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 fo ...
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 tran ...
,
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 pu ...
,
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 are as ...
, 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 party ...
, 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
Rescission is the noun form of the verb "to rescind." It may refer to:
* Rescission (contract law)
* Rescission bill, a procedure to rescind previously appropriated funding in the United States
* A synonym for repeal in parliamentary procedure
* ...
. 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 a ...
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 omnipresen ...
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'' declared ...
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, it ...
is largely based on the writings of renaissance-era Dutch jurists and case law applying general principles of
Roman law
Roman law is the law, 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 /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 punishable ...
(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 Contra ...
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-delict ''Quasi- delict'' is a French legal term used in some civil law jurisdictions, encompassing the common law concept of ''negligence'' as the breach of a non-wilful extra-contractual obligation to third parties.
References
See also
* Law of Obli ...
s 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 pu ...
and goods,
construction contracts A construction contract is a mutual or legally binding agreement between two parties based on policies and conditions recorded in document form. The two parties involved are one or more property owners and one or more contractors. The owner, often ...
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 source ...
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
* Miroslava ...
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 actio ...
. 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 a ...
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 professor ...
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 politics, left-wing to Far-left politics, far-left method of socioeconomic analysis that uses a Materialism, materialist interpretation of historical development, better known as historical materialism, to understand S ...
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 produ ...
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 a ...
. 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 t ...
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 Agreeme ...
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 that ...
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
The Rome I Regulation (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations) is a regulation which governs the choice of law in the European Union. It is based ...
to decide the law governing the contract, and the
Brussels I Regulation
The Brussels Regime is a set of rules regulating which courts have jurisdiction in legal disputes of a civil or commercial nature between individuals resident in different member states of the European Union (EU) and the European Free Trade A ...
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 Sociocultural evolution, evolutio ...
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 incre ...
. 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 b ...
system in the
Indian subcontinent
The Indian subcontinent is a list of the physiographic regions of the world, physiographical region in United Nations geoscheme for Asia#Southern Asia, Southern Asia. It is situated on the Indian Plate, projecting southwards into the Indian O ...
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 reli ...
. 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 remittance instrument to transfer money from place to place, as a form of credit instrument or IO ...
, 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 h ...
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 omnipresen ...
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, bee ...
. 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, it ...
. 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 omnipresen ...
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 Amerindian ...
,
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 incl ...
,
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, V ...
, 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 thirtee ...
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 t ...
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 a ...
, 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 court cases, and over state court cases that involve a point o ...
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 as ...
. 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 United States labor law, labor law in the United States that outlaws discrimination based on Race (human categorization), race, Person of color, color, religion, sex, and nationa ...
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 keep ...
, 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 ed ...
, 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 political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
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 People's Republic of China (including islands like Hainan or Chongming), excluding dependent territories of the PRC, and other territories within Greater China. ...
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's ...
, 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 nort ...
, 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 la ...
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 law, 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 is ...
Civil Code of Lower Canada
The ''Civil Code of Lower Canada'' (french: Code civil du Bas-Canada) was a set of laws that were in effect in Lower Canada on 1 August 1866 and remained in effect in Quebec until repealed and replaced by the Civil Code of Quebec on 1 January 199 ...
(e.g.
Québec
Quebec ( ; )According to the Government of Canada, 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 ...
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 Amerindian ...
), 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, it ...
(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 Guine ...
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 north ...
) 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 countri ...
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 omnipresen ...
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'' declared ...
, 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 transferring ...
.
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 handwritten (and often 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 intent. The writer of a ...
(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 party ...
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 pa ...
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
In the law of contracts, the mirror image rule, also referred to as an unequivocal and absolute acceptance requirement, states that an offer must be accepted exactly with no modifications. The offeror is the master of their own offer. An attempt ...
". 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 is ...
. 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 ...
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 Contrac ...
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 Contra ...
. 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 accordance ...
s to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other.
Quantum meruit
''Quantum meruit'' is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services".
In the United States, the elements of ''quantum meruit'' are determined by ...
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 invitat ...
, 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
Influenza, commonly known as "the flu", is an infectious disease caused by influenza viruses. Symptoms range from mild to severe and often include fever, runny nose, sore throat, muscle pain, headache, coughing, and fatigue. These symptom ...
. 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. Officiall ...
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 tran ...
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#Gustiness, wind
** Exhalation
** Inhalation
* Puff model, volcanic ash tracking model developed at the University of Alaska ...
. 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 of t ...
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'' declared ...
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 UC ...
, 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 The pre-existing duty rule is an aspect of consideration within the law of contract. Originating in England the concept of consideration has been adopted by other jurisdictions, including the US.
In essence, this rule declares that performance of a ...
''. 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_jud ...
''
809
__NOTOC__
Year 809 (Roman numerals, DCCCIX) was a common year starting on Monday (link will display the full calendar) of the Julian calendar.
Events
By place
Byzantine Empire
* Spring – Siege of Serdica (809), Siege of Serdica: ...
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
The United Nations Convention on Contracts for the International Sale of Goods (CISG), sometimes known as the Vienna Convention, is a multilateral treaty that establishes a uniform framework for international commerce.Not to be confused with ot ...
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 ed ...
's "
Contract Code
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 ...
", 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 ...
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 transferring ...
. 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
''L'Estrange v F Graucob Ltd'' 9342 KB 394 is a leading English contract law case on the incorporation of terms into a contract by signature. There are exceptions to the rule that a person is bound by his or her signature, including fraud, misre ...
'' or the "signature rule".''
L'Estrange v Graucob
''L'Estrange v F Graucob Ltd'' 9342 KB 394 is a leading English contract law case on the incorporation of terms into a contract by signature. There are exceptions to the rule that a person is bound by his or her signature, including fraud, misre ...
''
934
Year 934 ( CMXXXIV) was a common year starting on Wednesday (link will display the full calendar) of the Julian calendar.
Events
By place
Byzantine Empire
* Spring and Summer – The Hungarians make an alliance with the Pecheneg ...
2 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 omnipresen ...
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 sign ...
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 sign ...
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 UC ...
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 moderni ...
).
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 contract ...
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 Lexico, Oxford Dictionaries, "English language, English as used in Great Britain, as distinct from that used elsewhere". More narrowly, it can refer specifically to the English language in ...
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 variety (linguistics), varieties of the English language native to the United States. English is the Languages of the United States, most widely spoken lan ...
. 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
''Quantum meruit'' is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services".
In the United States, the elements of ''quantum meruit'' are determined by ...
, 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 p ...
. For example, in the English case ''
Balfour v. Balfour
''Balfour v Balfour'' 9192 KB 571 is a leading English contract law case. It held that there is a rebuttable presumption against an intention to create a legally enforceable agreement when the agreement is domestic in nature.
Facts
Mr. 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 spouses ...
'' 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 c ...
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 evolutio ...
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 apply ...
. 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 is ...
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 le ...
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
''Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd'' 9622 QB 26 is a landmark English contract law case. It introduced the concept of innominate terms, a category between "warranties" and "conditions".
Under the English sale of good ...
''
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 Acts of Parliament in the United Kingdom, Act of Parliament of the United Kingdom which amended the common law principles of Misrepresentation in English law, misrepresentation. Prior to the Act, ...
, 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 (Roman numerals, 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 of Bulgaria, Simeon I, emperor (''tsar'') of the Fi ...
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 are p ...
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
Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
.
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 (such ...
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 r ...
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 b ...
(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.
Jur ...
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'' declared ...
" 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-daughte ...
.
In the United States, persons under 18 are typically
minor
Minor may refer to:
* Minor (law), a person under the age of certain legal activities.
** A person who has not reached the age of majority
* Academic minor, a secondary field of study in undergraduate education
Music theory
*Minor chord
** Barb ...
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 res ...
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, borde ...
, 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 Eng ...
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
inor Inor can refer to:
* Inor language
Inor (pronounced ), sometimes called Ennemor, is an Afroasiatic language spoken in central Ethiopia. One of the Gurage languages, it is mainly spoken within the Gurage Zone in the Southern Nations, Nationalitie ...
defendant 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
norm
Naturally occurring radioactive materials (NORM) and technologically enhanced naturally occurring radioactive materials (TENORM) consist of materials, usually industrial wastes or by-products enriched with radioactive elements found in the envir ...
s 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 le ...
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 valu ...
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 state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
,
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 seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
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 Cambrid ...
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 l ...
The Moorcock
''The Moorcock'' (1889) 14 PD 64 is a leading English contract law case which created an important test for identifying the main terms that the law will imply in commercial, or non-consumer, agreements, especially terms that are "necessary and o ...
'', which introduced the "business efficacy" test), Previous Dealings,(e.g. ''Spurling v Bradshaw''.) or custom (e.g.''
Hutton v Warren
''Hutton v Warren'' 836EWHC J61is an English contract law case, concerning implied terms.
Facts
A farm tenant, who lived in Wroot, Lincolnshire, claimed that it was the custom of the country that the landlord would give a reasonable allowance f ...
'').
In many common law jurisdictions, insurance contracts are subject to a term implied in law of
utmost good faith
''Uberrima fides'' (sometimes seen in its genitive form ''uberrimae fidei'') is a Latin phrase meaning "utmost good faith" (literally, "most abundant faith"). It is the name of a legal doctrine which governs insurance contracts. This means that a ...
, 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
Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence, without repairment or damage, of the insured object (or in the case of a person, their continued survival). A person has an ...
in the asset or life insured.Report on Reforming Insurance Law in Singapore (
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 state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
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 pa ...
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 mat ...
, and
rescission
Rescission is the noun form of the verb "to rescind." It may refer to:
* Rescission (contract law)
* Rescission bill, a procedure to rescind previously appropriated funding in the United States
* A synonym for repeal in parliamentary procedure
* ...
. 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 impor ...
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 In contract law or tort law, the term heads of loss or heads of claim refers to categories of damage that a party may incur. It uses the term "head" in its sense of "category"; each head of loss refers to the damages that correspond to a particular ...
, 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 o ...
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
is an English contract law case, concerning the extent to which damages may be sought for failure to perform of a contract when a sum is fixed in a contract. It held that only if a sum is of an unconscionable amount will it be considered penal ...
'' 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 jurisdiction, original and appellate jurisdiction on matters specified within Constitution of Australia, Australia's Constitution.
The High Court was established fol ...
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 and ...
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 primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
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 Representativ ...
, 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 dif ...
. 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 plaintif ...
) may act as a bar to specific performance.
In Indian law, the
Specific Relief Act 1963
The Specific Relief Act, 1963 is an Act of the Parliament of India
The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the president of India and two hou ...
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 mat ...
, 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 mat ...
or
rescission
Rescission is the noun form of the verb "to rescind." It may refer to:
* Rescission (contract law)
* Rescission bill, a procedure to rescind previously appropriated funding in the United States
* A synonym for repeal in parliamentary procedure
* ...
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
Void may refer to:
Science, engineering, and technology
* Void (astronomy), the spaces between galaxy filaments that contain no galaxies
* Void (composites), a pore that remains unoccupied in a composite material
* Void, synonym for vacuum, a s ...
', '
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 valid, ...
', 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 subst ...
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
Rescission is the noun form of the verb "to rescind." It may refer to:
* Rescission (contract law)
* Rescission bill, a procedure to rescind previously appropriated funding in the United States
* A synonym for repeal in parliamentary procedure
* ...
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 (Roman numerals, 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 ...
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
ther Ther may refer to:
*''Thér.'', taxonomic author abbreviation of Irénée Thériot (1859–1947), French bryologist
* Agroha Mound, archaeological site in Agroha, Hisar district, India
*Therapy
*Therapeutic drugs
See also
*''Ther Thiruvizha
''T ...
party understood it" and "the right to avoidance is lost".
Threats and Unequal Bargaining Power
The UNIDROIT Principles of International Commercial Contracts outlines a comprehensive list of circumstances in which fraud committed by or threats made by a party constitute grounds for avoiding the contract. With regard to threats, Article 3.2.6 provides that "a party may avoid the contract when it has been led to conclude the contract by the other party's unjustified threat" if the action threatened is so severe as to "leave the first party no reasonable alternative". A threat is considered "unjustified" under Article 3.2.6 if "the act or omission with which a party has been threatened is wrongful in itself, or it is wrongful to use it as a means to obtain the conclusion of the contract". In common law jurisdictions, the notion of an unjustified threat is referred to as "duress".
Black's Law Dictionary
''Black's Law Dictionary'' is the most frequently used legal dictionary in the United States. Henry Campbell Black (1860–1927) was the author of the first two editions of the dictionary.
History
The first edition was published in 1891 by West P ...
defines duress as a "threat of harm made to compel a person to do something against his or her will or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition" and it constitutes grounds for setting aside a contract. An example is in ''
Barton v Armstrong
''Barton v Armstrong'' is a Privy Council decision heard on appeal from the Court of Appeal of New South Wales,. relating to duress and pertinent to case law under Australian and English contract law.
The Privy Council held that a person who agr ...
''
976
Year 976 ( CMLXXVI) was a leap year starting on Saturday (link will display the full calendar) of the Julian calendar.
Events
By place Byzantine Empire
* January 10 – Emperor John I Tzimiskes dies at Constantinople, after ret ...
in a person was threatened with death if they did not sign the contract. An innocent party wishing to set aside a contract for duress to the person only needs to prove that the threat was made and that it was a reason for entry into the contract; the burden of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. There can also be duress to goods and sometimes, "economic duress".
Aside from fraud and unjustified threats, contracts can also generally be set aside on the grounds that one party exercised its superior bargaining power in order to impose inequitable terms upon the other party. Article 3.2.7 of the Principles provides that "a party may avoid the contract or an individual term of it if, at the time of the conclusion of the contract, the contract or term unjustifiably gave the other party an excessive advantage" and specifies that, in determining whether the term was inequitable, a court or arbitrator should consider the extent to which "the other party has taken unfair advantage of the first party's dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skill". In addition to setting the contract aside, Article 3.2.7 also provides that courts may apply the
blue pencil doctrine
The blue pencil doctrine is a legal concept in common law countries, where a court finds that portions of a contract are void or unenforceable, but other portions of the contract are enforceable. The Blue Pencil Rule allows the legally valid, en ...
and modify or nullify any inequitable terms while leaving the contract otherwise intact. In common law jurisdictions, the related equitable doctrine of undue influence enables courts to provide a remedy in situations involving one person taking advantage of a position of power or influence over another person. Where a special relationship exists, such as between parent and child or solicitor and client, courts in common law jurisdictions have broad discretion as to whether a remedy is provided. When no special relationship exists, the question is whether there was a relationship of such trust and confidence that it should give rise to such a presumption. In Australian law, a contract can additionally be set aside due to unconscionable dealing..see also . Firstly, the claimant must show that they were under a special disability, the test for this being that they were unable to act in their best interest. Secondly, the claimant must show that the defendant took advantage of this special disability.
