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A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is legally enforceable because it meets the requirements and approval of the law. A contract typically involves the exchange of goods, service, money, or promise of any of those. "Breach of contract", means that the law will have to award the injured party either the access to
legal remedies Law is a system of rules created and enforced through social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been variously descr ...
such as
damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at l ...
or cancellation. In the
Anglo-American common law#REDIRECT common law#REDIRECT common law {{Redirect category shell, 1= {{R from other capitalisation ...
{{Redirect category shell, 1= {{R from other capitalisation ...
, formation of a contract generally requires an offer, acceptance,
consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in ''Currie v Misa'' declared ...
, and mutual intent to be bound. Each party must be those who are binding by the contract. Although most oral contracts are binding, some types of contracts may require formalities such as being in writing or by
deed In common law, a deed (anciently "an evidence") is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly assoc ...
. In the civil law tradition, contract law is a branch of the
law of obligationsThe law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights and ...
. Each country recognised by
private international law Private or privates may refer to: Music * "In Private", by Dusty Springfield from the 1990 album ''Reputation'' * Private (band), a Denmark-based band * "Private" (Ryōko Hirosue song), from the 1999 album ''Private'', written and also recorded by ...
has its own national system of law to govern contracts. Although systems of contract law might have similarities, they may contain significant differences. Accordingly, many contracts contain a
choice of law clause A choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction. An example is "This Agreement ...
and a
jurisdiction clause Jurisdiction (from Latin ''juris'' 'law' + ''dictio'' 'declaration') is the practical authority granted to a legal body to administer justice, as defined by the kind of case, and the location of the issue (its ). In federations like the United St ...
. These provisions set the laws of the country which will govern the contract, and the country or other forum in which disputes will be resolved, respectively. Failing express agreement on such matters in the contract itself, countries have rules to determine the law governing the contract and the jurisdiction for disputes. For example, European Member States apply Article 4 of the
Rome I Regulation The Rome I Regulation (Regulation (EC) No 593/2008) of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations) is a regulation which governs the choice of law in the European Union. It is based ...

Rome I Regulation
to decide the law governing the contract, and the
Brussels I Regulation The Brussels Regime is a set of rules regulating which courts have jurisdiction in legal disputes of a civil or commercial nature between individuals resident in different member states of the European Union (EU) and the European Free Trade Asso ...
to decide jurisdiction.


Formation

At common law, the elements of a contract are: offer, acceptance, intention to create legal relations, consideration, and legality of both form and content. Not all agreements are necessarily contractual, as the parties generally must be deemed to have an
intention to be legally boundIntention to create legal relations', otherwise an "intention to be legally bound", is a doctrine used in contract law, particularly English contract law and related common law jurisdictions. The doctrine establishes whether a court should presume t ...
. A so-called
gentlemen's agreement A gentlemen's agreement, or gentleman's agreement, is an informal and legally non-binding agreement between two or more parties. It is typically oral, but it may be written or simply understood as part of an unspoken agreement by convention or thr ...
is one which is not intended to be legally enforceable, and "binding in honour only".


Offer and acceptance

In order for a contract to be formed, the parties must reach mutual assent (also called a
meeting of the minds Meeting of the minds (also referred to as mutual agreement, mutual assent or ''consensus ad idem'') is a phrase in contract law used to describe the intentions of the parties forming the contract. In particular, it refers to the situation where the ...
). This is typically reached through offer and an acceptance which does not vary the offer's terms, which is known as the "
mirror image rule In the law of contracts, the mirror image rule, also referred to as an unequivocal and absolute acceptance requirement, states that an offer must be accepted exactly with no modifications. The offeror is the master of their own offer. An attempt t ...
". An offer is a definite statement of the offeror's willingness to be bound should certain conditions be met. If a purported acceptance does vary the terms of an offer, it is not an acceptance but a counteroffer and, therefore, simultaneously a rejection of the original offer. The
Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UCC a ...

Uniform Commercial Code
disposes of the mirror image rule in §2-207, although the UCC only governs transactions in goods in the USA. As a court cannot read minds, the intent of the parties is interpreted objectively from the perspective of a
reasonable person In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions. Strictly according to the fiction, it is mi ...
, as determined in the early English case of ''
Smith v Hughes Smith or Smithing is a craftsperson fashioning useful items out of various metals. Smith may refer to: People * Smith (surname), a family name originating in England ** List of people with surname Smith * Smith Family (disambiguation) * Admiral S ...
'' 871 It is important to note that where an offer specifies a particular mode of acceptance, only an acceptance communicated via that method will be valid. Contracts may be
bilateral Bilateral may refer to any concept including two sides, in particular: *Bilateria, bilateral animals *Bilateralism, the political and cultural relations between two states *Bilateral, occurring on both sides of an organism (Anatomical terms of loc ...
or
unilateral __NOTOC__ Unilateralism is any doctrine or agenda that supports one-sided action. Such action may be in disregard for other parties, or as an expression of a commitment toward a direction which other parties may find disagreeable. As a word, ''unil ...
. A bilateral contract is an agreement in which each of the parties to the contract makes a
promise A promise is a commitment by someone to do or not do something. As a noun ''promise'' means a declaration assuring that one will or will not do something. As a verb it means to commit oneself by a promise to do or give. It can also mean a capacity f ...
or set of promises to each other. For example, in a contract for the sale of a home, the buyer promises to pay the seller $200,000 in exchange for the seller's promise to deliver title to the property. These common contracts take place in the daily flow of
commerce Commerce is the exchange of goods and services, especially on a large scale. Etymology The English-language word ''commerce'' has been derived from the Latin word ''commercium'', from ''com'' ("together") and ''merx'' ("merchandise"). History ...

commerce
transactions, and in cases with sophisticated or expensive
precedent A precedent is a principle or rule established in a previous legal case that is either binding on or persuasive without going to courts for a court or other tribunal when deciding subsequent cases with similar issues or facts. Common-law legal sy ...
requirements, which are requirements that must be met for the contract to be fulfilled. Less common are unilateral contracts in which one party makes a promise, but the other side does not promise anything. In these cases, those accepting the offer are not required to communicate their acceptance to the offeror. In a reward contract, for example, a person who has lost a dog could promise a reward if the dog is found, through publication or orally. The payment could be additionally conditioned on the dog being returned alive. Those who learn of the reward are not required to search for the dog, but if someone finds the dog and delivers it, the promisor is required to pay. In the similar case of advertisements of deals or bargains, a general rule is that these are not contractual offers but merely an "invitation to treat" (or bargain), but the applicability of this rule is disputed and contains various exceptions. The High Court of Australia stated that the term unilateral contract is "unscientific and misleading". In certain circumstances, an
implied contract A quasi-contract (or implied-in-law contract or constructive contract) is a fictional contract recognised by a court. The notion of a quasi-contract can be traced to Roman law and is still a concept used in some modern legal systems. History In co ...
may be created. A contract is implied in fact if the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, John Smith, a former lawyer may implicitly enter a contract by visiting a doctor and being examined; if the patient refuses to pay after being examined, the patient has breached a contract implied in fact. A contract which is implied in law is also called a
quasi-contract A quasi-contract (or implied-in-law contract or constructive contract) is a fictional contract recognised by a court. The notion of a quasi-contract can be traced to Roman law and is still a concept used in some modern legal systems. History In co ...
, because it is not in fact a contract; rather, it is a means for the
court A court is any person or institution, often as a government institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance wi ...
s to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other.
Quantum meruit ''Quantum meruit'' is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services". In the United States, the elements of ''quantum meruit'' are determined by s ...
claims are an example.


