A contract is a legally enforceable agreement between two or more
parties
A party is a gathering of people who have been invited by a host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or celebration of a special occasion. A party will often feature ...
that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
,
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
,
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money ar ...
, or a promise to transfer any of those at a future date. In the event of a
breach of contract
Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other part ...
, the injured party may seek
judicial remedies
A legal remedy, also referred to as judicial relief or a judicial remedy, is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes another court order to impose its w ...
such as
damages
At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...
or
rescission. Contract law, the field of the
law of obligations
The law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights ...
concerned with contracts, is based on the principle that
agreements must be honoured.
Contract law, like other areas of
private law
Private law is that part of a civil law legal system which is part of the '' jus commune'' that involves relationships between individuals, such as the law of contracts and torts (as it is called in the common law), and the law of obligations ...
, varies between jurisdictions. The various systems of contract law can broadly be split between
common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
jurisdictions,
civil law jurisdictions, and mixed law jurisdictions which combine elements of both common and civil law. Common law jurisdictions typically require contracts to include
consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in '' Currie v Misa'' declar ...
in order to be valid, whereas civil and most mixed law jurisdictions solely require a
meeting of the minds
Meeting of the minds (also referred to as mutual agreement, mutual assent or ''consensus ad idem'') is a phrase in contract law used to describe the intentions of the parties forming the contract. In particular, it refers to the situation where t ...
between the parties.
Within the overarching category of civil law jurisdictions, there are several distinct varieties of contract law with their own distinct criteria: the
German tradition is characterised by the unique
doctrine of abstraction, systems based on the
Napoleonic Code are characterised by their systematic distinction between different types of contracts, and
Roman-Dutch law
Roman-Dutch law ( Dutch: ''Rooms-Hollands recht'', Afrikaans: ''Romeins-Hollandse reg'') is an uncodified, scholarship-driven, and judge-made legal system based on Roman law as applied in the Netherlands in the 17th and 18th centuries. As such, ...
is largely based on the writings of renaissance-era Dutch jurists and case law applying general principles of
Roman law
Roman law is the legal system of ancient Rome, including the legal developments spanning over a thousand years of jurisprudence, from the Twelve Tables (c. 449 BC), to the '' Corpus Juris Civilis'' (AD 529) ordered by Eastern Roman emperor J ...
prior to the Netherlands' adoption of the Napoleonic Code. The
UNIDROIT
UNIDROIT (formally, the International Institute for the Unification of Private Law; French: ''Institut international pour l'unification du droit privé'') is an intergovernmental organization whose objective is to harmonize international privat ...
Principles of International Commercial Contracts The Principles of International Commercial Contracts 2016 (most frequently referred to as UNIDROIT Principles and often also referred to as PICC) is a set of 211 rules for international contracts. They have been drawn up since 1984 by an internation ...
, published in 2016, aim to provide a general harmonised framework for international contracts, independent of the divergences between national laws, as well as a statement of common contractual principles for arbitrators and judges to apply where national laws are lacking. Notably, the Principles reject the doctrine of consideration, arguing that elimination of the doctrine "bring
about greater certainty and reduce litigation" in international trade.
[UNIDROIT Principles of International Commercial Contracts](_blank)
/ref> The Principles also rejected the abstraction principle on the grounds that it and similar doctrines are "not easily compatible with modern business perceptions and practice".[
Contract law can be contrasted with ]tort law
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishab ...
(also referred to in some jurisdictions as the law of delicts), the other major area of the law of obligations. While tort law generally deals with private duties and obligations that exist by operation of law, and provide remedies for civil wrongs committed between individuals not in a pre-existing legal relationship
A legal relationship or legal relation is a legal connection between two persons or other entities. It may also be known, particularly in the law of India, as a jural relationship. A legal relationship may exist, for example, between two individual ...
, contract law provides for the creation and enforcement of duties and obligations through a prior agreement between parties. The emergence of quasi-contract
A quasi-contract (or implied-in-law contract or constructive contract) is a fictional contract recognised by a court. The notion of a quasi-contract can be traced to Roman law and is still a concept used in some modern legal systems. Quasi Contrac ...
s, quasi-tort
Quasi-tort is a legal term that is sometimes used to describe unusual tort actions, on the basis of a legal doctrine that some legal duty exists which cannot be classified strictly as negligence in a personal duty resulting in a tort nor as a contr ...
s, and quasi-delicts renders the boundary between tort and contract law somewhat uncertain.
Overview
Contracts are widely used in commercial law
Commercial law, also known as mercantile law or trade law, is the body of law that applies to the rights, relations, and conduct of persons and business engaged in commerce, merchandising, trade, and sales. It is often considered to be a branc ...
, and for the most part form the legal foundation for transactions across the world. Common examples include contracts for the sale of services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
and goods, construction contracts, contracts of carriage, software license
A software license is a legal instrument (usually by way of contract law, with or without printed material) governing the use or redistribution of software. Under United States copyright law, all software is copyright protected, in both sourc ...
s, employment contract
An employment contract or contract of employment is a kind of contract used in labour law to attribute rights and responsibilities between parties to a bargain.
The contract is between an "employee" and an "employer". It has arisen out of the old ...
s, insurance policies
In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as ...
, sales or leases of land, among others. A contractual term
A contractual term is "any provision forming part of a contract". Each term gives rise to a contractual obligation, the breach of which may give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as th ...
is a "provision forming part of a contract". Each term gives rise to a contractual obligation, breach
Breach, Breached, or The Breach may refer to:
Places
* Breach, Kent, United Kingdom
* Breach, West Sussex, United Kingdom
* ''The Breach'', Great South Bay in the State of New York
People
* Breach (DJ), an Electronic/House music act
* Miroslav ...
of which can give rise to litigation
-
A lawsuit is a proceeding by a party or parties against another in the civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used in reference to a civil act ...
. Not all terms are stated expressly, and terms carry different legal weight depending on how central they are to the objectives of the contract.
Obligations created by contracts can generally be transferred, subject to requirements imposed by law. Laws regarding the modification of contracts or the assignment
Assignment, assign or The Assignment may refer to:
* Homework
* Sex assignment
* The process of sending National Basketball Association players to its development league; see
Computing
* Assignment (computer science), a type of modification to ...
of rights under a contract are broadly similar across jurisdictions.[For the assignment of claim se]
Trans-Lex.org
/ref> In most jurisdictions, a contract may be modified by a subsequent contract or agreement between the parties to modify the terms governing their obligations to each other. This is reflected in Article 3.1.2 of the Principles of International Commercial Contracts The Principles of International Commercial Contracts 2016 (most frequently referred to as UNIDROIT Principles and often also referred to as PICC) is a set of 211 rules for international contracts. They have been drawn up since 1984 by an internation ...
, which states that "a contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirement".[ Assignments are typically subject to statutory restrictions, particularly with regard to the consent of the other party to the contract.
Contract theory is a large body of ]legal theory
Jurisprudence, or legal theory, is the theoretical study of the propriety of law. Scholars of jurisprudence seek to explain the nature of law in its most general form and they also seek to achieve a deeper understanding of legal reasoning ...
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
Charles Anthony Fried (born April 15, 1935) is an American jurist and lawyer. He served as United States Solicitor General under President Ronald Reagan from 1985 to 1989. He is a professor at Harvard Law School and has been a visiting profess ...
in his book ''Contract as Promise'', maintains that the general purpose of contract law is to enforce promises''.'' Other approaches to contract theory are found in the writings of legal realists and critical legal studies
Critical legal studies (CLS) is a school of critical theory that developed in the United States during the 1970s.Alan Hunt, "The Theory of Critical Legal Studies," Oxford Journal of Legal Studies, Vol. 6, No. 1 (1986): 1-45, esp. 1, 5. Se DOI, 10.1 ...
theorists, which have propounded Marxist
Marxism is a left-wing to far-left method of socioeconomic analysis that uses a materialist interpretation of historical development, better known as historical materialism, to understand class relations and social conflict and a dialecti ...
and feminist interpretations of contract. Attempts at understanding the overaching purpose and nature of contract as a phenomenon have been made, notably relational contract theory. Additionally, certain academic conceptions of contracts focus on questions of transaction cost
In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companies, and unlike pro ...
and 'efficient breach
In legal theory, particularly in law and economics, efficient breach is a voluntary breach of contract and payment of damages by a party who concludes that they would incur greater economic loss by performing under the contract.
Development of th ...
' theory.
Another important dimension of the theoretical debate in contract is its place within, and relationship to a wider law of obligations
The law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights ...
. Obligations have traditionally been divided into contracts, which are voluntarily undertaken and owed to a specific person or persons, and obligations in tort
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
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. Research in business and management has also paid attention to the influence of contracts on relationship development and performance.
