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TOPIC 3 - Common Law

Introduction to Common Law (Universitat Pompeu Fabra)

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TOPIC 3. CONTRACTS
Freedom of contract. Formation of contract. Breach of contract and remedies for breach of contract. Perspectives for the
unification and harmonization of Contract Law: The Convention of International Sales of Goods, The Unidroit Principles of
International Commercial Contracts, the Principles of European Contract Law, The Draft Common Frame of Reference.

In English law, remedies based on contracts and remedies based on torts, very frequently overlap, and the claimant
can choose if he wants to apply her remedy based on contract or based on torts. In civil jurisdiction, sometimes there’s
a choice, but not very frequently: in general, you can only sue for damages when there’s not a contract. The first thing
we consider is: do we have a contract?

In English law is not problematic that you can choose between remedies based on contracts or law. They are not
exclusive categories. On the other hand, contract in English law has a relation to property very different from civil law
jurisdictions.

To transfer the ownership we need to:

- Be the owner  this is sometimes difficult to assess.

 In civil law jurisdictions we apply a rule based in common law is that if I buy in good faith in a public
shop, I will become owner even if the seller is not (ex. Corte Inglés). A very similar rule applies to land
sales: if I buy a land from a seller that appears in the registry as the owner, I become the owner even if
the seller wasn’t the real owner.
- Have a valid cause: usually it has to be a valid contract  so a contract is required to transfer the ownership.
- Deliver the object.

If the seller is not the owner, it doesn’t matter, because the law protects you anyway if you have bought it in good
faith. In civil law systems, you can become the owner of things by buying them in good faith.

But it’s different in English law (common law).

- The transfer of the ownership depends on the intention of the parts, so it isn’t necessary a valid contract: it’s
just the intention of the parts that matters (my intention to sell the land and your intention to buy it)  in
Spain the only intention isn’t enough, you need a valid cause.
- Nemo dat wuad non habet = nobody can give what he/she doesn’t have  it’s irrelevant the intention of the
parties, only if the seller is the owner he can transfer the ownership to me (it doesn’t matter if I am buying in
good faith; if the seller is not the owner I will not become owner).
That makes investigation of title very important in common law jurisdictions.
 In Spain, it’s not beneficial to the buyer to investigate if the seller is the owner of the title, because if you
discover he’s not and you buy it anyways, you will not be acting in good faith, it can be detrimental to your
good faith.
For land, the same principle applies, but registration is usually compulsory in this jurisdiction, so when the seller says
he’s the owner it’s usually true. In Spain, the registration is not require to be the owner, although it is important (if
you don’t register your title, you will be at risk that someone else registers the same title before you, in good faith).
What happens if the seller (S) transfers the ownership (intention to transfer the ownership) but the deed has some
formal mistake? When the buyer (B) wants to amend the deed, the seller doesn’t want to. So B goes to court.
- Is B the legal owner according to common law? No, because B has not registered the title.
- Can B be protected in some way? In equity, the court could declare that S is holding the land in trust for B, so
B becomes the beneficiary of his trust  this is a case in which the common law considers the S is the owner,
but because of the equity, B is protected, declaring that there’s a trust for B. That’s why S can be forced to
comply with the instructions of the trust.