Invitation to treat

Where something is advertised in a newspaper or on a poster, the advertisement will not normally constitute an offer but will instead be an
invitation to treat An invitation to treat (or invitation to bargain in the United States) is a concept within contract law which comes from the Latin phrase ''invitatio ad offerendum'', meaning "inviting an offer". According to Professor Andrew Burrows, an invitatio ...
, an indication that one or both parties are prepared to negotiate a deal. An exception arises if the advertisement makes a unilateral promise, such as the offer of a reward, as in the famous case of ''
Carlill v Carbolic Smoke Ball Co ''Carlill v Carbolic Smoke Ball Company'' 892EWCA Civ 1is an Court_of_Appeal,_which_held_an_advertisement_containing_certain_terms_to_get_a_reward_constituted_a_binding_unilateral_offer_that_could_be_accepted_by_anyone_who_performed_its_terms._It_i ...
'', decided in nineteenth-century England. The company, a pharmaceutical manufacturer, advertised a smoke ball that would, if sniffed "three times daily for two weeks", prevent users from catching the
'flu
'flu
. If the smoke ball failed to prevent 'flu, the company promised that they would pay the user £100, adding that they had "deposited £1,000 in the Alliance Bank to show our sincerity in the matter". When Mrs Carlill sued for the money, the company argued the advert should not be taken as a serious,
legally binding A contract is a legally binding document between at least two parties that defines and governs the rights and duties of the parties to an agreement. A contract is legally enforceable because it meets the requirements and approval of the law. A ...
offer; instead it was a "mere puff"; but the
Court of Appeal An appellate court, commonly called an ''appeals court'', ''court of appeals'' (American English), ''appeal court'', ''court of appeal'' (British English), ''court of second instance'' or ''second instance court'', is any court of law that is em ...
held that it would appear to a
reasonable man In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions. Strictly according to the fiction, it is mi ...
that Carbolic had made a serious offer, and determined that the reward was a contractual promise. Although an invitation to treat cannot be accepted, it should not be ignored, for it may nevertheless affect the offer. For instance, where an offer is made in response to an invitation to treat, the offer may incorporate the terms of the invitation to treat (unless the offer expressly incorporates different terms). If, as in the ''Boots case'', the offer is made by an action without any negotiations (such as presenting goods to a cashier), the offer will be presumed to be on the terms of the invitation to treat. Auctions are governed by the
Sale of Goods Act 1979 The Sale of Goods Act 1979c 54 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 and s ...
(as amended), where section 57(2) provides: “A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner. Until the announcement is made any bidder may retract his bid."


Electronic contracts

Entry into contracts online has become common. Many jurisdictions have passed e-signature laws that have made the electronic contract and signature as legally valid as a paper contract. In India, E-contracts are governed by the Indian Contract Act (1872), according to which certain conditions need to be fulfilled while formulating a valid contact. Certain sections in information Technology Act (2000) also provide for validity of online contract. In some U.S. states, email exchanges have become binding contracts. New York courts in 2016 held that the principles of real estate contracts to apply equally to electronic communications and electronic signatures, so long as “its contents and subscription meet all requirements of the governing statute” and pursuant to the Electronic Signatures and Records Act (ESRA).


Intention to be legally bound

In commercial agreements it is presumed that parties intend to be legally bound unless the parties expressly state the opposite as in a heads of agreement document. For example, in ''
Rose & Frank Co v JR Crompton & Bros Ltd ''Rose & Frank Co v JR Crompton & Bros Ltd'' intention_to_create_legal_relations_in_commercial_arrangements._In_the_Court_of_Appeal_of_England_and_Wales.html" style="text-decoration: none;"class="mw-redirect" title="contract law">924UKHL 2is a le ...
'', an agreement between two business parties was not enforced because an "honour clause" in the document stated "this is not a commercial or legal agreement, but is only a statement of the intention of the parties". In contrast, domestic and social agreements such as those between children and parents are typically unenforceable on the basis of
public policy Public policy is a course of action created and/or enacted, typically by a government, in response to public, real-world problems. Beyond this broad definition, public policy has been conceptualized in a variety of ways. A popular way of understa ...
. For example, in the English case '' Balfour v. Balfour'' a husband agreed to give his wife £30 a month while he was away from home, but the court refused to enforce the agreement when the husband stopped paying. In contrast, in ''
Merritt v Merritt ''Merritt v Merritt'' 970EWCA Civ 6is an creating_legal_relations._While_under_the_principles_laid_out_in_creating_legal_relations._While_under_the_principles_laid_out_in_Balfour_v_Balfour">English_contract_law_case,_on_the_matter_of_Creating_l ...
'' the court enforced an agreement between an estranged couple because the circumstances suggested their agreement was intended to have legal consequences.


Consideration

A concept of English common law,
consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in ''Currie v Misa'' declared ...
is required for simple contracts but not for special contracts (contracts by
deed In common law, a deed (anciently "an evidence") is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly assoc ...
). The court in ''Currie v Misa'' declared consideration to be a “Right, Interest, Profit, Benefit, or Forbearance, Detriment, Loss, Responsibility”. Thus, consideration is a promise of something of value given by a promissor in exchange for something of value given by a promisee; and typically the thing of value is goods, money, or an act. Forbearance to act, such as an adult promising to refrain from smoking, is enforceable only if one is thereby surrendering a legal right. In ''Dunlop v. Selfridge'' Lord Dunedin adopted Pollack's metaphor of purchase and sale to explain consideration. He called consideration 'the price for which the promise of the other is bought'. In colonial times, the concept of consideration was exported to many common law countries, but it is unknown in Scotland and in civil law jurisdictions. Roman law-based systems neither require nor recognise consideration, and some commentators have suggested that consideration be abandoned, and
estoppel Estoppel is a judicial device in common law legal systems whereby a court may prevent or "estop" a person from making assertions or from going back on his or her word; the person being sanctioned is "estopped". Estoppel may prevent someone from bri ...
be used to replace it as a basis for contracts. However,
legislation Legislation is law which has been promulgated (or "enacted") by a legislature or other governing body or the process of making it. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred to as "legislation", ...
, rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. Lord Justice Denning famously stated that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind.". In the United States, the emphasis has shifted to the process of bargaining as exemplified by '' Hamer v. Sidway'' (1891). Courts will typically not weigh the "adequacy" of consideration provided the consideration is determined to be "sufficient", with sufficiency defined as meeting the test of law, whereas "adequacy" is the subjective fairness or equivalence. For instance, agreeing to sell a car for a penny may constitute a binding contract (although if the transaction is an attempt to avoid tax, it will be treated by the tax authority as though a market price had been paid). Parties may do this for tax purposes, attempting to disguise gift transactions as contracts. This is known as the ''peppercorn rule'', but in some jurisdictions, the penny may constitute legally insufficient ''nominal consideration''. An exception to the rule of adequacy is money, whereby a debt must always be paid in full for "
accord and satisfaction Accord may refer to: Agreements Peace agreements *Arab-Israeli conflict: ** Camp David Accords (1978) in the Egypt-Israel conflict ** Oslo Accords (1993), part of a peace process of the Israeli-Palestinian conflict ** Geneva Accord (2003), an extra ...
". However, consideration must be given as part of entering the contract, not prior as in past consideration. For example, in the early English case of ''Eastwood v. Kenyon'' 840 the guardian of a young girl took out a loan to educate her. After she was married, her husband promised to pay the debt but the loan was determined to be past consideration. The insufficiency of past consideration is related to the '' pre-existing duty rule''. In the early English case of '' Stilk v. Myrick'' 809 a captain promised to divide the wages of two deserters among the remaining crew if they agreed to sail home short-handed; however, this promise was found unenforceable as the crew were already contracted to sail the ship. The pre-existing duty rule also extends to general legal duties; for example, a promise to refrain from committing a tort or crime is not sufficient.