Private international law
Conflict of laws (also called private international law) is the set of rules or laws a jurisdiction applies to a case, transaction, or other occurrence that has connections to more than one jurisdiction. This body of law deals with three broad ...
is rooted in the principle that every jurisdiction has its own distinct contract law shaped by differences in public policy, judicial tradition, and the practices of local businesses. Consequently, while all systems of contract law serve the same overarching purpose of enabling the creation of legally enforceable obligations, they may contain significant differences. Accordingly, many contracts contain a choice of law clause
A choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction. An example is "This Agreem ...
and a forum selection clause
A forum selection clause (sometimes called a dispute resolution clause, choice of court clause, jurisdiction clause or an arbitration clause, depending upon its form) in a contract with a conflict of laws element allows the parties to agree tha ...
to determine the jurisdiction whose system of contract law will govern the contract and the court or other forum in which disputes will be resolved, respectively. Failing express agreement on such matters in the contract itself, countries have rules to determine the law governing the contract and the jurisdiction for disputes. For example, European Union Member States apply Article 4 of the Rome I Regulation to decide the law governing the contract, and the Brussels I Regulation to decide jurisdiction.
History
Contracts have existed since antiquity, forming the basis of trade since the dawn of commerce and sedentism
In cultural anthropology, sedentism (sometimes called sedentariness; compare sedentarism) is the practice of living in one place for a long time. , the large majority of people belong to sedentary cultures. In evolutionary anthropology and a ...
during the Neolithic Revolution
The Neolithic Revolution, or the (First) Agricultural Revolution, was the wide-scale transition of many human cultures during the Neolithic period from a lifestyle of hunting and gathering to one of agriculture and settlement, making an inc ...
. A notable early modern development in contract law was the emergence of the hawala
Hawala or hewala ( ar, حِوالة , meaning ''transfer'' or sometimes ''trust''), also known as in Persian, and or in Somali, is a popular and informal value transfer system based on the performance and honour of a huge network of money ...
system in the Indian subcontinent
The Indian subcontinent is a physiographical region in Southern Asia. It is situated on the Indian Plate, projecting southwards into the Indian Ocean from the Himalayas. Geopolitically, it includes the countries of Bangladesh, Bhutan, In ...
and the Arab world
The Arab world ( ar, اَلْعَالَمُ الْعَرَبِيُّ '), formally the Arab homeland ( '), also known as the Arab nation ( '), the Arabsphere, or the Arab states, refers to a vast group of countries, mainly located in Western A ...
, under which a series of contractual relationships formed the basis of an informal value transfer system
An informal value transfer system (IVTS) is any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the s ...
spanning the Silk Road
The Silk Road () was a network of Eurasian trade routes active from the second century BCE until the mid-15th century. Spanning over 6,400 kilometers (4,000 miles), it played a central role in facilitating economic, cultural, political, and rel ...
. In the Indian subcontinent, the hawala system gave rise to the hundi
A hundi or hundee is a financial instrument that developed in Medieval India for use in trade and credit transactions. Hundis are used as a form of Remittances to India, remittance instrument to money order, transfer money from place to place, as ...
, a transferrable contract entitling its holder in due course
In commercial law, a holder in due course (HDC) is someone who takes a negotiable instrument in a value-for-value exchange without reason to doubt that the instrument will be paid. If the instrument is later found not to be payable as written, a ho ...
to obtain money from its issuer or an agent thereof, giving rise to the principle underlying contemporary negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
s.
The hawala system also influenced the development of agency
Agency may refer to:
Organizations
* Institution, governmental or others
** Advertising agency or marketing agency, a service business dedicated to creating, planning and handling advertising for its clients
** Employment agency, a business that ...
in common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
and in civil laws. In Roman law, agents could not act on behalf of other individuals in the formation of binding contracts. On the other hand, Islamic law accepted agency as permissible in not only contract law but in the law of obligations generally, an approach that has since become mainstream in common law, mixed law, and most civil law jurisdictions. Analogously, the transfer of debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
, which was not accepted under Roman law, became widely practiced in medieval European commerce, owing largely to trade with the Muslim world during the Middle Ages.
Since the nineteenth century, two distinct traditions of contract law emerged. Jurisdictions that were previously British colonies generally adopted English common law
English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures.
Principal elements of English law
Although the common law has, historically, be ...
. Other jurisdictions largely adopted the civil law tradition, either inheriting a civil law legal system at independence or adopting civil and commercial codes based on German or French law. While jurisdictions such as Japan, South Korea, and the Republic of China modelled their contract law after the German pandectist
The Pandectists were German university legal scholars in the early 19th century who studied and taught Roman law as a model of what they called ''Konstruktionsjurisprudenz'' (conceptual jurisprudence) as codified in the Pandects of Justinian (Berm ...
tradition, the Arab world largely modelled its legal framework after the Napoleonic Code. While the Netherlands adopted a legal system based on the Napoleonic Code in the early 19th century, Dutch colonies retained the precedent-based Roman-Dutch law
Roman-Dutch law ( Dutch: ''Rooms-Hollands recht'', Afrikaans: ''Romeins-Hollandse reg'') is an uncodified, scholarship-driven, and judge-made legal system based on Roman law as applied in the Netherlands in the 17th and 18th centuries. As such, ...
. British colonies in Southern Africa adopted Roman-Dutch principles in areas of private law via reception statute
A reception statute is a statutory law adopted as a former British colony becomes independent by which the new nation adopts, or receives, the English common law before its independence to the extent not explicitly rejected by the legislative body ...
s adopting South African law, retaining Roman-Dutch law for most matters of private law
Private law is that part of a civil law legal system which is part of the '' jus commune'' that involves relationships between individuals, such as the law of contracts and torts (as it is called in the common law), and the law of obligations ...
while applying English common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
principles in most matters of public law
Public law is the part of law that governs relations between legal persons and a government, between different institutions within a state, between different branches of governments, as well as relationships between persons that are of direct ...
. Saint Lucia
Saint Lucia ( acf, Sent Lisi, french: Sainte-Lucie) is an island country of the West Indies in the eastern Caribbean. The island was previously called Iouanalao and later Hewanorra, names given by the native Arawaks and Caribs, two Ameri ...
, Mauritius
Mauritius ( ; french: Maurice, link=no ; mfe, label= Mauritian Creole, Moris ), officially the Republic of Mauritius, is an island nation in the Indian Ocean about off the southeast coast of the African continent, east of Madagascar. It ...
, Seychelles
Seychelles (, ; ), officially the Republic of Seychelles (french: link=no, République des Seychelles; Creole: ''La Repiblik Sesel''), is an archipelagic state consisting of 115 islands in the Indian Ocean. Its capital and largest city, ...
, and the Canadian province of Quebec
Quebec ( ; )According to the Canadian government, ''Québec'' (with the acute accent) is the official name in Canadian French and ''Quebec'' (without the accent) is the province's official name in Canadian English is one of the thirte ...
are mixed law jurisdictions which primarily adhere to French legal tradition with regard to contract law and other principles of private law.
Over the course of the nineteenth and twentieth century, the majority of jurisdictions in the Middle East and East Asia adopted civil law legal frameworks based on the Napoleonic, German, or Swiss model. The Napoleonic Code shapes contract law across much of the Middle East, while contract law in Japan, South Korea, and the Republic of China is rooted in the German pandectist
The Pandectists were German university legal scholars in the early 19th century who studied and taught Roman law as a model of what they called ''Konstruktionsjurisprudenz'' (conceptual jurisprudence) as codified in the Pandects of Justinian (Berm ...
tradition. In 1926, Turkey replaced its Ottoman-era mixture of Islamic and secular laws with a secular civil code modelled after that of Switzerland
). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...
, with its contract and commercial law modelled after the Swiss Code of Obligations
The Swiss Code of Obligations (SR/RS 22, german: Obligationenrecht; french: Code des obligations; it, Diritto delle obbligazioni; rm, Dretg d'obligaziuns) is a portion of the second part (SR/RS 2) of the internal Swiss law ("Private law - Admin ...
, which was in turn influenced by German and French legal traditions. Following the Meiji Restoration
The , referred to at the time as the , and also known as the Meiji Renovation, Revolution, Regeneration, Reform, or Renewal, was a political event that restored practical imperial rule to Japan in 1868 under Emperor Meiji. Although there were ...
, Japan adopted a series of legal codes modelled primarily after German law, adopting its commercial code in 1899. The Japanese adaptation of German civil law was spread to the Korean Peninsula and China as a result of Japanese occupation and influence, and continues to form the basis of the legal system in South Korea and the Republic of China. In 1949, Abd El-Razzak El-Sanhuri
Abd el-Razzak el-Sanhuri or ‘Abd al-Razzāq al-Sanhūrī ( ar, عبد الرزاق السنهوري) (11 August 1895 – 21 July 1971) was an Egyptian jurist, law professor, judge and politician. He is best remembered as the primary author of ...
and Edouard Lambert drafted the Egyptian Civil Code
The Egyptian Civil Code is the primary source of civil law for Egypt.
The first version of Egyptian Civil Code was written in 1949 containing 1149 articles. The prime author of the 1949 code was the jurist Abd El-Razzak El-Sanhuri, who received ...
, modelled after the Napoleonic Code but containing provisions designed to fit Arab and Islamic society. The Egyptian Civil Code was subsequently used as a model for the majority of Arab states.
In the 20th century, the growth of export trade led to countries adopting international conventions, such as the Hague-Visby Rules and the UN Convention on Contracts for the International Sale of Goods, bringing the various legal traditions closer together. In the early 20th century, the United States underwent the "Lochner era
The ''Lochner'' era is a period in American legal history from 1897 to 1937 in which the Supreme Court of the United States is said to have made it a common practice "to strike down economic regulations adopted by a State based on the Court's o ...
