This article is written by Shreya Patra. This article covers the meaning of common law, the history of contract law (of common law and the Uniform Commercial Code) in the United States, the elements of common contract law, a comparison between the elements under common law and Uniform Commercial Code, circumstances in which remedies can and cannot be availed, the remedies available under common contract law.

Introduction

What comes to our minds when we think of “contract”? Is it the terms and conditions we agree to every time we sign in to some website or when we install an app, or is it the written document signed by both parties? Numerous questions arise, thereby making it necessary to have a comprehensive understanding of its implications and the other significant points associated with it. A contract encompasses several definitions. Merriam-Webster defines a contract as “a binding agreement between two or more persons or parties.” A contract is simply defined as an agreement between two (or more) parties that is legally enforceable and showcases their meeting of mind to achieve a certain objective or target. 

A contract can cover the objectives of the party, from employment and sales to even intellectual property licensing. The objective for which a contract is formulated has to be lawful, and any illegal contract is deemed to be void by law as it is not recognized by law. Contracts do not have to be in a standard form written out on a sheet; they are hidden right before our eyes. They hold great significance in our lives, even if we are not businesses, as we enter into different kinds of contracts in our day-to-day lives. 

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It often happens that the contract is not performed either due to its impossibility, or breach or any fraud or misrepresentation. This results in one of the parties ending up in a disadvantageous position. In order to compensate them for the loss suffered as a result, they have certain remedies available to them, such as damages, termination of the contract, a decree or order of specific performance, and an injunction, among other remedies that they can claim. 

Common law: meaning

The United States heavily relies on the common law system to make decisions and resolve disputes. Common law draws its source of origin from customs rules and maxims, which makes it unreliable until judges enter the picture to analyze its usage to determine its authenticity and reliability. The common law system follows the singular principle, that is, in the different levels of hierarchy that exist between the courts, the common law system strives to ensure that the court holds the higher authority over the other court (lower) in the same jurisdiction that would give decisions binding on the lower court. From this, we can understand the impact a precedent would have on the lower courts and, at the same time, draw our attention to the principle of stare decisis which basically means to stand by the decision.

It becomes very difficult to pinpoint the exact meaning of what would amount to common law, but the term definitely invokes some chaos and confusion in our minds. This is supported by the fact that the term has dual significance. Firstly, one might confuse it with civil law which is separate from it. It is pertinent to note that  common law relies on court precedents, and hence the earlier adjudication is essential to determining the matter. On the contrary, civil law relies on the Code and the provisions to resolve and dispose of the issue at hand before the Court; however, it does not take the form of precedent or become binding. Common law is thus very different from civil law and holds a very different meaning and application as compared to civil law.

Common law is also referred to as “judge law” or the “law made by judges”. This is so because whenever a certain set of principles is created or applied in consonance of reason and logic with the law, they are, after all, created and communicated to the parties through the judges. These judges become the messengers of law, provide their interpretation and become a critical point in determining other cases of similar circumstances, and thus they are referred to as such. 

History of contract law in the United States

As per the above discussion, the meaning of the term common law is clear. Further, we shall delve into the history of contract law in the US and the important events that led to the formulation and enactment of the modern-day contract law.

History of common law in the United States 

The very first law for contracts in the United States was the ‘common law’. The common law resulted in the formation of case-based law, which helped to resolve disputes that appeared before the judges in the Court. With the growing population, the disputes grew and ultimately affected the aggrieved parties, and it became difficult for the judges to address them all. The common law was mostly unorganized which made it difficult to refer back to. It was inefficient to make use of it as per requirements later on. Even though the opinions of the judges were released, they were not recorded in an orderly manner. Thus, this also resulted in the law being uncertain and creating chaos and confusion among those in the law community and beyond.

To address all the issues left by common law, the American Law Institute was established in hopes of helping. The American Law Institute, which has its origins in the year 1923, planned to make the law more simple in addition to clarifying and improving it. A significant accomplishment of the American Law Institute is the formulation of the ‘Restatement of the Law of Contracts’, which was successfully drafted and completed in 1932. However, due to the changing needs and demands of the ongoing scenario at that time, the institute initiated additional modifications to the 1964 Restatement of Contracts Statute and proposed a revised statute titled ‘Restatement (Second) of Contracts’ in the year 1979. 

Restatements are not just confined to the field of Contract but also exist in other fields like torts, real estate, etc. The Restrestatements listed the various rules, ideas, and principles that helped judges analyze the case and resolve issues that arose in it. They covered this law to the maximum extent that was possible and ensured that the law determined by the Courts of that time would declare this law as it is.

The process of creating a Restatement is not an easy one. The first step of creation involves selecting a director who is tasked with acting as a guide on whom the reporters have to rely to extract information for their reports on the events that took place in court. Secondly, the director supervises the legal scholars under him, who have to draft the details of the events that took place. These written forms go through several drafts, after which they are put forth before several committees constituted to go through them by the American Law Institute, after which these documents are finally published for everyone to use.

However, it is important to make note of the fact that the Restatements that were published were not, in any sense, authoritative. They did help the Court and were subsequently cited in many cases later on, but they cannot be said to be on par with judicial precedents. They exist as texts which help the courts and judges by acting as a medium to look back on the various rules and principles that were applied in the Court to analyze a case and resolve the dispute at hand. These texts guided them to arrive at a reasonable conclusion supported by logic in interpreting the law.

History of the Uniform Commercial Code in the United States

There was already a law in place governing real estate and services, and that was through the principles developed in the common Law. The sale of goods did not have any supervisory provision under the law. In order to protect such kinds of transactions from misuse, the Uniform Commercial Code (1963) was introduced. Before the Uniform Commercial Code came into existence, the law varied from one state to another across the United States and this became the driving force behind the creation of the Uniform Commercial Code. 