Capacity

Sometimes the capacity of either
natural Nature, in the broadest sense, is the natural, physical, material world or universe. "Nature" can refer to the phenomena of the physical world, and also to life in general. The study of nature is a large, if not the only, part of science. Al ...
or
artificial Artificiality (the state of being artificial or man-made) is the state of being the product of intentional human manufacture, rather than occurring naturally through processes not involving or requiring human activity. Connotations Artificiality of ...
persons to either enforce contracts, or have contracts enforced against them is restricted. For instance, very small children may not be held to bargains they have made, on the assumption that they lack the maturity to understand what they are doing; errant employees or directors may be prevented from contracting for their company, because they have acted ''
ultra vires ''Ultra vires'' (Latin: "beyond the powers") is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ''intra vires'' ("within the powers"). Acts ...
'' (beyond their power). Another example might be people who are mentally incapacitated, either by disability or drunkenness. Each contractual party must be a "competent person" having legal capacity. The parties may be natural persons ("individuals") or
juristic personA juridical person is a non-human legal entity, in other words any organization that is not a single natural person but is authorized by law with duties and rights and is recognized as a legal person and as having a distinct identity. This includes a ...
s ("
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law 'born out of statute"; a legal person in legal context) and rec ...
s"). An agreement is formed when an "offer" is accepted. The parties must have an
intention to be legally boundIntention to create legal relations', otherwise an "intention to be legally bound", is a doctrine used in contract law, particularly English contract law and related common law jurisdictions. The doctrine establishes whether a court should presume t ...
; and to be valid, the agreement must have both proper "form" and a lawful object. In
England England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest of England and the Celtic Sea to the southwest. England is separated from continent ...
(and in
jurisdiction Jurisdiction (from Latin ''juris'' 'law' + ''dictio'' 'declaration') is the practical authority granted to a legal body to administer justice, as defined by the kind of case, and the location of the issue (its ). In federations like the United St ...
s using English contract principles), the parties must also exchange "
consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in ''Currie v Misa'' declared ...
" to create a "mutuality of obligation," as in
Simpkins v Pays''Simpkins v Pays'' 9551 WLR 975 is a precedent case on intention to create legal relations in the English law of contract. Decided at Chester assizes in 1955, this case involved an informal syndicate agreement between a grandmother, grand-daughter ...
. In the United States, persons under 18 are typically
minor Minor may refer to: * Minor (law), a person under the age of certain legal activities. ** A person who has not reached the age of majority * Academic minor, a secondary field of study in undergraduate education Music theory *Minor chord ** Barbe ...
and their contracts are considered
voidable Voidable, in law, is a transaction or action that is valid but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ''ab initio'' (or void from the outset) and unenforceable. Definition The act ...
; however, if the minor voids the contract, benefits received by the minor must be returned. The minor can enforce breaches of contract by an adult while the adult's enforcement may be more limited under the bargain principle.
Promissory estoppel A promise is a commitment by someone to do or not do something. As a noun ''promise'' means a declaration assuring that one will or will not do something. As a verb it means to commit oneself by a promise to do or give. It can also mean a capacity f ...
or
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make rest ...
may be available, but generally are not.


Formalities and writing requirements for some contracts

A contract is often evidenced in writing or by
deed In common law, a deed (anciently "an evidence") is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly assoc ...
, the general rule is that a person who signs a contractual document will be bound by the terms in that document, this rule is referred to as the rule in '' L'Estrange v Graucob''.'' L'Estrange v Graucob'' 9342 KB 394. This rule is approved by the High Court of Australia in ''Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd''.. But a valid contract may (with some exceptions) be made orally or even by conduct. Remedies for
breach of contract Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's p ...
include damages (monetary compensation for loss). and, for serious breaches only, repudiation (i.e. cancellation). The equitable remedy of
specific performance Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, but ...
, enforceable through an
injunction An injunction is a legal and equitable remedy in the form of a special court order that compels a party to do or refrain from specific acts. ("The court of appeals ... has exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part) ...
, may be available if damages are insufficient. Typically, contracts are oral or written, but written contracts have typically been preferred in
common law#REDIRECT common law#REDIRECT common law {{Redirect category shell, 1= {{R from other capitalisation ...
{{Redirect category shell, 1= {{R from other capitalisation ...
legal systems; in 1677 England passed the
Statute of Frauds The Statute of Frauds (29 Car 2 c 3) (1677) is an Act of the Parliament of England. It required that certain types of contracts, wills, and grants, and assignment or surrender of leases or interest in real property must be in writing and signed to ...
which influenced similar
statute of frauds The Statute of Frauds (29 Car 2 c 3) (1677) is an Act of the Parliament of England. It required that certain types of contracts, wills, and grants, and assignment or surrender of leases or interest in real property must be in writing and signed to ...
laws in the United States and other countries such as Australia. In general, the
Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UCC a ...

Uniform Commercial Code
as adopted in the United States requires a written contract for tangible product sales in excess of $500, and real estate contracts are required to be written. If the contract is not required by law to be written, an oral contract is valid and therefore legally binding. The United Kingdom has since replaced the original Statute of Frauds, but written contracts are still required for various circumstances such as land (through the
Law of Property Act 1925 The Law of Property Act 1925c 20 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legislation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modernise ...
). An
oral contract An oral contract is a contract, the terms of which have been agreed by spoken communication. This is in contrast to a written contract, where the contract is a written document. There may be written, or other physical evidence, of an oral contract ...
may also be called a parol contract or a verbal contract, with "verbal" meaning "spoken" rather than "in words", an established usage in
British English British English (BrE) is the standard dialect of the English language as spoken and written in the United Kingdom. Variations exist in formal, written English in the United Kingdom. For example, the adjective ''wee'' is almost exclusively use ...
with regards to contracts and agreements, and common although somewhat deprecated as "loose" in
American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, American English is the most influential form of ...
. If a contract is in a written form, and somebody signs it, then the signer is typically bound by its terms regardless of whether they have actually read it provided the document is contractual in nature. However, affirmative defenses such as duress or unconscionability may enable the signer to avoid the obligation. Further, reasonable notice of a contract's terms must be given to the other party prior to their entry into the contract... An unwritten, unspoken contract, also known as "a contract implied by the acts of the parties", which can be either an
implied-in-fact contract An implied-in-fact contract is a form of an implied contract formed by non-verbal conduct, rather than by explicit words. The United States Supreme Court has defined it as "an agreement 'implied in fact'" as "founded upon a meeting of minds, which, ...
or implied-in-law contract, may also be legally binding. Implied-in-fact contracts are real contracts under which the parties receive the "benefit of the bargain".. However, contracts implied in law are also known as quasi-contracts, and the remedy is
quantum meruit ''Quantum meruit'' is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services". In the United States, the elements of ''quantum meruit'' are determined by s ...
, the fair market value of goods or services rendered.


Contract terms: construction and interpretation

A
contractual term A contractual term is "any provision forming part of a contract". Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they a ...
is "an provision forming part of a contract". Each term gives rise to a contractual obligation,
breach BREACH (a backronym: Browser Reconnaissance and Exfiltration via Adaptive Compression of Hypertext) is a security exploit against HTTPS when using HTTP compression. BREACH is built based on the CRIME security exploit. BREACH was announced at the Au ...
of which can give rise to
litigation A lawsuit is a proceeding by a party or parties against another in the civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used in reference to a civil action ...
. Not all
terms Term may refer to: *Terminology, or term, a noun or compound word used in a specific context, in particular: **Technical term, part of the specialized vocabulary of a particular field, specifically: ***Scientific terminology, terms used by scientis ...
are stated expressly and some
terms Term may refer to: *Terminology, or term, a noun or compound word used in a specific context, in particular: **Technical term, part of the specialized vocabulary of a particular field, specifically: ***Scientific terminology, terms used by scientis ...
carry less legal weight as they are peripheral to the objectives of the contract.