", in which the Supreme Court of the United States
The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. Federal tribunals in the United States, federal court cases, and over Stat ...
struck down economic regulations on the basis of freedom of contract and the Due Process Clause
In United States constitutional law, a Due Process Clause is found in both the Fifth and Fourteenth Amendments to the United States Constitution, which prohibits arbitrary deprivation of "life, liberty, or property" by the government except a ...
. These decisions were eventually overturned, and the Supreme Court established a deference to legislative statutes and regulations that restrict freedom of contract.[Bernstein DE. (2008)]
Freedom of Contract
George Mason Law & Economics Research Paper No. 08-51. The need to prevent discrimination and unfair business practices has placed additional restrictions on the freedom of contract.[ For example, the ]Civil Rights Act of 1964
The Civil Rights Act of 1964 () is a landmark civil rights and labor law in the United States that outlaws discrimination based on race, color, religion, sex, and national origin. It prohibits unequal application of voter registration requi ...
restricted private racial discrimination against African-Americans. The US Constitution contains a Contract Clause
Article I, Section 10, Clause 1 of the United States Constitution, known as the Contract Clause, imposes certain prohibitions on the states. These prohibitions are meant to protect individuals from intrusion by state governments and to kee ...
, but this has been interpreted as only restricting the retroactive impairment of contracts.[ In the late twentieth and early twenty-first century, consumer protection legislation, such as Singapore's Consumer Protection (Fair Trading) Act 2003, progressively imposed limits upon the freedom of contract in order to prevent businesses from exploiting consumers.
In 1993, ]Harvey McGregor
Harvey McGregor CBE QC (25 February 1926 – 27 June 2015) was a British barrister and was Warden of New College, Oxford, from 1985 to 1996.
Early life
The son of William Guthrie Robertson McGregor and Agnes McGregor (née Reid), McGregor was e ...
, a British barrister and academic, produced a "Contract Code" under the auspices of the English and Scottish Law Commission
A law commission, law reform commission, or law revision commission is an independent body set up by a government to conduct law reform; that is, to consider the state of laws in a jurisdiction and make recommendations or proposals for legal chang ...
s, which was a proposal to both unify and codify the contract laws of England and Scotland. This document was offered as a possible "Contract Code for Europe", but tensions between English and German jurists meant that this proposal has so far come to naught. In spite of the European Union
The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...
being an economic community with a range of trade rules, there continues to be no overarching "EU Law of Contract".
In 2021, Mainland China
"Mainland China" is a geopolitical term defined as the territory governed by the China, People's Republic of China (including islands like Hainan or Chongming Island, Chongming), excluding dependent territories of the PRC, and other territorie ...
adopted the Civil Code of the People's Republic of China
The Civil Code of the People's Republic of China ( zh, s=中华人民共和国民法典, p=Zhōnghuá Rénmín Gònghéguó Mínfǎ Diǎn), or in short Minfadian ( zh, s=民法典, p=Mínfǎ Diǎn) is the first complete civil code in the People' ...
, which codifies its contract law in book three. While generally classified as a civil law jurisdiction, contract law in Mainland China has been influenced by a number of sources, including traditional Chinese views toward the role of law, the PRC's socialist background, the Japanese/German-based law of the Republic of China on Taiwan
Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the no ...
, and the English-based common law used in Hong Kong. Consequently, contract law in the Chinese mainland functions as a de facto
''De facto'' ( ; , "in fact") describes practices that exist in reality, whether or not they are officially recognized by laws or other formal norms. It is commonly used to refer to what happens in practice, in contrast with '' de jure'' ("by l ...
mixed system. The 2021 civil code provides for the regulation of nominate contracts in a manner similar to that of jurisdictions such as Japan, Germany, France, and Québec.
Common law contracts
The rules governing contracts vary between jurisdictions. In the majority of English-speaking countries, the rules are derived from English contract law
English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries ...
which emerged as a result of precedents established by various courts in England over the centuries. Meanwhile, civil law jurisdictions generally derive their contract law from Roman law
Roman law is the legal system of ancient Rome, including the legal developments spanning over a thousand years of jurisprudence, from the Twelve Tables (c. 449 BC), to the '' Corpus Juris Civilis'' (AD 529) ordered by Eastern Roman emperor J ...
, although there are differences between German contract law German contract law is found in the Bürgerliches Gesetzbuch, in both the "Allgemeine Teil" and the chapter on "Schuldrecht". It forms part of the general law of obligations.
See also
*Abstraktionsprinzip
*Drittwirkung
Contract
A contract i ...
, legal systems inspired by the Napoleonic Code or the Civil Code of Lower Canada (e.g. Québec
Quebec ( ; )According to the Canadian government, ''Québec'' (with the acute accent) is the official name in Canadian French and ''Quebec'' (without the accent) is the province's official name in Canadian English is one of the thirte ...
and Saint Lucia
Saint Lucia ( acf, Sent Lisi, french: Sainte-Lucie) is an island country of the West Indies in the eastern Caribbean. The island was previously called Iouanalao and later Hewanorra, names given by the native Arawaks and Caribs, two Ameri ...
), and jurisdictions following Roman-Dutch law
Roman-Dutch law ( Dutch: ''Rooms-Hollands recht'', Afrikaans: ''Romeins-Hollandse reg'') is an uncodified, scholarship-driven, and judge-made legal system based on Roman law as applied in the Netherlands in the 17th and 18th centuries. As such, ...
(e.g. Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Gui ...
and Suriname
Suriname (; srn, Sranankondre or ), officially the Republic of Suriname ( nl, Republiek Suriname , srn, Ripolik fu Sranan), is a country on the northeastern Atlantic coast of South America. It is bordered by the Atlantic Ocean to the nor ...
) or a mixture of Roman-Dutch law and English common law (e.g. South Africa
South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring coun ...
and neighbouring countries).
Formation
In common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
jurisdictions, the formation of a contract generally requires an offer, acceptance, consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in '' Currie v Misa'' declar ...
, and mutual intent to be bound. The concept of contract law as a distinct area of law in common law jurisdictions originated with the now-defunct writ of assumpsit
Assumpsit ("he has undertaken", from Latin, ''assumere''), or more fully, action in assumpsit, was a form of action at common law used to enforce what are now called obligations arising in tort and contract; and in some common law jurisdictions, u ...
, which was originally a tort
A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
action based on reliance. Although verbal contracts are generally binding in most common law jurisdictions, some types of contracts may require formalities such as being in writing or by deed
In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferrin ...
.
A contract cannot be formed without assent of the two parties to be bound by its terms. Normally this is by written signature
A signature (; from la, signare, "to sign") is a Handwriting, handwritten (and often Stylization, stylized) depiction of someone's name, nickname, or even a simple "X" or other mark that a person writes on documents as a proof of identity and ...
(which may include an electronic signature), but the assent may also be oral or by conduct. Assent may be given by an agent
Agent may refer to:
Espionage, investigation, and law
*, spies or intelligence officers
* Law of agency, laws involving a person authorized to act on behalf of another
** Agent of record, a person with a contractual agreement with an insuranc ...
for a party.
Remedies for breach of contract
Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other part ...
include damages (monetary compensation for loss) and, for serious breaches only, cancellation.[.] Specific performance
Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, ...
and injunction
An injunction is a legal and equitable remedy in the form of a special court order that compels a party to do or refrain from specific acts. ("The court of appeals ... has exclusive jurisdiction to enjoin, set aside, suspend (in whole or in p ...
may also be available if damages are insufficient.
Offer, acceptance, and invitation to treat
In order for a legally enforceable contract to be formed, the parties must reach mutual assent (also called a meeting of the minds
Meeting of the minds (also referred to as mutual agreement, mutual assent or ''consensus ad idem'') is a phrase in contract law used to describe the intentions of the parties forming the contract. In particular, it refers to the situation where t ...
). This is typically reached through an offer and an acceptance which does not vary the offer's terms, which is known as the " mirror image rule". An offer is defined as a promise that is dependent on a certain act, promise, or forbearance given in exchange for the initial promise An acceptance is simply the assent of the other contracting party or parties to the terms stipulated in the contract. As an offer states the offeror's willingness to be bound to the terms proposed therein, a purported acceptance that varies the terms of an offer is not an acceptance but a counteroffer and hence a rejection of the original offer. The principle of offer and acceptance has been codified under the Indian Contract Act, 1872
The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key act regulating Indian contract law. The Act is based on the principles of English Common Law. It is applicable to all the states of India. It determi ...
.
In determining if a meeting of the minds has occurred, the intention of contracting parties is interpreted objectively from the perspective of a reasonable person
In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions.
Strictly according to the fiction, it i ...
. The "objective" approach towards contractual intent was first used in the English case of ''Smith v Hughes
''Smith v Hughes'' (1871) LR 6 QB 597 is an English contract law case. In it, Blackburn J set out his classic statement of the objective interpretation of people's conduct (acceptance by conduct) when entering into a contract. The case regarded ...
'' in 1871. Where an offer specifies a particular mode of acceptance, only acceptance communicated via that method will be valid.
Contracts may be bilateral
Bilateral may refer to any concept including two sides, in particular:
*Bilateria, bilateral animals
*Bilateralism, the political and cultural relations between two states
*Bilateral, occurring on both sides of an organism ( Anatomical terms of l ...
or unilateral
__NOTOC__
Unilateralism is any doctrine or agenda that supports one-sided action. Such action may be in disregard for other parties, or as an expression of a commitment toward a direction which other parties may find disagreeable. As a word, ''un ...