Illegal contracts
If based on an illegal purpose or contrary to
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 p ...
, a contract is ''void''. This principle is codified by Article 3.3.1 of the Principles, which provides that:
* Where a contract infringes a mandatory rule; whether of national, international, or supranational origin; the effects of that infringement upon the contract are the effects...expressly prescribed by that mandatory rule.
* Where the mandatory rule does not expressly prescribe the effects of an infringement upon a contract, the parties have the right to exercise such remedies under the contract as in the circumstances are reasonable.
* In determining what is reasonable regard is to be had in particular to:
** The purpose of the infringed rule
** The category of persons for whose protection the rule exists
** Any sanction that may be imposed under the rule infringed
** The seriousness of the infringement
** Whether one or both parties knew or ought to have known of the infringement
** Whether the performance of the contract necessitates the infringement
** The parties' reasonable expectations
Article 3.3.2 provides that, where reasonable, an infringement may warrant restitution.
In the 1996
Canadian
Canadians (french: Canadiens) are people identified with the country of Canada. This connection may be residential, legal, historical or cultural. For most Canadians, many (or all) of these connections exist and are collectively the source of ...
case of ''Royal Bank of Canada v. Newell'' a woman forged her husband's signature, and her husband agreed to assume "all liability and responsibility" for the forged checks. However, the agreement was unenforceable as it was intended to "stifle a criminal prosecution", and the bank was forced to return the payments made by the husband. In the U.S., one unusual type of unenforceable contract is a personal
employment
Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
contract to work as a spy or secret agent. This is because the very secrecy of the contract is a condition of the contract (in order to maintain
plausible deniability
Plausible deniability is the ability of people, typically senior officials in a formal or informal chain of command, to denial, deny knowledge of or responsibility for any damnable actions committed by members of their organizational hierarchy. Th ...
). If the spy subsequently sues the government on the contract over issues like salary or benefits, then the spy has breached the contract by revealing its existence. It is thus unenforceable on that ground, as well as the public policy of maintaining
national security
National security, or national defence, is the security and defence of a sovereign state, including its citizens, economy, and institutions, which is regarded as a duty of government. Originally conceived as protection against military atta ...
(since a disgruntled agent might try to reveal ''all'' the government's secrets during his/her lawsuit). Other types of unenforceable employment contracts include contracts agreeing to work for less than
minimum wage
A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Bec ...
and forfeiting the right to
workman's compensation
Workers' compensation or workers' comp is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her emp ...
in cases where workman's compensation is due.
Force majeure
All jurisdictions, civil and common law alike, typically provide for contractual obligations to be terminated or reduced in cases of
force majeure
In contract law, (from Law French: 'overwhelming force', ) is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such ...
or (in traditional common law terminology)
frustration of purpose
Frustration of purpose, in law, is a defense to enforcement of a contract. Frustration of purpose occurs when an unforeseen event undermines a party's principal purpose for entering into a contract such that the performance of the contract is rad ...
. Article 7.1.7 of the Principles provides that "Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences". Under 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's ...
, any party to a contract may rescind it if "the purpose of the contract cannot be achieved due to force majeure". Similarly, the Frustrated Contracts Act 1959 (Singapore) and subpart 4 of the Contract and Commercial Law Act 2017 (New Zealand) provide remedies for parties to contracts that cannot be performed due to force majeure including rescission, compensation for goods or services already provided, and the severability of portions of the contract that can and cannot be performed. Additionally, the Chinese civil code provides that a party may terminate its contractual obligations if the party to whom its obligations are owned is under
financial distress
Financial distress is a term in corporate finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. If financial distress cannot be relieved, it can lead to bankruptcy. Financial distres ...
.
Hardship
Contracts may, in certain circumstances, be modified or terminated at the behest of a party which, having taken on a contractual obligation, faced such hardship as to entitle it to a judicial nullification or modification of the contract. Hardship is defined by Article 6.2.2 of the Principles as " where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished" provided that either the risk of the events occurring was not assumed by the party alleging hardship or that the events' occurrence was "beyond the control of the disadvantaged party", unknown until after the conclusion of the contract, or "could not reasonably have been taken into account" by the party. Article 6.2.3 of the Principles provides that a party facing hardship is entitled to request renegotiation of the contract and, if negotiations are unsuccessful, may apply to the appropriate court to terminate or modify the contract or provision thereof.
Set-off
A partial defence available in a variety of civil, common, and mixed law jurisdictions is that of set-off or the netting of obligations. This entails forfeiting one or obligations owed by the other party in exchange for being excused for the performance of a party's own obligations toward the other party. It permits the rights to be used to discharge the liabilities where cross claims exist between a
plaintiff
A plaintiff ( Π in legal shorthand) is the party who initiates a lawsuit (also known as an ''action'') before a court. By doing so, the plaintiff seeks a legal remedy. If this search is successful, the court will issue judgment in favor of the p ...
and a
respondent
{{unreferenced, date=February 2012
A respondent is a person who is called upon to issue a response to a communication made by another. The term is used in legal contexts, in survey methodology, and in psychological conditioning.
Legal usage
In ...
, the result being that the gross claims of mutual debt produce a single net claim. The net claim is known as a net position. In other words, a set-off is the right of a debtor to balance mutual debts with a creditor. Any balance remaining due either of the parties is still owed, but the mutual debts have been set off. The power of net positions lies in reducing
credit exposure
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
, and also offers regulatory capital requirement and settlement advantages, which contribute to
market stability
The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted bas ...
.
As per Article 8.1 of the Principles, "where two parties owe each other money or other performances of the same kind, either of them ("the first party") may set off its obligation against that of its obligee" ("the other party") if when set-off is invoked:
* The first party is entitled to perform its obligation
* Where the obligations of the two parties do not arise from the same contract, the nature of the other party's obligation (i.e. existence and amount) is ascertained and performance is due
* Where the obligations of the two parties arise from the same contract, the other party's performance is due (regardless of whether the obligation's nature is ascertained
The requirement that the obligations be "of the same kind" is broader than the requirement in some legal systems that obligations being set-off be fungible, while still excluding obligations of a fundamentally personal nature. Where the obligations in question are owed in different currencies, Article 8.2 provides that set-off may be invoked if the currencies in question are freely convertible and the parties have not agreed that the first party may only pay in a specified currency. Rather than operating automatically or following a court's order, Article 8.3 provides that set-off may only be exercised by notice to the other party; furthermore, Article 8.4 further provides that if the notice does not specify the obligations to which it relates, the other party may do so by way of a declaration made within a reasonable time, failing which the set-off relates to all obligations proportionally. The effect of set-off, as per Article 8.5, is that:
* The relevant obligations are discharged
* If obligations differ in amount, set-off discharges the obligations up to the amount of the lesser obligation.
* Set-off takes effect as from the time of notice.
Contracts in other jurisdictions
The primary factor distinguishing civil law and mixed law jurisdictions from their common law counterparts is the absence of the requirement of consideration and thus the absence of any legal distinction between contracts by deed and other written contracts. Contract law in the majority of civil law jurisdictions is part of the broader
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 a ...
codified in a civil or commercial code clearly outlining the extent to which public policy goals limit
freedom to contract
Freedom of contract is the process in which individuals and groups form contracts without government restrictions. This is opposed to government regulations such as minimum-wage laws, competition laws, economic sanctions, restrictions on pric ...
and adhering to the general principle that the sole formal requirement for a contract to be formed is the existence of 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 two parties at the time the contract is purported to have been formed.
Civil law jurisdictions with codified laws of obligations distinguish between nominate and innominate contracts. Nominate contracts are standardised categories of contracts which are closely regulated in form and substance by law. Contracts for sale, gift, lease, and insurance are generally regulated as nominate contracts. The obligor and obligee under nominate contracts have rights and obligations specially prescribed by law. Nominate contracts are usually statutorily required to include certain express terms (''essentialia'') and are construed to include terms implied in law. Unlike civil law jurisdictions with codified laws of obligations, 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, i ...
or
Scandinavian law Scandinavian law, also known as Nordic law,Wahlgren, P. (2007). What is Scandinavian law? Social private law. Stockholm: Stockholm Institute for Scandinavian Law, Law Faculty, Stockholm University. is the law of the five Nordic countries, name ...
typically lack specific provisions for nominate contracts as their law of obligations is largely determined by judicial precedent and individual statutes, similar to common law jurisdictions. Nevertheless, the principles underlying the formation of contracts in these jurisdictions are closely related to those of other civil law jurisdictions.
Principles
Formation and validity
Under 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's ...
, contracts governed by the law of
Mainland China
"Mainland China" is a geopolitical term defined as the territory governed by the People's Republic of China (including islands like Hainan or Chongming), excluding dependent territories of the PRC, and other territories within Greater China. ...
carry an implied term that, in addition to performing "their respective obligations as agreed in the contract", "the parties shall comply with the principle of good faith, and perform such obligations as sending notification, rendering assistance, and keeping confidentiality in accordance with the nature and purpose of the contract and the course of dealing".Civil Code of the People's Republic of China, Book Three, Chapter Four, Article 509 Additionally, the code imposes an implied term that "the parties shall avoid wasting the resources, polluting the environment, or damaging the ecology in the course of performance of the contract". The inclusion of an implied term protecting the environment under Mainland Chinese contract law is analogous to the imposition under
Indian tort law
Tort law in India is primarily governed by judicial precedent as in other common law jurisdictions, supplemented by statutes governing damages, civil procedure, and codifying common law torts. As in other common law jurisdictions, a tort is bre ...
of
absolute liability
Absolute liability is a standard of legal liability found in tort and criminal law of various legal jurisdictions.
To be convicted of an ordinary crime, in certain jurisdictions, a person must not only have committed a criminal action but also h ...
for enterprises that cause pollution or other harm to property or individuals when conducting hazardous activities under the rule in
M. C. Mehta v. Union of India
''M.C. Mehta v. Union of India'' originated in the aftermath of oleum gas leak from Shriram Food and Fertilisers Ltd. complex at Delhi. This gas leak occurred soon after the infamous Bhopal gas leak and created a lot of panic in Delhi. One person ...
and to the
sui generis
''Sui generis'' ( , ) is a Latin phrase that means "of its/their own kind", "in a class by itself", therefore "unique".
A number of disciplines use the term to refer to unique entities. These include:
* Biology, for species that do not fit in ...
rights of personhood accorded to the environment under the laws of several jurisdictions. While other jurisdictions impose protections for the environment through tort law, regulations, or environmental personhood, Mainland Chinese law thus utilises contractual terms implied in law.
Nominate contract
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 tran ...
s in civil law jurisdictions and contracts subject to the
United Nations Convention on Contracts for the International Sale of Goods
The United Nations Convention on Contracts for the International Sale of Goods (CISG), sometimes known as the Vienna Convention, is a multilateral treaty that establishes a uniform framework for international commerce.Not to be confused with ot ...
(CISG) are subject to terms implied by the appropriate civil or commercial code or by the convention, respectively. Many civil law jurisdictions impose a legal duty of good faith which extends to the negotiation as well as performance of contracts. Under the CISG, a variety of terms implied by law are prescribed for contracts involving the international sale of goods. Generally, the goods must be of the quality, quantity, and description required by the contract, be suitably packaged and fit for purpose. The seller is obliged to deliver goods that are not subject to claims from a
third party
Third party may refer to:
Business
* Third-party source, a supplier company not owned by the buyer or seller
* Third-party beneficiary, a person who could sue on a contract, despite not being an active party
* Third-party insurance, such as a Veh ...
for infringement of industrial or
intellectual property
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
rights in the State where the goods are to be sold. The buyer is obliged to promptly examine the goods and, subject to some qualifications, must advise the seller of any lack of conformity within "a reasonable time" and no later than within two years of receipt.
Remedies
Civil law jurisdictions may award specific performance more readily than common law jurisdictions, which generally prefer to award damages. Article 7.2.2 of the International Principles of Commercial Contracts takes a moderate approach, providing that "where a party who owes an obligation other than one to pay money does not perform, the other party may require performance" except where "performance is impossible in law or in fact" or "performance or, where relevant, enforcement is unreasonably burdensome or expensive". Under the Principles, specific relief is thus preferred but courts and arbitrators may instead opt to award damages based on a contextual assessment of the complexity specific relief would result in.
In civil law jurisdictions, penalty clauses are permitted and seen to serve two purposes: deterring the obligee from defaulting on their obligations and providing predictable and guaranteed compensation for any breach of contract that takes place.
Under the
United Nations Convention on Contracts for the International Sale of Goods
The United Nations Convention on Contracts for the International Sale of Goods (CISG), sometimes known as the Vienna Convention, is a multilateral treaty that establishes a uniform framework for international commerce.Not to be confused with ot ...
(CISG), remedies of the buyer and seller depend upon the character of a breach of the contract. If the breach is fundamental, then the other party is substantially deprived of what it expected to receive under the contract. Provided that an objective test shows that the breach could not have been foreseen, then the contract may be avoided and the aggrieved party may claim damages. Where part performance of a contract has occurred, then the performing party may recover any payment made or good supplied; this contrasts with the common law where there is generally no right to recover a good supplied unless title has been retained or damages are inadequate, only a right to claim the value of the good. If the breach is not fundamental, then the contract is not avoided and remedies may be sought including claiming damages, specific performance, and adjustment of price. Damages that may be awarded conform to the common law rules in ''Hadley v Baxendale'' but it has been argued the test of foreseeability is substantially broader and consequently more generous to the aggrieved party.
