Introduction to Contract Law
JOSHUA KRANE
Normativity/bodies of knowledge can be said to be binarily divided – into that which is non-legal and non-statal and to that which is legal, formal or statal. The legal branch can be said to be divided between public and private law. Contractual obligations, which form as a matter of willingness and voluntariness are like private mini-legal systems, where parties make the law for themselves. The parties then choose who they consort with, the materials that they exchange and at what price.[1]
The vast majority of contracts are unwritten and inferential, as parties may have an ongoing relationship until something changes. Lawyers then translate the informal social exchanges into formal legal categories. This action is very self-interested and result-oriented such that the parties advocate that the rules of law favour one over the other.
Summary – Human Interaction and the Law [Fuller]The study of law tends to focus on the consideration of positive law; however, an understanding of positive law first requires an understanding of normative law (what Fuller calls customary law). Customary law is about basic human interaction in which people relate to each other based on expected patterns of behaviour. Fuller states that ritual provides continuity in customary practices and regulates communication through a visible and unmistakable event. Fuller contends that oftentimes, it is only in the breaching of our customary rules of engagement that we can define the conditions of that engagement at all. – see Macaulay article on the practices of businesspeople
When we consider contract law as brought about by agreement, we can draw parallels to customary law. Standard practice involves recording repetitive dealings in an agreement. The meaning of a contract may also be determined by the practical construction of the contract, whereby the actions of the parties after the deal has been brokered represent the contract’s changing nature. The problem, therefore, is how to translate the patterns of behaviour into legal language. Obligations can be said to be dependent on action, as well as on words, that when patterns of behaviour are broken (even if those patterns occur over a short period of time) one party may seek redress.
Contracts in the Marketplace
The state requires that a minimal condition be satisfied: that materials/services be exchanged, that there is active consideration, that there is acceptance by all parties. Since people often neglect to leave records, the focus must be on establishing whether this minimum for a contract has been achieved. This is a notion of facilitative law (opp. Regulatory law) where we make the laws for ourselves.
- Facilitative Law: In the period between 1850-1950, some legal theorists regard this period as the zenith of contact law, since the state would provide a “blank slate” to allow private parties to make law for themselves.
However, if one party breaches a contract, the aggrieved transactor can ask the state to no longer remain neutral and to enforce the contract. The state allows its to write the terms of the agreement themselves, and will only intervene when called upon. Parties usually organize their matters in a messy pre-legal exchange.
- Private law making suggests that contracts represented wills expressing interest in exchange. “King contract” signifies that this form is the premier form of interpersonal obligation
- The notion of will or choice is free and unregulated if a certain minimum is met. Contracts become the primary means for the distribution of goods/services among citizens. This world view posits that society is composed of autonomous right-breaking persons that can make decisions. The accumulation of choices represents the “invisible hand” that distributes goods.
- The idea of the minimalist state dominates, as it seeks only to preserve order through the criminal justice system. The government delegates responsibility for private law-making to citizens – invest private, wilful lawmakers the capacity to make law. But what options are available in the alternative?
Summary – Freedom of Contract in the Courts [Atiyah]
The model of the market is an early form of contract law in which parties are concerned with their own self-interest, neither party owes anything to the other until the deal is struck, each party must be self-reliant, the agreement must be made voluntarily, content is for the parties to settle, each party must perform or pay the consequences. The court’s function is merely to ensure “fair play”.The rule of law is akin (=) to the rule of the market. Lawyers, like contracts, base their efforts on ensuring that outcomes are resolved in certain and predictable ways. Contract law was deliberately left abstract as to appear “impartial” (13) and less discretionary. Modern contract law eventually challenges the legitimacy of this prerogative.
The state is co-opted to agree to this method of distribution. There was an emphasis on the framework within which individuals bargained, and a retreat from substantive justice or fairness. Contract is primarily an agreement based on the intention of the parties; it is their will which creates legal obligation.
Will theory- If you are totally free and equal, you can bind yourself to do anything you want with no state interference. Freedom and equality means you wouldn’t agree freely to what isn’t in your best interests (basis for classic contract law).
Contracts and the changing nature of the community
The marketplace definition of contracts places all parties on equal footing. However, the evolution of the welfare state has taken the prerogative away from facilitative contract law in certain domains: including health care, education, rental agreements. Somehow, we have chosen to revise contract doctrine to mitigate inequalities of power. We may, as a community, once again choose to submit goods like health care for bid. Today, courts are more willing to investigate parts of contracts to ascertain whether free consent was given.
Contracts are but one way to socially organize. Atiyah recognizes that public interest has often stepped in to “condemn” private agreements that propose monopolies for example.
How did the system of contracts evolve?
