Sourcebook on Contract Law

Conventional wisdom dictates that at the core of the notion of contract lies the idea of agreement. For example, Treitel writes: In similar vein, the current edition of Cheshire, Fifoot and Furmston states:

Agreements in the above sense are usually thought to arise via a process of offer and acceptance; a proposal by one party which is, eventually, assented to in broadly the same terms by the other party. It might be thought that the law would require an actual subjective intent to be bound (on either side) by the proposed contract, for there to be in the well known (if misleading) phrase, a

The classic authority is that of Pharmaceutical Society of Great Britain v Boots The defendant carried on a business comprising the retail sale of drugs at premises at Edgware, which were entered in the register of premises kept pursuant to s 12 of the Pharmacy and Poisons Act 1933, and from which they

The legal position here mirrors that of retail displays (to which it is closely related). Indeed, in Partridge v Crittenden, Lord Parker CJ stated that he came to this conclusion ‘with less reluctance’ than in retail display cases, since ‘when one is dealing with advertisements and circulars, unless they indeed come from manufacturers, there is business sense in their being construed as

From time to time in the cases and elsewhere in these materials, the concept of the ‘unilateral contract’ is discussed. If taken literally, this would indicate a ‘one sided’ contract, an idea which fits very uneasily with the idea of contract as being based on agreement. In truth, what is really being discussed is a ‘uni- promise’ contract – the key distinction between a ‘unilateral’ and a ‘bilateral’

At its simplest, an acceptance is an unconditional assent to the terms proposed in the offer. Much of the relevant law is reasonably straightforward and capable of being reduced to a series of propositions. In essence, a valid acceptance comprises the following elements:

An outright refusal of an offer brings the offer to an end, so that it is not open for subsequent acceptance. Likewise, a counter-proposal (counter-offer) is seen as functioning as a rejection of the original offer. The basic approach of the courts is demonstrated clearly in Hyde v Wrench, where Wrench (on

The core idea in acceptance is that it is an unconditional assent to an offer. The concept of assent might suggest that there must always be a written or verbal response by the offeree to the offer to conclude a contract. A moment’s reflection, however, indicates that there are a large number of situations which are contractual on any rational analysis, and yet in which the establishing of a

In this area, at least, there is not even the pretence of promise-based agreement (at least not on the part of the offeree). As Bowen LJ in Carlill v required by the offeree lies in performance of the task(s) specified by the offeror. The willingness of the courts to countenance the unilateral contract

It was indicated at the beginning of this chapter that (whatever the precise meaning of contract) the common law adopts a broadly objective test as to contract formation. It follows from this that merely because one party mistakenly believes some fact of the contract (for example, the precise nature

On the assumption that the law of contract is primarily concerned with either the enforcement of promises or giving a remedy where there has been a breach of a promise, it is necessary to determine which promises will be given legal recognition in the form of an available remedy and which will not. REASONS FOR ENFORCING PROMISES

The common law has never embraced the view that, in general, contracts have to take any particular form, and there are relatively few types of contract today to which specific rules as to form exist. On one argument, a legal system which adopts rigid requirements as to the form of contracts may be regarded as primitive and less well developed. However, this is not necessarily true

Since, for the most part, contracts do not have to take any particular form, some other means of distinguishing enforceable promises from the unenforceable has to be employed. For the purposes of English law, this mechanism is provided partly by the rules on consideration. The rule is that for a promise to be enforceable, consideration must be furnished by the

Since contractual obligations are generally said to be enforceable only if voluntarily undertaken, it follows that a promise which has been given under illegitimate pressure will not be enforceable. Whilst this issue is of some importance in determining whether there is a good consideration for a promise, the matter of voluntariness is pertinent to the application of rules on

Hamson states that ‘Consideration, offer and acceptance are an indivisible trinity, facets of one identical notion which is that of bargain. Indeed consideration may be explained as merely the acceptance viewed from the offeror’s side. Acceptance is defined to be the doing of an act (which may be the giving of a promise or the rendering of a performance) which is requested

The rule that consideration must be sufficient, but need not be adequate appears at first to be contradictory. The extent to which there is more than a verbal contradiction depends on the meaning to be ascribed to ‘sufficiency’. Broadly ‘insufficiency’ in this context means that what is given in return for the promise must have some value, in the eyes of the law. Does this mean that