. A bilateral contract is an agreement in which each of the parties to the contract makes a promise
A promise is a commitment by someone to do or not do something. As a noun ''promise'' means a declaration assuring that one will or will not do something. As a verb it means to commit oneself by a promise to do or give. It can also mean a capacity ...
or set of promises to each other. 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. Bilateral contracts commonly take place in the daily flow of commercial
Commercial may refer to:
* a dose of advertising conveyed through media (such as - for example - radio or television)
** Radio advertisement
** Television advertisement
* (adjective for:) commerce, a system of voluntary exchange of products and s ...
transactions. Less common are unilateral contracts, in which one party makes a promise, but the other side does not promise anything. In these cases, those accepting the offer are not required to communicate their acceptance to the offeror. In a reward contract, for example, a person who has lost a dog could promise a reward if the dog is found, through publication or orally. The payment could be additionally conditioned on the dog being returned alive. Those who learn of the reward are not required to search for the dog, but if someone finds the dog and delivers it, the promisor is required to pay. On the other hand, advertisements which promise bargains are generally regarded not as offers for unilateral contracts but merely "invitations to treat". Some have criticised the categorisation of contracts into bilateral and unilateral ones. For example, the High Court of Australia stated that the term unilateral contract is "unscientific and misleading".
In certain circumstances, an implied contract
A quasi-contract (or implied-in-law contract or constructive contract) is a fictional contract recognised by a court. The notion of a quasi-contract can be traced to Roman law and is still a concept used in some modern legal systems. Quasi Contr ...
may be created. A contract is implied in fact if the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, if a patient refuses to pay after being examined by a doctor, the patient has breached a contract implied in fact. A contract which is implied in law is sometimes called a quasi-contract
A quasi-contract (or implied-in-law contract or constructive contract) is a fictional contract recognised by a court. The notion of a quasi-contract can be traced to Roman law and is still a concept used in some modern legal systems. Quasi Contrac ...
. Such contracts are means for court
A court is any person or institution, often as a government institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in acco ...
s to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. Quantum meruit claims are an example.
Where something is advertised in a newspaper or on a poster, the advertisement will not normally constitute an offer but will instead be an invitation to treat
An invitation to treat (or invitation to bargain in the United States) is a concept within contract law which comes from the Latin phrase ''invitatio ad offerendum'', meaning "inviting an offer". According to Professor Andrew Burrows, an invita ...
, an indication that one or both parties are prepared to negotiate a deal. An exception arises if the advertisement makes a unilateral promise, such as the offer of a reward, as in the case of ''Carlill v Carbolic Smoke Ball Co
''Carlill v Carbolic Smoke Ball Company'' 892EWCA Civ 1is an English contract law decision by the English Court of Appeal">Court of Appeal, which held an advertisement containing certain terms to get a reward constituted a binding unilateral of ...
'', decided in nineteenth-century England. The company, a pharmaceutical manufacturer, advertised a smoke ball that would, if sniffed "three times daily for two weeks", prevent users from catching the flu. If it failed to do so, the company promised to pay the user £100, adding that they had "deposited £1,000 in the Alliance Bank to show heir
Inheritance is the practice of receiving private property, titles, debts, entitlements, privileges, rights, and obligations upon the death of an individual. The rules of inheritance differ among societies and have changed over time. Offic ...
sincerity in the matter". When the company was sued for the money, they argued the advert should not have been taken as a serious, legally binding
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
offer
Offer or offers may refer to:
People
* Ofer Eshed or Offer Eshed (1942-2007), Israeli basketball player
* Offer Nissim (born 1964), Israeli house DJ
* Avner Offer, economic historian
* Dick Offer, English rower
* Jack Offer, English rower
* Steve ...
but a puff
Puff may refer to:
Science and technology
* Puff, a small quantity of gas or smoke in the air
** Puff, a light gust of wind
** Exhalation
** Inhalation
* Puff model, volcanic ash tracking model developed at the University of Alaska Fairbanks
* PUF ...
. The Court of Appeal
A court of appeals, also called a court of appeal, appellate court, appeal court, court of second instance or second instance court, is any court of law that is empowered to hear an appeal of a trial court or other lower tribunal. In much ...
held that it would appear to a reasonable man
In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions.
Strictly according to the fiction, it is ...
that Carbolic had made a serious offer and determined that the reward was a contractual promise.
As decided in the case of Pharmaceutical Society of Great Britain v Boots Cash Cashiers, an offer that is made in response to an invitation to treat, without any negotiation or explicit modification of terms, is presumed to incorporate the terms of the invitation to treat.
Consideration
In contract law, consideration refers to something of value which is given in exchange for the fulfilment of a promise. In ''Dunlop v. Selfridge'', Lord Dunedin described consideration "the price for which the promise of the other is bought". Consideration can take multiple forms and includes both benefits to the promisor and detriments to the promisee. Forbearance to act, for example, can constitute valid consideration, but only if a legal right is surrendered in the process. Common law jurisdictions require consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in '' Currie v Misa'' declar ...
for a simple contract to be binding, but allow contracts by deed to not require consideration. Similarly, under the Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through U ...
, firm offers in most American jurisdictions are valid without consideration if signed by the offeror.
= Rules applicable to consideration
=
Consideration must be lawful for a contract to be binding. Applicable rules in determining if consideration is lawful exist both in case law and in the codes of some common law jurisdictions. The general principles of valid consideration in the common law tradition are that:
# Consideration must be requested for.
# Consideration must come from the promisee.
# Consideration cannot have already occurred. It must be performed either at or after the formation of contract.
# Consideration cannot be a pre-existing legal or contractual obligation.
# Consideration need not be of the same value as the other party's promise. For example, a peppercorn
Black pepper (''Piper nigrum'') is a flowering vine in the family Piperaceae, cultivated for its fruit, known as a peppercorn, which is usually dried and used as a spice and seasoning. The fruit is a drupe (stonefruit) which is about in diamet ...
in contract law describes a very small and inadequate consideration.
# Consideration must be legal i.e not prohibited by the law.
The insufficiency of past consideration is related to the '' pre-existing duty rule''. For example, in the early English case of ''Eastwood v. Kenyon'' 840
__NOTOC__
Year 840 ( DCCCXL) was a leap year starting on Thursday in the Julian calendar, the 840th year of the Common Era (CE) and Anno Domini (AD) designations, the 840th year of the 1st millennium, the 40th year of the 9th century, and the ...
the guardian of a young girl took out a loan to educate her. After she was married, her husband promised to pay the debt but the loan was determined to be past consideration. In the early English case of ''Stilk v. Myrick
''Stilk v Myrick'' King's_Bench_on_the_subject_of_ 809EWHC_KB_J58is_an_English_contract_law_case_heard_in_the_Court_of_King's_Bench_(England)">King's_Bench_on_the_subject_of_Consideration_under_English_law">consideration._In_his_verdict,_the_ju ...
'' 809 a captain promised to divide the wages of two deserters among the remaining crew if they agreed to sail home short-handed; however, this promise was found unenforceable as the crew were already contracted to sail the ship. The pre-existing duty rule also extends to general legal duties; for example, a promise to refrain from committing a tort or crime is not sufficient.
Some jurisdictions have modified the English principle or adopted new ones. For example, in the Indian Contract Act, 1872
The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key act regulating Indian contract law. The Act is based on the principles of English Common Law. It is applicable to all the states of India. It determi ...
, past consideration constitutes valid consideration, and that consideration may be from any person even if not the promisee. The Indian Contract Act also codifies examples of when consideration is invalid, for example when it involves marriage or the provision of a public office.
= Criticism
=
The primary criticism of the doctrine of consideration is that it is purely a formality that merely serves to complicate commerce and create legal uncertainty by opening up otherwise simple contracts to scrutiny as to whether the consideration purportedly tendered satisfies the requirements of the law.
While the purpose of the doctrine was ostensibly to protect parties seeking to void oppressive contracts, this is currently accomplished through the use of a sophisticated variety of defences available to the party seeking to void a contract. In practice, the doctrine of consideration has resulted in a phenomenon similar to that of Ḥiyal
''Ḥiyal'' (حيل, singular ''ḥīla'' حيلة "contortion, contrivance; device, subterfuge") is "legalistic trickery" in Islamic jurisprudence.
The main purpose of ''ḥiyal'' is to avoid straightforward observance of Islamic law in difficult ...
in Islamic contracts, whereby parties to a contract use technicalities to satisfy requirements while in fact circumventing them in practice. Typically, this is in the form of "peppercorn" consideration, i.e. consideration that is negligible but still satisfies the requirements of law.
The doctrine of consideration has been expressly rejected by the UNIDROIT
UNIDROIT (formally, the International Institute for the Unification of Private Law; French: ''Institut international pour l'unification du droit privé'') is an intergovernmental organization whose objective is to harmonize international privat ...