Uncertainty, incompleteness and severance

If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law. An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as
price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for one unit of goods or services. A price is influenced by production costs, supply of the desired item, and demand for the pr ...
or safety, may cause the entire contract to fail. However, a court will attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract. In New South Wales, even if there is uncertainty or incompleteness in a contract, the contract may still be binding on the parties if there is a sufficiently certain and complete clause requiring the parties to undergo arbitration, negotiation or mediation. Courts may also look to external standards, which are either mentioned explicitly in the contract or implied by
common practice In the history of European art music, the common practice period is the era of the tonal system. Though it has no exact dates, most features of the common-practice period persisted from the mid- to late baroque period, through the Classical, Ro ...
in a certain field. In addition, the court may also imply a term; if price is excluded, the court may imply a reasonable price, with the exception of land, and second-hand goods, which are unique. If there are uncertain or incomplete clauses in the contract, and all options in resolving its true meaning have failed, it may be possible to sever and void just those affected clauses if the contract includes a severability clause. The test of whether a clause is severable is an
objective testObjective tests are measures in which responses maximize objectivity, in the sense that response options are structured such that examinees have only a limited set of options (e.g. Likert scale, true or false). Structuring a measure in this way is in ...
—whether a
reasonable person In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions. Strictly according to the fiction, it is mi ...
would see the contract standing even without the clauses. Typically, non-severable contracts only require the substantial performance of a promise rather than the whole or complete performance of a promise to warrant payment. However, express clauses may be included in a non-severable contract to explicitly require the full performance of an obligation.


Classification of terms

Contractual terms are classified differently depending upon the context or jurisdiction. Terms establish conditions precedent. English (but not necessarily non-English) common law distinguishes between important ''conditions'' and
warranties In contract law, a warranty is a promise which is not a condition of the contract or an innominate term: (1) it is a term "not going to the root of the contract", and (2) which only entitles the innocent party to damages if it is breached: i.e. the ...
, with a breach of a condition by one party allowing the other to repudiate and be discharged while a warranty allows for remedies and damages but not complete discharge.Gillies P. (1988). ''Concise Contract Law''
p. 105
Federation Press.
. Whether or not a term is a ''condition'' is determined in part by the parties' intent. In a less technical sense, however, a condition is a generic term and a warranty is a promise. Not all language in the contract is determined to be a contractual term. Representations, which are often precontractual, are typically less strictly enforced than terms, and material misrepresentations historically was a cause of action for the
tort of deceitThe tort of deceit is a type of legal injury that occurs when a person intentionally and knowingly deceives another person into an action that damages them. Specifically, deceit requires that the tortfeasor * makes a factual representation, * knowin ...
. Warranties were enforced regardless of materiality; in modern United States law the distinction is less clear but warranties may be enforced more strictly. Statements of opinion may be viewed as "mere puff". In specific circumstances these terms are used differently. For example, in English insurance law, violation of a "condition precedent" by an insured is a complete defense against the payment of claims. In general insurance law, a warranty is a promise that must be complied with.Burling JM. (2011). Research Handbook on International Insurance Law and Regulation. Edward Elgar Publishing. In product transactions, warranties promise that the product will continue to function for a certain period of time. In the United Kingdom the courts determine whether a term is a condition or warranty; for example, an actress' obligation to perform the opening night of a
theatrical Theatre or theater is a collaborative form of performing art that uses live performers, usually actors or actresses, to present the experience of a real or imagined event before a live audience in a specific place, often a stage. The performer ...
production is a ''condition'', but a singer's obligation to rehearse may be a warranty.
StatuteA statute reffers to the body of law that are made by legislature of the nation with instrument which govern the state, country or any nation. it includes laws, rules and the reulation whichhas to be followed by each citizen in the county. A statute ...
may also declare a term or nature of term to be a condition or warranty; for example the
Sale of Goods Act 1979 The Sale of Goods Act 1979c 54 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 and s ...
s15A provides that terms as to title, description, quality and sample are generally ''conditions''. The United Kingdom has also contrived the concept of an "intermediate term" (also called innominate), first established in ''
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd ''Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd'' 961EWCA Civ 7is a landmark English contract law case. It introduced the concept of innominate terms, a category between "warranties" and "conditions". Under the English United ...
'' 962


Representations versus warranties

Statements of fact in a contract or in obtaining the contract are considered to be either
warranties In contract law, a warranty is a promise which is not a condition of the contract or an innominate term: (1) it is a term "not going to the root of the contract", and (2) which only entitles the innocent party to damages if it is breached: i.e. the ...
or representations. Traditionally, warranties are factual promises which are enforced through a contract legal action, regardless of materiality, intent, or reliance. Representations are traditionally precontractual statements that allow for a tort-based action (such as the
tort of deceitThe tort of deceit is a type of legal injury that occurs when a person intentionally and knowingly deceives another person into an action that damages them. Specifically, deceit requires that the tortfeasor * makes a factual representation, * knowin ...
) if the misrepresentation is negligent or fraudulent;Primack MA. (2009)
Representations, Warranties and Covenants: Back to the Basics in Contracts
''National Law Review''.
historically, a tort was the only action available, but by 1778, breach of warranty became a separate legal contractual action. In U.S. law, the distinction between the two is somewhat unclear; warranties are viewed as primarily contract-based legal action while negligent or fraudulent misrepresentations are tort-based, but there is a confusing mix of case law in the United States.West GD, Lewis WB. (2009)
Contracting to Avoid Extra-Contractual Liability—Can Your Contractual Deal Ever Really Be the "Entire" Deal?
''The Business Lawyer''.
In modern English law, sellers often avoid using the term 'represents' in order to avoid claims under the
Misrepresentation Act 1967 Misrepresentation Act 1967 is a United Kingdom Act of Parliament of the United Kingdom which amended the common law principles of misrepresentation. Prior to the Act, the common law deemed that there were two categories of misrepresentation: fraudu ...
, while in America 'warrants and represents' is relatively common.Ferara LN, Philips J, Runnicles J. (2007)
Some Differences in Law and Practice Between U.K. and U.S. Stock Purchase Agreements
''Jones Day Publications''.
Some modern commentators suggest avoiding the words and substituting 'state' or 'agree', and some model forms do not use the words; however, others disagree. Statements in a contract may not be upheld if the court finds that the statements are subjective or promotional
puffery 300px, 1881 Italian ad for ''Cannabis indica'' cigarillos, promising to "stop the most violent attacks of asthma, nervous cough, colds, extinction of voice, facial neuralgia and insomnia, and to combat all laryngeal and respiratory ailments." In ...
. English courts may weigh the emphasis or relative knowledge in determining whether a statement is enforceable as part of the contract. In the English case of ''Bannerman v White'' the court upheld a rejection by a buyer of hops which had been treated with sulphur since the buyer explicitly expressed the importance of this requirement. The relative knowledge of the parties may also be a factor, as in English case of ''Bissett v Wilkinson''''Bissett v Wilkinson'' 927 AC 177. where the court did not find misrepresentation when a seller said that farmland being sold would carry 2000 sheep if worked by one team; the buyer was considered sufficiently knowledgeable to accept or reject the seller's opinion.


