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In law, a contract is a binding legal agreement that is enforceable in a court of law[1] or by binding arbitration. That is to say, a contract is an exchange of promises with a specific remedy for breach.

Agreement is said to be reached when an offer capable of immediate acceptance is met with a "mirror image" acceptance (i.e., an unqualified acceptance). The parties must have the necessary capacity to contract and the contract must not be either trifling, indeterminate, impossible, or illegal. Contract law is based on the principle expressed in the Latin phrase pacta sunt servanda (usually translated "pact s must be kept", but more literally "agreements are to be kept").[2] Breach of contract is recognized by the law and remedies can be provided.

As long as the good or service provided is legal, any oral agreement between two parties can constitute a binding legal contract. The practical limitation to this, however, is that only parties to a written agreement have material evidence (the written contract itself) to prove the actual terms uttered at the time the agreement was struck. In daily life, most contracts can be and are made orally, such as purchasing a book or a sandwich. Sometimes written contracts are required by either the parties, or by statutory law within various jurisdiction for certain types of agreement, for example when buying a house[3] or land.

Contract law can be classified, as is habitual in civil law systems, as part of a general law of obligations (along with tort, unjust enrichment or restitution).

According to legal scholar Sir John William Salmond, a contract is "an agreement creating and defining the obligations between two or more parties".

As a means of economic ordering, contract relies on the notion of consensual exchange and has been extensively discussed in broader economic, sociological and anthropological terms (see "Contractual theory", below). In American English, the term extends beyond the legal meaning to encompass a broader category of agreements.[4]

This article mainly concerns contract law in common law jurisdictions (approximately coincident with the English-speaking world and anywhere the British Empire once held sway). However, contract is a form of economic ordering common throughout the world, and different rules apply in jurisdictions applying civil law (derived from Roman law principles), Islamic law, socialist legal systems, and customary or local law.

Contents

Relevance of common-law perspective

Common-law jurisdictions usually offer proceedings in the English language, which has become to an extent the lingua franca of international business[citation needed]. The common law retains a high degree of freedom of contract, with parties largely free to set their own terms, whereas civil-law systems typically apply certain over-arching principles to disputes arising out of contract (see, for example the French Civil Code). It is very common for businesses not located in common-law jurisdictions to opt in to the common law through "choice of law" clauses[citation needed].

Contract formation

In common-law systems, the five key requirements for the creation of a contract are:

  1. offer and acceptance (agreement)
  2. consideration
  3. an intention to create legal relations
  4. legal capacity
  5. formalities

In civil-law systems, the concept of consideration is not central. In addition, for some contracts formalities must be complied with under what is sometimes called a statute of frauds.

The Carbolic Smoke Ball offer

One of the most famous cases on forming a contract is Carlill v. Carbolic Smoke Ball Company,[5] decided in nineteenth-century England. A medical firm advertised that its new wonder drug, a smoke ball, would prevent those who used it according to the instructions from catching the flu, and if it did not, buyers would receive £100 and said that they had deposited £1,000 in the bank to show their good faith. When sued, Carbolic argued the ad was not to be taken as a serious, legally binding offer. It was merely an invitation to treat, and a gimmick (a 'mere puff'). But the court of appeal held that it would appear to a reasonable man that Carbolic had made a serious offer, primarily because of the reference to the £1000 deposited into the bank. People had given good "consideration" for it by going to the "distinct inconvenience" of using a faulty product. "Read the advertisement how you will, and twist it about as you will," said Lindley LJ, "here is a distinct promise expressed in language which is perfectly unmistakable".

Where a product in large quantities is advertised in a newspaper or on a poster, it may be an offer , but generally speaking it will be regarded as an invitation to treat, since even when large stock is held it is still limited, whilst the response to an advertisement may be unlimited. This was the basis of the decision in Partridge v. Crittenden[6] a criminal case in which the defendant was charged with "offering for sale" bramblefinch cocks and hens. The court held that the newspaper advertisement could only be an invitation to treat, since it could not have been intended as an offer to the world, so the defendant was not guilty of "offering" them for sale. Similarly, a display of goods in a shop window is an invitation to treat, as was held in Fisher v. Bell[7] another criminal case which turned on the correct analysis of offers as against invitations to treat. In this instance the defendant was charged with "offering for sale" prohibited kinds of knife, which he had displayed in his shop window with prices attached. The court held that this was an invitation to treat, the offer would be made by a purchaser going into the shop and asking to buy a knife, with acceptance being by the shopkeeper, which he could withhold. (The law was later amended to "exposing for sale".) A display of goods on the shelves of a self-service shop is also an invitation to treat, with the offer being made by the purchaser at the checkout and being accepted by the shop assistant operating the checkout: Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd.[8] If the person who is to buy the advertised product is of importance, for instance because of his personality, etc., when buying land, it is regarded merely as an invitation to treat. In Carbolic Smoke Ball, the major difference was that a reward  was included in the advertisement, which is a general exception to the rule and is then treated as an offer.

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Offer and acceptance

The most important feature of a contract is that one party makes an offer for an arrangement that another accepts. This can be called a 'concurrence of wills' or 'ad idem' (meeting of the minds) of two or more parties. The concept is somewhat contested. The obvious objection is that a court cannot read minds and the existence or otherwise of agreement is judged objectively, with only limited room for questioning subjective intention: see Smith v. Hughes.[9] Richard Austen-Baker has suggested that the perpetuation of the idea of 'meeting of minds' may come from a misunderstanding of the Latin term 'consensus ad idem', which actually means 'agreement to the [same] thing'.[10] There must be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent , and a contract will be formed when the parties have met such a requirement.[11] An objective perspective means that it is only necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person, not that they actually did want to form a contract.

The case of Carlill v. Carbolic Smoke Ball Co. (above) is an example of a 'unilateral contract', obligations are only imposed upon one party upon acceptance by performance of a condition . In the U.S., the general rule is that in "case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses."[12]

Offer and acceptance does not always need to be expressed orally or in writing. An implied contract is one in which some of the terms are not expressed in words. This can take two forms. A contract which is implied in fact is one in which the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, by going to a doctor for a checkup, a patient agrees that he will pay a fair price for the service. If one refuses to pay after being examined, the patient has breached a contract implied in fact. A contract which is implied in law is also called a quasi-contract, because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. For example, a plumber accidentally installs a sprinkler system in the lawn of the wrong house. The owner of the house had learned the previous day that his neighbor was getting new sprinklers. That morning, he sees the plumber installing them in his lawn. Pleased at the mistake, he says nothing, and then refuses to pay when the plumber delivers the bill. Will the man be held liable for payment? Yes, if it could be proven that the man knew that the sprinklers were being installed mistakenly, the court would make him pay because of a quasi-contract. If that knowledge could not be proven, he would not be liable. Such a claim is also referred to as "quantum meruit".[13]

Consideration and estoppel

Consideration is known as 'the price of a promise' and is a controversial requirement for contracts under common law. Some common-law and civil-law systems[14] do not require consideration, and some commentators consider it unnecessary—the requirement of intent by both parties to create legal relations by both parties performs the same function under contract. The reason that both exist in common law jurisdictions is thought by leading scholars to be the result of the combining by 19th century judges of two distinct threads: first the consideration requirement was at the heart of the action of assumpsit, which had grown up in the Middle Ages and remained the normal action for breach of a simple contract in England & Wales until 1884, when the old forms of action were abolished; secondly, the notion of agreement between two or more parties as being the essential legal and moral foundation of contract in all legal systems, promoted by the 18th century French writer Pothier in his Traite des Obligations, much read (especially after translation into English in 1805) by English judges and jurists. The latter chimed well with the fashionable will theories of the time, especially John Stuart Mill's influential ideas on free will, and got grafted on to the traditional common law requirement for consideration to ground an action in assumpsit.[15]

The idea behind consideration is that both parties to a contract must bring something to the bargain. A party seeking to enforce a contract must show that it conferred some benefit or suffered some detriment (though it might be trivial, see below) that is recognized by law. For example, money is often recognized as consideration, but in some cases money will not suffice as consideration (for example, when one party agrees to make partial payment of a debt in exchange for being released from the full amount).[16] Although several rules govern consideration, the following are the principal rules.

