22. Breach of Contract and Termination

This chapter begins with a definition of ‘breach of contract’ and then outlines the circumstances in which a breach of contract gives to the innocent party a right to terminate further performance of the contract. These include breach of a condition and breach of an intermediate term where the consequences of the breach are sufficiently serious. The chapter also considers the problems that can arise in deciding the status of a term which has not been classified by the parties as a condition, a warranty, or an intermediate term. It examines termination clauses and the significance attached to the good faith of the party who is alleged to have repudiated the contract. The chapter includes a brief comparison of English law with the Vienna Convention and with the Principles of European Contract Law, and also addresses the question of whether an innocent party is obligated to exercise its right to terminate further performance of the contract, and considers the loss of the right to terminate. It concludes with a discussion of the law of anticipatory breach of contract.

13. Exclusion Clauses

This chapter discusses one particular type of boilerplate clause, namely the exclusion or limitation clause. The chapter examines the role and function of exclusion and limitation clauses in modern commercial contracts. In order to perform its function an exclusion or limitation clause must (i) be validly incorporated into the contract; (ii) cover the loss that has been suffered; and (iii) survive scrutiny under the Unfair Contract Terms Act 1977. Difficult interpretative issues can arise where one party seeks to exclude liability in respect of its own negligence or exclude liability for fundamental breach. The Unfair Contract Terms Act 1977 applies a reasonableness test to a number of exclusion or limitation clauses.

11. The Interpretation of Contracts

This chapter focuses on the principles applied by the courts when interpreting contracts, as set out by the House of Lords in Investors Compensation Scheme Ltd v. West Bromwich Building Society and the Supreme Court in Arnold v. Britton and Wood v. Capita Insurance Services Ltd. The chapter discusses the scope of these principles (in particular, the ‘factual matrix’, the exclusion of pre-contractual negotiations, the meaning of words, ‘corrective interpretation’, and the balance to be struck between the natural and ordinary meaning of the words and giving to the words a commercial sensible construction.

6. Formalities

Requirements of form (such as writing) are not as important today as they were in the past. As a general rule, contracts can be made in any form and can be proved by any means, although there remain exceptional cases where the law does insist upon requirements of form. This chapter, which considers the reasons for continued reliance upon requirements of form, along with the criticisms levelled against such requirements, begins by explaining why legal systems impose formal requirements upon contracting parties. It then outlines the formal requirements in English contract law, followed by a discussion of the future of formal requirements, noting the distinction between cases where the contract must be made in writing and cases in which contracts must be evidenced in writing.

24. Specific Performance

Specific performance is a remedy which orders the defendant to perform his obligations under the contract. It is an equitable remedy which is available in the discretion of the court. This chapter examines the circumstances in which the courts will make a specific performance order. Particular attention is given to the decision of the House of Lords in Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd [1998] AC 1. It also considers the question whether English law should develop a more liberal approach to the availability of specific performance and recognize the existence of a general right to specific performance.

12. Boilerplate Clauses

This chapter examines some standard clauses found in commercial contracts today (often known as ‘boilerplate clauses’). The focus is on commercial contracts and terms that will, in all probability, have been drafted by lawyers. The discussions cover general clauses, retention of title clauses, price escalation clauses, interest, force majeure clauses, choice of law clauses, arbitration clauses, jurisdiction clauses, hardship clauses, entire agreement clauses, termination clauses, assignment, and exclusion and limitation clauses.

10. Implied Terms

This chapter discusses implied terms. Terms may be implied into contracts from three principal sources: statute, custom, and the courts. Parliament has, on a number of occasions, implied terms into contracts. The precise reason for the implication of the term depends upon the particular statute. It may be to give effect to the presumed intention of the parties; it may be to reduce uncertainty by enacting a default rule out of which the parties can contract if they do not like the term that Parliament has seen fit to imply; or it may be to protect one party to the transaction from the superior bargaining power of the other. Terms can also be implied into contracts by custom where the custom is certain, reasonable, and notorious. Customs and usages are an important source of obligations in commercial contracts. Terms implied by the courts can be divided into two groups, namely terms implied in fact and terms implied in law. A term is implied in fact when it is implied into the contract in order to give effect to what is deemed by the court to be the unexpressed intention of the parties and are implied because they are necessary to make the contract work. Terms implied in law ‘are those terms that are consistently implied into all contracts of a particular type because of the nature of the contract, rather than the supposed intentions of the parties’.

7. Intention to Create Legal Relations

An essential ingredient of a binding contract is that the parties must have had an intention to create legal relations. In other words, they must have had an intention to be bound by the terms of their agreement. This chapter, which examines the doctrine of intention to create legal relations, begins by considering cases involving domestic and social agreements before turning to analyse the role of intention to create legal relations in the commercial environment.

2. Agreement: Objective or Subjective?

This chapter discusses the approach adopted by the courts when seeking to ascertain the intention of the parties to a contract. The general rule is that the existence and content of an agreement are questions that must be answered by reference to the intention of the parties, objectively ascertained. Two leading cases are presented that consider the scope of the objective test, namely Smith v. Hughes (1871) LR 6 QB 597 and Centrovincial Estates plc v. Merchant Investors Assurance Company Ltd [1983] Com LR 158. The discussion then turns to the case where one party attempts to ‘snap up’ an offer which he knew that the offeror did not intend, and the case where one party was at fault in failing to notice that the other party’s offer contained a mistake, or he was himself responsible for inducing that mistake in the other party. The chapter concludes that it is not necessary to resort to a subjective approach in order to explain these cases; they can be analysed in terms consistent with the objective test which is generally applied by the courts.

1. Introduction

This introductory chapter begins by setting out the book’s three principal aims: to provide an exposition of the rules that make up the law of contract, to explore the law of contract in its transactional context, and to explore English contract law from a transnational and comparative perspective. The discussions then turn to the scope of the law of contracts; the growth in the use of standard form contracts and the increasing complexity of the form and the content of modern contracts; transnational contract law; and conflicting policies that underpin the law of contract.