AN IN T R OD UC T ION

TO T HE LAW OF
CON T RAC T

P.S.ATIYAH
Formerly Professor of English Law in the
University of Oxford

FIFTH EDITION

CLARENDON PRESS · OXFORD

1995
►

THE DECLINE OF FREEDOM OF CONTRACT 187~1980 15

many circums~ances might virtuaB~ force a per_son to enter into a contract.

even in the mneteenth cent_ury th1~ ~as true m many ways. Most people
had to find a way of earmng a hvmg, and this meant entering into a
contract of employment. Those who could not afford to buy a house had
perforce to rent accommodation of sorne sort. Supplies of water and gas
were rapidly becoming essential for ·the better-off classes, and were
unlikely to be obtainable from more than one so~rce in a particular area.
The railways were already becoming the modero form of travel and,
, certainly by the end of the nineteenth century, virtually the only form of
long-distance land travel. Here, of course, there was no choice and no
competition .
These apparent weaknesses in classical theory carne to seem more
important la ter, when monopolies and restrictive practices became more
widespread; but in the first three-quarters of the nineteenth century., at the
heyday of classical contract law, the British economy was highly competit-
ive, and this meant that there was a considerable degree of freedom of
choice in the market in reality as well as in theory.

4. THE DECLINE OF FREEDOM OF CONTRACT 187~1980

For about a century, starting perhaps around 1870, changes in política}
thought, in social and economic conditions, and in the law, began to take
place at an ever-increasing pace. After the age of freedom of contract
(perhaps best placed in the century between 1770 and 1870) it is not hard to
identify the period from 1870 to 1980 as a period of gradual decline in
belief in freedom of contract. Developments during this period repres-
ented to sorne degree a reversion to older traditions which pre-dated the
age of individualism and freedom of contract. For example, the paternalist
ideology which began to influence much of the law between (say) 1950 and
1980 was in many respects closer to that of the eighteenth century than that
of the nineteenth century. Much of this change was influenced by a
widespread belief that the classical law of contract no longer accorded with
the facts of the modero world in many situations. No doubt, in the purely
business area in which merchants contracted with each other for the
purchase and sale of commodities, or for the construction or manufacture
of plant and buildings, much freedom of contract remained even in the
classical sense. But even here the law héld changed a good <leal, and by
1
980 classical contract law appeared to b~ crumbling fast. Three particular
factors may be mentioned as having had the greatest influence in helping to
destroy the coherence of classical contract law. 'fhe firsf was the
emergence and widespread use of the standard-form contract, the second
Was the declining importance attached to free choice and intention as
grouncts of legal obligation, and the third was the emergence of the
 THE MODERN LAW OF CONTRACT
16
consumer as a contracting party (and perhaps still more as a litigant).
These three factors are , of course , interrelated.