Principles of International Commercial Contracts The Principles of International Commercial Contracts 2016 (most frequently referred to as UNIDROIT Principles and often also referred to as PICC) is a set of 211 rules for international contracts. They have been drawn up since 1984 by an internation ...
on the grounds that it yields uncertainty and unnecessary litigation, thereby hindering international trade.[ Similarly, the United Nations Convention on Contracts for the International Sale of Goods does not require consideration for a contract to be valid, thereby excluding the doctrine with regard to contracts covered by the convention even in common law jurisdictions where it would otherwise apply. The continued existence of the doctrine in common law jurisdictions is controversial. Scots lawyer ]Harvey McGregor
Harvey McGregor CBE QC (25 February 1926 – 27 June 2015) was a British barrister and was Warden of New College, Oxford, from 1985 to 1996.
Early life
The son of William Guthrie Robertson McGregor and Agnes McGregor (née Reid), McGregor was e ...
's " Contract Code", a Law Commission
A law commission, law reform commission, or law revision commission is an independent body set up by a government to conduct law reform; that is, to consider the state of laws in a jurisdiction and make recommendations or proposals for legal chang ...
-sponsored proposal to both unite and codify English and Scots Law, proposed the abolition of consideration. Some commentators have suggested for consideration to be replaced by estoppel
Estoppel is a judicial device in common law legal systems whereby a court may prevent or "estop" a person from making assertions or from going back on his or her word; the person being sanctioned is "estopped". Estoppel may prevent someone from b ...
as a basis for contracts.
Written and oral contracts
A contract is often evidenced in writing or by deed
In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferrin ...
. The general rule is that a person who signs a contractual document will be bound by the terms in that document. This rule is referred to as the rule in '' L'Estrange v Graucob'' or the "signature rule".['' L'Estrange v Graucob'' 9342 KB 394.] This rule was approved by the High Court of Australia in ''Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd''.[.] The rule typically binds a signatory to a contract regardless of whether they have actually read it,[ provided the document is contractual in nature. However, defences such as duress or unconscionability may enable the signer to avoid the obligation. Further, reasonable notice of a contract's terms must be given to the other party prior to their entry into the contract.][.][.]
Written contracts have typically been preferred in common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
legal systems. In 1677 England passed the Statute of Frauds
The Statute of Frauds (29 Car 2 c 3) (1677) was an Act of the Parliament of England. It required that certain types of contracts, wills, and grants, and assignment or surrender of leases or interest in real property must be in writing and si ...
which influenced similar statute of frauds
The Statute of Frauds (29 Car 2 c 3) (1677) was an Act of the Parliament of England. It required that certain types of contracts, wills, and grants, and assignment or surrender of leases or interest in real property must be in writing and si ...
laws in the United States and other countries such as Australia. In general, the Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through U ...
as adopted in the United States requires a written contract for tangible product sales in excess of $500, and for real estate contracts to be written. If the contract is not required by law to be written, an oral contract is generally valid and legally binding. The United Kingdom has since replaced the original Statute of Frauds, but written contracts are still required for various circumstances such as land (through the Law of Property Act 1925
The Law of Property Act 1925c 20 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legislation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modern ...
).
Nonetheless, a valid contract may generally be made orally or even by conduct. An oral contract
An oral contract is a contract, the terms of which have been agreed by spoken communication. This is in contrast to a written contract, where the contract is a written document. There may be written, or other physical evidence, of an oral contrac ...
may also be called a parol contract or a verbal contract, with "verbal" meaning "spoken" rather than "in words", an established usage in British English
British English (BrE, en-GB, or BE) is, according to Oxford Dictionaries, "English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the English language in England, or, more broadl ...
with regards to contracts and agreements, and common although somewhat deprecated as "loose" in American English
American English, sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. English is the most widely spoken language in the United States and in most circumstances ...
. An unwritten, unspoken contract, also known as "a contract implied by the acts of the parties", which can be legally implied either from the facts or as required in law. Implied-in-fact contracts are real contracts under which parties receive the "benefit of the bargain".[.] However, contracts implied in law are also known as quasi-contracts, and the remedy is quantum meruit, the fair market value of goods or services rendered.
Certainty, completeness, and intention of parties
In commercial agreements it is presumed that parties intend to be legally bound unless the parties expressly state the opposite. For example, in ''Rose & Frank Co v JR Crompton & Bros Ltd
''Rose & Frank Co v JR Crompton & Bros Ltd'' 924is a leading decision on English contract law, regarding the intention to create legal relations in commercial arrangements. In the Court of Appeal, Atkin LJ delivered an important dissenting judg ...
'', an agreement between two business parties was not enforced because an "honour clause" in the document stated "this is not a commercial or legal agreement, but is only a statement of the intention of the parties". In contrast, domestic and social agreements such as those between children and parents are typically unenforceable on the basis of public policy
Public policy is an institutionalized proposal or a decided set of elements like laws, regulations, guidelines, and actions to solve or address relevant and real-world problems, guided by a conception and often implemented by programs. Public ...
. For example, in the English case '' Balfour v. Balfour'' a husband agreed to give his wife £30 a month while he was away from home, but the court refused to enforce the agreement when the husband stopped paying. In contrast, in ''Merritt v Merritt
''Merritt v Merritt'' 970EWCA Civ 6is an English contract law case, on the matter of Creating legal relations in English law">creating legal relations. While under the principles laid out in Balfour v Balfour, domestic agreements between spouse ...
'' the court enforced an agreement between an estranged couple because the circumstances suggested their agreement was intended to have legal consequences.
If the terms of a contract are so uncertain or incomplete as to elude reasonable interpretation, the parties cannot have reached an agreement in the eyes of the law. An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as price
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the ...
or safety, may cause an 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. In New South Wales, even if there is uncertainty or incompleteness in a contract, the contract may still be binding on the parties if there is a sufficiently certain and complete clause requiring the parties to undergo arbitration, negotiation or mediation.
Courts may also look to external standards, which are either mentioned explicitly in the contract or implied by common practice
In European art music, the common-practice period is the era of the tonal system. Most of its features persisted from the mid-Baroque period through the Classical and Romantic periods, roughly from 1650 to 1900. There was much stylistic evoluti ...
in a certain field. 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
In law, severability (sometimes known as salvatorius, from Latin) refers to a provision in a contract or piece of legislation which states that if some of the terms are held to be illegal or otherwise unenforceable, the remainder should still appl ...
. The test of whether a clause is severable is an objective test—whether a reasonable person
In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions.
Strictly according to the fiction, it i ...
would see the contract standing even without the clauses. Typically, non-severable contracts only require the substantial performance of a promise rather than the whole or complete performance of a promise to warrant payment. However, express clauses may be included in a non-severable contract to explicitly require the full performance of an obligation.
Conditions, warranties, and representations
Common law jurisdictions typically distinguish three different categories of contractual terms, which vary in terms of their enforceability as part of a contract. English common law distinguishes between important ''conditions'' and warranties
In contract law, a warranty is a promise which is not a condition of the contract or an innominate term: (1) it is a term "not going to the root of the contract",Hogg M. (2011). ''Promises and Contract Law: Comparative Perspectives''p. 48 Cambrid ...
, with a breach of a condition by one party allowing the other to repudiate and be discharged while a warranty allows for remedies and damages but not complete discharge.[Gillies P. (1988). ''Concise Contract Law'']
p. 105
Federation Press.[.] In modern United States law the distinction is less clear but warranties may be enforced more strictly.[West GD, Lewis WB. (2009)]
Contracting to Avoid Extra-Contractual Liability—Can Your Contractual Deal Ever Really Be the "Entire" Deal?
''The Business Lawyer''. Whether or not a term is a ''condition'' is determined in part by the parties' intent.[
In a less technical sense, however, a condition is a generic term and a warranty is a promise.][ In specific circumstances these terms are used differently. For example, in English insurance law, violation of a "condition precedent" by an insured is a complete defence against the payment of claims.][Burling JM. (2011). Research Handbook on International Insurance Law and Regulation. Edward Elgar Publishing.] In general insurance law, a warranty is a promise that must be complied with.[ In product transactions, warranties promise that the product will continue to function for a certain period of time. In the United Kingdom, the courts determine whether a term is a condition or warranty, regardless of how or whether the term was classified in the contract. ]Statute
A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by ...
may also declare a term or nature of term to be a condition or warranty. For example the Sale of Goods Act 1979
The Sale of Goods Act 1979c 54 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 ...
s15A provides that terms as to title, description, quality and sample are generally ''conditions''. The United Kingdom has also developed the concept of an "intermediate term" (also called innominate terms), first established in '' Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd'' 962
Year 962 ( CMLXII) was a common year starting on Wednesday (link will display the full calendar) of the Julian calendar.
Events
By place
Byzantine Empire
* December – Arab–Byzantine wars – Sack of Aleppo: A Byzantine e ...
Traditionally, while warranties are contractual promises which are enforced through legal action, regardless of materiality, intent, or reliance,[ representations are traditionally precontractual statements that allow for a tort-based action (such as the ]tort of deceit
The tort of deceit is a type of legal injury that occurs when a person intentionally and knowingly deceives another person into an action that damages them. Specifically, deceit requires that the tortfeasor
* makes a factual representation,
* kn ...
