Bundy [1974] is a landmark case in English contract law, on undue influence. It is remarkable for the judgment of Lord Denning MR who advanced that English law should adopt the approach developing in some American jurisdictions that all impairments of autonomy could be collected...
, Lord Denning MR proposed it was time that all cases be placed into one unified doctrine of "inequality of bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....
". This would have allowed escape from an agreement if without independent advice one person's ability to bargain for better terms had been heavily impaired, and would have essentially given courts broader scope to change contracts to the advantage of weaker parties. The idea was disapproved by some members of the House of Lords from 1979. There is specific legislation, such as the Consumer Credit Act 1974
Consumer Credit Act 1974
The Consumer Credit Act 1974 is an Act of the Parliament of the United Kingdom that significantly reformed the law relating to consumer credit within the United Kingdom....
, the Landlord and Tenant Act 1985
Landlord and Tenant Act 1985
The Landlord and Tenant Act 1985 is a UK Act of Parliament, which is primarily responsible for laying down bare minimum standards in tenants' rights against their landlords....
, or the Employment Rights Act 1996
Employment Rights Act 1996
The Employment Rights Act 1996 is a United Kingdom Act of Parliament passed by the Conservative government to codify the existing law on individual rights in UK labour law. Previous statutes, dating from the Contracts of Employment Act 1963, included the Redundancy Payments Act 1965, the...
which create targeted rights for vulnerable contracting parties, in the same way specific legislation circumscribes a duty of disclosure and good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
. The common law, subject to the existing exceptions, nevertheless retains an essential foundation of freedom of contract
Freedom of contract
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing...
.
Incapacity
In three main situations, English law allows people who lack legal capacity to contract to escape from enforcement of agreements and recover property that was conveyed, to reverse unjust enrichmentUnjust enrichment
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing.Definition:...
. First, a person may be too young to be bound by large or onerous contracts. Minors, under 18 years, can bind themselves to contracts for "necessaries" to pay a reasonable price, but only unusual contracts, such as for eleven luxury waistcoats will not be deemed "necessaries". While the adult contracting party is bound, the minor has the option to rescind the contract, so long as one of the four equitable bars (lapse of time, affirmation, third party rights, counter-restitution possible) is not present. Second, people who are mentally incapacitated, for instance because they are sectioned under the Mental Health Act 1983
Mental Health Act 1983
The Mental Health Act 1983 is an Act of the Parliament of the United Kingdom which applies to people in England and Wales. It covers the reception, care and treatment of mentally disordered persons, the management of their property and other related matters...
or they are completely intoxicated, are in principle bound to agreements when the other person could not or did not know they lacked mental capacity. But if the other person did know or should have known, then the mentally incapacitated individual can be bound to agreements for non-necessaries. Third, companies can generally bind themselves to any agreement, even though many (particularly older) companies have a limited range of objects that their members (in most companies this means shareholders) have consented that the business is for. Under the Companies Act 2006
Companies Act 2006
The Companies Act 2006 is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. It had the distinction of being the longest in British Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16 schedules but it has since...
sections 39 and 40, if a third party contracting with the company in bad faith takes advantage of a director or officer to procure an agreement, that contract will be wholly void. This is a high threshold, and in practice no longer relevant, particularly since 2006 companies may elect to have unrestricted objects. It is more likely that a contract ceases to be enforceable because, as a matter of the law of agency
Agency in English law
Agency in English law is a component of UK commercial law, and forms a core set of rules necessary for the smooth functioning of business.-Authority:...
the third party should have reasonably known that the person contracting lacked authority to enter an agreement. In this situation a contract is voidable at the instance of the company, and could only be enforced against the (probably less solvent) employee.
In a fourth case, the consequences of incapacity are more drastic. Although the Crown Proceedings Act 1947
Crown Proceedings Act 1947
The Crown Proceedings Act 1947 is an Act of the Parliament of the United Kingdom that allowed, for the first time, civil actions against the Crown to be brought in the same way as against any other party...
made it possible for the government or emanations of the state to be sued on contracts in the same way as a normal individual, where statute confers power on a public body to do certain acts, actions by representatives beyond that power will be ultra vires
Ultra vires
Ultra vires is a Latin phrase meaning literally "beyond the powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is...
and void. The result is the same as it was for companies before reform in 1989, so that whole chains of agreements could be declared as non-existent.
Illegality
- Restraint of tradeRestraint of tradeRestraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. In an old leading case of Mitchell v Reynolds Lord Smith LC said,...
- Illegal agreementIllegal agreementAn illegal agreement, under the common law of contract, is one that the courts will not enforce because the purpose of the agreement is to achieve an illegal end. The illegal end must result from performance of the contract itself...
- ex turpi causa non oritur actioEx turpi causa non oritur actioEx turpi causa non oritur actio is a legal doctrine which states that a claimant will be unable to pursue a cause of action if it arises in connection with his own illegal act...
- Tinsley v Milligan
Theory
- Law of obligationsLaw of obligationsThe law of obligations is one of the component private law elements of the civil system of law. It includes contract law, delict law, quasi-contract law, and quasi-delict law...
