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(p. 3) 1. Introduction 

(p. 3) 1. Introduction
(p. 3) 1. Introduction

Mindy Chen-Wishart

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Subscriber: University of Essex; date: 06 May 2021

‘What is contract law?’

  1. 1.1 What is a contract?

  2. 1.2 What is contract law?

    1. Diagram 1A What does contract law do?

    2. 1.2.1 The questions which contract law addresses

    3. Diagram 1B Overview: legal questions arising in the life of a contract

    4. 1.2.2 Sources of contract law

    5. 1.2.3 Understanding legal reasoning

  3. 1.3 Values reflected in contract law

    1. Diagram 1C Policy tensions shaping contract law

    2. 1.3.1 Freedom and limits on freedom

    3. 1.3.2 Minimal regulation of contracting

    4. 1.3.3 Equality and inequality

    5. 1.3.4 Negotiated/standard form contracts

    6. 1.3.5 Fairness of exchange

    7. 1.3.6 Discrete or relational contracts; self-interested individualism/cooperation, trust, and altruism

    8. 1.3.7 Literal or contextual meaning

    9. 1.3.8 Rules and discretionary standards

    10. 1.3.9 One law or many laws of contract

    11. 1.3.10 Conclusion on the values reflected in contract law

  4. 1.4 Why are contracts enforced?

    1. Diagram 1D Contract theories: why enforce contracts?

    2. 1.4.1 Promise-keeping and will theories

    3. 1.4.2 Reliance theory

    4. 1.4.3 Welfare maximisation

    5. 1.4.4 Promoting distributive justice

    6. 1.4.5 Transfer theory

    7. 1.4.6 Positive autonomy

    8. 1.4.7 Mixed theories

  5. 1.5 How far does contract law reach?

    1. 1.5.1 Family and social arrangements

    2. 1.5.2 Specialist areas: law of contract or law of contracts

    3. 1.5.3 Empirical evidence: contract law in the real world

  6. 1.6 Contract law’s relationship to other branches of private law

    1. 1.6.1 Contract law’s place in private law

    2. Diagram 1E Comparing contract, tort, unjust enrichment and property law

    3. 1.6.2 Applying tort, unjust enrichment, and property law to contractual problems

  7. 1.7 External influences on English contract law

    1. 1.7.1 European law

    2. 1.7.2 International commercial law

    3. 1.7.3 Human rights law

(p. 4) 1.1 What is a contract?

What is a ‘contract’ that contract law applies to? The common law offers no formal definition of a contract; textbooks generally define a contract as an enforceable promise (or agreement).1 We can derive three elements from this:

  1. (i) Promise: the focus here is one-sided. The focus is on the voluntariness and seriousness of the undertaking given by the promisor.

  2. (ii) Agreement: the focus here is bilateral or multi-lateral. We cannot make contracts by ourselves. It is something we do with others by reaching consensus as to our respective rights and liabilities.2

  3. (iii) Recognition by the law: it is the state which provides the legal apparatus to enforce contracts; this enhances the reliability of voluntary exchanges and bridges any gap in trust and sanctions between parties by guaranteeing redress for breach, backed up by the coercive power of the state. While agreements would still be made without legal enforcement, parties would tend to regard each other with suspicion like participants of a hostage swap, and adopt a ‘you first!’ stance. They would have to devise alternative enforcement schemes (think of the Mafia) or bias exchanges towards those that take place instantly, with family or friends or towards persons with a reputation for keeping their promises. Thus, ‘the supportive role of the law helps make contracts outside the framework of ongoing relations much more common’,3 and allows individuals to project their intentions into the future and plan actions that require concrete pre-commitments.

    Moreover, whatever the parties intend, when disputes arise, it is ultimately contract law as applied by the courts that determines:

    • whether, when and what the parties have agreed;

    • whether one party can escape from the contract;

    • how breach should be remedied; and

    • what happens when the contract is silent or uncertain on a disputed matter.

1.2 What is contract law?

‘Promises’ or ‘agreements’ are not ‘ “things” that exist outside the law … [or] physical objects which can be perceived by the senses. They are themselves abstract concepts, just as much as the concept of contract itself’ (Atiyah at 38). Yet, it is contract law as developed and applied by the courts that defines how the practice of making agreements should be conducted; how the contracting game should be played, eg the (p. 5)

Diagram 1A What does contract law do?

Diagram 1A
What does contract law do?

law deems certain conduct, such as signing a document, as showing agreement to be bound by its contents, irrespective of the signer’s knowledge, understanding, or intention in respect of it.

Diagram 1A shows that, although contract law rests on the foundation of the parties’ voluntary assumption of obligations, that is only the starting point. The outcome of cases depends on the process of judicial application of contract law rules or on the parties’ own bargaining in the shadow of the law.

1.2.1 The questions which contract law addresses

Diagram 1B gives an introductory overview of the questions addressed by contract law in the chronological sequence in which they arise in the life of the contract, and reflects the structure of this text. What follows is the briefest of overviews. (p. 6)

Diagram 1B Overview: legal questions arising in the life of a contract

Diagram 1B
Overview: legal questions arising in the life of a contract

Part II of this text deals with contract formation: contract law determines the types of arrangements that will be recognised and supported as contracts. The court first looks for an ‘agreement’ between the parties; contract law:

  1. (i) adopts an objective test of the parties’ intentions;

  2. (ii) adopts the mirror image approach to finding agreement: one party’s offer must be mirrored by the other’s acceptance;

  3. (iii) requires sufficient certainty of agreement; and

  4. (p. 7) (iv) presumes that commercial agreements have, but agreements made with family and friends do not have, the necessary ‘intention to create legal relations’.

As well as agreement, a claimant must satisfy one of the following tests of enforceability to be able to sue on a promise:

  1. (i) ‘consideration’: the claimant has given or promised something in exchange for the defendant’s promise;

  2. (ii) ‘promissory estoppel’: the claimant has relied on the defendant’s promise and it is inequitable for the defendant to renege on it; or

  3. (iii) ‘formalities’: the defendant’s promise has complied with formalities requirements (eg has been signed and witnessed).

Part III deals with privity: who can acquire rights or be subjected to liabilities by a properly made contract (ie who can sue on or be sued under the contract)? The privity rule confines the legal impact of contracts to the contract parties. It seems right that contract parties should not be able to impose burdens on third parties. However, the traditional position that they cannot give third parties the right to enforce a contract made for their benefit is subject to a wide range of common law and statutory exceptions.

Part IV deals with vitiation: when can a party be excused from (get out of) the contract? Contract law contains defeasibility rules determining when arrangements that satisfy the requirements of contract formation will, nevertheless, not receive legal support. Namely, when there is: misrepresentation, mistake, frustration (ie radical change of circumstances), duress, undue influence, unconscionability, an improvident guarantee, incapacity, or illegality or contravention of public policy.

Part V deals with the contents of the contract: what are each party’s respective rights and liabilities under the contract? Contract law breaks this question into smaller ones, namely:

  1. (i) What are the express terms?

  2. (ii) What do these terms mean?

  3. (iii) Are there any implied terms or collateral terms that should be added?

  4. (iv) Are any of the terms invalid and so should be subtracted?

  5. (v) Is the whole contract unenforceable for being illegal or contrary to public policy?

Part VI deals with the remedies for breach; when one party does not perform the contract, what can the law do?

  1. (i) If the parties have explicitly agreed on what should happen on breach, contract law decides whether the agreed remedies are enforceable.

  2. (ii) If they are not or if the parties have not expressly agreed on the remedies, contract law provides a menu of default remedies to the aggrieved claimant who satisfies their requirements, so long as there is no double recovery:

    • termination—the claimant may be allowed to discontinue her own contractual performance;

    • (p. 8) damages—the claimant may be awarded a sum of money designed to put her in the position she would have been in had the contract been performed; and

    • actual performance—the claimant may be able to compel the contract-breaker to perform the contract.

1.2.2 Sources of contract law

The sources of contract law are the common law and legislation. Legislation is readily understandable as statutes and regulations made by Parliament, but the expression ‘common law’ needs more explanation. Broadly, it means judge-made law, which has evolved from a pragmatic case-by-case analysis over time. Its line of reasoning is inductive (ie from the particular case to general principles, although courts are reluctant to give formal recognition to any overarching principles). It contrasts with the legal codes of European continental civilian systems of law, which adopt a deductive style of reasoning (applying general principles to specific cases). It can be said that common law is ‘bottom up’, while civil law is ‘top down’. In 1965, the Law Commission of England, Wales and Scotland announced an ambitious plan to codify contract law. Eight years later, this was abandoned when many disagreements over substance proved irresolvable. The problem is that codes can be either too general (eg a rule that ‘all agreements will be kept’ is useless when applied to specific problems) or too specific (eg requiring all contracts to be evidenced by signed writing is apt to be inflexible and to give rise to many exceptions). As Waddams observes (at [5]):

Human conduct is infinitely variable, and no codifier can foresee every problem that will arise, especially in an area covering so many different kinds of human interaction as contract law. The attempt to impose on a highly developed and developing common law system a code sufficiently specific to implement useful changes and yet not so specific as to set up inflexibilities and anomalies in unforeseen cases proves to be almost impossible.

The expression ‘common law’ includes but can also be used to contrast with equity. Before the late 19th century, there were two separate systems of courts: the courts of law (‘common law courts’), and the courts of equity (‘Chancery’). Every legal system must contain elements of certainty, predictability, and stability on the one hand, and elements of flexibility, fairness, and justice in the individual case, on the other. In English law, these competing sets of values were once institutionalised in these two separate systems of law. This separation remains important in understanding modern contract law. Law is fundamentally a reductionist system in that it selects what is considered relevant from the mass of facts of any particular dispute. In its original role of controlling the activation of proceedings in the (common law) courts, Chancery took increasing account of factors beyond those considered by the common law and so alleviated the rigidities of the common law. Moreover, someone dissatisfied with a result obtained from a court of law could appeal to the Chancellor, the king’s deputy, for discretionary relief on the grounds of natural justice and fairness. Where the rules of common law and equity clash, equity prevails. It was said, disparagingly, of the early Chancery court, that ‘justice varied according to the length of the Chancellor’s foot’. But, just as elements of discretion crept into the common law, (p. 9) so, over time, rules grew up to govern the Chancellor’s discretion, and equity itself became extremely rigid and inflexible.