Standard terms and contracts of adhesion

Standard form contract A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a ''boilerplate contract'') is a contract between two parties, where the terms and conditions of the cont ...
s contain " boilerplate", which is a set of "
one size fits all "One size fits all" is a description for a product that would fit in all instances. The term has been extended to mean one style or procedure would fit in all related applications. It is an alternative for "Not everyone fits the mold." "Tool targ ...
" contract provisions. However, the term may also narrowly refer to conditions at the end of the contract which specify the governing law provision, venue, assignment and delegation, waiver of jury trial, notice, and
escape clause "Escape Clause" is episode six of the American television anthology series ''The Twilight Zone''. It originally aired on November 6, 1959 on CBS. Opening narration Plot Walter Bedeker, a paranoid hypochondriac, is convinced his wife and doctor ...
s ("get-out clauses") such as ''
force majeure ''Force majeure'', sometimes, but erroneously, referred to as force majure, is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the p ...
''. Restrictive provisions in contracts where the consumer has little negotiating power ("contracts of adhesion") attract
consumer protection Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent businesses ...
scrutiny.


Implied terms

A term may either be express or implied. An express term is stated by the parties during negotiation or written in a contractual document. Implied terms are not stated but nevertheless form a provision of the contract.


Terms implied in fact

Terms may be implied due to the factual circumstances or conduct of the parties. In the case of '' BP Refinery (Westernport) Pty Ltd v Shire of Hastings'', the UK
Privy Council#REDIRECT Privy council#REDIRECT Privy council {{Redirect category shell, 1= {{R from other capitalisation ...
{{Redirect category shell, 1= {{R from other capitalisation ...
, on appeal from Australia, proposed a five-stage test to determine situations where the facts of a case may imply terms. The classic tests have been the "business efficacy test" and the "officious bystander test". Under the "business efficacy test" first proposed in ''
The Moorcock ''The Moorcock'' (1889) 14 PD 64 is a leading English contract law case which created an important test for identifying the main terms that the law will imply in commercial, or non-consumer, agreements, especially terms that are "necessary and obvi ...
'' 889 the minimum terms necessary to give business efficacy to the contract will be implied. Under the officious bystander test (named in ''
Southern Foundries (1926) Ltd v Shirlaw ''Southern Foundries (1926) Ltd v Shirlaw'' 940AC 701 is an important English contract law and company law case. In the field of contracts it is well known for MacKinnon LJ's decision in the Court of Appeal, where he put forth the "officious bystan ...
'' 940but actually originating in ''Reigate v. Union Manufacturing Co (Ramsbottom) Ltd'' 918, a term can only be implied in fact if an "officious bystander" listening to the contract negotiations suggested that the term be included the parties would promptly agree. The difference between these tests is questionable.


Terms implied in law

StatuteA statute reffers to the body of law that are made by legislature of the nation with instrument which govern the state, country or any nation. it includes laws, rules and the reulation whichhas to be followed by each citizen in the county. A statute ...
s or judicial rulings may create implied contractual terms, particularly in standardized relationships such as employment or shipping contracts. The Uniform Commercial Code of the United States also imposes an
implied covenant of good faith and fair dealing In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties ...
in performance and enforcement of contracts covered by the Code. In addition,
Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. It is the largest country in Oceania and the world's sixt ...

Australia
,
Israel Israel (; he, יִשְׂרָאֵל; ar, إِسْرَائِيل), officially known as the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, '), is a country in Western Asia, located on the southeastern shore of the Mediterranean Se ...
and
India India (Hindi: ), officially the Republic of India (Hindi: ), is a country in South Asia. It is the second-most populous country, the seventh-largest country by land area, and the most populous democracy in the world. Bounded by the Indian Oce ...

India
imply a similar good faith term through laws. In England, some contracts (insurance and partnerships) require utmost good faith, while others may require
good faith Good faith ( la, bona fides, sometimes spelled "bona fide"), in human interactions, is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. While some Latin phrases have lost their literal meaning over c ...
(employment contracts and agency). Most English contracts do not need any good faith, provided that the law is met. There is, however, an overarching concept of "
legitimate expectation The doctrine of legitimate expectation was first developed in English law as a ground of judicial review in administrative law to protect a procedural or substantive interest when a public authority rescinds from a representation made to a person ...
". Most
countries A country is a distinct territorial body or political entity. It is often referred to as the land of an individual's birth, residence or citizenship. A country may be an independent sovereign state or part of a larger state, as a non-sovereig ...
have statutes which deal directly with sale of goods, lease transactions, and trade practices. In the United States, prominent examples include, in the case of products, an implied
warranty In contract law, a warranty is a promise which is not a condition of the contract or an innominate term: (1) it is a term "not going to the root of the contract", and (2) which only entitles the innocent party to damages if it is breached: i.e. the ...
of merchantability and fitness for a particular purpose, and in the case of homes an implied warranty of habitability. In the United Kingdom, implied terms may be created by: * Statute, such as the
Sale of Goods Act 1979 The Sale of Goods Act 1979c 54 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 and s ...
, the
Consumer Rights Act 2015 The Consumer Rights Act 2015 is an Act of Parliament of the United Kingdom that consolidates existing consumer protection law legislation and also gives consumers a number of new rights and remedies. Provisions for secondary ticketing and letti ...
and the Hague-Visby Rules; * Common Law, such as ''
The Moorcock ''The Moorcock'' (1889) 14 PD 64 is a leading English contract law case which created an important test for identifying the main terms that the law will imply in commercial, or non-consumer, agreements, especially terms that are "necessary and obvi ...
'', which introduced the "business efficacy" test; * Previous Dealings, as in ''Spurling v Bradshaw''. * Custom, as in ''Hutton v Warren''.


Terms implied by custom

A term may be implied on the basis of custom or usage in a particular market or context. In the
Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. It is the largest country in Oceania and the world's sixt ...

Australia
n case of ''Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Aust) Limited'',. the requirements for a term to be implied by custom were set out. For a term to be implied by custom it needs to be "so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract".


Third parties

The common law doctrine of privity of contract provides that only those who are party to a contract may sue or be sued on it. The leading case of ''Tweddle v Atkinson'' [1861] immediately showed that the doctrine had the effect of defying the intent of the parties. In maritime law, the cases of ''Scruttons v Midland Silicones'' [1962] and ''N.Z. Shipping v Satterthwaite'' [1975] established how third parties could gain the protection of limitation clauses within a bill of lading. Some common law exceptions such as agency (law), agency, Assignment (law),, assignment and negligence allowed some circumvention of privity rules, but the unpopular doctrine remained intact until it was amended by the Contracts (Rights of Third Parties) Act 1999 which provides:
A person who is not a party to a contract (a “third party”) may in his own right enforce a contract if: (a) the contract expressly provides that he may, or (b) the contract purports to confer a benefit on him.


Performance

Performance varies according to the particular circumstances. While a contract is being performed, it is called an executory contract, and when it is completed it is an executed contract. In some cases there may be substantial performance but not complete performance, which allows the performing party to be partially compensated. Research in business and management has also paid attention to the influence of contracts on relationship development and performance.


Defenses

Vitiating factors in the law of contract, Vitiating factors constituting defences to purported contract formation include: * Mistake (contract law), Mistake (such as ''non est factum'') * Capacity (law), Incapacity, including mental incompetence and infancy/minority * Duress#In contract law, Duress * Undue influence * Unconscionability * Misrepresentation or fraud * Frustration of purpose Such defenses operate to determine whether a purported contract is either (1) void or (2) voidable. Void contracts cannot be ratified by either party. Voidable contracts ''can'' be ratified.