, tortTortA tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
, unjust enrichmentUnjust enrichmentUnjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing.Definition:...
and trusts - Economic tort, Lumley v Gye (1853) 2 El & Bl 216, tort of interference with a contract
- Assumption of responsibility and pure economic loss
- Freedom of contractFreedom of contractFreedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing...
and regulationRegulationRegulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other... - AutonomyAutonomyAutonomy is a concept found in moral, political and bioethical philosophy. Within these contexts, it is the capacity of a rational individual to make an informed, un-coerced decision...
- Bargaining powerBargaining powerBargaining power is a concept related to the relative abilities of parties in a situation to exert influence over each other. If both parties are on an equal footing in a debate, then they will have equal bargaining power, such as in a perfectly competitive market, or between an evenly matched...
and inequality of bargaining powerInequality of bargaining powerInequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail.... - Will theory, promisePromiseA promise is a commitment by someone to do or not do something.In the law of contract, an exchange of promises is usually held to be legally enforceable, according to the Latin maxim pacta sunt servanda.- Types :...
- "Promise" in the Stanford Encyclopedia of Philosophy
- Arthur Linton CorbinArthur Linton CorbinArthur Linton Corbin was a professor at Yale Law School and a scholar of contract law. He helped to develop the philosophy of law known as legal realism, and wrote one of the most celebrated legal treatises of the Twentieth century, Corbin on Contracts.-Early life:Corbin was born in Linn County,...
- Adverse selectionAdverse selectionAdverse selection, anti-selection, or negative selection is a term used in economics, insurance, statistics, and risk management. It refers to a market process in which "bad" results occur when buyers and sellers have asymmetric information : the "bad" products or services are more likely to be...
, moral hazardMoral hazardIn economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
, information asymmetryInformation asymmetryIn economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure... - Complete contractComplete contractA complete contract is an important concept from contract theory.If the parties to an agreement could specify their respective rights and duties for every possible future state of the world, their contract would be complete...
and default ruleDefault ruleIn legal theory, a default rule is a rule of law that can be overridden by a contract, trust, will, or other legally effective agreement. Contract law, for example, can be divided into two kinds of rules: default rules and mandatory rules. Whereas the default rules can be modified by agreement of... - Agency costAgency costAn agency cost is an economic concept that relates to the cost incurred by an entity associated with problems such as divergent management-shareholder objectives and information asymmetry...
, principal and agent problem
- Codification, common lawCommon lawCommon law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
and the European civil codeEuropean civil codeThe European civil code is a proposed harmonization of private law across the European Union.The ultimate aim of a European civil code is, like a national civil code, to deal comprehensively with the core areas of private law. Private law typically covered in a civil code includes the family law,...
- Specific contracts: Agency. Arbitration clauses. Bailment. Bills of exchange and banking. Building contracts. Carriage by air. Carriage by land. Construction contracts. Credit and security. Employment. Gaming and wagering. Insurance. Restrictive agreements and covenants. Sale of goods. Suretyship.
See also
- UnidroitUNIDROITThe International Institute for the Unification of Private Law, also known as UNIDROIT, is an independent intergovernmental Organisation based in Rome, Italy...
Principles of International Commercial ContractsPrinciples of International Commercial ContractsThe Principles of International Commercial Contracts of 2004 is a document drawn up by UNIDROIT intended to help harmonise international commercial contracts law. The first edition of which was published in 1994, and the second, enlarged edition of which was published in 2004...
of 2004 (text and commentary) - Principles of European Contract LawPrinciples of European Contract Law-Definition:The Principles of European Contract Law is a set of model rules drawn up by leading contract law academics in Europe. It attempts to elucidate basic rules of contract law and more generally the law of obligations which most legal systems of the member states of the European Union hold...
of 2003 - Uniform Commercial CodeUniform Commercial CodeThe Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
of 1952 - Restatement (Second) of ContractsRestatement (Second) of ContractsThe Restatement of the Law of Contracts is one of the most well-recognized and frequently-cited legal treatises in all of American jurisprudence. Every first year law student in every law school in the United States is exposed to it, and it is probably the most-cited non-binding authority in all...
of 1979 - US contract law
- German contract lawGerman contract lawGerman contract law is found in the Bürgerliches Gesetzbuch, in both the "Allgemeine Teil" and the chapter on "Schuldrecht". It forms part of the general law of obligations....
- French contract lawFrench contract lawFrench contract law is part of the law of obligations found in the Code Civil dealing with contracts.-See also:*English contract law*US contract law*German contract law...
- Canadian contract lawCanadian contract lawCanadian contract law has its foundation in the English legal tradition of the 19th and early 20th century. It remains largely rooted in the old English common law and equity. Individual provinces have codified many of the principles in a Sale of Goods Act, which was also modeled on early English...
- Australian contract lawAustralian contract lawAustralian contract law is based on the inherited English contract law, with specific statutory modifications of principles in some areas. Australian law has developed through the decisions of Australian courts, especially since the 1980s, and various pieces of legislation passed by the Parliament...
- UK commercial law
- UK company law
- UK labour law