  • Consideration must be "sufficient" (i.e., recognizable by the law), but need not be "adequate" (i.e., the consideration need not be a fair and reasonable exchange for the benefit of the promise). For instance, agreeing to buy a car for a penny may constitute a binding contract.[17]
  • Consideration must not be from the past. For instance, in Eastwood v. Kenyon,[18] the guardian of a young girl obtained a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise because taking out the loan to raise and educate the girl was past consideration—it was completed before the husband promised to repay it.
  • Consideration must move from the promisee. For instance, it is good consideration for person A to pay person C in return for services rendered by person B. If there are joint promisees, then consideration need only to move from one of the promisees.
  • The promise to do something one is already contractually obliged to do is not, traditionally, regarded as good consideration. The classic instance is Stilk v. Myrick[19], in which a captain's promise to divide the wages of two deserters among the remaining crew if they would sail home from the Baltic short-handed, was found unenforceable on the grounds that the crew were already contracted to sail the ship through all perils of the sea. (The case has been much criticized on grounds that the ship was in port at the time of the promise.) A very specific example is the "rule in Pinnel's Case"[20], brought into the modern law of consideration by the House of Lords in Foakes v. Beer[21]. This rule is to the effect that a smaller sum of money cannot be good consideration for the release of a larger debt, though if the smaller sum is accompanied by something non-monetary in addition, for instance "a horse, a hawk or a robe", or payment is to be made early or in some special place or way, then there will be good consideration for the promise to discharge the debt. This rule has suffered some inroads recently. In Williams v. Roffey Bros & Nicholls (Contractors) Ltd[22] the English Court of Appeal held that a promise by a joiner to complete the contracted work on time, where this was falling behind, was good consideration for the contractor's promise to pay extra money. The reasoning adopted was that the strict rule of Stilk v. Myrick was no longer necessary, as English law now recognized a doctrine of economic duress to vitiate promises obtained when the promisor was "over a barrel" for financial reasons. Therefore, where the promise to pay extra could be seen as conferring a practical benefit on the promisor, that could be good consideration for a variation of the terms. The rule in Pinnel's Case has also been effectively sidestepped in England by the Court of Appeal in the case of Collier v. P & MJ Wright (Holdings) Ltd[23] which held that a promise to accept less in discharge of a pure debt (as opposed to, say, accepting reduced rent, which has long been recognized) could give rise to a promissory estoppel.[24]
  • The promise must not be to do something one is already obliged by the general law to do - e.g., to give refrain from crime or to give evidence in court: Collins v. Godefroy.[25]
  • However, a promise from A to do something for B if B will perform a contractual obligation B owes to C, will be enforceable - B is suffering a legal detriment by making his performance of his contract with A effectively enforceable by C as well as by A.[26]

Civil law systems take the approach that an exchange of promises, or a concurrence of wills alone, rather than an exchange in valuable rights is the correct basis. So if you promised to give me a book, and I accepted your offer without giving anything in return, I would have a legal right to the book and you could not change your mind about giving me it as a gift. However, in common law systems the concept of culpa in contrahendo, a form of 'estoppel', is increasingly used to create obligations during pre-contractual negotiations.[27] Estoppel is an equitable doctrine that provides for the creation of legal obligations if a party has given another an assurance  and the other has relied on the assurance to his detriment. A number of commentators have suggested that consideration be abandoned, and estoppel be used to replace it as a basis for contracts.[28] However, legislation, rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. Lord Justice Denning famously stated that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind."[29]

Intention to be legally bound

There is a presumption for commercial agreements that parties intend to be legally bound (unless the parties expressly state that they do not want to be bound, like in heads of agreement). On the other hand, many kinds of domestic and social agreements are unenforceable on the basis of public policy, for instance between children and parents. One early example is found in Balfour v. Balfour.[30] Using contract-like terms, Mr. Balfour had agreed to give his wife £30 a month as maintenance while he was living in Ceylon (Sri Lanka). Once he left, they separated and Mr. Balfour stopped payments. Mrs. Balfour brought an action to enforce the payments. At the Court of Appeal, the Court held that there was no enforceable agreement as there was not enough evidence to suggest that they were intending to be legally bound by the promise.

The case is often cited in conjunction with Merritt v. Merritt.[31] Here the court distinguished the case from Balfour v. Balfour because Mr. and Mrs. Merritt, although married again, were estranged at the time the agreement was made. Therefore any agreement between them was made with the intention to create legal relations.

Third parties

The doctrine of privity of contract means that only those involved in striking a bargain would have standing to enforce it. In general this is still the case, only parties to a contract may sue for the breach of a contract, although in recent years the rule of privity has eroded somewhat and third party beneficiaries have been allowed to recover damages for breaches of contracts they were not party to[citation needed]. In cases where facts involve third party beneficiaries or debtors to the original contracting party have been allowed to be considered parties for purposes of enforcement of the contract .A recent advance has been seen in the case law as well as statutory recognition to the dilution of the doctrine of privity of contract .The recent tests applied by courts have been[citation needed]the test of benefit and the duty owed test .The duty owed test looks to see if the third party was agreeing to pay a debt for the original party[needs elaboration] and whereas the benefit test looks to see if circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. Any defense allowed to parties of the original contract extend to third party beneficiaries.[74] A recent example is in England, where the Contract (Rights of Third Parties) Act 1999 Contracts (Rights of Third Parties) Act 1999 was introduced.

Formalities and writing

Contrary to common wisdom, an exchange of promises can still be binding and legally as valid as a written contract. A spoken contract should be called an oral contract, which might be considered a subset of verbal contracts. Any contract that uses words, spoken or written, is a verbal contract. Thus, all oral contracts and written contracts are verbal contracts. This is in contrast to a "non-verbal, non-oral contract," also known as "a contract implied by the acts of the parties", which can be either implied in fact or implied in law.

Most jurisdictions have rules of law or statutes which may render otherwise valid oral contracts unenforceable. This is especially true regarding oral contracts involving large amounts of money or real estate. For example, in the U.S., generally speaking, a contract is unenforceable if it violates the common law statute of frauds or equivalent state  statutes which require certain contracts to be in writing. An example of the above is an oral contract for the sale of a motorcycle for US$5,000 in a jurisdiction which requires a contract for the sale of goods over US $500 to be in writing to be enforceable. The point of the Statute of frauds is to prevent false allegations of the existence of contracts that were never made, by requiring formal (i.e. written) evidence of the contract. However, a common remark is that more frauds have been committed through the application of the Statute of frauds than have ever been prevented. Contracts that do not meet the requirements of common law or statutory Statutes of frauds are unenforceable, but are not necessarily thereby void. However, a party unjustly enriched by an unenforceable contract may be required to provide restitution for unjust enrichment. Statutes of frauds are typically codified in state statutes covering specific types of contracts, such as contracts for the sale of real estate.

In Australia and many, if not all, jurisdictions which have adopted the common law of England, for contracts subject to legislation equivalent to the Statute of frauds,[32] there is no requirement for the entire contract to be in writing. Although for property transactions there must be a note or memorandum evidencing the contract, which may come into existence after the contract has been formed. The note or memorandum must be signed in some way, and a series of documents may be used in place of a single note or memorandum. It must contain all material terms of the contract, the subject matter and the parties to the contract. In England and Wales, the common law Statute of frauds is only now in force for guarantees, which must be evidenced in writing, although the agreement may be made orally. Certain other kinds of contract must be in writing or they are void, for instance, for sale of land under s. 52, Law of Property Act 1925.

If a contract is in a written form, and somebody signs the contract, then the person is bound by its terms regardless of whether they have read it or not,[33] provided the document is contractual in nature.[34] Furthermore, if a party wishes to use a document as the basis of a contract, reasonable notice of its terms must be given to the other party prior to their entry into the contract.[35] This includes such things as tickets issued at parking stations.

Bilateral v. unilateral contracts

Unilateral contract of adhesion on timekeeping ticket dispensed by vending machine at parking lot entrance

Contracts may be bilateral or unilateral. A bilateral contract is the kind of contract that most people think of when they think "contract." It is an agreement in which each of the parties to the contract makes a promise or promises to the other party. For example, in a contract for the sale of a home, the buyer promises to pay the seller $200,000 in exchange for the seller's promise to deliver title to the property.

In a unilateral contract, only one party to the contract makes a promise. A typical example is the reward contract: A promise to pay a reward to B if B finds A's dog. B is not obliged to find A's dog, but A is obliged to pay the reward to B if B finds the dog. The consideration for the contract here is B's reliance on A's promise, or B giving up his legal right to do whatever he wanted at the time he was engaged in the finding of the dog.

In this example, the finding of the dog is a condition precedent to A's obligation to pay, although it is not a legal condition precedent, because technically no contract here has arisen until the dog is found (because B has not accepted A's offer until he finds the dog, and a contract requires offer, acceptance, and consideration), and the term "condition precedent" is used in contract law to designate a condition of a promise in a contract. For example, if B promised to find A's dog, and A promised to pay B when the dog was found, A's promise would have a condition attached to it, and offer and acceptance would already have occurred. This is a situation in which a condition precedent is attached to a bilateral contract.

