English Contract Law/temporary

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Contracts are an integral part of everyday life. Working for an employer; insuring your car or your house and even buying a pint of milk are all governed by the law of contract. Although each of the three situations given above have their own specialist areas of law (employment law, insurance law and consumer law respectively) they are all governed by a set of underlying fundamental principles often referred to as the "general law of contract". The increasing development of specialised areas for particular types of contract has led to some discussion as to whether this general part should be abolished. Whilst as a matter of legal practice there is unlikely to be a case involving purely the general contractual principles outlined here, it should be emphasised that the basic rules are still fundamental for an understanding of these more advanced fields.

In seeking a definition of what a contract is, that given in the US Restatement may provide a useful starting point:

A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

This may be seen as giving three interconnected elements:

  1. A promise
    In the context of English law, a reference to a promise here may be seen as misleading. It is often (rightly) stated that English law will not give effect to a mere promise and that an agreement, or meeting of minds, is required. In fact, this is simply a way of distinguishing between two types of promise, namely those which do and don't give rise to a legal duty. Thus, a promise to meet one's other half for dinner at 7pm gives rise to no legal obligation - it is a "mere" promise - whereas a promise to sell someone a car for £5000 gives rise to legal obligation.
  2. A legal duty arising from that promise
    Here, English contract doctrine distinguishes between bilateral and unilateral contracts. A bilateral contract gives rise to obligations on both sides. Thus in a contract of sale, the seller has an obligation to transfer title in the thing sold to the buyer, whilst the buyer has an obligation to pay the price. A unilateral contract, by contrast, gives rise to obligations on one side only. Thus "I will give you £100 if you run a marathon" gives rise to a legal duty on the maker of the statement (the promisor) to pay the money if the race is run, whilst the person to whom the statement is made (the promisee) is under no obligation to run in the first place.
  3. A remedy for breach of that duty
    In considering the development of remedies, a fundamental distinction in English law between common law (often just abbreviated to law) and equity must be understood. For much of its history, England had two separate systems of law working side by side, each of which had different rules. One, administered by the courts of common pleas and king's bench, was called "the common law"; the other, presided over by the Lord Chancellor in the court of chancery was "equity". Since the Judicature Acts of the nineteenth century the two systems have been administered by the same courts, although they remain separate sets of doctrine. Most important for our current purposes is that the two systems developed different sets of remedies for breach of contract, although other equitable rules which have application to contracts will be discussed as they arise.

Thus, the first issue this text must discuss is when a promise will be seen to give rise to a legal duty, in other words, the formation of a contract. Before turning to discuss the remedies offered by the law for breach in the third section, it will be necessary to consider what is considered a breach in the second section. Finally, the fourth section is intended to deal with a question not raised by the definition above. This topic is commonly referred to as "vitiation of contract" and covers situations where, although a contract appears to give rise to a prima facia legal duty, another factor - such as mistake, fraud or duress - intervenes to make the contract unenforcable.

Contract formation

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One of the interesting complexities of English contract law is that it bears the marks of two different conceptions of how a contract is formed, which derive from two different periods of English legal history. On the one hand, most legal historians agree that up until the nineteenth century the predominant conception of a contract in England was as a mechanism of exchange : giving something of value entitled one to something in return (and hence to an action before a court to obtain it or its monetary equivalent). When, on the other hand, the first contract textbooks came to be written in the late eighteen and early nineteenth centuries - the era when the teaching of national law began in English universities - authors drew inspiration from continental authors, especially the French legal academics Pothier and Domat. These authors developed structures and ideas in their work designed to describe the French law of contract, based largely on Roman law as developed by medieval thinkers. One can therefore explain a great deal of modern English contract doctrine - particularly about how contracts are formed - in terms of the conflict between these two conceptions.

The great theoretical basis developed by the French authors is translated into English as the will theory (in French l'autonomie de la volonté) according to which the binding force or legal power of a contract comes, not from the completion of an expected exchange, but from the consensus ad idem formed by the parties: the meeting of their minds or the agreement they reach about what the contract is to say. A common way of describing this idea is that a contract becomes "the law of the parties": what the parties have decided to form as an obligation between themselves assumes the same binding force as, for example, a criminal prohibition.

The conflict between this conception and the traditional English notion of exchange becomes clear if one considers donation (the legal term for the giving of a gift). In French law, this constitutes a contract: there has been consensus between the parties on who is to give what to whom. English law, on the other hand, does not recognise donation as a type of contract: it is not an exchange but a mere gift and so, following the logic given above, the donee (person who receives the gift) has no contractual right to demand anything from the donor: she has not given anything in return.

Yet, despite these differences, English law still claims to be founded on the supremacy of the parties' consent, on their intention . This is therefore the first element of the formation of contract that must be examined. After that, consideration will be given to the form in which such intention must be expressed before turning to the question of the validity of a promise: what the law expects in order to make a promise given in the required form legally enforceable. Finally in this section, questions of privity and third parties will be considered: situations where the obligations and rights which arise from a promise entend beyond the simple pairing of promisor and promisee.

