CONTRACT (Lat. contractus, from contrahere, to draw together, to bind), the legal term for a bargain or agreement; some writers, following the Indian Contract Act, confine the term to agreements enforceable by law: this, though not yet universally adopted, seems an improvement. Enforcement of good faith in matters of bargain and promise is among the most important functions of legal justice. It might not be too much to say that, next after keeping the peace and securing property against violence and fraud so that business may be possible, it is the most important. Yet we shall find that the importance of contract is developed comparatively late in the history of law. The commonwealth needs elaborate rules about contracts only when it is advanced enough in civilization and trade to have an elaborate system of credit. The Roman law of the empire dealt with contract, indeed, in a fairly adequate manner, though it never had a complete or uniform theory; and the Roman law, as settled by Justinian, appears to have satisfied the Eastern empire long after the Western nations had begun to recast their institutions, and the traders of the Mediterranean had struck out a cosmopolitan body of rules and custom known as the Law Merchant, which claimed acceptance in the name neither of Justinian nor of the Church, but of universal reason. It was amply proved afterwards that the foundations of the Roman system were strong enough to carry the fabric of modern legislation. But the collapse of the Roman power in western Christendom threw society back into chaos, and reduced men's ideas of ordered justice and law to a condition compared with which the earliest Roman law known to us is modern.
In this condition of legal ideas, which it would be absurd to call jurisprudence, the general duty of keeping faith is not recognized except as a matter of religious or social observance. Those who desire to be assured of anything that lies in promise must exact an oath, or a pledge, or personal sureties; and even then the court of their people - in England the Hundred Court in the first instance - will do nothing for them in the first case, and not much in the two latter. Probably the settlement of a blood-feud, with provisions for the payment of the fine by instalments, was the nearest approach to a continuing contract, as we now understand the term, which the experience of Germanic antiquity could furnish. It is also probable that the performance of such undertakings, as it concerned the general peace, was at an early time regarded as material to the commonweal; and that these covenants of peace, rather than the rudimentary selling and bartering of their day, first caused our Germanic ancestors to realize the importance of putting some promises at any rate under public sanction. We have not now to attempt any reconstruction of archaic judgment and justice, or the lack of either, at any period of the darkness and twilight which precede the history of the middle ages. But the history of the law, and even the present form of much law still common to almost all the English-speaking world, can be understood only when we bear in mind that our forefathers did not start from any general conception of the state's duty to enforce private agreements, but, on the contrary, the state's powers and functions in this regard were extended gradually, unsystematically, and by shifts and devices of ingenious suitors and counsel, aided by judges, rather than by any direct provisions of princes and rulers. Money debts, it is true, were recoverable from an early time. But this was not because the debtor had promised to repay the loan; it was because the money was deemed still to belong to the creditor, as if the identical coins were merely in the debtor's custody. The creditor sued to recover money, for centuries after the Norman Conquest, in exactly the same form which he would have used to demand possession of land; the action of debt closely resembled the "real actions," and, like them, might be finally determined by a judicial combat; and down to Blackstone's time the creditor was said to have a property in the debt - property which the debtor had "granted" him. Giving credit, in this way of thinking, is not reliance on the right to call hereafter for an act, the payment of so much current money or its equivalent, to be performed by the debtor, but merely suspension of the immediate right to possess one's own particular money, as the owner of a house let for a term suspends his right to occupy it. This was no road to the modern doctrine of contract, and the passage had to be made another way.
Action for debt
In fact the old action of debt covered part of the ground of contract only by accident. It was really an action to recover any property that was not land; for the remedy of a dispossessed owner of chattels, afterwards known as detinue, was only a slightly varying form of it. If the property claimed was a certain sum of money, it might be due because the defendant had received money on loan, or because he had received goods of which the agreed price remained unpaid; or, in later times at any rate, because he had become liable in some way by judgment, statute or other authority of law, to pay a fine or fixed penalty to the plaintiff. Here the person recovering might be as considerable as the lord of a manor, or as mean as a "common informer"; the principle was the same. In every case outside this last class, that is to say, whenever there was a debt in the popular sense of the word, it had to be shown that the defendant had actually received the money or goods; this value received came to be called quid pro quo - a term unknown, to all appearance, out of England. Nevertheless the foundation of the plaintiff's right was not bargain or promise, but the unjust detention by the defendant of the plaintiff's money or goods.