Condition precedents can also be attached to unilateral contracts, however. This would require A to require a further condition to be met before he pays B for finding his dog. So, for example, A could say "If anyone finds my dog, and the sky falls down, I will give that person $100." In this situation, even if the dog is found by B, he would not be entitled to the $100 until the sky falls down. Therefore the sky falling down is a condition precedent to A's duty being actualized, even though they are already in a contract, since A has made an offer and B has accepted.

An offer  of a unilateral contract may often be made to many people (or 'to the world') by means of an advertisement. In that situation, acceptance will only occur on satisfaction of the condition  (such as the finding of the offeror's dog). If the condition is something that only one party can perform, both the offeror and offeree are protected – the offeror is protected because he will only ever be contractually obliged to one of the many offerees; and the offeree is protected, because if she does perform the condition, the offeror will be contractually obliged to pay her.

In unilateral contracts, the requirement that acceptance be communicated to the offeror is waived. The offeree accepts by performing the condition, and the offeree's performance is also treated as the price, or consideration, for the offeror's promise.

The offeror is master of the offer; it is he who decides whether the contract will be unilateral or bilateral. A bilateral contract is one in which there are duties on both sides, rights on both sides, and consideration on both sides. If an offeror makes an offer such as "If you promise to paint my house, I will give you $100," this is a bilateral contract once the offeree accepts. Each side has promised to do something, and each side will get something in return for what they have done.

Uncertainty, incompleteness and severance

If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law.[36] An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as price or safety, may cause the entire contract to fail. However, a court will attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract.[37]

Courts may also look to external standards, which are either mentioned explicitly in the contract[38] or implied by common practice in a certain field.[39] In addition, the court may also imply a term; if price is excluded, the court may imply a reasonable price, with the exception of land, and second-hand goods, which are unique.

If there are uncertain or incomplete clauses in the contract, and all options in resolving its true meaning have failed, it may be possible to sever and void just those affected clauses if the contract includes a severability clause. The test of whether a clause is severable is an objective test—whether a reasonable person would see the contract standing even without the clauses.

Contractual terms

A contractual term is "[a]ny provision forming part of a contract".[40] Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal weight as they are peripheral to the objectives of the contract.

Boilerplate

As discussed in Tina L. Stark's Negotiating and Drafting Contract Boilerplate, when lawyers refer to a “boilerplate” provision, they are referring to any standardized, “one size fits all” contract provision. But lawyers also use the term in a more narrow context to refer to certain provisions that appear at the end of the contract. Typically, these provisions tell the parties how to govern their relationship and administer the contract. Although often thought to be of secondary importance, these provisions have significant business and legal consequences.[41] Common provisions include the governing law provision, venue, assignment and delegation provisions, waiver of jury trial provisions, notice provisions, and force majeure provisions.[42]

Classification of term

It is an objective matter of fact whether a term goes to the root of a contract. By way of illustration, an actress' obligation to perform the opening night of a theatrical production is a condition,[44] whereas a singers obligation to perform during the first three days of rehearsal is a warranty.[45]

Statute may also declare a term or nature of term to be a condition or warranty; for example the Sale of Goods Act 1979 s15A[46] provides that terms as to title, description, quality and sample (as described in the Act) are conditions save in certain defined circumstances.

  • Innominate term. Lord Diplock, in Hong Kong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd,[47] created the concept of an innominate term, breach of which may or not go to the root of the contract depending upon the nature of the breach. Breach of these terms, as with all terms, will give rise to damages. Whether or not it repudiates the contract depends upon whether legal benefit of the contract has been removed from the innocent party. Megaw LJ, in 1970, preferred the legal certainty of using the classic categories of condition or warranty.[48] This was interpreted by the House of Lords as merely restricting its application in Reardon Smith Line Ltd. v Hansen-Tangen.[49]

Status as a term

Status  as a term is important as a party can only take legal action for the non fulfillment of a term as opposed to representations or mere puffery. Legally speaking, only statements that amount to a term create contractual obligations. There are various factor that a court may take into account in determining the nature of a statement. In particular, the importance apparently placed on the statement by the parties at the time the contract is made is likely to be significant. In Bannerman v. White[50] it was held a term of a contract for sale and purchase of hops that they had not been treated with sulphur, since the buyer made very explicit his unwillingness to accept hops so treated, saying that he had no use for them. The relative knowledge of the parties may also be a factor, as in Bissett v. Wilkinson[51] in which a statement that farmland being sold would carry 2000 sheep if worked by one team was held merely a representation (it was also only an opinion and therefore not actionable as misrepresentation). The reason this was not a term was that the seller had no basis for making the statement, as the buyer knew, and the buyer was prepared to rely on his own and his son's knowledge of farming.

Implied terms

A term may either be express or implied. An express term is stated by the parties during negotiation or written in a contractual document. Implied terms are not stated but nevertheless form a provision of the contract.

Terms implied in fact

Terms may be implied due to the facts of the proceedings by which the contract was formed. In the Australian case of BP Refinery Westernport v. Shire of Hastings[52] the UK Privy Council proposed a five stage test to determine situations where the facts of a case may imply terms (this only applies to formal contracts in Australia).[53] However, the English Court of Appeal sounded a note of caution with regard to the BP case in Philips Electronique Grand Public SA v. British Sky Broadcasting Ltd[54] in which the Master of the Rolls described the test as "almost misleading" in its simplicity.[55] The classic tests have been the "business efficacy test" and the "officious bystander test". The first of these was proposed by Lord Justice Bowen in The Moorcock.[56] This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied - the bare minimum to achieve this goal. The officious bystander test derives its name from the judgment of Lord Justice Mackinnon in Shirlaw v. Southern Foundries (1926) Ltd[57] but the test actually originates in the judgment of Lord Justice Scrutton in Reigate v. Union Manufacturing Co (Ramsbottom) Ltd[58] This test is that a term can only be implied in fact if it is such a term that had an "officious bystander" listening to the contract negotiations suggested that they should include this term the parties would "dismiss him with a common 'Oh of course!'". It is at least questionable whether this is truly a separate test or just a description of how one might go about arriving at a decision on the basis of the business efficacy test.

Some jurisdictions, notably Australia, Israel and India, imply a term of good faith into contracts. A final way in which terms may be implied due to fact is through a previous course of dealing or common trade practice. The Uniform Commercial Code of the United States also imposes a duty of good faith in performance and enforcement of contracts covered by the Code, which cannot be derogated from.

Terms implied in law

These are terms that have been implied into standardized relationships. Instances of this are quite numerous, especially in employment contracts and shipping contracts.

Common law
  • Liverpool City Council v. Irwin[59] established a term to be implied into all contracts between tenant and landlord in multi-storey blocks that the landlord is obliged to take reasonable care to keep the common areas in a reasonable state of repair.
  • Wong Mee Wan v Kwan Kin Travel Services Ltd.[60] established that when a tour operator contracts to for the sale of goods.

These terms will be implied into all contracts of the same nature as a matter of law.

Statute law

The rules by which many contracts are governed are provided in specialized statutes that deal with particular subjects. Most countries, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices. For example, most American states have adopted Article 2 of the Uniform Commercial Code, which regulates contracts for the sale of goods. The most important legislation implying terms under United Kingdom law are the Sale of Goods Act 1979, the Consumer Protection (Distance Selling) Regulations 2000 and the Supply of Goods and Services Act 1982 which imply terms into all contracts whereby goods are sold or services provided.

Coercive vs voluntary contractive exchanges

There are a few ways of determining whether a contract has been coerced or is voluntary:

  • Moral consideration: Objective consideration of right or wrong outside of the objective cause, or the perceived cause. Example: X (event) occurs everyday at 5 pm. X is wrong. Anything that avoids X is good; allowing X, even if all parties agree, is bad.
  • Phenomenological consideration - what models did the participants have which influenced the perception of what was to occur or what had occurred. Example: I observe X, Y (events) every day at 5 pm. I contract against X. Today I did / did not see Y occur.
  • Statistical consideration - did the participants have a statistical prediction, likelihood of an event occurring which is covered by the contract. Example: X (event) happens every day at 5 pm, I enter a contract to avoid X. X does or does not occur.

Setting aside the contract

There can be four different ways in which contracts can be set aside. A contract may be deemed 'void', 'voidable', 'unenforceable'or 'ineffective'. Voidness implies that a contract never came into existence. Voidability implies that one or both parties may declare a contract ineffective at their wish. Unenforceability implies that neither party may have recourse to a court for a remedy. Ineffectiveness implies that the contract terminates by order of a court where a public body has failed to satisfy public procurement law. To rescind is to set aside or unmake a contract.

