Contract Law in Perspective

Linda Mulcahy

• Publisher: Routledge-Cavendish
• Year: 2008
• ISBN:
  9781134066742
• Edition: 5
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Contract Law in Perspective complements 'black letter' treatments of contract by looking at legal doctrine and statutes in their social, political and economic contexts. It increases students' understanding of the law of contract as well as convinces them why it is so important to us all. In addition to describing the key doctrines in the field, it explains the ideology behind them and considers the extent to which they serve the needs of the business community and consumers. The book broadens understanding and appreciation of the subject by reference to the 'big ideas' in contract theory and how these relate to practice at a level which is suitable for students.

This fifth edition:

• has been substantially revised and now includes sections on privity and the Rights of Third Parties Act as well as a discussion of the Law Commision's Unfair Terms in Contract draft bill
• includes new chapter introductions and summaries designed to help students identify the key points and reflect on what they have learnt
• provides advice on further reading pointing students towards sources for more detailed study
• now includes additional self-test questions for students at the end of each chapter to enable them to consolidate and practice at regular intervals.

PART ONE:
INTRODUCTION

CHAPTER 1
INTRODUCTION, AIMS AND GENERAL PRINCIPLES

What does looking at contract in perspective mean? Whose perspective is being referred to and why does it matter? In my view, the first perspective we should start with is yours. By the time you finish reading this book you will probably have made tens, if not hundreds, of contracts. Each time you buy a pair of jeans or a CD, go to a nightclub, get on a bus, rent a DVD, order a book from Amazon or register for your latest course, you are entering into a contract. Few people in a modern society could survive without exchanging their labour for money, and their money for goods and services. Moreover, each exchange you make is probably only possible because of earlier exchanges between, for instance, the music store and the distributor, the distributor and the record company, the record company and the artist, and the artist and his or her manager. It should soon become clear to you that the law of contract is not a remote and archaic body of rules but a living area of law with which you engage on a daily basis.

The second perspective from which you are encouraged to look at the law of contract from is that of the business community. A number of historians have highlighted the fact that it was this community that the law of contract was developed to serve during the industrial revolution. But in the twenty-first century we are still debating the extent to which the needs of the business community are served by the law of contract. A host of empirical studies now inform our understanding of how law works in practice and its relevance to those who use it on a regular basis. At one level, the message of these studies is depressing. We have had to accept that the law of contract is frequently ignored and that it is often seen as irrelevant within the commercial sector. It would seem that contract law is in serious danger of becoming irrelevant or lacking in legitimacy if it continues to focus on the ‘paper deal’ at the expense of the ‘real deal’. This raises important issues for students of contract law. Should the law reflect the practice and needs of the business community or should it impose standards which lawyers think are appropriate regardless of whether these are of practical use? In the course of considering this very issue Lord Wilberforce has argued:

If I am faced with the alternative of forcing commercial circles to fall in with a legal doctrine which has nothing but precedent to commend it or altering the doctrine so as to conform with what commercial experience has worked out, I know where my choice lies. The law should be responsive as well as, at times, enunciatory, and good doctrine can seldom be divorced from sound practice. Miliangos v George Frank at para. 3

The lawyer’s view of contract tends to focus on the legal implications of contractual breakdown, on rights, obligations and the consequences of litigation, but the lawyer’s preoccupations by no means occupy the forefront of the businessperson’s mind. For someone in business the contract is primarily a facilitative device within an economic cycle, which turns on such processes as the acquisition of materials, the production of finished goods, marketing and sales, finance and payment. Business people and economists are most often concerned with the cost of contracting. For example, standard form contracts are less expensive to produce than ‘tailor-made’ documents. It is often the case that, for them, insistence on precise contractual performance is expensive in terms of both money and business relationships. It becomes clear that the lawyer, who only knows the law of contract, and little or nothing of the rest of contract, has only a small, incomplete, view of the commercial sector.