We are not concerned here to trace the change from the ancient method of proof - oath backed by "good suit," i.e. the oaths of an adequate number of friends and neighbours - through the earlier form of jury trial, in which the jury were supposed to know the truth of their own knowledge, to the modern establishment of facts by testimony brought before a jury who are bound to give their verdict according to the evidence. But there was one mode of proof which, after the Norman Conquest, made a material addition to the substantive law. This was the proof by writing, which means writing authenticated by seal. Proof by writing was admitted under Roman influence, but, once admitted, it acquired the character of being conclusive which belonged to all proof in early Germanic procedure. Oath, ordeal and battle were all final in their results. When the process was started there was no room for discussion. So the sealed writing was final too, and a man could not deny his own deed. We still say that he cannot, but with modern refinements. Thus the deed, being allowed as a solemn and probative document, furnished a means by which a man could bind himself, or rather effectually declare himself bound, to anything not positively forbidden by law. Whoever could afford parchment and the services of a clerk might have the benefit of a "formal contract" in the Roman sense of the term. At this day the form of deed called a bond or "obligation" is, as it stands settled after various experiments, extremely artificial; but it is essentially a solemn admission of liability, though its conclusive stringency has been relaxed by modern legislation and practice in the interest of substantial justice. By this means the performance of all sorts of undertakings, pecuniary and otherwise, could be and was legally secured. Bonds were well known in the 13th century, and from the 14th century onwards were freely used for commercial and other purposes; as for certain limited purposes they still are. The "covenant" of modern draftsmen is a direct promise made by deed; it occurs mainly as incident to conveyances of land. The medieval "covenant," conventio, was, when we first hear of it, practically equivalent to a lease, and never became a common instrument of miscellaneous contracting, though the old books recognize the possibility of turning it to various uses of which there are examples; nor had it any sensible influence on the later development of the law. On the whole, in the old common law one could do a great deal by deed, but very little without deed. The minor bargains of daily life, so far as they involved mutual credit, were left to the jurisdiction of inferior courts, of the Law Merchant, and - last, not least - of the Church.
Popular custom, in all European countries, recognized simpler ways of pledging faith than parchment and seal. A handshake was enough to bind a bargain. Whatever secular law might say, the Church said it was an open sin to break plighted faith; a matter, therefore, for spiritual correction, in other words, for compulsion exercised on the defaulter by the bishop's or the archdeacon's court, armed with the power of excommunication. In this way the ecclesiastical courts acquired much business which was, in fact, as secular as that of a modern county court, with the incident profits. Medieval courts lived by the suitors' fees. What were the king's judges to do? However high they put their claims in the course of the rivalry between Church and Crown, they could not effectually prohibit the bishop or his official from dealing with matters for which the king's court provided no remedy. Continental jurists had seen their way, starting from the Roman system as it was left by Justinian, to reduce its formalities to a vanishing quantity, and expand their jurisdiction to the full breadth of current usage. English judges could not do this in the 15th century, if they could ever have done so. Nor would simplification of the requisites of a deed, such as has now been introduced in many jurisdictions, have been of much use at a time when only a minority even of well-to-do laymen could write with any facility.
There was no principle and no form of action in English law which recognized any general duty of keeping promises. But could not breach of faith by which a party had suffered be treated as some kind of legal wrong? There was a known action of trespass and a known action of deceit, this last of a special kind, mostly for what would now be called abuse of the process of the court; but in the later middle ages it was an admitted remedy for giving a false warranty on a sale of goods. Also there was room for actions "on the case," on facts analogous to those covered by the old writs, though not precisely within their terms. If the king's judges were to capture this important branch of business from the clerical hands which threatened to engross it, the only way was to devise some new form of action on the case. There were signs, moreover, that the court of chancery would not neglect so promising a field if the common law judges left it open.
