Cameron Miranda
English contract law is the body of law that regulates legally binding agreements in England and Wales, and it has a wide geographic reach due to the historical influence of the British Empire. Many countries that were formerly British colonies retain a system of common law and continue to model their legal systems closely on English law. However, when it comes to contract law, there are some differences between English law and American law. While the fundamental principle of freedom of contract is shared by both systems, differences in interpretation and specific provisions can lead to varying outcomes. For example, the concept of 'good faith' is treated differently, with US law imposing a general duty of good faith in the performance and enforcement of contracts, whereas English law does not have a general implied duty of good faith outside of specific areas such as employment and insurance law.
| Characteristics | Values |
|---|---|
| Popularity | English law is the preferred governing law for business transactions worldwide, even those that don't have any geographic connection with the UK. |
| Historical Influence | English law has historically had a wide geographic reach due to the British Empire. Many former English colonies, including the US, continue to model their legal systems closely on English law. |
| Flexibility | English law is based on the fundamental principle of freedom of contract, which is more flexible than many civil law systems. |
| Good Faith | English law does not have a general implied duty of good faith, unlike US law. |
| Litigation | Litigation in the US is a war of financial attrition, with only 1% of commercial litigation cases ever going to trial. |
| Contract Variations | The definition of consideration in English law has been watered down in the context of contractual variations. |
| Unilateral Mistake | Under US law, the mistaken party can avoid the contract if enforcement would be unconscionable and the innocent party was unaware of the mistake. Under English law, the contract would be void only if the party that is not mistaken knew of the other party's mistake. |
| Contract Terms | English law uses the term "satisfactory quality" in relation to a sale of goods contract, while US law uses the term "merchantable quality". |
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What You'll Learn
Differences in the legal culture of England and America
Despite conforming to similar legal systems, England and America exhibit distinctive legal cultures. This is due to differences in the institutions within their legal systems and the characteristics of legal professionals, such as judges, barristers, and solicitors.
One notable difference between the two countries' legal cultures is their approach to litigation. While litigating similar cases in England and America incurs roughly the same cost, American courts tend to be more generous in awarding damages, particularly punitive damages. This encourages a more litigious culture in the United States, where litigation is often viewed as a war of financial attrition. In contrast, English law takes a narrower view of the concept of good faith in commercial contracts, prioritising each party's right to pursue their interests during negotiations.
The number of judges and lawyers in each country also contributes to the distinct legal cultures. In 1996, there were about 15 times more American judges than English judges, but only about 10 times more American lawyers than English lawyers. This suggests that the English common law system displays a culture of greater prestige and elitism in its judiciary. Additionally, the ratio of judges to lawyers is lower in England than in the United States, further emphasising the prestige and influence of English judges.
Another difference lies in the treatment of criminal records. In the UK, court convictions cannot be deleted from an individual's permanent record, and all records are maintained in the criminal record system for a maximum of 30 years. Conversely, certain criminal records can be permanently sealed or expunged in the US, rendering them inaccessible even to courts and prosecutors.
Furthermore, the legal cultures of England and America diverge in their treatment of the economic consequences of divorce. Most common-law countries, including England, allow judges to use their discretion in reallocating the property and income of spouses based on fairness. In contrast, some American states adhere to the principle of equal division of assets.
While both countries share similarities in proceedings, evidence presentation, and rulings, differences emerge in their legal cultures due to variations in their justice frameworks. For instance, the UK has specific courts for minor criminal offences and civil disputes, presided over by magistrates who handle almost 95% of cases. On the other hand, America has both Federal and State courts, with State courts retaining significant power and autonomy.
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Choice of law and governing law
When entering into a contract, it is crucial to consider the choice of law, also known as the governing law. This is because the choice of law determines which jurisdiction's laws will govern the contract and resolve disputes. The governing law is particularly important in international contracts, where parties from different countries are involved.
In general, jurisdictions are grouped according to common legal cultures, and while there may be differences between countries, these legal cultures share overarching legal principles. For example, the English common law culture includes not only England but also Hong Kong, Ontario, Singapore, Australia, and the United States. All of these jurisdictions are based on the same principles rooted in English law.
When choosing the governing law, it is advisable to select a jurisdiction that is relevant to the contract, such as where the business is located or where production takes place. For instance, if one party is significantly larger, choosing the governing law of the smaller party can be a show of good faith. Additionally, certain jurisdictions may offer specific advantages. For example, New York's strong non-compete laws or France's stronger data privacy laws might be beneficial depending on the nature of the contract.
English law is a popular choice for international contracts due to its wide geographic reach, flexibility, and judicial independence. It provides certainty and predictability, is based on the principle of freedom of contract, and is continuously evolving to adapt to changes in the business environment.
On the other hand, the United States has its own unique features within contract law, such as the Uniform Commercial Code (UCC), which governs commercial contracts and promotes consistency and efficiency. Differences have also emerged between US and English law in areas such as good faith obligations, reasonable vs. unfair contract terms, and the treatment of indirect and consequential losses.
Ultimately, the choice of law and governing law are critical considerations when drafting a contract, and careful thought should be given to the specific needs and nature of the agreement.
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Litigation in the US vs. UK
While the litigation systems in the US and England and Wales share similarities, there are key differences to note.
In the US, litigation is a war of financial attrition, with the party that has more money to spend on litigation holding the upper hand. This is because litigation in the US means settlement negotiations, with only 1% of commercial litigation cases ever going to trial. The US system is also more mercenary, with contracts designed to make one a target for litigation.