One of the major concerns that accelerated the creation of the Uniform Commercial Code was the lack of laws to protect the sale of goods. Sales of goods were a major chunk of the economy of the United States. As no protection was available for such transactions, it became a huge obstacle that prevented the growth of the economy. At such a time, the laws that were present did not particularly provide the required amount of protection, some of which were the Uniform Sales Act of 1906, the Uniform Conditional Sales Act of 1918, and the Uniform Negotiable Instruments Act of 1896, among others. 

All of these Acts related to the sale of goods, but they were messy provisions that provided no cohesion between one another, which made it difficult to truly implement the laws. As we go from one state to another the different laws did not cohesively work with one another. It became a problem and there was a need to introduce a law that is uniform across states. 

In order to bring more cohesiveness and uniformity to the law that was practiced across the states, it became essential to bring a law that uniformly applies to all the states, also known as the Uniform Commercial Code. The Uniform Commercial Code brought together the Uniform Sales Act of 1906, the Uniform Conditional Sales Act of 1918, and the Uniform Negotiable Instruments Act of 1896, among other such acts, to provide a comprehensive one-stop to find all legal provisions related to the sale of goods and other commercial transactions. 

The Uniform Commercial Law can be said to be a perfect creation by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. They collectively worked together to ensure that the laws were adopted by the legislatures of the respective states across the United States. However, it is important to clear out the status of the Uniform Commercial Code before proceeding further. The Uniform Commercial Code has not been adopted by Congress; that is, it is not a federal law and thus not a national law, but rather a uniform state law (to resolve the inconsistency among and across states).

The Uniform Commercial Code experienced its own share of troubles even before the end version could have been finalized. As it went through several drafts, there were several people involved, including those teaching laws, those practicing law, and even legal scholars and judges. The final draft was created by the American Law Institute, and published in 1951 with support from the American Bar Association, but several revisions ensued in individual states. This threatened the uniformity of the Uniform Commercial Code. The American Law Institute took matters into its own hands and decided that, in order to prevent this, it would have to strictly oversee any revisions. It subsequently created a board which would be permanently assigned to make edits and would be responsible for revision from the future onwards if and when required. Thus, the Uniform Commercial Code is now wholly or partly applicable to all the jurisdictions in the United States and is part of governing all the businesses that occur on American soil.

The following chart presents us with a better understanding of what kind of law would apply to the different kinds of contracts:

Elements of common contract law

There are certain elements that make up contracts under common law that differ to some extent from specific contract law. These include elements like there should be an offer, there should be an agreement between the parties, there must be the intention of the parties to enter into a contract, and there must be some consideration. Collectively, all these elements form a contract under common law.

Offer

An ‘offer’ is the expression of the initiation of the contract. It signifies the willingness of the person making the offer, that is the ‘offeror’ to enter into a contract with the party to whom it is being proposed, that is, the ‘offeree’. An offer is a proposition to enter into a contract on the basis of certain terms and conditions. An offer may be communicated by words in express form or through conduct in implied form. An offer has to be to a specific person, to a specific group or to the whole society. An offer has to be separated from a social contract which will be further discussed under contractual intention. It is also starkly different from an invitation to offer. 

An offer is defined under Section 24 of the Restatement (Second) of Contracts, as “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it”. It is also defined under Section 2 as a “firm and irrevocable offer to contract” and Section 2-205 of the Uniform Commercial Code to be firm and irrevocable if “it is an offer to buy or sell goods made by a merchant and it is in writing and signed by the offeror.  

If we were to talk about offers in contract law, we cannot skip out on the well-known case of Carlill v. Carbolic Smoke Ball Company (1893). In this case, the defendants released gimmick advertisements of some kind. As per the advertisement, it stated that anyone would be cured of cold and influenza if they consumed the smoke ball as per instructions. Even after consumption, those who caught a cold or suffered from influenza would receive reward money ($1000). In order to build trust in their product, they also deposited a certain sum ($1000) to showcase their sincerity. 

One such customer, Carlill, consumed the smoke ball but still caught the flu and demanded the amount. The defendant denied the claim, stating it was just a sales puff. They have not exactly entered into the contract, and they are not liable to pay any amount. The Court of Appeal reasoned with the fact that the advertisement was a unilateral contract, and fulfilling its obligations would amount to providing acceptance to the offer. Thus, the defendant is liable to pay the amount. Furthermore, their sincerity was shown by depositing a certain sum ($1000), and no claim of lack of intention on the part of the defendant can be brought up.

Agreement

An ‘agreement’ is the communication of assent to the terms made through the offer. It is the next step to offer, and it cannot be partly accepted. All the terms and conditions have to be accepted in order to be called an acceptance. Just like an offer, acceptance can be conveyed through conduct or in oral or written form. The agreement holds no legal significance until and unless it has been communicated to the offeror. It is also defined under Section 3 of Restatement (Second) of Contracts as “the manifestation of mutual assent on the part of two or more persons.”

The offeror can establish specific requirements for how the acceptance of the offer should be communicated. For instance, it may need to be accepted and conveyed via post or fax by a certain deadline. If not, the offer may be withdrawn, and the person making the offer may choose to present it to someone else. The acceptance of the offer can be instantaneous as well if it is made face to face or through instantaneous modes of communication like email and telephonic conversation.

However, if the offer has been made to the offeree and the offeree does not accept all the terms and wishes to change a few of the terms, then a counter offer is created, and in such an instance, the acceptance would have to be conveyed to the other party, and the original offer stands to be revoked. Before the party conveys or communicates their acceptance to the other, the offer may be revoked if the circumstances demand it and can be done personally to the offeror or a third party who would communicate the same to the offeror. 

Contractual intention 

The parties must have the intent to form a contract. A contract sets forth the terms and conditions that the involved parties must adhere to in order to fulfill their responsibilities. If these standards are not met, the party in breach may face legal repercussions. Such an element exists because we need to determine whether or not the parties actually want to take responsibility for the contract and are serious about it. 