Misrepresentation

Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

There are two types of misrepresentation in contract law, fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party in question knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable.

According to Gordon v. Selico[61] it is possible to make a misrepresentation either by words or by conduct, although not everything said or done is capable of constituting a misrepresentation. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation.

Both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity. Neither is available as of right and in most jurisdictions and most circumstances a court will not normally order specific performance. A contract for the sale of real property is a notable exception. In most jurisdictions, the sale of real property is enforceable by specific performance. Even in this case the defenses to an action in equity (such as laches, the bona fide purchaser rule, or unclean hands) may act as a bar to specific performance.

Related to orders for specific performance, an injunction may be requested when the contract prohibits a certain action. Action for injunction would prohibit the person from performing the act specified in the contract.

Procedure

In the United States, in order to obtain damages for breach of contract or to obtain specific performance or other equitable relief, the aggrieved injured party may file a civil (non-criminal) lawsuit in state court (unless there is diversity of citizenship giving rise to federal jurisdiction). If the contract contains an arbitration clause, the aggrieved party must submit an arbitration claim in accordance with the procedures set forth in the agreement.

Many contracts provide that all disputes arising thereunder will be resolved by arbitration, rather than litigated in courts. Customer claims against securities brokers and dealers are almost always resolved by arbitration because securities dealers are required, under the terms of their membership in self-regulatory organizations such as the Financial Industry Regulatory Authority (formerly the NASD) or NYSE to arbitrate disputes with their customers. The firms then began including arbitration agreements in their customer agreements, requiring their customers to arbitrate disputes.[62] On the other hand, certain claims have been held to be non-arbitrable if they implicate a public interest that goes beyond the narrow interests of the parties to the agreement (i.e., claims that a party violated a contract by engaging in illegal anti-competitive conduct or civil rights violations). Arbitration judgments may generally be enforced in the same manner as ordinary court judgments. However, arbitral decisions are generally immune from appeal in the United States unless there is a showing that the arbitrator's decision was irrational or tainted by fraud. Virtually all states have adopted the Uniform Arbitration Act to facilitate the enforcement of arbitrated judgments. Notably, New York State, where a sizable portion of major commercial agreements are executed and performed, has not adopted the Uniform Arbitration Act.[63]

In England and Wales, a contract may be enforced by use of a claim , or in urgent cases by applying for an interim injunction to prevent a breach. Likewise, in the United States, an aggrieved party may apply for injunctive relief to prevent a threatened breach of contract, where such breach would result in irreparable harm that could not be adequately remedied by money damages.

Other contract

Online contracts, which are easily made, are usually valid on a smaller scale for a period of one to three months, while on a larger scale can last about five years. As with all things legal, especially in regards to the ever-evolving internet, general rules like length of validity have many exceptions. All cases are evaluated on their own merits, and those merits are defined by the facts presented in each instance. It is up to the owner of the site to do what it can to guarantee enforceability of its contracts. Though 90% of people sign online contracts before reading the content[citation needed], E-signature laws have made the electronic contract and signature as legally valid as a paper contract. It has been estimated that roughly one hundred and ten electronic contracts are signed every second.

Contractual theory

Contract theory is the body of legal theory that addresses normative and conceptual questions in contract law. One of the most important questions asked in contract theory is why contracts are enforced. One prominent answer to this question focuses on the economic benefits of enforcing bargains. Another approach, associated with Charles Fried, maintains that the purpose of contract law is to enforce promises. This theory is developed in Fried's book, Contract as Promise. Other approaches to contract theory are found in the writings of legal realists and critical legal studies theorists.

More generally, writers have propounded Marxist and feminist interpretations of contract. Attempts at overarching understandings of the purpose and nature of contract as a phenomenon have been made, notably 'relational contract theory' originally developed by U.S. contracts scholars Ian Roderick Macneil and Stewart Macaulay, building at least in part on the contract theory work of U.S. scholar Lon L. Fuller, while U.S. scholars have been at the forefront of developing economic theories of contract focussing on questions of transaction cost and so-called 'efficient breach' theory.

Another dimension of the theoretical debate in contract is its place within, and relationship to a wider law of obligations. Obligations have traditionally been divided into contracts, which are voluntarily undertaken and owed to a specific person or persons, and obligations in tort which are based on the wrongful infliction of harm to certain protected interests, primarily imposed by the law, and typically owed to a wider class of persons.

Recently it has been accepted that there is a third category, restitutionary obligations, based on the unjust enrichment of the defendant at the plaintiff’s expense. Contractual liability, reflecting the constitutive function of contract, is generally for failing to make things better (by not rendering the expected performance), liability in tort is generally for action (as opposed to omission) making things worse, and liability in restitution is for unjustly taking or retaining the benefit of the plaintiff’s money or work.[64]

The common law describes the circumstances under which the law will recognise the existence of rights, privilege or power arising out of a promise.

National contract law

German contract law

English contract law

Australian contract law

See also

References

Bibliography

  • Ewan McKendrick, Contract Law - Text, Cases and Materials (2005) Oxford University Press ISBN 0-19-927480-0
  • P.S. Atiyah, The Rise and Fall of Freedom of Contract (1979) Clarendon Press ISBN 0-19-825342-7
  • Randy E. Barnett, Contracts (2003) Aspen Publishers ISBN 0-7355-6535-2

Notes

  1. ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 523. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4. 
  2. ^ Hans Wehberg, Pacta Sunt Servanda, The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.
  3. ^ e.g. In England, s. 52, Law of Property Act 1900
  4. ^ 2008 Merriam-Webster online dictionary
  5. ^ [1893] 2 QB 256
  6. ^ [1968] 1 WLR 1204
  7. ^ [1961] 1 QB 394
  8. ^ [1953] 1 QB 401
  9. ^ (1870-71) LR 6 QB 597
  10. ^ R. Austen-Baker, 'Gilmore and the Strange Case of the Failure of Contract to Die After All' (2002) 18 Journal of Contract Law 1
  11. ^ e.g. Lord Steyn, 'Contract Law: Fulfilling the Reasonable Expectations of Honest Men' (1997) 113 LQR 433; c.f. § 133 BGB in Germany, where "the actual will of the contracting party, not the literal sense of words, is to be determined"
  12. ^ Restatement (Second) of Contracts § 32 (1981) (emphasis added)
  13. ^ law.com Law Dictionary
  14. ^ e.g. In Germany, § 311 BGB
  15. ^ For a detailed and authoritative account of this process, see A. W. B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit, (OUP: Oxford, 1975).
  16. ^ The rule in Pinnel's Case - Foakes v Beer (1884) 9 App Cas 605
  17. ^ Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701 in which the wrappers from three chocolate bars was held to be part of the consideration for the sale and purchase of a musical recording.
  18. ^ Eastwood v. Kenyon (1840) 11 Ad&E 438
  19. ^ (1809) 2 Camp. 317.
  20. ^ (1602) Co. Rep. 117a.
  21. ^ (1883) L.R. 9 App. Cas. 605.
  22. ^ [1991] 1 Q.B. 1.
  23. ^ [2007] E.W.C.A. Civ. 1329. For commentary, see R. Austen-Baker (2008) 71 Modern Law Review 611.
  24. ^ See, further, Estoppel in English Law.
  25. ^ (1831) 1 B. & Ad. 950.
  26. ^ See, e.g., Shadwell v. Shadwell (1860) 9 C.B.N.S. 159.
  27. ^ Austotel v. Franklins (1989) 16 NSWLR 582
  28. ^ e.g. P.S. Atiyah, 'Consideration: A Restatement' in Essays on Contract (1986) p.195, Oxford University Press
  29. ^ Central London Property Trust Ltd. v. High Trees House Ltd. [1947] KB 130
  30. ^ Balfour v. Balfour [1919] 2 KB 571
  31. ^ Merritt v. Merritt [1970] 2 All ER 760; [1970] 1 WLR 1211; CA
  32. ^ in Australia it is known as the Sales of Goods Act in most states, and in Victoria the Goods Act 1958
  33. ^ L'Estrange v. Graucob [1934] 2 KB 394
  34. ^ Curtis v. Chemical Cleaning and Dyeing Co [1951] 1 KB 805
  35. ^ Balmain New Ferry Company Ltd v. Robertson (1906) 4 CLR 379
  36. ^ Fry v. Barnes (1953) 2 D.L.R. 817 (B.C.S.C)
  37. ^ Hillas and Co. Ltd. v. Arcos Ltd. (1932) 147 LT 503
  38. ^ Whitlock v. Brew (1968) 118 CLR 445
  39. ^ Three Rivers Trading Co., Ltd. v. Gwinear & District Farmers, Ltd. (1967) 111 Sol. J. 831
  40. ^ Martin, E [ed] & Law, J [ed], Oxford Dictionary of Law, ed6 (2006, London:OUP).
  41. ^ Jamie Wodetzki, "Boilerplate that Bites: The Arbitration Clause", 2006
  42. ^ Tina L. Stark, Negotiating and Drafting Contract Boilerplate, (ALM Publishing 2003, pp.5-7). ISBN 978-1-58852-105-7
  43. ^ Not to be confused with a product warranty, which is always referred to as a 'guarantee' in law.
  44. ^ Poussard v. Spiers and Pond (1876) 1 QBD 410
  45. ^ Bettini v. Gye (1876) 1 QBD 183
  46. ^ As added by the Sale of Goods Act 1994 s4(1).
  47. ^ [1962] 1 All ER 474
  48. ^ Maredelanto Compania Naviera SA v Bergbau-Handel GmbH. The Mihalis Angelos [1970] 3 All ER 125.
  49. ^ [1976] 3 All ER 570
  50. ^ (1861) 10 CBNS 844
  51. ^ [1927] AC 177
  52. ^ (1977) 180 CLR 266
  53. ^ Byrne and Frew v. Australian Airlines Ltd (1995) 185 CLR 410
  54. ^ [1995] EMLR 472
  55. ^ [1995] EMLR 472 at 481
  56. ^ (1889) 14 PD 64
  57. ^ [1939] 2 KB 206
  58. ^ [1918] 1 KB 592
  59. ^ [1976] 2 WLR 562
  60. ^ [1995] 4 All ER 745
  61. ^ Gordon v. Selico (1986) 18 HLR 219
  62. ^ Introduction to Securities Arbitration - an Overview from SECLaw.com the online leader in securities law news, information and commentary
  63. ^ New York Civil Procedure Law and Rules § 7501, et seq.
  64. ^ Beatson, Anson’s Law of Contract (1998) 27th ed. OUP, p.21