In jurisdictions applying Roman-Dutch law, a claim for
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, ...
is the primary and obvious and most basic remedy for breach of contract, upholding as it does the expectation interest of the creditor: When one enters into a contract, one expects performance in terms of it. This approach is contrary to that taken under English law, where damages are preferred, and where specific performance is a special discretionary remedy that may be sought only in certain circumstances. A claim for specific performance may be for the payment of a sum of money (''
ad pecuniam solvendum
Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...
''), a claim for the performance of some positive act other than payment of money (''
ad factum praestandum
Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...
'') or a claim to enforce a negative obligation. The remedy of specific performance is not absolute and does not guarantee success. Even where it is shown that there has been a breach, the remedy is not granted unless the innocent party is ready to perform and performance is subjectively and objectively possible for the defendant. The courts have exercised an equitable discretion to refuse a claim for specific performance, usually on the grounds of impossibility, undue hardship or in claims for the enforcement of personal services. An order for specific performance is enforced in keeping with the ordinary rules of procedure. The cases of ''
Benson v SA Mutual Life
''Benson v SA Mutual Life Assurance Society''1986 (1) SA 776 (A). is an important case in South African contract law, particularly in the area of claims for specific performance. It was heard in the Appellate Division, by Michael Corbett (judge), ...
'', ''
Santos v Igesund
''Santos Professional Football Club (Pty) Ltd v Igesund and Another'' is an important case in South African contract law. It was heard in the Cape Provincial Division by Foxcroft J, Moosa J and Selikowitz J on 20 September 2002, with judgment d ...
'' and ''
Haynes v King William's Town Municipality Haynes may refer to:
People
*Haynes (surname)
Places
In Australia:
* Haynes, Western Australia
In Canada:
* Haynes, Alberta
In the United Kingdom:
*Haynes, Bedfordshire
** Haynes Church End
In the United States:
*Haynes, Arkansas
* Haynes, Nort ...
'' set out guidelines to be taken into consideration where the court is asked to grant specific performance. A court does not make an order for specific performance in cases where:
* Performance is personal.
* There is a relative impossibility, where the specific person (an injured
pop star
A pop icon is a celebrity, character, or object whose exposure in popular culture is regarded as constituting a defining characteristic of a given society or era. The usage of the term is largely subjective since there are no definitively object ...
, for example) cannot perform.
* Because it would have to supervise its decree, it would be difficult for the court to enforce it.
* The defendant is insolvent.
* Performance would severely prejudice third parties.
* It conflicts with public policy and would be inappropriate.
* As in ''Haynes'', the cost to the defendant in being compelled to perform is out proportion to the corresponding benefit to the plaintiff, and the latter can equally well be compensated by an award of damages, an order is not made for specific performance. (The hardship of the contract at the time of its concluded, then, is not decisive of the matter; it may also be judged of at the time performance is claimed.)
In other civil law jurisdictions, the range of available remedies varies but typically includes provision for specific performance, rescission, declaratory relief, and injunctions although the distinction between specific performance and injunctions does not necessarily exist in all civil law jurisdictions. In jurisdictions with codified laws of obligations, the extent of remedies available and the circumstances in which they are provided is outlined in the civil or commercial code.
Historical civil law traditions
French contract law
In jurisdictions whose system of contract law is derived from the Napoleonic Code (or from its derivatives, e.g. the
Civil Code of Lower Canada
The ''Civil Code of Lower Canada'' (french: Code civil du Bas-Canada) was a set of laws that were in effect in Lower Canada on 1 August 1866 and remained in effect in Quebec until repealed and replaced by the Civil Code of Quebec on 1 January 199 ...
or 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 a ...
), contracts can be divided into their '' negotium'' (the substantive content of the contract) and their '' instrumentum'' (the formal significance attached to the existence of the contract itself). In principle, only the ''negotium'' is essential to the formation of a valid contract, in line with the principle of
substance over form
Substance over form is an accounting principle used "to ensure that financial statements give a complete, relevant, and accurate picture of transactions and events". If an entity practices the 'substance over form' concept, then the financial state ...
. In France, under article 1128 of the French Civil Code, the principle of the parties'
mutual assent
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 ...
is codified as the primary doctrine underlying French contract law. Similarly, article 1385 of the
Civil Code of Quebec
The ''Civil Code of Quebec'' (CCQ, french: Code civil du Québec) is the civil code in force in the Canadian province of Quebec, which came into effect on January 1, 1994. It replaced the ''Civil Code of Lower Canada'' (french: Code civil du Bas- ...
codifies the principle that, in general, contracts are formed by the exchange of consent between natural or
juridical 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 (such ...
s possessing capacity to contract. Following the collapse of the Soviet Union, the Russian Federation's new civil code adopted in 1994 replaced its previous system of
socialist law
Socialist law or Soviet law denotes a general type of legal system which has been (and continues to be) used in socialist and formerly socialist states. It is based on the civil law system, with major modifications and additions from Marxis ...
with a system similar to the French Civil Code and is therefore also based largely on the exchange of mutual assent.
Contracts in systems based on the Napoleonic code can typically be categorised as consensual contracts, which are formed solely on the basis of the parties' exchange of consent to form legal relations; real contracts, which are concluded not by an explicit exchange of mutual assent but by the handing over of a
chose Chose (pronounced: , French for "thing") is a term used in common law tradition to refer to rights in property, specifically a combined bundle of rights. A chose describes the enforcement right which a party possesses in an object. The use of ''chos ...
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 transferring ...
s in common law jurisdictions and require notarial formalities to be concluded. Thus, while consensual contracts and real contracts can be formed solely by the actions of the parties, ''contrats solonnels'' can only be formed via specified formal processes. Nevertheless, all three categories of contracts are based solely on the exchange of mutual assent, differing only in the manner in which assent is expressed.
=Québecois contract law
=
Québecois contract law represents a distinct offshoot of French contract law that has evolved under British rule and, following
Confederation
A confederation (also known as a confederacy or league) is a union of sovereign groups or states united for purposes of common action. Usually created by a treaty, confederations of states tend to be established for dealing with critical issu ...
, independent Canadian rule, during which time it has both influenced and been influenced by the common law jurisprudence of Canada's other provinces and territories. In general, the rules governing the formation of a contract under Québecois law are codified in Book Five, Title One, Chapter 2, Division 3 of the Civil Code. Except where a specific provision of law requires otherwise, a contract is formed by the exchange of consent between persons with the capacity enter into a contract.Book Five, Title One of the
Civil Code of Quebec
The ''Civil Code of Quebec'' (CCQ, french: Code civil du Québec) is the civil code in force in the Canadian province of Quebec, which came into effect on January 1, 1994. It replaced the ''Civil Code of Lower Canada'' (french: Code civil du Bas- ...
– Section 1385 Additionally, a valid contract must have a cause and an object. The cause of a contract is the reason that determines each of the parties to enter into the contract, and does not need to be explicitly expressed in the contract. The object of a contract is the juridical operation (i.e. exchange of one or more legal rights) contemplated by the parties at the time of the contract's formation. An object is only valid if it is not prohibited by law or on grounds of public policy. A contract which does not meet the conditions of its formation may be annulled .
Additionally, with regard to maritime law, Québec follows Common law jurisprudence. This is because Canadian maritime law developed a distinct jurisdiction and area of law within the legislative purview of Parliament rather than the provincial legislatures and, as such, is uniform across the countries. In Ordon Estate v. Grail, the Supreme Court of Canada stated that "the substantive content of Canadian maritime law is...the body of law administered in England by the High Court on its Admiralty side in 1934, as that body of law has been amended by the Canadian Parliament and as it has developed by judicial precedent", and that "most of Canadian maritime law with respect to issues of tort, contract, agency and bailment is founded upon the English common law" but nevertheless that "English admiralty law as incorporated into Canadian law in 1934 was an amalgam of principles deriving in large part from both the common law and the civilian tradition". The formation of contracts under Canadian maritime law thus functions similarly but not identically to the formation of contracts in the country's common law provinces; furthermore, the implementation of rules derived from international conventions subject maritime contracts to distinct rules often derived from international norms. Similarly, with regard to
bills of exchange
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 ...
and
promissory note
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
s, Québec and the remainder of the Canadian provinces and territories follow a distinct legal system based on, but not identical to, the contract law of Canada's common law jurisdictions. As Canadian law regarding bills of exchange and promissory notes is derived from English common law,
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'' declared ...
is required for the issue of a valid bill of exchange or promissory note, but the requirement for consideration is looser, with the federal ''Bills of Exchange Act'' providing that the requirement for consideration may be satisfied either by "any consideration sufficient to support a simple contract" in the country's common law provinces and territories or by "an antecedent debt or liability", thus enabling past consideration to be valid as it is under Indian contract law.
Québecois contract law also shares two distinctly Canadian duties of good faith with the other Canadian provinces and territories, as a result of 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 ...
interpreting provisions of the civil code and precedent in the common law provinces such that they converge. One such duty is that of honest contractual performance. This duty requires parties to a contract to act in good faith and with honesty in exercising their rights under a contract and in delivering their obligations under a contract. This duty prohibits parties to a contract from "
ying
Ying may refer to:
People
* Yíng (嬴), a Chinese surname, the ancestral name of Qin Shi Huang, first Emperor of China in the Qin Dynasty, and some contemporary rival royal families such as the Zhaos
* Yīng (应), a Chinese surname from the Z ...
or otherwise knowingly mislead ngeach other about matters directly linked to the performance of the contract". In Québec, it is rooted in sections 6 and 7 of the civil code which provide that "every person is bound to exercise his civil rights in accordance with the requirements of good faith" and that "no right may be exercised with the intent of injuring another or in an excessive and unreasonable manner, and therefore contrary to the requirements of good faith". The other such duty is that to negotiate in good faith, grounded in section 1375 of the civil code which provides that parties to a contract must act in good faith not only at the time an obligation is performed but also "at the time the obligation arises". Circumstances giving rise to this duty include: negotiations between franchisors and franchisees, insurers and insured parties, contracts pertaining to marriages and separation agreements, invitations to tender, and
fiduciary
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
relationships. With regard to invitations to tender, this duty is applied in the form of the uniquely Canadian
Contract A In Canadian contract law, Contract A is a concept applied by Canadian courts regarding the fair and equal treatment of bidders in a contract tendering process. Essentially this concept formalizes previously applied precedents and strengthens the pr ...
doctrine.
In Québecois contract law, there are a variety of nominate contracts for which the civil code makes special provision. These include contracts for the sale of goods, the sale of immovable property, gifts, and a variety of contracts described by the civil code as being similar in nature to contracts for sale. Furthermore, the rules regarding contracts for the international sale of goods are harmonised as a result of Canada's membership in the United Nations convention
Roman Dutch contract law
The Roman-Dutch law of contract is based on
canon
Canon or Canons may refer to:
Arts and entertainment
* Canon (fiction), the conceptual material accepted as official in a fictional universe by its fan base
* Literary canon, an accepted body of works considered as high culture
** Western can ...
and
natural law
Natural law ( la, ius naturale, ''lex naturalis'') is a system of law based on a close observation of human nature, and based on values intrinsic to human nature that can be deduced and applied independently of positive law (the express enacte ...
s. Adopting the canonist position, all contracts were said to be an exchange of promises that were consensual and ''bonae fidei'', that is, based simply on
mutual assent
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 ...
and
good faith
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
. Taking the Christian view that it is a sin to break one's
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 ...
, canon lawyers developed the ''
pacta sunt servanda
''Pacta sunt servanda'', Latin for "agreements must be kept", is a brocard and a fundamental principle of law. According to Hans Wehberg, a professor of international law, "few rules for the ordering of Society have such a deep moral and religi ...
'' principle under which all serious agreements ought to be enforced, regardless of whether there had been compliance with strict formalities as prescribed by secular law. Under the ''causa'' theory, for the contract to be binding it had to have a ''iusta causa'', or lawful motive in line with Christian moral imperatives, arising not only from a lawful or just right, title, or cause of action, but also from love and affection, moral consideration, or past services. A was redefined as any agreement unenforceable for lack of . All of these principles were applied uniformly through European
ecclesiastical court
An ecclesiastical court, also called court Christian or court spiritual, is any of certain courts having jurisdiction mainly in spiritual or religious matters. In the Middle Ages, these courts had much wider powers in many areas of Europe than be ...
s.
In keeping with Enlightenment values, natural lawyers stripped away the Christian morality from contract law. They redefined a contract as a concurrence of wills, and each party's "promise" was now seen as a declaration of will devoid of moral obligation (will theory). In place of ''iusta causa'' developed a general principle of binding force under which any valid contract was both binding and actionable. Canonist substantive fairness shifted to procedural fairness, so good faith and mutual assent were retained as requirements, but
just price
The just price is a theory of ethics in economics that attempts to set standards of fairness in transactions. With intellectual roots in ancient Greek philosophy, it was advanced by Thomas Aquinas based on an argument against usury, which in his ti ...
and ''
laesio enormis
''Laesio enormis'' (Latin: ''abnormal harm'') is a legal doctrine that gives a contracting party the ability to rescind an agreement if the price of exchange is less than a certain sum (for instance one half, or two thirds) of its actual value. The ...
'' were not. In African states which were previously under English or South African rule,
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 p ...
was substituted for ''bonos mores'', though this shift did not affect other Roman-Dutch law jurisdictions.
In jurisdictions following Roman Dutch Law, including mixed systems in South Africa and neighbouring countries in which contract law continues to adhere to Roman Dutch tradition, the following requirements must be met for a contract to be considered valid:
# There must be ''
consensus ad idem
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 contracting parties.
# The parties must have seriously intended the agreement to result in terms which can be enforced.
# The parties must have the capacity to contract.
# The agreement must have certain and definite terms.
# The necessary formalities must be observed.
# The agreement must be
lawful
Law is a set of rules that are created and are law enforcement, enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. ...
.Gibson 2003:10
# The contractual obligations must be possible of performance.
# The content of the agreement must be
certain
Certainty (also known as epistemic certainty or objective certainty) is the epistemic property of beliefs which a person has no rational grounds for doubting. One standard way of defining epistemic certainty is that a belief is certain if and ...
.