) if the misrepresentation is negligent or fraudulent.[Primack MA. (2009)]
Representations, Warranties and Covenants: Back to the Basics in Contracts
''National Law Review''. In U.S. law, the distinction between the two is somewhat unclear.[ Warranties are generally viewed as primarily contract-based legal action, while negligent or fraudulent misrepresentations are tort-based, but there is a confusing mix of case law in the United States.][ In modern English law, sellers often avoid using the term "represents" in order to avoid claims under the ]Misrepresentation Act 1967
The Misrepresentation Act 1967 is a United Kingdom Act of Parliament of the United Kingdom which amended the common law principles of misrepresentation. Prior to the Act, the common law deemed that there were two categories of misrepresentati ...
, while in America the use of "warrants and represents" is relatively common.[Ferara LN, Philips J, Runnicles J. (2007)]
Some Differences in Law and Practice Between U.K. and U.S. Stock Purchase Agreements
''Jones Day Publications''.
English courts may weigh parties' emphasis in determining whether a non-contractual statement is enforceable as part of the contract. In the English case of ''Bannerman v White'', the court upheld a rejection by a buyer of hops which had been treated with sulphur since the buyer explicitly expressed the importance of this requirement. The relative knowledge of the parties may also be a factor, as in English case of ''Bissett v Wilkinson''[''Bissett v Wilkinson'' ]927
Year 927 ( CMXXVII) was a common year starting on Monday (link will display the full calendar) of the Julian calendar.
Events
By place
Europe
* May 27 – Simeon I, emperor ('' tsar'') of the Bulgarian Empire, dies of heart fai ...
AC 177. where the court did not find misrepresentation when a seller said that farmland being sold would carry 2000 sheep if worked by one team; the buyer was considered sufficiently knowledgeable to accept or reject the seller's opinion.
Capacity
In all systems of contract law, the capacity of a variety of natural
Nature, in the broadest sense, is the physical world or universe. "Nature" can refer to the phenomena of the physical world, and also to life in general. The study of nature is a large, if not the only, part of science. Although humans ar ...
or juristic persons to enter into contracts, enforce contractual obligations, or have contracts enforced against them is restricted on public policy grounds. Consequently, the validity and enforceability of a contract depends not only on whether a jurisdiction is a common, civil, or mixed law jurisdiction but also on the jurisdiction's particular policies regarding capacity. For instance, very small children may not be held to bargains they have made, on the assumption that they lack the maturity to understand what they are doing; errant employees or directors may be prevented from contracting for their company, because they have acted ''ultra vires
('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
'' (beyond their power). Another example might be people who are mentally incapacitated, either by disability or drunkenness. While specifics vary between jurisdictions, article 39 of the Philippine Civil Code provides a comprehensive overview of the most typical circumstances resulting in lost or diminished juridical capacity: age, mental disability, the state of being a deaf-mute
Deaf-mute is a term which was used historically to identify a person who was either deaf and used sign language or both deaf and could not speak. The term continues to be used to refer to deaf people who cannot speak an oral language or have som ...
, penalty, absence insolvency, and trusteeship.
Each contractual party must be a "competent person" having legal capacity. The parties may be natural persons ("individuals") or juristic person
A juridical person is a non-human legal person that is not a single natural person but an organization recognized by law as a fictitious person such as a corporation, government agency, NGO or International (inter-governmental) Organization (suc ...
s ("corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
s"). An agreement is formed when an "offer" is accepted. The parties must have an intention to be legally bound
Intention to create legal relations, otherwise an "intention to be legally bound", is a doctrine used in contract law, particularly English contract law and related common law jurisdictions.
The doctrine establishes whether a court should presume ...
; and to be valid, the agreement must have both proper "form" and a lawful object. In England
England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest and the Celtic Sea to the southwest. It is separated from continental Europe ...
(and in jurisdiction
Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels.
J ...
s using English contract principles), the parties must also exchange "consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in '' Currie v Misa'' declar ...
" to create a "mutuality of obligation", as in Simpkins v Pays
''Simpkins v Pays'' 9551 WLR 975 is a precedent case on intention to create legal relations in the English law of contract.
Decided at Chester assizes in 1955, this case involved an informal syndicate agreement between a grandmother, grand-daugh ...
.
In the United States, persons under 18 are typically minor and their contracts are considered voidable
Voidable, in law, is a transaction or action that is valid but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ''ab initio'' (or void from the outset) and unenforceable.
Definition
The ac ...
; however, if the minor voids the contract, benefits received by the minor must be returned. The minor can enforce breaches of contract by an adult while the adult's enforcement may be more limited under the bargain principle. Promissory estoppel
A promise is a commitment by someone to do or not do something. As a noun ''promise'' means a declaration assuring that one will or will not do something. As a verb it means to commit oneself by a promise to do or give. It can also mean a capacity ...
or unjust enrichment
In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
may be available, but generally are not.
Meanwhile, in Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
, while individuals under the age of 21 are regarded as minors, sections 35 and 36 of the Civil Law Act 1909 provide that certain contracts entered into by minors aged 18 and above are to be treated as though they were adults. Additionally, the Minors' Contracts Act 1987 as applicable in Singapore and in England and Wales
England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wales Acts 1535 and 1542. The substantive law of the jurisdiction is En ...
provides that a contract entered into by a minor is not automatically unenforceable and that a "court may, if it is just and equitable to do so, require the inordefendant to transfer to the plaintiff any property acquired by the defendant under the contract, or any property representing it".
In addition to age, a party to a contract may lack capacity on the grounds of mental illness or senility. Under Singapore's Mental Capacity Act 2008, for example, "a person lacks capacity in relation to a matter if at the material time the person is unable to make a decision for himself or herself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain". Where an individual lacks capacity on grounds of mental illness or senility, a relative or other responsible person may obtain a lasting power of attorney
A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another's behalf in private affairs (which may be financial or regarding health and welfare), business, or some other legal matter. The person auth ...
to make decisions concerning the "personal welfare" of the person lacking capacity, the "property and inancialaffairs" of the person, or both. Questions as to whether an individual has the capacity to make decisions either generally or with regard to a particular matter or class of matters are generally resolved by a judicial declaration and the court making the declaration may appoint one or more individuals to act as conservators In certain areas of England, Conservators are statutory bodies which manage areas of countryside for the use of the public.
Establishment, Role and Powers
Conservators are bodies corporate generally established, and granted their powers, by a ...
(American English) or deputies (Commonwealth English) for the person lacking capacity.
Implied terms
While an express term is stated by parties during negotiation or written in a contractual document, implied terms are not stated but nevertheless form a provision of the contract. Implied terms are fully enforceable and, depending on the jurisdiction, may arise as a result of the conduct or expectations of the parties, by virtue of custom (i.e. general unspoken norms within a particular industry), or by operation of law.
Statute
A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by ...
s or precedent
A precedent is a principle or rule established in a previous legal case that is either binding on or persuasive for a court or other tribunal when deciding subsequent cases with similar issues or facts. Common-law legal systems place great v ...
may create implied contractual terms, particularly in standardised relationships such as employment or shipping contracts. The Uniform Commercial Code of the United States also imposes an implied covenant of good faith and fair dealing in performance and enforcement of contracts covered by the Code. In addition, Australia
Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
, Israel
Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...
and India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
imply a similar good faith term through laws while the Supreme Court of Canada
The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
has developed a doctrine of honest contractual performance. While English law does not impose such a requirement, there is nevertheless an overarching concept of "legitimate expectation
The doctrine of legitimate expectation was first developed in English law as a ground of judicial review in administrative law to protect a procedural or substantive interest when a public authority rescinds from a representation made to a pers ...
" in most common law jurisdictions.
Most jurisdictions have specific legal provisions which deal directly with sale of goods, lease transactions, and trade practices. In the United States, prominent examples include, in the case of products, an implied warranty
In contract law, a warranty is a promise which is not a condition of the contract or an innominate term: (1) it is a term "not going to the root of the contract",Hogg M. (2011). ''Promises and Contract Law: Comparative Perspectives''p. 48 Cambri ...
of merchantability and fitness for a particular purpose, and in the case of homes an implied warranty of habitability. In the United Kingdom, implied terms may be created by statute (e.g. Sale of Goods Act 1979
The Sale of Goods Act 1979c 54 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 ...
, the Consumer Rights Act 2015
The Consumer Rights Act 2015 is an Act of Parliament of the United Kingdom that consolidates existing consumer protection law legislation and also gives consumers a number of new rights and remedies.
Provisions for secondary ticketing and ...
and the Hague-Visby Rules), Common Law (e.g.'' The Moorcock'', which introduced the "business efficacy" test), Previous Dealings,(e.g. ''Spurling v Bradshaw''.) or custom (e.g.'' Hutton v Warren'').
In many common law jurisdictions, insurance contracts are subject to a term implied in law of utmost good faith, and this is codified (for example) in section 17 of Singapore's Marine Insurance Act 1909. Additionally, depending on jurisdiction, marine and life insurance contracts may require the policyholder to have an insurable interest in the asset or life insured.[Report on Reforming Insurance Law in Singapore](_blank)
(Singapore Academy of Law
The Singapore Academy of Law (SAL) is a statutory body in Singapore. SAL is a promotion and development agency for Singapore's legal industry. SAL also undertakes statutory functions such as stakeholding services and the appointment of Senior C ...
) In contrast, instead of requiring a policyholder to hold an insurable interest in the life insured, German law merely requires the policyholder to obtain the consent of the person whose life is insured.[ As opposed to being implied by law or fact, a term may be implied on the basis of custom or usage in a particular market or context. In the ]Australia
Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
n case of ''Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Aust) Limited'',[.] the requirements for a term to be implied by custom were set out. For a term to be implied by custom it needs to be "so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract".[
]
Remedies
Remedies for breach of contract generally include damages
At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...
or forms of specific relief, including but not limited to: specific performance
Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, ...