Summary – Quebec Civil Law: An Intro to Quebec Private Law [Brierely and MacDonald; Kennedy]The movement toward codification (civil law tradition) or near codification in treatises (common law tradition) reflected the period of professionalization of the legal profession. These highly abstract formulations as to what is the law were derived, in principle, on methods of inductive and deductive reasoning, similarly employed by natural scientists of that era.
Legislators or legal scholars would derive principles by synthesizing a mass of cases/decisions (at the base of the pyramid, which increased in abstractness as one moves up. The courts would then refer to these broad generalizations and use them as the basis for reasoning in a subsequent case.
The idea was that there could be self-contained bodies of legal knowledge derived from this process and that lawyers would own a monopoly over these ideas and of statal knowledge. The notion of “stare decisis” or precedent would ensure relative stability over time: the future would resemble the past.
Brierely and MacDonald explain that the Code is representative of a social constitution as it is an attempt to record the “underlying values of society”. It rationally categorizes the patterns of human relations in the private sphere, as influenced by the history of Lower Canada and the Code Napoleon of France.
Kennedy explains that every person is thought of as having a sphere of influence: a patrimony (noun). A contract provides a person with a means (verb) to exchange what’s inside his patrimony. In terms of contract law, parties in dispute ask the state to apply the law to determine where one person’s patrimony ends, and the other one’s begins. The principles of private law are then applied and presented by lawyers as “objective applications of principle”.
The classical ideal was based on 3 principles: individual autonomy, 2 legitimate sources of liability: fault (intentional/negligent interference with another’s property or person rights) and contract (no duties of care between strangers), fault and free will to contract determinate legal rules defining the boundaries and content of tort and contract duties.
The classical economic model (regime) should have epitomized an ideal, when compared with the state of nature – individuals have the right to engage in free competition with few or no restrictions on their economic behaviour. This vision was modified somewhat, as people were no longer responsible if they were shown to “lack free will” and could not give consent.
The classical regime begins to break down once we introduce more modern concepts that highlight a conflict of moralities, where individualism is not as absolute as once thought. Collective interest, welfare state, regulation influence public policy and judicial decision making. Situations pose moral and not just factual dilemmas. Single concepts cannot simply be used to solve legal problems.
Social Reality’s “Alternatives” to Contract
1. Summary – Managerial Hierarchies [Chandler]
He shifts the focus to the visible hand of managers, which were ultimately preferred in the management of big business. Taylorism (ie. Ford Motor Company) meant that firms comprised multiple branches – businesses that are intergrated, each organized by a middle manager. Contracts were not preferred, only memoranda, because no contracts are needed if companies do not need to contract!Therefore, in response to this activity, the law of contracts was forced to adapt: the terms of the law are so open-ended, returning to [Fuller’s] problem – contracts are contracts when people have customary means of exchanging.
2. Summary – Contract Law Among American Businessmen [Macaulay]
Boiler plate provisions may be included in contracts to protect one party from consequences; however, it is often the case that these provisions or “the fine print” is not read/ignored by one party or another (ie. Like with an airline ticket). Businesspeople may prefer a handshake, trust, informal social control – customary law – which involves little planning and less consideration.Disputes, such as cancellations of orders, are often settled without reference to the contract (47). Legal sanctions therefore, are used if one side deems the other’s propositions unreasonable, but the use may be limited. Why contract if it is not used? Industry custom fills in the gaps (ie. Products are tested first, producers order from multiple suppliers, informal pressure to provide quality product). Contracts may have negative consequences by delaying production to discuss remote contingencies, hamper collegial business relationships.
Contracts are used when the stakes are high: when a default by the seller would hurt the buyer or when a manufacturer wants to remove liability for a product if it is central to the operation of a business (50).
[Atiyah] notes that as the standards of consent became more rigorous in the modern era, so did the burden of expectations for violating a contract. The courts began to recognize not only present loss, but treated future loss as potential for awarding damages [Fuller].
Summary – The Reliance Interest in Contract Damages [Fuller & Purdue]
The language and rhetoric of contract law creates the conditions for the enforcement/application of these measures we create. The consideration that a plaintiff has been “deprived” because of a breach of promise is based on a “willed” desire for relief to be given and not just for the contract to be enforced. Where a plaintiff loses opportunity because of a contract, the rule of avoidable harm is invoked. Expectancy is treated as present value.Fuller and Purdue observe that paradigm changes can also occur at the micro-level. There exists a formula for compensating a breach, but that formula is changing. The traditional rule would require compensation for expectancy, but there are other ways of thinking of injury and inconvenience (more humane, liberal, modern).
