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 transfer any of those at a future date. In the event of a breach of contract, the injured party may seek judicial remedies such as damages or rescission. Contract law, the field of the law of obligations concerned with contracts, is based on the principle that agreements must be honoured.

Contract law, like other areas of private law, varies between jurisdictions. The various systems of contract law can broadly be split between common law 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 in order to be valid, whereas civil and most mixed law jurisdictions solely require a meeting of the minds 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 is largely based on the writings of renaissance-era Dutch jurists and case law applying general principles of Roman law prior to the Netherlands' adoption of the Napoleonic Code. The UNIDROIT Principles of International Commercial Contracts, 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 (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, contract law provides for the creation and enforcement of duties and obligations through a prior agreement between parties. The emergence of quasi-contracts, quasi-torts, and quasi-delicts renders the boundary between tort and contract law somewhat uncertain.

Overview

Contracts are widely used in commercial law, and for the most part form the legal foundation for transactions across the world. Common examples include contracts for the sale of services and goods, construction contracts, contracts of carriage, software licenses, employment contracts, insurance policies, sales or leases of land, among others. A contractual term is a "provision forming part of a contract". Each term gives rise to a contractual obligation, breach of which can give rise to litigation. 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 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, 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 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 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 theorists, which have propounded Marxist 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 and 'efficient breach' theory.

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

Private international law 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 and a forum selection clause to determine the jurisdiction whose system of contract law will govern the contract and the court or other forum in which disputes will be resolved, respectively. Failing express agreement on such matters in the contract itself, countries have rules to determine the law governing the contract and the jurisdiction for disputes. For example, European Union Member States apply Article 4 of the Rome I Regulation to decide the law governing the contract, and the Brussels I Regulation to decide jurisdiction.

History

Contracts have existed since antiquity, forming the basis of trade since the dawn of commerce and sedentism during the Neolithic Revolution. A notable early modern development in contract law was the emergence of the hawala system in the Indian subcontinent and the Arab world, under which a series of contractual relationships formed the basis of an informal value transfer system spanning the Silk Road. In the Indian subcontinent, the hawala system gave rise to the hundi, a transferrable contract entitling its holder in due course to obtain money from its issuer or an agent thereof, giving rise to the principle underlying contemporary negotiable instruments.

The hawala system also influenced the development of agency in common law 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, 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. 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 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. British colonies in Southern Africa adopted Roman-Dutch principles in areas of private law via reception statutes adopting South African law, retaining Roman-Dutch law for most matters of private law while applying English common law principles in most matters of public law. Saint Lucia, Mauritius, Seychelles, and the Canadian province of Quebec 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 tradition. In 1926, Turkey replaced its Ottoman-era mixture of Islamic and secular laws with a secular civil code modelled after that of Switzerland, with its contract and commercial law modelled after the Swiss Code of Obligations, which was in turn influenced by German and French legal traditions. Following the Meiji Restoration, 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 and Edouard Lambert drafted the Egyptian Civil Code, 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", in which the Supreme Court of the United States struck down economic regulations on the basis of freedom of contract and the Due Process Clause. 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 restricted private racial discrimination against African-Americans. The US Constitution contains a Contract Clause, 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, a British barrister and academic, produced a "Contract Code" under the auspices of the English and Scottish Law Commissions, 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 being an economic community with a range of trade rules, there continues to be no overarching "EU Law of Contract".

In 2021, Mainland China adopted the Civil Code of the People's Republic of China, 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, and the English-based common law used in Hong Kong. Consequently, contract law in the Chinese mainland functions as a de facto 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 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, although there are differences between German contract law, legal systems inspired by the Napoleonic Code or the Civil Code of Lower Canada (e.g. Québec and Saint Lucia), and jurisdictions following Roman-Dutch law (e.g. Indonesia and Suriname) or a mixture of Roman-Dutch law and English common law (e.g. South Africa and neighbouring countries).

Formation

In common law jurisdictions, the formation of a contract generally requires an offer, acceptance, consideration, 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, which was originally a tort 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.

A contract cannot be formed without assent of the two parties to be bound by its terms. Normally this is by written signature (which may include an electronic signature), but the assent may also be oral or by conduct. Assent may be given by an agent for a party.

Remedies for breach of contract include damages (monetary compensation for loss) and, for serious breaches only, cancellation.. Specific performance and injunction 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). This is typically reached through an offer and an acceptance which does not vary the offer's terms, which is known as the "mirror image rule". An offer is defined as a promise that is dependent on a certain act, promise, or forbearance given in exchange for the initial promise An acceptance is simply the assent of the other contracting party or parties to the terms stipulated in the contract. As an offer states the offeror's willingness to be bound to the terms proposed therein, a purported acceptance that varies the terms of an offer is not an acceptance but a counteroffer and hence a rejection of the original offer. The principle of offer and acceptance has been codified under the Indian Contract Act, 1872.

