Peter Clarke - Contract Law: A Straightforward Guide

Peter Clarke

www.straightforwardco.co.uk

Straightforward Guides

Straightforward Publishing 2014

All rights reserved. No part of this publication may be reproduced in a retrieval system or transmitted by any means, electronic or mechanical, photocopying or other wise, without the prior permission of the copyright holder.

British Cataloguing in Publication data. A catalogue record is available for this book from the British Library.

ISBN 978-1-84716-476-6

978-1-84716-530-5 (ebook)

Printed in the United Kingdom by Grsovenor Press London

Cover Design by Bookworks Islington

Whilst every effort has been made to ensure that the information in this book is accurate at the time of going to print, the author and publisher recognise that the information can become out of date. The book is therefore sold on the understanding that no responsibility for errors and omissions is assumed and no responsibility is held for the information held within.

This latest book in the Straightforward Guides Series, Guide to Contract Law is a comprehensive and easy to understand introduction to the complex area of contract law.

Many people, either knowingly or unknowingly, enter into contracts without fully understanding the implications of what they are doing. Contracts can cover a number of areas, from hire purchase agreements to more complex finance agreements, contracts for construction of buildings, contracts for work around the house or contracts to supply goods.

Notwithstanding the type of contract or what area of life it relates to, there is a comprehensive framework of law, both in statute and also common law, which covers parties to a contract. This book will enable the reader, whether layperson or professional, to obtain the basic facts about contract law and also to see clearly where they stand in relation to their rights and obligations. Throughout the book there is reference to relevant court cases.

Contract law is necessary because the law only enforces certain types of promises, basically those promises that involve some sort of exchange. A promise for which nothing is given in return is called a gratuitous promise, and is not usually enforceable in law (the exception being where the promise is put into some sort of document, usually a deed).

The main reason that we need contract law is because of the complex society we live in, a capitalist society. In capitalist society people trade freely on many different levels. There are many complex interactions, from small business endeavors to massive projects, such as construction projects where binding agreements are essential.

Contract law is there to provide a framework to regulate activities. Contract law will rarely force an individual or company to fulfill contractual promises. What it does do is to try to compensate innocent parties financially, usually by attempting to put them in a position that they would have been in if the contract had been performed as agreed.

Contract law, or the origins of contract law, goes back more than three hundred years. However, because of the very fast innovations in technology and the industrial revolution generally, the main body of contract law was established in the nineteenth century. Before that, contract law barely existed as a separate area of law.

Before the nineteenth century there were many areas of life where free negotiation was not an issue. Activities such as buying goods and then selling them on in the same market were illegal and were criminal offences. There was a basic right to a reasonable standard of living and no one was expected to negotiate that standard for themselves.

A similar, though less humane approach was taken to relationships between employer and employee, or master and servant as they were then called. Today, we all expect to have an employment contract detailing hours of work, duties and pay. This is the most basic of perceived rights. We may, in most cases, not be able to negotiate the terms, but at least it is a contract. In a status society (as it was called), employment obligations were quite simply derived from whether you were a master or a servant: masters were entitled to ask servants to do more or less anything, and an employee who refused would or could face criminal sanctions. Employers had less onerous obligations that could sometimes include supplying food or medical care. Both sets of obligations were seen as fixed and non-negotiable.

Along with the development of contract law within a rapidly changing laissez faire society, came a rapidly changing political consciousness. The view arose that society was no more than a collection of self-interested individuals, each of whom was the best judge of their own interests, and should as far as possible be left alone to pursue those interests.

This laissez faire approach gave birth to the law of contract, as we know it, in that, as we have seen, where people make their own transactions, unregulated by the state, it is important that they keep their promises.

Its origins in the laissez faire doctrine of the nineteen-century have had enormous influence on the development of contract law. The most striking reflection of this is the importance traditionally placed on freedom of contract. This doctrine promotes the idea that since parties are the best judges of their own interests, they should be free to make contracts on any terms they choose-on the most basic assumption that no one would choose unfavorable terms. The courts role is to act as umpire holding the parties to their promises, not to ask whether the bargain made was a fair one.

However, there are many problems with the freedom of contract:

Inequality of bargaining strength between the two parties

The acceptance of implied terms

The use of standard form contracts

Statutory intervention to protect consumers; and

The obligation to implement EU law.

Over the years, courts have moved away from their reluctance to intervene, sometimes through their own making sometimes through parliament, notably the Unfair Contract Terms Act 1997.

Traditional contract law lays down rules that are designed to apply in any contractual situation, regardless who the parties are, their relationships to each other and the subject matter of a contract. The basis for this approach is derived from the laissez-faire belief that parties should be left alone to make their own bargains. It was thought that the law should be required simply to provide a framework, allowing parties to know what they had to do to make their agreements binding.

This framework was intended to treat everyone equally, since to make different rules for one type of contracting party than for another would be to intervene in the fairness of the bargain. As a result the same rules were applied to contracts in which both parties had equal bargaining power as to those where one party had significantly less economic power, or legal or technical knowledge, such as a consumer contract.

This approach, often called procedural fairness, or formal justice, was judged to be fair because it treats everyone equally, favoring no one. There are, however, big problems inherent in this approach in that, if people are unequal to begin with, treating them equally simply maintains the inequality.

Over the last century the law has, to some extent at least, moved away from procedural fairness, and an element of substantive fairness, or distributive justice has developed. Substantive fairness aims to redress the imbalance of power between parties, giving some protection to the weaker one. For example, terms are now implied into employment contracts so that employers cannot simply dismiss employees without reasonable grounds for doing so. Similar protections have been given to others, such as tenants and consumers.