How the law intervenes in contracts

As Ken Adams says in his blog on the Nexus Between Contracts and the Law, contracts cannot exist without the courts to interpret, intervene and implement their terms, including by:

  • Deciding whether individual terms in the contract are fair;
  • Deciding whether your contract meets the formalities required;
  • Deciding whether your contract is complete and which terms are needed to fill in the gaps.

Is your contract fair?

The law sometimes intervenes to ensure that contracts do not permit one party to take unfair advantage of the other. In England/Wales, before the Unfair Contract Terms Act 1977, the judiciary used their role as interpreters of contracts as a way of curbing abuses of power:

Faced with this abuse of power – by the strong against the weak – by the use of the small print of the conditions – the judges did what they could to put a curb upon it… They used…[a] weapon…called “the true construction of the contract.”…with great skill and ingenuity.. to depart from the natural meaning of the words …and to put upon them a strained and unnatural construction. – Mitchell v Finney

More recently, HHJ Thornton, in an SCL paper said that “contracts should prevent either party from taking unfair tactical or pricing advantage of the other, in accordance with such practices or abuses as were known to have taken place, or be likely to take place.”

What are the required formalities?

In England/Wales there are very few formalities required for a contract. Writing is required for transactions involving land and guarantees; deeds require specific content and execution (signing). But otherwise, there are few requirements you must follow for a contract.

Writing is clearly preferable…

Is your contract complete?

The law may intervene to add or imply terms into a contract to ensure that it makes sense as a commercial transaction. Some terms are implied due to the nature of the transaction; others because a specific term appears to have been intended by the parties (although they forgot to express that intention within their contract); others because the contract is meaningless without it [read more].

But the law never seeks to improve the contract:

The court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. – Trollope v Colls

The law does not re-write your bad bargains. It reviews what has happened to decide what the contract should have said.

Ref: Lord Denning (his last judgment) in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1982]; Trollope & Colls v NW Regional Metropolitan Hospital Board [1973]. SCL paper 141 “The Inclusive Price Principle – A Tribute to Ian Duncan Wallace QC” by HHJ Thornton QC, July 2007

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