The approach taken by the courts has been that the consideration for a promise must have some value in the eyes of the law. This might be taken to mean that in order to amount to a good consideration, what is given must have some economic value. Thus, it has been held that natural love and affection cannot constitute a good consideration. The justification for this

A number of 19th century decisions suggest that if the promisee simply performs that which he is legally bound to perform, he will provide an insufficient consideration for the promise of the other party. Thus, if a witness agrees, for reward, to attend court in order to give evidence on behalf of the promisor, the promise of the latter will be unenforceable because it is given in

The most overtly bargain-based rule of the doctrine of consideration is that consideration must move from the promisee, that is, the reason for enforcing the promise must be found in the acts, omissions or words of the promisee. This, of course, envisages a bilateral relationship between the contracting parties and is very closely related to the doctrine of privity of contract, since if

Classical contract law can be said to be based on the values of individualism and freedom of contract, which leaves a contracting party the antagonistic

It has been seen above that where action in reliance on a promise has been requested, there will usually be a sufficient consideration to justify the enforcement of the promise. But reliance may also justify judicial intervention in favour of the promisee by means other than through the use of the doctrine of consideration. In particular, the different varieties of estoppel have the

Subject to some exceptions, English law has never adopted a requirement of good faith in contractual negotiations. Unlike in civilian legal systems, the fundamental principle pacta sunt servanda, which forms the basis of an principle of good faith, was never regarded with any great significance by the common law courts. Indeed, it has been observed recently that the

As a general rule, English law does not impose upon the parties to a contract a general duty to disclose information to the other party to the contract. Instead, due to the influence of the principle caveat emptor, it is the duty of each party to look after his own interests and exercise his own judgment in deciding

Insurance contracts are said to be contracts uberrimae fidei or contracts of utmost good faith. As a result, there is a duty of disclosure on both sides of the contract. But the most important aspect of the duty is that a person proposing insurance must disclose all facts material to the insured risk. The justification for this approach is said to be that the insurer is engaged in a

It is said to be an essential requirement of an actionable misrepresentation that it should be a statement of fact. Because of this rule, there are a number of types of statement which will not give rise to a remedy for misrepresentation. In the first place, a promise as to the future or a statement of intention is not a

The second essential requirement of an actionable misrepresentation raises a causal issue, namely has the misrepresentation induced the other party to enter into the contract? In this respect, the misrepresentee bears the burden of proving that it was the misrepresentation that induced him to enter into the contract. It follows that, if the misrepresentee admits that he took no notice of

Generally, the common law is concerned with the issue of procedural as opposed to substantive unfairness in the sense that where a requirement of fairness is imposed, it is generally regarded as a matter which relates to the formation of a valid agreement. However, a feature of many aspects of

In this chapter and Chapter 6, it is proposed to consider the issue of judicial construction of contracts with a view to the allocation of risks of loss. A preliminary issue is to identify those statements made in the course of negotiations which are to be classified as terms of the contract. In this regard, it is important to distinguish between terms and representations. Terms are

The history of the distinction between contractual terms and mere representations is important as it serves to explain some of the more extreme interpretations of what is a contractual term. For present purposes, the watershed date is 1967, when the Misrepresentation Act was passed. Prior to that date, unless it could be proved that a non-contractual representation had

In any process of interpretation, the raw material with which the courts are to work must sufficiently clearly express the intentions of the parties. It has been seen already that in determining when contractual obligations arise, an important factor is often whether or not an agreement has been reached. One particular problem which may arise in this regard is that the language used by

Where a term in a contract is meaningless or unintelligible or where the court is unable to select between a number of reasonably possible interpretations of it or where the terms of the contract require further agreement between the parties so as to allow implementation of the term, it is said that the term is uncertain. The consequence of uncertainty or vagueness is that either the

Where the parties have entered a contract, a number of statements may have been made, some of which form part of the contract, which, in the event of breach, will give rise to a remedy for breach of contract. In contrast, other statements may have a lesser effect if interpreted to amount to no more than a representation which has induced the other party to enter into the contract

These are terms implied on a one-off basis so as to give effect to the presumed intention of both parties. For the most part, such terms need to be so obvious that, if an officious bystander suggested the term should be implied, both parties would immediately agree to its implication. It is apparently insufficient that the term sought to be implied is a reasonable one as this

Many contractual obligations arise out of rules of law imposed upon the parties either by statute or by the court acting out of necessity. In these circumstances, any resort to the notion of agreement as an explanation of the source of the obligation is unhelpful, since these obligations are imposed by operation of law.

