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The basic principles of contract

A Jolly Contrarian tiptoe through the tulips of consensus™

Formation: capacity and authority · representation · misrepresentation · offer · acceptance · consideration · intention to create legal relations · agreement to agree · privity of contract oral vs written contract · principal · agent
Interpretation and change: governing law · mistake · implied term · amendment · assignment · novation
Performance: force majeure · promise · waiver · warranty · covenant · sovereign immunity · illegality · severability · good faith · commercially reasonable manner · commercial imperative · indemnity · guarantee
Breach: breach · repudiation · causation · remoteness of damage · direct loss · consequential loss · foreseeability · damages · contractual negligence · process agent
Remedies: damages · adequacy of damages ·equitable remedies · injunction · specific performance · limited recourse · rescission · estoppel · concurrent liability
Not contracts: Restitutionquasi-contractquasi-agency

Index: Click to expand:

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To rescind a contract is to declare it void from its inception — ab initio, as Latin fetishists like to say — with the intention of being put in the position one might have been in had the whole ghastly affair never happened in the first place. You might be able to do this if you were goaded into entering the contract by a false representation — so the very formation of the contract was compromised — but not simply because some raffish oik breached a warranty she had given under that contract, once executed.

Compare rescission, described above, with repudiation and consequent termination of a contract, which is to seek to put oneself in the place one would have been had your counterpart done what she bally well ought to. For this there is no equivalent Latinism, but that’s not to stop us making one up — how about in ultimo?

The difference between representations and warranties

Rescission is germane in comprehending the arcane distinction between a representation and a warranty:

Being founded on the tortious action on negligent misstatement, one of the ingredients of an actionable misrepresentation is that the representer somehow fell short of her duty of care: the simple fact that the representation was false might not be not enough if she can’t cannot reasonably have known it was false. This feels a more significant distinction than it is: tort governs situations where the parties, being randoms, have not had the opportunity to document their duties to one another, so the law steps in to help. Where they have, through the medium of contract, the law says, “you don’t need my clever appeals to the judgment of prudent people on public transport in south London to work out how you must treat each other, because you have worked it out for yourselves.”

Where the parties have written down their respective duties, but they still appeal to a tortious standard — which is what they are doing by writing “representations” into a contract — they are admitting to confusion between the laws of tort and contract. Here the fellow on the Clapham omnibus would surely say that the abstract duty of care maps exactly on to what the parties have voluntarily agreed. Why would it be any different? To be “negligent” under a contract is surely to breach it; no more and no less.[1]

  • A warranty is a statement of a present or historical fact made as a term of a contract. If a warrantor breaches its warranty the injured party might claim damages for the breach of contract and sue for damages, but cannot rescind it altogether. To set aside the contract as if it never happened — to void it, ab initio — you would need to prove a misrepresentation from someone before the contract, that induced you to enter it.

Since a warranty is creature of contract, one’s liability for its failure is absolute: if a warranty fails, you’re in the schtook: it is no defence that you could not reasonably have known that the matters warranted were not true, or that some mendacious interloper (other than the other party to the contract) has intervened to defeat your best intentions unless that kind of conditionality is written into the contract. This is the appeal of a written contract: the parties can write down with infinite, tedious precision, what they mean to say, and what they say they mean, one-hundred per cent.

It also points up the logical befuddlement behind the idea of writing representations into a contract.

See also


  1. This is why the idea of “gross negligence” is all the more abstruse.