Neither a borrower nor a lender be: an introduction to English contract law, part 1

A pound of flesh

Portia gets ready to defend Shylock

Shakespeare’s Merchant of Venice turns on the interpretation of a contract between Shylock and Antonio [1]. The contract stipulates that if Antonio does not pay back the money lent to him, Shylock is entitled to a pound of flesh. Antonio cannot pay back the money and so the court is about to grant Shylock the right to take his pound of flesh when Portia steps in. The contract, she says, entitles Shylock to the flesh but makes no mention of blood. How, then, will he be able to take the flesh without spilling blood? Shylock is dumfounded and Antonio lives. This week, I want to look at how English courts interpret contracts.

No refunds

At its most basic level, a contract is a voluntary agreement between two parties to do something. English law takes the view that when one person objectively demonstrates their consent to a bargain, they will be bound. The Latin expression demonstrates ‘caveat emptor’ (let the buyer beware) a key principle of English contract law: the court will not look sympathetically on bad bargains and so long as the contract is clear (and freely entered into), the court will seek to enforce it. Smith v Hughes is a good example of this traditional, objective view of parties’ intentions when entering contracts [2]. This commercially-friendly view of the English courts is one of the reasons which supported the growth of the UK as an industrial power in the 18^th and 19^th centuries, and the reason today that the City of London is a financial capital of the world. Likewise, Hong Kong’s disproportionate commercial success owes much to its adoption of English contract law.

The key ingredients 

So what are the key ingredients for a contract? Well one has to have an offer which is made, and someone has to accept that offer. The subject of the contract, its value and other essential conditions have to be reasonably certain. The parties should want there to be a legal relationship between them. Finally, something of value should pass between the parties to cement the deal. Skim through Wikipedia’s article on English contract law for a flavour of the basics of a contract [3].

Lord Mansfield did much to modernise English contract law in the 18th century, making it friendlier to businessmen.

Putting it into practice 

Of course, real life does not fit neatly into the form of offer and acceptance. People are vague in their words, commercial circumstances change and, of course, the Government passes laws which aim to mitigate some of the harsh effects of contracts. What do you think would happen in the following situations? The answer is not quite a simple as it might at first seem. Email answers into [***] and I’ll reveal the answers next month.

• A father promises to give his daughter £100 a week during her time at university. After the first term, he decides she needs to be more self-reliant and stops paying her. Can she sue him for breach of contract?
• Basil offers to sell Mohammed his car for £500. They shakes on it and Mohammed gives him the money in cash. En route to delivering it, Basil crashes and the car is written-off. He refuses to give Mohammed his money back. What can Mohammed do next?
• A Company puts an advert in a local newspaper: “Buy our brilliant guide to getting into university and we guarantee you will be offered a place at your first choice or your money back and £1000”. James buys the guide, follows its advice but is rejected from everywhere he applies. The Company refuses to give him his money back. Can he sue for breach of contract?
• What would the English courts make of Antonio and Shylock’s bargain today? Would they enforce it?