Misrepresentation

Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of Rescission (contract law), rescission and sometimes damages depending on the type of misrepresentation. In a court of law, to prove misrepresentation and/or fraud, there must be evidence that shows a claim was made, said claim was false, the party making the claim knew the claim was false, and that party's intention was for a transaction to occur based upon the false claim. There are two types of misrepresentation: fraud in the factum and fraud in inducement. Fraud in the factum focuses on whether the party alleging misrepresentation knew they were creating a contract. If the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void. Fraud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Misrepresentation of a material fact (if the party knew the truth, that party would not have entered into the contract) makes a contract voidable. Assume two people, Party A and Party B, enter into a contract. Then, it is later determined that Party A did not fully understand the facts and information described within the contract. If Party B used this lack of understanding against Party A to enter into the contract, Party A has the right to void the contract. The foundational principle of “caveat emptor,” which means “let the buyer beware,” applies to all American transactions. In Laidlaw v. Organ, the Supreme Court decided that the buyer did not have to inform the seller of information the buyer knew could affect the price of the product. According to ''Gordon v Selico'' [1986] it is possible to misrepresent either by words or conduct. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation. If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact. It is a fallacy that an opinion cannot be a statement of fact. If a statement is the honest expression of an opinion honestly entertained, it cannot be said that it involves any fraudulent misrepresentations of fact. For an innocent misrepresentation, the judge takes into account the likelihood a party would rely on the false claim and how significant the false claim was. Remedies for misrepresentation. Rescission is the principal remedy and damages are also available if a tort is established. In order to obtain relief, there must be a positive misrepresentation of law and also, the person to whom the representation was made must have been misled by and relied on this misrepresentation:''Public Trustee v Taylor''. Contract law does not delineate any clear boundary as to what is considered an acceptable false claim or what is unacceptable. Therefore, the question is what types of false claims (or deceptions) will be significant enough to void a contract based on said deception. Advertisements utilizing "puffing," or the practice of exaggerating certain things, fall under this question of possible false claims.


Mistake

A mistake is an incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. Common law has identified three types of mistake in contract: common mistake, mutual mistake, and unilateral mistake. *Common mistake occurs when both parties hold the same mistaken belief of the facts. This is demonstrated in the case of ''Bell v. Lever Brothers Ltd.'', which established that common mistake can only void a contract if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible.see also . In ''Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd'', the court held that the common law will grant relief against common mistake, if the test in ''Bell v. Lever Bros Ltd'' is made out. If one party has knowledge and the other does not, and the party with the knowledge promises or guarantees the existence of the subject matter, that party will be in breach if the subject matter does not exist.. *Mutual mistake occurs when both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different. Courts usually try to uphold such mistakes if a reasonable interpretation of the terms can be found. However, a contract based on a mutual mistake in judgment does not cause the contract to be voidable by the party that is adversely affected. See ''Raffles v Wichelhaus''. *Unilateral mistake occurs when only one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage of the mistake.. It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. An example is in ''Lewis v Avery'' where Lord Denning, Lord Denning MR held that the contract can only be voided if the plaintiff can show that, at the time of agreement, the plaintiff believed the other party's identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient.


Duress and undue influence

Duress has been defined as a "threat of harm made to compel a person to do something against his or her will or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition." An example is in ''Barton v Armstrong'' [1976] in a person was threatened with death if they did not sign the contract. An innocent party wishing to set aside a contract for duress to the person only needs to prove that the threat was made and that it was a reason for entry into the contract; the Legal burden of proof, burden of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. There can also be duress to goods and sometimes, 'economic duress'. Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person through a special relationship such as between parent and child or solicitor and client. As an equitable doctrine, the court has discretion. When no special relationship exists, the question is whether there was a relationship of such trust and confidence that it should give rise to such a presumption.


Unconscionable dealing

In Australian law, a contract can be set aside due to unconscionable dealing..see also . Firstly, the claimant must show that they were under a special disability, the test for this being that they were unable to act in their best interest. Secondly, the claimant must show that the defendant took advantage of this special disability.


Illegal contracts

If based on an illegal purpose or contrary to
public policy Public policy is a course of action created and/or enacted, typically by a government, in response to public, real-world problems. Beyond this broad definition, public policy has been conceptualized in a variety of ways. A popular way of understa ...
, a contract is ''void''. In the 1996 Canada, Canadian case of ''Royal Bank of Canada v. Newell'' a woman forged her husband's signature, and her husband agreed to assume "all liability and responsibility" for the forged checks. However, the agreement was unenforceable as it was intended to "stifle a criminal prosecution", and the bank was forced to return the payments made by the husband. In the U.S., one unusual type of unenforceable contract is a personal employment contract to work as a spy or secret agent. This is because the very secrecy of the contract is a condition of the contract (in order to maintain plausible deniability). If the spy subsequently sues the government on the contract over issues like salary or benefits, then the spy has breached the contract by revealing its existence. It is thus unenforceable on that ground, as well as the public policy of maintaining national security (since a disgruntled agent might try to reveal ''all'' the government's secrets during his/her lawsuit). Other types of unenforceable employment contracts include contracts agreeing to work for less than minimum wage and forfeiting the right to workman's compensation in cases where workman's compensation is due.


Remedies for defendant on defenses


Setting aside the contract

To Rescission (contract law), rescind is to set aside or unmake a contract. There are four different ways in which contracts can be set aside. A contract may be deemed 'void (law), void', '
voidable Voidable, in law, is a transaction or action that is valid but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ''ab initio'' (or void from the outset) and unenforceable. Definition The act ...
' or 'unenforceable', or declared 'ineffective'. Voidness implies that a contract never came into existence. Voidability implies that one or both parties may declare a contract ineffective at their wish. Kill fees are paid by magazine publishers to authors when their articles are submitted on time but are subsequently not used for publication. When this occurs, the magazine cannot claim copyright for the "killed" assignment. Unenforceability implies that neither party may have recourse to a court for a remedy. Ineffectiveness arises when a contract is terminated by order of a court, where a public body has failed to satisfy the requirements of public procurement law. This remedy was created by the Public Contracts (Amendments) Regulations 2009, (SI 2009/2992).


Disputes


Procedure

In many countries, in order to obtain damages for breach of contract or to obtain specific performance or other equitable relief, the aggrieved injured party may file a civil (non-criminal) lawsuit in court. In England and Wales, a contract may be enforced by use of a claim (legal), claim, or in urgent cases by applying for an interim injunction to prevent a breach. Likewise, in the United States, an aggrieved party may apply for injunctive relief to prevent a threatened breach of contract, where such breach would result in irreparable harm that could not be adequately remedied by money damages.


Arbitration

If the contract contains a valid arbitration clause then, prior to filing a lawsuit, the aggrieved party must submit an arbitration claim in accordance with the procedures set forth in the clause. Many contracts provide that all disputes arising thereunder will be resolved by arbitration, rather than litigated in courts. Arbitration judgments may generally be enforced in the same manner as ordinary court judgments, and are recognized and enforceable internationally under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York Convention, which has 156 parties. However, in New York Convention states, arbitral decisions are generally immune unless there is a showing that the arbitrator's decision was irrational or tainted by fraud. Some arbitration clauses are not enforceable, and in other cases arbitration may not be sufficient to resolve a legal dispute. For example, disputes regarding validity of registered IP rights may need to be resolved by a public body within the national registration system. For matters of significant public interest that go beyond the narrow interests of the parties to the agreement, such as claims that a party violated a contract by engaging in illegal anti-competitive conduct or committed civil rights violations, a court might find that the parties may litigate some or all of their claims even before completing a contractually agreed arbitration process.


=United States

= In the United States, thirty-five states (notably not including New York) and the District of Columbia have adopted the Uniform Arbitration Act to facilitate the enforcement of arbitrated judgments. Customer claims against securities brokers and dealers are almost always resolved pursuant to contractual arbitration clauses because securities dealers are required under the terms of their membership in self-regulatory organizations such as the Financial Industry Regulatory Authority (formerly the NASD) or NYSE to arbitrate disputes with their customers. The firms then began including arbitration agreements in their customer agreements, requiring their customers to arbitrate disputes.


