Law of Contract - Introduction (Part 1)

Contract is arguably the most pervasive and important subject that a lawyer will study.

An understanding of contract law is essential before areas such as commercial law, company law or international trade law can be studied properly.

The law of contract underpins all our everyday commercial transactions. Although the substantive law may vary from one jurisdiction to another, it is difficult to conceive of a system that does not have the law of contract at its heart.

To a large degree, the law of contract could be described as “Judge made”. The fundamental principles stem from a plethora of judgments- many of which date from the 19th Century and earlier.

Although these fundamental principles remain important; in the last 50 years, Parliament has enacted a variety of statutes which have affected this area significantly.

The most significant statutes are the Unfair Contract Terms Act 1977 and the Sale of Goods Act 1979.

What is a Contract?

There are various ways to define a contract. Chitty states that there are two main competing definitions. One defines a contract as follows:

“A promise or a set of promises that the law will enforce.”

The second definition is most clearly stated by Treitel:

“A contract is an agreement giving rise to obligations which are enforced or recognised by law.”

Where does contract law fit within the law?

Contract law is part of the law of obligations. Within this area are also the law of tort and the law of restitution.

Unlike tort, contract law is based on “voluntary obligations that are assumed in exchange for a benefit.”

Tort is based on non-voluntary obligations imposed by law to prevent wrongs.

Freedom of contract

Caveat emptor is a Latin term that means, “Let the buyer beware”.

Laissez-faire is a term of French origin that is used by contract lawyers to mean free enterprise or non-interventionism.

These terms are often stated in relation to the traditional attitude of the courts to contract law. They reflect the doctrine of freedom of contract. The rationale for this doctrine is that parties, dealing at “arms length” should be free to enter into any agreement without the interference of the courts. The courts role was to uphold valid contracts and prevent contracting parties from evading their contractual obligations merely because they had made a bad bargain.

This doctrine is most clearly explained by the chapter on exclusion clauses. Such clauses were (and are) placed into contracts to enable one party to avoid liability in the event of a breach of contract. (A breach is where one party fails to do something that he is contractually obliged to do.)

Under the justification of the freedom of contract doctrine, such clauses could easily be incorporated into contracts and were often upheld. The difficulty with this judicial approach was that many contracting parties were able to evade their contractual obligations by merely inserting these clauses in a contract. This created a potential for abuse by parties who were in a strong bargaining position.

The 20th Century saw the development of the consumer society – a consequence of the sale of mass-produced manufactured goods to an increasingly affluent population. A consumer contract is markedly different from the type of contract envisaged by the courts of the Victorian era (two parties dealing at arms length free to agree whichever terms they like.) In reality a consumer has little influence over the terms of the contract – it is very much a case of “take it or leave it.”

By developing various rules of interpretation (discussed later in the course), the courts went some way to curb the worst excesses, but it was only the actions of Parliament that gave modern day consumers the protection they needed. In relation to Exclusion clauses the most important development was the enactment of the Unfair Contract Terms Act 1977.

It has been said that today the “consumer is king” and we have moved from a position of Caveat Emptor to that of Caveat Venditor (Let the Seller Beware).

See further, textbook:
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