A final set of perspectives from which to view contracts are those provided by disciplines other than law. It is naïve to think that contracts are only of interest to lawyers. Contractual relationships are also of relevance to sociologist, anthropologists and economists interested in what fuels co-operation between individuals in society, the norms which emerge from the voluntarily imposed agreements that become contracts and how contracting parties can be given incentives to maximise their own gain and that of the broader economy. Viewed in this way, contract is not an end in itself but is a tool of social order. It is also an intensely political subject. Treatments of contract law that present the subject as a series of neutral rules and doctrines often fail to emphasise this point. Contractual doctrines reflect particular ideologies about how and whether contractual relationships should be governed, and are often hotly contested by those from the left and right of the political spectrum.

The main aim of this book is to present a broader view of the basic features of contract law than that found in the traditional ‘black letter’ treatments of the subject. The idea of understanding law in context is not new but the aim of looking at and beyond legal rules has been pursued more vigorously in some areas than in others. Most expositions of contract law do not venture beyond the rules. They tell us little or nothing of the social or economic significance of doctrines, or how they relate to the practices of the business community. The result is an unhealthy division between the study of formal law and an evaluation of the needs of the wider community it should be designed to serve. At a level suitable for student readers, this books attempts to remedy those defects.

It is undoubtedly an exciting time to be studying contract. Debate and argument regarding the state of the health of contract law continue more energetically than ever before. Infact, numerous critiques and theories of contract law have been produced over the last 50 years or so. Many of them point to a ‘transformation’ of contract law. Writers such as Atiyah (1989) have argued that there has been a movement, observable in the case law and statutory interventions from ‘principles to pragmatism’, from ‘doctrine to discretion’ or from ‘market-individualism to consumer-welfarism’. Indeed, as will be seen from the cases, the nineteenth-century foundations of contract law, built on the concepts of promise and discrete agreement, have been overtaken by an increased emphasis on such open-ended notions as reliance, reasonableness, good faith and fairness. This can lead to situations where it may be said that the ‘old’ view of the courts would give rise to a certain result but the ‘new’ approach would produce a different one. A closer examination of cases reveals that a mixture of old and new approaches is still apparent.

This has led some commentators to conclude that the modern law of contract is in a muddle and lacks a set of clear principles to underpin it. For a growing group of academics this crisis relates to the absence of a clear theoretical framework. But the inadequacies of existing doctrine are also made apparent in the work of a number of empirical researchers who have found that the business community often circumvents contractual rules because they fail to facilitate flexible enough agreements. Looking at contract law in perspective allows us to interrogate these claims in ways that are not possible in books which focus on doctrine alone.

GENERAL PRINCIPLES: THE NATURE AND CONTENT OF CONTRACT LAW

In a society where the exchange of goods and services is central to its economic order, as in a developing capitalist society based on free enterprise, a means of supporting the process of exchange of goods and services needs to be found. It is in this context that the foundations of modern contract law were established, and contract became the juristic mechanism for the distribution and utilisation of the goods and services. By the third quarter of the nineteenth century, British society had experienced accelerating industrialisation generated by scientific innovation, economic entrepreneurship, more widespread access to capital and increasingly geographically mobile labour. This gave rise to an unprecedented boom in trade, both at home and in expanding markets overseas. This boom was accompanied by an extensive development of those areas of the law which are designed to facilitate and regulate business relationships. In particular, there was a considerable expansion of contract, commercial and company law.

The general principles of contract law are still, for the most part, of a judge-made character, and many of them emanate from the time of the industrial revolution and the ‘classical’ period of contract law which accompanied it. The theoretical assumptions underpinning the classical model were heavily influenced by prevailing economic theories of the nineteenth century, which treated contracting parties as economic units assumed to have equal bargaining strength and endowed with complete freedom of decision. Indeed, the key theme underpinning contract law during this period was the idea of freedom of contract. It is highly significant that, in this model of contract, the judges saw their role as a minimalist one. The purpose of the law was not to control the terms on which parties might contract, nor would it readily give relief if agreed terms turned out to be harsh or unfair to one party.

Since that time, the principles associated with managed rather than free markets have also taken a hold in this area of law and we have seen a decline in influence of the idea of freedom of contract. In part, this has come about as a result of social change. In the twenty-first century it is no longer the individual entrepreneur but the government or large multi-national enterprises that are primarily concerned with the allocation of resources in the British economy. These facts of modern economic life have served to emphasise the myth of equality of bargaining power, presumed to exist between contracting parties in the classical era. But, then again, as we shall see, many modern commentators have argued that the notion of freedom of contract was never an adequate social tool through which to understand the market.