Standard-form contracts
The idea that contracts are based on agreement carne, in an enormous
number of cases, to be true only in a very restricted sense. While it
remained true that, in most cases, the actual creation of a contract (and
hence the essential terms) required the agreement of the parties, it was in
many circumstances no longer true (if indeed it ever was) that the detailed
terms of a contract depended on the agreement of the parties. One reason
for this was the development of the standard-form contract. One result of
industrialization and the emergence of mass commercial market activity
was that most contracts ceased to consist of individually negotiated or
custom-made terms . They carne to be made on standard printed terms
offered by large organizations often on a take it or leave it basis. Toe
consumer remained 'free' in theory but his choice was often restricted to
'taking it' or 'leaving it' . Thus, although nobody could compela passenger
to travel by train, if he wanted to do so he had to do so on the terms and
conditions imposed by the railway companies. He could not negotiate his
own terms. Similarly, if a householder wanted to obtain supplies of gas or
electricity for bis house, he had to enter into a contract on terms laid down
by the suppliers. Even when the goods or services in question were nota
monopoly of a single organization, it was frequently found that the terms .
and conditions which were offered to the public were largely, if not exactly,
identical.
By mid-twentieth century these standard-form contracts had become
one of the major problems of the law of contract. They were to be found in
every walk of life. In most cases it was only true to say that the contract was
the outcome of agreement in a very narrow sense. There was often no
opportunity, and hence no real freedom, to negotiate one's own terms.
The terms were imposed by one party, and the other had no choice but to
accept them or go without. From the very nature of the case, these terms
were liable to be far more favourable to the organization supplying the
goods or services in question than to the individual receiving them. The
organization had every advantage over the individual. It usually had the
ad~antage of large resources, of the best legal advice and draftsmanship, of
bemg able to litigate, if it carne to that, without having to worry unduly
a~out the cost, and, of course, of.knowing that the individual, squirll) as he
m1ght, could not really do without its services. One extremely common and
~roubles?me feat~re º! standard-for?1 contracts was the pr~sence· of 'an
exe_m ptI~n cl_ause , wh1ch often prov1ded that the organization was not to
be hable 1n v1rtually any circumstances whatsoever.
Standard-form contracts also carne to be widely used m transactions
 THE DECLINE OF FREEDOM OF CONTRACT 1870-1980 17

between businessme n. Commercia l agreements for the sale of goods would

normally be recorded in 'order forms' or 'acknowled gements' with printed
clauses; contracts for the carriage of goods by sea would usually be
recorded in a printed 'bill of lading' ; insurance contracts were nearly
always recorded in printed policies, and so on. In cases of this nature there
might be sorne room for negotiation and bargaining, but it remained the
case that most clauses in such contracts were not negotiated but imposed.
The whole of the theoretical edifice of freedom of contract began to
seem questionab le as the magnitude of this problem was perceived. It
became increasingly clear that the great majority of the most important
contracts made by the average citizen were made on terms more or less
imposed on him . For example, the house he lived in was very likely
mortgaged to a building society on terms and interest rates fixed by the
society , often in agreement with ali other building societies. No doubt he
might have been able to get a mortgage elsewhere·, but he would have
found little difference in the terms, and almost certainly none in the rate of
interest. Alternative ly , the house might be let to him by the local authority ,
in which case the terms of the tease were entirely governed by the
6
authority , and were there only to be accepted, not bargained over. Toe
supplies of gas and electricity were, as already mentioned, on terms fixed
by the suppliers. The furniture or car being bought by the consumer on
hire-purchase was always the subject of a contract carefully drafted by a
finance corporation to safeguard its interests , and most astonished the
average citizen would be if he understood these contracts, let alone agreed
to them in any real sense. The insurance policy he took out on his life or car
would, too , be in a standard form , although, of course , the premiums
might have to be adjusted according to the status of the individual
concerned. When he proceeded to his office or factory the average citizen
was still pursued by standard-form contracts. For example , on the bus or
train his ticket was (and indeed , still is) issued subject to innumerabl e
terms which the citizen could peruse , if he cared to read things
incomprehensible to himself, at the office of the appropriate organization .
In many cases, too , his employment would be regulated by a standard
contract. This is a list which could be continued more or less indefinitely ,
but sufficient examples have been given to indicate the extent of the
problem.
Ali this is not to say that there was anything wrong with standard-fo rm

6
In Liverpool CC v. lrwin [1977] AC 239 the Hous: of L~rd_s was faced with a local
authority tenancy which was recorded in a document s1mply hstmg what the tenant was
required to do and what he was prohibited from doing. There was nothing whatever about the
duties of the Jandlord. Since the Housing Act 1980 there are statutory 'implied' terms
goveming sorne of these matters.
18 THE MODERN LA W OF CONTRAC T