The simplest example would be an offer for dinner at a restaurant. It is a purely social invitation; the parties do not have any intention to enter into a contract; and it is a casual meeting between the parties. So, if one of the parties cancels on the other party, neither can be held liable to the other, for it is not truly a contract and they had no intention to do so. Thus, it is essential for the parties to have an intention to contract to make it binding on them. They must have the intention to create legal relations between them. 

In the case of Balfour v. Balfour (1919), the plaintiff and the defendant were married. They stayed in Ceylon, which was also the defendant’s place of work. The defendant took leave from work, and they headed to  England together for vacation. Things took a turn for the worse when the plaintiff fell sick. On the doctor’s advice, she was asked not to make the journey to Ceylon and instead nurse herself back to health in England. The defendant had to get back to work. So before leaving the plaintiff, he promised to pay her $30 every month to manage her expenses until she returned. 

However, their relationship deteriorated due to the distance between them and the defendant also stopped sending money to his wife in England. The plaintiff sued the defendant for the failure to oblige with the promise and perform the agreement between them. The main contention before the Court of Appeals was whether such a promise amounts to a valid contract or not. 

Only if it does would it be possible to sue the defendant. The Court of Appeals was of the view that there are certain promises that do not have any consideration, such as this one. In addition to that, this promise had not reached the status of an agreement and thus cannot be regarded as a valid contract. Thus, such agreements are not enforceable in any manner.  

Consideration

Consideration supports a promise to make it a binding contract. In the absence of consideration, no promise would be considered enforceable or binding in any manner. Consideration is defined as anything that has value and is given for the promise made. If we take, for example, a necklace, for the seller, the necklace is the consideration, and for the buyer, the money is the consideration. An exception to this is the informal gratuitous promise. An informal gratuitous promise, also known as a naked promise, is not regarded as a contract because it lacks consideration. Any promise that has a moral or sentimental connection, or any charitable gift, are some examples of a naked promise. 

The consideration must be transferred from the promisee to the promisor. There are certain cases in which there is no transfer of consideration from the promisee to the promisor. Firstly if any request is made by the promisor to the promisee that causes some loss to the promisee but no additional benefit is accrued to the promisor, then it would be deemed to be a valid consideration.

Secondly, the consideration may move from the promisee to the third party instead of the promisor. This happens at the request of the promisor, who grants the benefit to the third party instead of himself. This applies to goods and services purchased through the credit system.

Consideration is provided by the person who has received such a promise. No such right is said to exist if the consideration is moved to a third person. For example, Amanda promises to pay $100 to Sasha if Diana will mend her (Amanda’s) clothes, and Diana does the job. Sasha cannot enforce Amanda’s promise unless Sasha has acquired or planned to acquire the services of Diana to get the job done.

A comparison between common law and Uniform Commercial Code

The United States is governed by several kinds of laws in regard to contracts, some of which include the Real Estate Settlement Procedures Act of 1974 (RESPA), the Truth in Lending Act, and the Fair Credit Reporting Act of 1968. In this article, we will be confined to the ‘common law’ and the ‘Uniform Commercial Code (UCC)’. The common law focuses on the transactions that occur as a result of contractual obligations dealing with various spheres, including life insurance, employer-employee, services and even intangible assets like Intellectual Property Rights. On the other hand, the Uniform Commercial Code deals with transactions that focus on tangible objects. 

Both the common law and the Uniform Commercial Code are very different from one another as they deal with different kinds of goods and services. Therefore, it is important to understand how they can be differentiated from one another. In order to better understand this, we should have a comparison between the contract governed by UCC and that by common law.

Conditions in relation to Uniform Commercial Law and Common Law

The acceptance of the offer with fresh terms

The acceptance of an offer with fresh terms basically means when an offer has already been put forward, and in that instance, the offeree presents a fresh offer to the offeror, due to which a new instance is created where the offeree, in the first instance becomes the offeror in the second instance, and the offeror in the first instance becomes the offeree in the second instance.

In the case of common law, the roles of the offeror and the offeree are reversed, as the new offer marks the end of the older offer. This is done in order to erase the existence of the older offer altogether, as a change in offer amounts to the creation of a new offer. The change in the offer is also known as a rejection offer or a counter offer.

In the case of the Uniform Commercial Code, the same is not the case. Even if there are changes in the offer, what truly would reverse the role of the parties is if they deviated from the terms of the contract. Any deviations of a major nature would result in affecting the bindingness of the contract. Whereas, deviations of minor nature would not affect the contract to that extent, and hence the contract would remain binding as if there were no such changes introduced. 

Modification to contract 

Both common law and Uniform Commercial Code differ in matters related to the modification of the contract. In the case of common law, consideration is required as a prerequisite, whereas in the case of the Uniform Commercial Code, there is no such requirement or prerequisite. 

Promise made towards keeping the offer open

Often, the parties promise to one another that they will keep the offer open for one another, and they trust each other to do so. In the case of common law, it is referred to as an option contract. It requires consideration for the formation of such a kind of contract. 

Whereas, in the case of the Uniform Commercial Code, there are two requirements towards keeping the offer open through a promise. The first requirement is that the merchant themselves have to keep the offer open through a promise. The second requirement is that it must have the required consideration to support the first requirement. 

Terms

Both the common law and the Uniform Commercial Code differ in relation to the terms that are required to be mentioned in the contract to make it a valid one. In the case of common law, there has been a detailed expression of terms like quantity and quality of the goods and services, along with the time period of their performance, its nature and its identity. Whereas in the case of the Uniform Commercial Code, the only detail that is required is the quantity of the product. And there are no other requirements other than this.

Remedies and their circumstances

The circumstances in which remedies can be availed of are as follows:

Circumstances in which it can be availed

Fraud

As per the common law that is followed in the United States, there are essentially nine elements that would determine the existence of fraud, and they are as follows:

A representation of any fact 

Under fraud, a representation of fact is anything due to which the party accused of fraud creates a false impression on which the party that has suffered loss acted. In order to make such an element of a claim successful, a party is required to proceed with their claim with specificity and particularity and avoid uncertainty.