The mere fact of unfulfilled promise was not enough, in the eyes of medieval English lawyers, to give a handle to the law. But injury caused by reliance on another man's undertaking was different. The special undertaking or "assumption" creates a duty which is broken by fraudulent or incompetent miscarriage in the performance. I profess to be a skilled farrier, and lame your horse. It is no trespass, because you trusted the horse to me; but it is something like a trespass, and very like a deceit. I profess to be a competent builder; you employ me to build a house, and I scamp the work so that the house is not fit to live in. An action on the case was allowed without much difficulty for such defaults. The next step, and a long one, was to provide for total failure to perform. The builder, instead of doing bad work, does nothing at all within the time agreed upon for completing the house. Can it be said that he has done a wrong? At first the judges felt bound to hold that this was going too far; but suitors anxious to have the benefit of the king's justice persevered, and in the course of the 15th century the new form of action, called assumpsit from the statement of the defendant's undertaking on which it was founded, was allowed as a remedy for non-performance as well as for faulty performance. Being an action for damages, and not for a certain amount, it escaped the strict rules of proof which applied to the old action of debt; being in form for a kind of trespass, and thus a privileged appeal to the king to do right for a breach of his peace, it escaped likewise the risk of the defendant clearing himself by oath according to the ancient popular procedure. Hence, as time went on, suitors were emboldened to use "assumpsit" as an alternative for debt, though it had been introduced only for cases where there was no other remedy. By the end of the 16th century they got their way; and it became a settled doctrine that the existence of a debt was enough for the court to presume an undertaking to pay it. The new form of action was made to cover the whole ground of informal contracts, and, by extremely ingenious devices of pleading, developed from the presumption or fiction that a man had promised to pay what he ought, it was extended in time to a great variety of cases where there was in fact no contract at all.
The new system gave no new force to gratuitous promises. For it was assumed, as the foundation of the jurisdiction, that the plaintiff had been induced by the defendant's undertaking, and with the defendant's consent, to alter his position for the worse in some way. He had paid or bound himself to pay money, he had parted with goods, he had spent time in labour, or he had foregone some profit or legal right. If he had not committed himself to anything on the strength of the defendant's promise, he had suffered no damage and had no cause of action. Disappointment of expectations is unpleasant, but it is not of itself damnum in a legal sense. To sum up the effect of this in modern language, the plaintiff must have given value of some kind, more or less, for the defendant's undertaking. This something given by the promisee and accepted by the promisor in return for his undertaking is what we now call the consideration for the promise. In cases where debt would also lie, it coincides with the old requirement of value received (quid pro quo) as a condition of the action of debt being available. But the conception is far wider, for the consideration for a promise need not be anything capable of delivery or possession. It may be money or goods; but it may also be an act or series of acts; further (and this is of the first importance for our modern law), it may itself be a promise to pay money or deliver goods, or to do work, or otherwise to act or not to act in some specified way. Again, it need not be anything which is obviously for the promisor's benefit. His acceptance shows that he set some value on it; but in truth the promisee's burden, and not the promisor's benefit, is material. The last refinement of holding that, when mutual promises are exchanged between parties, each promise is a consideration for the other and makes it binding, was conclusively accepted only in the 17th century. The result was that promises of mere bounty could no more be enforced than before, but any kind of lawful bargain could; and there is no reason to doubt that this was in substance what most men wanted. Ancient popular usage and feeling show little more encouragement than ancient law itself to merely gratuitous alienation or obligations. Also (subject, till quite modern times, to the general rule of common-law procedure that parties could not be their own witnesses, and subject to various modern statutory requirements in various classes of cases) no particular kind of proof was necessary. The necessity of consideration for the validity of simple contracts was unfortunately confused by commentators, almost from the beginning of its history, with the perfectly different rules of the Roman law about nudum pactum, which very few English lawyers took the pains to understand. Hasty comparison of misunderstood Roman law, sometimes in its civil and sometimes in its ecclesiastical form, is answerable for a large proportion of the worst faults in old-fashioned text-books. Doubtless many canonists, probably some common lawyers, and possibly some of the judges of the Renaissance time, supposed that ex nudo pacio non oritur actio was in some way a proposition of universal reason; but it is a long way from this to concluding that the Roman law had any substantial influence on the English.