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. The "objective" approach towards contractual intent was first used in the English case of ''Smith v Hughes'' in 1871. Where an offer specifies a particular mode of acceptance, only acceptance communicated via that method will be valid.

Contracts may be bilateral or unilateral. A bilateral contract is an agreement in which each of the parties to the contract makes a promise 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 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 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. Such contracts are means for courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. Quantum meruit claims are an example.

Where something is advertised in a newspaper or on a poster, the advertisement will not normally constitute an offer but will instead be an invitation to treat, an 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'', decided in nineteenth-century England. The company, a pharmaceutical manufacturer, advertised a smoke ball that would, if sniffed "three times daily for two weeks", prevent users from catching the flu. If it failed to do so, the company promised to pay the user £100, adding that they had "deposited £1,000 in the Alliance Bank to show heirsincerity 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 offer but a puff. The Court of Appeal held that it would appear to a reasonable man 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 for a simple contract to be binding, but allow contracts by deed to not require consideration. Similarly, under the Uniform Commercial Code, 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 in contract law describes a very small and inadequate consideration.
# Consideration must be legal i.e not prohibited by the law.

The insufficiency of past consideration is related to the ''pre-existing duty rule''. For example, in the early English case of ''Eastwood v. Kenyon'' 840 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'' 809 a captain promised to divide the wages of two deserters among the remaining crew if they agreed to sail home short-handed; however, this promise was found unenforceable as the crew were already contracted to sail the ship. The pre-existing duty rule also extends to general legal duties; for example, a promise to refrain from committing a tort or crime is not sufficient.

Some jurisdictions have modified the English principle or adopted new ones. For example, in the Indian Contract Act, 1872, 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 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 Principles of International Commercial Contracts on the grounds that it yields uncertainty and unnecessary litigation, thereby hindering international trade. Similarly, the United Nations Convention on Contracts for the International Sale of Goods does not require consideration for a contract to be valid, thereby excluding the doctrine with regard to contracts covered by the convention even in common law jurisdictions where it would otherwise apply. The continued existence of the doctrine in common law jurisdictions is controversial. Scots lawyer Harvey McGregor's "Contract Code", a Law Commission-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 as a basis for contracts.

Written and oral contracts

A contract is often evidenced in writing or by deed. The general rule is that a person who signs a contractual document will be bound by the terms in that document. This rule is referred to as the rule in ''L'Estrange v Graucob'' or the "signature rule".''L'Estrange v Graucob'' 9342 KB 394. This rule was approved by the High Court of Australia in ''Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd''.. The rule typically binds a signatory to a contract regardless of whether they have actually read it, provided the document is contractual in nature. However, defences such as duress or unconscionability may enable the signer to avoid the obligation. Further, reasonable notice of a contract's terms must be given to the other party prior to their entry into the contract...

Written contracts have typically been preferred in common law legal systems. In 1677 England passed the Statute of Frauds which influenced similar statute of frauds laws in the United States and other countries such as Australia. In general, the Uniform Commercial Code 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).

Nonetheless, a valid contract may generally be made orally or even by conduct. 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 with regards to contracts and agreements, and common although somewhat deprecated as "loose" in American English. An unwritten, unspoken contract, also known as "a contract implied by the acts of the parties", which can be legally implied either from the facts or as required in law. Implied-in-fact contracts are real contracts under which parties receive the "benefit of the bargain".. However, contracts implied in law are also known as quasi-contracts, and the remedy is quantum meruit, the fair market value of goods or services rendered.

Certainty, completeness, and intention of parties

In commercial agreements it is presumed that parties intend to be legally bound unless the parties expressly state the opposite. For example, in ''Rose & Frank Co v JR Crompton & Bros Ltd'', 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. For example, in the English case ''Balfour v. Balfour'' a husband agreed to give his wife £30 a month while he was away from home, but the court refused to enforce the agreement when the husband stopped paying. In contrast, in ''Merritt v Merritt'' 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 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 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. The test of whether a clause is severable is an objective test—whether a reasonable person would see the contract standing even without the clauses. 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, 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 may also declare a term or nature of term to be a condition or warranty. For example the Sale of Goods Act 1979 s15A provides that terms as to title, description, quality and sample are generally ''conditions''. The United Kingdom has also developed the concept of an "intermediate term" (also called innominate terms), first established in ''Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd'' 962

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) 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, 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 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 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 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, penalty, absence insolvency, and trusteeship.