Principles of fairness and good conscience have cut through the severity of some legal rules. Indeed, these rules may be utterly reversed by their equitable gloss. For example:

  • it is irrelevant at common law that an agreement is harsh or unfair, but courts of equity can set aside unconscionable bargains; and

  • an innocent misrepresentation inducing a contract attracts no relief at common law, but equity can set the contract aside.

The Judicature Act 1875 fused the two courts so that a single court now administers both common law and equity. However, this fusion of the courts did not result in a fusion of the laws; common law remedies were still tied to common law actions and equitable remedies to equitable actions. For example, even after fusion, no damages were available for non-fraudulent misrepresentation and statutory reform was needed to allow this (5.2.3 and 5.3). It seems anomalous for modern courts to restrict their own powers by reference to those of courts abolished over 100 years ago. Rather, modern courts should use the power inherited from both courts to develop appropriate and flexible responses to contractual problems.4

Legislation (or Parliament-made law) is the other source of contract law:

  • Some statutes are codifying; they collect together and restate the common law (including equitable developments in a particular subject) (eg the Sale of Goods Act 1893).

  • Other statutes are reforming; they remedy deficiencies in the common law.5

Reforming statutes free judges from adherence to previously decided cases (‘precedents’), a self-imposed restriction which occasionally inhibits necessary judicial development in response to changing circumstances. Indeed, it is arguable that much legislation would be unnecessary if courts were more prepared to develop the law, rather than abdicate the task to the legislature. As Lord Wilberforce said:6 ‘The law on this topic is judge-made: it has been built up over the years from case to case. It is entirely within this House’s duty, in the course of administering justice, to give the law a new direction in a particular case where, on principle and in reason, it appears right to do so. I cannot accept the suggestion that because a rule is long established only legislation can change it.’ The danger of legislative reform is that it can stifle judicial development by hardening developing rules at an interim stage7 or by curtailing judicial development in related areas.8

Judicial conservatism has necessitated legislation aimed at protecting certain vulnerable groups, such as consumers, employees, and tenants. Such legislation has broadly followed judicial leads and would have been unnecessary if judicial initiatives had (p. 10) been pushed further. Judicial conservatism is also evident in the tendency towards overly narrow interpretations of legislative innovations. Beatson argues persuasively that courts should treat legislative innovations as policy guidance on how to develop related areas of the law on rational and consistent lines.9

1.2.3 Understanding legal reasoning

Contract law is applied by the courts and courts have considerable latitude in determining the outcome of cases. At its most basic, legal rules take the following form:

Rule 1:a+b+c=X


Rule 2:a+b+e=Z

Rule 3:a+b+f=Q

Judicial latitude resides in:

  1. (i) determining the facts (whether a–f are present); and

  2. (ii) selecting which rule to apply (1, 2, or 3); then

  3. (iii) thereby determining the outcome (whether X, Y, Z, or Q).

For example, whether the parties have reached agreement is assessed objectively; it is for the court to say how a reasonable person would interpret the relevant conduct. A contract can be set aside when both parties enter it under a fundamentally mistaken assumption, but it is up to the court to decide whether:

  • both parties were mistaken about a matter;

  • the matter was of fundamental importance; and/or

  • the mistake doctrine applies or a related doctrine such as misrepresentation (mistake induced by the other party’s statement) or undue influence (mistake resulting from the claimant’s unquestioning trust in or dependence on the other party).

The degree of flexibility or indeterminacy in the system is such that a range of fact-findings is possible and a range of rules can be applied without the courts being demonstrably ‘wrong’.

Judicial discretion in the true sense is exercised when courts are required to apply broad standards such as reasonableness, eg courts once said that when circumstances change radically after the contract is made, they look for the parties’ intention to decide whether the contract comes to an end. Absent express agreement, the courts ask what reasonable parties (not what the actual, perhaps unreasonable, parties) would have intended had they considered the matter. As Lord Radcliffe conceded in Davis Contractors v Fareham UDC (1956):

[I]t might seem that the parties have become so far disembodied spirits that their actual persons should be allowed to rest in peace. In their place there rises the figure of (p. 11) the fair and reasonable man. And the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is, and must be, the court itself.

Value judgments may, consciously or unconsciously and unavoidably, affect the particular facts found, the selection of applicable rules and the way in which discretionary standards are applied by the courts. Atiyah observes (at 58) that, although courts present themselves as reasoning forwards in resolving disputes (from the fact-findings and the relevant legal principles to the solution), they in fact often engage in backward reasoning (from the desirable solution to the selection of the most suitable legal principle and the finding of the necessary facts). Where courts reason backwards, the ostensible legal analysis merely justifies, rather than explains, the outcome.

This has led the Critical Legal Studies theorists (CLS)10 to deny that the law is largely scientific and determinate: they point to the coexistence of contradictory norms (each principle can be countered by an opposing principle or numerous ‘exceptions’) and the imprecision of doctrines that fail to dictate a result, aside from the rare ‘easy’ case.11 Mainstream theorists concede the latitude that courts have in ‘hard’ cases, but they regard the CLS view as exaggerated. Judges are not free to decide whatever they like; the answer does not vary according to the length of the Chancellor’s foot or the contents of his breakfast. As Hart observes:12 ‘nothing can eliminate [the] duality of the core of certainty and a penumbra of doubt when we are engaged in bringing particular situations under general rules’. ‘Hard’ cases may often be decided either way and considerations of policy will often be determinative. However, to see legal questions as matters of pure policy, as if there were no authoritative legal context of judgments or statute, goes too far: it would destroy the essence of law and the point of legal education.

CLS theorists concede that legal outcomes are often predictable but only, they say, because the outcomes lean towards reinforcing the existing power structures (the ‘legitimising thesis’). Whatever precise stance one takes on this, it is clear that law is not a value-free enterprise. Rules cannot be mechanically applied. Merely studying contract law rules does not tell us how they will be applied to particular disputes. To understand what is really going on, we must also appreciate the underlying and competing values which influence the courts’ decision-making. This is the approach taken in this book.

1.3 Values reflected in contract law

The discussion here includes some details of substantive contract law rules. The purpose is just to give a sense of the direction of contract law, the issues in play, and the broader context within which contract law operates. You may wish to reread this (p. 12) section after studying the substantive law to help you to: pull together the strands; consider the big questions; and obtain a deeper understanding during revision.

Contract law reflects an uneasy mix of competing values or ‘policies’. It supports the activity of contracting by making transactions legally enforceable to enhance individual freedom. At the same time, contract law places restraints on contracting behaviour, shapes the type of obligations that are created and limits the means by and extent to which parties may enforce their agreement. Thus, contract law both facilitates and regulates the practice of contracting. These functions of contract law can be understood by reference to the classical model of contract law (influential in the late 19th and early 20th centuries), which highlights the facilitative role of contract law, and the shift in emphasis as modern developments incorporate increasing elements of regulation into neo-classical contract law.

During the latter half of the 19th century, a concept of contract developed together with a body of legal doctrine which is now generally referred to as the ‘classical law of contract’. This was ‘invented’ in the sense that it was a synthesis and interpretation of case law into a coherent body of law by treatise writers such as Anson, whose Law of Contract (written for students) was first published in 1879. The major features of this classical model loomed large in the justificatory language (and reasoning) of the courts and were, paradoxically, reinforced by detractors who criticised them as unrealistic, unreflective of modern practices and stifling of desirable developments.13 Classical contract law reflects the dominance of laissez-faire economic attitudes in the 19th century. Its assumption is that personal freedom and wealth creation go hand in hand. The corollaries of this emphasis on freedom of contract are that:

  • the contract parties are sovereign: it is up to them to decide whether, when, and on what terms they wish to contract;

  • the law should impose minimal restrictions: its primary function is simply to give effect to the parties’ agreement;

  • contract law rules should be few, clear, consistent with commercial expectations and apply to all contracts; and

  • a contract should be interpreted within its four corners, without reference to the external context.

These ideals were reinforced by a particular paradigm of contracting in which:

  • there is presumed equality between the parties (aside from infants, lunatics, and, for a time, married women);

  • the contract is negotiated, freely agreed, and therefore fair;

  • the contract is discrete in the sense that its boundaries are clear and performance more or less instantaneous (eg buying petrol or a coffee), and contract parties act only out of self-interest and adopt an adversarial stance.

While this ‘story’ did not hold absolute sway, in that it was minimally tempered by fairness and public policy (eg doctrines such as duress and the rules against penalties (p. 13) and forfeitures could invalidate the whole contract or particular terms), it was the predominant model upon which cases were reasoned.

In very simplified terms, the story of modern or neo-classical contract law is characterised by a move away from these classical values towards doctrines and statutory provisions that regulate the practice of contracting in the interests of fairness and flexibility. The movement is masked because:

  1. (i) the classical law still casts a long shadow in the justificatory language of the courts. The doctrine of precedent means that courts tend to ‘reinterpret’ established legal concepts rather than abandon outmoded legal concepts or adopt new ones;

  2. (ii) particular types of contract that attract greater legal regulation (eg employment, tenancy, or consumer contracts) are usually ignored in discussions of the ‘general’ law of contract; and

  3. (iii) the bulk of cases that actually reach the courts still mirrors those disputes that forged the classical model of contract law (ie large commercial disputes) and they, in turn, reinforce the rules derived from the classical model.

All of these paint a misleading picture of contract as a whole.

The following discussion gives a flavour of the values that must be integrated by contract law. It reveals the, albeit inconsistent and subtle, shift in the balance of values discernible in modern contract law. To assist understanding and exposition, the discussion is presented as pairs of competing ideas and methods of legal reasoning, broadly categorised as classical as opposed to modern (see Diagram 1C). However, contract law has never resided, and does not reside, only at one pole. Its complexity and interest result in large part from the simultaneous presence and interaction of both sets of values; the tension between the individualist and the interventionist strands

Diagram 1C Policy tensions shaping contract law

Diagram 1C
Policy tensions shaping contract law

(p. 14) is the constant theme of contract law; eg in ‘The Ideologies of Contract Law’ (1987) 7 LS 205, Adams and Brownsword argue that the rules and principles of contract law should be interpreted in the light of two ‘ideologies’; ‘Market-Individualism’, which is aimed at facilitating competitive exchange, and ‘Consumer-Welfarism’, which leans towards consumer protection and principles of fairness and reasonableness. How the current law strikes the balance in different circumstances and why is the subject of contract law.

