Reform Of The Law Of Restitution

DOIhttp://doi.org/10.1111/j.1468-2230.1961.tb00654.x
AuthorRobert Goff
Publication Date01 Jan 1961
,J:%s.
1961
REFORM
IN
THE
LAW
OF
CONTRACT
79
manner in which the obligation is broken, even though the obliga-
tion is not one fundamental
per
se.
It
may refer, in other words,
to the breach of contract that'is wilful
or
reck1ess.O
THE
NEED
FOR
REFORM
The doctrine of fundamental breach is subject to the same limita-
tion as the old principle
in
Gibaud's
case.
It
only regulates
exemption clauses in connection with breaches of contract. Even
if the doctrine were developed as far as is reasonably possible,
there would still be
no
general principle of control, only the incom-
plete fragments of a general principle; between the doctrine of
fundamental breach and the other independent rules devised by
the courts to control imposed contracts there would still remain
a
good deal of interdoctrinal space.
Even in the general field of application of the doctrine of
fundamental breach, that is to say, where there
is
a breach
of
contract allegedly covered by an exemption clause, the doctrine,
however fully exploited, may fall short of what is required. Thus,
in accordance with the general principle of freedom of contract,
dominant contracting parties may, and frequently do, contract
out of the common law of damages. This is done by means of two
kinds of standard clause, the liquidated damages clause, and what
may be termed the limited damages clause. The latter subdivides
into two species, the clause that excludes the second rule in
Hadley
v.
Baxendale,
and the clause that sets an uppermost limit, an
absolute ceiling to the dominant party's liability for breach of
contract. Examples of limited damages clauses are found in
laundering contracts and in contracts for the carriage of goods and
passengers by land, sea and air. To such clauses, activated as
they are by
a
breach of the dominant party, the doctrine of
fundamental breach will apply. But, the doctrine is only directed
to the nature of the breach, not to the nature of the limit set to
the damages that may be awarded.
If
the breach
is
not funda-
mental, the courts must enforce the contractual limit, however
unreasonable it may be.
Again, there are imposed standard clauses that are activated
by certain events defined in the contract but not involving any
breach of contract at all. Plainly, such clauses stand entirely
outside the sphere of control of the doctrine of fundamental breach,
and few. are touched by the other independent rules the courts
have devised.
Take, for example, the operation of the liquidated damages
clause. Where there
is
a breach
of
contract, regulation may be
6
Qunere
whether, in theory, the subordinate party would be bound
if
an exemp-
tion clause covering wilful or reckless misconduct were brought to his notice
and agreed by
him
at the time of contracting. Or should the courts require
some concession to the subordinate party in return,
on
the lines of the old
rule
of
the
"
fair alternative
"
in railway law?
80
THE
MODERN
LAW REVIEW
VOL.
24
effected through the doctrine of penalties. But, where there is no
breach of contract, no countervailing rule obtains. This is the case
of the liquidated damages clause in hire-purchase contracts (falling
outside the
1938-54
Acts), in the form of a minimum payment
clause, where the hire-purchaser exercises his right to return the
goods without taking the precaution of first breaking the ~ontract.~
Similarly, neither the doctrine of fundamental breach nor any
of the other independent regulatory rules will apply to those opera-
tional clauses
in
the contract of guarantee that
strip a guarantor
of virtually ail those rights which the law would otherwise confer
upon him-at any rate, where they conflict with the banker’s
interests,”
*
nor, again, to warranty clauses
or
notice of claim
clauses in insurance policies
or
other one-sided provisions in
insurance policies that are purely operational
or
economic in nature.
Doubtless, evidence would be forthcoming of other cases were an
inquiry set in train.
The problem of the imposed, standard contract is one of the
first magnitude of importance that ought to be referred to the
Law Reform Committee.
It
is probable that a pluralist rather
than a single approach would be the more desirable and effective.
There are certain transactions, like insurance, that ought probably
to be made the subject of specialised legislation, which might
create a special tribunal to settle the terms of such transactions.
Other transactions might simply be submitted to the exercise by
the courts of a broad, general principle of control.
In
this case,
the broader,
or
should
I
say, the more uncertain the principle, the
better
:
the criterion of reasonableness is indicated.
2.
TOLERATED LEVELS
OF
DISHONESTY
AND
INACCURACY
One
of
the basic questions of policy a legal system has to answer
is, which kinds
or
degrees of dishonesty and inaccuracy are to be
tolerated and which are to be legally suppressed
or
discouraged
In the field of contract, the question has to be answered with
special reference to the behaviour of parties and the oral and
written exchange between them in the zone of negotiations, that
is to say, with reference, in particular, to the law
of
misrepresenta-
tion, independent oral warranties and undue influence.
On the whole, the law of contract as we know
it
today dates
from no earlier than the end of the eighteenth century. Since then,
the general trend has been towards steadily screwing up the
standards
of
honesty and accuracy in the negotiation of contracts.
The persistent wearing away of the distinction between statement
e
of fact and statements of law, intention and opinion affords a good
7
Associated Distributors
Lid.
v.
PlZ
[1938]
0
K.B.
83.
8
Holden,
Srcuntres
for
Bankers Advances,
at
173-203. See also. Chorlcy,
9
The snbject,
at
present,
of
what
is.
from a common lawyer’s point
of
view,
Lam
of
Bunking, 3rd ed., 248; Paget, Lam
of
Banking.
5th
ed.,
417.
nil
unsatisfactory private agreement in lieu of clear legal rights.

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