contracts in themselves. They had the advantages of saving time, trouble,

and expense in bargaining over terms. They also had the advantage that a
legal decision in one case would very likely provide a guide to disputed
problems in other cases. In an age of mass production it is hardly necessary
to emphasize the advantages of the mass-produced article, and this applies
as much to the mass-produced contracta s to anything else. But what was
quite clear was that many terms of the typical standard-form contract were
not agreed to in any real sense. The reality was that the typical contract was
made on a set of fixed or standard terms with a few blanks allowing for the
insertion of the names of the parties, the particular subject-m atter of the
contract, the price, and perhaps one or two other details. These, of course,
would vary with the case, and there might be sorne room for bargaining
over sorne of these blanks, but the rest of the terms were just fixed, often in
printed forms. Sometimes they were drafted by one party, so they might _
représent his intentions alone; sometimes they were drafted by neither
party, for instance, standard building and engineering contract forms were
(and are) drafted by the Royal Institute of British Architects and the
lnstitute of Civil Engineers, in which case both parties may have only the
vaguest 'intentions' as to what the terms of their contract actually provide-.
Quite often, these standard forms were standard throughout an entire
industry, being, in substance, largely agreed forms of contract which were
adhered to by all firms, thus depriving the consumer of the real benefits of
competition and free choice.

The declining role of free choice

As we have seen, even during the latter part of the nineteenth cel).tury the
importance attached to the intention of the parties was already" ~~i~g, _'
and there were in the law technical reasons for this. One of those reasons
was the simple fact that the law was growing in complexity. This process,
too, continued into this century, and to sorne degree continues even today.
For instance, in recent years the law relating to remedies for breach of
contract has become very much more developed, as the courts have
distinguished between different types of damages which may be awarded,
and have refined and modified the rules governing breaches of contract. It
became increasingly difficult to say, as classical contract theory suggested,
that the only function of the courts in contract law was to 'enforce'
contracts. It became more obvious that the courts rarely 'enforced' any
contracts -what they did was to impose sorne sort of sanction for breach of
contract, in particular, by an award of damages, and it also became more
obvious that the selection of the appropriate sanction was a creative act of
power exercised by the courts.
A second reason for the waning belief in the value of freedom of choice
was growing scepticism about the reality of free choice in the market. As
 THE DECLINE OF FREEDOM OF CONTRACT 1870-1980 19
we have seen, inequalities of bargaining power, social and economic
pressures ( often the pressures of poverty) , and the use of standard forms
were now thought to mean that there was no real freedom of choice in
many situations, whatever the theory of the market. In thus focussing on
inequalities of bargaining power, and on social and economic pressures as
weaknesses in the classical concept of freedom of contract (and to sorne
degree , perhaps also, on standard-form contracts), it may well be that the
critics were attacking the wrong targets. It is true that freedom of choice
was less real and less extensive than classical theory assumed, especially in
the period which began around 1870 or thereabouts . But the real problem
here was not inequality of bargaining power in itself, nor the social and
economic pressures of poverty; it was the growth of monopolies and
restrictive practices of ali kinds. As we shall see more fully in Chapter
17, between about 1870 and 1950 the British economy became
abs9lutely cóvered with a vast network of restrictive practices and
monopolies. It was these developments which restricted freedom of choice
and led many critics and reformers to have doubts about the efficacy and
justice of freedom of contract. But the critics misunderstood the causes of
the trouble . Although economists had been warning of the increasing
- threat from monopolies and restrictive practices from the 1890s onwards,
the politicians, the business world , and the public were not generally
hostile to these developments. Indeed, they were often seen as necessary
protective measures designed to enable British industry to cope with the
threat of competition from the rest of the industrial world. lt is only in the
last decade or two that it has begun to be more clearly understood that, if
the market is truly competitive, and if monopolies and restrictive practices
are under firm legal control , matters of inequality of bargaining power,
pressures in the market-place , and the use of standard-forms are not
recessarily serious threats to freedom of choice.
But probably the main reason for the decline in belief in free choice was
simply a change in political values. The period 1870 to 1980 was one when
collectivist, and even socialist, values became widespread in England. Toe
idea that free and voluntary exchange was the secret to economic
prosperity, and indeed perhaps to a generally freer and more contented
society, went into steep decline during that period. For one thing, there
was an increased sophistication in economic understanding of the
limitations of the system of free contract. In particular, the recognition of
the problem of 'externalities' was a major gain in understanding. An
externality is, roughly, sorne side effect of a free exchange which affects
third parties, and it carne to be seen that, even if an exchange is beneficia}
to the two parties who make it, it will not be in the public interest if there
are externa]ities which outweigh the private gain. Nineteenth-century
England saw massive externality problerns arising from the industrial
20 THE MODE RN LA W OF CONT RACT