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The relation between property law and contract law is very different in civil and common law jurisdictions.
In civil jurisdiction we have a code with a complete regulation of different types of contracts: the terms of the sale can
be found in the SCC or CCCat. Contracts, in civil law jurisdiction, tend to be short because we just agree to the points
where we don’t want the general law to apply (ex. the price). To have a complete picture of the contract between two
parties, you will need to read the definition of the contract in the civil code as well.
In common law, there are 3 important points to have in consideration:
- There isn’t a regulation of specific contracts  all the terms of the contract have to be agreed by the parties,
that’s why purchase agreements are extremely long: there’s not a regulation on the background that applies
on what they have not agreed expressly, so they have to get to an agreement on everything.
The court will have to decide which the intention of the parties was when there’s a problem (what a reasonable
man would have agreed in that case).
In some contracts, there are private standards contract clauses: some private institutions publish standard
contract clauses  it’s not a code, they are only private documents, but it’s known by everyone: by referring
to this standard clauses, they find a solution similar that the one we have in our code. But it’s not
automatically, therefore the parties have to include a clause on your contract that refers to this standard
clauses. So the common law court doesn’t usually discuss what kind of contract is a specific agreement, as the
civil jurisdiction courts do.
- Good faith is not the underlying principle in common law:
o There’s no duty to negotiate in good faith  the parties don’t trust each other (they are at arm’s
lengths), they don’t cooperate. In civil law jurisdiction, the parties must cooperate and negotiate in
good faith: as soon as one of the parties sees that there’s not going to be an agreement, this part must
tell the other one in good faith.
o There’s no duty to perform in good faith  there’s no abuse of right: if the buyer is entitled to choose
any notary, he has the right to choose any notary.
o There’s no duty to renegotiate the contract if there’s a change of circumstances  the right to
negotiate is not as limited as it is in Spain. Is some circumstance has changed, in civil law the parties
have to negotiate the terms of the contract again. This means that in common law jurisdictions, very
frequently, small breaches of contract (not being able to complete your obligations) may be the reason
for the other party to rescind the contract.
 Why common law jurisdiction doesn’t want to follow the principle of good faith?
 They define the law in accordance to specific cases, therefore the general principles we fins in
Spanish law aren’t accepted in common law.
 In civil law jurisdiction the model of contract is a contract between private parties and that’s why
the commercial law separates. But the model of the common law contract is the commercial
contract, and they have to adjust it when the contract is between private parties.
- Objectivity: when courts deal with contracts, they try to find the intentions of the parts. In Spain, Courts give
room to subjective intentions, examining the context and what the parties really want. English contracts are
based on reliance, so your subjective intention is irrelevant. That’s why there’s very little room for mistake in
common law.
In common law, contracts are seen as economic instruments.
- In civil law jurisdictions, contracts are essentially guidelines to what parties must do  the basic structure in
this cases is: A will do x and z; and B, in compensation, will do w and y. Therefore, the only way to not be liable
is that force major occurs.
- In common law jurisdiction, contract is seen as a distribution of risk: it’s not what the parties will do but what
they can guarantee, they distribute the risk. But in CLJ we can also include clauses that minor the distribution

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of risk. The typical obligation in common law contract is the guarantee, meaning the assurance that the other
party will have the specified results. Somebody can be held liable even if there’s force majeure.
Regarding to negotiation: as there’s no duty to negotiate in good faith, there’s no contractual liability if one of the
parties breaches the negotiation or if the party doesn’t execute the contract. So in some cases they try not to spend
money to negotiate unless there’s a contract, even if it’s not the final contract.
There’s only contractual liability if they agree in a contract that binds both parties about how they are going to
negotiate and who’s going to be liable if the negotiations are broken. Also if there’s a lock out contract by which the
parties agree not to negotiate with anyone else (in some cases, they agree to pay the fees of the other parties).
- When the parties don’t want to be bounded by a contract but they want to be sure that they agree more or
less on the general terms of the negotiations, they use a letter of intent (LOI) or a memorial of understanding
(MOU): these are documents where the parties express their intentions. This way the other party knows that
there are going to be serious negotiations going on, although they are not binding. If one of the parties is lying,
it can be liable for tort, but not for breach of contract.
- In some cases also unjust enrichment applies, if the requirements are completed.
Contracts in common law must be certain  the parties have to be able to prove that you agreed in some minimal.
Here they have similar problems to ours regarding the exchange.
SUMMARY
1. Contract law and tort law overlap  in some cases claimants can choose whether they sue based on contract
law or tort law.
2. The transfer of property doesn’t depend on contract, it depends on the intention of the parties to transfer the
ownership  no protection for good faith (nemo dat quad non habet).
3. There’s not a regulation of specific contracts in civil law to be used as a background of the agreement, so the
parties must agree on all part.
4. There’s no an underlying principle of good faith in common law.
5. Objectivity  the intentions of the parties are not… Objectivity = what a reasonable mind would understand
when reading the terms of the contract.
6. Contract is seen as an economic instrument  the model of contract is the commercial one. English take for
granted that parties don’t collaborate, so they negotiate in arm’s length.
7. Contracts are seen as a distribution of risk, not as a guide to what the parties must or must not do. You have
the chance to include a best effort clause to assure it.
8. There’s no liability for breaking negotiations, so the parties must either agree on a contract to negotiate, or at
least give each other some comfort by signing an LOI or an MOU. But if parties lie in the representations in
LOI, they can be found liable for tort, but not for breach of contract.
FORM OF THE CONTRACT  Formality required to the contract to be valid.
The general rule is that no formalities are required to create a contract  exception: some contracts do require
formality:
- Some contracts must be in writing, essentially contracts that create interest1 on land. This rules are always
applied regarding legal interest, but not in beneficial interest.
o Legal interest = interest on land according to common law.
o Beneficial interest = interest on land according to equity.

1
Interest ≈ derecho real.
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(ex. Spanish company and English owner – agreement of option: before the notification of acceptance, English
owner is holding a legal interest on the land; but after the notification, the English owner is holding a beneficial
interest as trustee on the land, because the ownership of the land isn’t transferred until the signature of the owner
so the buyer is the beneficiary of the trust).

