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GENERAL LAW OF CONTRACT
Who may Contract.
Almost every person may enter into a contract; and the few exceptions to this rule will be dealt with in this chapter. The ordinary contracts of daily life may be entered into whether persons are under or over 21, or bankrupt; but there are certain business contracts which such persons may either be precluded from entering into, or may not be in a position to enforce if this should become necessary. These are fully explained hereinafter in this chapter, and will not, therefore, be further considered at present.
How Contracts are made.
In everyday business life, practically every act is either the attempt to enter into a contract, or the actual making of one, or the result of and the carrying out of a contract. A, the city clerk who leaves his house in the morning to proceed to business, enters into several contracts before he reaches his office. He tenders a penny and mentions the title of his favourite journal: the newsvendor takes the money and hands him the newspaper. A's first act was the acceptance of an implied offer on the part of the newsvendor to sell his newspapers to all who should be willing to pay the price, and the contract was complete on the acceptance. The handing over of the newspaper and the receipt of the money were acts in fulfilment of the terms of the contract that had been entered into. A then boards an omnibus and tenders a fare to the conductor. Here, again, is the acceptance of an offer implied in the omnibus plying for passengers to be carried, and the boarding of the omnibus is an implied agreement to pay the usual fare, and so on. Very many acts in the daily life of A are thus agreements or contracts, some express, others implied, but all equally binding if fulfilling certain conditions.
Contracts are Agreements.
A contract is essentially an agreement between parties. To constitute an agreement there must be "mutuality of assent,' that is, two minds with the one intention-known as a consensus ad idem so that it is not possible for a man to contract with himself. But, in order that the agreement may be enforceable at law, it must be one that takes a particular form, or is entered into with certain formalities, or that fulfils various other conditions; for a mere agreement is not in itself sufficient to create a contract, there must be the intention to create a legal obligation. It is often stated that a contract is an agreement enforceable at law; but there are many agreements which, while not enforceable at law, are still contracts.
Definition of Contract.
SIR WILLIAM ANSON, in his work on Contracts, defines a contract as "an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more parties to the contract to certain acts or forbearances on the part of the other or others."
As will appear hereafter, however, there are many agreements which are valid contracts but which are not enforceable at law unless they fulfil some certain condition laid down by statute.
If the contract is not entered into under seal, the agreement must be in respect of legal consideration, otherwise no action will succeed; for example, A may promise to give B a book, and fail to do so; but B would have no legal remedy against A for not carrying out his agreement. C may write to D offering to purchase certain articles at a stated price, which offer D accepts, but C then refuses to carry out his agreement. Here D has a legal remedy against C for breach of his agreement. The difference is not far to seek-for if an agreement is not for consideration (b) it must, as stated above, be entered into with certain formalities to make it of binding effect. In the first example there was no consideration for A's promise to B, so that no contract exists because the gratuitous promise was not under seal. In the second instance, the agreement has been entered into by reason of legal consideration and by a definite offer and acceptance (c) and becomes, therefore, a valid and binding contract.
(b) See post, p. 21.
Classification of Contracts.
Contracts may be classified in several ways, the most important being
(1) Contracts of Record.
(2) Specialty Contracts, and
(3) Simple Contracts.
Contracts of Record. These are such as require for proof the production of the record of the Court (d). In modern times the only important instances of contracts of record are judgments and recognizances.
For example, A owes B £50 under a contract of sale and does not pay it. B thereupon sues A in the courts and judgment is given in his favour. The judgment merges the rights under the former contract, and B's rights are now on the new and higher contract-the judgment. Sir William Anson in his Contracts says that the phrase "contract of record" is unfortunate as it suggests that an obligation springs from agreement, whereas really it is imposed upon the parties ab extra, i.e., by outside authority, and has nothing to do with agreement.