Each contractual party must be a "competent person" having legal capacity. The parties may be natural persons ("individuals") or juristic persons ("corporations"). An agreement is formed when an "offer" is accepted. The parties must have an intention to be legally bound; and to be valid, the agreement must have both proper "form" and a lawful object. In England (and in jurisdictions using English contract principles), the parties must also exchange "consideration" to create a "mutuality of obligation", as in Simpkins v Pays.

In the United States, persons under 18 are typically minor and their contracts are considered voidable; 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 or unjust enrichment may be available, but generally are not.

Meanwhile, in Singapore, 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 provides that a contract entered into by a minor is not automatically unenforceable and that a "court may, if it is just and equitable to do so, require the inordefendant to transfer to the plaintiff any property acquired by the defendant under the contract, or any property representing it".

In addition to age, a party to a contract may lack capacity on the grounds of mental illness or senility. Under Singapore's Mental Capacity Act 2008, for example, "a person lacks capacity in relation to a matter if at the material time the person is unable to make a decision for himself or herself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain". Where an individual lacks capacity on grounds of mental illness or senility, a relative or other responsible person may obtain a lasting power of attorney 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 (American English) or deputies (Commonwealth English) for the person lacking capacity.

Implied terms

While an express term is stated by parties during negotiation or written in a contractual document, implied terms are not stated but nevertheless form a provision of the contract. Implied terms are fully enforceable and, depending on the jurisdiction, may arise as a result of the conduct or expectations of the parties, by virtue of custom (i.e. general unspoken norms within a particular industry), or by operation of law.

Statutes or precedent 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, Israel and India imply a similar good faith term through laws while the Supreme Court of Canada 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" 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 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 Consumer Rights Act 2015 and the Hague-Visby Rules), Common Law (e.g.''The Moorcock'', which introduced the "business efficacy" test), Previous Dealings,(e.g. ''Spurling v Bradshaw''.) or custom (e.g.'' Hutton v Warren'').

In many common law jurisdictions, insurance contracts are subject to a term implied in law of utmost good faith, and this is codified (for example) in section 17 of Singapore's Marine Insurance Act 1909. Additionally, depending on jurisdiction, marine and life insurance contracts may require the policyholder to have an insurable interest in the asset or life insured.Report on Reforming Insurance Law in Singapore
(Singapore Academy of Law) 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 Australian 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 or forms of specific relief, including but not limited to: specific performance, injunctions, declaratory relief, and rescission. The availability of different remedies varies from jurisdiction to jurisdiction, with common law jurisprudence preferring to award damages where possible while civil law jurisdictions are more inclined toward specific relief.

In the United Kingdom and Singapore, breach of contract is defined in the Unfair Contract Terms Act 1977 as: non-performance, ipoor performance, iipart-performance, or vperformance which is substantially different from what was reasonably expected. Innocent parties may repudiate (cancel) the contract only for a major breach (breach of condition), but they may always recover compensatory damages, provided that the breach has caused foreseeable loss.

Damages

There are several different types of damages that may be awarded for breach of contract.
*Compensatory damages are given to the party injured by the breach of contract. With compensatory damages, there are two heads of loss, consequential damage and direct damage. In theory, compensatory damages are designed to put the injured party in his or her rightful position, usually through an award of expectation damages.
*Liquidated damages are an estimate of loss agreed to in the contract, so that the court avoids calculating compensatory damages and the parties have greater certainty. Liquidated damages clauses may serve either a compensatory or a punitive purpose and, when aimed at the latter, may be referred to as "penalty clauses". Penalty clauses serving a purely punitive purpose are void or limited on public policy grounds in most (though not all) common law jurisdictions, although jurisdictions which recognise penalty clauses may nevertheless permit courts to intervene in cases where enforcement would be inequitable.
*Nominal damages consist of a small cash amount where the court concludes that the defendant is in breach but the plaintiff has suffered no quantifiable pecuniary loss, and may be sought to obtain a legal record of who was at fault.
*Punitive or exemplary damages are used to punish the party at fault. Even though such damages are not intended primarily to compensate, nevertheless the claimant (and not the state) receives the award. Exemplary damages are not recognised nor permitted in some jurisdictions. In common law jurisdictions, exemplary damages are not available for breach of contract, but are possible after fraud. Although vitiating factors (such as misrepresentation, mistake, undue influence and duress) relate to contracts, they are not contractual actions in themseslves. Nevertheless, they allow a claimant in contract to get exemplary damages for breach.