The doctrine of consideration is in fact peculiar to those jurisdictions where the common law of England is in force, or is the foundation of the received law, or, as in South Africa, has made large encroachments upon it in practice. Substantially similar results are obtained in other modern systems by professing to enforce all deliberate promises, but imposing stricter conditions of proof where the promise is gratuitous.
As obligations embodied in the solemn form of a deed were thereby made enforceable before the doctrine of consideration was known, so they still remain. When a man has by deed declared himself bound, there is no need to look for any bargain, or even to ask whether the other party has assented. This rugged fragment of ancient law remains embedded in our elaborate modern structure. Nevertheless gratuitous promises, even by deed, get only their strict and bare rights. There may be an action upon them, but the powerful remedy of specific performance - often the only one worth having - is denied them. For this is derived from the extraordinary jurisdiction of the chancellor, and the equity administered by the chancellor was not for plaintiffs who could not show substantial merit as well as legal claims. The singular position of promises made by deed is best left out of account in considering the general doctrine of the formation of contracts; and as to interpretation there is no difference. In what follows, therefore, it will be needless, as a rule, to distinguish between "parol" or "simple" contracts, that is, contracts not made by deed, and obligations undertaken by deed.
Promise and offer
From the conception of a promise being valid only when given in return for something accepted in consideration of the promise, it follows that the giving of the promise and of the consideration must be simultaneous. Words of promise uttered before there is a consideration for them can be no more than an offer; and, on the other hand, the obligation declared in words, or inferred from acts and conduct, on the acceptance of a consideration, is fixed at that time, and cannot be varied by subsequent declaration, though such declarations may be material as admissions. It was a long while, however, before this consequence was clearly perceived. In the 18th century it was attempted, and for a time with considerable success, to extend the range of enforceable promises without regard to what the principles of the law would bear, in order to satisfy a sense of natural justice. This movement was checked only within living memory, and traces of it remain in certain apparently anomalous rules which are indeed of little practical importance, but which private writers, at any rate, cannot safely treat as obsolete. However, the question of "past consideration" is too minute and technical to be pursued here. The general result is that a binding contract is regularly constituted by the acceptance of an offer, and at the moment when it is accepted; and, however complicated the transaction may be, there must always, in the theory of English law, be such a moment in every case where a contract is formed. It also follows that an offer before acceptance creates no duty of any kind ("A revocable promise is unknown to our law" - Anson); which is by no means necessarily the case in systems where the English rule of consideration is unknown. The question what amounts to final acceptance of an offer is, on the other hand, a question ultimately depending on common sense, and must be treated on similar lines in all civilized countries where the business of life is carried on in a generally similar way. The rules that an offer is understood to be made only for a reasonable time, according to the nature of the case, and lapses if not accepted in due time; that an expressed revocation of an offer can take effect only if communicated to the other party before he has accepted; that acceptance of an offer must be according to its terms, and a conditional or qualified acceptance is only a new proposal, and the like, may be regarded as standing on general convenience as much as on any technical ground.
