Contract Law

Contract Law

Defining Contract Law

The law of contract is that part of the civil law that governs the enforceability of agreements. It consists of general rules, which apply to all kinds of contract, and specialist rules which are restricted to particular kinds of contract. The general rules of the common law, applying to all contracts, did not adapt well to the emerging need for more protective rules in consumer and other contracts. The modern law has seen the qualification of those general rules—mainly by legislation—for specific kinds of contract. Contracts which individuals enter into in a personal rather than business capacity—mainly consumer and employment contracts, and residential tenancies—now contain obligations which are effectively compulsory in that they cannot be excluded by agreement between the parties.

The Sale of Goods Act 1979, for example, provides minimum standards for the quality of goods and their fitness for purpose. European Union directives have played an increasing role here, and the Unfair Terms in Consumer Contracts Directive ('UTCCD') of 1993 introduced a general test of fairness for all non-negotiated terms in consumer contracts, other than those defining the basic price and performance. This directive applies to a wide range of situations including financial contracts, such as mortgages as well as tenancies. It has the effect that the old common law rule that a person is bound by their signature on a document no longer applies if the terms in a consumer contract are unfair (Deakin, Johnston & Markesinis, 2008).

A striking feature of the legal obligations which arise from contracts is that, at least in theory, they are self imposed. Most other legal obligations which relate to individuals' conduct exist independently of their volition, notably the criminal law and the law of tort. An individual or organization, by entering a contract, undertakes obligations, typically to act for another's benefit—for example by paying money, rendering services, or delivering goods. The result is that the law of contract has to identify when such obligations arise, the contents of such obligations and the legal consequences of their breach (1).

Although it is commonly believed that an agreement in writing is needed for a contract to exist, this is not in fact the general rule. A contract may be found in oral exchanges or even mere conduct, as well as in durable forms such as writing or electronic storage. However, writing is necessary for some types of contract, most notably those concerning land. Also necessary (unless the promise is contained in a deed) is the presence of consideration. This has a technical meaning, the gist of which is that something has to be given in return for a promise if it is to be legally enforceable. Most market exchanges will easily clear this hurdle, but it means that a gratuitous promise (for example a promise of a gift) is made without consideration and so will not be enforced. A binding contract will typically arise out of an agreement before any actual transfer of goods or services takes place (Deakin, Johnston & ...