1.3.1 Freedom and limits on freedom

‘Freedom of contract’ demands that parties be free to choose whether, when, and to what they bind themselves via contracts. This enhances freedom by allowing individuals to achieve a wider range of desired outcomes through cooperation than by themselves, or only with their circle of friends and family. The idea that this freedom should not be restricted is characterised as ‘negative’ liberty. Even on this view, and paradoxically, some restrictions on freedom have long been recognised as necessary to preserve freedom. Thus, contract parties are protected from fraud, duress, and other conduct which inappropriately interferes with their exercise of choice. Courts also refuse to enforce agreements that permanently destroy freedom (eg contracts of slavery). But contract law does not support all free choices; it has always refused to enforce contracts that involve perceived gross immorality and criminality.14 In addition, there is an increasing recognition that inequalities in resources, knowledge, and competence can result in oppressive or undesirable outcomes that should not be supported by the law. Thus, Collins (at 29) notes that choices to injure oneself, to sell one’s property at gross undervalue, to enter into economic relations which give others oppressive power over major aspects of one’s well-being and even to harm the environment, do not seem to be valuable choices which the law should support. Therefore, ‘the law can tolerate a considerable range of economic transactions and give the benefit of the doubt to activities which seem of little worth to most people, but the law sets limits to freedom of contract when the choices made do not appear worthwhile on any reckoning’. On this view, the ability to make contracts is not unlimited but is a power to be exercised for worthwhile purposes. This is conceived as ‘positive autonomy’. While the commitment to freedom means that the concept of ‘positive autonomy’ must have a large margin of tolerance, it nevertheless gives greater scope for legal regulation.

1.3.2 Minimal regulation of contracting

The classical model assigns contract law a non-interventionist role, confined to identifying and enforcing the parties’ agreement. The argument runs that, once the rules of the contract ‘game’ (which should themselves be minimalist) have been observed, the courts should respect the outcome as the expression of the parties’ exercise of freedom; if the procedure is fair, the outcome must logically be fair. Thus, contract law’s legitimate sphere of control is traditionally confined to ensuring procedural fairness (in the negotiation process).

(p. 15) However, concern with substantive fairness (the outcomes of negotiation) may be justified in terms of ensuring a broadly acceptable ‘pattern of welfare’ in a liberal society; ready examples include minimum wage legislation and control of exorbitant interest rates in consumer credit contracts. While contract law adopts no systematic response to substantive unfairness, it has taken a piecemeal approach to trouble hotspots where the problem is serious and recurrent (eg in consumer or standard form contracts and with clauses which exclude liability or impose harsh remedies for breach). Moreover, procedural and substantive unfairness overlap: in setting the standard of fair procedure, the law is unavoidably influenced by the fairness of the outcome that is likely to result.

1.3.3 Equality and inequality

Classical contract law is strongly identified with the ideology of equality in the sense that it assumes that everyone is free to choose to enter any kind of transaction to improve her position in life. The corollary is that the distribution of wealth and power in society is said to depend upon one’s merit (ie success in playing the contract game). This contrasts with traditional social orders which determine a person’s welfare by reference to such factors as social status or rank, political power, religion, race, or physical force. This is the meaning of Sir Henry Maine’s famous statement that ‘the movement of the progressive societies has hitherto been a movement from Status to Contract’.15

The reality is that formal equality, in the sense of non-discrimination, does not guarantee substantive equality. Just because no one stops you using the Ritz Hotel does not mean that you can actually use it. Initial inequalities in the distribution of wealth, power, genetic inheritance, and luck will be reflected in the inequality of the outcomes of contracts. In this sense, the same treatment is not necessarily equal treatment, for there is no greater inequality than the equal treatment of unequals. Contract law has given increasing recognition to the need to protect weaker parties. But, since inequality of bargaining power is ubiquitous and a matter of degree, only the most vulnerable parties can be protected from the worst excesses of contractual exploitation.

1.3.4 Negotiated/standard form contracts

The classical paradigm of contract is the arm’s-length individually negotiated exchange. But, the modern reality is the standard form contract, often online, pre-drafted by the stronger party to:

  • maximise protection of its own interests;

  • minimise its own liability to the other party; and

  • avoid legal control.

The stronger party imposes its terms on a ‘take-it-or-leave-it’ basis, with such contracts attracting the label of ‘adhesion contracts’. In combination with monopolies and cartels, there may be no meaningful freedom as to whom one contracts with and (p. 16) on what terms. A feature of the modern law is to restrict the advantages that can be obtained via standard form contracts, especially consumer contracts.

1.3.5 Fairness of exchange

Classical contract law emphasises the subjectivity of values; the idea is that since individuals value things differently, and we want people to be free to do this, it is impossible for courts to assess the fairness of exchanges. A contract freely entered into is fair by definition; courts should not second-guess the parties’ preferences. Moreover, consistent with social Darwinism, the law should not protect parties from grossly unbalanced exchanges that result from foolishness and carelessness, lest it reduces their incentive to be more careful in future.

On the other hand, increasing recognition of contract parties’ unequal bargaining power is coupled with the law’s increasing, albeit piecemeal, legal control over the fairness of the exchange. While modern law tolerates considerable disparity of prices, it is increasingly sceptical of ‘choices’ that amount to extreme negative outcomes for one party.

1.3.6 Discrete or relational contracts; self-interested individualism/cooperation, trust, and altruism

Where an exchange is practically simultaneous (eg buying groceries, petrol or a cup of coffee), parties rarely need the support of contract law. But legal support is necessary where parties enter non-simultaneous or deferred exchanges. Suppose that I commission you to paint a portrait of my father for his birthday:

  • if I pay in advance, you may take the money and run, or demand a higher price once it is too late for me to obtain another in time; but

  • if I only pay on delivery, you are vulnerable to my change of mind or my insistence on paying less since you cannot sell it elsewhere.

Contract law facilitates voluntary exchanges by ensuring the enforceability and security of the original deal.

The classical model of contracting pictures antagonistic individuals entering discrete transactions to further their self-interest. The emphasis is on detachment, self-interest, and the assertion of rights contained in the contract. In contrast, Macneil and others criticise this as unreflective of actual business practice, where more emphasis is given to the relational aspect of contracting,16 in the sense that:

  1. (i) all contracts must be interpreted in the context or ‘social matrix’ in which they are made; and

  2. (ii) many contracts involve long-term or continuing relationships (eg employment and construction contracts, leases, franchises, and commercial agreements for the supply of goods or services over time) which affect the way they should be interpreted. (p. 17) The longer the duration of the contract, the less likely it is that the parties can plan for future contingencies. Rather, they rely on relational norms to fill any gaps in their contract. These are characterised by cooperation, trust, flexibility, altruism, and a willingness to make adjustments in response to changing circumstances. This contrasts with the classical ideal that all the answers to contractual problems can and should be resolved by reference to the parties’ intention at formation, as expressed in their contract. Relationalists argue that contract law should recognise or impose certain duties of cooperation or good faith which are implicit in the particular contractual relationship.

1.3.7 Literal or contextual meaning

Classical contract law focuses on the parties’ intentions as embodied in the contract. Barring exceptional circumstances, factors external to the four corners of the contract are irrelevant (this is the ‘parol evidence rule’). The apparent advantages of this approach are: increasing certainty and predictability; preventing courts from injecting moral or political values into contractual interpretation; and encouraging contract parties to spell out what should happen in future contingencies.

However, absolute certainty is unachievable; not every contingency is foreseeable. Predictability and fidelity to the parties’ intentions are also undermined if courts ignore the social context that gives contractual behaviour meaning and purpose. Modern contract law has taken increasing account of the context in which the contract was made as well as considerations of fairness, for example, when interpreting what contracts mean, gap-filling by implying terms into contracts, and minimising or negating the impact of express terms that contradict the reasonable expectations of the parties.

1.3.8 Rules and discretionary standards

Classical contract law is identified with a preference for clear and certain rules rather than broad and uncertain discretionary standards:

  • Rules ostensibly narrow the judicial inquiry by predetermining what is permissible and what is impermissible, leaving courts to determine factual issues on a finite set of questions.

  • In contrast, standards leave both the specification of what is permissible and the determination of the facts to the court.

In practice, there is no bright line between rules and standards. The supposed gap between them is reduced by the judicial tendency to make standards more certain (more rule-like, by developing subsidiary principles) and as courts exercise more discretion in their interpretation and selection of rules. Rules that require judges to decide in a particular way on the basis of ‘triggering facts’, regardless of the context or equity of the case, are likely to lead to backward reasoning. Qualitative standards, such as reasonableness, fairness, good faith and unconscionability, and structured discretions play an increasing role in modern contract law.

(p. 18) 1.3.9 One law or many laws of contract

Classical contract law was developed in an era when most litigation involved commercial transactions. This common fact situation nurtured the idea of a unified (and so more certain) law of contract applicable to all contracts, irrespective of their context, subject matter, or the nature of the parties. However, such a law was ill-suited to the fair and flexible resolution of non-commercial contractual disputes. The injection of broad standards into contract law opens the way for different types of contracts to be treated differently. Legislation embodies the most significant innovations of modern contract law by hiving off certain types of contracts for specialist treatment (eg consumers and traders, employees and employers, landlords and tenants). These specialist regimes shatter the unity of the law of contract. Their emphasis on avoiding domination and unfairness and encouraging cooperation ‘demand a reconsideration of the fundamental assumptions of the classical model’ (Collins at 38).

1.3.10 Conclusion on the values reflected in contract law

The story of the evolution of contract law is by no means straightforward. Although the tensions are presented as rival clusters of values, current contract law does not coalesce clearly around one cluster. There is much academic debate about whether contract law does or should facilitate individual freedom or defer to broad principles of fairness. However, it is misleading to highlight one at the expense of the other. Indeed, debating which side ‘wins’ or should do is a somewhat futile exercise. Individualist and interventionist principles must share the stage. Contract law is an evolving integration of ideals which is informed by, and which in turn informs, social views about contract’s role in society.