In such jurisdictions, a contract has certain characteristic features:
* It can be unilateral, i.e. one party has a duty to perform, or bilateral or multilateral, i.e. both parties have a duty to perform.
* It is an obligationary agreement. It entails undertakings or forbearances, on one or both sides, to tender certain performances: that is, to give (''dare''), to do (''facere'') or not to do (''non-facere''). Alternatively, it may be a
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 Cambrid ...
that a certain state of affairs exists.
* If bilateral, it is usually synallagmatic (or reciprocal), meaning that one party's performance is promised in exchange for the performance of the other party.
The modern concept of contract is generalised so that an agreement does not have to conform to a specific type to be enforced, but contracting parties are required to conduct their relationship in
good faith
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
(''bona fides'').
Scots contract law
Under
Scots law
Scots law () is the legal system of Scotland. It is a hybrid or mixed legal system containing civil law and common law elements, that traces its roots to a number of different historical sources. Together with English law and Northern Ireland l ...
, a contract is created by
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 ...
agreement and should be distinguished from a unilateral promise, the latter being recognised as a distinct and enforceable species of obligation in Scots Law. Scots contract law is related to Roman Dutch contract law owing to the influence of Dutch and Flemish merchants and scholarship on Scots jurisprudence prior to the
Act of Union 1707
The Acts of Union ( gd, Achd an Aonaidh) were two Acts of Parliament: the Union with Scotland Act 1706 passed by the Parliament of England, and the Union with England Act 1707 passed by the Parliament of Scotland. They put into effect the te ...
, and similarly arose through a process of judicial and scholarly development based on Scottish and continental European interpretations of classical Roman contract law. Consequently, in order for a contract to be valid under Scots law the following requirements must be met for a contract to be considered valid:
# There must be ''
consensus ad idem
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 contracting parties.
# The parties must have seriously intended the agreement to result in terms which can be enforced.
# The parties must have the capacity to contract.
# The agreement must have certain and definite terms.
# The necessary formalities must be observed.
# The agreement must be
lawful
Law is a set of rules that are created and are law enforcement, enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. ...
.
# The contractual obligations must be possible of performance.
# The content of the agreement must be
certain
Certainty (also known as epistemic certainty or objective certainty) is the epistemic property of beliefs which a person has no rational grounds for doubting. One standard way of defining epistemic certainty is that a belief is certain if and ...
.
As in most systems of contract law, a contract is formed by the acceptance of an offer, and an offer can be constituted by responding to 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 invitat ...
. While there is no requirement for
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'' declared ...
in Scots contract law, a distinction is made between "gratuitous" contracts which only impose obligations upon one party and "onerous" contracts in which each party undertakes obligations toward the other, with the distinction only being relevant in instances where one party's failure to deliver on its obligations excuses or limits the obligations of the other party.
Scots contract law has also been supplemented and modified by legislation seeking to modernise jurisprudence. For example, the Contract (Scotland) Act 1997 codifies the
parol evidence rule
The parol evidence rule is a rule in the Anglo-American common law that governs what kinds of evidence parties to a contract dispute can introduce when trying to determine the specific terms of a contract. The rule also prevents parties who have ...
in Scots contract law by providing that where a written document appears to comprise all the terms of a contract, it shall be presumed to do so except where the contrary is proved and by further providing that a document which expressly states that it comprises all the terms of a contract is conclusively presumed to do so. The act also alters Scots contract law to enable a buyer to seek damages for breach of contract under a contract of sale from the seller without being required to reject the goods or rescind the contract as was previously the case. For example, while a contractual promise historically had to be proved by
writ
In common law, a writ (Anglo-Saxon ''gewrit'', Latin ''breve'') is a formal written order issued by a body with administrative or judicial jurisdiction; in modern usage, this body is generally a court. Warrants, prerogative writs, subpoenas, a ...
or
oath
Traditionally an oath (from Anglo-Saxon ', also called plight) is either a statement of fact or a promise taken by a sacrality as a sign of verity. A common legal substitute for those who conscientiously object to making sacred oaths is to ...
, the Requirements of Writing (Scotland) Act 1995 provided that a promise need only be evidenced in writing for the creation, transfer, variation or extinction of a real right in land (s 1(2) (a)(i) of Requirements of Writing (Scotland) Act 1995) and for a gratuitous unilateral obligation other than one undertaken in the course of business (s 1(2)(a)(ii) of Requirements of Writing (Scotland) Act 1995.)
Rules concerning the creation of third-party rights in Scots contract law are codified in the Contract (Third Party Rights) (Scotland) Act 2017, which provides that a third-party right comes into existence where a "contract contains an undertaking that one or more of the contracting parties will do, or not do, something for the hird-partys benefit" and the parties to the contract intended that "the hird-partyshould be legally entitled to enforce or otherwise invoke the undertaking".Contract (Third Party Rights) (Scotland) Act 2017, 2017 asp. 5 /ref> The act specifically provides that a third-party does not have to be in existence or fall within the category of persons specified by the right at the time of the right's creation. Furthermore, it makes provisions for the enforcement of rights by third-parties and, while it allows for the parties to a contract to modify or rescind the third-party right, it codifies protections for third-parties who have acted in reliance on such a right or have provided notice of their acceptance to the promisor of the right.
Modern civil and mixed law jurisdictions
Chinese contract law
There are four distinct systems of contract law presently in force in China, three of which are in force in different regions administered by the
People's Republic of China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
and one of which is in force in the
Republic of China
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 northeast ...
. In the People's Republic; Hong Kong is a common law jurisdiction whose contract law is largely identical to the pre-1997 contract law of
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 Eng ...
, Macau operates under a distinct framework modelled after Portuguese civil law, and contract law in the Mainland is governed by the 2021
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's ...
. In contrast, contract law in all areas of the Republic of China are governed by the Civil Code of the Republic of ChinaCivil Code (Amended 2008.05.23) which was originally modelled after the Japanese
Six Codes
Six Codes (六法) refers to the six main legal codes that make up the main body of law in Japan, South Korea, and the Republic of China (Taiwan). Sometimes, the term is also used to describe the six major areas of law. Furthermore, it may refer t ...
system, itself primarily based on 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 ...
approach to law.
=Republic of China
=
The contract law of the Republic of China is governed by its civil code, which was originally enacted in 1929 and has developed over the following century. A contract under the civil code is a type of juridical act, divided into three components: principle (i.e. the purpose of a contract), behavioural ability (i.e. disposition of obligations), and declaration of intent (i.e.
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 ...
).Taiwan Contract Law – (Symposium on the Evolution of Private Law in China and Taiwan (Contract Law Session), College of Law, National Taiwan University 2014. /ref> The civil code provides that a juridical act is only valid if it does not violate an imperative or prohibitive provision or public policy, and if it complies with legal requirements as to form. A contract is considered to have been concluded validly if the parties thereto agree upon its essential conditions and, where agreement is lacking on non-essential conditions, courts are empowered to make such provision as they deem equitable. While the formation of a contract generally requires both an offer and an acceptance, the requirement for an acceptance does not need to be in the form of a notice if one does not appear necessary in light of the nature of the agreement or applicable customs; in such circumstances, the contract is deemed to have been formed when a "fact" implying acceptance of the offer occurs.
=People's Republic of China
=
Under 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's ...
, "the parties may conclude a contract by making an offer and acceptance or through other means". An offer is defined as "an expression of intent to conclude a contract with another person" and is required to "be specific and definite" and to expressly indicate that "the offeror is to be bound by his expression of intent upon acceptance thereof by an offeree". The code further provides that an offer may be revoked unless "the offeror has explicitly indicated that the offer is irrevocable by specifying a time limit for acceptance or in any other manner" or "the offeree has reasons to believe that the offer is irrevocable and has made reasonable preparations for performing the contract". An acceptance, defined as "an expression of intent of the offeree to accept the offer" and a contract is legally formed when the acceptance becomes effective under the provisions of the code. Consequently, the formation of a contract under Mainland Chinese law is governed by the
mutual assent
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 ...
principle but is subject to the additional criterion that a valid offer expressly state that it is irrevocable.
Based on the common law concept of 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 invitat ...
, Mainland Chinese law recognises the notion of an invitation to offer. An invitation to offer is defined as "a manifestation that a person expects another person to make an offer" and the code specifically provides that "Auction announcements, bidding announcements, stock prospectuses, bond prospectuses, fund prospectuses, commercial advertisements and promotions, mailed price catalogs, and the like, are invitations to offer" and that "commercial advertisement and promotion constitute an offer if their content satisfies the conditions for an offer".
Mainland Chinese law takes a liberal approach to the manner in which a contract is recorded, with the civil code providing that "parties may conclude a contract in writing, orally, or in other forms" and that "a data message in any form...that renders the content contained therein capable of being represented in a tangible form and accessible for reference and use at any time is deemed as a writing." Nevertheless, the code provides for specific requirements as to the contents of a contract.
Under the Civil Code of the Republic of China, a contract act purportedly entered into by an individual lacking capacity for any reason is void unless ratified by the individual's guardian or conservator. Only a lawful guardian or conservator of such an individual may assent to a juridical act on behalf of a person lacking capacity. Additionally, where a party lacking capacity fraudulently deceives the other party into believing that the first party had capacity to enter a contract, the contract is valid despite such incapacity.
Japanese contract law
Japanese contract law forms a distinct branch within the broader world of civil law jurisprudence, initially derived primarily from German jurisprudence adopted in the aftermath of 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 ...
. While the basic rules of Japanese contract law are prescribed in the Japanese Civil Code (together with the rules underpinning other areas of private law, including tort and family law), more detailed rules concerning commercial contracts are prescribed in the Japanese Commercial Code. A contract under Japanese law is formed by way of offer and acceptance as in most jurisdictions; however, a written document is not a prerequisite for the existence of a contract, which comes into being based on the principle of consensualism.Yamashita, Y. (2018-01-11). Formation of Contract in Japan. In Formation and Third Party Beneficiaries. : Oxford University Press. Retrieved 26 May. 2022, fro /ref> Under Japanese contract law, alignment between the intentions of the parties to a contract is thus considered vital and contracts may be voided depending on the circumstances where a party conceals its true intentions, intentionally or fraudulently manifests false intentions, mistakenly manifests false intentions, or is coerced into manifesting false intentions. Contracts which violate mandatory prescriptions of law, as well as contracts which violate public policy, may be deemed void ab initio to the extent of the violation.
Japanese contract law recognises the existence of pre-contractual and post-contractual obligations. With regard to pre-contractual obligations, a party to a contract which is ultimately impossible to perform or void may be liable for negligence in concluding the contract if another party relied upon their representations and consequently suffered pecuniary or other material damages. Another distinct area of pre-contractual obligation pertains to experts' obligation to explain complicated contracts to consumers, with complex financial contracts being a key example of this. Post-contractual obligations frequently recognised under Japanese contract law include obligations regarding confidentiality and non-competition, which may be defined by the contract itself, implied for reasons of public policy, or provided for by non-derogable statutory law.
The Japanese Civil Code provides for a variety of nominate contracts similar to those prescribed in other civil law jurisdictions; including contracts for sale, gifts, leases, loans, and the provision of services. These nominate contracts are subject to specific rules and warranties mandated by the code in order to protect the rights of the contracting parties, particularly those with lesser negotiating power. Additionally, nominate contracts for the formation of partnerships and associations govern the establishment of these categories of legal persons and there are special provisions governing third party beneficiary contracts. Rules governing the performance of contracts, set-off, assignment, and the seizure of defaulting obligors' assets are also provided by the Japanese Civil Code.
Contract law in Japan, despite the civil law origins of its civil code, is heavily shaped by traditionally Japanese attitudes toward business and obligations. For example, under the Japanese Commercial Code, a merchant trader who receives an offer from a regular client that falls within one of their areas of business is expected to respond without undue delay and, if they fail to do so, they are presumed to have accepted the contract. This can be seen as an illustration of a Japanese approach to commerce and contract law rooted in notions of honouring relationships. This is significant since, owing to the German roots of the Japanese Civil Code; once a contract becomes effective as between the parties, it is not freely revocable. Japanese judges, interpreting the obligation of good faith contained in the Japanese Civil Code as codifying this notion of honour-bound relationship in commerce, tend to deny both the termination of pre-contractual negotiations and the non-renewal of existing contractual relations.Landini, Sara (2021) "The Idea of Contract in Japanese Law and Culture," Japanese Society and Culture: Vol. 3 , Article 9. DOI: 10.52882/2434-1738-0309 Available at /ref>
Philippine contract law
The Philippines is a mixed law jurisdiction, shaped primarily by Spanish civil law and American common law as codified in the Philippine Civil Code. The Philippine Civil Code defines a contract as "a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service". Parties to an innominate contract have a high degree of freedom of contract, contractual freedom and "may establish such stipulations, clauses, terms and conditions as they may deem convenient" only subject to the requirement that "they are not contrary to law, morals, good customs, public order, or public policy". A contract under Philippine law is only valid if it is binding upon both parties and, as such, a contract whose associated obligations are subject to one party's discretion is invalid. If a contract contains a provision benefitting a
third-party beneficiary
A third-party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been an active party to the contract. This right, known as a ''ius quaesitum tertio'', arises when the third ...
, the beneficiary may compel its performance provided that they communicated their assent to the promissor before any attempt by the latter to revoke or alter the benefit pursuant to the contract. Except where a provision of law requires that a contract take a particular form, a contract is binding regardless of the form it takes. In order for a contract to exist, the following criteria must be met:
* Both contracting parties must consent.
* The object of the contract must be certain (i.e. it must pertain to ascertainable categories of obligations)
* The cause (i.e. purpose) of the obligation must be established
Where a written instrument purporting to embody a contract does not adequately represent the true intention of the parties due to mistake, fraud, inequitable conduct, or accident; any party may seek
reformation
The Reformation (alternatively named the Protestant Reformation or the European Reformation) was a major movement within Western Christianity in 16th-century Europe that posed a religious and political challenge to the Catholic Church and in ...
. Where one party was mistaken and the other either acted fraudulently or inequitably, or was aware of the defect in the instrument, the first party may seek reformation. Additionally, reformation may be sought where the defect in the document is caused by "ignorance, lack of skill, negligence, or bad faith on the part of the person drafting the instrument". The Supreme Court has the authority to determine the rules governing reformation under its Rules of Court. A party who takes legal action to enforce a contract is estopped from seeking reformation.