For example, the plaintiff claims that the blankets, bed covers, pillow covers and curtains from the home center are not of pure linen, which is claimed by the home center. Such a claim will not be upheld. The plaintiff will have to limit the scope of his claim and be specific about which products fail to meet the pure linen criteria, which amounts to fraud. 

The falsity of the fact

In order to bring forward a claim of fraud, it is essential to establish that there has been a false representation. The intent and state of mind of the representer showcase the falsity of the representation they have made. For example, if the employee of a shoe store promises to reserve the shoes the customer has chosen for 1 extra month with no extra charges and then fails to reserve the same and sells the shoes to someone else within that one month the customer is planning to make the purchase, the representation is false. 

The materiality of the fact

For there to be some inducement from the representative to the representee, there must be some kind of representation, or even concealment of fact, which becomes essential. Because if not for such representation or concealment, the representee might not have entered into the contract at all. The failure of misrepresentation or concealment of fact would result in the failure of consummation of the transaction as per the contract, and the same was held in Sevin v. Kelshaw (1992). The materiality of the fact must be pleaded with specificity and cannot be vague, as per Benson v. Geller (1981). 

In order for the fact to be material, as is important to the case at hand, it does not have to play a part in contributing to the loss of the other party but rather induce the party to enter into the contract, which is more than enough. The simple test for materiality is to determine if the party would have refused to contract if they had the prior knowledge that there had been some misrepresentation made.

The representer’s intention of falsity of fact and disregard for the truth

If the representer had the intention to represent the falsity of the fact or did not pay attention to the truth, then in that case, it would amount to misrepresentation. Even any representation made haphazardly would amount to misrepresentation, as no attention has been paid to the truth of the facts. Any conscious misbehavior or any recklessness that draws us to the conclusion that the defendant had the idea about the fact being false would also constitute sufficient evidence to prove the knowledge of falsity; the same was held in the case of Adelphia Recovery Trust v. Bank of America (2009).  

If any statement has been made by a person who has no idea whether it is true or false, then it would have the same effect as if the party had the knowledge that the statement was false. This was held in the case of State ex. Rel. Redden v. Disc. Fabrics, Inc., (1980) [quoting Amort v. Tupper (1955)]. 

The representer has the purpose of inducing the other party to act upon the representation

The representer must have some kind of purpose to induce the party to act upon the representation (false) that has been made. One of the most important characteristics of fraud is that the misrepresentation has caused the other party to rely on it and act on it, as was held in the case of Estate of Schwarz v. Philip Morris, Inc. (2006). It is not necessary for both parties to be related to one another. As long as the one committing the fraud has some reason to expect that the act or refraining to act is based on the reliance on the misrepresentation that has been made, there has been some influence. 

There must be some details with the misrepresentor using which we can draw the conclusion that if it is used, it would lead to influencing the conduct of the other party. Such misrepresentation would ultimately, to some extent, govern the actions and conduct of the other party. It becomes essential to prove reliance to be likely and justifiable in instances where any third party in the representation claims it to be fraud.  

The party that has suffered loss had paid no attention to the fact being false

If the party that has suffered a loss had knowledge of the representation to be false but paid no attention to it and ignored it, a claim of fraud cannot be brought forward. If the plaintiff had only partial or some elements to his knowledge to be false, then there is nothing stopping him from finding it to be fraud just because the other elements are concealed or he does not have full knowledge of the misrepresentation. This was discussed in the case of Burris v. Burris (1995).

If the party that has been injured would not have reasonably been expected or required to further inspect the representation in certain circumstances, then this would not amount to the party’s ignorance of the matter as per Fields v. Mitch Crawford’s Holiday Motors Co. (1997). 

The party that has suffered loss relied on the truth of the misrepresentation

The party that has suffered a loss has relied on the representation because they believe it to be true. The result of their actual reliance is the conduct of the injured party, which changes their legal relationships. If not for the existence of such representation, the contract or the transaction would have taken place in any of the circumstances or probabilities one could think of. The injured party has the responsibility to prove before the court that certain information has been excluded; if it had not been excluded and they had known about it, their conduct would have been much different.

This is one of the most difficult elements to prove under common fraud law because the plaintiff has to prove before the court by being specific about what actions, unconscious thoughts and unspoken words of the plaintiff led the plaintiff to rely on the misrepresentation of facts made to him. The representation made to be false must be relied on when the transaction occurs in order to bring forth an actionable claim.

The party that has suffered loss has a right to rely

In a general sense, if the party is aware of the truth and knows the representation to be false, they do not have a right to rely on it and thus such a claim cannot be brought forward. The knowledge of truth bars the plaintiff from taking the defense of misrepresentation to claim for the loss suffered as they voluntarily entered into the contract with full knowledge of the facts and circumstances. 

Any person making a representation is responsible for it. Such representation is true for the person who is being influenced by it. It cannot be used as a means of claim by any other person who does have the right to reply to it, question the truthfulness of it or bring a claim of fraud. The same was discussed elaborately in Hall v. Douglas (2012) [citing Westcliffe Co., Inc. v. Wall (1954)]. 

The consequences and loss suffered by the party and its proximity

There must be some kind of loss suffered by the party in order to bring forward a claim of fraud.  Along with this, the aggrieved party needs to demonstrate the closeness of the fraudulent act to the incurred loss. It’s important to note that not all losses are due to fraud, and only those that are can be claimed by the affected party. If the party hasn’t suffered a loss, or if the loss isn’t closely linked to the fraudulent act, then no action of fraud exists.

As per Clayton v. Heartland Resources Inc. (2010), [quoting Flegles, Inc. v. Truserv Corp. (2009)], the misrepresentation that has occurred must influence the injured party’s actions and at the same time cause them to suffer a loss. Also, there must be some legal or proximate causation between the fraud and the loss suffered.