1.4 Why are contracts enforced?

Why does the law recognise some agreements as legally binding but not others? Theories of contract law provide answers by explaining the basis of contractual obligations and, by implication, the main features of contract law. Thus, all contract theories are both descriptive and normative; they tell us what the law is and what it should be. There is an obvious overlap with the contract values or policies just discussed, but contract theories exist at a higher level of generality. A contract theory purports to give the ‘big picture’: it generates relatively open-ended propositions that do not necessarily dictate specific detailed rules or how such rules are applied in particular situations. Moreover, the detailed rules are often compatible with many different theories because ideally each theory offers a different explanation for them. A theory can ‘run out’ of predictive power at the level of practice where specific policies may prove more illuminating.

The limited aim of this section is to give a taste of the range of explanations for contractual obligations and to begin the task of evaluating them. Interested readers are directed to writings on each main theory and synthesis of different contract theories.17 (See also Diagram 1D.) (p. 19)

Diagram 1D Contract theories: why enforce contracts?

Diagram 1D
Contract theories: why enforce contracts?

1.4.1 Promise-keeping and will theories

Broadly speaking, promissory and will theories explain contractual liability in terms of respect for voluntarily assumed obligations and the corresponding voluntarily created rights. Such self-imposed obligations are often contrasted with obligations (eg in tort or unjust enrichment) which are externally imposed by the law. Fried18 famously relies on the morality of promise-keeping to explain contractual liability. The promisor creates a moral obligation by purposefully invoking ‘the convention of promising’ (ie conducting herself in a way that is generally understood as making a promise). Enforcement of such promises enables promisors to ‘determine their own values’; ‘If we declined to take seriously the assumption of an obligation … to that extent we do not take [the promisor] seriously as a person’.

On one level, the promissory and will theories can explain much of contract law, eg:

  1. (i) They are consistent with the justificatory language of the law (the concepts and reasoning used by courts).

  2. (ii) They explain who is affected by the contract. In general, a contract only generates personal rights and liabilities in the contracting parties and not third parties.

  3. (iii) They explain when the parties become bound. Liability attaches from contract formation, even if the claimant has not yet relied on it and would suffer no harm if the contract were not enforced.

  4. (iv) They explain why statements of fact (‘this car runs well’) or of intention (‘I will fix your car’) generate no contractual liability, while promises do (‘I promise this car runs well’; ‘I promise to fix your car’).

  5. (p. 20) (v) They explain why the contents of the contract depend, at least in the first instance, on what the parties have expressly agreed.

  6. (vi) They explain doctrines such as mistake, misrepresentation and duress in terms of a defect in one or both parties’ consent to the contract.

  7. (vii) They explain why courts can compel the performance of the contract.

On the other hand, promissory and will theories attract some criticisms, eg:

  1. (i) They are inconsistent with the objective test of intention, which enforces promises that parties appear to have assumed rather than those that they have actually assumed.

  2. (ii) They cannot explain why the promisee should benefit. Even if the promisor should keep her promise as a matter of self-consistency, they do not explain why the promisee is owed the right to sue for it as a matter of justice. The law could respond in other ways (eg by fining the promise-breaker). To enforce a promise is essentially to compel the promisor to benefit the promisee. Fuller and Perdue famously observed that expectation damages for breach of contract represent a ‘queer kind of compensation’ since they give the promisee something she never had.19 As such, they seem to contradict the foundational principle of modern liberalism, the ‘harm principle’, according to which the state should only interfere with individual liberty to prevent harm to another; mere disappointment is not enough.

  3. (iii) They cannot explain the requirement of consideration, ie why, in general, a party must give something in exchange for the promise to be entitled to enforce it.

  4. (iv) They have difficulty explaining legal control of the contents of contracts. Contract law may render certain unfair terms or even entire contracts unenforceable, or may imply terms into contracts. These may owe more to conformity with an ideal of minimum justice in particular contracts than to the search for the parties’ unexpressed intentions.

  5. (v) They cannot explain why many rules on remedies do not reflect the morality of promise-keeping, eg breach is not punished, there is a distinct reluctance to compel performance, and various doctrines reduce the amount of damages payable on breach so that the claimant is not actually put in the position she would have been in had the contract been performed.

1.4.2 Reliance theory

The essence of the reliance theory20 is that contractual liability arises (and should arise) where:

  • A makes a promise to B, and

  • B suffers loss by relying on it.

(p. 21) Accordingly, contractual obligations are primarily aimed at ensuring that people are not made worse off by relying on others’ reliance-inducing conduct. These are obligations imposed by law because of what people do and not because of what they intend. Accordingly, Atiyah argues that contracts are enforced as admissions of pre-existing obligations arising from reliance suffered or benefits conferred. Since contract law’s primary aim is to negate the harm caused by induced reliance, much of it belongs in the law of tort and unjust enrichment, supplemented by principles of justice and public policy; contract is only treated as a distinct category for historical and pragmatic reasons.

Reliance theories have a number of attractions:

  1. (i) Moral justification: reliance theories are consistent with the ‘harm principle’; the state only interferes with individual liberty (by imposing obligations) to prevent harm to others. In their famous article, ‘The Reliance Interest in Contract Damages’ (1936) 46 Yale LJ 52, Fuller and Perdue compare the relative merits of a contract party’s restitution, reliance, and expectation interests:

    • the restitution interest has the strongest claim to protection because, where A causes B to lose one unit (–1) which is transferred to A (+1), there are two units of injustice to be remedied. On the Aristotelian ideal of corrective justice, aimed at maintaining the equilibrium among members of society, B’s restitution interest is twice as strong as her

    • reliance interest (ie –1 without any corresponding enrichment to A, although reliance can also incorporate unjust enrichment where B’s –1 results in A’s +1),

    • in turn, B’s reliance interest is stronger than her expectation interest; where B’s material position is unchanged (0), non-fulfilment of B’s expectation simply leaves her no ‘worse off’.

    Fuller and Perdue argue that fulfilling expectations passes from the realm of corrective justice to the realm of distributive justice; the law is not just responding to a disturbed status quo but bringing about a new situation.

  2. (ii) Explain the objective test of intentions: the protection of reliance readily explains why courts are not concerned with what a contracting party really (actually or subjectively) intends, but with what a reasonable person would understand her conduct as intending. A party who acts as if she intends to contract when she actually does not is liable because she thereby induces the other party to rely on her apparent intention.

  3. (iii) Explain restraints on unfair conduct: a reliance-based duty is broadly a duty to take reasonable care of the interests of others. This can explain the concept of good faith inherent in a number of contractual doctrines such as unconscionability, undue influence, misrepresentation, and promissory estoppel.

On the other hand, reliance theories are open to criticisms:

  1. (i) Reliance is not of the essence of liability: since people also rely on statements, the reliance theory does not explain why a promise is necessary for contractual liability. The rationalisation that only reliance on a promise is worthy of protection free-rides on the voluntariness rationale, ie your reliance is not my problem, unless I have (p. 22) given a voluntary undertaking; but then the voluntary undertaking becomes the true source of my obligation.

  2. (ii) Does not explain when obligations arise: contractual liability does not depend on reliance; it arises when an exchange is agreed before any acts of reliance on the contract. The exchange element (‘consideration’) can be met by simply promising to do something; the promisor need not actually have done it.

  3. (iii) Failure in explaining remedies: the logical remedy for reliance-based obligations is to negate the loss suffered from relying. However, the remedies for breach of contract are expectation based. They go ‘forwards’ and not ‘backwards’.

  4. (iv) Judicial language: protecting reliance is not what judges say they are doing.

1.4.3 Welfare maximisation

Welfare maximisation theorists see contract law merely as the means to the proper end of maximising total welfare (alternatively ‘happiness’, ‘utility’, or ‘efficiency’). Welfare is broadly defined as encompassing ‘everything that an individual might value—goods and services that the individual can consume, social and environmental amenities, personally held notions of fulfilment, sympathetic feelings for others, and so forth’.21 Contract law is said to promote wealth maximisation by giving parties the incentive to act efficiently and the disincentive to act inefficiently. Something is efficient if its benefits outweigh its costs. Since efficiency theories deploy economic analyses to defend their claims, they are also called ‘economic’ theories of contract law.

The core assumption is that voluntary exchanges in free markets should be supported because, by pursuing self-interest, people make themselves and, by extension, society in general better off. As ‘rational maximisers’ of their own welfare, parties will only give up resources in return for something they regard as more valuable. I will only offer you £10 for your book if I value the book more than the £10; your acceptance shows that you value the £10 over your book. Such exchanges tend to move resources to those who value them the most, and both parties are ‘better off’.

The welfare maximisation or efficiency theory has a number of apparent attractions:

  1. (i) Value neutrality: it offers a theory that claims to be largely objective, determinant, and divorced from politics. Efficiency theories are preferred by those who are fearful that law may be used to destroy autonomy and individuality.

  2. (ii) Explains the value of voluntariness: only if exchanges are voluntary will resources move to higher value users.

  3. (iii) Explains the consideration doctrine: in general, exchanges generate greater efficiency than gratuitous promises.

  4. (iv) Explains vitiating factors: doctrines such as duress, misrepresentation, and mistake are explicable not only in terms of ensuring the voluntariness of consent, but also in terms of countering market imperfections such as imbalances of information which lead to inefficient outcomes.

  5. (p. 23) (v) Explains the legal control of the contents of contracts: contract law implies terms and fills the gaps in the parties’ agreements. This enhances efficiency by releasing parties from the time, cost, and practical impossibility of making a ‘complete’ contract to govern every eventuality. Furthermore, the contents of the gap-fillers are claimed to be efficient because they: express the parties’ genuine but unexpressed intentions; mimic what parties would have agreed had they bargained over the matter with perfect information and without transaction costs; or put the risk of what has happened on the ‘superior risk avoider’ or the ‘superior risk bearer’.

  6. (vi) Explains remedies: one of the great strengths of the economic theory is its explanation of why specific performance is so rarely ordered. The theory of efficient breach says that it may be more efficient for parties not to perform the contract, but to breach it; eg where a third party would pay you more for your performance than I am contracted to do, it may maximise overall wealth to breach and perform for the third party, and pay damages to me so that I am left no worse off. Thus: deliberate breach is not punished; courts rarely compel performance, but instead award money as the primary response to breach; the measure of compensation is the value of the promised performance (this gives the promisor the incentive to perform unless breach is more profitable); and specific performance is only awarded if I cannot get performance elsewhere because it is unique.

