7

Say, for example, that A makes a contract with B. A agrees to sell his very rare car, of which no more are up for sale, to B for £1.

Later, when B comes to collect A's car in exchange for a quid, A refuses to go ahead with the deal. A says that the deal was so ridiculous that no reasonable person would have actually believed that someone would uphold A's end of it.

B sues A because A has not followed through with the deal.

a. Can a court enforce this contract if it were written and signed on paper, or does A's defence hold up?

b. If the contract were verbal, would a court ever be able to enforce it?

c. If A thought his defence would hold up, and thus made the exact same contract with two other people as well as B (without anyone but A knowing), how would a court respond if A lost?

10
  • 1
    I think you’re asking about the doctrine of unconscionability. en.m.wikipedia.org/wiki/Unconscionability_in_English_law
    – SegNerd
    Nov 16 '21 at 21:15
  • 3
    @SegNerd I don't think that's it. It is really about whether one can be held to the "objective" meaning of one's words when the intent, for context, is not to actually make the verbal act of making an offer to enter into a contract, which is quite a subtle point.
    – ohwilleke
    Nov 16 '21 at 22:06
  • This is less an unconscionability question than a consideration question. I'm not sure about the answer the UK, but I believe that most US courts will not inquire into the sufficiency of consideration, meaning that B would win the car, regardless of whether the contract, and the next two people would likely be entitled to funds sufficient to purchase a comparable car.
    – bdb484
    Nov 16 '21 at 22:10
  • 2
    I think @ohwilleke also makes a good point. The courts would have to look also at the circumstances surrounding the formation of the contract to see whether the parties' conduct suggested they were actually engaged in bargaining or just screwing around.
    – bdb484
    Nov 16 '21 at 22:12
  • 1
    An ebay auction of a car worth 5,000 Euro for 1 Euro was valid (or at least entitled the buyer to compensation when the seller didn't sell), but part of the high court's argument was that the chance for such a steal is part of the allure of an auction, a circumstance that also the seller was aware of. Therefore it's not necessarily applicable to general contract law, and it was not GB. Nov 17 '21 at 18:21
16

Consideration has to be sufficient; it does not have to be adequate

See What is a contract and what is required for them to be valid?

  • Consideration need not be adequate; that is, the deal does not have to be "fair".

  • Consideration must be sufficient - this is different from adequacy. Insufficient consideration falls under: performance of a duty imposed by law, performance of a duty imposed by an existing contract, acceptance by a creditor of part payment by a third party, composition with creditors, moral obligation (i.e. you can't do it for love), illusionary or uncertain promises.

Parties are free to make whatever bargain they choose and it is not for the courts to enquire as to whether it was an objectively "good" bargain for both parties. The court does not care why you made the deal you did or if anyone else would make such a deal (with some very narrow exceptions: see unconscionability) or even if you come to regret the deal you made: they will just enforce it.

In fact, contracts where one person promises to pay £1 or some other nominal sum are so common that they have a name: Peppercorn contracts. That's because under common law (civil law is different) "bare" promises cannot be enforced but if I pay you £1 in return for your promise, then we have a contract.

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  • 2
    What about intentions to enter into a contract? If one of the parties (A in this case) thought it would be perceived as a joke and never intended to create a legally binding contract (despite putting his signature on it), do the courts still enforce it? Could A not argue that since he never planned to enter into a legal contract with B, the contract was never formed?
    – Tolga
    Nov 17 '21 at 15:23
  • 2
    @Tolga it’s very hard bordering on impossible to prove that you signed something without intent. You can’t pick up a pen and sign your name if you don’t intend to. In any event, that’s not what the question asks about- it assumes the other elements required for a contract are there, just that the terms are extremely one-sided.
    – Dale M
    Nov 17 '21 at 21:16
  • 6
    @Tolga "Ha, ha, very funny. Give him the car."
    – Dale M
    Nov 17 '21 at 22:10
  • 1
    @Tolga As long as A signs it the courts would not consider that contract a prank. That is why you should ALWAYS read anything you sign. Price alone is not enough for the court to invalidate the contract in the case of A vs B. There are things that are invalid to be put in any contract. If something in the contract is a crime (that is, if A signs a contract to kill B) that the court would consider that contract invalid. So in a lot of countries it is not possible for example to agree to be a slave via contract.
    – slebetman
    Nov 18 '21 at 14:36
  • 1
    ... there is ONE scenario that may cause the courts to invalidate the contract: if A is forced or coerced to sign the contract. But then A must prove that B forced him to sign and just saying "he forced me" is usually not enough.
    – slebetman
    Nov 18 '21 at 14:38
15

There might be legitimate reasons why A made such a contract. For one thing, it might have been a way of making what amounted to a gift to B. A might wish to be rid of the expense of maintaining the car, or think that B could better care for it. A might have wished to, in effect, purchase the good will of B in some other, nominally unrelated matter.

If A later wants to repudiate the contract, a Judge might well ask "If you thought the agreement was so absurd, why did you agree to it and sign the contract?"

There is nothing in the question to suggest that the contract was unconscionable No duress is mentioned, nor any threats. No undue influence or unfair imbalance of bargaining power is mentioned in the question, nor any objective reason to void the contract. Only its alleged absurdity is given as a reason. I think this is not a sound basis on which to declare the contract void.

If it could be established on some outside evidence that A had no intent to enter into a contract, that might be a reason to void the document purporting to be a contract.

English legal sources are not clear on when a contract may be modified, much less voided, to make it "make sense".

In "Contractual interpretation: when can you stray from the strict wording?" lawyer Jason Rix of the firm Allen & Overy discussed the case of Arnold v Britton & ors [2015] UKSC 36, 10 June 2015 it which it was claimed that the exact terms of a contract should be modified because they were absurd or lacked "commercial common sense". The court did not agree.

Rix wrote:

For businesses and lawyers, a new test set out by the Supreme Court will help inform when one can stray from the literal words of a contract and adopt an interpretation that accords with commercial common sense. The Supreme Court has supported a literal interpretation of a 1974 service charge clause in a lease even though it means that it is harsh for the individual tenants. In doing so it has set clear limits on the "commercial common sense" approach to the interpretation of English law contracts. This interpretation meant that the tenants will be paying over GBP 1 million per annum each at the end of their 99-year leases.

There were a number of 1974 leases, with variable wording. However, this article focuses on the following sample clause which provided that the lessee was:

To pay to the Lessor without any deductions in addition to the said rent as a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and renewal of the facilities of the Estate and the provision of services hereinafter set out the yearly sum of Ninety Pounds and Value Added tax (if any) for the first Year of the term hereby granted increasing thereafter by Ten Pounds per hundred for every subsequent year or part thereof.

he lessor argued that the service charge provisions provided for a fixed annual charge of GBP 90 for the first year of the term, increasing each year by 10% on a compound basis. The current lessees primarily argued that this interpretation gave such an increasingly absurdly high annual service charge in the later years of each lease that it could not have been intended. ...

When interpreting a written contract, the court has to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 (see August/September 2009 Litigation Review).

It does so by focusing on the meaning of the relevant words, in their documentary, factual and commercial context. Lord Neuberger (providing the leading judgment in this case) held that that meaning has to be assessed in the light of: (i) the natural and ordinary meaning of the clause; (ii) any other relevant provisions of the contract; (iii) the overall purpose of the clause and the contract; (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed; and (v) commercial common sense; but (vi) disregarding subjective evidence of any party's intentions.

...

Having examined the clauses (and their variations) in detail, Lord Neuberger was not persuaded that anything had gone wrong with the wording. He was also far from convinced, given when the leases were entered into, that the original lessee's agreement was commercially far-fetched (though he acknowledged that it had become so). He didn't even think that reading the words "up to" into the clauses made sense since that would render the cap was so high as to be ineffective. He therefore upheld the literal reading of the clause.

...

for many years, the English courts have moved away from the historic and very strict approach which supposedly used to characterise contractual interpretation. The courts have introduced the "factual matrix" and "commercial common sense" tests, as well as implied terms to cater for cases where a literal reading might otherwise produce extreme or absurd results.

However, "commercial common sense" has a risk of being in the eye of the beholder, and it has been difficult to set useful limits on how and when it might be applied. In this case, recent inflation rates have produced seemingly absurd results for the tenants. However, compounding service charges at 10% annually in 1974 – when some of the leases were first entered into – would equally have resulted in the landlord having to pay considerably more to provide the services than s/he could recover from the tenants who received those services. Viewed in this light, there was nothing inherently offensive to commercial common sense in the construction of the agreement adopted by the majority. Rather, chance meant that the bargain has turned out – so far – to be severely disadvantageous for one side, and highly beneficial for the other. The position could, of course, reverse itself, depending on future inflation rates. Equally, the bargain could have turned out, or could still turn out, to be roughly equal for both sides.

See also "Contract interpretation – who has commercial common sense?" by Shy Jackson, Partner at Bryan Cave Leighton Paisner LLP. In this articled the author writers:

Interpretation is an objective exercise under English law but we know that parties sometimes agree to terms that appear on their face uncommercial but in fact make sense because, for example, the party is investing in entering into a new market or a new relationship, the party’s financial position left it with little choice or perhaps it simply made a mistake. Can the courts take account of such matters or does the objective approach mean that they are simply ignored? In any event, how to decide what makes commercial sense?

5
  • In your answer, you mentiom the test for intent requires the courts to use 'what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean'. Does this mean that the consideration of £1 per se, if clearly, explicitly stated in the contract, could never be enough to void it? Would the relationship between the two have any effect on deciding intent?
    – Tolga
    Nov 16 '21 at 23:18
  • 1
    In such a case I think a court might well consider all the circumstances to determine the intent of the contract, if there was a contract. I cannot be sure how the decision would be determined. I have given my opinion, based on the limited info in the question, in my answer. But that is on a far more limited basis than any real case would have. Thus I cannot be sure how such a case would in fact be decided. Nov 17 '21 at 0:37
  • Thanks for your response. I understand.
    – Tolga
    Nov 17 '21 at 0:40
  • If the intent was for it to be a gift, then contractual obligations do not apply. The only basis for a suit would be estoppel. Nov 18 '21 at 2:55
  • @Acccumulation Perhaps I should have said an effective gift, where a nominal price is paid precisely to create a binding contract. Nov 18 '21 at 2:58
5

You're always allowed to willingly make a deal disadvantageous to yourself.

A would need to prove there was something wrong with the "agreeing" part: e.g.

  • Someone else represented themselves as A
  • A can prove being not of sound mind
  • A can claim coercion or trickery

B would need to debunk that claim and show clearly and overwhelmingly that there was a meeting of the minds after all, and that A did this aware, informed and of clear mind.

While a quid pro quo is not required, it definitely helps B to show there was one. Say B owns an extremely exclusive country club with a 20 year waiting list, and fast-tracks A's membership.

But even if A backs out, B isn't necessarily entitled to fulfillment of the terms if there's no quid pro quo. They would, however, be entitled to be "made whole" of costs they bore from relying on A's word, e.g. renting a secured garage space for months.

4
  • 1
    In U.S. law, charitable pledges aren't enforceable, due to lack of consideration, in the absence of justifiable reliance by the charity and then under promissory estoppel and not on breach of contract grounds. Charitable pledges are the standard example of a contract that isn't enforceable for lack of consideration.
    – ohwilleke
    Nov 17 '21 at 1:47
  • @ohwilleke My DAF thinks an enforceable pledge is a thing. They inform me DAF advisements cannot be used to reconcile them. Nov 17 '21 at 1:48
  • 2
    Your DAF would never in a million years actually sue to enforce a charitable pledge no matter how big they talk. It isn't the way things are done in that world. I've seen funds and charities back down many times.
    – ohwilleke
    Nov 17 '21 at 1:49
  • 3
    @ohwilleke What the DAF is referring to is I pledge $1M to the Shriners, then advise $1M from the DAF to the Shriners, they're saying if the Shriners still demand $1m from me that's not the DAF's problem. But you're right, any charity that p***ed off a donor like that would be certifiably insane, to the point of being an unfit steward of the charity! Anyway I already got rid of the enforceable pledge reference. Thanks for the suggestion. Nov 17 '21 at 1:58
3

Generally in English law a bad bargain - where someone agrees to sell for less than goods are worth - is still enforceable.

However for there to be a contract at all the parties have to intend to enter into legal relations. This is an objective test - would a hypothetical bystander understand the parties to have intended to enter into legal relations? This, of course, depends on all the circumstances. If A and B are billionaires it is just possible that they did intend to enter into legal relations as the value involved may be trivial to them compared to their wealth. But I would suggest that in all normal circumstances a hypothetical bystander would assume that the parties were just joking and did not intend to enter into legal relations, in which case there is no contract of sale.

3
  • Would you say that the decision of whether to recognise the contract depends on the specific actions, words and demeanour of the parties when they signed it?
    – Tolga
    Nov 16 '21 at 22:41
  • Yes. Quite so. .
    – Nemo
    Nov 16 '21 at 22:43
  • Also, if the parties (A and B) that entered into the written contract were not doing so to seriously form legal intentions, what would a court think of B coming to A with the pound to purchase the car?
    – Tolga
    Nov 16 '21 at 23:33
0

Yes-but. (There was another question/answer about this on StackExchange recently, I just can't seem to find it.)

It's a valid (enforceable) contract, but it doesn't necessarily mean that the buyer will end up with the car. What has happened in this case is that the seller has breached the contract. The other party is automatically entitled to damages if the contract isn't fulfilled but anything more than that is at the court's discretion. So the court can optionally compel specific performance--meaning the seller must give the buyer the car, either instead of or in addition to damages--but it's not guaranteed that the court will do that. If it was a more straightforward purchase, such as purchasing an average car from a car dealership, then it would be unlikely that the court would compel specific performance--or even award much in damages beyond just a normal refund.

The moral is that the seller should have made sure there was a termination clause in the joke contract before signing.

0

no reasonable person would have actually believed that someone would uphold A's end of it.

The exact meaning of that part is important, at least in France.

We had many cases where a mistake (typo) changed the price of a 1000€ computer to 1€ (or similar cases). It is usually a 1000x mistake (a car for 15€ for instance).

The context of the mistake was very important. In one case I remember from about 10 years ago, the seller was a large chain of supermarkets. They were almost forced to sell at the lower price because it looked plausible. A supermarket, in some conditions, would sell at really low prices (a super Black Friday for instance). They ultimately managed to prove that such a bargain never happened in France at that scale (but it was a close shot).

The same mistake (still in a supermarket) for everyday supplies would be seen as a genuine mistake and the supermarket would not be required to sell at the lower price.

This is regulated by article 1169 of the Civil Code, which states that an "obviously insignificant price" is grounds for refusal to sell.

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