, injunction
An injunction is a legal and equitable remedy in the form of a special court order that compels a party to do or refrain from specific acts. ("The court of appeals ... has exclusive jurisdiction to enjoin, set aside, suspend (in whole or in p ...
s, declaratory relief
A declaratory judgment, also called a declaration, is the legal determination of a court that resolves legal uncertainty for the litigants. It is a form of legally binding preventive by which a party involved in an actual or possible legal ma ...
, and rescission. The availability of different remedies varies from jurisdiction to jurisdiction, with common law jurisprudence preferring to award damages where possible while civil law jurisdictions are more inclined toward specific relief.
In the United Kingdom and Singapore, breach of contract is defined in the Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977c 50 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most im ...
as: non-performance, ipoor performance, iipart-performance, or vperformance which is substantially different from what was reasonably expected. Innocent parties may repudiate (cancel) the contract only for a major breach (breach of condition), but they may always recover compensatory damages, provided that the breach has caused foreseeable loss.
Damages
There are several different types of damages that may be awarded for breach of contract.
*Compensatory damages are given to the party injured by the breach of contract. With compensatory damages, there are two heads of loss, consequential damage and direct damage. In theory, compensatory damages are designed to put the injured party in his or her rightful position, usually through an award of expectation damages.
*Liquidated damages are an estimate of loss agreed to in the contract, so that the court avoids calculating compensatory damages and the parties have greater certainty. Liquidated damages clauses may serve either a compensatory or a punitive purpose and, when aimed at the latter, may be referred to as "penalty clauses". Penalty clauses serving a purely punitive purpose are void or limited on public policy grounds in most (though not all) common law jurisdictions, although jurisdictions which recognise penalty clauses may nevertheless permit courts to intervene in cases where enforcement would be inequitable.
*Nominal damages consist of a small cash amount where the court concludes that the defendant is in breach but the plaintiff has suffered no quantifiable pecuniary loss, and may be sought to obtain a legal record of who was at fault.
*Punitive or exemplary damages are used to punish the party at fault. Even though such damages are not intended primarily to compensate, nevertheless the claimant (and not the state) receives the award. Exemplary damages are not recognised nor permitted in some jurisdictions. In common law jurisdictions, exemplary damages are not available for breach of contract, but are possible after fraud. Although vitiating factors (such as misrepresentation, mistake, undue influence and duress) relate to contracts, they are not contractual actions in themseslves. Nevertheless, they allow a claimant in contract to get exemplary damages for breach.
Compensatory damages compensate the plaintiff for actual losses suffered as accurately as possible. They may be expectation damages, reliance damages or restitution
The law of restitution is the law of gains-based recovery, in which a court orders the defendant to ''give up'' their gains to the claimant. It should be contrasted with the law of compensation, the law of loss-based recovery, in which a court ...
ary damages. Expectation damages are awarded to put the party in as good of a position as the party would have been in had the contract been performed as promised. Reliance damages are usually awarded where no reasonably reliable estimate of expectation loss can be arrived at or at the option of the plaintiff. Reliance losses cover expense suffered in reliance to the promise. Examples where reliance damages have been awarded because profits are too speculative include the Australian case of ''McRae v Commonwealth Disposals Commission
''McRae v Commonwealth Disposals Commission'',. is an Australian contract law case, relevant for English contract law, concerning the common mistake about the possibility of performing an agreement.
Facts
The Commonwealth Disposals Commission ...
''[.] which concerned a contract for the rights to salvage a ship. In ''Anglia Television Ltd v. Reed'' the English Court of Appeal awarded the plaintiff expenditures incurred prior to the contract in preparation of performance.
Common law jurisdictions traditionally distinguish between legitimate liquidated damages, which are valid and enforceable and penalties, which are usually prohibited as against public policy. The traditional test to determine which category a clause falls into was established by the English House of Lords in '' Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd'' In Canadian common law provinces, penalty clauses are considered valid and enforceable provided that they are not unconscionable. The Canadian position is similar to the middle-ground approach taken under Philippine contract law, which provides that a penalty clause providing for liquidated damages is enforceable unless either the clause is "iniquitous or unconscionable" or the breach of contract in question is not one that was envisioned by the parties when they concluded the contract. A similar approach has been adopted by the High Court of Australia
The High Court of Australia is Australia's apex court. It exercises original and appellate jurisdiction on matters specified within Australia's Constitution.
The High Court was established following passage of the '' Judiciary Act 1903''. ...
and the Supreme Court of the United Kingdom
The Supreme Court of the United Kingdom ( initialism: UKSC or the acronym: SCOTUK) is the final court of appeal in the United Kingdom for all civil cases, and for criminal cases originating in England, Wales and Northern Ireland. As the Unite ...
over the first few decades of the twenty-first century; whereby a penalty clause is unenforceable only if it is disproportionate to the "legitimate interests", not restricted to seeking compensation, of the non-infringing party.
After a breach has occurred, the innocent party has a duty to mitigate loss by taking any reasonable steps. Failure to mitigate means that damages may be reduced or even denied altogether. However, Michael Furmston
Michael may refer to:
People
* Michael (given name), a given name
* Michael (surname), including a list of people with the surname Michael
Given name "Michael"
* Michael (archangel), ''first'' of God's archangels in the Jewish, Christian an ...
has argued that "it is wrong to express (the mitigation) rule by stating that the plaintiff is under a duty to mitigate his loss", citing ''Sotiros Shipping Inc v Sameiet, The Solholt''. If a party provides notice that the contract will not be completed, an anticipatory breach occurs.
Damages may be general or consequential. General damages are those damages which naturally flow from a breach of contract. Consequential damages are those damages which, although not naturally flowing from a breach, are naturally supposed by both parties at the time of contract formation. An example would be when someone rents a car to get to a business meeting, but when that person arrives to pick up the car, it is not there. General damages would be the cost of renting a different car. Consequential damages would be the lost business if that person was unable to get to the meeting, if both parties knew the reason the party was renting the car. To recover damages, a claimant must show that the breach of contract caused foreseeable loss.[ '']Hadley v Baxendale
''Hadley & Anor v Baxendale'' ''& Ors'' 854EWHC J70is a leading English contract law case. It sets the leading rule to determine consequential damages from a breach of contract: a breaching party is liable for all losses that the contracting par ...
'' established that the test of foreseeability is both objective or subjective. In other words, is it foreseeable to the objective bystander, or to the contracting parties, who may have special knowledge? On the facts of ''Hadley'', where a miller lost production because a carrier delayed taking broken mill parts for repair, the court held that no damages were payable since the loss was foreseeable neither by the "reasonable man" nor by the carrier, both of whom would have expected the miller to have a spare part in store.
Specific relief
There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages — for example, where an art collector purchases a rare painting and the vendor refuses to deliver.
In most common law jurisdictions, such circumstances are dealt with by court orders for "specific performance", requiring that the contract or a part thereof be performed. In some circumstances a court will order a party to perform his or her promise or issue an injunction requiring a party refrain from doing something that would breach the contract. A specific performance is obtainable for the breach of a contract to sell land or real estate on such grounds that the property has a unique value. In the United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
by way of the 13th Amendment to the United States Constitution
The Thirteenth Amendment (Amendment XIII) to the United States Constitution abolished slavery and involuntary servitude, except as punishment for a crime. The amendment was passed by the Senate on April 8, 1864, by the House of Representative ...
, specific performance in personal service contracts is only legal "''as punishment for a crime whereof the party shall have been duly convicted''". Both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity
Equity may refer to:
Finance, accounting and ownership
*Equity (finance), ownership of assets that have liabilities attached to them
** Stock, equity based on original contributions of cash or other value to a business
** Home equity, the diff ...
. 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 defences to an action in equity (such as laches, the ''bona fide'' purchaser rule, or unclean hands
Clean hands, sometimes called the clean hands doctrine, unclean hands doctrine, or dirty hands doctrine, is an equitable defense in which the defendant argues that the plaintiff is not entitled to obtain an equitable remedy because the plainti ...
) may act as a bar to specific performance.
In Indian law, the Specific Relief Act 1963 codifies the rules surrounding specific performance and other remedies aside from damages. Relief available under the act is limited to recovery of possession of property, specific performance of contracts, rectification of instruments, rescission of contracts, cancellation of instruments, declaratory relief
A declaratory judgment, also called a declaration, is the legal determination of a court that resolves legal uncertainty for the litigants. It is a form of legally binding preventive by which a party involved in an actual or possible legal ma ...
, and injunctions.
Where appropriate, courts in most common and civil law jurisdictions may permit declaratory relief
A declaratory judgment, also called a declaration, is the legal determination of a court that resolves legal uncertainty for the litigants. It is a form of legally binding preventive by which a party involved in an actual or possible legal ma ...
or rescission of contracts. To rescind is to set aside or unmake a contract. There are four different ways in which contracts can be set aside. A contract may be deemed ' void', 'voidable
Voidable, in law, is a transaction or action that is valid but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ''ab initio'' (or void from the outset) and unenforceable.
Definition
The ac ...