pollu-
revol ution --dirt y towns, insanitary accommodation, disease, and
try
tion, and the like, could ali be seen as externa} costs imposed by indus
result
on third parties, that is, the public. Often these externalities were the
which
of prívate contracts, for example, for the rent of undrained lodgings
. It
the parties freely enter ed into, and which they no doub t wanted to make
it
was now increasingly seen that society was perfectly entitled to prohib
nts to
such contracts, if necessary by building drains and forcing the reside
pay for them.
free
But, even apart from the economic limitations of the system of
to
contr act, it also carne to be widely felt that such a system led
rable
unacceptable and unjus t results. The weak and the poor, the vulne
left to
and the exploited, were felt to be in need of protection by the law. If
would
make their own contracts, it carne to be increasingly thought, they
other
inevitably be worsted by rich and powerful contracting parties on the
ere in
side. So the law was called in aid in a multitude of ways to interf
ctual
contracts, prohibiting sorne kinds of contracts, sorne kinds of contra
other
terms, or insisting that other contracts should confer rights on one or
party which were not actually contained in the contract.
y
For these and similar reasons it began to seem that large areas of activit
ct
could not be left to the free choice of contracting parties, and that contra
been
law was anyhow less a matte r of free choice than had previously
of
thought. Huge tracts of law carne to be regulated by legislation, much
also,
which interf ered with or totally overrode freedom of contract. So
imes
sorne judges began to admit that contractual solutions were somet
which
'imposed' on the parties. And there were also many circumstances in
s
issues which were formerly said to depen d on the intention of the partie
law.
carne to be now dealt with as though they simply depen ded on rules of
n
For instance, the freedom of the parties to choose what law was to gover
the
their contract was not looked upon so favourably as formerly;
its
opera tion of the doctrine of frustration was exten ded and freed from
m to
fictitious depen dence on the parties' intentions; the partíes' freedo
ct was
declare in advance what were to be the results of a breach of contra
was
limited by the doctrine of 'fundamental breac h', although that
m
eventually aband oned after the legislature had dealt with the proble
more comprehensively than the courts could evér do.
of
There were, more over, man y other issues, such as questions
d
interpretation or construction which, while they were still said to depen
pt
on the intention of the parties, were often decided without any real attem
the
being made to ascertain this intention. A key area of the law was
is at
doctrine of frustration, which enables a court to declare that a contract
part
an end when it becomes impossible to perfo rm it without fault on the
ne
of either party. In classical theor y, it was traditional to explain the doctri
the
as resting on an implied term in the original contract, and hence on
 OF CON TRA CT 187<:r1980
21
THE DEC LIN E OF FRE EDO M