One party may adjust his life on the expectation that the other will fulfill his obligations. For example, a franchisee may hire a staff and get training at his expense in anticipation of receiving a franchise. Contracts are often deliberately breached for economic benefit to one party. The injured party need only receive:
- Money to fulfill the expectation
- Money that the market will dictate is acceptable (so items of personal value may not be seen as having market value)
Summary –Been In the Storm So Long: the Aftermath of Slavery [Litwack]
Freemen were urged to sign contracts with their former owners to expedite the process of reconstruction in the American south. Often the conditions remained the same and the emancipated slaves were bonded by contracts, they could neither read nor understand. Black labourers might have replaced overseers; however, freemen were still obliged to work 70-hour weeks with very little compensation.The nature of informed consent comes into question. Freemen were dependent on Whites for food, clothing, medical treatment and money. They were even subject to summary treatment for violating the terms of their contracts.
The language of contract gave legitimacy and meaning to the situation. The very idea that two parties could negotiate the terms of labour masked the gross misrepresentation of the process. The parties were not equal nor did they come to a “meeting of the minds”.
In summary, this course has many common themes:
I. Analysis of modes of distribution, theories of human interaction, and techniques for social ordering. [Atiyah and Kennedy] discuss the changing nature of how people participate in the marketplace.
Justice Binney’s dissent in Amselem focused on the primacy of contract, as opposed to the entrenchment of the freedom of religion. Binney started with freedom of contract; Binnie would relate freedom of contract to principles of right of ownership. Binnie has constitutionalized a common law principle of freedom of contract. Atiyah would understand “king contract” and constitutionalizing common law principles, but Binnie would be found out-of-sync with modern jurisprudence.
The power of the ideology of contract: the construction of the contract of private law - see [Litwack’s discussion of freemen in the South]. In Amselem, freedom of contract was taken as primary, based on the ideology/values of Justice Binnie.
II. Paradigm shifts in legal knowledge. [Mane] contended that people’s rights and duties were incident to their status/role with no room for negotiation. Contracts have empowered negotiators built on conceptions of private autonomy and will. Now, we might contend that we have returned to a society based on status. A person’s status may limit one’s relationship with others. For example, labour legislation defines a relationship between employer and employee that protects the employee from contractual manipulations (ie. Minimum wages limit the freedom of bargaining over wages). Also, a spouse has certain entitlements that define the relationship, not simply the contract of marriage.
Discursive innovation must follow the “winds of cultural change” and judgments will often reflect and push forward (albeit slowly) the shift in paradigms.
III. The limits/irrelevance of state law. [Fuller] and [Macaulay] highlight how arrangements between people sort of ‘happen’ based principally on culture and on repetition. Law makers have attempted to conform the classical model and redesign it to match reality.
IV. Sensitive to the uses of the law. It is important to consider why we focus on the failures of contract, when contracts are successful for the most part. Should we consider that the law (and contract courts) are used for other, more instrumental means, ie. To enhance the power of a certain group in society.
Defining Agreement
Courts are looking for consensus ad idem or a meeting of the minds (Walt Disney Moment). This split second of mutual consent throws the contract into force. But parties do not generally consider how their utterances will translate into legal language.
Invitations to treat or puffing – occurs before the meeting of the minds. The court must determine (based on the lawyers’ arguments) when this discourse turned contract.
Pharmaceutical Soc. Of GBR vs. Boots Cash Chemists Ltd [1953] QB (CA)
Facts:- Legislation stipulated that a pharmacist must supervise the sale of drugs in a store.
Held:The transaction is complete at the register.
Reasoning:
- The contract is not completed until the shopkeeper accepts the offer to pay. The language of the court is limited by the language of contract: of offer and acceptance.
- A person is not bound to purchase something and can replace an item in store for another. This works the same in an auction: auctions would not work if the first offer was accepted. The auctioneer’s offers comprise the “puffing” and the lowest bids are rejected in favour of the highest.
Carlill vs. Carbolic Smoke Ball Co [1893] QB (CA)
Facts:- The plaintiff purchases a Smoke Ball for use in preventing the contraction of influenza. The ball fails to prevent the outbreak and the plaintiff sought to exercise the guranatee provided by the advertisement that a full refund would be issued upon the product’s failure.
- The Smoke Ball Company denied her a refund claiming that the terms of the contract were too vague and that the defendant’s liability was dependant on an event beyond their control, ie. the contraction of the flu.
Held:Yes. It is a unilateral agreement.
Reasoning:
- The advertisement represents an offer to the consumer to try the product. It is a promise that if the conditions in the advertisement are performed, certain guarantees will be met: either the consumer will not get sick or the consumer will receive a refund.
- The defendants benefited from an advantage of sale and in the sale of the product implicitly agreed to the terms of the advertisement.
- A consumer need not notify the vendor that he/she will be partaking in the contract, since this can be inferred from the sale. By completing the performance, Carlill has accepted the offer made by the company.
- Unilateral agreements highly favour one party, but upon completion of the performance stipulation, this represents acceptance of an offer. This form of contract was used by the court to protect Carlill from false or exaggeratory advertising.
There are two types of legally enforceable contracts: