02a Contract Law

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1.1.6 CASE LAW OR COMMON LAW
Law is the system of rules which a particular country or

community recognizes as regulating the actions of its
members and which it may enforce by the imposition of
penalties.
Legal Systems
➢ Common Law also called case law
➢ Civil Law
➢ Islamic Law
➢ Others
Common Law
Common law is a peculiarly English
development. Before the Norman conquest,
different rules and customs applied in different
regions of the country. But after 1066 monarchs
began to unite both the country and its laws using
the king’s court. Justices created a common law
by drawing on customs across the country and
rulings by monarchs.
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Civil Law
These rules developed organically and were rarely
written down. European rulers drew on Roman law, and
in particular a compilation of rules issued by the emperor
Justinian in the 6th century that was rediscovered in
11th-century Italy. With the Enlightenment of the 18th
century, rulers in various continental countries sought to
produce comprehensive legal codes.
Judicial precedent
The doctrine of judicial precedent in the
English legal system states that if the facts
of a previous case are similar to the present
situation, then in most circumstances the
decision of the first court should not just be
persuasive but binding on the later court.
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Contract Law
➢ Governed largely by the common law: that is, the body
of law established by judges and followed by the rules
of judicial precedent applied in the civil courts
➢ Statutory legislation is increasingly regulating contract

law by:
➢ primary legislation (acts of parliament)
➢ secondary legislation (statutory instruments and

regulations) 7
CONTRACT
Contracts form the cornerstone of most commercial
activities. Each time a person or a commercial entity
(whether it is a sole trader, partnership or company) wishes
to do business, a contract will almost invariably be entered
into.
A contract is:
an agreement enforceable by law between two or more

parties to do, or abstain from doing, some act or acts
The courts decide if there is a contract by reference to the

essential elements 8
➢ A contract is an agreement between two parties (individuals or
corporate entities or a mixture of both), which creates, for those
parties, legally binding rights and obligations. Contract is part of
the law of obligations and
➢ “obligations are links or ties between persons under which each

may have rights and duties (or be bound) to do, or abstain from
doing something.”
➢ In every contract there must be a meeting of minds (consensus in

idem) on all relevant points. In the formation of a contract the basic
formula is that there must be an offer, followed by an acceptance
meeting the offer. The offer and acceptance are the main ways of
discovering whether an agreement has been reached
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1 . FORMATION OF CONTRACT
➢AGREEMENT (OFFER AND ACCEPTANCE)
➢CONSIDERATION
➢CONTACTUAL CAPACITY
➢INTENTION TO CREATE LEGAL RELATIONS
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Offer: A Legally binding promise, made by one party
(normally the seller, offeror ) to another party (Buyer,
offeree) to enter into a contract.
Offer is one of the central parts of a contract. It is the expression

by words or conduct of a willingness to enter into a legally
binding contract and it must specify the terms of the contract
which will be formed, should the offer be accepted.
It is distinguished from an invitation to treat which is not

a binding offer but merely an invitation to another
party to make an offer
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Acceptance:.
An express act or implication by conduct that manifests assent to the
terms of an offer in a manner invited or required bythe offer so that a
binding contract is formed. It is the mirror image of the offer.
➢ The acceptance must be always communicated and can only

be accepted by the offeree, that is, the person to whom the
offer is made.
➢ If the offer specifies a method of acceptance, acceptance must

be by a method that is no less effective from the offeror's point
of view than the method specified.
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➢ Normally, silence will not suffice as acceptance of an offer. This is
obvious. Not only is it obvious, it also prevents someone from
making an offer and demanding a reply by a certain date, and
stipulating that silence will be taken to be acceptance. Such an
attempt will not normally succeed, It may be acceptable if
➢ Firstly, where the acceptor agrees that this should be the case.
For example, “...if A offers to sell his car to B and B replies: ‘I’m
not sure; let me think it over and if I don’t telephone you by
midday tomorrow, you can assume that I’ve bought it.
➢ Secondly, where there has been a course of dealing between the

