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 Promise and offer. 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 Correspondence. 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. Interpretation. 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 Evidence. 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 Performance. 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 Illegality. 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 Fraud. 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 Misrepresentation. 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 Mistake. 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.