Valid contracts may only be rescinded in cases provided for by law. This includes
fraudulent conveyance
A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring money to another person or company. It is generally a civil, not a criminal matter, meaning that one cannot go to jail for it, but in some jurisdictions th ...
s as well as contracts concluded by an individual's guardian or agent if an individual suffers lesion by more than one quarter of the value of the assets or services alienated, contracts alienating assets subject to litigation without the consent of the litigants, and other categories of contract expressly designated by statute. Rescission may not be sought except where it is the only means by which a party can obtain reparation for the damages caused to them by the contract and is only permitted to the extent necessary to cover such damages. Under Philippine law, rescission creates an obligation to return anything that was the object of the contract as well as any profit derived therefrom, and rescission is consequently available only where the party seeking the remedy is able to return or provide reparation for such things.Philippine Civil Code (Republic Act No. 386) Article 1385 Additionally, rescission is prohibited where the items that are the object of the contract are in the possession of a
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 h ...
who acted in good faith. Aside from rescission, a contract under Philippine law may be voided where a party did not possess the capacity to consent or where the consent was given due to mistake, violence, intimidation, undue influence, or fraud.
Certain contracts under Philippine law, while valid, are unenforceable unless ratified. This includes contracts concluded by an agent who acted without or beyond authority, contracts where both parties lack capacity to consent, and contracts that violate 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 sign ...
as applicable under the Philippine Civil Code. Additionally, a contract is void ab initio if its cause, object, or purpose is contrary to law, morals, good customs, public order or public policy; it is absolutely simulated or fictitious; its cause or object did not exist when it was concluded, is impossible, or is "outside the commerce of men"; the intention of the parties cannot be determined; or it is expressly prohibited or declared void by law.Philippine Civil Code (Republic Act No. 386) Article 1409 A contract that is void ab initio may not be ratified.
Philippine contract law takes a middle ground between the common law and civil law approaches to
liquidated damages
Liquidated damages, also referred to as liquidated and ascertained damages (LADs), are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late ...
or
penalty clause
Penal damages are liquidated damages which exceed reasonable compensatory damages, making them invalid under common law. While liquidated damage clauses set a pre-agreed value on the expected loss to one party if the other party were to breach th ...
s. While such provisions are lawful and enforceable, a court may reduce such damages if it finds their effect to be iniquitous or unconscionable. Additionally, if the breech of contract litigated is one that was not contemplated by the parties when the contract was concluded (e.g.
force majeure
In contract law, (from Law French: 'overwhelming force', ) is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such ...
), the appropriate level of damages will be determined by the court without regard to the provision.
Swiss contract law
In Swiss law, which also forms the basis for the
Turkish civil code
Turkish civil code ( tr, Türk Medeni Kanunu) is one of the earliest laws in the history of Turkey within the scope of Turkish reforms.
Background
During the Ottoman Empire, the legal system of Turkey was Sharia like other Muslim countries. A co ...
, contracts are defined by article 1 of the Code of Obligations : "a contract is formed when the parties have, reciprocally and in a concordant manner, expressed their intention to form a contract". As in other continental civil law jurisdictions, contracts under Swiss law are thus formed by the exchange of at least two expressions of intent, an offer and an acceptance, per which the parties agree to enter into legal relations. The Code of Obligations, adopted in 1911, consists of two categories of rules governing contracts:
* General rules, which are applicable to all categories of contracts and are outlined in articles 1 through 39 of the code; and
* Special rules, which are applicable to specific types of
nominate contract
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 tran ...
s.
Aside from the rules specified in the Code of Obligations, the
Swiss Civil Code
The Swiss Civil Code (SR/RS 210, german: Schweizerisches Zivilgesetzbuch (ZGB); french: Code civil suisse (CC); it, Codice civile svizzero (CC); rm, Cudesch civil svizzer) is a portion of the second part (SR/RS 2) of the internal Swiss law ("Pr ...
contains separate provisions governing contracts of
marriage
Marriage, also called matrimony or wedlock, is a culturally and often legally recognized union between people called spouses. It establishes rights and obligations between them, as well as between them and their children, and between ...
and inheritance while separate enactments govern contracts concerning private insurance, consumer credit, and travel packages.
Islamic law
While the majority of Muslim-majority jurisdictions primarily use civil or common law for most aspects of contemporary contract law, Islamic law regarding contracts remains relevant in the area of
marriage
Marriage, also called matrimony or wedlock, is a culturally and often legally recognized union between people called spouses. It establishes rights and obligations between them, as well as between them and their children, and between ...
law and
Islamic finance
Islamic banking, Islamic finance ( ar, مصرفية إسلامية), or Sharia-compliant finance is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economics ...
. There are differences between the criteria for formation of contracts under Islamic law and criteria under civil and common law. For example, Sharia classically recognises only
natural persons
In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the broad ...
, and never developed the concept of a
legal person
In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...
, or
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 r ...
, i.e., a legal entity that limits the liabilities of its managers, shareholders, and employees; exists beyond the lifetimes of its founders; and that can own assets, sign contracts, and appear in court through representatives. Additionally, a contract under Islamic law may be voided for
gharar
''Gharar'' ( ar, غرر) literally means uncertainty, hazard, chance or risk. It is a negative element in ''mu'amalat'' ''fiqh'' (transactional Islamic jurisprudence), like ''riba'' (usury) and '' maysir'' (gambling).
One Islamic dictionary (''A ...
(i.e.
speculation
In finance, speculation is the purchase of an asset (a commodity, good (economics), goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline i ...
and
uncertainty
Uncertainty refers to epistemic situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown. Uncertainty arises in partially observable or ...
) and
riba
The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
(i.e.
usury
Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is ch ...
).
Islamic marriages are typically solemnised as a written financial contract, typically in the presence of two Muslim male witnesses, and it may include a brideprice (
Mahr
In Islam, a mahr (in ar, مهر; fa, مهريه; tr, mehir; sw, mahari; also transliterated ''mehr'', ''meher'', ''mehrieh'', or ''mahriyeh'') is the obligation, in the form of money or possessions paid by the groom, to the bride at the time ...
) payable from a Muslim man to a Muslim woman. The brideprice is considered by a Sharia court as a form of debt. Written contracts were traditionally considered paramount in Sharia courts in the matters of dispute that are debt-related, which includes marriage contracts. In Singapore, the contract-based Islamic marriage law is governed by the
Administration of Muslim Law Act
The ''Administration of Muslim Law Act'' is a 1966 Act of the Parliament of Singapore. According to an article published The Straits Times
''The Straits Times'' is an English-language daily broadsheet newspaper based in Singapore and curre ...
Administration of Muslim Law Act 1966 /ref> and coexists with the secular system of marriage registration established under the
Women's Charter
The Women's Charter 1961 is an Act of the Singaporean Parliament passed in 1961. The Act was designed to improve and protect the rights of females in Singapore and to guarantee greater legal equality for women in legally sanctioned relationship ...
. Meanwhile, in India,
Muslim personal law
All the Muslims in India are governed by the Muslim Personal Law (Shariat) Application Act, 1937. This law deals with marriage, succession, inheritance and charities among Muslims. The Dissolution of Muslim Marriages Act, 1939 deals with the circ ...
is a distinct branch of law governed by a variety of statutes and Islamic customs that vary from community to community.
In contemporary Islamic finance and banking, a variety of nominate contracts are used to comply with the Islamic prohibition on gharar and riba. These include
profit and loss sharing
Profit and Loss Sharing (also called PLS or participatory banking) refers to Sharia-compliant forms of equity financing such as mudarabah and musharakah. These mechanisms comply with the religious prohibition on interest on loans that most Muslim ...
contracts such as
Mudarabah
Profit and Loss Sharing (also called PLS or participatory banking) refers to Sharia-compliant forms of equity financing such as mudarabah and musharakah. These mechanisms comply with the religious prohibition on interest on loans that most Muslim ...
,
Musharakah
Profit and Loss Sharing (also called PLS or participatory banking) refers to Sharia-compliant forms of equity financing such as mudarabah and musharakah. These mechanisms comply with the religious prohibition on interest on loans that most Musli ...
Murabaha
''Murabaḥah'', ''murabaḥa'', or ''murâbaḥah'' ( ar, مرابحة, derived from ''ribh'' ar, ربح, meaning profit) was originally a term of ''fiqh'' (Islamic jurisprudence) for a sales contract where the buyer and seller agree on the m ...
, which was originally a term of
fiqh
''Fiqh'' (; ar, فقه ) is Islamic jurisprudence. Muhammad-> Companions-> Followers-> Fiqh.
The commands and prohibitions chosen by God were revealed through the agency of the Prophet in both the Quran and the Sunnah (words, deeds, and ...
for a sales contract in which the buyer and seller agree on the markup (profit) or "
cost-plus
A cost-plus contract, also termed a cost plus contract, is a contract such that a contractor is paid for all of its allowed expenses, ''plus'' additional payment to allow for a profit. for the item(s) being sold. In recent decades it has become a term for a very common form of Islamic (i.e., "
shariah
Sharia (; ar, شريعة, sharīʿa ) is a body of religious law that forms a part of the Islamic tradition. It is derived from the religious precepts of Islam and is based on the sacred scriptures of Islam, particularly the Quran and the H ...
compliant")
financing
Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of money, it can also take the form of effort or time from an organization or company. Generally, this word is used when a firm uses ...
, where the price is marked up in exchange for allowing the buyer to pay over time—for example with monthly payments (a contract with deferred payment being known as ''bai-muajjal'').
Additionally, Islamic law imposes several legal conditions on the process of establishing a
waqf
A waqf ( ar, وَقْف; ), also known as hubous () or '' mortmain'' property is an inalienable charitable endowment under Islamic law. It typically involves donating a building, plot of land or other assets for Muslim religious or charitabl ...
, a type of
patrimony of affectation In certain civil law jurisdictions (e.g., France, Quebec, Mexico, etc.), the patrimoine d'affectation is property, assets, or a legal estate that can be divided for a fiduciary purpose, as being distinct from a person's general assets. It is simil ...
similar to a
trust
Trust often refers to:
* Trust (social science), confidence in or dependence on a person or quality
It may also refer to:
Business and law
* Trust law, a body of law under which one person holds property for the benefit of another
* Trust (bus ...
. A waqf is a contract, therefore the founder (called ''al-wāqif'' or ''al-muḥabbis'' in Arabic) must be of the capacity to enter into a contract. For this the founder must:
*be an
adult
An adult is a human or other animal that has reached full growth. In human context, the term ''adult'' has meanings associated with social and legal concepts. In contrast to a " minor", a legal adult is a person who has attained the age of major ...
*be sound of mind
*capable of handling financial affairs
*not an undischarged bankrupt
Although waqf is an Islamic institution, being a Muslim is not required to establish a waqf, and non-Muslims may establish a waqf. Finally if a person is fatally ill, the waqf is subject to the same restrictions as a will in Islam. Furthermore, the property (called ''al-mawqūf'' or ''al-muḥabbas'') used to found a waqf must be objects of a valid contract. The objects should not themselves be ''
haram
''Haram'' (; ar, حَرَام, , ) is an Arabic term meaning 'Forbidden'. This may refer to either something sacred to which access is not allowed to the people who are not in a state of purity or who are not initiated into the sacred knowle ...
'' (e.g.
wine
Wine is an alcoholic drink typically made from fermented grapes. Yeast consumes the sugar in the grapes and converts it to ethanol and carbon dioxide, releasing heat in the process. Different varieties of grapes and strains of yeasts are m ...
or
pork
Pork is the culinary name for the meat of the domestic pig (''Sus domesticus''). It is the most commonly consumed meat worldwide, with evidence of pig husbandry dating back to 5000 BCE.
Pork is eaten both freshly cooked and preserved; ...
). These objects should not already be in the public domain: public property cannot be used to establish a waqf. The founder cannot also have pledged the property previously to someone else. These conditions are generally true for contracts in Islam. The beneficiaries of the waqf can be persons and public utilities. The founder can specify which persons are eligible for benefit (such the founder's family, entire community, only the poor, travelers). Public utilities such as mosques, schools, bridges, graveyards and drinking fountains can be the beneficiaries of a waqf. Modern legislation divides the waqf as "charitable causes", in which the beneficiaries are the public or the poor) and "family" waqf, in which the founder makes the beneficiaries his relatives. There can also be multiple beneficiaries. For example, the founder may stipulate that half the proceeds go to their family, while the other half go to the poor. Valid beneficiaries must satisfy the following conditions:
* They must be identifiable. While most schools of Islamic jurisprudence require that least some of the beneficiaries must also exist at the time of the founding of the waqf, the Mālikīs hold that a waqf may exist for some time without beneficiaries, whence the proceeds accumulate are given to beneficiaries once they come into existence. An example of a non-existent beneficiary is an unborn child.
*The beneficiaries must not be at war with the Muslims but are not, themselves, required to be Muslim.
*The beneficiaries may not use the waqf for a purpose in contradiction of Islamic principles.
A waqf's declaration of founding is usually a written document, accompanied by a verbal declaration, though neither are required by most scholars. Whatever the declaration, most scholars hold that it is not binding and irrevocable until actually delivered to the beneficiaries or put in their use. Once in their use, however, the waqf becomes an institution in its own right.Waḳf, ''Encyclopaedia of Islam'' Under Singaporean law, every mosque is required to be created and administered as a waqf, and rules governing waqfs are prescribed in the Administration of Muslim Law Act.
Convention on Contracts for the International Sale of Goods
In the vast majority of jurisdictions, the Convention on Contracts for the International Sale of Goods (CISG) governs contracts concerning the international sale of goods. The CISG facilitates
international trade
International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy)
In most countries, such trade represents a significant ...
by removing legal barriers among state parties (known as "Contracting States") and providing uniform rules that govern most aspects of a commercial transactions, such as
contract formation
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 tran ...
, the means of delivery, parties' obligations, and 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 party ...