External links


1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

CONTRACT (Lat. contractus, from contrahere, to draw together, to bind), the legal term for a bargain or agreement; some writers, following the Indian Contract Act, confine the term to agreements enforceable by law: this, though not yet universally adopted, seems an improvement. Enforcement of good faith in matters of bargain and promise is among the most important functions of legal justice. It might not be too much to say that, next after keeping the peace and securing property against violence and fraud so that business may be possible, it is the most important. Yet we shall find that the importance of contract is developed comparatively late in the history of law. The commonwealth needs elaborate rules about contracts only when it is advanced enough in civilization and trade to have an elaborate system of credit. The Roman law of the empire dealt with contract, indeed, in a fairly adequate manner, though it never had a complete or uniform theory; and the Roman law, as settled by Justinian, appears to have satisfied the Eastern empire long after the Western nations had begun to recast their institutions, and the traders of the Mediterranean had struck out a cosmopolitan body of rules and custom known as the Law Merchant, which claimed acceptance in the name neither of Justinian nor of the Church, but of universal reason. It was amply proved afterwards that the foundations of the Roman system were strong enough to carry the fabric of modern legislation. But the collapse of the Roman power in western Christendom threw society back into chaos, and reduced men's ideas of ordered justice and law to a condition compared with which the earliest Roman law known to us is modern.

In this condition of legal ideas, which it would be absurd to call jurisprudence, the general duty of keeping faith is not recognized except as a matter of religious or social observance. Those who desire to be assured of anything that lies in promise must exact an oath, or a pledge, or personal sureties; and even then.the court of their people - in England the Hundred Court in the first instance - will do nothing for them in the first case, and not much in the two latter. Probably the settlement of a blood-feud, with provisions for the payment of the fine by instalments, was the nearest approach to a continuing contract, as we now understand the term, which the experience of Germanic antiquity could furnish. It is also probable that the performance of such undertakings, as it concerned the general peace, was at an early time regarded as material to the commonweal; and that these covenants of peace, rather than the rudimentary selling and bartering of their day, first caused our Germanic ancestors to realize the importance of putting some promises at any rate under public sanction. We have not now to attempt any reconstruction of archaic judgment and justice, or the lack of either, at any period of the darkness and twilight which precede the history of the middle ages. But the history of the law, and even the present form of much law still common to almost all the English-speaking world, can be understood only when we bear in mind that our forefathers did not start from any general conception of the state's duty to enforce private agreements, but, on the contrary, the state's powers and functions in this regard were extended gradually, unsystematically, and by shifts and devices of ingenious suitors and counsel, aided by judges, rather than by any direct provisions of princes and rulers. Money debts, it is true, were recoverable from an early time. But this was not because the debtor had promised to repay the loan; it was because the money was deemed still to belong to the creditor, as if the identical coins were merely in the debtor's custody. The creditor sued to recover money, for centuries after the Norman Conquest, in exactly the same form which he would have used to demand possession of land; the action of debt closely resembled the " real actions," and, like them, might be finally determined by a judicial combat; and down to Blackstone's time the creditor was said to have a property in the debt - property which the debtor had " granted " him. Giving credit, in this way of thinking, is not reliance on the right to call hereafter for an act, the payment of so much current money or its equivalent, to be performed by the debtor, but merely suspension of the immediate right to possess one's own particular money, as the owner of a house let for a term suspends his right to occupy it. This was no road to the modern doctrine of contract, and the passage had to be made another way. In fact the old action of debt covered part of the ground of contract only by accident. It was really an action to recover any property that was not land; for the remedy of Action for a dispossessed owner of chattels, afterwards known p as detinue, was only a slightly varying form of it. If the property claimed was a certain sum of money, it might be due because the defendant had received money on loan, or because he had received goods of which the agreed price remained unpaid; or, in later times at any rate, because he had become liable in some way by judgment, statute or other authority of law, to pay a fine or fixed penalty to the plaintiff. Here the person recovering might be as considerable as the lord of a manor, or as mean as a " common informer "; the principle was the same. In every case outside this last class, that is to say, whenever there was a debt in the popular sense of the word, it had to be shown that the defendant had actually received the money or goods; this value received came to be called quid pro quo - a term unknown, to all appearance, out of England. Nevertheless the foundation of the plaintiff's right was not bargain or promise, but the unjust detention by the defendant of the plaintiff's money or goods.

We are not concerned here to trace the change from the ancient method of proof - oath backed by " good suit," i.e. the oaths of an adequate number of friends and neighbours - through the earlier form of jury trial, in which the jury were supposed to know the truth of their own knowledge, to the modern establishment of facts by testimony brought before a jury who are bound to give their verdict according to the evidence. But there was one mode of proof which, after the Norman Conquest, made a material addition to the substantive law. This was the proof by writing, which means writing authenticated by seal. Proof by writing was admitted under Roman influence, but, once admitted, it acquired the character of being conclusive which belonged to all proof in early Germanic procedure. Oath, ordeal and battle were all final in their results. When the process was started there was no room for discussion. So the sealed writing was final too, and a man could not deny his own deed. We still say that he cannot, but with modern refinements. Thus the deed, being allowed as a solemn and probative document, furnished a means by which a man could bind himself, or rather effectually declare himself bound, to anything not positively forbidden by law. Whoever could afford parchment and the services of a clerk might have the benefit of a " formal contract " in the Roman sense of the term. At this day the form of deed called a bond or " obligation " is, as it stands settled after various experiments, extremely artificial; but it is essentially a solemn admission of liability, though its conclusive stringency has been relaxed by modern legislation and practice in the interest of substantial justice. By this means the performance of all sorts of undertakings, pecuniary and otherwise, could be and was legally secured. Bonds were well known in the r3th century, and from the 14th century onwards were freely used for commercial and other purposes; as for certain limited purposes they still are. The " covenant " of modern draftsmen is a direct promise made by deed; it occurs mainly as incident to conveyances of land. The medieval " covenant," conventio, was, when we first hear of it, practically equivalent to a lease, and never became a common instrument of miscellaneous contracting, though the old books recognize the possibility of turning it to various uses of which there are examples; nor had it any sensible influence on the later development of the law. On the whole, in the old common law one could do a great deal by deed, but very little without deed. The minor bargains of daily life, so far as they involved mutual credit, were left to the jurisdiction of inferior courts, of the Law Merchant, and - last, not least - of the Church.