Great difficulties have arisen, and in other systems as well as in the English, as to the completion of contracts between persons at a distance. There must be some rule, and yet any rule that can be framed must seem arbitrary in some cases. On the whole the modern doctrine is to some such effect as the following: -
The proposer of a contract can prescribe or authorize any mode, or at least any reasonable mode, of acceptance, and if he specifies none he is deemed to authorize the use of any reasonable mode in common use, and especially the post. Acceptance in words is not always required; an offer may be well accepted by an act clearly referable to the proposed agreement, and constituting the whole or part of the performance asked for - say the despatch of goods in answer to an order by post, or the doing of work bespoken; and it seems that in such cases further communication - unless expressly requested - is not necessary as matter of law, however prudent and desirable it may be. Where a promise and not an act is sought (as where a tradesman writes a letter offering goods for sale on credit), it must be communicated; in the absence of special direction letter post or telegraph may be used; and, further, the acceptor having done his part when his answer is committed to the post. English courts now hold (after much discussion and doubt) that any delay or miscarriage in course of post is at the proposer's risk, so that a man may be bound by an acceptance he never received. It is generally thought - though there is no English decision - that, in conformity with this last rule, a revocation by telegraph of an acceptance already posted would be inoperative. Much more elaborate rules are laid down in some continental codes. It seems doubtful whether their complication achieves any gain of substantial justice worth the price. At first sight it looks easy to solve some of the difficulties by admitting an interval during which one party is bound and the other not. But, apart from the risk of starting fresh problems as hard as the old ones, English principles, as above said, require a contract to be concluded between the parties at one point of time, and any exception to this would have to be justified by very strong grounds of expediency. We have already assumed, but it should be specifically stated, that neither offers nor acceptances are confined to communications made in spoken or written words. Acts or signs may and constantly do signify proposal and assent. One does not in terms request a ferryman to put one across the river. Stepping into the boat is an offer to pay the usual fare for being ferried over, and the ferryman accepts it by putting off. This is a very simple case, but the principle is the same in all cases. Acts fitted to convey to a reasonable man the proposal of an agreement, or the acceptance of a proposal he has made, are as good in law as equivalent express words. The term "implied contract" is current in this connexion, but it is unfortunately ambiguous. It sometimes means a contract concluded by acts, not words, of one or both parties, but still a real agreement; sometimes an obligation imposed by law where there is not any agreement in fact, for which the name "quasi-contract" is more appropriate and now usual.
The obligation of contract is an obligation created and determined by the will of the parties. Herein is the characteristic difference of contract from all other branches of law. The business of the law, therefore, is to give effect so far as possible to the intention of the parties, and all the rules for interpreting contracts go back to this fundamental principle and are controlled by it. Every one knows that its application is not always obvious. Parties often express themselves obscurely; still oftener they leave large parts of their intention unexpressed, or (which for the law is the same thing) have not formed any intention at all as to what is to be done in certain events. But even where the law has to fill up gaps by judicial conjecture, the guiding principle still is, or ought to be, the consideration of what either party has given the other reasonable cause to expect of him. The court aims not at imposing terms on the parties, but at fixing the terms left blank as the parties would or reasonably might have fixed them if all the possibilities had been clearly before their minds. For this purpose resort must be had to various tests: the court may look to the analogy of what the parties have expressly provided in case of other specified events, to the constant or general usage of persons engaged in like business, and, at need, ultimately to the court's own sense of what is just and expedient. All auxiliary rules of this kind are subject to the actual will of the parties, and are applied only for want of sufficient declaration of it by the parties themselves. A rule which can take effect against the judicially known will of the parties is not a rule of construction or interpretation, but a positive rule of law. However artificial some rules of construction may seem, this test will always hold. In modern times the courts have avoided laying down new rules of construction, preferring to keep a free hand and deal with each case on its merits as a whole. It should be observed that the fulfilment of a contract may create a relation between the parties which, once established, is governed by fixed rules of law not variable by the preceding agreement. Marriage is the most conspicuous example of this, and perhaps the only complete one in our modern law.
There are certain rules of evidence which to some extent guide or restrain interpretation. In particular, oral testimony is not allowed to vary the terms of an agreement reduced to writing. This is really in aid of the parties' deliberate intention, for the object of reducing terms to writing is to make them certain. There are apparent exceptions to the rule, of which the most conspicuous is the admission of evidence to show that words were used in a special meaning current in the place or trade in question. But they are reducible, it will be found, to applications (perhaps over-subtle in some cases) of the still more general principles that, before giving legal force to a document, we must know that it is really what it purports to be, and that when we do give effect to it according to its terms we must be sure of what its terms really say. The rules of evidence here spoken of are modern, and have nothing to do with the archaic rule already mentioned as to the effect of a deed.