late r aba ndo ned . The seminal

intention of the par ties , but this theo ry was
ds in Davis Contractors v.
case was the d7ecision of the Hou se of Lor
e from the speech of Lor d
Fareham UD C and the following passag
possible to move from the one
Radcliffe in this cas e exp lain s how it was
theory to the oth er:
implied term of the con trac t that was
Lord Lor ebu rn ascr ibes the dissolution to an
the tendency of English Cou rts to refe r
actually mad e. This app roac h is in line with
of those who mad e it. But ther e is
ali the cons eque nces of a con trac t to the will
the part ies could even impliedly have
something of a logical difficulty in seei ng how
provided for som ethi ng which, ex hypothes
i, they neit her expected nor foresaw ;
lied term of the con trac t has been
and the ascription of frus trati on to an imp
cou rt which consists in applying an
criticised as obsc urin g the true acti on of the
contractual obligations that the part ies
objective rule of the law of con trac t to the
still be of sorne imp orta nce to recall
have imposed on them selv es . ... But it may
of implied term , the solution of any
that, if the mat ter is to be app roac hed by way
what the parties themselves would have
particular case is not to be found by enquiring
warned . Itis not merelyt hat no one can
agreedon had they bee n, as they wer e not, fore
also that the decision mus t be given
answer that hyp othe tica l question; it is
thei r tem pera men ts and failings , thei r
'irrespective of the individuals conc erne d,
8 of frustration 'doe s not dep end on thei r
interests and circ ums tanc es'. The lega l effect
e as to the even t'. On the con trar y, it
9
intention or thei r opin ion , or even knowledg
of the contract must be take n to be,
seems that , ~he n the even t occurs, 'the meaning
neit her thought nor inte ntio n regarding
not what the part ies did inte nd (for they had
onable men , would pres uma bly have
it) , but that which the part ies, as fair and reas
, they had made express provision as to
agreed upon if, having such possibilities in view 10
t of its occurrence'.
their severa! rights and liabilities in the even
become so far dise mbo died spirits
By this time it mig ht seem that the parties have
to rest in peace. In thei r place ther e
that their actual pers ons shou ld be állowed
. And the spokesman of the fair and
rises the figure of the fair and reas onab le man
no mor e than the anth ropo mor phic
reasonable man , who repr esen ts afte r ali 11
cou rt itsel f.
conception of just ice, is, and ·must be, the
as follows . It is not the actual
Lord Radcliffe's wor ds can be para phr ased
ch matters , but wha t they are
agreement or inte ntio n of the part ies whi
agreed or inte nde d. Wh at we
deem_e d , as reas ona ble part ies, to have
onable man would hav e agre ed
requiie to kno w, ther efo re , is wha t the reas
in fact it is the cou rt which
to, or inte nde d in thes e circumstances. But
' for the cou rt to say wha t it
represents the reas ona ble man , and it is thus
e agre ed or inte nde d. lt now
thinks the part ies oug ht rcas ona bly to hav
rt finally imposes is in no real
becomes clea r tha t the solu tion which the cou
ies, but is simply bas ed on a
sense dep end ent on the inte ntio n of the part
rule of law, like any oth er rule of law.
at 510.
7
[1956] AC 696.
8
Hirji Mu/ji v. Cheong SS Co [1926] AC 497
1) 6 App . Cas. 38 at 59.
9
!bid. 509.
10
Dah l v. Ne/son, Don kin & Co (188
11 N . 7 above, at 728.
22 THE MODERN LAW OF CONTRACT