. Unless expressly excluded by the contract, the convention is automatically incorporated into the
domestic law
Municipal law is the national, domestic, or internal law of a sovereign state and is defined in opposition to international law. Municipal law includes many levels of law: not only national law but also state, provincial, territorial, regional, ...
s of Contracting States. Consequently, the criteria for the creation of contracts for the international sale of goods are substantially harmonised among civil, common, and mixed law jurisdictions around the world.
The CISG applies to contracts of the sale of goods between parties whose places of business are in different States, when the States are Contracting States (
United Nations Convention on Contracts for the International Sale of Goods
The United Nations Convention on Contracts for the International Sale of Goods (CISG), sometimes known as the Vienna Convention, is a multilateral treaty that establishes a uniform framework for international commerce.Not to be confused with ot ...
, Article 1(1)(a)). Given the significant number of Contracting States, this is the usual path to the CISG's applicability. The CISG also applies if the parties are situated in different countries (which need not be Contracting States) and the conflict of law rules lead to the application of the law of a Contracting State. For example, a contract between a Japanese trader and a Brazilian trader may contain a clause that arbitration will be in Sydney under Australian law with the consequence that the CISG would apply. A number of States have declared they will not be bound by this condition. The CISG is intended to apply to commercial goods and products only. With some limited exceptions, it does not apply to personal, family, or household goods, nor does it apply to auctions, ships, aircraft, or intangibles and services. The position of computer software is "controversial" and will depend upon various conditions and situations.Peter Schlechtriem, "Requirements of Application and Sphere of Applicability of the CISG" (2005) 36 ''Victoria University of Wellington Law Review'' 781. Importantly, parties to a contract may exclude or vary the application of the CISG.
Under the CISG, an offer to contract must be addressed to a person, be sufficiently definite – that is, describe the goods, quantity, and price – and indicate an intention for the offeror to be bound on acceptance. The CISG does not appear to recognise
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 omnipresen ...
unilateral contracts but, subject to clear indication by the offeror, treats any proposal not addressed to a specific person as only an invitation to make an offer. Further, where there is no explicit price or procedure to implicitly determine price, then the parties are assumed to have agreed upon a price based upon that "generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances". Generally, an offer may be revoked provided the withdrawal reaches the offeree before or at the same time as the offer, or before the offeree has sent an acceptance. Some offers may not be revoked; for example when the offeree reasonably relied upon the offer as being irrevocable. The CISG requires a positive act to indicate acceptance; silence or inactivity are not an acceptance.
The CISG attempts to resolve the common situation where an offeree's reply to an offer accepts the original offer, but attempts to change the conditions. The CISG says that any change to the original conditions is a rejection of the offer—it is a
counter-offer
Offer and acceptance are generally recognised as essential requirements for the formation of a contract, and analysis of their operation is a traditional approach in contract law. The offer and acceptance formula, developed in the 19th century, id ...
—unless the modified terms do not materially alter the terms of the offer. Changes to price, payment, quality, quantity, delivery, liability of the parties, and
arbitration
Arbitration is a form of alternative dispute resolution (ADR) that resolves disputes outside the judiciary courts. The dispute will be decided by one or more persons (the 'arbitrators', 'arbiters' or 'arbitral tribunal'), which renders the ' ...
conditions may all materially alter the terms of the offer.
Contracts across jurisdictions
Notably, unlike common law jurisdictions, civil and mixed law jurisdictions do not require consideration for a contract to be binding. In systems based on the Napoleonic Code (including
Québec
Quebec ( ; )According to the Government of Canada, 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 ...
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 Amerindian ...
whose law of obligations is based on the
Civil Code of Lower Canada
The ''Civil Code of Lower Canada'' (french: Code civil du Bas-Canada) was a set of laws that were in effect in Lower Canada on 1 August 1866 and remained in effect in Quebec until repealed and replaced by the Civil Code of Quebec on 1 January 199 ...
, as well as Arab jurisdictions whose legal systems are based on 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 a ...
), an ordinary contract is said to be formed simply on the basis of a "meeting of the minds" or a "concurrence of wills". The
Law of Germany
The law of Germany (german: das Recht Deutschlands), that being the modern German legal system (german: Deutsches Rechtssystem), is a system of civil law which is founded on the principles laid out by the Basic Law for the Federal Republic of G ...
, while also rooted in the "meeting of the minds" principle, follows the ' abstraction principle' with regard to both personal and real property. The principle outlines that the personal obligation of contract forms separately from the title of property being conferred. When contracts are invalidated for some reason under German law, the contractual obligation to pay can be invalidated separately from the proprietary title of the property.
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 res ...
law, rather than contract law, is then used to restore title to the rightful owner.
Civil law jurisdictions based on the Napoleonic Code or the
Bürgerliches Gesetzbuch
The ''Bürgerliches Gesetzbuch'' (, ), abbreviated BGB, is the civil code of Germany. In development since 1881, it became effective on 1 January 1900, and was considered a massive and groundbreaking project.
The BGB served as a template in sev ...
provide for a more interventionist role for the state in both the formation and enforcement of contracts than in common law jurisdictions or
Scots law
Scots law () is the legal system of Scotland. It is a hybrid or mixed legal system containing civil law and common law elements, that traces its roots to a number of different historical sources. Together with English law and Northern Ireland l ...
,
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, it ...
, and other civil or mixed law jurisdictions. Such systems incorporate more terms implied by law into contracts, allow greater latitude for courts to interpret and revise contract terms, and impose a stronger
duty of good faith
A duty (from "due" meaning "that which is owing"; fro, deu, did, past participle of ''devoir''; la, debere, debitum, whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may ...
.
Common law jurisdictions are often associated with a high degree of
freedom of contract
Freedom of contract is the process in which individuals and groups form contracts without government restrictions. This is opposed to government regulations such as minimum-wage laws, competition laws, economic sanctions, restrictions on pri ...
. One example of the supposedly greater freedom of contract in
American law
The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the nation's Constitution, which prescribes the foundation of the federal government of the United States, as well as va ...
, is the 1901 case of ''
Hurley v. Eddingfield
Hurley may refer to:
Places
;In the United Kingdom:
* Hurley, Berkshire
* Hurley, Warwickshire
* Hurley Common, Warwickshire
;In the United States:
* Hurley, Alabama
* Hurley, Mississippi
* Hurley, Missouri
* Hurley, New Mexico
* Hurley, N ...
'' in which a physician was permitted to deny treatment to a patient despite the lack of other available medical assistance and the patient's subsequent death. In civil law jurisdictions rooted in the French or German tradition, nominate contracts are regulated in order to prevent unfair terms. The law of obligations typically includes a
duty to rescue
A duty to rescue is a concept in tort law that arises in a number of cases, describing a circumstance in which a party can be held liable for failing to come to the rescue of another party who could face potential injury or death without being res ...
which would make cases such as ''Hurley v. Eddingfield'' far less likely. Conversely, civil law jurisdictions are more likely to enforce penalty clauses and provide for the
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, ...
of contracts than their common law counterparts, which typically refuse to recognise clauses providing for damages greater than that required to adequately compensate the plaintiff.
While the majority of common law jurisdictions continue to rely on precedent and unmodified principles to determine issues under contract law, a significant minority of common law jurisdictions have enacted statutes governing contract law. Contract law in New Zealand is governed by the ''Contract and Commercial Law Act 2017'', which comprehensively outlines rules regarding contracts and related areas of law. Notably, contract law in India, the most populous common law jurisdiction, is codified 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 ...
, which comprehensively outlines issues of contract law, versions of which remaining in force in Pakistan and
Bangladesh
Bangladesh (}, ), officially the People's Republic of Bangladesh, is a country in South Asia. It is the eighth-most populous country in the world, with a population exceeding 165 million people in an area of . Bangladesh is among the mos ...
. Although not a comprehensive code, the Singaporean Civil Law Act 1909 makes several provisions regarding contract law in Singapore. In America, 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 UC ...
codifies several provisions of commercial law, including the law of contracts.
Assignment
While a party may typically assign monetary rights at their discretion provided that they notify the other party to the contract in a timely manner, most jurisdictions impose limitations on the ability of a party to assign non-monetary rights or to assign obligations they owe to the other party. In common law jurisdictions, an assignment may not transfer a duty, burden, or detriment without the express agreement of the assignee. The right or benefit being assigned may be a gift (such as a
waiver
A waiver is the voluntary relinquishment or surrender of some known right or privilege.
Regulatory agencies of state departments or the federal government may issue waivers to exempt companies from certain regulations. For example, a United St ...
) or it may be paid for with a contractual
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'' declared ...
such as money. Under Mainland Chinese law, a party to a contract may assign their rights "in whole or in part to a third person" except to the extent that a right is "not assignable by virtue of its nature", "in accordance with law", or due to the agreement between the parties. In the United States, there are various laws that limit the liability of an assignee, often to facilitate credit, as assignees are typically lenders.Assignee Liability: Through the Minefield . Arnstein & Lehr LLP. In certain cases, the contract may be a
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 ...
in which the person receiving the instrument may become a
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 h ...
, which is similar to an assignee except that issues, such as lack of performance, by the assignor may not be a valid defence for the obligor.Commercial Paper: Holder in Due Course & Defences . In the United States, the
Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
promulgated Rule 433, formally known as the "Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defences", which "effectively abolished the
older in due course
Older is the comparative form of "old".
It may also refer to:
Music:
* ''Older'' (album), the third studio album from George Michael (released in 1996)
** "Older" (George Michael song)
* "Older", a song on the 1999 album ''Long Tall Weekend'' ...
doctrine in consumer credit transactions". In 2012, the commission reaffirmed the regulation.
Procedure and choice of law
In both civil and common law jurisdictions, where no arbitration or mediation clause or agreement applies, a party seeking a remedy for breach of contract is typically required to file a civil (non-criminal) lawsuit in the court which has jurisdiction over the contract. Where the courts of
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 Eng ...
,
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, borde ...
,
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
, or another common law jurisdiction within the Commonwealth have jurisdiction, a contract may be enforced by use of a claim, or in urgent cases by applying for an
interim injunction
The term interim order refers to an order issued by a court during the pendency of the litigation. It is generally issued by the Court to ensure Status quo. The rationale for such orders to be issued by the Courts is best explained by the Latin leg ...
to prevent a breach. Similarly, in the United States, an aggrieved party may apply for injunctive relief to prevent a threatened breach of contract, where such breach would result in irreparable harm that could not be adequately remedied by money damages.
When a contract dispute arises between parties that are in different jurisdictions, law that is applicable to a contract is dependent on the
conflict of laws
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 t ...
analysis by the court where the breach of contract action is filed. In the absence of 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 Agreeme ...
, the court will normally apply either the law of the forum or the law of the jurisdiction that has the strongest connection to the subject matter of the contract. A choice of law clause allows the parties to agree in advance that their contract will be interpreted under the laws of a specific jurisdiction.
Within the United States, choice of law clauses are generally enforceable, although exceptions based upon public policy may at times apply. Within the European Union, even when the parties have negotiated a choice of law clause, conflict of law issues may be governed by the
Rome I Regulation
The Rome I Regulation (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations) is a regulation which governs the choice of law in the European Union. It is based ...
.
Forum selection clauses
Commercial contracts, particularly those in which parties are located in different jurisdictions, frequently contain forum selection clauses which may be arbitration, mediation, or choice of court clauses depending on the contract in question.
Choice of court
Many contracts contain an exclusive choice of court agreement, setting out the jurisdiction in whose courts disputes in relation to the contract should be litigated. The clause may be general, requiring that any case arising from the contract be filed within a specific jurisdiction, or it may require that a case be filed in a specific court. For example, a choice of court clause may require that a case be filed in a Singaporean court, or it may require more specifically that the case be filed in the Singapore International Commercial Court.
Typically, either the doctrine of freedom of contract or multilateral instruments require non-chosen courts to dismiss cases and require the recognition of judgments made by courts designated by exclusive choice of court agreements. For example, the
Brussels regime
The Brussels Regime is a set of rules regulating which courts have jurisdiction in legal disputes of a civil or commercial nature between individuals resident in different member states of the European Union (EU) and the European Free Trade As ...
instruments (31 European states) and the
Hague Choice of Court Agreements Convention
The Hague choice of court convention, formally the Convention of 30 June 2005 on Choice of Court Agreements, is an international treaty concluded within the Hague Conference on Private International Law. It was concluded in 2005, and entered into ...
(European Union, Mexico, Montenegro, Singapore), as well as several instruments related to a specific area of law, may require courts to enforce and recognise choice of law clauses and foreign judgments.
Under the Hague Choice of Court Agreements Convention, a court designated by an exclusive choice of court agreement has jurisdiction unless the contract is void under its domestic law and cannot decline to exercise jurisdiction on the grounds that another jurisdiction's court is a more appropriate venue. Similarly a non-chosen court is required to refuse jurisdiction except where the agreement is null and void under the law of the chosen court, a party to the contract lacked capacity under the non-chosen court's domestic law, giving effect to the agreement would lead to a manifest injustice or would be manifestly contrary to the public policy of the non-chosen court's state, the agreement cannot be performed due to force majeure, or the chosen court has chosen not to hear the case. Exclusive choice of court agreements under the Hague Choice of Court Agreements Convention solely apply to commercial matters and thus do not apply to any party dealing as a consumer, employment contracts or collective bargaining agreements, matters related to civil status or family law, or similar scenarios.
In jurisdictions that are not party to the Hague Convention, an exclusive choice of court agreement may not necessarily binding upon a court. Based upon an analysis of the laws, rules of procedure and public policy of the state and court in which the case was filed, a court that is identified by the clause may find that it should not exercise jurisdiction, or a court in a different jurisdiction or venue may find that the litigation may proceed despite the clause. As part of that analysis, a court may examine whether the clause conforms with the formal requirements of the jurisdiction in which the case was filed (in some jurisdictions a choice of forum or choice of venue clause only limits the parties if the word "exclusive" is explicitly included in the clause). Some jurisdictions will not accept an action that has no connection to the court that was chosen, and others will not enforce a choice of venue clause when they consider themselves to be a more convenient forum for the litigation.