parties, silence can amount to acceptance.
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RULES OF OFFER
➢ Revocation of Offer: An offeror may revoke the offer before
it has been accepted, but the revocation must be
communicated to the offeree.
➢ Death of offeree: An offer is rendered invalid upon the death

of the offeree.
➢ Death of offeror: Generally death (or incapacity) of the

offeror terminates the offer. The offer cannot be accepted if
the offeree knows of the death of the offeror.
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➢ Postal Acceptance rule: As a rule of convenience, if
the offer is accepted by post, the contract comes into
existence at the moment that the acceptance was
posted provided that it is addressed to offerer’s usual
place of business or such address as may be stipulated
in the offer. This rule only applies when, impliedly or
explicitly, the parties are in agreement with post as a
means of acceptance.
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➢ An invitation to treat: It is not treated as an offer, but an
indication of a person's willingness to negotiate a contract.
For example, an indication by the owner of a property that he
or she might be interested in selling at a certain price, has
been regarded as an invitation to treat.
➢ Whether an act is construed as an offer or an invitation to

treat is dependant on the intention of the parties. The
difference is significant because an invitation to treat cannot
be legally accepted
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CONSIDERATION
➢ Consideration: A contract must be supported by valid
consideration in order to be enforceable. The idea is that
both sides must get something in return. If consideration is
lacking a “contract” may be regarded as an illusory promise
not enforceable in court. Example: Usually supply of goods
or services in return of money. Sometimes trade in of goods
is also an example.
➢ Consideration must be valuable, but need not be

adequate (it must have some monetary value, but the
courts don’t care whether the agreed amount is fair).
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➢ Consideration must be sufficient (certain acts and
omissions are insufficient, such as doing something that
you are already required to do by law or by an existing
contract).
➢ Consideration must move from the promisee (in other

words, you personally must have provided the
consideration, not someone else, if you try to enforce it).
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➢ Past consideration is not good consideration
➢ Consideration must be provided at the time the contract is made or

very shortly afterwards. What this means is that a person cannot
rely on an act that has happened prior to the contract being made
as consideration
➢ Performance of existing contractual obligations cant be good

consideration for a new promise Stilk v Myrick
➢ An existing public duty will not amount to valid

consideration
➢ Part payment of a debt is not valid consideration for a

promise to release the debt in full
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CAPACITY
➢ The parties must be legally capable of entering a binding agreement.
Not all persons are deemed legally capable of entering a contract.
Minors (young people who have not reached adulthood) for example,
have restricted capacity to enter contracts and the law provides extra
protections for them in the contracts they do enter into. Some adult
individuals may also lack the legal capacity to enter some types of
contracts and legal persons (such as corporations) may have
different rights and regulations about contracting.
➢ A company is capable of entering a contract in its own name, but not

until it has been properly formed
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LACK OF CAPACITY one of the parties did not have the legal
capacity to enter into the contract. Certain persons are regarded
as being unable to legally contract. If it can be established that
one or both of the contracting parties fall into any of these
categories, the contract may be set aside (cancelled).
➢ Children
➢ Companies A company should only enter into contracts

within the terms of its stated objects.
➢ Mentally Incapacitated
➢ Incapacity caused by alcohol or drugs
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➢ Intention to Create Legal relations
Some agreements are not intended to be legally enforceable, their
nature being such that a reasonable man viewing the words and
conduct of the parties objectively would not conclude that they
intended to create legal relations. For example, a reasonable man
would not expect an enforceable legal obligation to spring from a
mere social engagement, such as an invitation to lunch, despite the
presence of all the other essential elements necessary to create a
binding agreement.
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Battle of Forms
Sometimes the parties are so careful A contract is never
concluded but goods are delivered and paid for
In such cases, the offer/acceptance analysis is strained to