Turning to developments affecting the concept of freedom of contract in

the sense of freedom of choice, we again find that by mid-twentieth century
the classical law of contract was increasingly felt to be out of date. It was,
doubtless, still true that there were relatively few cases where a person was
under a legal obligation to enter into a contract. But pressures of one kind
or another, of which the common law took little notice, might be just as
important as any legal obligation, and these pressures might virtually force
a person to enter into a contract which he had no great desire to make. This
was already true to sorne extent in the nineteenth century, and it became
even ~ore true later. For example, a person might be compelled to join a
trade union (thus entering into a contract) in order to exercise his trade and
earn a livelihood. Or again, a retailer might be virtually compelled to
contract with a wholesaler to obtain the goods necessary for his business.
Similarly, every householder was virtually compelled to contract with the
suppliers of gas and electricity.
Other changes also began to take place which the law of contract had to
grapple with. For example, a person might be given a statutory right to be
supplied with goods or services in certain circumstances (for instance,
under the Health Service) and questions might then arise as to the nature
and incidence of the relationship between the parties. A similar develop-
ment began in other areas which may yet grow in importance, at any rate if
the resurgence of classical principies permits. For instance, in the 1950s a
tenant of business premises was first given, subject to certain conditions, a
statutory right to a new lease on the expiry of his old one. The landlord was
(and indeed remains today) legal/y obliged to grant the new lease. To the
traditional contract lawyer an obligation to enter into a contract seems very
like a contradiction in terms, for a contract has traditionally been seen as
the outcome of a free choice, yet this example is only one of many in
modero law. An even more striking example, perhaps, has been the 'right
to buy' legislation (contained in the Housing Act 1985) imposing a legal
obligation on local councils to sell their houses to council tenants who
comply with certain simple conditions. It is well known that many councils
strongly objected to this legislation, but it was nevertheless passed into
law, and was often enforced against them. What is more, this trend is by no
means dead. In 1993, for instance, Parliament passed the Leasehold
Reform, Housing and Urban Development Act which gives private tenants
the right to buy out their landlords in certain situations, even against the
landlord's wishes. He is forced by law to enter into a contract to sell,
whether he likes it or not.
Then there are modero statutes aimed at the prevention of discrimina-
tion which are clearly based on the assumption that a party should not be
free to refuse to enter into a contract on certain grounds. For instance, the
Race Relations Act 1976 restricts the freedom of various persons, such as
 THE DECLINE OF FREEDOM OF CONTRACT 1870-1980 23

employers and shopkeepers, to refuse to <leal with another on account of

his racial origins. Similarly, the Sex Discrimination Act 1975 makes it
unlawful for the providers of various services to discriminate against
women (or men). These Acts now provide, in certain circumstances, for a
civil remedy for compensation in favour of the person who has been
discriminated against: in effect the complainant may recover compensation
from a person for unlawfully refusing to enter into a contract. The curious
thing is that lawyers do not generally perceive such laws as affecting the
principies of contract law itself: there, free choice remains, in theory, the
ultimate basis of the law.
Then there are many kinds of economic exchanges which carne to be
removed from the area of contract law altogether and handled by public
law. Thus governmental and local authorities provide the consumer with a
wide range of services, such as free education for his children, free medica}
services under the National Health Service, free refuse collection from his
house, and so forth. These 'free' services are, of course, not free-but they
are paid for by taxation in one form or another and not by contract. Here
there is no free choice at all-the consumer has to pay a charge or tax fixed
by legislation or by local authorities, and he often has to pay whether he
needs the service or not, and whether the service is provided or not. What
is more, he has no redress if the service is poor or inefficient. Toe
householder whose dustbins are not emptied cannot refuse to pay any part
of his local Council Tax, nor can he sue for breach of contract. Lawyers do
not think of these exchanges as matters of contract law at all, because they
are governed by quite different legal principies. lt has, for instance, been
said that when a person obtains a prescription from a chemist under the
National Health Service he is not entering into a contract, but is exercising
a statutory right. Similarly, the relationship between a doctor working in
the health service and the local health authority is largely regulated by
complex statutory conditions, and it is uncertain whether the~e is any room
left for the application of ordinary principies of contract law. 12 But
although these exchanges may not be contracts, they perform a similar
economic function, and the more extensive such exchanges are, the less
extensive will be the field of contract and hence of contract law. The law of
contract may remain unchanged but it simply applies to fewer and fewer
transactions, and this was one of the trends observable in our law,
especially perhaps in the period between 1945 and 1980 or thereabouts.
The declining importance attached to free choice and intention as
sources of obligation also appeared to lead to a number of fundamental
shifts in the Iaw and legal thinking, even though these shifts were not
always obvious to the eye. There were, for example, increased signs of a
12
See Roy v. Kensington and Che/sea Family Practitioner Committee [1992] r AC 6 24 .
24 THE MOD ERN LAW OF CONT RACT

