Contract Law

Claire-Michelle Smyth, Marcus Gatto

• Publisher: Business Expert Press
• Year: 2018
• ISBN:
  9781631579288
• Topic: Betriebswirtschaft
• Subtopic: Wirtschaftsrecht

This text serves as an accessible introduction to the law of contract. The headings chosen for examination track the main points in the lifetime of a contract-from its formation, drafting, and onward to its eventual dissolution, whether this occurs due to the terms of the contract, the will of the parties, or because of a breach of the agreed terms. It also provides studies of other notable areas within the subject, such as third-party rights, damages, and equitable remedies. In distinction to other guides to contract law, this text provides a comparative analysis of the area, incorporating sources drawn from both the civil law tradition, characteristic of several nations within Continental Europe, as well as the Anglo-American common law tradition, with cases and legislation drawn from England and the United States of America. It also explores contract law in the unique context of so-called hybrid jurisdictions-those that incorporate elements of both the common law and civilian traditions. As business assumes a global dimension, knowledge of the operation of contract law across various legal traditions and national contexts is increasingly at a premium. This text enables the student to gain a coherent vision of contract law, as well as to speak confidently when discussing the intricacies of the subject.

CHAPTER 1

Introduction to Contract Law

Contracts are agreements between two or more parties which can be enforced in a court of law and impose binding obligations. The word “contract” often suggests a very formal or technical document drawn up by lawyers, and while this may be true of many complex commercial contracts, and, indeed, though certain contracts (such as those for the sale of land) must be written, an arduous negotiation and drafting process and formalities are not always a necessity to have a legally binding contract. Indeed, contracts may be settled orally, without any specific legal terminology. The law of contract determines which agreements are legally binding and enforceable at law and which are not; not all obligations can be enforced in court. How the law of contracts approaches such issues differs between jurisdictions and these differences form the subject matter of this and subsequent chapters.

Contracts may be entered into by any legal person that is: any individual or commercial entity with legal personhood. Thus, contracts might be personal or commercial in nature. The obligations in a contract are freely assumed. In other words, you agree the terms and obligations in the contract to which you will be bound; the law does not impose these on you. Distinguish this from, for example, the law of tort, which places a general duty on us that we do not injure others through our careless actions, whether we expressly consent or not. While the law may impose certain terms in a contract (see Chapter 4), there is no general requirement for you to enter into the agreement in the first place.

Freedom of contract is an essential, common doctrine underpinning the legal regimes examined here.1 Under this theory, parties freely negotiate agreements and bargain as equals and, as such, the law should only intervene to uphold the agreed terms of the contract. This theory is premised on the belief that every person negotiating a contract has equal bargaining power and fails to account for the fact that, in some views, contracts have historically served to enforce exploitative dynamics in society. The case of Lochner v. New York illustrates a liberal enforcement of the doctrine.2 The State of New York enacted legislation restricting the amount of hours that bakers could work, based on evidence that hours in excess of 60 per week would be detrimental to the health of the employee. Lochner was prosecuted twice for flouting this legislation and on his second conviction appealed. Here, the United States Supreme Court struck down the legislation as offensive to the doctrine. The court held that the employer and employee could negotiate hours of work and the role of the law should be to enforce those mutually agreed terms and not to intervene unnecessarily to restrict the parties.3 The reality of this and similar cases, however, is that the two parties are rarely on an equal footing; employers, for example, often have the upper hand. If the employee does not agree, he may be dismissed, and another will take his place.4 Accordingly, the freedom of contract is tempered in practical terms by the concept of inequality of bargaining power. In more modern times, the law began to recognize this and moved to intervene and level the field.5 Legislation was enacted in order to protect the weaker party in situations where it was recognized that there was an inherent inequality, such as consumer and employment contracts.6

Contracts in the Common Law and Civilian Tradition

The creation of contractual relationships is examined here through the prism of two dominant legal paradigms across Europe and the Americas: those of the civilian and common law traditions. The English common law system began in the 1100’s and 1200’s and its propagation across continents traces the spread of British rule itself.7 The civilian tradition, by contrast, traces its origins to Roman law and represents the dominant legal tradition in Continental Europe, Central and Latin America, as well as some nations on the African continent; this influence was likewise extended as colonizers imposed their legal traditions on overseas holdings.8 Within the civilian tradition, the Germanic9 and Napoleonic (French) codes10 are selected here as representing the modern development of the civilian tradition in Europe. Accordingly, our discussion will focus most heavily on the concepts identified in each chapter and how these have been defined and interpreted in either tradition.

In the common law system, there is no formal definition of a contract, nor has there been a sustained effort to codify (draft into one code) those rules applicable to the formation of contracts. Textbooks have provided various definitions such as “the law of contract may be provisionally described as that branch of the law which determines the circumstances in which a promise will be legally binding on the person making it”11 or “A contract is an agreement giving rise to obligations which are enforced or recognized by law.”12 The lack of a specific definition of the law of contract results from the evolution of this area of law in common law. It did not develop from overarching theory of a contract but rather a form of primordial action in the common law—known as “the action of assumpsit”—whereby success was tied to the form of a claim asserted to a greater extent than the factual scenario giving rise to the claim.13 While there is no universally accepted definition of contract in common law today, the basic principles of contract law can be defined with sufficient certainty. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties.14 In the civilian tradition, provisions within private law codes distinguish contracts from other types of obligations also based on the assent of the parties. However, they further contain cataloguing of the types of contracts which can be made, and what elements must be present to render them legally binding.15

Contract Law in the Modern European Union

There is no pan-European code of contract law, and those seeking to enforce a contract must generally frame their arguments in terms of national laws or codes on the subject. The EU does have limited competence in legislating to provide the form and enforcement of contracts regarding, for example, consumer protection.16 That said, the area of contract law is still very much one of national legal regimes. Additionally, the EU has competence in relation to private international law, which concerns the agreed procedural mechanisms for enforcement of contractual obligations, for example, where to litigate a claim, in circumstances of trans-national commerce and related matters heavily associated with the freedoms of the EU, for example, freedom of movement of people, ­services, and...