breaking point. A typical example of this situation might help
illustrate the problem. Company A orders goods/services from
Company B. An order is placed using the standard order form of
Company A, which is sent to Company B. On the reverse of that
order form, there are pre-printed standard terms and conditions
covering a range of matters such as delivery, price, right to
withdraw, timing of payment, standard of goods, etc.
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Company B delivers the goods, and with the goods is a delivery
note, which is signed by the person receiving the goods. On the
back of the delivery note is an equivalent set of conditions for
Company B. A dispute arises regarding (for example) the quality of
the goods delivered. On that matter, the standard term on Company
A’s order form conflicts with the equivalent term in Company B’s
delivery note. The question for the court is: which term (if either)
applies?
The case of Butler Machine Tool Co. Ltd. v Ex-Cell-O Corporation

(England) Ltd. [1979] 1 WLR 401, established the Last shot Rule
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Vitiating factors:
A contract can be defined as ‘a promise or set of promises which the law will enforce'
The agreement will create rights and obligations that may be enforced in the courts.
However there are situations where the parties have reached agreement but the
question arises whether the existence or non-existence of some fact, or the occurrence
or non-occurrence of some event, destroys the basis upon which that agreement was
reached so that the agreement is discharged or in some other way vitiated. There are
five vitiating factors,
misrepresentation,
mistake,
duress,
undue influence, and
illegality.
Lack of Formality
➢ Most contracts can be agreed in any form: orally, by formal

deed, exchange of faxes, e-mails, telexes, etc. However,
some types of contract are required to be constituted (formed)
in writing, and in a particular manner, in order to be valid and
enforceable. Where such a contract is not agreed in writing, it
may be possible to have it set aside (cancelled).
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Subject Matter Invalidity The law will not tolerate certain
contracts. The subject matter of these contracts are not
regarded as desirable and, as a result, such contracts may be
declared invalid. Sometimes these contracts are referred to as
‘illegal’ contracts. examples of such contracts are
➢ Agreements contrary to good morals
➢ Agreements to commit a crime or civil wrong
➢ Agreements in restraint of trade
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➢ Effect of Illegal Contract/Contract Clause (Ilegal by subject
matter) The general position is that the courts will refuse a request
to enforce an illegal contract or contract clause. However, if this line
were followed strictly, sometimes this would leave someone out of
pocket, perhaps a party who had acted innocently throughout
➢ Rule 1: Where parties equally at fault (in pari delicto), any loss
lies where it falls
➢ Rule 2- Where parties not equally blameworthy, the ‘guilty’

party can never sue on the contract
➢ Rule 3- Where parties not equally blameworthy, the ‘innocent’

party can sue on the contract if he made a mistake about the
illegality 28
Duress
➢ Duress in contract law relates to where a person enters
an agreement as a result of threats. Where a party
enters a contract because of duress they may have the
contract set aside. Originally, the common law only
recognized threats of unlawful physical violence,
however, in more recent times the courts have
recognized economic duress as giving rise to a valid
claim. Where the threat is to goods, the courts have
been less willing to intervene, although analogous claims
in restitution suggest that this position of the law may
change 29
The basis of the duress as a vitiating factor in contract
law is that there is an absence of free consent. Duress
operates at common law. Pressure not amounting to duress
may give rise to an action for undue influence in equity.
The effect of a finding of duress and undue influence is that

the contract is voidable. The innocent party may rescind the
contract and claim damages. The normal bars to rescission
operate
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Undue Influence
➢ Undue influence exists where a contract has been
entered as a result of pressure which falls short of
amounting to duress, the party subject to the
pressure may have a cause of action in equity to
have the contract set aside on the grounds of undue
influence. Undue influence operates where there exists
a relationship between the parties which has been
exploited by one party to gain an unfair
advantage. Undue influence is divided into actual
undue influence and presumed undue influence
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Where a contract is found to be entered into as a result of
undue influence, this will render the contract voidable. This
will enable the person influenced to have the contract set
aside as against a party who subjected the other to such
influence. In addition, in some instances the party
influenced may be able to have a contract set aside as
against a party who was not the person inflicting the
influence or pressure.
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Mistake
English contract law recognizes three types of mistake:
➢ Common mistake - Where both parties make the same