STRUCTURE OF THE BOOK

Part Two of this book carries on from the introductory section by establishing some key ideas about the notion of contract. Legal and business perspectives are introduced, as are some sociological and economic theories. These ‘views’ of contract are set within the framework of a shift from what is generally described as a laissez-faire to a mixed economy. This shift broadly coincides with the rise and fall of freedom of contract, and hence with a transformation of contract’s function and substance. The aim of the section is to introduce students to this historical account of contract in order that they can understand the environments in which different visions of contract have emerged. Students are also introduced to contemporary critiques of contracts. The literature on relational contract theory, feminist perspectives and empirical understandings of the subject provides students with a range of tools with which to critique and interrogate traditional models and current cases. These various themes and perspectives are pursued throughout the remainder of the book.

Part Three focuses on how contracts are formed. It looks at the process by which a contract emerges from negotiations which may be lengthy and protracted. It is in this section above all that students will become aware of the formalistic and ‘rule-bound’ tendencies of the English common law. These tendencies are discussed with reference to alternative views of the formation process, which draw on ideas about the expectations of the parties, their respect of and need for formality, and their understanding of obligation.

The fourth section is rather loosely labelled ‘Bargaining naughtiness and formation problems’. Where Part Three introduces the reader to ideas around what ought to happen before a binding contract can be recognised or enforced, Part Four focuses on the various ways in which contract may be set aside because of behaviour considered to be inappropriate. It moves on to look at what is contained within a contract, and particular emphasis is placed on the trend towards judicial and legislative interference with content. Here, the stress is on the ways in which ‘welfarist’ approaches to the law of contract have mitigated against the harshness of the market. The tensions that are played out in case law and commentaries about the appropriate rule of the judiciary and legislature in the regulation of ‘private’ contracts remain significant and many examples of these tensions emerge from this section. Moreover, they will undoubtedly remain a subject for discussion for many years to come. In the final substantive section, we look at what happens when things go wrong in the performance of the contract. The focus here is on what constitutes breach of contract, the remedies that are available for breach and the ways in which disputing parties are most likely to resolve their dispute.

The vast majority of cases to be found in this book are of modern origin and therefore illustrate contemporary business situations. Discussion of many of them is, however, on a modest scale as is inevitable in a work of this nature. Ultimately there is no substitute for the law reports. At the end of each chapter there is a bibliography drawn from a wide range of materials and a series of questions designed to test and expand on the subject matter of preceding pages. It is important that students are encouraged to pursue further reading from these references. The choice of questions aims to keep links between the various topics in the book firmly in the forefront of the student’s mind so that a co-ordinated view of contract will eventually emerge.

CONCLUDING REMARKS

Lawyers specialising in this field of law will spend a considerable amount of time considering whether there is a binding agreement, the scope of the agreement, the significance of breach and the remedies available. There are, however, other important issues which emerge and are covered in this book. For example, should the parties to a long-term commercial relationship be bound by the terms of a contract made many years ago when market conditions were radically different? How relevant are the old rules on agreement and promises to modern standard-form contracts prepared by an economically stronger party and presented to a weaker on a ‘take-it-or-leave-it’ basis? Does it make a difference if the economically powerful party is a competitive private sector enterprise, such as a motor vehicle manufacturer, or the monopoly provider of a service? How relevant are the traditional rules of contract law to the contracts entered into by government departments such as the Ministry of Defence or the Department of Health? If the ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Preface
• Table of cases
• Table of statutes and legislation
• List of figures and boxes
• PART ONE: INTRODUCTION
• PART TWO: BIG IDEAS IN THE LAW OF CONTRACT
• PART THREE: MAKING A DEAL
• PART FOUR: BARGAINING NAUGHTINESS AND FORMATION PROBLEMS
• PART FIVE: THE CONTRACT
• PART SIX: WHAT HAPPENS WHEN THINGS GO WRONG