English contract law today is one of the most popular in the world and is widely used even in cases when the parties to the contract do not have geographical connection with Great Britain in the form of office, production factory or contract execution place. This option is caused by high level development of English legal doctrine, as well as effective case law, allowing to anticipate the decision in a case with a significant level of probability. At the same time, due to the peculiarities of the common law system, it is rather difficult to navigate in the intricacies of contract law without special knowledge.
This article is devoted to the most common issues of contract law, including its historical and legal aspects of formation.
If you need legal support in a contract formation under the English law, team of lawyers of our company will provide legal support in the transactions both at the negotiation stage and in drafting the text of the contract according to the law of England. We prepare contracts taking into account case law of England as well as all UK statute law requirements.
English legal system was formed by centuries of case law. The contract as a legally binding promise is also inherently connected to actions filed with the courts of England, namely the action “at covenant” and the action “at debt”. Action at covenant was used in case where a contract was executed in writing and contained a seal. The merit of the case is the demand to the defendant to discharge the obligation set forth in the contract concluded in a required form. Action at debt considered the debtor’s liability not as arising from a promise given to the creditor, but as a material gain without reciprocal compensation. This action may not be initiated without evidence that the defendant received some material benefit from the plaintiff.
It is assumed that action at debt was the ground that later developed into the doctrine of mutual reciprocal obligations (consideration), that is a required element of the contract under English law. This type of action served as the basis for the idea of an informal (simple) contract, for which the content, not the form, is of decisive importance.
In the 16th century, a form of action known as assumpsit (which is translated from Latin as "he has undertaking") arose. According to this form of action, compensation for damages is possible only if the claimant has fully or partially fulfilled his obligation under the contract, thus insuring some compensation to the defendant. Subsequently, the theory of contractual origin as an assumed liability continued in the Slade v Morley case (Slade v Morly [1598] 4 Co Rep 92b, 76 ER 1074), were the judgement was made that each contract itself contains element of the debtor’s undertaking to perform a particular action. Rene David in his work “Major Legal Systems in the World Today” observed that on this day English contract law indeed arose1.
Considering such historical and legal aspects of the formation of the contract law doctrine, as a summary, it is fitted to quote G. Treitel, who states in the monograph “The Law of Contract” the following:
English law does not regard a bare promise or agreement as legally enforceable but recognises only two kinds of contract, the contract made by deed, and the simple contract. A contract made by deed derives its validity neither from the fact of the agreement nor because it is an exchange but solely from the form in which it is expressed. A simple contract as a general rule need not be made in any special form, but requires the presence of consideration which… broadly means that something must be given in exchange for a promise.
Today, the doctrine of English contract law considers four elements required to form a contract:
- offer of the particular conditions;
- acceptance of this offer without changes;
- consideration;
- an intention of parties to enter into the legally binding agreement without duress or misrepresentation which was essential for decision of a party to enter a contract.
Let us consider how the English courts consider each element of the contract. The formal approach to an offer and an acceptance is that the contract is deemed concluded if the offer is reflected by the unconditional and unambiguous acceptance of its terms in the form of an acceptance. At the same time, answering the question whether the offer was made and accepted, the courts proceed from the assumption what an ordinary reasonable person would assume. The courts avoid recognizing contracts as concluded, even if there is a formal offer and acceptance, but objective agreement is unlikely to exist.
In the case Raffles v Weichlhaus (Raffles v. Wichelhaus & Anor [1864] EWHC Exch J19) Raffles believed that he was selling cotton aboard the ship “The Peerless”, which was planned to arrive in Liverpool from Bombay in December, but Weichlhaus thought he was buying cotton aboard the ship "The Peerless", which whould arrive in the port of Liverpool in September. The court decided that a “consensus ad idem” (Latin: “agreement with the same”) was never reached between the parties, and thus there was no legally binding contract. Judge Tom Denning at his time declared that English law should move away from tight binding to an offer and acceptance in favor of a broader rule that the parties should come to a substantial agreement on important provisions of the contract.
Thus, answering the question about the existence of a contract, the common law doctrine is not limited to the formal search for an offer, confirmed by acceptance, but goes deeply, analyzing the essence of the parties' agreements.
Consideration as an element of a contract in simple words can be described as “something that has value in the eyes of the law,” as a benefit to another person or detriment incurred. Figuratively speaking, this is “the price for which a promise is purchased under a contract.” According to the old rule, if one party simply promises to discharge for a high price an obligation that it had already undertaken, in this case there is no contract. The new approach, announced by the Court of Appeal, is that it is ready to construe the fact of performing essential obligations, by which the party had already been bounded, as providing consideration for a new transaction, under the condition that the practical benefit from this for the other party is confirmed. In the case of Williams v Roffey Brothers & Nicholls (Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1989] EWCA Civ 5), the builders promised the Williams carpenter more money to finish his work on the date previously agreed by the contract. The court found that since the construction company would thus prevent the situation with the delay in performing obligations under its own contract, as well as paying penalties (and, potentially, the court proceedings), the decision to pay more money is reasonable and this is enough to answer positively to the question about the presence of consideration in this case.
As we can see, the law contract doctrine is subject to constant changes that reflect the ever-changing business reality and affords more flexibility for the parties to the contract.
In terms of the parties intention to enter into a legally binding agreement, there are two tools that are used in combination to help the courts decide whether the intention existed: the objective test and the rebuttable presumption. The objectivity test implies the answer to the question whether a reasonable bystander would consider that the parties had the intention to assume obligations. This is more revealing than asking the party whether it had the intention to enter into a contract, since in such a situation the unscrupulous party has the opportunity to respond based on its subjective position: “No! I had no intention of considering myself to be bound by an obligation”.
The test of a rebuttable presumption is applied as some initial position, which, however, can be challenged by the other party. These presumptions are as follows:
- Commercial agreements: a presumption that a VALID contract exist
- Agreements between family members: a presumption that a contract DOES NOT exist
- Agreements between friends and other social contracts: a presumption is not used at all. Instead, each case is decided on its merits and the objective test is applied
- Collective agreements: a presumption that a contract DOES NOT exist
The English legal system, formed by centuries of judicial practice and continues to evolve nowdays. The development of contract law doctrine, supported by the flexibility of courts in making decisions and their ability to respond promptly to changing conditions, are the features that help to protect the interests of the parties in an efficient manner. It is therefore not surprising that businesses from different jurisdictions make their choice in favor of the laws of England, as their choice of law. At the same time, it is rather difficult to apply English law without special deep knowledge in this area, since it differs significantly from the civil law system. We support this global trend of using English contract law and are ready to offer our services in formation of contracts under the UK law.