Efficiency theories are open to trenchant criticisms:

  1. (i) Difficulties in calculation: one commentator observes:22

    any serious pursuit of efficiency … will often require complex rules. After all, the goals and constraints relevant to a given policy are likely to be numerous, and the legal rules, in order to be efficient, must take account of, and be tailored to, each of them. Accomplishing this may necessitate a system of multi-factored rules, complex defences, complex party structures, sequential burden shifting, and so on.

    Eric Posner famously (because his father, Richard Posner, is the father of law and economics, see Wikipedia) observes that:23

    Economics fails to explain contract law … And economics provides little normative guidance for reforming contract law. Models that have been proposed in the literature either focus on fine aspects of contractual behaviour or make optimal doctrine a function of variables that cannot realistically be observed, measured, or estimated. The models do give a sense of the factors that are at stake when the decisionmaker formulates doctrine, and might give that decisionmaker a sense of the trade-offs involved, but in the absence of information about the magnitude of these trade-offs—and the literature gives no sense of these magnitudes—the decisionmaker is left with little guidance.

  2. (p. 24) (ii) The ‘efficient breach’ theory is questionable:

    • The cost of negotiating around the breach and of reselling the contractual subject matter to third parties is often ignored. As Macneil observes:24

      the whole thrust of the [efficient breach] analysis is breach first, talk afterwards … despite the fact that ‘talking after a breach’ may be one of the most expensive forms of conversation to be found, involving, as it so often does, engaging high-priced lawyers, and gambits like starting litigation, engaging in discovery, and even trying and appealing cases … [these are] uncooperative and—ironically enough—highly inefficient human behaviour.

    • Specific performance is arguably the more efficient remedy since it avoids the costs of often difficult and uncertain calculations of damages.

    • Even if specific performance were widely available, wasteful performance would not happen. Rational parties would negotiate around the remedy so that they share the profits (or savings) from breach rather than allow the contract-breaker total retention.

    • Even if we can identify all the relevant factors in the efficiency equation, it is impossible to attach accurate figures to them.

  3. (iii) Unrealistic assumptions: Efficiency theories are too simplistic in assuming, eg that parties act rationally with the single motivation of maximising their welfare, measured by willingness to pay. This ignores the complexities of human psychology, the irrational aspects of human behaviour and conduct which expresses preferences unrelated to wealth (broadly conceived) such as altruism, relational commitment, and integrity.

  4. (iv) Moral objections:

    • By accepting the starting point of pre-existing wealth distribution and measuring efficiency by reference to willingness to pay, critics argue that such theory favours the rich, eg it assumes that welfare is maximised by allocating a pair of shoes to someone willing to pay £100 for those shoes although she has thousands of other pairs, rather than to the poor person without shoes who can only pay £20.

    • Efficiency theories do not take individual rights seriously,25 eg they rest on the morally repugnant idea that one is free to take another’s right (ie breach a legal duty) so long as one is willing to pay the ‘price’ for it.

    • By refusing to engage with questions of whether preferences are good or bad in terms of the welfare of individuals and of society in general, and whether some ordering or hierarchy of an individual’s preferences is possible or desirable, efficiency theories simply suppress the inescapable balancing between individual freedom, individual welfare, and the interests of society.

  5. (v) Lack of transparency: judges rarely explain what they are doing in terms of promoting overall efficiency.

(p. 25) 1.4.4 Promoting distributive justice

Kronman argues26 that ‘distributive justice not only ought to be taken into account in designing rules for exchange, but must be taken into account if the law of contracts is to have even minimum moral acceptability’. In his view, contracting cannot be understood except as a distributional concept. The notion of individual autonomy, taken by itself, provides no guidance on which of the many forms of advantage-taking in exchange relations should be permitted. While it is generally thought that taxation and welfare are the primary tools for wealth distribution in a liberal society, contract law should also be used when alternatives may be more costly or intrusive.

This explanation of contract law has some advantages:

  1. (i) Moral attractiveness: it places a robust emphasis on equality in liberal democratic societies in its concern with the distribution of resources and opportunities, if not equally, then at the level of some irreducible minimum.27

  2. (ii) Explains vitiating factors such as misrepresentation and duress as legal restraints on the exercise of power, rather than the absence of ‘real’ consent.

  3. (iii) Explains legal controls on substantive unfairness, such as implied terms, the invalidity of certain unfair terms, and the doctrine of unconscionable bargains.

However, a distributive theory of contract encounters enormous criticisms, eg:

  1. (i) Contract law is a poor tool for distributing wealth. Indeed, contracting is a major cause of distributional inequalities.

  2. (ii) Distributive contract law rules (eg increasing quality or reducing the price of goods or services) can be neutralised by the parties changing other contract terms (ie increasing price or reducing quality). Strongly distributive contract rules may make parties more reluctant to contract with the protected group.

1.4.5 Transfer theory

On this theory, contracts are like property.28 The ability to create property rights (to obtain the exclusive use and possession of a thing) and to transfer property rights is a necessary precondition of individual autonomy. A contract right is the present ownership of the right to the promisor’s future performance; it entails the right to exclusive possession of the goods or services promised and is proprietary in character. The wrong of breach of contract consists of depriving the promisee of the thing promised, including its value and use.

(p. 26) This theory is consistent with:

  1. (i) the importance of voluntariness in contracting;

  2. (ii) the ‘harm principle’, because breach is not just failure to benefit, but is interference with what already belongs to, the promisee; and

  3. (iii) the remedies of specific performance and the expectation measure of damages.

The main objections are:

  1. (i) Timing: contractual rights are transferred at formation prior to any later performance, while there is normally no such time lapse between the transfer of property ownership and performance. Benson replies that:29 ‘… most legal systems allow for ownership without physical possession, there can be no objection to contracts transferring ownership without transferring possession. The important issue in both contract and property is consent’;

  2. (ii) Contract rights are personal: they do not give the promisee rights of a proprietary character. Unlike property rights, contract rights confer no priority on the right-holder on the other’s bankruptcy; she can only share in what is left along with the other creditors. Douglas argues that the label of property is not useful in determining the extent of legal protection that contractual rights should receive.30 Instead, it is better to examine the specific characteristics of contractual rights to see whether they can fit within the framework of protection established for the core examples of property, such as physical objects. He concludes that they cannot.

1.4.6 Positive autonomy

Raz31 sees the role of the state as not to hold people to their promises (which is mere legal moralism), but to create the conditions of ‘positive autonomy’: ‘it is the goal of all political action to enable individuals to pursue valid conceptions of the good and to discourage evil or empty ones’. Hence, ‘the autonomy principle … permits and even requires government [ie law] to create and support morally valuable opportunities, and to eliminate or discourage repugnant ones’. To support contract-making is to support people in making worthwhile (positive) choices. It facilitates special relationships with others; special, because contract provides a reason for one party to treat the other’s interests as superior to all others’ interests in relation to the contract’s subject matter. This is distinct from freedom of contract in the negative sense of freedom from coercion or intervention which does not guarantee the exercise of positive autonomy.

Raz32 regards the purpose of contract law as that of protecting ‘both the practice of undertaking voluntary obligations and the individuals who rely on the practice’. (p. 27) Its role is supportive rather than initiating: it reinforces existing norms and practices, thereby increasing confidence in them and extending their use (‘But for the support of the law, contracts between complete strangers would not be as numerous and common as they are’).

Collins’ transformation thesis takes this further, arguing that contract law does and should regulate the practice of contracting to ensure conformity with three ideals of social justice:

  • the avoidance of unjustifiable domination;

  • ensuring the substantive fairness of the exchange; and

  • fostering cooperation.

This theory has the following main attractions:

  1. (i) Consistency with the harm principle: unlike reliance theories which focus solely on harm to the individual, the relevant harm in question here includes institutional harm, ie preventing erosion in or debasement of the practice of contract.

  2. (ii) Explains the objective test of intentions: people are prevented from abusing the practice of contracting by making it appear that they have agreed to obligations when they have not.

  3. (iii) Consistency with contextual interpretation: it explains why courts do and should refer to the social norms which inform the practice of contracting when interpreting contracts, gap-filling incomplete contracts and formulating default rules.

  4. (iv) Explains the vitiating factors: contracts resulting from duress, misrepresentation, undue influence, unconscionability, or fundamental mistake are not the sort of exercises of positive (worthwhile) autonomy that should be supported by the law. To enforce them would debase the practice of contracting.

On this view, the practice of contracting is a collective good that requires steering, channelling, and supplementation. Whilst the positive autonomy theory accords considerable respect to the parties’ self-regulation, it also makes room for the law’s role in regulating contractual practices with a view to controlling the types of relationships established through contract and the distributive consequences.

1.4.7 Mixed theories

Contract theorists do not generally claim total explanatory power for their favoured theory. Given the complexities and competing norms in contract law, they are prepared to concede some limited role to values highlighted by other theories, although not at the level of justifying first principles. The alternative is to say that no single theory can explain all of contract law but that each contributes vital insights into the nature and basis of contract law.33 On this view, contract law does not need to fit (p. 28) neatly or even largely into any slot. It recognises that contract law includes apparent contradictions, is subject to competing norms and various exceptions, and is fragmented by special rules applying to distinct kinds of contracts. This being so, contract law reflects the legal system’s practical compromises over a multiplicity of methods, values, and goals. This should be unsurprising; it would be unrealistic to expect one unified theory to explain every aspect of a body of law which has evolved over hundreds of years in the hands of many individuals. We should be wary of theory’s potential for excessive abstraction, reductionism, and oversimplification, however elegant.

The main criticism of a mixed theory view is that it is a largely ad hoc and unstable mix which is anti-theoretical.34 One response is the ‘vertical integration strategy’ put forward by Kraus,35 according to which different theories have a different role to play within one overall theory. Thus, he argues that while autonomy theories are normatively foundational, they are fundamentally vague, essentially contestable, and not sufficiently fine-grained to determine the many issues that fall within the grey area. They lack the resources to translate the value of autonomy into concrete analysis. Other theories, especially the efficiency theory, might then provide an operational, but subordinate, principle; useful for providing practical answers for questions raised in actual situations.