Compensatory damages compensate the plaintiff for actual losses suffered as accurately as possible. They may be expectation damages, reliance damages or restitutionary 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''. which concerned a contract for the rights to salvage a ship. In ''Anglia Television Ltd v. Reed'' the English Court of Appeal awarded the plaintiff expenditures incurred prior to the contract in preparation of performance.

Common law jurisdictions traditionally distinguish between legitimate liquidated damages, which are valid and enforceable and penalties, which are usually prohibited as against public policy. The traditional test to determine which category a clause falls into was established by the English House of Lords in ''Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd'' In Canadian common law provinces, penalty clauses are considered valid and enforceable provided that they are not unconscionable. The Canadian position is similar to the middle-ground approach taken under Philippine contract law, which provides that a penalty clause providing for liquidated damages is enforceable unless either the clause is "iniquitous or unconscionable" or the breach of contract in question is not one that was envisioned by the parties when they concluded the contract. A similar approach has been adopted by the High Court of Australia and the Supreme Court of the United Kingdom 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 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'' 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 by way of the 13th Amendment to the United States Constitution, 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. 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) may act as a bar to specific performance.

In Indian law, the Specific Relief Act 1963 codifies the rules surrounding specific performance and other remedies aside from damages. Relief available under the act is limited to recovery of possession of property, specific performance of contracts, rectification of instruments, rescission of contracts, cancellation of instruments, declaratory relief, and injunctions.

Where appropriate, courts in most common and civil law jurisdictions may permit declaratory relief or rescission of contracts. To rescind is to set aside or unmake a contract. There are four different ways in which contracts can be set aside. A contract may be deemed 'void', 'voidable' or 'unenforceable', 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 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 Principles of International Commercial Contracts provides a general outline of the grounds under which a contract can be set aside. Where a contract or term is voidable, the party entitled to avoid may either conditionally or unconditionally choose to affirm the contract or term as outlined in Article 3.2.9 of the Principles which states that "if the party entitled to avoid the contract expressly or impliedly confirms the contract after the period of time for giving notice of avoidance has begun to run, avoidance of the contract is excluded". Additionally, Article 3.2.13 provides that "where a ground of avoidance affects only individual terms of the contract, the effect of avoidance is limited to those terms unless, having regard to the circumstances, it is unreasonable to uphold the remaining contract".

Although provisions for the voidability of a contract for conduct of the other party are generally similar across jurisdictions, voidability on the grounds of a third party's conduct is more contentious. Article 3.2.8 of the Principles provides that where conduct constituting grounds for rescission "is imputable to, or is known or ought to be known by, a third person for whose acts the other party is responsible, the contract may be avoided under the same conditions as if the behaviour or knowledge had been that of the party itself". Similarly, while vitiating factors are similar across jurisdictions, the extent to which a failure by another party to a contract may form grounds for rescission or an early termination of contractual obligations varies between jurisdictions. For instance, Mainland Chinese law provides that a party may seek to rescind a contract or terminate its remaining obligations if the other party "expresses or indicates by act that it will not perform the principal obligation", "delays performance of the principal obligation and still fails to perform it within a reasonable period of time", or "delays performance of the obligation or has otherwise acted in breach of the contract, thus making it impossible to achieve the purpose of the contract". Civil Code of the People's Republic of China, Book Three, Chapter Seven, Article 563

Misrepresentation

Misrepresentation means a false statement of fact that occurs prior to a contract made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation. Rescission is the principal remedy and damages are also available if a tort is established. Article 3.2.5 of the Principles of International Commercial Contracts provides that "a party may avoid the contract when it has been led to conclude the contract by the other party's fraudulent representation, including language or practices, or fraudulent non- disclosure of circumstances which, according to reasonable commercial standards of fair dealing, the latter party should have disclosed".

In common law jurisdictions, to prove misrepresentation and/or fraud, there traditionally must be evidence that shows a claim was made, said claim was false, the party making the claim knew the claim was false, and that party's intention was for a transaction to occur based upon the false claim. In order to obtain relief, there must be a positive misrepresentation of law and also, the person to whom the representation was made must have been misled by and relied on this misrepresentation:''Public Trustee v Taylor''. There are two types of misrepresentation: fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party alleging misrepresentation knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable. Assume two people, Party A and Party B, enter into a contract. Then, it is later determined that Party A did not fully understand the facts and information described within the contract. If Party B used this lack of understanding against Party A to enter into the contract, Party A has the right to void the contract. According to ''Gordon v Selico'' 986it 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, 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 Principles of International Commercial Contracts 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 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.'', 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 ''Raffles v Wichelhaus''.
*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