The basis of the law of contract is also a matter of considerable controversy. Atiyah
has written (1986e) that ‘modern contract law probably works well enough in the
great mass of circumstances but its theory is in a mess’. There are many competing
theories which seek to explain the basis of the law of contract (on which see generally
Smith, 2004).
The classical theory is the will theory. Closely associated with laissez-faire
philosophy, this theory attributes contractual obligations to the will of the parties. The
law of contract is perceived as a set of power-conferring rules which enable
individuals to enter into agreements of their own choice on their own terms. Freedom
of contract and sanctity of contract are the dominant ideologies. Parties should be as
free as possible to make agreements on their own terms without the interference of
the courts or Parliament, and their agreements should be respected, upheld and
enforced by the courts. As Lord Toulson observed in Prime Sight Ltd v Lavarello
[2013] UKPC 22; [2014] AC 436, [47], ‘parties are ordinarily free to contract on
whatever terms they choose and the court’s role is to enforce them’. However, the
will theory cannot explain all of the rules that make up the law of contract. Thus it is
not possible to attribute many of the doctrines of contract law to the will of the
parties. Doctrines such as consideration, illegality, frustration and duress cannot be
ascribed to the will of the parties, nor can statutes such as the Unfair Contract Terms
Act 1977 or the Consumer Rights Act 2015.
The will theory has, however, been revived and subjected to elegant refinement by
Professor Fried (2015). Fried maintains that the law of contract is based upon the
‘promise-principle’, by which ‘persons may impose on themselves obligations where
none existed before’. The source of the contractual obligation is the promise itself.
But, at the same time, Fried concedes that doctrines such as mistake and frustration
(Chapter 14) cannot be explained on the basis of his promise-principle. Other non-
promissory principles must be invoked, such as the ‘consideration of fairness’ or ‘the
encouragement of due care’.
But Fried’s theory remains closely linked to laissez-faire ideology. Fried maintains
that contract law respects individual autonomy and that the will theory is ‘a fair
implication of liberal individualism’. He rejects the proposition that the law of
contract is an appropriate vehicle for engaging in the redistribution of wealth. But his
theory is open to attack on two principal grounds.
The first is that it is difficult to explain many modern contractual doctrines in terms
of liberal individualism or laissez-faire philosophy. The growth of standard form
contracts and the aggregation of capital within fewer hands has enabled powerful
contracting parties to impose contractual terms upon consumers and other weaker
parties. The response of the courts and Parliament has been to place greater limits
upon the exercise of contractual power. Legislation has been introduced to regulate
employment contracts and consumer credit contracts in an effort to provide a measure
of protection for employees and consumers. Such legislation cannot be explained in
terms of laissez-faire ideology, nor can the expansion of the doctrines of duress and
undue influence, or the extensive regulation of exclusion clauses which Parliament
has introduced (see Chapter 11 and, more generally, see Chapter 18, which examines
the law relating to unfair terms in consumer contracts). Conceptions of fairness seem
to underpin many of the rules of contract law (see Chapter 17). Such departures from
the principles of liberal individualism have led some commentators to argue that
altruism should be recognised as the basis of contract law (Kennedy, 1976), while
others have argued that the law of contract should have as an aim the redistribution of
wealth (Kronman, 1980). We shall return to this issue in Chapters 17 and 18.
A second attack on the promise-principle has been launched on the ground that, in
many cases, the courts do not uphold the promise-principle because they do not
actually order the promisor to carry out his promise. The promisee must generally
content himself with an action for damages. But, as we shall see (in Chapter 21), the
expectations engendered by a promise are not fully protected in a damages action.
One of the principal reasons for this is the existence of the doctrine of mitigation (see
Section 21.10). Suppose I enter into a contract to sell you ten apples for £2. I then
refuse to perform my side of the bargain. I am in breach of contract. But you must
mitigate your loss. So you buy ten apples for £2 at a nearby market. If you sue me for
damages, what is your loss? You have not suffered any, and you cannot enforce my
promise. So how can it be said that my promise is binding if you cannot enforce it?
Your expectation of profit may be protected but, where that profit can be obtained
elsewhere at no loss to you, then you have no effective contractual claim against me.
Your expectations have been fulfilled, albeit from another source.
Although you cannot enforce my promise, it is very important to note that in our
example you suffered no loss, and I gained no benefit. Let us vary the example
slightly. Suppose that you had paid me in advance. The additional ingredients here
are that you have acted to your detriment in reliance upon my promise, and I have
gained a benefit. Greater justification now appears for judicial intervention on your
behalf. Can it therefore be argued that the source of my obligation to you is not my
promise, but your detrimental reliance upon my promise or your conferment of a
benefit upon me in reliance upon my promise? Atiyah has written (1986b) that
‘wherever benefits are obtained, wherever acts of reasonable reliance take place,
obligations may arise, both morally and in law’. This argument is one of enormous
significance. It is used by Atiyah (1979) in an effort to establish a law of obligations
based upon the ‘three basic pillars of the law of obligations, the idea of recompense
for benefit, of protection of reasonable reliance, and of the voluntary creation and
extinction of rights and liabilities’. The adoption of such an approach would lead to
the creation of a law of obligations and, in consequence, contract law would cease to
have a distinct identity based upon the promise-principle or the will theory (see
further Section 1.4). This is why this school of thought has been called ‘the death of
contract’ school (see Gilmore, 1974). We shall return to these arguments at various
1.4
points in this book, especially in Chapters 21 and 22.
My own view is that Fried correctly identifies a strong current of individualism
which runs through the law of contract. A promise does engender an expectation in
the promisee and, unless a good reason to the contrary appears, the courts will call
upon a defaulting promisor to fulfil the expectation so created. But the critics of Fried
are also correct in their argument that the commitment to individual autonomy is
tempered in its application by considerations of fairness, consumerism and altruism.
These conflicting ideologies run through the entire law of contract (for a fuller
examination of these ideologies under the titles of ‘Market-Individualism’ and
‘Consumer-Welfarism’, see Adams and Brownsword, 1987). The law of contract is
not based upon one ideology; both ideologies are present in the case law and the
legislation. Indeed, the tension between the two is a feature of the law of contract.
Sometimes ‘market-individualism’ prevails over ‘consumer-welfarism’; at other
times ‘consumer-welfarism’ triumphs over ‘market-individualism’. At various points
in this book, we shall have occasion to note these conflicting ideologies and the
tensions which they produce within the law.