In addition to implied terms imposed on the parties by operation of law and those apparently representing the intention of the parties, terms may also be implied by virtue of custom or usage. To regard customary practice as being based on the presumed intention of the parties is somewhat unrealistic. If a custom is regarded as reasonable, it will bind the parties, even though they How a particular term of the contract is to be classified is important because it impinges on the remedial consequences of a breach of that term. At one stage, the remedy available to a party in the event of a breach of contract by the other would depend on how the broken term was classified. In this regard, English law has drawn a distinction between conditions of the contract and

Where the parties enter into a contractual relationship, it will not always be the case that the contract will be performed without mishap. It has been seen in the previous chapter that disputes may arise based on an alleged failure to perform the contract according to its terms, in which case, the court must

Fundamental mistakes Where a mistake is operative, it serves to negative, or in some cases to nullify consent. The former type of mistake is concerned with the question of agreement and is not considered in any detail at this stage. Mistakes which nullify consent, on the other hand, do raise important issues of risk allocation.

In the risk allocation process, it is important to consider how best to allocate a particular risk of loss. If one of the parties is actually or constructively aware of the risk of loss and has failed to take precautions to guard himself against that risk, he may be regarded as the most appropriate person to bear that risk. Furthermore, if one of the parties is responsible for bringing about the mistake

If the contract expressly allocates the risk of loss arising from a particular event to one party rather than the other, it should follow as a matter of course that the court should heed the intention of the parties. However, the nature of frustrating events is that in the majority of cases, there will be no express

In cases which involve an application of the doctrine of frustration, it is much more likely that there will be no provision in the contract for the allocation of risks. In these circumstances, it is for the court to determine what the parties, as reasonable businessmen, would have intended in the circumstances. Where performance of the contract has become physically impossible due to, for

Impossibility of performance is not the same as impracticability or difficulty of performance. In the latter case, if the court were to treat the contract as frustrated, the impression might be given that the parties were being relieved from the ordinary consequences of an imprudent commercial bargain. Moreover, in many such cases, impracticability of performance is usually a

If a particular risk of loss has been foreseen, it may be reasonable to assume that the parties will have provided for that eventuality in their contract. Taken to its logical conclusion, this should mean that the risk of loss should lie where it falls. Similarly, even if the event has not been provided for in the contract but ought to have been foreseen by the parties, it will normally be the case

While prevention is one way of averting a risk of loss, it is equally possible to insure against such a risk. In this regard, insurance includes both market insurance and self-insurance. For example, in a contract for the sale of goods to be shipped to the buyer’s place of business, once property in those goods has passed to the buyer then, in the absence of a contrary intention, the buyer

Where a contract is frustrated, the common law rule stipulates that the parties are discharged from their respective obligations from the date of the frustrating event. A particular problem with this rule is that prior to the date of frustration, it is quite possible that one of the parties has made an advance payment for the goods or services which are the subject matter of the contract.

CONFLICTING VALUES Two opposing values cause strains within the law of contract. On the one hand, there is a desire to do justice, but at the same time, the courts are keen to promote certainty or predictability. The contract rule book developed in the 19th century is generally said to epitomise the value of certainty. In Printing

In some jurisdictions, an express attempt has been made to state a generalised principle of unconscionability. For example, in the US, the Uniform Commercial Code, para 2-302, provides:

The classical rule book understanding of duress is that it is a variety of procedural unfairness which prevents a valid agreement from being reached, due largely to the ‘overborne will’ theory, which emerges from some of the case extracts below. But, arguably, where a person is faced with a threat amounting to common law duress, his consent is real, albeit that he had made

The traditional rule at common law confined actionable duress to actual or threatened physical violence to the person or unlawful constraint of the person. Thus, threats of lawful imprisonment or threats directed at propertyat one time, did not amount to common law duress. There was a wider jurisdiction to intervene in equity and through the

In Morgan, as in Bundy, the wrongdoer was an employee of the bank, but a far more common problem is that such pressure as is applied comes from a relative of the party seeking relief. Usually, that relative will be a spouse, but there are also cases in which the pressure is applied by, for example, an independent son or daughter on ageing parents.