Popular custom, in all European countries, recognized simpler ways of pledging faith than parchment and seal. A handshake was enough to bind a bargain. Whatever secular law might say, the Church said it was an open sin to break plighted faith; a matter, therefore, for spiritual correction, in other words, for compulsion exercised on the defaulter by the bishop's or the archdeacon's court, armed with the power of excommunication. In this way the ecclesiastical courts acquired much business which was, in fact, as secular as that of a modern county court, with the incident profits. Medieval courts lived by the suitors' fees. What were the king's judges to do? However high they put their claims in the course of the rivalry between Church and Crown, they could not effectually prohibit the bishop or his official from dealing with matters for which the king's court provided no remedy. Continental jurists had seen their way, starting from the Roman system as it was left by Justinian, to reduce its formalities to a vanishing quantity, and expand their jurisdiction to the full breadth of current usage. English judges could not do this in the 15th century, if they could ever have done so. Nor would simplification of the requisites of a deed, such as has now been introduced in many jurisdictions, have been of much use at a time when only a minority even of well-to-do laymen could write with any facility.

There was no principle and no form of action in English law which recognized any general duty of keeping promises. But could not breach of faith by which a party had suffered be treated as some kind of legal wrong ? There was a known action of trespass and a known action of deceit, this last of a special kind, mostly for what would now be called abuse of the process of the court; but in the later middle ages it was an admitted remedy for giving a false warranty on a sale of goods. Also there was room for actions " on the case," on facts analogous to those covered by the old writs, though not precisely within their terms. If the king's judges were to capture this important branch of business from the clerical hands which threatened to engross it, the only way was to devise some new form of action on the case. There were signs, moreover, that the court of chancery would not neglect so promising a field if the common law judges left it open.

Fidel laesio. The mere fact of unfulfilled promise was not enough, in the eyes of medieval English lawyers, to give a handle to the law. But injury caused by reliance on another man's under taking was different. The special undertaking or " assumption " creates a duty which is broken by fraudulent or incompetent miscarriage in the performance. I profess to be a skilled farrier, and lame your horse. It is no trespass, because you trusted the horse to me; but it is something like a trespass, and very like a deceit. I profess to be a competent builder; you employ me to build a house, and I scamp the work so that the house is not fit to live in. An action on the case was allowed without much difficulty for such defaults. The next step, and a long one, was to provide for total failure to perform. The builder, instead of doing bad work, does nothing at all within the time agreed upon for completing the house. Can it be said that he has done a wrong? At first the judges felt bound to hold that this was going too far; but suitors anxious to have the benefit of the king's justice persevered, and in the course of the 15th century the new form of action, called assumpsit from the statement of the defendant's undertaking on which it was founded, was allowed as a remedy for non-performance as well as for faulty performance. Being an action for damages, and not for a certain amount, it escaped the strict rules of proof which applied to the old action of debt; being in form for a kind of trespass, and thus a privileged appeal to the king to do right for a breach of his peace, it escaped likewise the risk of the defendant clearing himself by oath according to the ancient popular procedure. Hence, as time went on, suitors were emboldened to use " assumpsit " as an alternative for debt, though it had been introduced only for cases where there was no other remedy. By the end of the 26th century they got their way; and it became a settled doctrine that the existence of a debt was enough for the court to presume an undertaking to pay it. The new form of action was made to cover the whole ground of informal contracts, and, by extremely ingenious devices of pleading, developed from the presumption or fiction that a man had promised to pay what he ought, it was extended in time to a great variety of cases where there was in fact no contract at all.

The new system gave no new force to gratuitous promises. For it was assumed, as the foundation of the jurisdiction, that the plaintiff had been induced by the defendant's undertaking, and with the defendant's consent, to alter his position for the worse in some way. He had paid or bound himself to pay money, he had parted with goods, he had spent time in labour, or he had foregone some profit or legal right. If he had not committed himself to anything on the strength of the defendant's promise, he had suffered no damage and had no cause of action. Disappointment of expectations is unpleasant, but it is not of itself damnum in a legal sense. To sum up the effect of this in modern language, the plaintiff must have given value of some kind, more or less, for the defendant's undertaking. This something given by the promisee and accepted by the promisor in return for his undertaking is what we now call the consideration for the promise. In cases where debt would also lie, it coincides with the old requirement of value received (quid pro quo) as a condition of the action of debt being available. But the conception is far wider, for the consideration for a promise need not be anything capable of delivery or possession. It may be money or goods; but it may also be an act or series of acts; further (and this is of the first importance for our modern law), it may itself be a promise to pay money or deliver goods, or to do work, or otherwise to act or not to act in some specified way. Again, it need not be anything which is obviously for the promisor's benefit. His acceptance shows that he set some value on it; but in truth the promisee's burden, and not the promisor's benefit, is material. The last refinement of holding that, when mutual promises are exchanged between parties, each promise is a consideration for the other and makes it binding, was conclusively accepted only in the 17th century. The result was that promises of mere bounty could no more be enforced than before, but any kind of lawful bargain could; and there is no reason to doubt that this was in substance what most men wanted. Ancient popular usage and feeling show little more encouragement than ancient law itself to merely gratuitous alienation or obligations. Also (subject, till quite modern times, to the general rule of common-law procedure that parties could not be their own witnesses, and subject to various modern statutory requirements in various classes of cases) no particular kind of proof was necessary. The necessity of consideration for the validity of simple contracts was unfortunately confused by commentators, almost from the beginning of its history, with the perfectly different rules of the Roman law about nudum pactum, which very few English lawyers took the pains to understand. Hasty comparison of misunderstood Roman law, sometimes in its civil and sometimes in its ecclesiastical form, is answerable for a large proportion of the worst faults in old-fashioned text-books. Doubtless many canonists, probably some common lawyers, and possibly some of the judges of the Renaissance time, supposed that ex nudo pacto non oritur actio was in some way a proposition of universal reason; but it is a long way from this to concluding that the Roman law had any substantial influence on the English.

The doctrine of consideration is in fact peculiar to those jurisdictions where the common law of England is in force, or is the foundation of the received law, or, as in South Africa, has made large encroachments upon it in practice. Substantially similar results are obtained in other modern systems by professing to enforce all deliberate promises, but imposing stricter conditions of proof where the promise is gratuitous.

As obligations embodied in the solemn form of a deed were thereby made enforceable before the doctrine of consideration was known, so they still remain. When a man has by deed declared himself bound, there is no need to look for any bargain, or even to ask whether the other party has assented. This rugged fragment of ancient law remains embedded in our elaborate modern structure. Nevertheless gratuitous promises, even by deed, get only their strict and bare rights. There may be an action upon them, but the powerful remedy of specific performance - often the only one worth having - is denied them. For this is derived from the extraordinary jurisdiction of the chancellor, and the equity administered by the chancellor was not for plaintiffs who could not show substantial merit as well as legal claims. The singular position of promises made by deed is best left out of account in considering the general doctrine of the formation of contracts; and as to interpretation there is no difference. In what follows, therefore, it will be needless, as a rule, to distinguish between " parol " or " simple " contracts, that is, contracts not made by deed, and obligations undertaken by deed.

From the conception of a promise being valid only when given in return for something accepted in consideration of the promise, it follows that the giving of the promise and of the consideration must be simultaneous. Words of promise uttered before there is a consideration for them can be no more than an offer; and, on the other hand, the obligation declared in words, or inferred from acts and conduct, on the acceptance of a consideration, is fixed at that time, and cannot be varied by subsequent declaration, though such declarations may be material as admissions. It was a long while, however, before this consequence was clearly perceived. In the 18th century it was attempted, and for a time with considerable success, to extend the range of enforceable promises without regard to what the principles of the law would bear, in order to satisfy a sense of natural justice. This movement was checked only within living memory, and traces of it remain in certain apparently anomalous rules which are indeed of little practical importance, but which private writers, at any rate, cannot safely treat as obsolete. However, the question of " past consideration " is too minute and technical to be pursued here. The general result is that a binding contract is regularly constituted by the acceptance of an offer, and at the moment when it is accepted; and, however complicated the transaction may be, there must always, in the theory of English law, be such a moment in every case where a contract is formed. It also follows that an offer before acceptance creates no duty of any kind (" A revocable promise is unknown to our law " - Anson); which is by no means necessarily the case in systems where the English rule of consideration is unknown. The question what amounts to final acceptance of an offer is, on the other hand, a question ultimately depending on common sense, and must be treated on similar lines in all civilized countries where the business of life is carried on in a generally similar way. The rules that an offer is understood to be made only for a reasonable time, according to the nature of the case, and lapses if not accepted in due time; that an expressed revocation of an offer can take effect only if communicated to the other party before he has accepted; that acceptance of an offer must be according to its terms, and a conditional or qualified acceptance is only a new proposal, and the like, may be regarded as standing on general convenience as much as on any technical ground.