The Proof of the Promise: Objective Intention

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Perhaps the most difficult and important aspect of attempting to determine the intention of contracting parties is one of proof: how to establish what is going on inside the minds of the parties at the time the contract is formed. In attempting to come up with a satisfactory and practical answer to this problem, a distinction has traditionally been made between objective and subjective intention.

Subjective intention is a term used to describe the idea of intention as commonly understood - the internal motivation of an individual. It is simple common sense that this will be very difficult to prove to the standard expected by a court of law: in matters relating to contract (and indeed any context outside of the criminal law) this standard of proof is the balance of probablities, or whether one can be more than 50% sure (on balance) that the evidence produced proves the conclusions that are being sought to be drawn from it. Clearly it is very difficult to be this sure of the internal psychological workings of another human being.

By contrast, the notion of objective intention is used to describe the idea that one can infer the parties' intentions from their actions. In other words, the question that is asked to determine objective intention is not "what was going on inside the heads of the parties" but "what a reasonable, ordinary observer of their behaviour would think their intention was". The position of this hypothetical external observer is, in effect, that of a court trying to determine the intentions of the parties and it is therefore this objective conception of intention which is used as the legal test. A case which illustrates this idea nicely is that of Smith v. Hughes.

Smith v. Hughes (1871) LR 6 QB 597
This rather complicated nineteenth century case concerned the sale of some oats by the claimant (referred to in the legal vocabulary of the time as the plaintiff) to the defendant, who owned some stables. The defendant bought the oats after viewing a sample, it being very important to him that the oats were old oats (newly-harvested oats can cause digestive trouble in horses). Subsequently, it came to light that the oats were not, as thought, old enough to be suitable for the horses. The defendant therefore refused to pay the agreed price for the oats and was sued by the claimant.

This case raises a number of important issues, only one of which is relevant to the current discussion. Of the three judges in the Queen's Bench Division, one (Cockburn CJ) delivered a judgement irrelevant to our present topic. The other two (Hannan and Blackburn JJ) decided the case in part by seeking to draw a subtle distinction between the situation where the defendant agreed to take the oats believing that they were old and that in which he agreed to take them in the belief that the claimant was contracting to sell old oats. In other words, the crucial question raised by the case was whether the defendant believed that the claimant was guaranteeing that the oats would be suitably old so as to be safely fed to his horses.

The crucial point to note about the judgement at this point is how this belief was to be assessed: were the actions of the claimant such as to lead a reasonable man in the position of the defendant to suppose that he was offering to sell old oats? In other words, we see here a classic application of what has come to be known as the test of objective intention.

Equally, in Thake v. Maurice([1984] 2 All ER 513) an assurance by a surgeon that a vasectomy would render a man "irreversibly sterile" was held to mean that objectively this was the result he was contracting to produce. When - although the procedure was properly carried out - the claimant's wife fell pregnant, it was held that the surgeon had breached his obligation, as objectively interpreted.

The Form of the Promise: Offer and Acceptance

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Having discussed the question of what constitutes the intention to contract, we must now turn our attention to the question of the form which any contract must take in order to be considered valid. The first major requirement is that there has been an offer: a statement setting out the terms under which the would-be promisor is willing to be bound. This must be followed by an unconditional acceptance on the part of the promisee. A case giving helpful examples of these ideas is Moran v. University College Salford.

Moran v. University College Salford (2) (1994) ELR 187
Case description to follow.

It is now necessary to consider each of these two notions in more detail, in order to distinguish them from other forms of legally-significant statements. After this will be discussed criticisms that have been made of the concepts and difficulties that can arise.

Offers and the "Invitation to Treat"

Acceptance and Counter-Offer

The Simplistic Difficulty of Offer and Acceptance

The Validity of the Promise: Consideration

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Consideration is a requirement to be complied with for a contract to be valid. For a promise to be enforceable as a contract something (some consideration) must be given in exchange for that promise. In other words the promisor should receive some advantage or benefit or, alternatively, the promisee must suffer some detriment. The general rule in English contract law is that without consideration a contract shall be deemed invalid or, to be more precise, there will be no contract concluded at all.

The doctrine of consideration is a traditional notion which has existed in English and common law for centuries. Effectively, it represents one of the main pillars on which the Law of Contract is based. At the same time it is evident that the requirement of consideration has come under constant and strong criticism. Thus, accepting as a postulate that any significant changes in law should only be initiated when there is a strong case for them we need to investigate the reasons for that criticism and assess whether it is substantiated enough to call for the review.

It appears that the main argument for preserving the doctrine of consideration is based on its traditional nature and it being an integral part of English contract law. However, the opponents rightly point out to continental legal systems which do well without having this doctrine. Consideration as a doctrine is not present in legal systems of Scotland, Germany, France, Italy, Spain, and Switzerland. Nor can it be found in countries such as South Africa, Japan or Russia.