1.5 How far does contract law reach?

Three factors limit the impact of contract law:

  1. (i) contract law’s reluctance to intervene in family or social arrangements;

  2. (ii) specialist regimes that have replaced general contract law in many important areas; and

  3. (iii) empirical studies which indicate the limited relevance of contract law in ‘real’ life.

1.5.1 Family and social arrangements

Contract law is largely concerned with economic exchange taking place in the market (eg buying and selling, leasing and hiring, employment and services, money-lending and borrowing). It is reluctant to get involved in non-market transactions which take place in a family or social context (eg ‘You cook and I’ll wash up’, ‘I will pay for your rent, car, or education’). This reluctance is expressed in the strong presumption that, even if all the other requirements of an enforceable contract are satisfied, there is no ‘intention to create legal relations’ in such agreements (2.7). (p. 29)

Pause for reflection

The question is how far the state should intervene in the private activities of individuals by state coercion. Two reasons weigh against the ‘contractualisation of social life’:

  1. 1. It may amount to an excessive intrusion into the private lives of citizens. Informal arrangements may be binding in morality or etiquette (to be settled by compromise or informal social sanctions), but they should not be the subject of state coercion.

  2. 2. It may subvert the values of the relationship, eg to see relationships such as those of husband–wife, parent–child, or friend–friend in contractual terms suggest that they can be reduced to measurable obligations. This can inhibit the open-ended and diffuse obligations characteristic of such relationships (eg trust, affection, commitment, and altruism).

1.5.2 Specialist areas: law of contract or law of contracts

In reality, the general law of contract is only applicable to a small portion of contracts actually made because enormous swathes of contracts are subject to specialist statutory regimes (eg contracts involving employment, land, hire purchase, consumer credit, financial services, companies, and sale of goods). Thus, it can be said that we do not have a unified law of contract but a differentiated law of contracts. Contract is not a monolithic phenomenon.

Atiyah questions the significance of general contract law rules which are ‘general only by default, only because they are being superseded by detailed ad hoc rules lacking any principle or by new principles of narrow scope and application’.36 There is truth in this. However, general contract principles remain important as the foundation on which specialist regimes are built. Moreover, specialist regimes emphasise certain values and policies which restrain the fundamental assumptions of classical contract law, eg statutory regimes identify categories of persons warranting special protection (eg consumers, employees, borrowers, and tenants) and aim to promote fairness (eg by specifying mandatory procedures or terms or by employing standards such as reasonableness, fairness, and good faith).

1.5.3 Empirical evidence: contract law in the real world

Studies37 show that, in practice, people do not conform to the paradigm contract party. Even business people often do not:

  • plan or draft agreements carefully;

  • consult lawyers;

  • think in terms of their legal rights;

  • (p. 30) understand the legal ramifications of their contracts; or

  • resort to the law when something goes wrong.

Rather, the importance of establishing and preserving long-term business relationships and good reputations favours flexibility, compromise, and resort to customs or non-legal sanctions, rather than standing on one’s legal rights.

Relational contract theorists argue that classical contract law is unsuitable for regulating most modern business arrangements as it ignores their relational dimension. However:

  • business parties settle their disputes ‘in the shadow of the law’;

  • numerous contract rules and standards do invite courts to analyse the implicit understandings and expectations of its participants;38

  • contract law allows people to choose whether to enter a binding agreement rather than rely on purely informal arrangements, and provides a framework at the planning stage, especially where parties do not know each other or the contractual subject matter is unusual, important, or risky; and

  • contract law helps to resolve disputes when flexibility and compromise run out or relationships break down irretrievably.

1.6 Contract law’s relationship to other branches of private law

Seeing contract law in the context of neighbouring branches of private law:

  1. (i) gives another perspective on the nature and role of contract law; and

  2. (ii) shows when other branches of private law may apply to resolve problems arising in the life of a contract. They may operate to fill perceived gaps in contract law, or take over where contract law naturally leaves off.

The subject is complex and controversial. Again, don’t worry about the details. At this stage, it is enough to get a flavour of the issues that will be more fully explained in the text.

1.6.1 Contract law’s place in private law

Public law is concerned with the relationship between the citizen and the state (eg constitutional, administrative, or criminal law). Private law is concerned with the rights and obligations between citizens generated by their interactions. Contract law is part of private law.

In Diagram 1E:

Row I shows that private law comprises the laws of contract, tort, unjust enrichment, and property. (p. 31)

Diagram 1E Comparing contract, tort, unjust enrichment, and property law

Diagram 1E
Comparing contract, tort, unjust enrichment, and property law

Row II denotes the causative events which generate the different types of liability. Whilst the matter is not free from controversy, the orthodox view is that:

  • contractual obligations are generated by voluntarily undertaking obligations to another who gives a reciprocal voluntary undertaking or performance, or by deed;

  • obligations in tort are generated by other people’s right to be free from certain harms;

  • obligations in unjust enrichment are generated by the receipt of an unjust enrichment at the expense of another; and

  • obligations in property law arise on another’s acquisition of property rights.39

Rows III to VI compare the source and nature of the duty, the rights generated and the nature of the remedy in each branch of private law.

(p. 32) Contract duties are traditionally seen as self-imposed. The duty is, broadly, to do what one has undertaken (ie perform the contract). It follows that the other party is entitled to the performance or its money equivalent (expectation damages).

In contrast, duties in tort, unjust enrichment, and property are generally said to be imposed by the general law. In tort law, the duty is not to cause harm, by engaging in the proscribed conduct with the specified state of mind (whether deliberately, carelessly, or even innocently (ie strict liability)), to another’s physical well-being, property, economic position, or reputation. This points to remedies measured by the claimant’s reliance and aimed at restoring her to the position she would have been in without the wrongful infliction of harm.

Unjust enrichment law rests on the corrective justice of reversing one party’s unjust enrichment at the expense of another. The duty is to return the unjust enrichment and the corresponding remedy is the restitution of benefits received. The classic restitutionary claim arises where you pay me money by mistake. You can seek the return of the sum even if there is no contract between us and I have committed no tort against you.

Property rights include rights in the ‘thing’ itself and in the fruits (profits) of the thing. Correlatively, there is a duty to respect others’ rights in property (eg land, tangible chattels or intangibles such as a debt, shares in a company, or a patent).40 However, it is tort law (including equitable wrongs) which generates the wrongs arising from the infringement of property rights. A myriad of common law and equitable remedies aim to negate the infringement:

  • by ordering return of the ‘thing’ itself;

  • where this is impossible (eg the ‘thing’ has been used up, altered, or sold on) or inappropriate (eg the ‘thing’ has merely been used to generate profits or savings), or where the right was never ‘to’ the thing anyway (eg a right merely for its use), then by declaring trusts, or by awarding monetary relief in the form of damages measured by some combination of the value of the property, the value of the use of the property, or by an account of profits (such monetary awards may equally be said to belong in tort); or

  • by ordering people to take action (or not to take action) calculated to protect the property right.41

Row VII shows that property rights (rights in rem) are potentially enforceable against the whole world.42 In contrast, voluntary undertakings, wrongs, or unjust enrichment (collectively known as the ‘law of obligations’) give rise to personal rights (rights in personam): the right-holder can only enforce them against the specific party with whom their interaction generated the right. Voluntary undertakings, wrongs, and unjust enrichment can give rise to personal or sometimes property rights. (p. 33)

Pause for reflection

This brief overview is a useful starting point but it is, inevitably, an oversimplification. A few caveats should be lodged:

  1. 1. The contrast between ‘self-imposed’ duties (in contract) and duties ‘imposed by the law’ (in tort, unjust enrichment, and property) is false in the sense that all (legal) duties are imposed by the law. People can only impose duties on themselves (eg by making contracts) where that is what the law allows. In this sense, the real contrast is between the different kinds of reasons why the law imposes a duty.43

  2. 2. Tort and property law duties may also arise from voluntary undertakings (ie can be described as self-imposed), eg a tortious duty of care can arise from an ‘assumption of responsibility’ and property rights often arise from voluntary transfers.44

  3. 3. Conversely, contractual liability may arise other than from a voluntary undertaking (eg for breach of implied terms, especially where that liability cannot be excluded). Many features of modern contracting are not fixed by the parties but by the courts and the legislature. Some of these default rules may be modified by the parties to some extent (eg the remedies for breach); others may not be changed at all (eg when contracts are vitiated).

  4. 4. Damages for breach of contract are primarily aimed at fulfilling the expectation created by the contract, but they may, exceptionally, be measured by the claimant’s reliance or restitution interest.

  5. 5. The contrast between contract and tort damages is blurred where reliance damages include loss of opportunity to make an alternative similar contract so that, in practice, they mimic expectation damages.

It is impossible to maintain the bright lines which ostensibly distinguish contract law from the other branches of private law. This is seized upon by those (eg Gilmore and Atiyah)45 who call for the categories to be merged into a unitary law of obligations, reclassified according to the nature of the claimant’s interest sought to be protected. This view is not generally accepted and it is questionable whether it would necessarily represent an improvement. Legal thinking demands some classifications, and a united law of obligations would need to include a category (whether called contract or not) which is concerned with the protection of expectations based on another’s voluntary undertaking of obligations.

Property rights belong in the law of property and personal rights belong in the law of obligations.

(p. 34) 1.6.2 Applying tort, unjust enrichment, and property law to contractual problems

Disputes arising in the life of a contract are not the exclusive preserve of contract law. It is not ‘contract law or nothing’. The laws of tort, unjust enrichment, and property law may also apply, eg:

  • Conduct during contract negotiations which does not result in a contract may still transfer property rights or yield liability in tort or unjust enrichment.

  • Although the general rule of privity is that contracts only create rights and duties between parties to the contract, third parties may have claims under, and be bound by, other branches of private law.

  • While the contractual measure of damages is expectation, a claimant may, in certain circumstances, opt for the reliance measure, the restitutionary measure or even claim the profits made by the contract-breaker from her breach.

1.7 External influences on English contract law

English contract law operates in a world where markets are increasingly international in scope and interdependent in nature. International trade, the rise of instantaneous electronic communications, multinational enterprises, and the creation of free trade blocs such as the European Union, mean that sources of contract law external to domestic law can affect the legal significance of contracts. In fact, English contract law has been hugely influential internationally for three reasons:

  • English law has been spread through its colonial history (hence it is the basis of the law in the United States, Canada, Australia, New Zealand, Hong Kong, and Singapore).