mistake Common mistakes exist where both parties to the
contract make the same mistake. Where the mistake is
fundamental, or goes to the root of the contract, the position adopted
by the law is that a valid contract was never formed. In other words,
the essential ingredient of consensus in idem (a meeting of the
minds) never really occurred. Generally, whether a common mistake
has occurred is a question of fact decided by the court.
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Three categories have emerged as giving rise to a cause of
action:
➢ Res extincta - the subject matter of the contract no longer

exist For example A contract for life insurance for a
person who was already dead when the contract was
concluded.
➢ Res sua - where the goods already belong to the

purchaser
➢ Mistake as to quality
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Mutual Mistake
➢ Mutual mistake - Where the parties are at cross purposes
The courts apply an objective test to see if the contract can be

saved. ie would a reasonable person looking at the
correspondence between the parties have understood the
contract to have a single meaning. If yes the contract is valid on
that meaning. If a reasonable person could not determine the
meaning then the contract will be void for mistake:
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Unilateral Mistake
➢ Unilateral mistake - Where only one party is mistaken In
unilateral mistakes only one of the parties is mistaken. The basic
rule is that such errors do not affect the validity of the contract: the
contract remains valid. However, in some cases, a unilateral
mistake can give grounds for having the contract set aside. This
occurs when the other party is aware of the error being made and
seeks to take advantage of it. Where he does so, the unilateral
error can allow the party to have the contract cancelled.
➢ There are two categories within unilateral mistakes: mistakes

relating to the terms of the contract and mistakes as to identity.
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Misrepresentation
➢ A misrepresentation is a false statement of fact or law
which induces the representee to enter a contract by creating
a error in the mind of one of the parties.
➢ Where a statement made during the course of negotiations is

classed as a representation rather than a term.
➢ An action for misrepresentation may be available where the

statement turns out to be untrue.
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In order to amount to an actionable misrepresentation certain criteria must be
satisfied:
There must be a false statement of fact or law as oppose to opinion or

estimate of future events
What is a Statement?
➢ Conduct as a ‘statement’ Sometimes conduct alone can constitute a

‘statement’, and therefore, a misrepresentation.
➢ Expression of Opinion as a Statement The statement must be a false

one of fact. So, a statement of opinion does not normally qualify
➢ Statements of Law Such a statement can qualify as a statement of

fact, although the statements in this category often involve applying
the law to the facts. 38
What is a Misrepresentation?
Assuming the utterance is a statement of fact, how do we know when it

is a misrepresentation? We will now consider this question.
➢ Indication of Future Intention A misrepresentation is not made when

one party indicates his future intention, and then changes his mind
and does something different, as long as he does so innocently
➢ Half- truths Where a statement is made and only part of the story is
told (albeit truthfully) and some of the position remains undisclosed,
this can be regarded as a false statement of fact.
➢ Silence Can a misrepresentation be made by saying nothing? There

are some cases where there is a duty of disclosure implied by the law
and where a failure to disclose will, therefore, constitute a
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misrepresentation
The Misrepresentation Must be Material
Assuming the aggrieved party can establish that a

misrepresentation was actually made, it must be a material one
in order to form the basis of an argument to cancel the contract.
The test of whether this is the case involves considering whether
the misrepresentation would positively influence a reasonable
person into entering the contract. As is always the case in
contract law, an objective approach is taken, so the question is
not whether it positively influenced that particular party to enter
the contract. So, trivial false statements will have no effect on
the validity of the contract
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The Misrepresentation Must Induce the Contract
The party seeking to cancel the contract on the basis of a

