Law of Contract
Nature of the law of Contract
The law of contract may be defined as that branch of the law which determines the
circumstances in which a promise will be legally binding on the person making the promise (the
'promisor') and enforceable in a court of law by the person to whom the promise was made
(the 'promisee'). A well-accepted definition is that contained in section 1 of the American Law
Institute's Second Restatement of the Law of Contracts: 'A contract is a promise or a set of
promises for the breach of which the law gives a remedy, or the performance of which the law
in some way recognizes as a duty.'
The rationale for the enforceability of contracts is essentially the promotion of trade and
commerce, which would be seriously hampered if contracting parties could not be held to their
bargains. Accordingly, a party which enters into a valid contract can be assured that it will be
able to recover compensation from the other party in the event of the latter's repudiation of
the agreement or failure to perform its obligations, and the 'measure' (i.e. the amount) of
damages recoverable in contract law is intended to compensate the innocent party not only for
any material or financial damage sustained on account of the other party's breach, but also for
any loss of profits or other benefits which it would have received if the contract had been
performed by that other party.
Enforceable contracts appear in a great variety of forms, ranging from, on the one hand,
'everyday' contracts entered into by consumers, such as those for the sale of goods in a
supermarket, or for transportation of a passenger in a bus, train or plane, or for professional
services to be rendered by a dentist, plumber or hairdresser to, on the other hand, complex
commercial agreements such as large-scale building and civil engineering contracts affecting
several corporate parties, any breach of which could inflict serious financial damage on one or
more of the parties.
In such a scenarios, each of the parties will depend on the others to carry out their contractual
obligations and in the event of a breach by a promisor, the innocent promisee under the
particular contract will have a right of action for breach of contract against the defaulting
promisor.
Freedom of contract
The concept of 'freedom of contract' became a basic tenet of jurists, philosophers and
economists in the nineteenth century, and it persisted in mainstream legal thinking until
comparatively recently. At the heart of this principle is the notion that a party to a contract is
expected to decide what is in his own best interests, and the law's function is simply to
enforce agreements and not to interfere with them on grounds of 'unfairness' or
'unreasonableness'. This is the essence of laissez-faire economics. However, according to some
contemporary jurists, the laissez-faire approach is acceptable only where the parties to a
contract have 'equal bargaining power which would be the case where a contract is concluded
between two corporate entities of equal economic 'muscle', but not where an individual
consumer enters into a contract with, for instance, a utility company for the supply of electricity
or telephone service, where the terms of the contract are standardized and not subject to
bargaining, and where the consumer has no alternative but to accept those terms.1 Accordingly,
limited protection for contracting parties having little or no bargaining power is afforded by
statutory provisions in many jurisdictions,2 and the courts, in some instances, have refused to
enforce contractual exemption clauses imposed by a stronger party on the weaker.
Nevertheless, in 1967, Lord Reid, commenting on the effect of the so-called 'doctrine of
fundamental breach', deprecated the idea of restricting 'the general principle of English Law
that parties are free to contract as they may think fit', and in 1980, Lord Diplock reiterated the
'basic principle of the common law of contract ... that the parties are free to determine for
themselves what primary obligations they will accept'.3
1
These are known as 'contracts of adhesion'.
2
Consumer Protection Act, 2006 (Jamaica).
3
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, at 843;
Sanctity of contracts
The principle of sanctity of contracts means that a contract, once made, must be observed and
promises must be kept. The principle serves the requirements of the commercial community by
giving security and certainty to contractual relations and providing assurance that transactions
involving financial commitments on the part of the contracting parties will be enforced by the
courts. The strictness of the principle is exemplified by the courts' refusal, before 1863, to allow
a party to be freed of his contractual obligations on the ground of frustration. Before the case
of Taylor v Caldwell,4 it was a strict rule that a party could not escape his obligations under a
contract by pleading that a fundamental change in the circumstances since the date of the
agreement had 'frustrated' the contract. Today, frustration is accepted as a ground for
discharging a contract, but the circumstances in which the courts will allow the plea to succeed
remain severely limited, and the current position is that frustration will discharge a contract
only where the frustrating event 'strikes at the root of the contract', so that the agreement,
after the event, becomes fundamentally different in character from that originally
contemplated by the parties.
Reference
 Kodilinye, G., & Kolilinye, M. (2014). Commonwealth Caribbean Tort Law (5th ed.). Third Avenue,
o
4
New York: Routledge.
(1863) 122 ER 309,