- Deed2:
o Common law jurisdictions rarely make use of notary documents (they don’t use the power of the state
to validate certain document). Notaries exist but only to witness documents that have to be used
abroad, but not for domestic matters.
 Notaries are people appointed by the Government who are using the power of the State to
witness and validate contracts and other acts.
 In common law, the notary only witnesses the signature of the document, but not the capacity
of the parties as he does in civil jurisdiction law.
o A deed is a document that fulfills the following requires:
 Intended to be a deed: the parties must say that they want the document to be a deed.
 It must be signed.
 A witness must attest the signature  a witness must confirm that the person has signed the
document. If there are various parties, each one can witness the other.
Reasons of the importance of formalizing a contract as a deed;
1. Deeds are valid contracts even without consideration  as known, contracts only are valid if there’s
consideration but in deeds consideration is not necessary for the deed to be bounding: it would be a
valid contract even if there’s no consideration.
 Consideration is giving or doing something in exchange of the conduct of the other party.
 Consideration must be requested.
 Consideration has an economic value.
 Past consideration isn’t valid = in exchange for the car I gave you yesterday as a gift, we agree
that you will give me a pen  the car isn’t a consideration because is past consideration: it
has been transferred before the contract existed.
2. You cannot deny what you have said as true in a deed, even if you were mistaken about that.
*Regarding to consideration, it consists on giving or doing something in exchange for the object or conduct of the
other party.

- Consideration must be requested.

- Consideration must have an economic value.
- Past consideration isn’t valid  the consideration must be after the agreement (ex. today I give a car as a gift and
tomorrow we agree that, in exchange of the car I gave yesterday, the other person has to give me a pen).
- Consideration cannot consist in an amount of money the party already had to pay.
Primmel’s Case (1906) – Promissory estoppel: equity remedy  essentially means that if I promise something and
after, in second thoughts, I decide to do what I promise not to do, the other part will be able to stop the conduct
that I promise I wouldn’t do.

 According to common law there’s no contract but, in equity, the part can stop the other due to the breach of
the promise.
The requirements of this remedy are: (1) there has to be a promise and (2) there has to be reliance from the
other party.

2
Deed ≈ escritura.
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This remedy can be used as a shield but not as a swore  the part cannot use promissory estoppel to force
the other part to do what he promised to do but to prevent the other part to do what he promised not to do.
However, in the USA courts it is often possible to file a claim based on promissory estoppel.

The leading case in this remedy is Central London Property Trust vs. High Trees House  CLPT was the owner
of a building in the center of London and rented it to HTH and this company rented single apartments to single
tenancies. As the demand was very low due to the world war, HTH asked to CLPT if he could lower the rent
because he wasn’t having income and CLPT agreed to charge less. As the war ended, CLPT asked HTH to pay
what he didn’t pay in the last years: as there wasn’t consideration, the contract of lowering the rent was void.
In this case, the Court established that there was a promise and a reliance and, as CLPT was acting against its
promise by claiming the delays (retards) of the rent, HTH, through promissory estoppel, could stop the conduct
of CLPT.

VITIATING CIRCUMSTANCES  some circumstances vitiate contracts.

Important causes to invalidate the contract:
1. Duress – threads  if you agree to a contract under a threat, that contract isn’t valid under common law.
2. Undue influence – abuse of a position of trust or dependence  a person that is trusted abuses its trust to
take advantage of someone else. The influence is an equitable remedy.
3. Unconscious bargains – one of the parties is much favored than the other  there isn’t a right balance in the
contract: one gets very little in comparison to the other.
4. Misrepresentation 3 when someone represents a fact in a contract as true while being false. Sometimes,
there’s misrepresentation because the promiser knows the fact is false but he lies and states a false fact. But
sometimes, misrepresentations appears because of a negligent conduct.
There are 4 options available:
a) Rescission of the contract (stop the contract)  the parts lose what they had already performed.
b) Breach of contract4  contractual liability. In some cases this can lead to termination of the contract. In
common law, the parties guarantee their representation: if the party has relied in the statement of the
other party, the one who made the false statement is going to be liable.
c) Act. 1967  essentially makes easier to prove misrepresentation: the party who sues for a false statement
has to prove it, and this party will also have to prove if the other one acted willfully or negligently (shift
of the burden of the prof). However, it is presumed that if the statement is false, that’s because of a
negligent act, so the person who made the false statement will have to justify it so he isn’t found liable.
d) Tort  non contractual liability. For deceit5 or negligence.
In common law there isn’t a general obligation to disclose, so not disclosing something isn’t misrepresentation;
unless there’s a rule in the law that makes it mandatory to disclose.

3
Representación/manifestación falsa.
4
Incumplimiento contractual.
5
Engañp
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