Arbitration
If the contract contains a valid
arbitration
Arbitration is a form of alternative dispute resolution (ADR) that resolves disputes outside the judiciary courts. The dispute will be decided by one or more persons (the 'arbitrators', 'arbiters' or 'arbitral tribunal'), which renders the ' ...
clause, the aggrieved party must submit an arbitration claim in accordance with the procedures set forth in the clause subject to the arbitration law of the jurisdiction designated as the seat of the arbitration. Many international contracts provide that all disputes arising thereunder will be resolved by arbitration rather than litigated in courts. Arbitration judgments may generally be enforced in the same manner as ordinary court judgments, and are recognised and enforceable internationally under the New York Convention, which has 156 parties. However, in New York Convention states, arbitral decisions are generally immune unless there is a showing that the arbitrator's decision was irrational or tainted by
fraud
In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compens ...
.
Some arbitration clauses are not enforceable, and in other cases arbitration may not be sufficient to resolve a legal dispute. For example, except in Singapore, disputes regarding validity of registered IP rights may need to be resolved by a public body within the national registration system. For matters of significant public interest that go beyond the narrow interests of the parties to the agreement, such as claims that a party violated a contract by engaging in illegal anti-competitive conduct or committed civil rights violations, a court might find that the parties may litigate some or all of their claims even before completing a contractually agreed arbitration process.
Most civil law jurisdictions and the majority of common law jurisdictions outside America either limit or prohibit the enforcement of arbitration clauses included in
contracts of adhesion
A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a '' boilerplate contract'') is a contract between two parties, where the terms and conditions of the co ...
. For instance, in the 2020 case
Uber Technologies Inc v Heller
''Uber Technologies Inc v Heller'', 2020 SCC 16, is a 2020 decision of the Supreme Court of Canada. The Court held 8–1 that an arbitration clause in a contract the plaintiff David Heller had signed with Uber was unconscionable, and hence unenfor ...
, 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 ...
declared that an arbitration agreement included in contracts concluded by Uber with its drivers was unconscionable and thus unenforceable under the law of
Ontario
Ontario ( ; ) is one of the thirteen provinces and territories of Canada.Ontario is located in the geographic eastern half of Canada, but it has historically and politically been considered to be part of Central Canada. Located in Central Ca ...
. Similarly the
UNCITRAL Model Law on International Commercial Arbitration
The UNCITRAL Model Law on International Commercial Arbitration is a model law prepared by UNCITRAL, and adopted by the United Nations Commission on International Trade Law on 21 June 1985. In 2006, it was amended and now includes more detailed pr ...
and legislation based on the model law restrict the applicability of the arbitration framework to commercial arbitration, expressly excluding parties dealing as consumers.
=United States
=
In the United States, thirty-five states (notably not including New York) and the District of Columbia have adopted the
Uniform Arbitration Act The Uniform Arbitration Act was a United States act from 1955 which specified arbitration in the United States law. It was created by the National Conference of Commissioners on Uniform State Laws. The law is currently preempted in almost all conte ...
to facilitate the enforcement of arbitrated judgments. Unlike the UNCITRAL Model Law, the Uniform Arbitration Act expressly requires a court to confirm an arbitral award before it can be enforced.
Customer claims against securities brokers and dealers are almost always resolved pursuant to contractual arbitration clauses because securities dealers are required under the terms of their membership in self-regulatory organisations such as the
Financial Industry Regulatory Authority
The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...
(formerly the NASD) or
NYSE
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is by far the List of stock exchanges, world's largest s ...
to arbitrate disputes with their customers. The firms then began including arbitration agreements in their customer agreements, requiring their customers to arbitrate disputes.
In addition to arbitration under the Uniform Arbitration Act, the State of Delaware maintains a second arbitration framework known as the Delaware Rapid Arbitration Act (DRAA).Delaware Rapid Arbitration Act /ref> The purpose of the DRAA is to provide for a "prompt, cost-effective, and efficient" method for "sophisticated entities" to resolve business disputes. The DRAA accomplishes this through the use of expedited deadlines and financial penalties for arbitrators who fail to rule on disputes within the time allotted under the act.
=Singapore
=
Presently, Singapore maintains two distinct frameworks under which contractual disputes can be arbitrated, which differ primarily in regard to the extent to which parties to the proceedings may resort to the courts. Under section 45 of the Arbitration Act 2001, either party or the arbitral tribunal itself may apply to the court to issue a ruling on "any question of law arising in the course of the proceedings which the Court is satisfied substantially affects the rights of one or more of the parties" and under section 49, either party may appeal an arbitral award on any question of law unless the parties have expressly excluded appeals the section.Arbitration Act 2001 (Singapore) /ref> Either action is only permitted with the consent of the other parties or either the arbitral tribunal (for rulings on preliminary points of law) or the Court with regard to appeals. This is in contrast to the International Arbitration Act 1994, which generally replicates the provisions of the
UNCITRAL Model Law on International Commercial Arbitration
The UNCITRAL Model Law on International Commercial Arbitration is a model law prepared by UNCITRAL, and adopted by the United Nations Commission on International Trade Law on 21 June 1985. In 2006, it was amended and now includes more detailed pr ...
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 ...
published a report on the right of appeal in arbitral proceedings evaluating the advantages and disadvantages of the two distinct frameworks, concluding that the existence of appeals enables the development of
case law
Case law, also used interchangeably with common law, is law that is based on precedents, that is the judicial decisions from previous cases, rather than law based on constitutions, statutes, or regulations. Case law uses the detailed facts of a l ...
Arbitration Act 1996
The Arbitration Act 1996c 23 is an Act of Parliament which regulates arbitration proceedings within the jurisdiction of England and Wales and Northern Ireland.
The 1996 Act only applies to parts of the United Kingdom. In Scotland, the Arbitrat ...
as a factor contributing to the popularity of London as a seat of arbitration in international contract disputes. Consequently, the report recommends amending the International Arbitration Act 1994 to enable parties to opt for a right of appeal in their arbitration agreement, thus enabling the development of case law and providing greater certainty for parties who desire it while maintaining an absence of appeals as the default position in order to cater to parties who desire a completely extrajudicial resolution of contractual disputes.
Uniquely, both the International Arbitration Act 1994 and the Arbitration Act 2001 contain provisions (Part 2A and Part 9A, respectively) explicitly authorising the arbitration of intellectual property disputes regardless of the extent to which the law of Singapore or any other jurisdiction expressly confers jurisdiction upon any designated body. This contrasts with the general approach taken by the majority of other jurisdictions and enables parties to foreign intellectual property disputes to seek resolution offshore without affecting the recognition of intellectual property rights in the jurisdictions in which they are issued.
Mediation and negotiation
If a contract contains a valid mediation or negotiation clause, the parties will typically have to comply with the mediation or negotiation procedures specified by the contract before commencing arbitration or litigation. Mediation is a form of
alternative dispute resolution
Alternative dispute resolution (ADR), or external dispute resolution (EDR), typically denotes a wide range of dispute resolution processes and techniques that parties can use to settle disputes with the help of a third party. They are used for ...
that aims at addressing disputes 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 fo ...
in an amicable and non-adversarial manner and typically involves a neutral third party (the mediator or conciliator) assisting the parties in reaching a settlement that, depending on the applicable law, may then be registered as an arbitral award or a judicial decision. Typically, courts will stay proceedings where a party successfully asserts the existence of a valid mediation or negotiation agreement. It is generally permitted for an individual appointed as a mediator to serve as an arbitrator as per a hybrid mediation-arbitration clause if the parties are unable to reach a mediated settlement.
Typically, a mediated settlement may be recorded as an order of court in the jurisdiction under whose law it was concluded and the registration of a mediated settlement is sufficient to stay any arbitral or judicial proceedings addressing the same matters.Mediation Act 2017 (Singapore) /ref> While arbitral awards are typically enforceable in third countries under the New York Convention, mediated settlements in international contractual disputes are enforceable under the
Singapore Mediation Convention
The Singapore Convention on Mediation, formally the United Nations Convention on International Settlement Agreements Resulting from Mediation which was adopted on 20 December 2018 and opened for signature on 7 August 2019, is an international agr ...
. A mediated settlement in an international contractual dispute is referred to as an international settlement agreement and, in jurisdictions where the Singapore Convention applies, international settlement agreements entered into in other member states may be registered by a court for domestic enforcement.Singapore Convention on Mediation Act 2020 (Singapore) /ref> Additionally, courts in jurisdictions where the convention applies will stay proceedings where satisfied that a valid mediation agreement governed by the law of another state party covers the subject matter of the dispute, and international settlement agreement registered under the convention will be sufficient to preclude the commencement of domestic judicial or arbitral proceedings.
Recognition of offshore judgments
While arbitral awards and mediated or negotiated settlements are invariably issued on the basis of an arbitration or mediation clause, court decisions are commonly issued in the absence of an exclusive choice of court agreement or even an explicit choice of law agreement from which the courts of another country may infer the legitimacy of the issuing court's jurisdiction. Consequently, most jurisdictions have enacted laws standardising the procedure for the recognition and enforcement of offshore judgments in the absence of an exclusive choice of court agreement. For example, Singapore's Reciprocal Enforcement of Foreign Judgments Act 1959, which only applies to countries the Minister of Law determines are likely to reciprocate, provides that a judgment creditor may apply to the General Division of the High Court to register a foreign judgment for the purpose of enforcement in Singapore. Similarly, the Uniform Foreign Country Money Judgments Recognition Act enacted by the majority of American states and territories provides for the enforcement of judgments from outside America while the Uniform Enforcement of Foreign Judgments Act provides for the enforcement of judgments issued by other American states and territories.
The
Hague Judgments Convention
The Hague Judgments Convention, formally the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters is an international treaty concluded within the Hague Conference on Private International ...
of 2019, which has not yet entered into force, provides for a harmonised framework for the recognition of offshore commercial judgments in the absence of a valid forum selection clause. The convention is modelled after The Hague Choice of Court Convention and similarly excludes matters such as family law, the status and capacity of natural persons, insolvency, and matters covered by other conventions (e.g. arbitration, choice of court agreements, nuclear damage liability, intellectual property, the existence of legal persons, etc.). Article 5 of the convention provides that offshore judgments under certain requirements.
Types of contracts
Electronic contracts
With the rise of the internet and the corresponding emergence of
e-commerce
E-commerce (electronic commerce) is the activity of electronically buying or selling of products on online services or over the Internet. E-commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain manageme ...
and electronic securities trading, electronic contracts have risen to prominence over the first two decades of the twenty first century. Many jurisdictions have passed e-signature laws that have made the electronic contract and signature as legally valid as a paper contract. In Singapore, the Electronic Transactions Act (implementing the United Nations Convention on the Use of Electronic Communications in International Contracts and the
UNCITRAL Model Law on Electronic Transferable Records The UNCITRAL Model Law on Electronic Transferable Records (“MLETR”) is a uniform model law that has been adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 2017. Its scope is to allow the use of transferable docum ...
) provides for the validity of electronic records, signatures, and contracts, while additionally prescribing specific criteria for electronic transferable records.Electronic Transactions Act 2010 (Singapore) /ref> In order to promote and simplify the use of electronic contracts and related documents, the act provides for broad recognition of electronic signatures and expressly declares that electronic documents satisfy any legal requirement for a contract or other document to be "written". Similarly, subpart three of New Zealand's Contract and Commercial Law Act 2017 codifies provisions pertaining to the recognition of electronic contracts. In India, electronic contracts are governed by the Indian Contract Act (1872), per which certain conditions need to be fulfilled while formulating a valid contact, and the Information Technology Act (2000) makes further provisions for the validity of online contracts in particular. In some American states, email exchanges have been recognised as binding contracts.
An emerging category of electronic contracts is the
smart contract
A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the re ...
, which consists of
computer program
A computer program is a sequence or set of instructions in a programming language for a computer to execute. Computer programs are one component of software, which also includes documentation and other intangible components.
A computer program ...
or a transaction protocol capable of automatically executing, controlling, or documenting legally relevant events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the reduction of need in trusted intermediators, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions. A number of American states have passed legislation expressly authorising the use of smart contracts, such as Arizona, Nevada, Tennessee, Wyoming, and Iowa.
Standard form contracts
Standard form contract
A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a '' boilerplate contract'') is a contract between two parties, where the terms and conditions of the co ...
s are contracts in which one party supplies the text of a contract using a standard template, thus giving the other party no opportunity to negotiate its terms. A well-known example is the rise of
clickwrap A clickwrap or clickthrough agreement is a prompt that offers individuals the opportunity to accept or decline a digitally-mediated policy. Privacy policies, terms of service and other user policies, as well as copyright policies commonly employ t ...
/
shrink wrap contract
Shrinkwrap contracts or shrinkwrap licenses are boilerplate contracts packaged with products; usage of the product is deemed acceptance of the contract.
Web-wrap, click-wrap and browse-wrap are related terms which refer to license agreements in ...
s and terms of service which consumers of software products are required to sign in order to use products such as smartphones, computers, and other devices reliant on software; however, standard form contracts are common wherever there is an inequality of
bargaining power
Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other. If both parties are on an equal footing in a debate, then they w ...
between parties to an agreement. Such contracts typically contain " boilerplate clauses" drafted by the party with greater bargaining power, which the party with weaker bargaining power was unable to negotiate against. A standard term contract that is particularly unfavourable to the party with weaker bargaining power may be regarded as a
contract of adhesion
A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a '' boilerplate contract'') is a contract between two parties, where the terms and conditions of the co ...
and thus be considered unconscionable.
Each jurisdiction takes its own approach to determining whether a standard form contract is an unconscionable contract of adhesion.
Canada
The doctrine of unconscionability restricts the enforceability of "unfair agreements that resulted from an inequality of
bargaining power
Bargaining power is the relative ability of parties in an argumentative situation (such as bargaining, contract writing, or making an agreement) to exert influence over each other. If both parties are on an equal footing in a debate, then they w ...
".Uber Technologies Inc. v. Heller, 2020 SCC 16 /ref> The test for unconscionability applied by Canadian courts is to determine whether there was an inequality of bargaining power between the parties to the contract and, if so, whether this inequality resulted in the contract being an "improvident bargain" for the party with lesser bargaining power. The inequality criterion is satisfied where one party is unable to sufficiently protect its interests while negotiating the contract, while the improvidence criterion is satisfied where the contract "unduly advantages the stronger party or unduly disadvantages the more vulnerable". Improvidence must be measured with reference to the time of the contract's formation and involves a contextual assessment of "whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realised".