In contrast, the English and Welsh system is based on the fundamental principle of freedom of contract, which is more flexible than many civil law systems. English and Welsh courts are required to uphold the Overriding Objective, ensuring that cases are dealt with expeditiously, proportionately, and justly. Parties to a dispute in England and Wales are required to follow pre-action protocols, which include setting out their respective positions and exchanging relevant documents. Failure to comply can lead to costs sanctions.
Another difference lies in the disclosure requirements. In the US, litigants are generally required to make substantial oral and documentary disclosures, although recent amendments have brought this closer to the expectations in England and Wales. In England and Wales, a party to litigation is only required to carry out a reasonable search for and disclose documents that are in their control and support or undermine any party's case.
Additionally, each of the 50 US states has its own procedural laws, requiring lawyers with knowledge of the specific state's laws. In England and Wales, the Civil Procedure Rules apply across all courts, with some variations in relevant court guides.
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Differences in contract interpretation
English contract law is the preferred governing law for business transactions worldwide, even those with no geographic connection to the UK. This is due to its well-known, well-developed, and reputable jurisprudence. English law is also transparent and predictable, providing freedom of contract and a pro-business approach.
US contract law, on the other hand, is more mercenary in nature. Litigation in the US is a war of financial attrition, with settlements rarely based on who has the best argument, but rather on who has the most powerful bargaining position in terms of financing. This makes US contracts designed to make businesses a target for litigation, with the goal of forcing them to spend large sums of money or settle for an unfavourable amount.
- Good Faith: Unlike English law, US law has a general duty of good faith in the performance and enforcement of contracts. This means that neither party should take advantage of the other and that they must inform each other of important points that the other party couldn't reasonably discover on its own. English law, however, does not have a general implied duty of good faith except in limited areas such as employment and insurance law.
- Choice of Words: The choice of words in an American law and English law contract can lead to different results. For example, "best endeavours/reasonable endeavours" is the norm in English law, while "best/reasonable efforts" is the norm in US law. Using different terms than those regularly interpreted by the courts in a particular jurisdiction may lead to unintended interpretations.
- Unilateral Mistake: Under US law, a unilateral mistake allows the mistaken party to avoid the contract if enforcement would be unreasonable and the innocent party was unaware of the mistake. In English law, the contract would be void only if the non-mistaken party knew of the other party's mistake and the mistake relates to a fundamental part of the offer.
- Indirect and Consequential Losses: In US law, "indirect and consequential losses" expressly exclude loss of revenue, production, and profit stemming from a breach of contract. In English law, such losses are often considered direct losses, and clear wording must be used to exclude them.
- Merchantable Quality: The term "merchantable quality" in US law may not be interpreted as equivalent to "satisfactory quality" in English law.
- Limitation Periods: Under English law, the limitation period for most contracts is six years after the cause of action arises, while under Texas law, it is typically four years, and under New York law, it is also six years. For contracts executed as a deed, the limitation period under English law extends to 12 years.
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Historical development of English and American law
The historical development of English and American law has been a dynamic process, with both similarities and differences. The roots of English contract law can be traced back to the Norman Conquest of 1066, when William the Conqueror established a common law across England. This common law evolved over centuries, with local customs and traditions influencing the settlement of disputes. The Magna Carta, which guaranteed merchants safe and secure entry to England for trade, also played a significant role in shaping English contract law.
During the Industrial Revolution, the activism of the judiciary further developed English contract law, particularly in regulating legally binding agreements. English law has had a wide geographic reach due to the British Empire's influence, and many former colonies, including those in North America, initially adopted English common law. This formed the basis of the American legal system, which was further influenced by subsequent American laws and judicial decisions.
American law, or the American common law system, has evolved independently since the formation of the United States. While it began with the adoption of English common law, it has since diverged and developed its own unique characteristics. The American Revolution in the 18th century and the publication of Sir William Blackstone's "Commentaries on the Laws of England" also played a role in shaping American legal principles.
One key difference between English and American contract law is their approach to good faith. English courts have taken a narrower view of good faith, opining that the duty to negotiate in good faith is inherently repugnant to the adversarial position of the parties involved. On the other hand, certain U.S. states, such as Texas and New York, place a greater emphasis on the duty to negotiate in good faith.
Additionally, litigation in the U.S. often leads to settlement negotiations, with only 1% of commercial litigation cases reaching trial. The outcome of these negotiations is often influenced by financial power rather than the strength of the argument. This differs from the English legal system, where litigation is not as prevalent, and cases are less likely to be settled based solely on financial bargaining power.
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Frequently asked questions
English law does not have a general implied duty of good faith, unlike American law. English law is also based on the fundamental principle of freedom of contract, which is more flexible than many civil law systems.
The differences between the two systems can lead to issues when businesses use the wrong terms in their contracts. For example, using English law terms in a contract that is meant to be interpreted and enforced according to New York law can create a "Frankenstein contract", with holes that need to be litigated.
Litigation in the US is a war of financial attrition, with only 1% of commercial litigation cases ever going to trial. The system is more mercenary, with contracts designed to make businesses a target for litigation. In England, the litigation process is more predictable, with a well-developed and reputable jurisprudence.
The foundations of all European contract law, including English law, can be traced back to Ancient Athenian and Roman law. The formal development of English law began after the Norman Conquest of 1066. American contract law, on the other hand, is influenced by civil law countries such as France, due to its historical connections with the Napoleonic Code.
