The law of contract in England and Wales is a ‘common law’ subject. This means that most of its rules and principles are derived from case law and the application of the doctrine of precedent. There are, however, increasing areas that are affected by statutory provisions and, in particular, regulations in the area of consumer contracts that have origins in European Union law.
The rules forming the law of contract in England and Wales are generally, and subject to the intervention of statute, applicable to all contracts. The rules of contract formation, for example, apply to a contract to buy some vegetables in a supermarket as much as to a million-pound deal for the supply of goods and services between two multinational corporations. This universality can cause problems where very different types of contracts may have differing requirements, and do not fit easily into ‘one size fits all’ rules.
Contract law is, as is explained later in this chapter (1.5
), concerned with the regulation of agreements and, in particular, agreements to exchange goods and services for money or other goods or services (or both). Contractual obligations are generally voluntarily assumed, and on that basis it is distinguishable from the law of tort, which is broadly concerned with obligations that are imposed by the law (e.g. to avoid causing harm through negligence, such as through careless driving).
The following sections (1.2.1
) highlight the main issues that arise in trying to regulate agreements and that are therefore dealt with in more detail in the subsequent chapters of this text.
If agreements are being analysed, the courts need to have some rules for determining when an agreement has been reached. For example, does an agreement need to be in writing? Contract law in England and Wales generally does not require formalities (such as writing) to establish a contract (although there are certain types of contract which are required to be in writing). Instead contract law in England and Wales considers what the parties said and did to determine if these words and actions, viewed objectively, indicate that they had reached an agreement. More specifically, the courts will normally look for an offer by one party that has been unequivocally accepted by the other party.
Problems in this area can arise when the parties are contracting at a distance by, for example, post or email. For example, delays in communications may mean that one party has had a change of mind by the time its message is received and there will then be difficult questions relating to when exactly a communication takes effect.
The issues relating to contract formation are dealt with in Chapter 2
Just because the parties have made an agreement, it does not necessarily follow that it is legally enforceable (a contract). Contract law in England and Wales has a number of methods for deciding whether an agreement is legally binding, the most important of which are the concept of ‘consideration’ and the requirement of an intention to create legal relations.
‘Consideration’ is a complex topic. It essentially involves a requirement that if an agreement is to be enforced by the courts, there must be an exchange (as opposed to, for example, a gift). In other words, both parties must be contributing something to the deal for it to be legally enforceable. For example, the contract may be for the transfer of goods in exchange for payment of a sum of money. In this case the payment of the money would be the ‘consideration’ for the transfer of the goods. If the goods were to be handed over without any payment being made or promised, this would be a gift and would fall outside the scope of the law of contract. The courts have developed extensive rules as to what does and does not constitute valid consideration.
In general, attempts to vary an existing agreement must also involve consideration if they are to be enforceable. In some limited circumstances a variation of an agreement may be enforceable without consideration, where the other party has reasonably relied on a promise that the variation will take place – this is dealt with by the doctrine of ‘promissory estoppel’.
Finally, in relation to enforceability, just because there is an agreement and consideration, it does not necessarily follow that there is a legally enforceable agreement (a contract). There must also be an intention to create a legal enforceable agreement. A domestic agreement between, for example, a husband and wife under which the wife agrees to pay for certain bills in exchange for the husband paying for all the food shopping may have the characteristics of offer, acceptance and consideration, but is unlikely to be intended to be legally enforceable. Commercial agreements will, however, normally be taken to be intended to create a legal relationship.
Issues of enforceability are dealt with in Chapter 3
(consideration and promissory estoppel) and Chapter 4
(intention to create legal relations).
1.2.3 CONTENTS OF THE CONTRACT
Once an agreement has been made, disputes may arise as to what exactly its terms were intended to be. Even if the agreement is in writing, there may be arguments that it is not complete and that other terms should be read into it or implied. The courts are reluctant to add to agreements in this way but will do so in certain carefully defined situations. In some circumstances terms may also be implied by statute, for example the Sale of Goods Act 1979 or the Consumer Rights Act 2015.
There may also be arguments as to what particular terms of the contract were intended to mean. In such cases, should the courts follow the literal meaning of the words if there is evidence that something else was actually intended? Currently the courts take the view that they should interpret terms of a contract in the light of all the factual circumstances and should not be tied to the literal meaning. This flexibility has its advantages, but can cause problems of uncertainty.
Particular types of clauses that can cause problems are the limitation or exclusion clause, whereby, for example, one party attempts to limit or exclude their liability if they break the contract. Such clauses may be entirely reasonable in many cases but the courts traditionally look at them very carefully, particularly where there is an imbalance in the bargaining power between the parties (as where a large business is attempting to exclude its liability to an individual consumer). They will want to be sure that the clause was properly incorporated into the contract (e.g. that the other party had appropriate notice) and that the clause does cover the situation that has arisen. In addition, most limitation and exclusion clauses will now be subject to statutory control in the form of the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015. These invalidate some types of exclusion, particularly in consumer contracts, and make others enforceable only if they are found to be ‘reasonable’ or ‘fair’. For example, even in non-consumer contracts attempts to exclude liability for death or personal injury caused by negligence will always be invalid; by contrast, attempts to exclude liability for other losses caused by negligence in non-consumer contracts will only be valid if they are reasonable.
The terms of the contract are dealt with in Chapter 6
and exclusion clauses in Chapter 7
1.2.4 REASONS FOR SETTING THE CONTRACT ASIDE
In some circumstances a contract that seems to have been validly formed will subsequently be set aside by the courts (or, in some circumstances, it will be declared never to have come into existence) because it is found to have some defect. The circumstances that can lead to this are sometimes referred to as ‘vitiating factors’.
One example of a vitiating factor is where one party has been misled into making the contract by relying on a false statement by the other party – that is, the contract has been induced by a ‘misrepresentation’. A misrepresentation, even if made innocently, can lead to the contra...