willin gness on the part of the court s 'to make a contr act for
the parti es'.
Whe re two parti es enter ed into certa in relat ions (for exam ple,
a man and
wom an set up hous e toget her) it migh t happ en that dispu tes subse
quen tly
occu rred, and that one party woul d come to the court s for help.
In such
cases the court s bega n to show a cons idera ble capa city
for 'mak ing
contr acts'. Anot her majo r shift in the law appe ared to lie in
an incre ased
reluc tance to enfor ce whol ly exec utory contr acts by an awar d
of pure 'lost
expe ctatio n' dama ges, exce pt perh aps in straig htfor ward
comm ercia l
cases . As we have previ ously seen, dama ges for 'lost expe ctatio
ns' are only
justif iable if it is accep ted that a perso n can impo se an oblig
ation on
hims elf, at least in princ ipie, mere ly by inten ding to do so.
Duri ng the
perio d up to 1980 there were sorne signs that the court s felt unha
ppy with
sorne oblig ation s of this chara cter. On the othe r hand , wher e
actua l loss
was cause d to a perso n beca use he had reaso nably relie d on what
anoth er
perso n had said or done , and chan ged his posit ion for the
wors e, the
tende ncy to prote ct him by an awar d of 'relia nce dama ges' was
stron ger.
We retur n to this them e in Chap ter 22. So also, there was a pron
ounc ed
tende ncy for court s to draw distin ction s betw een whol ly
execu tory
cont racts -unp erfor med and unrel ied-u pon contr acts- -on the
one hand ,
and part- exec uted contr acts on the other hand .
The decli ne in the impo rtanc e of contr act law was, to sorne
exten t,
matc hed by a grow th in impo rtanc e in other parts of the law of
oblig ation s.
In parti cular , there was a great grow th in the signi fican ce of the
law of tort,
on the one hand , and the law of restit ution , on the other . Thes
e two other
parts of the law of oblig ation s in a sense flank , and overl ap
with, large
areas of the law of contr act. · The law of tort often prote cts a
part y-by
giving a right to dam ages -who has reaso nably relied upon anoth
er, even
thoug h no contr act has been made by the parti es. Inde ed, it
hardl y goes
too far today to state that there is a gene ral princ ipie of the
law that
reaso nable re_liance on anoth er may creat e liabil ity even outsi de
the area of
contr act. 13 To sorne degre e this is to recog nize that the law may
impo se an
oblig ation on a perso n who has decli ned to assum e an
oblig ation
volun tarily . Simil arly, the law of restit ution may impo se an oblig
ation on a
perso n to pay for bene fits recei ved even wher e he has not actua
lly agree d
or prom ised to pay for those benefits~ Expa nsion of liabil
ity here is
there fore also tanta moun t to impo sing oblig ation s on parti es who
have not
volun tarily assum ed them . So far there is no gener al princ ipie
of Engli sh
law enab ling a perso n to claim restit ution for bene fits rende red
witho ut

13
See Lord Diploc k in The Hanna h Blume nthal [1983] 1 AC 8
later (see post, ~38) many cases of this kind are decide d under a 34 at 91 6 . As we shall see
doctri ne called ' estopp el', but
whate ver label 1s attach ed to the case the result is to protec t
someo ne who has relied upon
anothe r even though there is no full contra ct in the legal sense.
 THE DECLINE OF FREEDOM OF CONT RACT I 87~I9 8O 25
contract-fo r in stance the House of Lords has recently decided that a
person wh_o rescues another's derelict boat, which is dangerously adrift,
cannot claim a salvage _reward if the rescue occurs on a river, though there
has long been s uch ~ nght where a seagoing vessel is similarly salvaged. 14
But m?re _recently sttll the Hous of Lords has done much to place the law
5 7
of rest1tuhon on a broader basis, and developmen t of this form of liability
may indica te a reduced role for contract law. ·