' or 'unenforceable
An unenforceable contract or transaction is one that is valid but one the court will not enforce. Unenforceable is usually used in contradiction to void (or ''void ab initio'') and voidable. If the parties perform the agreement, it will be vali ...
', or declared "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 arises when a contract is terminated by order of a court, where a public body has failed to satisfy the requirements of public procurement
Government procurement or public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Amounting to 12 percent of global GDP in 2018, government procurement accounts for a sub ...
law.
Defences
Defences to claims under contract law include vitiating factors, which defences operate to determine whether a purported contract is either (1) void or (2) voidable, or assertions that the other party failed to perform their obligations within a reasonable period of time. With regard to contracts of a commercial nature, the UNIDROIT
UNIDROIT (formally, the International Institute for the Unification of Private Law; French: ''Institut international pour l'unification du droit privé'') is an intergovernmental organization whose objective is to harmonize international privat ...
Principles of International Commercial Contracts The Principles of International Commercial Contracts 2016 (most frequently referred to as UNIDROIT Principles and often also referred to as PICC) is a set of 211 rules for international contracts. They have been drawn up since 1984 by an internation ...
provides a general outline of the grounds under which a contract can be set aside. Where a contract or term is voidable, the party entitled to avoid may either conditionally or unconditionally choose to affirm the contract or term as outlined in Article 3.2.9 of the Principles which states that "if the party entitled to avoid the contract expressly or impliedly confirms the contract after the period of time for giving notice of avoidance has begun to run, avoidance of the contract is excluded".[ Additionally, Article 3.2.13 provides that "where a ground of avoidance affects only individual terms of the contract, the effect of avoidance is limited to those terms unless, having regard to the circumstances, it is unreasonable to uphold the remaining contract".][
Although provisions for the voidability of a contract for conduct of the other party are generally similar across jurisdictions, voidability on the grounds of a third party's conduct is more contentious. Article 3.2.8 of the Principles provides that where conduct constituting grounds for rescission "is imputable to, or is known or ought to be known by, a third person for whose acts the other party is responsible, the contract may be avoided under the same conditions as if the behaviour or knowledge had been that of the party itself". Similarly, while vitiating factors are similar across jurisdictions, the extent to which a failure by another party to a contract may form grounds for rescission or an early termination of contractual obligations varies between jurisdictions. For instance, Mainland Chinese law provides that a party may seek to rescind a contract or terminate its remaining obligations if the other party "expresses or indicates by act that it will not perform the principal obligation", "delays performance of the principal obligation and still fails to perform it within a reasonable period of time", or "delays performance of the obligation or has otherwise acted in breach of the contract, thus making it impossible to achieve the purpose of the contract".][ Civil Code of the People's Republic of China, Book Three, Chapter Seven, Article 563]
Misrepresentation
Misrepresentation means a false statement of fact that occurs prior to a contract 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. Rescission is the principal remedy and damages are also available if a tort is established. Article 3.2.5 of the Principles of International Commercial Contracts provides that "a party may avoid the contract when it has been led to conclude the contract by the other party's fraudulent representation, including language or practices, or fraudulent non- disclosure of circumstances which, according to reasonable commercial standards of fair dealing, the latter party should have disclosed".[
In common law jurisdictions, to prove misrepresentation and/or fraud, there traditionally must be evidence that shows a claim was made, said claim was false, the party making the claim knew the claim was false, and that party's intention was for a transaction to occur based upon the false claim.] In order to obtain relief, there must be a positive misrepresentation of law and also, the person to whom the representation was made must have been misled by and relied on this misrepresentation:''Public Trustee v Taylor''. There are two types of misrepresentation: fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party alleging misrepresentation 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. Assume two people, Party A and Party B, enter into a contract. Then, it is later determined that Party A did not fully understand the facts and information described within the contract. If Party B used this lack of understanding against Party A to enter into the contract, Party A has the right to void the contract. According to ''Gordon v Selico
''Gordon v Selico'' (1986) 18 H.L.R. 219 is an English contract law on the subject of misrepresentation by action. It was held that positive actions - in this case, the concealment of dry rot - could amount to operative misrepresentations.(1986) ...
'' 986
Year 986 ( CMLXXXVI) was a common year starting on Friday (link will display the full calendar) of the Julian calendar.
Events
By place
Byzantine Empire
* August 17 – Battle of the Gates of Trajan: Emperor Basil II leads a Byz ...
it is possible to misrepresent either by words or conduct. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation.[ If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact.
In Singapore and the United Kingdom, the Misrepresentation Act 1967 provides that innocent misrepresentations can also be grounds for damages and remission of the relevant contract. Section 35 of the Contract and Commercial Law Act 2017 similarly provides for damages in cases of both innocent and fraudulent misrepresentation in New Zealand. In assessing remedies for an innocent misrepresentation, the judge takes into account the likelihood a party would rely on the false claim and how significant the false claim was.] Contract law does not delineate any clear boundary as to what is considered an acceptable false claim or what is unacceptable. Therefore, the question is what types of false claims (or deceptions) will be significant enough to void a contract based on said deception. Advertisements utilising "puffing", or the practice of exaggerating certain things, fall under this question of possible false claims.[
The foundational principle of "caveat emptor", which means "let the buyer beware", applies to all American transactions.][ In ]Laidlaw v. Organ
''Laidlaw v. Organ'', 15 U.S. (2 Wheat.) 178 (1817), is a case decided by the US Supreme Court that established ''caveat emptor'' in the United States.
Facts
Organ purchased 111 hogsheads of tobacco (111,000 pounds) from Laidlaw & Co. on February ...
, the Supreme Court decided that the buyer did not have to inform the seller of information the buyer knew could affect the price of the product.[
It is a fallacy that an opinion cannot be a statement of fact. If a statement is the honest expression of an opinion honestly entertained, it cannot be said that it involves any fraudulent misrepresentations of fact.
]
Mistake
Section 2 of the UNIDROIT
UNIDROIT (formally, the International Institute for the Unification of Private Law; French: ''Institut international pour l'unification du droit privé'') is an intergovernmental organization whose objective is to harmonize international privat ...
Principles of International Commercial Contracts The Principles of International Commercial Contracts 2016 (most frequently referred to as UNIDROIT Principles and often also referred to as PICC) is a set of 211 rules for international contracts. They have been drawn up since 1984 by an internation ...
defines the extent to which a mistake is typically accepted in most jurisdictions as grounds to avoid a contract. Under Article 3.1.2 of the Principles, a "mistake is an erroneous assumption relating to facts or to law existing when the contract was concluded".[ Article 3.1.3 of the Principles provides that "a party may only avoid the contract for mistake if, when the contract was concluded, the mistake was of such importance that a reasonable person in the same situation as the party in error would only have concluded the contract on materially different terms or would not have concluded it at all if the true state of affairs had been known".][ Additionally, Article 3.1.3 provides that a party seeking to avoid a contract must show that either "the other party made the same mistake, or caused the mistake, or knew or ought to have known of the mistake and it was contrary to reasonable commercial standards of fair dealing to leave the mistaken party in error" or "the other party had not at the time of avoidance reasonably acted in reliance on the contract".][ However, a party cannot seek to avoid a contract on the grounds of a mistake if "it was ]grossly negligent
Gross negligence is the "lack of slight diligence or care" or "a conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party." In some jurisdictions a person injured as a result of gross negl ...
in committing the mistake" or "the mistake relates to a matter in regard to which the risk of mistake ... should be borne by the mistaken party".[
Common law jurisdictions identify three types of mistake in contract: common mistake, mutual mistake, and unilateral mistake.
*Common mistake occurs when both parties hold the same mistaken belief of the facts which is material and fundamental to their contract. This is demonstrated in the case of '']Bell v. Lever Brothers Ltd.
''Bell v Lever Brothers Ltd'' 931UKHL 2is an English contract law case decided by the House of Lords. Within the field of Mistake in English contract law, mistake in English law, it holds that common mistake does not lead to a void contract unle ...
'', which established that common mistake can only void a contract if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible.[see also .] In ''Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd'', the court held that the common law will grant relief against common mistake, if the test in ''Bell v. Lever Bros Ltd'' is made out. If one party has knowledge and the other does not, and the party with the knowledge promises or guarantees the existence of the subject matter, that party will be in breach if the subject matter does not exist.[
*Mutual mistake occurs when both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different. Courts usually try to uphold such mistakes if a reasonable interpretation of the terms can be found. However, a contract based on a mutual mistake in judgment does not cause the contract to be voidable by the party that is adversely affected. See ''''.
*Unilateral mistake occurs when only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake.][.] It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. An example is in ''Lewis v Avery'' where Lord Denning">Lord Denning MR
Alfred Thompson "Tom" Denning, Baron Denning (23 January 1899 – 5 March 1999) was an English lawyer and judge. He was called to the bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when ...
held that the contract can only be voided if the plaintiff can show that, at the time of agreement, the plaintiff believed the other party's identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient. In certain circumstances, the defence of non est factum can be utilised in common law jurisdictions to rescind a contract on the grounds of a substantial unilateral mistake. Under Article 3.2.10 of the Principles, where a contract is voidable by a party on the grounds of a unilateral mistake but the other party "declares itself willing to perform or performs the contract as it was understood by the party entitled to avoidance", "the contract is considered to have been concluded as the