Every contracting party is bound to perform his promise according to its terms, and in case of any doubt in the sense in which the other party would reasonably understand the promise. Where the performance on one or both sides extends over an appreciable time, continuously or by instalments, questions may arise as to the right of either party to refuse or suspend further performance on the ground of some default on the other side. Attempts to lay down hard and fast rules on such questions are now discouraged, the aim of the courts being to give effect to the true substance and intent of the contract in every case. Nor will the court hold one part of the terms deliberately agreed to more or less material than another in modern business dealings. "In the contracts of merchants time is of the essence," as the Supreme Court of the United States has said in our own day. Certain ancient rules restraining the apparent literal effect of common provisions in mortgages and other instruments were in truth controlling rules of policy. New rules of this kind can be made only by legislation. Whether the parties did or did not in fact intend the obligation of a contract to be subject to unexpressed conditions is, however, a possible and not uncommon question of interpretation. One class of cases giving rise to such questions is that in which performance becomes impossible by some external cause not due to the promisor's own fault; a similar but not identical one is that in which the agreement could be literally performed, and yet the performance would not give the promisor the substance of what he bargained for; as happened in the "coronation cases" arising out of the postponement of the king's coronation in 1902. As to promises obviously absurd or impossible from the first, they are unenforceable only on the ground that the parties cannot have seriously meant to create a liability. For precisely the same reason, supported by the general usage and understanding of mankind, common social engagements, though they often fulfil all other requisites of a contract, have never been treated as binding in law.
In all matters of contract, as we have said, the ascertained will of the parties prevails. But this means a will both lawful and free. Hence there are limits to the force of the general rule, fixed partly by the law of the land, which is above individual will and interests, partly by the need of securing good faith and justice between the parties themselves against fraud or misadventure. Agreements cannot be enforced when their performance would involve an offence against the law. There may be legal offence, it must be remembered, not only in acts commonly recognized as criminal, disloyal or immoral, but in the breach or non-observance of positive regulations made by the legislature, or persons having statutory authority, for a great variety of purposes. It would be useless to give details on the subject here. Again, there are cases where an agreement may be made and performed without offending the law, but on grounds of "public policy" it is not thought right that the performance should be a matter of legal obligation, even if the ordinary conditions of an enforceable contract are satisfied. A man may bet, in private at any rate, if he likes, and pay or receive as the event may be; but for many years the winner has had no right of action against the loser. Unfortunate timidity on the part of the judges, who attempted to draw distinctions instead of saying boldly that they would not entertain actions on wagers of any kind, threw this topic into the domain of legislation; and the laudable desire of parliament to discourage gambling, so far as might be, without attempting impossible prohibitions, has brought the law to a state of ludicrous complexity in both civil and criminal jurisdiction. But what is really important under this doctrine of public policy is the confinement of "contracts in restraint of trade" within special limits. In the middle ages and down to modern times there was a strong feeling - not merely an artificial legal doctrine - against monopolies and everything tending to monopoly. Agreements to keep up prices or not to compete were regarded as criminal. Gradually it was found that some kind of limited security against competition must be allowed if such transactions as the sale of a going concern with its goodwill, or the retirement of partners from a continuing firm, or the employment of confidential servants in matters involving trade secrets, were to be carried on to the satisfaction of the parties. Attempts to lay down fixed rules in these matters were made from time to time, but they were finally discredited by the decision of the House of Lords in the Maxim-Nordenfelt Company's case in 1894. Contracts "in restraint of trade" will now be held valid, provided that they are made for valuable consideration (this even if they are made by deed), and do not go beyond what can be thought reasonable for the protection of the interests concerned, and are not injurious to the public. (The Indian Contract Act, passed in 1872, has unfortunately embodied views now obsolete, and remains unamended.) All that remains of the old rules in England is the necessity of valuable consideration, whatever be the form of the contract, and a strong presumption - but not an absolute rule of law - that an unqualified agreement not to carry on a particular business is not reasonable.
