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Contract Law

Introductions Meaning of contract Whilst it's probably impossible to give one absolute and universally correct definition of a contract 1, the most commonly accepted definition is 'a promise or set of promises which the law will enforce' 2. The expression 'contract' may, however, be used to describe any or all of the following: (1) that series of promises or acts themselves constituting the contract; (2) the document or documents constituting or evidencing that series of promises or acts, or their performance; (3) the legal relations resulting from that series 3. This site discusses contracts governed by English law 4 and any related European Law. 1 Modern definitions emphasising agreement seem more appropriate to bilateral contracts rather than unilateral contracts: see [reference removed] 1-002. 2 See Pollock Principles of Contract (13th Edn) 1. 3 See [reference removed] 3. 4 Regarding the proper law of a contract see the Contracts (Applicable Law) Act 1990. See also Sierra Leone Telecommunications Co Ltd v Barclays Bank plc [1998] 2 All ER 821

Nature of Contract The primary justifications for the enforcement of a contractual promise against a promisor are economic (the economic necessity of compelling the observance of bargains) 1 and moral (the moral justification that the promise was freely given) 2. In the nineteenth century, these two ideas led the common law to the extreme view that there should be almost complete freedom and sanctity of contract 3; but freedom of contract assumes equality of bargaining power, and subsequently both common law 4 and statute 5 have tended to lean against freedom of contract where such equality is absent. To a somewhat lesser extent, the law has interfered with 6 or excused a party from 7 literal performance of his promise.

Nevertheless it remains generally true that the law of contract does not lay down rights and duties, but rather imposes a number of restrictions subject to which the parties may create by their contract such rights and duties as they wish. Therefore, much litigation in the law of contract is simply to determine as a matter of construction what the promisor promised 8.

1 Historically, the law of contract was divided by the forms of action used according to whether the contract was formal or informal: formal contracts (under seal) were usually sued upon as bonds (see eg Pinnel's Case (1602) 5 Co Rep 117a); informal contracts under the action of debt. However, from the seventeenth century, the work of these actions was gradually taken over by the action of assumpsit, where the essence of the matter was the undertaking: see eg Slade's Case (1602) 4 Co Rep 91a at 92b. Originally tortious in origin (see 'The relationship between contract and tort' note 1), assumpsit eventually extended beyond simple contractual promises to include accounts stated (see 'Account Stated') and claims Quantum Meruit, whether contractual or in restitution. Whilst the forms of action were abolished in the nineteenth century, they continue to dominate much thinking concerned with the substantive law of contract. In the modern law of contract, a money claim may either be for payment of an agreed sum, or for damages for breach of contract: see 'The Duty to Pay: Reference Pending'. 2 See 'Good Faith - Introduction'. 3 Eg the rule of entire contracts laid down in Cutter v Powell (1795) 6 Term Rep 320; and see 'Entire and Divisable Contracts: Reference Pending'. The extreme common law view of the freedom and sanctity of contract was never adopted with complete consistency: see notes 4-5 below. 4 See 'Good faith in English common law'. 5 See, for example, the Consumer Credit Act 1974 s 173; the Unfair Contract Terms Act 1977; and [reference removed] ; the Unfair Terms in Consumer Contracts Regulations, SI 1994/3159; and [reference removed]. See further 'The civil law notion of good faith as imported into English statute law'. 6 Eg the doctrine of The Moorcock (1889) 14 PD 64, CA: see [reference removed]. 7 Eg the doctrine of frustration: see [reference pending] ; and Wickman Machine Tool Sales Ltd v L Schuler AG [1972] 2 All ER 1173 at 1182-1183, [1972] 1 WLR 840 at 853, CA, per Edmund Davies LJ; affd sub nom Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, [1973] 2 All ER 39, HL. 8 For the rules of construction see [reference removed]. UPDATE TO THE ABOVE: note 5--SI 1994/3159 now Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083.

Elements of valid contract To constitute a valid contract (1) there has to be two or more separate 1 and definite 2 parties to the contract; (2) those parties must be in agreement 3, that is there has to be consensus on specific matters (often referred to in the older authorities as 'consensus ad idem')4; (3) those parties must intend to create legal relations in the sense that the promises of each side are to be enforceable simply because they are contractual promises 5; (4) the promises of each party must be supported by consideration 6, or by some other factor which the law considers sufficient 7. Generally speaking, the law does not enforce a bare promise (nudum pactum) but only a bargain 8 . 1 see 'Two parties essential'. 2 see 'Definite persons'. 3 see 'Agreement'. 4 Ie an actual or apparent meeting of the minds of the parties. The requirement of consensus ad idem is considered further in 'Offer and Acceptance'. 5 See 'Intention to Create Legal Relations'. 6 see 'The general rule'. 7 Regarding contracts of record see 'Classes of Contract'; Regarding contracts made by deed see 'Contracts to be made by deed'. 8 see 'The general rule'. there has to be at least two parties to a contract, a promisor and a promisee. Therefore, an arrangement made between two departments or branches of the same firm or company is generally not a contract 1 because a person cannot contract with himself 2. Where a person enters into an agreement with himself and another or others, the agreement is construed as if it had been made with the other person or persons alone 3. Where, however, a person has different capacities, he may have power to contract in his representative capacity with himself as an individual 4. Contracts between two registered companies in the same group of companies should in principle be binding because of their

separate legal personality; and even inter-office transactions between two branches of the same firm have constituted valid contracts where the offices acted as independent legal entities 5. 1 Grey v Ellison (1856) 1 Giff 436. 2 Henderson v Astwood, Astwood v Cobbold, Cobbold v Astwood [1894] AC 150, PC (mortgagee selling by auction under power of sale cannot purchase the property himself); Moore, Nettlefold & Co v Singer Manufacturing Co [1904] 1 KB 820, CA (landlord selling under a distress cannot be himself the purchaser); Ingram v IRC [1997] 4 All ER 395, CA (failed tax scheme under which the taxpayer transferred property to a nominee who then purported to contract with the taxpayer). Regarding redemption and reissue by a company of its own debentures see [reference removed] 1552. A shipowner cannot charge freight in respect of the carriage of his own goods: Keith v Burrows (1877) 2 App Cas 636, HL; Swan v Barber (1879) 5 Ex D 130, CA. 3 See the Law of Property Act 1925 s 82; and sale of land; and see Ridley v Lee [1935] Ch 591. Formerly, such a covenant or agreement was absolutely void: Ellis v Kerr [1910] 1 Ch 529; Napier v Williams [1911] 1 Ch 361; and see Construction of joint and several promises. See also Welling v Crosland 123 SE 776, 129 S Ct 127 (USA 1923) (X purported to sell land to a syndicate of which he was a member, and was held entitled to specific performance against the other members of the syndicate). Regarding contracts with unincorporated associations see [reference removed]. 4 See, for example, Beswick v Beswick [1968] AC 58, [1967] 2 All ER 1197, HL (administratrix); Rowley, Holmes & Co v Barber [1977] 1 All ER 801, [1977] 1 WLR 371, EAT (personal representative). 5 Bremer Handelsgesellschaft mbH v Toepfer [1980] 2 Lloyd's Rep 43, CA (Hamburg and Munich Offices of German business known in trade often to operate as separate legal entities). Distinguish the situation where two parties negotiate through a common agent: see 'Who may accept an offer'.