  • England, and specifically the City of London, has historically been a great commercial centre.

  • Parties in a position to dictate the choice of law may opt for English contract law, which is relatively more respectful of the agreement and so more certain, and apparently untrammelled by principles of disclosure, good faith, and fair dealing.

It is unsurprising that English lawyers are unenthusiastic about the creation of European or international contract law to supplement or replace English contract law.

1.7.1 European law

The UK’s membership of the European Union has meant that European law may govern domestic contractual disputes. The Council of the European Union can adopt measures that have as their object ‘the establishment and functioning of the internal market’ (Art 100A Treaty of Rome) with the aim of facilitating the European internal market by reducing the deterrent effect on contracting resulting from variations (p. 35) between the contract laws of Member States. This aim of harmonisation has, to date, borne fruit primarily in the field of consumer protection, eg:46

  • the Consumer Rights Directive (2011/83/EU; implemented by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134));

  • the Unfair Terms in Consumer Contracts Directive (1993/13/EEC; implemented by the Consumer Rights Act 2015, Part II);

  • the Electronic Signatures Directive (1999/93/EC; implemented by the Electronic Communications Act 2000 and the Electronic Signatures Regulations 2002 (SI 2002/318));

  • the E-Commerce Directive (2000/31/EC; implemented by the Electronic Commerce (EC Directive) Regulations 2002 (SI 2002/2013)); and

  • the Unfair Commercial Practices Directive (2005/29/EC, implemented by the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/1277)).

Since 2001, the European Commission has taken steps towards a European Contract Law. The most recent are the European Draft Common Frame of Reference,47 published in 2009; the European Commission’s Green Paper (COM (2010) 348 final), and the Expert Group Feasibility Study, published in 2011. A range of options were debated; among them, from the least to the most assertive models, were:

  • a ‘non-binding instrument, aimed at improving the consistency and quality of EU legislation’; this is a set of model rules that does not have the force of the law;

  • a non-binding ‘toolbox’, which the Commission and Member States can draw from when drafting or reforming national or EU contract law;

  • an ‘optional instrument’ that would exist alongside the national laws of Member States and which contract parties could choose to govern their contract. This would add a layer of complexity to the contract law of any Member State;

  • a Directive setting out the ‘minimum common standards’ for Member States;

  • a Directive setting out a uniform set of rules ‘including mandatory rules affording a high level of protection for weaker parties’ that could replace national laws; and

  • a ‘binding instrument’ setting out an alternative to the existing national law.

On 26 February 2014, the European Parliament voted in favour of introducing an optional Common European Sales Law (CESL). CESL would only apply to cross-border contracts (eg online or phone transactions) if both parties agreed. It covers both business-to-consumer (B2C) and business-to-business (B2B) contracts for the sale of goods and supply of digital content (eg video, audio and digital games), and related service contracts, such as installation, maintenance, and repair. In November 2012, (p. 36) the UK government criticised the ‘fundamental flaws in both the principle and practical operation’ of CESL. In particular, it said:

  • ‘The instrument is: too complex, incomplete in parts (some significant aspects of a contractual relationship are not covered), unworkable for certain types of contract, uncertain, both as to whether a contract is valid and as to the certainty of its terms, and unclear on its applicability, in particular how its provisions interact with other EU law.’

  • The general duty to ‘act in accordance with good faith and fair dealing’ is ‘likely to be abused or lead to protracted disputes’.

  • CESL ‘does not serve in resolving the specific problems that B2B, B2C and digital sectors may have’. In some situations, such as telephone sales, the regime would be ‘unworkable’.

  • Doubts surrounding various provisions and definitions in CESL undermine the certainty that businesses need.

The UK government opposes any form of comprehensive codification. The problems of codification, mentioned earlier (1.2.2), are multiplied when it comes to harmonisation at the European level. Significant differences exist not only at the level of substance but also at the level of legal reasoning. Recall the deductive style of reasoning of civil law systems (top down/general to particular), contrasted with common law’s preference for inductive reasoning (bottom up/case-by-case analysis from which general principles may emerge). Adaptability is facilitated by the common law’s ability to ignore or revive earlier lines of authority. The concern is that the pragmatic and inductive qualities of common law legal reasoning would be stifled by the influence of the formal deductive style of reasoning characteristic of legal systems governed by codes.

Brexit: A majority voted to leave the EU in a national referendum on 23 July 2016. What this means for contract law is still unclear. The question is whether, under any arrangement negotiated between the UK and the EU, the UK is required to retain any EU law (eg as a condition of access to the EU internal market):

  • If so, then EU law and the jurisprudence of the European Court of Justice (ECJ) would continue to play a role in UK contract law.

  • If not, then the UK would have to decide whether it wants to give continuing effect to Acts and Regulations that implement EU Directives, and also how to respond to ECJ jurisprudence and future changes in EU law.

1.7.2 International commercial law

The drive towards harmonisation of contract law goes beyond Europe. The primary mechanism is the production of non-binding statements of principles or model contracts. The UNIDROIT Principles of International Commercial Contracts were drawn up by a team of, mainly, legal academics from all over the world, published in 1994, expanded in 2004 to 185 Articles, and expanded again in 2010 to 211 Articles with accompanying commentary. Contract parties can incorporate these Principles (p. 37) as terms of their contract or as the law applicable to the contract. While the latter is not recognised in national courts, the UNIDROIT Principles play an important role in international commercial arbitration.

There is also a growing number of international standard form contracts on particular subjects that have been widely accepted by contract parties, eg the INCOTERMS (sponsored by the International Chamber of Commerce) on international sales, and the FIDIC (Fédération Internationale des Ingénieurs-Conseils) Conditions of Contract for Works of Civil Engineers for international construction contracts.

Mandatory schemes are more controversial, eg if a country ratifies the United Nations Convention on Contracts for the International Sale of Goods 1988 (also known as the ‘Vienna Sales Convention’ or ‘CISG’), it is applicable to all international sale of goods contracts, unless the parties specifically opt out of it. The Convention has been ratified by over 60 countries including the United States, France, Germany, and China, but not the UK. Supporters of ratification argue that it will reduce the cost of negotiating international sales since parties can simply look to the Convention to govern their agreement. However, uniformity does not necessarily bring certainty: the Convention is the product of many compromises and is likely to receive varying interpretations in different national courts. Moreover, such a ‘code’ will be difficult to amend in response to the changing needs of international trade. The same could be said of any European contract code.

1.7.3 Human rights law

The Human Rights Act 1998 (HRA) incorporates the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 by making Convention rights enforceable in UK domestic law. Section 6(1) makes it ‘unlawful for a public authority to act in a way which is incompatible with a Convention right’. It is therefore clear that the Convention applies to a contract between a public authority and a private party. By virtue of section 3, the HRA also applies to contracts between private parties when legislation must be interpreted; it must be ‘read and given effect in a way which is compatible with Convention rights’. If the legislation cannot be sufficiently ‘read down’, it must be declared to be incompatible with ‘Convention rights’. Beyond that, it is arguable that the court, as a public authority, must act consistently with Convention rights, in the sense that it must observe Convention rights in adjudication between private parties. Thus, eg, enforcement of a contract of slavery would contravene Article 4 of the Convention if it was not already invalid in English law. However, the precise impact of the HRA on domestic contract law is still unclear. Potentially relevant Articles include the following:

  • Article 1 of Protocol 1: the protection of the peaceful enjoyment of possessions—this could invalidate legislation which overrides traders’ contractual rights or retention of property rights in pursuit of consumer protection.

  • Article 6: the right to a fair trial—this may override the current refusal of courts to enforce contracts that are illegal or against public policy, or to grant restitution of benefits conferred under them (see Additional Chapter 2, available on the online (p. 38) resources). The Law Commission recognises48 that by denying enforcement and restitution, the courts are at risk of contravening a claimant’s rights to a fair trial, to the protection of her property (Art 1 of Protocol 1) and to not being punished without due process (Art 7). If so, such contraventions must be justified by the public interest exceptions of the Convention (Shanshal v Al-Kishtaini (2001)).

  • Article 9(2): the right to manifest one’s religion or belief, ‘subject only to such limitations as are prescribed by law and are necessary in a democratic society in the interests of public safety, for the protection of public order, health or morals, or for the protection of the rights and freedoms of others’. In Bull v Hall & Anor (2013), Christian hoteliers refused to let a double-bedded room to two homosexual men in a civil partnership because of their policy to only let such rooms to heterosexual married couples. The Supreme Court held that they contravened regulation 3(1) of the Equality Act (Sexual Orientation) Regulations 2007. The limitation on the hoteliers’ right to manifest their religion was a proportionate means of achieving a legitimate aim—the protection of others’ rights and freedoms.

  • Article 10: the right to freedom of expression and information. In Ashworth v Royal National Theatre (2014), the court refused to grant specific performance or a mandatory injunction to musicians requiring the Royal National Theatre to re-engage them in a production of a play (War Horse) because to do so would interfere with the theatre’s right of artistic freedom under Article 10 of the European Convention on Human Rights 1950 and prevent it from continuing to stage a play in the form which it judged to be artistically preferable.

  • Article 11: the right to freedom of association. This may be used in support of the ideal of freedom of contract and against rules which restrict that freedom.

  • Article 14: prohibition against discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status. This and Article 8(1) (the right to respect for a person’s home and private and family life) were used to interpret provisions of the Rent Act 1977 granting a statutory tenancy to the ‘surviving spouse’ of the original tenant to include a homosexual cohabitee (Ghaidan v Godin-Mendoza (2004)).

Wilson v First County Trust Ltd (No 2) (2003) shows that courts will be slow to use their powers under the Human Rights Act 1998 to undermine modern regulation of contracts in the name of protecting property rights and freedom of contract (and see Jitesh Salat v Mindaugas Barutis (2013)). The case relates to section 127(3) of the Consumer Credit Act 1974, which aims to protect consumers by making a consumer credit agreement unenforceable if the contract is not made in the prescribed form. The Court of Appeal declared this a contravention of Article 1 of Protocol 1 (since the creditor is barred from taking possession of any security in the event of the debtor’s default), and of Article 6 (since the more appropriate response is to give courts the discretion to do justice between the parties in view of the seriousness of the breach (p. 39) and the degree of prejudice to the consumer). However, the House of Lords overturned this because the court had no jurisdiction (the events predated the operation of the Human Rights Act 1998)49 and the relevant provision was not in any case incompatible with Convention rights.