Great difficulties have arisen, and in other systems as well as in the English, as to the completion of contracts between persons at a distance. There must be some rule, and Corre- yet any rule that can be framed must seem arbitrary. S' y y spondence in some cases. On the whole the modern doctrine is to some such effect as the following: The proposer of a contract can prescribe or authorize any mode, or at least any reasonable mode, of acceptance, and if he specifies none he is deemed to authorize the use of any reasonable mode in common use, and especially the post. Acceptance in words is not always required; an offer may be well accepted by an act clearly referable to the proposed agreement, and constituting the whole or part of the performance asked for - say the despatch of goods in answer to an order by post, or the doing of work bespoken; and it seems that in such cases further communication - unless expressly requested - is not necessary as matter of law, however prudent and desirable it may be. Where a promise and not an act is sought (as where a tradesman writes a letter offering goods for sale on credit), it must be communicated; in the absence of special direction letter post or telegraph may be used; and, further, the acceptor having done his part when his answer is committed to the post, English courts now hold (after much discussion and doubt) that any delay or miscarriage in course of post is at the proposer's risk, so that a man may be bound by an acceptance he never received. It is generally thought - though there is no English decision - that, in conformity with this last rule, a revocation by telegraph of an acceptance already posted would be inoperative. Much more elaborate rules are laid down in some continental codes. It seems doubtful whether their complication achieves any gain of substantial justice worth the price. At first sight it looks easy to solve some of the difficulties by admitting an interval during which one party is bound and the other not. But, apart from the risk of starting fresh problems as hard as the old ones, English principles, as above said, require a contract to be concluded between the parties at one point of time, and any exception to this would have to be justified by very strong grounds of expediency. We have already assumed, but it should be specifically stated, that neither offers nor acceptances are confined to communications made in spoken or written words. Acts or signs may and constantly do signify proposal and assent. One does not in terms request a ferryman to put one across the river. Stepping into the boat is an offer to pay the usual fare for being ferried over, and the ferryman accepts it by putting off. This is a very simple case, but the principle is the same in all cases. Acts fitted to convey to a reasonable man the proposal of an agreement, or the acceptance of a proposal he has made, are as good in law as equivalent express words. The term " implied contract " is current in this connexion, but it is unfortunately ambiguous. It sometimes means a contract concluded by acts, not words, of one or both parties, but still a real agreement; sometimes an obligation imposed by law where there is not any agreement in fact, for which the name " quasi-contract " is more appropriate and now usual.

The obligation of contract is an obligation created and deter mined by the will of the parties. Herein is the characteristic difference of contract from all other branches of law.

The business of the law, therefore, is to give effect so tatterp on. re" g i far as possible to the intention of the parties, and all the rules for interpreting contracts go back to this fundamental principle and are controlled by it. Every one knows that its application is not always obvious. Parties often express themselves obscurely; still oftener they leave large parts of their intention unexpressed, or (which for the law is the same thing) have not formed any intention at all as to what is to be done in certain events. But even where the law has to fill up gaps by judicial conjecture, the guiding principle still is, or ought to be, the consideration of what either party has given the other reasonable cause to expect of him. The court aims not at imposing terms on the parties, but at fixing the terms left blank as the parties would or reasonably might have fixed them if all the possibilities had been clearly before their minds. For this purpose resort must be had to various tests: the court may look to the analogy of what the parties have expressly provided in case of other specified events, to the constant or general usage of persons engaged in like business, and, at need, ultimately to the court's own sense of what is just and expedient. All auxiliary rules of this kind are subject to the actual will of the parties, and are applied only for want of sufficient declaration of it by the parties themselves. A rule which can take effect against the judicially known will of the parties is not a rule of construction or interpretation, but a positive rule of law. However artificial some rules of construction may seem, this test will always hold. In modern times the courts have avoide d laying down new rules of construction, preferring to keep a free hand and deal with each case on its merits as a whole. It should be observed that the fulfilment of a contract may create a relation between the parties which, once established, is governed by fixed rules of law not variable by the preceding agreement. Marriage is the most conspicuous example of this, and perhaps the only complete one in our modern law.

There are certain rules of evidence which to some extent guide or restrain interpretation. In particular, oral testimony is not allowed to vary the terms of an agreement reduced to writing. This is really in aid of the parties ' Evidence. deliberate intention, for the object of reducing terms to writing is to make them certain. There are apparent exceptions to the rule, of which the most conspicuous is the admission of evidence to show that words were used in a special meaning current in the place or trade in question. But they are reducible, it will be found, to applications (perhaps over-subtle in some cases) of the still more general principles that, before giving legal force to a document, we must know that it is really what it purports to be, and that when we do give effect to it according to its terms we must be sure of what its terms really say. The rules of evidence here spoken of are modern, and have nothing to do with the archaic rule already mentioned as to the effect of a deed.

Every contracting party is bound to perform his promise according to its terms, and in case of any doubt in the sense in which the other party would reasonably understand theromise. Where the performance on one or both Per- P P formance. sides extends over an appreciable time, continuously or by instalments, questions may arise as to the right of either party to refuse or suspend further performance on the ground of some default on the other side. Attempts to lay down hard and fast rules on such questions are now discouraged, the aim of the courts being to give effect to the true substance and intent of the contract in every case. Nor will the court hold one part of the terms deliberately agreed to more or less material than another in modern business dealings. " In the contracts of merchants time is of the essence," as the Supreme Court of the United States has said in our own day. Certain ancient rules restraining the apparent literal effect of common provisions in mortgages and other instruments were in truth controlling rules of policy. New rules of this kind can be made only by legislation. Whether the parties did or did not in fact intend the obligation of a contract to be subject to unexpressed conditions is, however, a possible and not uncommon question of interpretation. One class of cases giving rise to such questions is that in which performance becomes impossible by some external cause not due to the promisor's own fault; a similar but not identical one is that in which the agreement could be literally performed, and yet the performance would not give the promisor the substance of what he bargained for; as happened in the " coronation cases " arising out of the postponement of the king's coronation in 1902. As to promises obviously absurd or impossible from the first, they are unenforceable only on the ground that the parties cannot have seriously meant to create a liability. For precisely the same reason, supported by the general usage and understanding of mankind, common social engagements, though they often fulfil all other requisites of a contract, have never been treated as binding in law.

In all matters of contract, as we have said, the ascertained will of the parties prevails. But this means a will both lawful. and free. Hence there are limits to the force of the Illegality general rule, fixed partly by the law of the land, which is above individual will and interests, partly by the need of securing good faith and justice between the parties themselves against fraud or misadventure. Agreements cannot be enforced when their performance would involve an offence against the law. There may be legal offence, it must be remembered, not only in acts commonly recognized as criminal, disloyal or immoral, but in the breach or non-observance of positive regulations made by the legislature, or persons having statutory authority, for a great variety of purposes. It would be useless to give details on the subject here. Again, there are cases where an agreement may be made and performed without offending the law, but on grounds of " public policy " it is not thought right that the performance should be a matter of legal obligation, even if the ordinary conditions of an enforceable contract are satisfied. A man may bet, in private at any rate, if he likes, and pay or receive as the event may be; but for many years the winner has had no right of action against the loser. Unfortunate timidity on the part of the judges, who attempted to draw distinctions instead of saying boldly that they would not entertain actions on wagers of any kind, threw this topic into the domain of legislation; and the laudable desire of parliament to discourage gambling, so far as might be, without attempting impossible prohibitions, has brought the law to a state of ludicrous complexity in both civil and criminal jurisdiction. But what is really important under this doctrine of public policy is the confinement of " contracts in restraint of trade " within special limits. In the middle ages and down to modern times there was a strong feeling - not merely an artificial legal doctrine - against monopolies and everything tending to monopoly. Agreements to keep up prices or not to compete were regarded as criminal. Gradually it was found that some kind of limited security against competition must be allowed if such transactions as the sale of a going concern with its goodwill, or the retirement of partners from a continuing firm, or the employment of confidential servants in matters involving trade secrets, were to be carried on to the satisfaction of the parties. Attempts to lay down fixed rules in these matters were made from time to time, but they were finally discredited by the decision of the House of Lords in the Maxim-Nordenfelt Company's case in 1894. Contracts " in restraint of trade " will now be held valid, provided that they are made for valuable consideration (this even if they are made by deed), and do not go beyond what can be thought reasonable for the protection of the interests concerned, and are not injurious to the public. (The Indian Contract Act, passed in 1872, has unfortunately embodied views now obsolete, and remains unamended.) All that remains of the old rules in England is the necessity of valuable consideration, whatever be the form of the contract, and a strong presumption - but not an absolute rule of law - that an unqualified agreement not to carry on a particular business is not reasonable.

