Why do we need Contract Law?
It is because our promises should be binding. The law enforces certain types of promises to be binding, especially if there are some forms of exchange.
If you do not give anything back in a promise, it is called a gratuitous promise. It is not usually enforceable in law. However, if it is put in the formal document called a deed, it is an exception.
In the kind of society we live in at present, we make lots of promises which involve exchange. For example, we buy and sell freely, on small scales as well as larger scales. We engage in the construction of larger projects like the construction of railway lines or multi-storied buildings.
However, it is impossible to run a society if promises are not binding. For example, what happens when you order something from a manufacturer and withdraw the order when they are ready to deliver? What happens if the client refuses to pay the contractor after the construction is over?
So, society will run smoothly if the members of the society can rely on promises made to them. The contract law looks after whether the parties to the contract fulfill their contractual promises. If one party defaults, the law tries to compensate the innocent party financially, attempting to put them in the position they would have been in if the contract had been performed as agreed. So, any party who fails to fulfill their obligations cannot simply go away with their breach.
Contract law tries to enforce obligations which the parties have voluntarily assumed.
However, all contracts do not have to be in writing. Even when they are in written form, important points may be left out. Therefore, it is important to find out what the parties agreed.
This was explained in Smith v Hughes (1871).
Smith v Hughes (1871)
In this case, the complainant, Mr. Smith, was a farmer. The defendant, Mr. Hughes, was a racehorse trainer. Mr. Smith brought Mr. Hughes a sample of his oats. After seeing the sample, Mr. Hughes ordered 40-50 quarters of oats from Mr. Smith. The price was 34 shillings per quarter.
Accordingly, to begin with, 16 quarters of oats were sent to Mr. Hughes. When it arrived, Mr. Hughes said that the oats were not the quality what he had thought they were. Since he was a racehorse trainer, he needed old oats. Mr. Hughes said old oats are the type of oats the horses had for their diet. The oats that were brought by Mr. Smith were green. But, it was the same type as the initial sample. However, Mr. Hughes refused to pay Mr. Smith for the delivery and the remaining order.
Mr. Smith argued that Mr. Hughes had breached the terms of the contract as he had not paid for the delivery and future oats to be delivered.
The issue, in this case, was whether the contract could be avoided by Mr. Hughes, as Mr. Smith had not delivered the type of oats he had expected.
It was held that there was a legally acceptable contract between Mr. Smith and Mr. Hughes. Therefore, it would not be avoided. However, there had been no discussion between the parties regarding the delivery of old oats. An objective test revealed that a reasonable person would expect the sale of good quality oats in a similar contract since there was no express discussion of old oats. The sample submitted by Mr. Smith gave Mr. Hughes the chance to inspect the oats.
This is an example of caveat emptor (buyer beware).
‘If, whatever a man’s real intention maybe, he so conducts himself that a reasonable man would believe he was assenting to the terms proposed by the other party, and that another party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.’
In some cases, the basis for this approach is obvious. When you get into a hiring car and tell your destination, it is sensible for the driver to think you are agreeing to pay for the trip. It is not right to tell at the end of the trip that you had no such intention as to pay in your mind, and so you are not obliged to pay. It is true even your behavior might have suggested that.
L’Estrange v F Graucob Ltd (1934)
In this case, it was affirmed that the clauses of a written contract are binding on the signatories, even where a party is unaware of the contract’s full contents.
The claimant, L’Estrange, contracted with the defendant, Graucob to purchase a slot machine for cigarettes.
There was an express clause in the agreement which stated;
“This agreement contains all the terms and conditions under which I agree to purchase the machine specified above and any express or implied condition, statement, or warranty, statutory or otherwise not stated herein is hereby excluded”.
However, when put in to use after the purchase, the machine was found to be faulty. As a result, the claimant brought an action against the defendant. The claimant alleged that the machine breached the Sale of Goods Act by not being of merchantable quality.
The defendant emphasized that the statute was made irrelevant by the inclusion of the express clause mentioned above. Therefore, he was not in breach of the agreement between the parties. The claimant responded saying she had been unaware of the clause because she had not properly read the agreement and therefore it should not apply.
The issue here was whether the clause which excluded all terms not stated in the contract should be deemed effective and binding.
The Court of Appeal determined that the express provisions of the contract were binding. It effectively excluded the relevance of statutory sales provisions. Besides, the fact that the claimant had not properly read the contract did not impact its validity. When signing the contract she consented to be bound by its contents.
This case emphasizes the Court’s respect for the sanctity of contract.
When a person signs a contractual document, he is bound by it, even though he may not have understood or even read it.