Choice of law

When a contract dispute arises between parties that are in different jurisdictions, law that is applicable to a contract is dependent on the conflict of laws analysis by the court where the breach of contract action is filed. In the absence of a
choice of law clause A choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction. An example is "This Agreement ...
, the court will normally apply either the law of the forum or the law of the jurisdiction that has the strongest connection to the subject matter of the contract. A choice of law clause allows the parties to agree in advance that their contract will be interpreted under the laws of a specific jurisdiction. Within the United States, choice of law clauses are generally enforceable, although exceptions based upon public policy may at times apply. Within the European Union, even when the parties have negotiated a choice of law clause, conflict of law issues may be governed by the
Rome I Regulation The Rome I Regulation (Regulation (EC) No 593/2008) of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations) is a regulation which governs the choice of law in the European Union. It is based ...

Rome I Regulation
.


Choice of forum

Many contracts contain a forum selection clause setting out where disputes in relation to the contract should be litigated. The clause may be general, requiring that any case arising from the contract be filed within a specific state or country, or it may require that a case be filed in a specific court. For example, a choice of forum clause may require that a case be filed in the U.S. State of California, or it may require more specifically that the case be filed in the Superior Court for Los Angeles County. A choice of law or venue is not necessarily binding upon a court. Based upon an analysis of the laws, rules of procedure and public policy of the state and court in which the case was filed, a court that is identified by the clause may find that it should not exercise jurisdiction, or a court in a different jurisdiction or venue may find that the litigation may proceed despite the clause. As part of that analysis, a court may examine whether the clause conforms with the formal requirements of the jurisdiction in which the case was filed (in some jurisdictions a choice of forum or choice of venue clause only limits the parties if the word "exclusive" is explicitly included in the clause). Some jurisdictions will not accept an action that has no connection to the court that was chosen, and others will not enforce a choice of venue clause when they consider themselves to be a more forum non conveniens, convenient forum for the litigation. Some contracts are governed by multilateral instruments that require a non-chosen court to dismiss cases and require the recognition of judgments made by courts having jurisdiction based on a choice of court clause. For example, the Brussels regime instruments (31 European states) and the Hague Choice of Court Agreements Convention (European Union, Mexico, Montenegro, Singapore), as well as several instruments related to a specific area of law, may require courts to enforce and recognize choice of law clauses and foreign judgments.


Remedies

In the United Kingdom, breach of contract is defined in the Unfair Contract Terms Act 1977 as: [i] non-performance, [ ii] poor performance, [iii] part-performance, or [iv] performance which is substantially different from what was reasonably expected. Innocent parties may repudiate (cancel) the contract only for a major breach (breach of condition), but they may always recover compensatory damages, provided that the breach has caused foreseeable loss. It was not possible to sue the Crown in the UK for breach of contract before 1948. However, it was appreciated that contractors might be reluctant to deal on such a basis and claims were entertained under a petition of right that needed to be endorsed by the Home Secretary and Attorney-General. S.1 Crown Proceedings Act 1947 opened the Crown to ordinary contractual claims through the courts as for any other person.


Damages

There are several different types of damages. *Compensatory damages, which are given to the party injured by the breach of contract. With compensatory damages, there are two heads of loss, consequential damage and direct damage. In theory, compensatory damages are designed to put the injured party in his or her rightful position, usually through an award of expectation damages. *Liquidated damages are an estimate of loss agreed to in the contract, so that the court avoids calculating compensatory damages and the parties have greater certainty. Liquidated damages clauses may be called "penalty clauses" in ordinary language, but the law distinguishes between liquidated damages (legitimate) and penalties (invalid). A test for determining which category a clause falls into was established by the English House of Lords in ''Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd'' *Nominal damages consist of a small cash amount where the court concludes that the defendant is in breach but the plaintiff has suffered no quantifiable pecuniary loss, and may be sought to obtain a legal record of who was at fault. *Punitive or exemplary damages are used to punish the party at fault; but even though such damages are not intended primarily to compensate, nevertheless the claimant (and not the state) receives the award. Exemplary damages are not recognised nor permitted in some jurisdictions. In the UK, exemplary damages are not available for breach of contract, but are possible after fraud. Although vitiating factors (such as misrepresentation, mistake, undue influence and duress) relate to contracts, they are not contractual actions, and so, in a roundabout way, a claimant in contract may be able to get exemplary damages. Compensatory damages compensate the plaintiff for actual losses suffered as accurately as possible. They may be "expectation damages", "reliance damages" or "restitutionary damages". Expectation damages are awarded to put the party in as good of a position as the party would have been in had the contract been performed as promised. Reliance damages are usually awarded where no reasonably reliable estimate of expectation loss can be arrived at or at the option of the plaintiff. Reliance losses cover expense suffered in reliance to the promise. Examples where reliance damages have been awarded because profits are too speculative include the Australian case of ''McRae v Commonwealth Disposals Commission'' which concerned a contract for the rights to salvage a ship. In ''Anglia Television Ltd v. Reed'' the English Court of Appeal awarded the plaintiff expenditures incurred prior to the contract in preparation of performance. After a breach has occurred, the innocent party has a duty to mitigate loss by taking any reasonable steps. Failure to mitigate means that damages may be reduced or even denied altogether. However, Professor Michael Furmston has argued that "it is wrong to express (the mitigation) rule by stating that the plaintiff is under a duty to mitigate his loss", citing ''Sotiros Shipping Inc v Sameiet, The Solholt''. If a party provides notice that the contract will not be completed, an anticipatory breach occurs. Damages may be general or consequential. General damages are those damages which naturally flow from a breach of contract. Consequential damages are those damages which, although not naturally flowing from a breach, are naturally supposed by both parties at the time of contract formation. An example would be when someone rents a car to get to a business meeting, but when that person arrives to pick up the car, it is not there. General damages would be the cost of renting a different car. Consequential damages would be the lost business if that person was unable to get to the meeting, if both parties knew the reason the party was renting the car. However, there is still a duty to mitigate the losses. The fact that the car was not there does not give the party a right to not attempt to rent another car. To recover damages, a claimant must show that the breach of contract caused foreseeable loss. ''Hadley v Baxendale'' established that the test of foreseeability is both objective or subjective. In other words, is it foreseeable to the objective bystander, or to the contracting parties, who may have special knowledge? On the facts of this case, where a miller lost production because a carrier delayed taking broken mill parts for repair, the court held that no damages were payable since the loss was foreseeable neither by the "reasonable man" nor by the carrier, both of whom would have expected the miller to have a spare part in store.


Specific performance

There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages. For example, where an art collector purchases a rare painting and the vendor refuses to deliver, the collector's damages would be equal to the sum paid. The court may make an order of what is called "specific performance", requiring that the contract be performed. In some circumstances a court will order a party to perform his or her promise (an order of "
specific performance Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, but ...
") or issue an order, known as an "injunction", that a party refrain from doing something that would breach the contract. A specific performance is obtainable for the breach of a contract to sell land or real estate on such grounds that the property has a unique value. In the United States by way of the 13th Amendment to the United States Constitution, specific performance in personal service contracts is only legal "''as punishment for a crime whereof the party shall have been duly convicted''". Both an order for specific performance and an injunction are discretionary remedies, originating for the most part in Equity (law), equity. Neither is available as of right and in most jurisdictions and most circumstances a court will not normally order specific performance. A contract for the sale of real property is a notable exception. In most jurisdictions, the sale of real property is enforceable by specific performance. Even in this case the defenses to an action in equity (such as Laches (equity), laches, the ''bona fide'' purchaser rule, or unclean hands) may act as a bar to specific performance. Related to orders for specific performance, an injunction may be requested when the contract prohibits a certain action. Action for injunction would prohibit the person from performing the act specified in the contract.