Where there is no reason in the nature of the contract for not enforcing it, the consent of a contracting party may still not be binding on him because not given with due knowledge, or, if he is in a relation of dependence to the other party, with independent judgment. Inducing a man by deceit to enter into a contract may always be treated by the deceived party as a ground for avoiding his obligation, if he does so within a reasonable time after discovering the truth, and, in particular, before any innocent third person has acquired rights for value on the faith of the contract (see Fraud). Coercion would be treated on principle in the same way as fraud, but such cases hardly occur in modern times. There is a kind of moral domination, however, which our courts watch with the utmost jealousy, and repress under the name of "undue influence" when it is used to obtain pecuniary advantage. Persons in a position of legal or practical authority - guardians, confidential advisers, spiritual directors, and the like - must not abuse their authority for selfish ends. They are not forbidden to take benefits from those who depend on them or put their trust in them; but if they do, and the givers repent of their bounty, the whole burden of proof is on the takers to show that the gift was in the first instance made freely and with understanding. Large voluntary gifts or beneficial contracts, outside the limits within which natural affection and common practice justify them, are indeed not encouraged in any system of civilized law. Professional money-lenders were formerly checked by the usury law: since those laws were repealed in 1854, courts and juries have shown a certain astuteness in applying the rules of law as to fraud and undue influence - the latter with certain special features - to transactions with needy " expectant heirs " and other improvident persons which seem on the whole unconscionable. The Money Lenders Act of 1900 has fixed and (as finally interpreted by the House of Lords) also sharpened these developments. In the case of both fraud and undue influence, the person entitled to avoid a contract may, if so advised, ratify it afterwards; and ratification, if made with full knowledge and free judgment, is irrevocable. A contract made with a person deprived by unsound mind or intoxication of the capacity to form a rational judgment is on the same footing as a contract obtained by fraud, if the want of capacity is apparent to the other party.

There are many cases in which a statement made by one party to the other about a material fact will enable the other to avoid the contract if he has relied on it, and it was in fact untrue, though it may have been made at the time with honest sentat re= g ?' belief in its truth. This is so wherever, according to the common course of business, it is one party's business to know the facts, and the other practically must, or reasonably may, take the facts from him. In some classes of cases even inadvertent omission to disclose any material fact is treated as a misrepresentation. Contracts of insurance are the most important; here the insurer very seldom has the means of making any effective inquiry of his own. Misdescription of real property on a sale, without fraud, may according to its importance be a matter for compensation or for setting aside the contract. Promoters of companies are under special duties as to good faith and disclosure which have been worked out at great length in the modern decisions. But company law has become so complex within the present generation that, so far from throwing much light on larger principles, it is hardly intelligible without some previous grasp of them. Sometimes it is said that misrepresentation (apart from fraud) of any material fact will serve to avoid any and every kind of contract. It is submitted that this is certainly not the law as to the sale of goods or as to the contract to marry, and therefore the alleged rule cannot be laid down as universal. But it must be remembered that parties can, if they please, and not necessarily by the express terms of the contract itself, make the validity of their contract conditional on the existence of any matter of fact whatever, including the correctness of any particular statement. If they have done this, and the fact is not so, the contract has no force; not because there has been a misrepresentation, but because the parties agreed to be bound if the fact was so and not otherwise. It is a question of interpretation whether in a given case there was any such condition.

Mistake is said to be a ground for avoiding contracts, and there are cases which it is practically convenient to group under this. head. On principle they seem to be mostly reducible to failure of the acceptance to correspond with the offer, or absence of any real consideration for the promise. In such cases, whether there be fraud or not, no contract is ever formed, and therefore there is nothing which can be ratified - a distinction which may have important effects. Relief against mistake is given where parties who have really agreed, or rather their advisers, fail to express their intention correctly. Here, if the original true intention is fully proved - as to which the court is rightly cautious - the faulty document can be judicially rectified.

By the common law an infant (i.e. a person less than twenty-one years old) was bound by contracts made for " necessaries," i.e. y. such commodities as a jury holds, and the court thinks they may reasonably hold, suitable and required for the person's condition; also by contracts otherwise clearly for his benefit; all other contracts he might confirm or avoid after coming of age. An extremely ill-drawn act of 1874 absolutely deprived infants of the power of contracting loans, contracting for the supply of goods other than necessaries, and stating an' account so as to bind themselves; it also disabled them from binding themselves by ratification. The liability for necessaries is now declared by legislative authority in the Sale of Goods Act 1893; the modern doctrine is that it is in no case a true liability on contract. There is an obligation imposed by law to pay, not the agreed price, but a reasonable price. Practically, people who give credit to an infant do so at their peril, except in cases of obvious urgency.

Married women were incapable by the common law of contracting in their own names. At this day they can hold separate property and bind themselves to the extent of that property - not personally - by contract. The law before the Married Women's Property Acts (1882 and 1893, and earlier acts now superseded and repealed) was a very peculiar creature of the court of chancery; the number of cases in which it is necessary to go back to it is of course decreasing year by year. But a married woman can still be restrained from anticipating the income of her separate property, and the restriction is still commonly inserted in marriage settlements.

There is a great deal of philosophical interest about the nature and capacities of corporations, but for modern practical purposes it may be said that the legal powers of British corporations are directly or indirectly determined by acts of parliament. For companies under the Companies Acts the controlling instrument or written constitution is the memorandum of association. Company draftsmen, taught by experience, nowadays frame this in the most comprehensive terms. Questions of either personal or corporate disability are less frequent than they were. In any case they stand apart from the general principles which characterize our law of contract.

The rights created by contract are personal rights against the promisors and their legal representatives, and therefore different in kind from the rights of ownership and the like which are available against all the world. Nevertheless they may be and very commonly are capable of pecuniary estimation and estimated as part of a man's assets. Book debts are the most obvious example. Such rights are property in the larger sense: they are in modern law transmissible and alienable, unless the contract is of a kind implying personal confidence, or a contrary intention is otherwise shown. The rights created by negotiable instruments are an important and unique species of property, being not only exchangeable but the very staple of commercial currency. Contract and conveyance, again, are distinct in their nature, and sharply distinguished in the classical Roman law. But in the common law property in goods is transferred by a complete contract of sale without any further act, and under the French civil code and systems which have followed it a like rule applies not only to movables but to immovables. In English law procuring a man to break his contract is a civil wrong against the other contracting party, subject to exceptions which are still not clearly defined.

Authorities

History: Ames, " The History of Assumpsit," Harvard Law Rev. ii. I, 53 (Cambridge, Mass. 1889); Pollock and Maitland, History of English Law, 2nd ed., ii. 184-239 (Cambridge, 1898). Modern: Pollock, article " Contract " in Encyclopaedia of the Laws of England (2nd ed., London, 1907), a technical summary of the modern law; the same writer's edition of the Indian Contract Act (assisted by D. F. Mulla, London and Bombay, 1905) restates and discusses the principles of the common law besides commenting on the provisions of the Act in detail. Of the text-books, Anson, English Law of Contract, reached an eleventh edition in 1906; Harriman, Law of Contracts (second edition, 1901); Leake, Principles of the Law of Contract (fifth edition by Randall, 1906); Pollock, Principles of Contract (seventh edition, 1902, third American edition, Wald's completed by Williston, New York, 1906). O. W. Holmes's (justice of the Supreme Court of the United States) The Common Law (Boston, Mass. 1881) is illuminating on contract as on other legal topics, though the persent writer cannot accept all the learned judge's historical conjectures. (F. Po.)


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Simple English

[[File:|thumb|right|300px|A contract is a legal agreement or promise between two or more people.]] A contract is an agreement or promise that the law can enforce. The law will enforce some agreements but not others. For example, in most places, if a parent promises to take a child to get ice cream, the law will not enforce that promise as a legal contract.

The legal rules about which promises are enforced by the law can be different in different places (or jurisdictions), but a contract is usually enforced only if it is made by people or groups who want it to be enforced and who know what they are doing.

Sometimes, a contract is written down and signed by the people agreeing to it, but it does not always need to be. People usually sign a contract when something important or costly is being done. For example, when people take a job, they will sometimes sign a contract with their employers. The contract will show what the person must do as part of his job, how much he will be paid, and so on. The person and the employer will sign the contract, and it will become a legal promise.

If someone breaks a contract, another person might sue him or her. In a lawsuit about a contract, the court will look at the contract, listen to what the people who made the contract say about it, and then make a decision about what the contract means.

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