  • There was no breach of Article 1 of Protocol 1 (protection of the peaceful enjoyment of possessions) because, in view of the social problems caused by money-lending transactions and the inequality of bargaining power between borrowers and lenders, Parliament was entitled to decide that the appropriate way of protecting borrowers was to deprive lenders of all rights under the agreement, including the rights to any security, unless the statutory requirements were strictly complied with. It was a proportionate means of achieving the legitimate aim of consumer protection.

  • There was no breach of Article 6 (right to a fair trial) since this is really aimed at procedural bars preventing access to the courts

This chapter in essence

The key areas and core topics in this chapter are summarised in an easy-to-use list, ideal for revision purposes, on the online resources at Links to websites relevant to the topics covered and any updates to the chapter can also be found on the online resources.


  1. 1. ‘Contract law probably works well enough in practice but its theory is in a mess.’ Discuss.

  2. 2. To what extent does contract law enforce promises?

  3. 3. Does contract law interfere too much with contractual freedom?

  4. 4. What problems are caused by the prevalence of standard form contracts?

  5. 5. What values are, and what values should be, promoted by contract law? Illustrate with examples.

For hints on how to answer these questions, please see the online resources at

Key further reading

Adams, J, and Brownsword, R (1987), ‘The Ideologies of Contract Law’, 7 LS 205.’Find this resource:

    Atiyah, P.S. (1986), ‘The Modern Role of Contract Law’ in P S Atiyah (ed), Essays on Contract (OUP).Find this resource:

      Beatson, J, and Friedmann, D (1995), ‘Introduction: From “Classical” to Modern Contract Law’ in J Beatson and D Friedmann (eds), Good Faith and Fault in Contract Law (Clarendon Press) 3.Find this resource:

        Collins, H (2003), The Law of Contract (4th edn, Butterworths) chs 1–2.Find this resource:

          McKendrick, E (1997), ‘English Contract Law: A Rich Past, an Uncertain Future?’, 50 CLP 25.Find this resource:

            Simpson, A.W.B. (1987), A History of the Common Law of Contract (OUP).Find this resource:

              Smith, S (2004), Contract Theory (Clarendon Press).Find this resource:

                Steyn, J (1997), ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’, 113 LQR 433.Find this resource:


                  1 Anson’s at 1 describes contract law ‘as that branch of the law which determines the circumstances in which a promise shall be legally binding on the person making it’. Treitel at 1 states: ‘a contract is an agreement giving rise to obligations which are enforced or recognised by law’. The US Second Restatement of Contracts states: ‘a contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognises as a duty’.

                  2 However, deeds (see 3.3) are enforceable by beneficiaries even if they are ignorant of them when made; thus, agreement is unnecessary.

                  3 J Raz, ‘Promises in Morality and Law’ (1981) Harvard L Rev 916, 934.

                  4 See A S Burrows, ‘We Do This at Common Law and That in Equity’ (2002) 22 OJLS 1.

                  5 Eg the Law Reform (Frustrated Contracts) Act 1943 (ch 7), Misrepresentation Act 1967 (ch 5), and Contracts (Rights of Third Parties) Act 1999 (ch 4).

                  6 Miliangos v George Frank (Textiles) Ltd (1976) 443, 469.

                  7 Eg Law Reform (Frustrated Contracts) Act 1943 on the calculation of restitution (7.6).

                  8 Eg Contracts (Rights of Third Parties) Act 1999 on promisee actions (4.1.3).

                  9 J Beatson, ‘The Role of Statute in the Development of Common Law Doctrine’ (2001) 117 LQR 247.

                  10 See M Kelman, A Guide to Critical Legal Studies (Harvard University Press, 1987).

                  11 J Feinman, ‘Critical Approaches to Contract Law’ [1983] UCLA L Rev 829; C Dalton, ‘An Essay on the Deconstruction of Contract Doctrine’ (1985) 94 Yale LJ 997, 1010–11.

                  12 H L A Hart, The Concept of Law (3rd edn, OUP, 2012) 123.

                  13 Eg M Horwitz, ‘The Historical Foundations of Modern Contract Law’ (1974) 87 Harvard L Rev 917; P S Atiyah, The Rise and Fall of Freedom of Contract (Clarendon Press, 1979); G Gilmore, The Death of Contract (Ohio State University Press, 1974).

                  14 See Additional Chapter 2 on illegality available on the online resources.

                  15 Ancient Law, its Connection with the Early History of Society and its Relation to Modern Ideas (John Murray, 1861; reprinted edn Tucson: University of Arizona Press, 1986) 141.

                  16 I Macneil, ‘Contracts: Adjustments of Long-Term Economic Relations under Classical, Neoclassical and Relational Contract Law’ (1978) 72 NWU L Rev 854.

                  17 See S Smith, Contract Theory (Clarendon Press, 2004) for further sources.

                  18 C Fried, Contract as Promise: The Theory of Contractual Obligation (Harvard University Press, 1981).

                  19 L Fuller and W Perdue, ‘The Reliance Interest in Contract Damages’ (1936) 46 Yale LJ 52, 53.

                  20 See P S Atiyah, The Rise and Fall of the Freedom of Contract (Clarendon Press, 1979); G Gilmore, The Death of Contract (Ohio State University Press, 1974); L Fuller and W Perdue ‘The Reliance Interest in Contract Damages’ (1936) 46 Yale LJ 52, 53.

                  21 L Kaplow and S Shavell, ‘Fairness v Welfare’ (2001) 114 Harvard L Rev 961, 980.

                  22 P Schuck, ‘Legal Complexity: Some Causes, Consequences, and Cures’ (1992) 42 Duke LJ 1, 37.

                  23 E Posner, ‘Economic Analysis of Contract Law after Three Decades: Success or Failure?’ (2003) 112 Yale LJ 829, 880.

                  24 I Macneil, ‘Efficient Breach of Contract: Circles in the Sky’ (1982) 68 Virginia L Rev 947, 968–9.

                  25 R Dworkin, Taking Rights Seriously (Harvard University Press, 1978) 184–205.

                  26 A Kronman, ‘Contract Law and Distributive Justice’ (1980) 89 Yale LJ 472.

                  27 J Rawls, A Theory of Justice (Belknap Press of Harvard University Press, 1971); R Dworkin, Law’s Empire (Belknap Press of Harvard University Press, 1986).

                  28 For a summary of this debate, see P Lee, ‘Inducing Breach of Contract, Conversion and Contract as Property’ (2009) 29 OJLS 511, 513–20. See also OBG v Allan [2007] UKHL 21, [2008] 1 AC 1, [309] (Baroness Hale). For criticism of this view, see eg A Goymour, ‘Conversion of Contractual Rights’ (2011) LMCLQ 67, 68–9.

                  29 P Benson, ‘Abstract Right and the Possibility of a Nondistributive Conception of Contract: Hegel and Contemporary Contract Theory’ (1989) 10 Cardozo L Rev 1077.

                  30 S Douglas, ‘The Scope of Conversion: Property and Contract’ (2011) 74 MLR 329, 335–7.

                  31 J Raz, The Morality of Freedom (OUP, 1986) 369; R Brownsword, ‘Liberalism in the Law of Contract’ (1988) 36 Archives for Philosophy of Law and Social Philosophy 86; S Smith ‘Future Freedom and Freedom of Contract’ (1996) 59 MLR 167.

                  32 J Raz, ‘Promises in Morality and Law’ (1982) 95 Harvard L Rev 916.

                  33 See R Hillman, The Richness of Contract Law: An Analysis and Critique of Contemporary Theories of Contract Law (Kluwer, 1998); S M Waddams, Dimensions of Private Law: Categories and Concepts in Anglo-American Legal Reasoning (Cambridge University Press, 2003).

                  34 J Feinman, ‘The Significance of Contract Theory’ (1990) 58 U Cin L Rev 1283.

                  35 J S Kraus, ‘Reconciling Autonomy and Efficiency in Contract Law: The Vertical Integration Strategy’ (2001) 11 Philosophical Issues 420.

                  36 P S Atiyah, ‘Contracts, Promises and the Law of Obligations’ in P S Atiyah (ed), Essays on Contract (Clarendon Press, 1986) 19.

                  37 Notably S Macaulay, ‘Contract Law and Contract Research (Part II)’ (1968) 20 J Legal Educ 460; H Beale and A Dugdale, ‘Contracts between Businessmen: Planning and the Use of Contractual Remedies’ (1975) 2 Br JL & Soc 45.

                  38 See generally D Campbell, H Collins, and J Wightman, Implicit Dimensions of Contract: Discrete, Relational, and Network Contracts (Hart Publishing, 2003).

                  39 P Birks, Unjust Enrichment (2nd edn, Clarendon Press, 2005) 28–30.

                  40 See F Lawson and B Rudden, The Law of Property (2nd edn, Clarendon Press, 1982).

                  41 Eg a quia timet injunction restraining a trespass or a breach of a restrictive covenant; an eviction order or a mandatory injunction correcting such wrongs ex post; an order replacing a corrupt trustee.

                  42 But they do not generally bind everyone absolutely and always.

                  43 I am grateful to Simon Gardner for this point.

                  44 It is true that, when property rights operate against third parties, they do so without a voluntary undertaking by the latter, but that is a facet of their legal quality as in rem, rather than their mode of creation.

                  45 G Gilmore, The Death of Contract (Ohio State University Press, 1974); P S Atiyah, The Rise and Fall of the Freedom of Contract (Clarendon Press, 1979).

                  46 See H Beale, ‘The ‘Europeanization’ of Contract Law’ in R Halson (ed), Exploring the Boundaries of Contract (Ashgate, 1996).

                  47 Draft Common Frame of Reference. This is largely based on Lando and Beale’s Principles of European Contract Law, published in 2000 under the auspices of the Commission.

                  48 Illegal Transactions: The Effect of Illegality on Contracts and Trusts (Law Com Consultation Paper 154, 1999).

                  49 However, in PW & Co v Milton Gate Investments Ltd (2003), Neuberger J held that the requirements of the Human Rights Act 1998 could be applied to a lease made before the Act came into force so long as it did not impair ‘vested rights’ or ‘otherwise create unfairness’ ([107]–[115]).