Breach

A ‘breach of contract’ is said to occur when either of the parties fails to perform their duties and obligations laid down in the contract. The breach can be either of the whole or part of the contract. It can also be a breach of certain clauses of the contract. Sometimes the parties inform the other in advance of their intention to not hold their side of contractual obligations, and this is referred to as ‘anticipatory breach’. 

Due to the breach of the contract, the other party suffers losses that have to be adequately compensated by the other. Under common law, damages and terminations can be claimed. However, the termination is subject to the fact that the breach affects the objective of the contract and deprives the other party of the benefits they would have gained if the contract had been performed as per usual. 

Misrepresentation

A ‘misrepresentation’ is any statement that is false, due to which the other party is convinced to enter into an agreement. Such statements of misrepresentation often misrepresent the facts or even law related to the agreement and give a false sense of hope to the other party. Such statements are made before they enter into a contract. The objective of misrepresentation is to get the party to enter into the contract by any possible means, and that includes twisting facts to appear beneficial to the other party. Any statements or opinions given would not amount to misrepresentation unless they were genuine at the time they were made. Silence would not amount to misrepresentation. However, silence would amount to misrepresentation if:

  • If there is a half-truth to the statements made; or
  • It hid any changes that were relevant to the contract and its circumstances; or
  • The contract upheld the “utmost good faith” (Latin – Uberrimae Fidei); or
  • The nature of the relationship between the parties can be described as fiduciary. 

The misrepresentation of the statement induces the party to enter into the contract. However, the party that has been induced to enter into the contract does not have any reasonable reliance. If the induced party has relied on his own judgment and reasoning and not the statement of the misrepresenting party, the claim of misrepresentation will not be actionable per se, given that the induced party had no knowledge of the statements made being false. The remedies available for any misrepresentation will depend upon the nature and extent of misrepresentation that occurs. 

A fraudulent misrepresentation refers to a misrepresentation made with the intention of being false and paying no heed to the truth. The remedy for such a kind of misrepresentation is mostly the recession of the contract, as it is based on false statements. As such, any losses suffered by the party as a result of the misrepresentation can be recovered. There is no bar on the remoteness of the loss due to the misrepresentation.

A negligent misrepresentation is a kind of misrepresentation that happens when both parties are said to have a special relationship between them before the misrepresentation happens. As a result of this special relationship, the obligation of duty of care arises between them. Thus, one owes this duty to the other. 

Such misrepresentation relies on the measure of negligence as per tort. The misrepresented party does not have any proof that there were reasonable grounds that led him to believe the statements to be true. The courts usually allow for rescission and/or damages, if any, to be awarded as per their discretion, similar to the fraudulent misrepresentation. 

An innocent misrepresentation is a kind of misrepresentation where the representer does have some proof to show that there are reasonable grounds which led them to believe the statements to be true. In such cases of misrepresentation, rescission and/or damages are awarded. For example, Cindy sells airpods and Pam approaches her to buy a pair of airpods. She provides Cindy with the required amount, and Cindy provides her with the airpods not knowing that it has a manufacturing defect. In such a case, innocent misrepresentation would apply.

However, not all instances of misrepresentation allow for the contract to be rescinded. If there has been any affirmation or impossibility of performing the contract, or if there has been delay or any intervention by any third party, then the right to terminate the contract due to misrepresentation is extinguished. 

Remedies available for common law in contract

There are several remedies available to the aggrieved party. The remedies can be classified as follows:

Rescission of the contract

‘Rescission of the contract’ basically means to cancel the contract. It can also be referred to as the termination of the contract. A rescission may happen when one party exercises their rights to terminate the contract due to the other party’s breach, resulting in a unilateral termination. A rescission may also happen when both parties to the contract mutually decide to free themselves from all the terms and obligations to which they were bound by the contract. 

Rescission can also be used by courts to terminate contracts that go against public policy or even the law. When a contract is terminated, it is said not to exist anymore and is treated as such. The effect that the contract has had is terminated, and the parties are returned to their original positions. 

Any goods, services or money exchanged would have to be returned. For example, Simon took out a loan from Terrence who works at Golden Life Corporation. Now, he hides the information that he is suffering from cancer from Terrence and the company, then the company has the right to rescind the contract for life insurance due to the false information provided by Simon. 

A rescission may occur when one of the parties gives a clear indication that they would not perform any duties and obligations, or when the circumstances make it impossible for the party to perform the act; or when there is any failure or defect by one of the parties that causes the other to seek rescission. In the case of McCall v. Superior Court (1934), it was held by the Superior Court that the contract may be rescinded subject to the fact that the party seeking it provides appropriate reasons for opting for such an option.

Vitiating factors

Vitiating factors basically refer to those factors that essentially determine the status of the contract, that is whether it is void, voidable, or valid. The existence of such a factor makes the contract void or voidable at the option of the parties. The party can also seek legal recourse, through which the appropriate authority is tasked with looking into the contract. If the contract fails to abide by the factors, then it is destroyed by law. Factors such as minority in age, absence of sane mind, duress, undue influence, illegal object of contract, mistake, misrepresentation etc., result in the contract being vitiated.

In the case of Bowling v. Sperry (1962), the Court of Appeals of Indiana stated that even though the minor purchased the car during his minority since it was a necessity, the contract would have to be upheld by Sperry. The general rule is that the contract by a minor is vitiated, but this is an exceptional circumstance. 

Damages

‘Damages’ refer to the amount of money that has to be paid to the aggrieved or injured party. This damage may be caused by the other party’s negligence or fault, which allows the other party to seek such damages.

Compensatory damages

Compensatory damages are a kind of damage awarded due to the breach or negligence of the other party. The sole motto of compensatory damages is to restore the party back to their original position as if there was no such negligence or breach and the contract had been fulfilled without any issues or problems. The aim of compensatory damages is to compensate for the damage caused by the party’s fault. 