The willingness of the courts to intervene and ‘police’ a bargain, however apparently freely made, was stated in the previous chapter to turn on questions of procedural unfairness, substantive unfairness or (perhaps) both. This section illustrates perhaps better than any other area of the law the

Despite the above comments, the main focus of legislative and judicial attention over the years has been on the control of exemption clauses. In many ways, this is unsurprising; clauses which take away, or seriously limit, one party’s rights can very clearly illustrate substantive unfairness and their widespread use in consumer transactions often buried in the small print of

Perhaps the earliest, and certainly the most widely used judicial techniques to curb the excesses of the unfettered use of exemption clauses were the rules on incorporation of terms referred to in Chapter 2. Although ostensibly neutral in scope, their use in an exemption clause context was often particularly searching. However, as cases such as L’Estrange v Graucob and Thompson v

A consistent theme in recent case law (particularly at House of Lords level) is that limitation clauses (even less than wholesale exclusions of liability) are not to be subjected to ‘strained construction’, since judicial hostility to them is less. These judicial observations reflect the more limited ‘substantive unfairness’ which limitation clauses are likely to manifest:

As noted earlier, there is a relatively long history of legislative involvement aimed at curbing the excesses of exemption clauses. However, the first statute of general importance came in 1973 with the Supply of Goods (Implied Terms) Act, which controlled the exclusion or restriction of liability for breach of terms implied under the (then) Sale of Goods Act 1893. The 1973 provisions

With limited exceptions, most noticeably s 6(4) and s 8 (amending s 3 of the Misrepresentation Act 1967), s 1(3) provides that the Act only applies to ‘business’ liability:

The scope and consequent definition of ‘dealing as a consumer’ is too limited to wholly illuminate the ‘business’ conundrum posed above (although it does shed some light on it). It functions primarily with regard to the differential tests on those in ‘business’ and ‘consumer’ as set out in ss 6 and 7, although it also has impact in relation to s 3 (below). A definition of ‘dealing as a

In principle, numerous control mechanisms are open to Parliament when legislating afresh, as was the case when the 1977 Act was passed. The provisions could focus on procedural unfairness by providing for statutory cooling-off periods or for defences based on the unconscionable way in which the contract was brought about. Alternatively, they could focus on

Other than the sections mentioned immediately above, the 1977 Act, in line with the Law Commission’s thinking in their Second Report, generally adopts controls based on the reasonableness (or otherwise) of the provisions under scrutiny. By this stratagem, it is clearly envisaged that a court will be able to sift all the evidence and determine on the particular facts whether the

Effectively, all the remaining provisions in the Act, plus s 8, which inserts a new s 3 in the Misrepresentation Act 1967, impose a requirement of reasonableness. The main provisions are to be found in s 2(2), s 3 and s 7(3):

The Unfair Contract Terms Act 1977 was a major breakthrough in the control of unfairly wide exemption, limitation and disclaimer clauses. However, as already stated, it is neither logical in structure, nor always consistent in approach. Moreover its name is a serious misnomer, being doubly misleading. First, the legislation has a wider sweep than merely the regulation of It was stated at the beginning of this chapter that by far the greatest attention, in our law, has been given to the regulation of clauses, within standard forms, excluding or limiting liability. This is not necessarily true elsewhere, particularly in the civil law jurisdictions and in the US. From time to time in this country, the broader view has been taken, the most famous being Lord

PERFORMANCE OBLIGATIONS AND BREACH OF CONTRACT The principal remedies dealt with in later chapters are those of damages, specific performance and injunction. However, there are other remedies, such as an action for an agreed sum, which works in a manner similar to specific