misrepresentation must establish that he entered the contract in
reliance of it. This does not mean that the misrepresentation
must be shown to have been the only reason the contract was
entered into, only that it was one such reason.
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Types of Misrepresentation
➢ There are three types of misrepresentation: innocent,

negligent and fraudulent. It is important to distinguish between
them since, as we will see, the remedies available where an
argument is successfully made depend on the type involved.
Fraudulent Misrepresentation
➢ fraud is proved when it is shown that a false representation

has been made (1) knowingly, or (2) without belief in its truth
or (3) recklessly, careless whether it be true or false
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➢ Negligent Misrepresentation Here, as stated above, there is a belief
that the statement being made is true. However, it is only in cases
where the maker of the statement can be relied upon to use his skill,
knowledge or expertise in the relevant area, where the possibility of
a negligent misrepresentation arises. In other words, if someone
with no knowledge or qualifications in the area concerned makes a
statement, there would be no reason to rely upon it. So, negligent
misrepresentations can only be made by certain persons
➢ Innocent Misrepresentation Here the false statement is made in the

honest belief that it is true, but in circumstances where the statement
has not been made negligently.
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Remedies for a Contract Induced by Misrepresentation The
affect of a finding of misrepresentation is the contract
is voidable ie the contract exists but may be set aside by the
representee.
The remedy available depends on the type of

misrepresentation, but generally consists of rescission and or
damages. The right to rescind the contract may be lost in some
circumstances.
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Terms of Contract
Express Terms
An express term of a contract is one that the parties have specifically

agreed upon. Most commonly, express terms are to be found in
written contracts. However, an express term can be one agreed
orally.
There is a common law rule known as the parole evidence rule. This
rule provides that where a written contract exists between the parties,
they cannot introduce other express terms not contained in the
written contract itself. However, this rule only applies where the
contract is wholly in writing. Where it is alleged that there are oral
terms too, the party seeking to rely on those terms can argue that the
rule does not apply since the contract was not wholly in writing. 45
Terms Incorporated by Reference
Here, the whole terms of the contract are not to be found in the main
contractual document, where the contract is a written one. Instead, the
main contract refers to terms in another, separate document and seeks
to incorporate them.
➢ Where the Referring Document is Signed If the party affected by

the terms signs a document referring to them, he is taken to have
accepted those terms whether or not he read the referring document
properly, or indeed at all.
➢ Incorporation by Notice Here, the party who seeks to disown the

terms referred to does not sign a contract referring to them: his
attention is drawn (or attempted to be drawn) to them by a notice.
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➢ Incorporation by Course of Dealing Sometimes parties deal
with each other regularly. Often in such cases, they do contract
on the basis of standard terms and conditions. Where on each
occasion there is a contract, properly incorporated, there will be
no difficulty. However, what is the situation where, on a
particular occasion, the terms used previously are not
incorporated? Can an aggrieved party still rely on them on the
basis that the parties have always contracted in the past on the
basis of the conditions? The answer is “yes”, as long as the
course of past dealings has been sufficiently consistent
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Implied Terms
These are terms that are assumed to exist in a contact. They are
not agreed between the parties, either orally or in writing, but the
law assumes that they exist. They are invisible. However, when
they are assumed to exist, they have equal force to the express
terms of the contract: they are not inferior in any way and can be
fully enforced.
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Implied Terms
Implied terms are not written in the contract but implied by the
courts to give business efficacy to the contract
➢ the parties must have intended it
➢ it is so obvious it goes without saying
➢ implied by statute, for example, Sale of Goods Act
➢ implied by custom
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Terms Implied by Law These are terms forced upon the parties by
law in certain situations. No account is taken by the law of the
intention of the parties, presumed or otherwise. This goes against the
classic theory of contracts which provides that they are purely
consensual devices. However, the law regards certain situations as
being so worthy of protection that the usual theory is ignored.
The main examples of such implied terms are those involving