Compensatory damages are not only limited to that contract but also any other subsequent contract that could have been made but failed due to the other party’s fault or negligence. Compensatory damages are the most common form of damages that are given to any party to alleviate the loss caused to them.

There are several important factors to be looked into before a party can claim such damages. Firstly, there must be some loss to the party that is claiming damages. This injury suffered or loss caused must be actionable. The breach or negligence must be some kind of loss to the claimant. Furthermore, it must also be observed if the claimant did anything to reduce the loss or if his/her actions added to the loss created. 

In the case of Alfred McAlpine Construction Ltd v. Panatown Ltd (2000), the House of Lords stated that it is important to determine whether or not any loss has been suffered by the plaintiff as the first step. Subsequently, a generic principle is followed, namely that the claimant can only recover the losses he has suffered.

Measure to assess the loss

There are two ways in which the loss can be assessed or ascertained, that is the expectation measure and the reliance measure. The two methods are elaborated hereunder as follows: 

Expectation measure

The first method of calculating the expectation measure draws a comparison between the claimant at two different stages. The first stage talks about the position they are in due to the failure of the other party to abide by the contract and their position. The second stage talks about their position and whether the contract would have been performed as per its requirements and obligations. For example, if Greg and Peter enter into a contract for the sale of a cycle worth $1000, Greg provides the money to Peter, and Peter provides Greg with a bike. Greg finds out that the cycle is faulty, making it worth only $400, then, in that case, the measure of expectation would be $600 ($1000 minus $400). 

However, not everything amounting to the expectation measure can be claimed, as there has to be a certain sense and measure of foreseeability to be taken into consideration as well. In the case of Lavarack v. Woods of Colchester Ltd. (1966), it was stated that the party that has breached the obligations, as per the contract, and the measure of expectation be calculated, taking into consideration the sense and measure of foreseeability. Discretion would not apply as it is not certain and thus does not fall under the measure of expectation.

The second method of calculation of the measure of expectation aims to ascertain the amount that would be required to fix the damage caused to the plaintiff due to the breach of the defendant. It can also be said to be the amount the plaintiff would have to pay either to the defendant or any other third person to fix the damage caused to him/her. This second method of calculating a measure of expectation applies to contracts that provide services. 

For example, if Landon avails the services of Shane for painting the walls of his house, Shane was tasked with painting the walls of the whole house, but he did a very unsatisfactory job by not painting the walls properly, and Landon was not satisfied with the work as well. In that case, the second method known as cost of curing the breach would be used and the cost to rectify the same would have to be provided to the plaintiff.

The cost of curing the breach applies only when the plaintiff intends to have the issues corrected or rectified, and the cost and cure that accumulate to the end product of that good or item in question are proportionate to one another.

Reliance measure

The reliance measure ensures some reliance on the aggrieved party that they would no longer suffer as a result of the law taking its resources. This measure’s objective is to restore the party back to its original position and state they were in before the contract arose. Thus, it also becomes important to ascertain their position, and state before the contract and this is done through the means of costs incurred. 

In a general instance, the expectation measure would provide more compensation and favorability to the aggrieved party. However, there are cases where the reliance measure provides a more favorable compensation to the aggrieved party. This is so because the aggrieved party could have possibly entered a bad bargain, making the contract disadvantageous to him, thus, reliance measures ensure no unjust benefit is accrued to the other party. 

For example, Harry enters into a contract with Owen to provide him with a Harley-Davidson bike. Harry further spends a huge amount on making the contract itself, and on a breach by Owen, Harry can claim damages. Here, the expectation measure is less than the reliance measure and thus Harry would choose the method which is more favorable to him.

However an extension of the concept underlying this example was discussed in C & P Haulage v Middleton (1983), in which the England and Wales Court of Appeals stated that the defendant is required to provide the court with a comparison between the expectation measure and the reliance measure to show that the reliance measure exceeds the expectation measure and that the claimant cannot claim for the same.

As we now understand so far, there are two means by which compensatory damages can be ascertained, namely, through the expectation measure and the reliance measure. Therefore, it becomes important for the aggrieved party to calculate the costs both measures would provide him and choose the one that would most likely provide favorable compensation.

Loss: actionable or not

In order to determine whether the loss suffered by the aggrieved party is actionable or not, it becomes essential to ensure that the different categories of loss are analyzed. Not all losses are actionable as there is no legal recourse to them. For example, Greg promised David that they would go out for dinner but did not show up. The loss caused to David, who actually showed up for the dinner, would not be actionable since it is a social promise. 

Loss of financial nature 

Any loss that is suffered by the claimant that results in the reduction of the assets, money or financial position of the claimant goes without any further saying to be an actionable claim. This is one of the most common losses under whose category most claims are awarded damages for the losses, however, it has to be read with the causation of the action and the remoteness of the action. 

Surplus of the consumer

The ‘surplus of the consumer’ refers to the value that the consumer values or assigns (often greater than the market value due to a certain basis) to the contract that is to be performed. In the case of Jackson v. Horizon Holidays Ltd. (1975), there was a contract made related to the holiday services. In this case, the relaxation the consumer would experience would be the value of the consumer surplus. Thus, any compromise on relaxation would fall into the category of a claim for damages.

In the case of Ruxley Electronics and Construction Ltd. v. Forsyth (1996), there was a contract for a swimming pool to be made in a building complex. While the contractual obligations were fixed to build a standard pool, the consumer surplus would refer to the special needs of the consumer, in this case, one of the residents of the apartment who would want the pool to be deep since he is tall. Each and every consumer has different needs and wants. 

For example, there is a department store. Several people shop in the department store. The customers each have different needs and requirements. While the department store has everything, from the perspective of a certain consumer, if it does not have a hair salon, it is not satisfying her needs, and this would amount to consumer surplus. Consumer surplus is the additional requirement to meet the needs of a consumer.