It has been seen from the earlier discussion of Cutter v Powell that a strict application of the rule on performance of entire obligations can have the effect of placing the risk of non-performance on the performer of a contract of personal services. Important considerations in Cutter v Powell were that the contract provided for payment only on completion of the voyage from

Where there is a breach of contract, there will always be a right in favour of the party not in breach to recover damages. However, monetary compensation may not always be sufficient, if the innocent party’s trust in the other party has evaporated and it may be that he wishes to escape from the

Traditionally, English law distinguishes between conditions and warranties as the two major varieties of contractual term. However, recent years have seen the development of the innominate terms doctrine, under which the courts are prepared to look more closely at the nature and effect of a breach of contract in an ex post facto consideration of the seriousness of the breach of contract in

In the event of a breach of contract being sufficiently serious to allow repudiation of the contract, the party not in breach has two options. He can either waive the breach and choose to treat the contract as still remaining in force or he can accept the breach and activate his right to a remedy. Before the innocent party can be taken to have waived the breach, he must

DISCRETE AND RELATIONAL CONTRACTING A particular difficulty associated with the classical contract rule book is that it is probably better equipped to deal with short term or discrete transactions rather than long term relationships. A discrete transaction is one which can be said to have relatively easily measurable objectives, such as a typical contract

A key feature of relational contracting is the need to allow for adjustments as the parties progress towards performance of their respective obligations. A major problem in this regard is that the rules applicable to adjustments in long term relationships are supposed to operate along the same lines as the rules which apply to the formation of discrete contractual relationships. It has been

SPECIFIC PERFORMANCE AND INJUNCTIONS The principal equitable remedies of specific performance and injunction are both discretionary remedies which serve literally to enforce a contractual obligation. The two differ in that specific performance is used to enforce a positive obligation, such as a promise to sell or purchase land whereas an

A number of bars to the availability of specific performance have been developed. These bars also apply to the award of an injunction where the effect of the remedy is to operate as a form of specific performance. Adequacy of damages It is said that specific performance will not be ordered where an award of

Specific performance of contracts for the sale of land is regarded as the usual remedy on the ground that each parcel of land is regarded as unique. Accordingly, since a unique parcel cannot be replaced, it has no obvious market value, so that damages could be regarded as an inadequate remedy. Of course, the label of ‘uniqueness’ is a pure fiction, because the remedy is still

Injunctions may be mandatory, ordering the defendant to do something. This variety of injunction is rarely used because a decree of specific performance will normally fulfil the same function by enforcing positive undertakings. Alternatively, an injunction may be prohibitory, ordering the defendant not to do something, such as will be the case where the defendant has entered into

Once a claimant has established that the defendant is in breach of contract, he will normally seek damages to compensate for the loss flowing from the breach. However, it does not follow that all the loss suffered in consequence of the other party’s breach will be recoverable. Three major factors may limit or exclude the claimant’s entitlement to damages. First, it must be established

Even where the defendant’s breach of contract is a factual cause of the claimant’s loss, an award of damages may be denied on the ground that the breach was not the legal cause of that loss. Where the claimant complains that he has suffered financial loss, the issue may become clouded by the tort/contract dichotomy and policy issues may play an important part, since

Typically, the 19th century contract rule book saw financial loss as an issue for the law of contract. On the issue of remoteness of loss, the leading case is that of Hadley v Baxendale, which developed a judicially controlled test based on reasonable foresight of loss. The extent of the confusion created by this test was not immediately apparent until the emerging tort of negligence also

The expression ‘physical damage’ covers personal injuries, damage to property and consequential expenses. This form of loss is recoverable in both contract and tort cases, but the majority of such actions arise in the law of tort. For the purposes of the tort of negligence in particular, the relevant test of remoteness of damage or legal causation is relatively favourable to the

TYPES OF DAMAGE Losses suffered as a result of a breach of contract are of three possible varieties, namely personal injury, property damage and economic loss. Since contracts are essentially concerned with the exchange of economic resources between the parties, it is more likely than not that the most frequently

The claimant is entitled to recover in respect of both losses caused and gains prevented by the breach of contract. This necessitates making a deduction where the claimant has saved money or has made a gain as a result of the breach. In British Westinghouse Co Ltd v Underground Electric Railways Ltd,