History

Whilst early rules of trade and barter have existed since ancient times, modern laws of contract in the West are traceable from the industrial revolution (1750 onwards), when increasing numbers worked in factories for a cash wage. In particular, the growing strength of the British economy and the adaptability and flexibility of the English law, English common law led to a swift development of English contract law. Colonies within the British empire (including the United States, USA and Dominion, the Dominions) would Reception statute, adopt the law of the mother country. In the 20th century, the growth of export trade led to countries adopting international conventions, such as the Hague-Visby Rules and the United Nations Convention on Contracts for the International Sale of Goods, UN Convention on Contracts for the International Sale of Goods, to promote uniform regulations. Contract law is based on the principle expressed in the Latin phrase ''pacta sunt servanda,'' ( "agreements must be kept"). The common law of contract originated with the now-defuct writ of assumpsit, which was originally a tort action based on reliance. Contract law falls within the general
law of obligationsThe law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights and ...
, along with tort,
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make rest ...
, and restitution. Jurisdictions vary in their principles of freedom of contract. In common law jurisdictions such as England and the United States, a high degree of freedom is the norm. For example, in Law of the United States, American law, it was determined in the 1901 case of ''Hurley v. Eddingfield'' that a physician was permitted to deny treatment to a patient despite the lack of other available medical assistance and the patient's subsequent death. This is in contrast to the Civil law (legal system), civil law, which typically applies certain overarching principles to disputes arising out of contract, as in the French Civil Code. Other legal systems such as Islamic law, socialist legal systems, and customary law have their own variations. However, in both the European union and the United States, the need to prevent discrimination has eroded the full extent of freedom of contract. Legislation governing equality, equal pay, racial discrimination, disability discrimination and so on, has imposed limits of the full freedom of contract. For example, the Civil Rights Act of 1964 restricted private racial discrimination against African-Americans. In the early 20th century, the United States underwent the "Lochner era", in which the Supreme Court of the United States struck down economic regulations on the basis of freedom of contract and the Due Process Clause; these decisions were eventually overturned, and the Supreme Court established a deference to legislative statutes and regulations that restrict freedom of contract.Bernstein DE. (2008)
Freedom of Contract
George Mason Law & Economics Research Paper No. 08-51.
The US Constitution contains a Contract Clause, but this has been interpreted as only restricting the retroactive impairment of contracts.


Commercial use

Contracts are widely used in commercial law, and form the legal foundation for transactions across the world. Common examples include contract of sale, contracts for the sale of professional service, services and goods (both wholesale and retail), construction law, construction contracts, Contract of carriage, contracts of carriage, software licenses, employment contracts, insurance policy, insurance policies, sale or lease of land, and various other uses. Although the European Union is fundamentally an economic community with a range of trade rules, there is no overarching "EU Law of Contract". In 1993, Harvey McGregor, a British barrister and academic, produced a "Contract Code" under the auspices of the English and Scottish Law Commissions, which was a proposal to both unify and codify the contract laws of England and Scotland. This document was offered as a possible "Contract Code for Europe", but tensions between English and German jurists meant that this proposal has so far come to naught.


Contract theory

Contract theory is the body of legal theory that addresses normative and conceptual questions in contract law. One of the most important questions asked in contract theory is why contracts are enforced. One prominent answer to this question focuses on the economic benefits of enforcing bargains. Another approach, associated with Charles Fried, maintains that the purpose of contract law is to enforce promises. This theory is developed in Fried's book, ''Contract as Promise.'' Other approaches to contract theory are found in the writings of legal realism, legal realists and critical legal studies theorists. More generally, writers have propounded Marxist and feminist interpretations of contract. Attempts at overarching understandings of the purpose and nature of contract as a phenomenon have been made, notably Relational contract, relational contract theory originally developed by U.S. contracts scholars Ian Roderick Macneil and Stewart Macaulay, building at least in part on the contract theory work of U.S. scholar Lon L. Fuller, while U.S. scholars have been at the forefront of developing economic theories of contract focussing on questions of transaction cost and so-called 'efficient breach' theory. Another dimension of the theoretical debate in contract is its place within, and relationship to a wider
law of obligationsThe law of obligations is one branch of private law under the civil law legal system and so-called "mixed" legal systems. It is the body of rules that organizes and regulates the rights and duties arising between individuals. The specific rights and ...
. Obligations have traditionally been divided into contracts, which are voluntarily undertaken and owed to a specific person or persons, and obligations in tort which are based on the wrongful infliction of harm to certain protected interests, primarily imposed by the law, and typically owed to a wider class of persons. Recently it has been accepted that there is a third category, restitutionary obligations, based on the
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make rest ...
of the defendant at the plaintiff's expense. Contractual liability, reflecting the constitutive function of contract, is generally for failing to make things better (by not rendering the expected performance), liability in tort is generally for action (as opposed to omission) making things worse, and liability in restitution is for unjustly taking or retaining the benefit of the plaintiff's money or work.Beatson, ''Anson's Law of Contract'' (1998) 27th ed. OUP, p.21 The common law describes the circumstances under which the law will recognise the existence of rights, privilege or power arising out of a promise.


Gallery

File:Chinese Slave trade.jpg, A contract from the Tang dynasty that records the purchase of a 15-year-old slave for six bolts of plain silk and five Chinese coins File:Heiratsbrief Gottfried Werner von Zimmern Apollonia von Henneberg 1521 img02.jpg, German marriage contract, 1521 between and Apollonia von Henneberg-Römhild File:Insurance Contact 2.jpg, Thomas Boylston to Thomas Jefferson, May 1786, Maritime Insurance Premiums File:Insurance contract.jpg, Fire insurance contract of 1796


See also

*Arbitration clause *Bill of sale *Conflict of contract laws *Contract awarding *Contract farming *Contract management *Contract of sale *Contract theory (economics) *Wikt:contracting, Contracting at Wiktionary *:Contract clauses, Contractual clauses (category) *Design by contract *Document automation *Electronic signature *Employment contract *Estoppel *Ethical implications in contracts *Force majeure *Further assurances *Gentlemen's agreement *Good faith *Implicit contract theory, Implicit contract *Indenture *Information asymmetry *Invitation to treat *Legal remedy *Letters of assist *Meet-or-release contract *Memorandum of understanding *Negotiation *Option contract *Order (business) *Peppercorn (legal) *Perfect tender rule *Principal–agent problem *Quasi-contract *Restitution *Sharia#Civil cases *Smart contract *Social contract *Specification (technical standard) *
Standard form contract A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a ''boilerplate contract'') is a contract between two parties, where the terms and conditions of the cont ...
*Stipulation *Tortious interference *Unjust enrichment *Voidable contract


By country

*Australian contract law *Law of obligations (Bulgaria) *English contract law *German contract law *Indian contract law *South African contract law *United States contract law


Notes


References

*Ewan McKendrick, ''Contract Law - Text, Cases and Materials'' (2005) Oxford University Press *P.S. Atiyah, ''The Rise and Fall of Freedom of Contract'' (1979) Clarendon Press *Randy E. Barnett, ''Contracts'' (2003) Aspen Publishers


External links


Australian Contract LawUniform Commercial Code ''(United States Contract Law)''Cornell Law School Wex entry on Contract Law

Principles of European Contract Law
*[http://www.lexisnexis.com/lawschool/study/outlines/word/contracts.doc LexisNexis Capsule Summary: Contracts]
International Association of Contract and Commercial Management (IACCM)
{{Authority control Contract law Legal documents