Argentina
Under article 1119 of the country's civil and commercial code, a clause which "has for object or by effect cause a significant imbalance between the rights and obligations of the parties, to the detriment of the consumer" is considered an abusive clause; and, under article 37 of the country's consumer protection law, such clauses are generally unenforceable in Argentina. Similarly, consumer protection law in both Spain and Mexico limit the enforceability of such terms. 1 de marzo de 2018, Público (España)
United Kingdom
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 impor ...
regulates contracts by restricting the operation and legality of some
contract terms
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 t ...
. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of
disclaimer
A disclaimer is generally any statement intended to specify or delimit the scope of rights and obligations that may be exercised and enforced by parties in a legally recognized relationship. In contrast to other terms for legally operative langua ...
s of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.
The Act renders terms excluding or limiting liability ineffective or subject to reasonableness, depending on the nature of the obligation purported to be excluded and whether the party purporting to exclude or limit business liability, acting against a ''consumer''.
It is normally used in conjunction with the
Unfair Terms in Consumer Contracts Regulations 1999
The Unfair Terms in Consumer Contracts Regulations 1999SI 1999/2083 is an old UK statutory instrument, which had implemented the EU (then EEC) Unfair Consumer Contract Terms Directivebr>93/13/EECinto domestic law.Implemented under the European Co ...
(
Statutory Instrument
In many countries, a statutory instrument is a form of delegated legislation.
United Kingdom
Statutory instruments are the principal form of delegated or secondary legislation in the United Kingdom.
National government
Statutory instrument ...
1999 No. 2083), as well as 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 ...
and the
Supply of Goods and Services Act 1982
The Supply of Goods and Services Act 1982c 29 is an Act of the Parliament of the United Kingdom that requires traders to provide services to a proper standard of workmanship ("''with reasonable care and skill''"). Furthermore, if a definite compl ...
.
Freight and transport contracts
Contracts for the transport of goods and passengers are subject to a variety of distinct provisions both under
international law
International law (also known as public international law and the law of nations) is the set of rules, norms, and standards generally recognized as binding between states. It establishes normative guidelines and a common conceptual framework for ...
and under the law of individual countries. Presently, different provisions apply at the international level to contracts for transport by maritime, land, and air transport. With regard to maritime transport, the Hague-Visby Rules currently govern contracts for the international carriage of goods by sea in the vast majority of jurisdictions. In Singapore and the United Kingdom, provisions of each of the two countries' Carriage of Goods by Sea Act additionally apply the Hague-Visby rules to the domestic transport of goods by sea. Similarly, the Montréal Convention and the
Warsaw Convention
The Convention for the Unification of certain rules relating to international carriage by air, commonly known as the Warsaw Convention, is an international convention which regulates liability for international carriage of persons, luggage, or ...
provide standardised terms for the transport of passengers' luggage by air. Contracts for the international transport of goods by air and legal provisions regarding the international transport of passengers by any mode of transport are currently governed by a variety of domestic and international laws.
In an attempt to harmonise the complicated system of international law governing transport contracts, members of the
Association of South East Asian Nations
ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, military ...
have adopted the ASEAN Framework Agreement on Multimodal Transport providing for standardised terms governing multimodal transport contracts within the bloc.Multimodal Transport Act 2021 (Singapore) /ref> The Civil Code of the People's Republic of China (CCPRC) makes similar provisions for multimodal transport contracts.Civil Code of the People's Republic of China, Book Three, Chapter Nine, Section Four /ref> Both the CCPRC and the ASEAN Framework provide for the primary multimodal transport operator to bear overarching contractual responsibility for damage or loss to the goods carried and provide for operators of particular legs of the transport contract to be treated as agents of the primary multimodal transport operator. In China, chapter nine of the civil code additionally provides standard terms for the carriage of both passengers and goods by each mode of transport.
With regard to maritime transport, common law jurisdictions additionally maintain special legal provisions regarding insurance contracts. Such provisions typically provide for the prohibition of contracts " by gaming or wagering" and prescribe special rules for
double insurance
Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insu ...
, determining the existence of
insurable interest
Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence, without repairment or damage, of the insured object (or in the case of a person, their continued survival). A person has an ...
, and governing the provisions that a maritime insurance policy must include.
Marine Insurance Act 1906
The Marine Insurance Act 1906 (8 Edw. 7 c.41) is a UK Act of Parliament regulating marine insurance. The Act applies both to "ship & cargo" marine insurance, and to P&I cover.
The Act was drafted by Sir Mackenzie Dalzell Chalmers, who had earlie ...
(UK)
In Europe, the international carriage of passengers by rail is governed by the CIV. The CIV establishes terms governing the transport of passengers, along with any accompanying ''articles'' (hand luggage, registered baggage, vehicles and trailers) and live animals. The traveller is responsible for full supervision of animals and their hand luggage.
In some common law jurisdictions, a distinction is made between contract carriers (who transport goods or individuals per private contracts) and
common carrier
A common carrier in common law countries (corresponding to a public carrier in some civil law systems,Encyclopædia Britannica CD 2000 "Civil-law public carrier" from "carriage of goods" usually called simply a ''carrier'') is a person or compan ...
s (who are generally obliged to transport any passengers or goods). In some European civil law jurisdictions, the equivalent concept is referred to as a public carrier. While contract carriers negotiate contracts with their customers and (subject to international conventions) are able to allocate liability and refuse customers subject only to consumer protection or anti-discrimination laws, common carriers bear full liability for goods and passengers carried and may not discriminate.
Gallery
File:Chinese Slave trade.jpg, A contract from the
Tang dynasty
The Tang dynasty (, ; zh, t= ), or Tang Empire, was an Dynasties in Chinese history, imperial dynasty of China that ruled from 618 to 907 AD, with an Zhou dynasty (690–705), interregnum between 690 and 705. It was preceded by the Sui dyn ...
that records the purchase of a 15-year-old slave for six bolts of plain silk and five Chinese coins
File:Heiratsbrief Gottfried Werner von Zimmern Apollonia von Henneberg 1521 img02.jpg, German marriage contract, 1521 between and Apollonia von Henneberg-Römhild
File:Insurance Contact 2.jpg,
Thomas Boylston
Thomas Boylston (January 26, 1644-1695) was a prominent early-American doctor and patriarch of the influential Boylston family of Massachusetts.
Thomas Boylston was born in 1644 in Watertown, Massachusetts to Thomas Boylston Sr. He became a sur ...
to
Thomas Jefferson
Thomas Jefferson (April 13, 1743 – July 4, 1826) was an American statesman, diplomat, lawyer, architect, philosopher, and Founding Fathers of the United States, Founding Father who served as the third president of the United States from 18 ...
, May 1786, Maritime Insurance Premiums
File:Insurance contract.jpg,
Fire insurance
Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or bo ...
contract of 1796
See also
*
Arbitration clause
An arbitration clause is a clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always bind ...
*
Bill of sale
A bill of sale is a document that transfers ownership of goods from one person to another. It is used in situations where the former owner transfers possession of the goods to a new owner. Bills of sale may be used in a wide variety of transaction ...
*
Conflict of contract laws
In the conflict of laws, the validity and effect of a contract with one or more foreign law elements will be decided by reference to the so-called "proper law" of the contract.
History
Until the middle of the 19th century, the courts applied the ...
*
Contract awarding Contract awarding is the method used during a procurement in order to evaluate the proposals (tender offers) taking part and award the relevant contract. Usually at this stage the eligibility of the proposals have been concluded. So it remains to ch ...
*
Contract farming
Contract farming involves agricultural production being carried out on the basis of an agreement between the buyer and farm producers. Sometimes it involves the buyer specifying the quality required and the price, with the farmer agreeing to deliv ...
*
Contract management Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms ...
*
Contract of sale
A contract of sale, sales contract, sales order, or contract for sale is a legal contract for the purchase of assets (goods or property) by a buyer (or purchaser) from a seller (or vendor) for an agreed upon value in money (or money equivalent). ...
*
Contract theory
From a legal point of view, a contract is an institutional arrangement for the way in which resources flow, which defines the various relationships between the parties to a transaction or limits the rights and obligations of the parties.
From an ...
(economics)
*
Contracting
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 tran ...
Document automation
Document automation (also known as document assembly or document management) is the design of systems and workflows that assist in the creation of electronic documents. These include logic-based systems that use segments of pre-existing text and/or ...
*
Dual overhead rate Dual Overhead Rate Recovery is used in construction
Construction is a general term meaning the art and science to form Physical object, objects, systems, or organizations,"Construction" def. 1.a. 1.b. and 1.c. ''Oxford English Dictionary'' Se ...
*
Electronic signature
An electronic signature, or e-signature, is data that is logically associated with other data and which is used by the signatory to sign the associated data. This type of signature has the same legal standing as a handwritten signature as long as i ...
*
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 ...
*
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 ...
*
Ethical implications in contracts
When creating a contract, a negotiator is not only doing so to reach an agreement between two or more parties, but to create an agreement that is durable; whereby parties of the contract are legally bound and committed to its promises (Wade and Ho ...
*
Force majeure
In contract law, (from Law French: 'overwhelming force', ) is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such ...
*
Further assurances
A further assurances clause is part of the standard ' boilerplate'See an Arnold & Porter article, http://www.arnoldporter.net/publications_articles.cfm?practice_ID=0&publication_id=1074 {{Webarchive, url=https://web.archive.org/web/20071009183703/ ...
*
Gentlemen's agreement
A gentlemen's agreement, or gentleman's agreement, is an informal and legally non-binding agreement between two or more parties. It is typically oral, but it may be written or simply understood as part of an unspoken agreement by convention or th ...
*
Good faith
In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
Indenture
An indenture is a legal contract that reflects or covers a debt or purchase obligation. It specifically refers to two types of practices: in historical usage, an indentured servant status, and in modern usage, it is an instrument used for commercia ...
*
Information asymmetry
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.
Information asymmetry creates an imbalance of power in transactions, which ca ...
*
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 invitat ...
*
Legal remedy
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 ...
*
Letters of assist
Letters of assist refers to a contractual document issued by the United Nations (UN) to a government authorizing it to provide goods or services to a peacekeeping or other UN operation.
Formal definition and usage
A contractual document issued by ...
*
Master service agreement
A master service agreement, sometimes known as a framework agreement, is a contract reached between parties, in which the parties agree to most of the terms that will govern future transactions or future agreements.
A master agreement delineates ...
*
Meet-or-release contract
Meet-or-release contracts are contracts that include "meet or release" competition clause
In language, a clause is a constituent that comprises a semantic predicand (expressed or not) and a semantic predicate. A typical clause consists of a ...
Negotiation
Negotiation is a dialogue between two or more people or parties to reach the desired outcome regarding one or more issues of conflict. It is an interaction between entities who aspire to agree on matters of mutual interest. The agreement c ...
*
Option contract
An option contract, or simply option, is defined as "a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer". Option contracts are common in professional sports.
An option contrac ...
*
Order (business) In business or commerce, an order is a stated intention, either spoken or written, to engage in a commercial transaction for specific products or services. From a buyer's point of view it expresses the intention to buy and is called a purchase order ...
*
Peppercorn (legal)
In legal parlance, a peppercorn is a metaphor for a very small cash payment or other nominal consideration, used to satisfy the requirements for the creation of a legal contract. It is featured in ''Chappell & Co Ltd v Nestle Co Ltd'' (960AC 87) ...
*
Perfect tender rule
In the United States, the perfect tender rule refers to the legal right for a buyer of goods to insist upon "perfect tender" by the seller. In a contract for the sale of goods, if the goods fail to conform exactly to the description in the contract ...
*
Principal–agent problem
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the " principal"). The problem worsens when there is a gre ...
*
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 Contra ...
*
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 o ...
Smart contract
A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the re ...
*
Social contract
In moral and political philosophy
Political philosophy or political theory is the philosophical study of government, addressing questions about the nature, scope, and legitimacy of public agents and institutions and the relationships betw ...
*
Specification (technical standard)
A specification often refers to a set of documented requirements to be satisfied by a material, design, product, or service. A specification is often a type of technical standard.
There are different types of technical or engineering specificati ...
*
Standard form contract
A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a '' boilerplate contract'') is a contract between two parties, where the terms and conditions of the co ...
*
Stipulation In United States law, a stipulation is a formal legal acknowledgment and agreement made between opposing parties before a pending hearing or trial.
For example, both parties might stipulate to certain facts and so not have to argue them in court. A ...
*
Tortious interference
Tortious interference, also known as intentional interference with contractual relations, in the common law of torts, occurs when one person intentionally damages someone else's contractual or business relationships with a third party, causing e ...
*
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 res ...
*
Voidable contract
A voidable contract, unlike a void contract, is a valid contract which may be either affirmed or rejected at the option of one of the parties. At most, one party to the contract is bound. The unbound party may repudiate (reject) the contract, at wh ...
By country
*
Australian contract law
The law of contract in Australia is similar to other Anglo-American common law jurisdictions.
Contract Law, Contract law in Australia differs from other jurisdictions because of statute law, and divergent development of common law by the High C ...
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 ...
*
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 is ...
*
Indian contract law
Indian or Indians may refer to:
Peoples South Asia
* Indian people, people of Indian nationality, or people who have an Indian ancestor
** Non-resident Indian, a citizen of India who has temporarily emigrated to another country
* South Asia ...
*
South African contract law
South African contract law is "essentially a modernized version of the Roman-Dutch law of contract",Du Plessis, et al. p.11. and is rooted in canon and Roman laws. In the broadest definition, a contract is an agreement two or more parties enter ...
*
United States contract law
Contract law regulates the obligations established by agreement, whether express or implied, between private parties in the United States. The law of contracts varies from state to state; there is nationwide federal contract law in certain areas, s ...
Notes
References
Bibliography
*Ewan McKendrick, ''Contract Law – Text, Cases and Materials'' (2005), Oxford University Press
*P.S. Atiyah, ''The Rise and Fall of Freedom of Contract'' (1979), Clarendon Press
*Randy E. Barnett, ''Contracts'' (2003), Aspen Publishers