Specialty Contracts.-These contracts are usually called deeds and are contracts under seal. Strictly speaking, signing is not necessary, although it is eminently desirable that deeds should be signed. What is necessary is that they should be in writing and "sealed and delivered." Writing" does not necessarily mean by hand; it may be typewritten or printed, and may be on any material of paper or parchment. Nowadays, sealing is a mere formality, the seal as a rule consisting of a wafer or small piece of wax previously affixed to the document. The party who seals touches the wafer with his finger, thereby adopting it as his own seal. Usually he says "I deliver this as my act and deed," and this amounts to "delivery" of the document even though he should retain it in his own possession. But delivery may be either actual or constructive. If he make delivery to some one not a party to the deed, subject to a condition being fulfilled, the document is called an escrow and has no effect until the condition is fulfilled. It is questionable whether delivery subject to a condition to a party to the contract makes the deed an escrow, but it was decided in the case of London Freehold and Leasehold Property Co. v. Suffield (1897) that, where the party was one of several grantees and also solicitor of the grantor and the other grantees, the document may be an escrow if conditionally delivered to him in his character of solicitor. Deeds were formerly distinguished as either indentures or deeds poll
(d) See ante, p. 3.
the first had their edges indented and the others were cut square; but there is now no difference in their legal effect. Deeds are often made in duplicate. Sometimes both parties sign both copies, but often each party signs one copy only. In the latter case each party retains the copy signed by the other party. Such duplicate documents are often referred to as counterparts. Where deeds are executed in counterpart it is not necessary that the full amount of stamp duty be paid on each copy; one copy is marked with the full duty, and the other, if the duty is 5s. or less, with the same amount as the original, but where the duty is over 5s., the counterpart is marked 5s. only. This rule applies to all counterpart documents, whether under seal or not.
The term Covenant is sometimes applied to a contract under seal, as distinct from Agreement, which is loosely used to mean a simple contract, and a mere gratuitous Promise, which is an undertaking not legally enforceable.
Simple Contracts.-These are also called "parol" contracts, and are all those not under seal. They may be in writing, or verbal, or implied-the term "parol" applies to all. If they be merely written and not specialties, they are parol. In many cases writing is not necessary, as often there is a subsisting contract without it, while others may be in writing only because writing is required by statute as a condition precedent to proof of the contract.
Points of difference between Specialty Contracts (deeds) and Simple Contracts.-The differences between specialty contracts and simple contracts are as follows
(1) In the case of specialty contracts no consideration is necessary, except in contracts in restraint of trade (f); but in the absence of consideration specific performance will not be granted in equity.
(2) A contract by deed merges in itself-that is, swallows up or supersedes-a simple contract to the same effect between the same parties.
(3) Statements in simple contracts are presumptive, that is, prima facie, evidence of their truth against the maker. In a deed, however, they are absolutely conclusive in the absence of proof of fraud or duress, or unless the false statement is due to a mistake in respect of which equity would grant relief. This is known as Estoppel by Deed, and no evidence is admitted to deny or explain such statements in a deed, unless there is what is termed a "latent ambiguity." (e) If a person has by words or
(e) See post, p. 55.
conduct induced others to believe in the existence of a certain state of facts, knowing that they might or would act on such belief, he is thereafter prevented from denying the existence of such state of fact. If not in a deed, this is called Estoppel in pais, that is, by conduct.
(4) A right of action under a contract by deed is barred after twenty years (or after twelve on certain contracts with regard to land). Rights under simple contracts are barred after six years. (f)
(5) A deed is more binding on the parties, of more permanent force and more definite in its terms, but a simple contract is more easily and conveniently entered upon, owing to the absence of formality and form requisites, and the avoidance of heavy stamp duties.
Executory and Executed Contracts.-Another classification of contracts is to distinguish between executory and executed contracts. In executory contracts, both parties undertake to do or not to do certain things at some future time. In executed contracts one party performs his part at once. An example of the former would be an agreement to purchase a horse next month; an example of the latter would be to pay for and purchase the horse on the spot leaving delivery until next month.
Express and Implied Contracts.-Yet another classification is into express and implied contracts. The former are those stated verbally or in writing, the latter being those "which reason and justice dictate, and which the law, therefore, presumes that every man undertakes to perform." An example of express contract would be a man's entering a shop and asking to be supplied with a loaf of bread; an implied contract would exist if he entered the shop, took up a bun and commenced eating it. The law would presume his intention of paying for it. Instances of cases where the law will presume the formation of a contract are given under the heading of CONSIDERATION. (g)
Quasi Contracts.-There are also certain cases in which the law imposes an obligation similar to that arising under a contract, although it is not the result of agreement, express or implied. Such are termed Quasi Contracts, e.g., where a debtor, one of several co-debtors, has paid the debt in full, the law imposes an obligation on the part of the others to pay their proportionate share.
Essentials of Contract.
It is essential for a proper understanding of the Law of
(f) See post, p. 68.