The growth of consumer protection

As we saw earlier, classical contract law was largely unconcerne d with
problems of inequality of bargaining power. But in the twentieth century,
as Parliament carne increasingly to use the taxation system to redistribute
wealth, it also often interfered with freedom of contract in attempts to
protect the weak against the strong or rich. For instance, employmen t
legislation was passed to confer rights on employees which they could not
secure for themselves by contract; hire-purcha se legislation was passed to
protect hirers against unfair treatment by finance companies; and similarly
landlord and tenant Iegislation was enacted to give better rights to tenants.
Legislation for the protection of the consumer also often took the form
of creating criminal offences for conduct which at common Iaw might be
only a breach of contract or even a perfectly legal action. So, for instance,
the Trade Description s Act 1968 made it an offence to offer goods for sale
in false or misleading language. A breach of the provisions of such a statute
may have its effect on the contractual position, although the statute is only
directly concerned with the criminal law. For example, it is now possible to
obtain a compensati on order from a criminal court which convicts a person
of an offence which has caused loss or injury to another person.
The most important consumer protection Act dealing with contractual
rights is the Unfair Contract Terms Act 1977. Further consideratio n is
given to this Act in Chapter r6, and here it is sufficient to say that the
Act greatly restricts the use of 'exemption clauses', whereby contracting
parties protect themselves from legal liability . The Act extends beyond
consumer protection, since it also operates, within limits, where business-
men contract on 'standard written terms'.
Legislative interferenc e with freedom of contract is not , of course,
always directed at redressing the balance between the weak and the strong.
For instance, much Iegislative interference with freedom of contract is
designed to further broad public policy objectives. For many years, for
example, it was the policy of successive British government s to encourage

:: The Goring [1988] AC 831. . . . .

See Lipkin Gorman v. Karpnale [1991] 2 AC 548; Woolw1ch Bu1ldmg Soc1ety v. IRC
[r993] I AC 70.
26 THE MODERN LA W OF CONTRACT

the development of agriculture in order that the nation should not be so

dependent upon the importation of food-something which made the
country particularly vulnerable in wartime. In Johnson v. Moreton 16 the
House of Lords relied upon this public policy in holding that an agricultural
tenant could not contract out of the protections conferred upon him by the
Agricultura} Holdings Act 1948. Indeed, such was the general atmosphere
at that time that the House of Lords insisted that it could no longer
generally be assumed that legislative rights could be freely bargained away.
lt was a matter of construction of the particular statute without any
presumption that freedom of contract would ·prevail over statutory rights.
So also, it became increasingly common in this period to find legislation
with public economic objectives, such as the curbing of inflation. Such
legislaticfo- often resulted in limiting freedom of contract, for instance, by
stipulating that a mínimum deposit was required in certain hire-purchase
transactions, or -even (as was done more than once) by attempting to
.control wage increases by law. Again, in a different class of cases, .
international co-operation was often the origin of legislation which to a
large extent codified the terms of a particular contract, for example,
contracts for the carriage of goods by sea.
The courts who were responsible for handling the common law of
contract rarely attempted to go down the same road, that is, they were very
hesitant to develop principies requiring them to interferé with freedom of
contract, to override contracts freely entered into, even where one of the
parties was manifestly much weaker than the other and incapable of
looking after his own interests. But by the middle of the twentieth century
they were clearly often influenced by the same sort of considerations which
inspired much of this kind of legislation-that is to say, they felt a
sympathy for the small consumer, the weak contracting party who found
himself bound by an unfair or harsh contract of employment or hire-
purchase or the like. And although the courts rarely claimed the power to
override the actual terms of a contract, they could and often did try to help
the weaker party to a contract by less open means, for instance by
'implying' suitable terms, or by a benevolent process of 'construction' of
the terms which were actually found in the contract. By the third quarter of
the present century, academic writers, and then judges and lawyers
generally, began to worry that the presence of inequality of bargaining
power undermined the legitimacy of contracts, and so knocked away one
of th~ props which formerly was used -to justify the imposition of State
coerc1on.

16
[1980] AC 37.