In the case of Farley v. Skinner (2001), there was a clarification provided for the claims for the consumer surplus. Firstly, the consumer surplus must not be the sole motto of the contract; however, it should be one of the objectives of the contract. Secondly, the lack of expectation must result in the distress of the person. Consumer surplus is accepted in the courts, provided certain things are taken into consideration. That is, any non-financial claim would result in compensation of a small amount. It is very difficult to provide evidence to prove the loss was foreseeable and determine the causation of the loss.

Distress

Distress is basically a bitter experience that is either physical, mental or both for the person and thus stands in stark contrast to a consumer surplus. While consumer surplus can be associated with expectation, distress is the actual result of it. The concept of distress was discussed in Farley v. Skinner (2001). 

In the case of Farley (2001), the House of Lords discussed whether distress is to be brought under the category of actionable loss. Lord Scott provided his view, stating that if there is distress it has to be associated with the meaning of it being an “unwelcome sensory experience”. In this case, the noise made would amount to be so. The problem with using such a test is that it is very vague and is not a part of the ratio decidendi of the decision given by the Court. 

Most of the decisions by the judges are based on consumer surplus rather than distress. It is not possible to use it in all circumstances that require it to determine if there has been any distress. This does not mean that the test is not to be applied altogether, but rather that the test is to be applied cautiously to determine if at all there has been any distress. 

There is always an overlap between consumer surplus and distress, resulting in a tussle between both of them and deciding which is to be claimed instead of the other. However, it is often preferred to choose consumer surplus over distress given the favorable decision and judges opting for it in Farley (2001).

Is the loss related to the breach of the contract 

In order to determine whether the loss is actually related to the contract or not it becomes essential to ascertain the causation, which is both legal and factual. This ensures that the contract that has been breached has caused that very loss. For example, Harry suffers a loss due to Paxton not delivering the cycle he ordered from him on time. Paxton cannot claim the loss caused to him due to failing the interview, as they are not related to one another.

Factual causation

The factual causation has a very simple test in order to understand whether the factual causation of the breach of the contract has resulted in the loss. One has to simply apply the “but for” test. That is, but for the contract that has been breached, would the claimant suffer the same loss he/she claims? It is much easier and simpler compared to the tests of legal causation. For example, Harry suffers a loss due to Winston’s negligence. The question that arises is that but for the contract being breached, would Harry have suffered the same loss?

Legal causation

Legal causation basically means that the direct result of the contract being breached must be the loss caused. Any events that break the chain of causation lead to the concept of legal causation being broken off and thus it cannot be applied as it becomes an indirect event. Any actions by a third party or claimant can result in the chain of causation being broken off, making the loss an indirect event rather than a direct event. 

In determining whether or not there has been a break in the chain of events, the actions become important. The courts pay special heed to the actions of the claimant and question whether they were reasonable or not. The chain of causation of events gets broken off by the unreasonable acts of the claimant, thus the defendant is relieved of all the liability that they may have towards the claimant. 

It becomes important to consider that if there has been any duty imposed on the claimant who acted as per the duty, then this breaks the chain of causation which was also discussed in the case of Stansbie v. Troman (1948). It is also important to consider that the likeliness of an act strengthens the chain of causation. That is, an act more likely to happen has less chance of breaking off the chain of causation, as discussed in Monarch Steamship Co. Ltd. v. Karlshamns Oljefabriker (1949).

Whether the loss was foreseeable

When a party suffers a loss that was reasonably foreseeable, it becomes essential to ensure an appropriate remedy is chosen. In order to determine the appropriate remedy, the foreseeability of the claim is taken into consideration to ascertain the loss. If the consequences of the actions are not reasonably foreseeable, then losses caused by this would not be included. However, the losses that arose as a consequence of reasonably foreseeable actions would be included. 

In the case of Hadley v. Baxendale (1854), the test to determine the foreseeability of the damages caused was laid. If we were to sum up the test, it would be as follows:

  • The damages that have been caused have to be fairly and reasonably caused by the breach of the contract.
  • The damages that have been caused have been part of the parties’ discussion while creating the contract and its breach. 

In the case of Victoria Laundry Ltd v. Newman Industries Ltd (1949), the rules pertaining to the test of foreseeability were outlined. In this case, the claimant was preparing to expand his business and thus reached out to the defendant for a boiler, and the defendant was aware of this as well. The claimant sued the defendant for the loss caused by the failure to provide him with a boiler. 

The Court of Appeals was of the view that any profits were lost as there was no boiler. However, it is not reasonable to allow the claims for the loss of profits that would have arisen due to lucrative contracts that the claimant would have if there were a boiler, as the same was dismissed. Any future contracts are not reasonably foreseeable. The claim becomes actionable if the defendant was informed of the same by the claimant.  

The case of Parsons (Livestock) Ltd v. Uttley Ingham & Co Ltd (1978), upheld the decision of Victoria Laundry Ltd v. Newman Industries Ltd. (1949) and also stated that the reasonableness of the loss has to be ascertained and not the extent and nature of it. It is important for the defendant to know the remoteness of his failure (and its consequences) to abide by the contractual obligations in order to be held responsible for any future contracts or other future losses. However, this puts the defendant in an unfavorable position, and they may become responsible for huge amounts later on as per the contract.

Contribution of the claimant towards mitigating losses

While most contracts place the sole responsibility of breach on the defendant and their failure and negligence, claimants are equally responsible for the losses they have suffered. The claimant is required to take proper steps, measures and precautions so as to avoid the loss they have suffered. The claimant, to avoid the chance of risk or loss, takes several steps to keep it at bay, like a factory worker putting on safety gear as per instructions given.

There are three rules that are taken into consideration towards the mitigation of the losses suffered by the claimant, which are as follows:

Firstly, the claimant cannot claim for any losses which he could have avoided reasonably but did not do so, the same was held in the case of British Westinghouse Electric Co Ltd v. Underground Electric Railways Co of London Ltd. (1912). For example, if there was a steel rod on the ground, the defendant had taken reasonable precautions and put a barricade around it to prevent it from hurting anyone, but the claimant has walked through the barricade and hurt themselves and as a result, they cannot claim for the damages caused in this case. 