Restitutionary remedies are based on the reversal of an unjust enrichment by the defendant at the expense of the claimant. Since the law of restitution is quite distinct from the law of contract, the availability of a restitutionary remedy does not depend upon a breach of contract, but there is an overlap between the two branches of the law of obligations where a breach of contract

Whether the enrichment is unjust can be judged by the tests of non-voluntary transfer, free acceptance or by reference to policy considerations. The test of non-voluntary transfer requires the court to consider the reasons why an enrichment has been conferred on the defendant by the claimant. In the context of restitution within contract the main reasons why an enrichment

Before the relationship of mistake and restitutionary principles is considered, it is important to distinguish a mistake from a mere misprediction. The latter does not give rise to a remedy and is something the claimant must live with. Thus, if one of two joint owners of a house decorates it in the hope that the other owner will contribute to the cost, but later chooses not to, there will be

It has been seen already that a misrepresentation can cause a person to enter into a contract he would not otherwise have made. Apart from the remedy of damages considered elsewhere, the standard remedy for misrepresentation is that of rescission of the contract, at the instance of the party misled, so as to restore the parties to the positions they occupied before the misrepresentation

Generally, where there is a breach of a valid contract, the appropriate monetary remedy is an award of damages to protect the claimant’s expectation or status quo interest. However, the claimant may find himself in the position whereby he may terminate his performance obligations due to a breach of the contract by the other party. In these circumstances, the claimant

In an action for breach of contract, the doctrine of privity of contract provides that only the parties to the contract can sue or be sued on it. The difficulty is to determine who is a party to the contract. A strict application of the doctrine

As the doctrine of privity of contract and the rule that consideration should move from the promisee appear to achieve the same result, it has been argued that they amount to the same rule since if a contract involves a bargain, a person who is not a party to the bargain is not a party to the contract. This presents two reasons for denying the third party action. First, there is a lack of

The general effect of the doctrine is that a third party acquires neither the benefit nor is subject to the burden of a contract to which he is not a party even if it is made for his benefit. But this does not affect the position of the promisor and the promisee. Some of the promisee’s remedies may serve to assist the third party for whose benefit the contract is made. This means that

It is clear that the promisee may be able to enforce the contract on behalf of the third party or possibly recover damages in respect of the third party’s loss. Accordingly, the relations between the two are important. No problem arose in Beswick v Beswick, since the promisee and the third party were the same person. However, the issue may arise whether the third party can require the

The doctrine of privity merely indicates that someone who is not a contracting party is unable to enforce the benefits created by or be subject to the burdens imposed under a contract made between two other people. Accordingly, rights may be conferred on a third party, and to a lesser extent, burdens may be imposed otherwise than under a contract. For example, such rights and

A person who owns a contractual right, such as a debt, can assign that right to a third party, subject to certain conditions. As a consequence, the person to whom the right has been assigned may then sue the debtor. At common law, assignments were generally not recognised, unless there was a novation under which the debtor agreed to the assignment. In these circumstances, the

A negotiable instrument such as a bill of exchange, a cheque or a promissory note may be negotiated to another person. The holder of the bill of exchange is treated as a holder for value if consideration for the bill has, at any time, been given. Accordingly, the holder can enforce the bill against the person responsible to make payment.

A trust is an equitable device which allows a person to pass property to a trustee subject to a requirement that he should hold that property for the benefit of a third person, the beneficiary. The beneficiary is able to enforce the terms of the trust for his benefit, provided that it can be shown that there was an intention on the part of the donor to create a trust.

Property interests The vendor of land may subject the land he sells to restrictive conditions as to future use. The effect of these restrictive covenants, according to the rule in passes with the land so that a subsequent purchaser of the protected property is entitled to the benefit of the covenant and the purchaser

Adams, J, ‘The battle of the forms’ (1979) 95 LQR 481. Adams, J, ‘The battle of the forms’ [1983] JBL 297. Adams, J and Brownsword, R, ‘Double indemnity: contractual indemnity clauses revisited’ (1988a) [1988] JBL 146. Adams, J and Brownsword, R, ‘The Unfair Contract Terms Act: a decade of