Where there is no reason in the nature of the contract for not enforcing it, the consent of a contracting party may still not be binding on him because not given with due knowledge, or, if he is in a relation of dependence to the other party, with independent judgment. Inducing a man by deceit to enter into a contract may always be treated by the deceived party as a ground for avoiding his obligation, if he does so within a reasonable time after discovering the truth, and, in particular, before any innocent third person has acquired rights for value on the faith of the contract (see Fraud). Coercion would be treated on principle in the same way as fraud, but such cases hardly occur in modern times. There is a kind of moral domination, however, which our courts watch with the utmost jealousy, and repress under the name of "undue influence" when it is used to obtain pecuniary advantage. Persons in a position of legal or practical authority - guardians, confidential advisers, spiritual directors, and the like - must not abuse their authority for selfish ends. They are not forbidden to take benefits from those who depend on them or put their trust in them; but if they do, and the givers repent of their bounty, the whole burden of proof is on the takers to show that the gift was in the first instance made freely and with understanding. Large voluntary gifts or beneficial contracts, outside the limits within which natural affection and common practice justify them, are indeed not encouraged in any system of civilized law. Professional money lenders were formerly checked by the usury law: since those laws were repealed in 1854, courts and juries have shown a certain astuteness in applying the rules of law as to fraud and undue influence - the latter with certain special features - to transactions with needy "expectant heirs" and other improvident persons which seem on the whole unconscionable. The Money Lenders Act of 1900 has fixed and (as finally interpreted by the House of Lords) also sharpened these developments. In the case of both fraud and undue influence, the person entitled to avoid a contract may, if so advised, ratify it afterwards; and ratification, if made with full knowledge and free judgment, is irrevocable. A contract made with a person deprived by unsound mind or intoxication of the capacity to form a rational judgment is on the same footing as a contract obtained by fraud, if the want of capacity is apparent to the other party.
There are many cases in which a statement made by one party to the other about a material fact will enable the other to avoid the contract if he has relied on it, and it was in fact untrue, though it may have been made at the time with honest belief in its truth. This is so wherever, according to the common course of business, it is one party's business to know the facts, and the other practically must, or reasonably may, take the facts from him. In some classes of cases even inadvertent omission to disclose any material fact is treated as a misrepresentation. Contracts of insurance are the most important; here the insurer very seldom has the means of making any effective inquiry of his own. Misdescription of real property on a sale, without fraud, may according to its importance be a matter for compensation or for setting aside the contract. Promoters of companies are under special duties as to good faith and disclosure which have been worked out at great length in the modern decisions. But company law has become so complex within the present generation that, so far from throwing much light on larger principles, it is hardly intelligible without some previous grasp of them. Sometimes it is said that misrepresentation (apart from fraud) of any material fact will serve to avoid any and every kind of contract. It is submitted that this is certainly not the law as to the sale of goods or as to the contract to marry, and therefore the alleged rule cannot be laid down as universal. But it must be remembered that parties can, if they please, and not necessarily by the express terms of the contract itself, make the validity of their contract conditional on the existence of any matter of fact whatever, including the correctness of any particular statement. If they have done this, and the fact is not so, the contract has no force; not because there has been a misrepresentation, but because the parties agreed to be bound if the fact was so and not otherwise. It is a question of interpretation whether in a given case there was any such condition.
Mistake is said to be a ground for avoiding contracts, and there are cases which it is practically convenient to group under this head. On principle they seem to be mostly reducible to failure of the acceptance to correspond with the offer, or absence of any real consideration for the promise. In such cases, whether there be fraud or not, no contract is ever formed, and therefore there is nothing which can be ratified - a distinction which may have important effects. Relief against mistake is given where parties who have really agreed, or rather their advisers, fail to express their intention correctly. Here, if the original true intention is fully proved - as to which the court is rightly cautious - the faulty document can be judicially rectified.