Secondly, the claimant has the right to claim for all kinds of losses suffered, provided they have taken reasonable steps to mitigate it. For example, Jill entered into a contract with Matt, who is a baker and also transports cakes for a living. Jill has taken reasonable steps to ensure the safe delivery of the cake to her house and provided Matt with extra money to do so; however, Matt failed to do so. In this case, Jill can claim for the costs of the loss of cake at her party, shipping and transport among other costs.

Thirdly, any losses that have been avoided by the claimant cannot be claimed. The losses suffered by the claimant can be claimed. For example, Dan is a writer who has been fired. He gets a job at a new place. He cannot claim for the loss of salary as he has already found a new job to provide for him.

Contribution of the claimant towards the losses

The contribution of the claimant towards their own loss is also another important factor determining the amount they can claim. It basically translates to the fact that even though the defendant is to some extent at fault, the contribution of the claimant towards it also allows the courts to reduce the amount and extent of claims that can be made. It follows the simple logic that if you have contributed towards it, the defendant is not required to pay the whole amount that has been claimed, but rather only a part of it.

This concept often goes by the term contributory negligence, that is, if there has been negligence on the part of the claimant that has contributed towards their losses then the damages they claimed would be reduced. In the instance of breach of contract, three types of contributory negligence arise:

  • The loss caused is due to negligence on the part of the claimant.
  • The liability of the defendant stems from contractual obligations.
  • The liability of the defendant is the same in the law of contract and negligence under tort, independent of the contract’s existence.

In the case of Barclays Bank plc v. Fairclough Building Ltd (1994), it was stated that the liability that arises under contract law is the same as the liability that arises under tort of negligence. Thus the claim of contributory negligence would apply and the claim for damages would be entertained. 

If this happens, then in that case, it becomes important for the defendant to prove to the court that the claimant was equally at fault and that the fault had nexus to the loss that the claimant experienced. Subject to this, the courts would make a reduction in the claim of damages. The damages will not be reduced altogether, but only to the extent the court deems fit, just and equitable to the share of the claimant in responsibility for the loss.

Liquidated Damages

Liquidated damages refer to the accurate amount of money that is to be given to the aggrieved party that has suffered some kind of loss or injury. Often parties estimate the loss before they perform the contract, and when any breach or loss happens, this amount is used to compensate them for it. It is basically a pre-estimate of the loss that one party might suffer. 

If any clause containing liquidated damages is mentioned, then in that case, regardless of whether the loss amount is higher or lower, that amount mentioned in the clause would have to be paid to the party suffering a loss. The same had been clarified and supported in Cellulose Acetate Silk Co Ltd. v. Widnes Foundry Ltd. (1993).

The objective of the liquidated damages is to deter the parties from breaching their contractual obligations. It ensures that the parties perform the contract to the best of their abilities. They are reasonably calculated by the parties beforehand. Liquidated damages can be said to be a combination of actual damages and remedies for the contract that has been breached. 

The only cause of dispute that often arises in the case of a claim of liquidated damages is when there has been a breach, and the aggrieved party is of the view that the liquidated damages as per the contract are not enough as compensation, whereas the party that has breached the contract is of the view that the liquidated damages for the breach is unreasonably high and wants it to be reduced.

Nominal Damages

A nominal amount is a small amount that is awarded to the party through the directions of the court, which acknowledges and respects that the rights of the party have been violated but no significant loss or injury of financial injury has been suffered. It is also awarded in instances where there has been a breach of duty by the defendant. The court regards and takes notice of the infringement of the rights and hence provides a small amount, but this does not give rise to any real damages.

Specific Performance 

Specific performance is one of the remedies available under common contract law. As per specific performance, the party that has failed to uphold the contractual obligations is directed by the Court to perform them. The Court usually issues a decree or order to enforce such directions on the party to perform it. 

Specific performance exists as one of the remedies available to the parties by is very different from the other remedies. Other remedies, such as compensation, exist as a right of the party which they can claim naturally, but specific performance is awarded at the discretion of the party only. In the case of Bastian v. United States (1941), the Circuit Court of Appeals (Sixth Circuit) stated that the parties may obtain a specific performance. 

Injunction

An injunction is basically the order of the court directing the party to do an act or not do an act. An injunction is awarded in specific cases only and exists as an extraordinary remedy which is enforced by the Court itself. An injunction can be termed as a restraining order in simple terms. An injunction is often granted by the court when the other remedies would not be sufficient or the plaintiff is suffering due to the constant interference of the defendant in his daily life after initiating a suit against him. In the case of Lumley v. Wagner (1952), the Court of Chancery stated that an injunction can also be granted to prevent the defendant from performing for anyone other than the person he has promised to, in this case, the plaintiff. 

Conclusion

There are several remedies available to the parties. Parties can claim to rescind the contract, which basically means terminating the contract based on their mutual agreement to it. The parties can also vitiate factors that make the agreement invalid. Parties can also claim for damages like compensatory damages, liquidated damages, and nominal damages to bring them some relief for the losses they suffered due to the contract. Parties also have the option to seek specific performance or injunction through a court order to safeguard themselves from any harm that the other party might cause them. 

Frequently Asked Questions (FAQs)

What is common law?

Common law is defined by Britannica as “Common law, the body of customary law, based upon judicial decisions and embodied in reports of decided cases, that has been administered by the common-law courts of England since the Middle Ages. From it has evolved the type of legal system now found also in the United States and in most of the member states of the Commonwealth (formerly the British Commonwealth of Nations)”.

What is the purpose for which a party seeks remedies?

The purpose of remedies under common law is to compensate the party for the loss they have suffered either due to a breach or the failure of the contract. The remedy aims to restore the party that has suffered such damage, back to the position they once were before the contract was entered into and such injury or loss was suffered by them.

References

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