By the common law an infant (i.e. a person less than twenty-one years old) was bound by contracts made for "necessaries," i.e. such commodities as a jury holds, and the court thinks they may reasonably hold, suitable and required for the person's condition; also by contracts otherwise clearly for his benefit; all other contracts he might confirm or avoid after coming of age. An extremely ill-drawn act of 1874 absolutely deprived infants of the power of contracting loans, contracting for the supply of goods other than necessaries, and stating an account so as to bind themselves; it also disabled them from binding themselves by ratification. The liability for necessaries is now declared by legislative authority in the Sale of Goods Act 1893; the modern doctrine is that it is in no case a true liability on contract. There is an obligation imposed by law to pay, not the agreed price, but a reasonable price. Practically, people who give credit to an infant do so at their peril, except in cases of obvious urgency.
Married women were incapable by the common law of contracting in their own names. At this day they can hold separate property and bind themselves to the extent of that property - not personally - by contract. The law before the Married Women's Property Acts (1882 and 1893, and earlier acts now superseded and repealed) was a very peculiar creature of the court of chancery; the number of cases in which it is necessary to go back to it is of course decreasing year by year. But a married woman can still be restrained from anticipating the income of her separate property, and the restriction is still commonly inserted in marriage settlements.
There is a great deal of philosophical interest about the nature and capacities of corporations, but for modern practical purposes it may be said that the legal powers of British corporations are directly or indirectly determined by acts of parliament. For companies under the Companies Acts the controlling instrument or written constitution is the memorandum of association. Company draftsmen, taught by experience, nowadays frame this in the most comprehensive terms. Questions of either personal or corporate disability are less frequent than they were. In any case they stand apart from the general principles which characterize our law of contract.
Contract and property
The rights created by contract are personal rights against the promisors and their legal representatives, and therefore different in kind from the rights of ownership and the like which are available against all the world. Nevertheless they may be and very commonly are capable of pecuniary estimation and estimated as part of a man's assets. Book debts are the most obvious example. Such rights are property in the larger sense: they are in modern law transmissible and alienable, unless the contract is of a kind implying personal confidence, or a contrary intention is otherwise shown. The rights created by negotiable instruments are an important and unique species of property, being not only exchangeable but the very staple of commercial currency. Contract and conveyance, again, are distinct in their nature, and sharply distinguished in the classical Roman law. But in the common law property in goods is transferred by a complete contract of sale without any further act, and under the French civil code and systems which have followed it a like rule applies not only to movables but to immovables. In English law procuring a man to break his contract is a civil wrong against the other contracting party, subject to exceptions which are still not clearly defined.
AUTHORITIES - History: Ames, "The History of Assumpsit," Harvard Law Rev. ii. 1, 53 (Cambridge, Mass. 1889); Pollock and Maitland, History of English Law, 2nd ed., ii. 184-239 (Cambridge, 1898). Modern: Pollock, article "Contract" in Encyclopaedia of the Laws of England (2nd ed., London, 1907), a technical summary of the modern law; the same writer's edition of the Indian Contract Act (assisted by D. F. Mulla, London and Bombay, 1905) restates and discusses the principles of the common law besides commenting on the provisions of the Act in detail. Of the text-books, Anson, English Law of Contract, reached an eleventh edition in 1906; Harriman, Law of Contracts (second edition, 1901); Leake, Principles of the Law of Contract (fifth edition by Randall, 1906); Pollock, Principles of Contract (eighth edition, 1910, third American edition, Wald's completed by Williston, New York, 1906). O. W. Holmes's (justice of the Supreme Court of the United States) The Common Law (Boston, Mass. 1881) is illuminating on contract as on other legal topics, though the present writer cannot accept all the learned judge's historical conjectures.
Note - this article incorporates content from Encyclopaedia Britannica, Eleventh Edition, (1910-1911)