consumer protection, in other words contracts where an individual is
contracting to buy goods or services from an entity which is trading
in those goods or services.
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Interpretation
Assumption: the parties mean what they say and say what they mean
Words are given their ordinary and natural meaning
➢ More than one interpretation,
1. the court will favor the one giving effect to the contract
2. sever the one which may nullify the contract
3. and only so far as to give efficacy to the contract
If a term is unclear or ambiguous, the court will apply the contra

proferentum rule the clause is interpreted against the party seeking to
rely on it. 51
Conditions and Warranties
➢ conditions - an important term; breach entitles injured party to
discharge the contract and damages
➢ warranties - less important; breach entitles injured party to

damages
➢ innominate term - the remedy depends on the nature of the

breach Whether a condition or warranty depends on the
intention of the parties
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Representation
Statements made during negotiations are representations
inducing but not forming part of the contract or promises or
undertakings that are terms of the contract
Whether a representation or a term depends on
➢ the intention of the parties the manner in which the statement

is made
➢ the timing of the statement
➢ the importance of the statement
➢ specialist knowledge or skill of the party making the

statement 53
Breach
The Remedies for breach can be
➢ Damages
➢ Repudiation
➢ Rescission
➢ Specific performance
➢ Injunctions
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Damages
➢Damages in contract law are a legal remedy
available for breach of contract. Damages
are an award of money to compensate the
innocent party. The primary purpose
of damages in contract law is to place the
injured party in the position they would
have been in had the contract been
performed.
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➢ Damages are compensatory; they are not usually
intended to be punitive.
➢ The parties may agree a sum (called liquidated

damages) to be paid in the event of breach, or
they may not discuss this point at all. In the
latter case, the court will determine the damages
payable (unliquidated damages).
➢ If the ‘liquidated damages’ in a contract are too

punitive, the court will regard this as a penalty
clause, and will not uphold it. 56
➢ When assessing unliquidated damages, the court
considers remoteness of damage (no compensation
for loss that could not reasonably have been
foreseen) and the measure of damages (how much
does the injured party need by way of
compensation?)
➢ The claimant must take all reasonable steps to

mitigate (i.e. lessen) any loss caused to him by the
defendant’s breach of contract. Compensation will
not be awarded for any damage incurred which the
claimant had a reasonable opportunity to avoid. 57
Repudiation
Repudiation is a remedy available for
breach of contract. Repudiation involves
bringing an end to the contract. It is only
available for breach of condition as oppose
to breach of warranty:
58
Rescission
➢ Rescission is an equitable remedy available at the
discretion of the judge. Rescission seeks to place the
parties back in their pre-contractual position and thus
represents an unraveling of the contract. Rescission is
available where a contract is voidable as a result of a
vitiating factor such as misrepresentation, undue
influence or duress. The right to rescind may be lost if
the claimant affirms the contract, where a third party
acquires rights in the goods, through lapse of time or
where restitutio in integrum is not possible. 59
Specific performance
➢ Specific performance is an equitable remedy available at
the discretion of the judge. It is an order by the court
requiring one party to perform their contractual
obligation. Whilst it is often said that contracts are made
to be performed and parties should be held to their
contractual obligations, the courts are often reluctant to
order a party to unwillingly perform the contract and
specific performance is only available in limited
circumstances. In considering whether to grant specific
performance the courts look to whether damages would
be an adequate remedy, the type of contract and whether
equity requires such an order. 60
Injunctions
Injunctions are another form of an equitable remedy
available only at the discretion of the judge. There
are three types:
Interlocutory or interim (temporary injunction until a
court hearing)
Prohibitory (a court order that a party must not do

something)
Mandatory (an order that a party must do

something) 61
Injunctions
There is an overlap between mandatory
injunctions and specific performance which has
been recognized by the courts. The courts will
not grant an injunction in circumstances that
would in effect be an order for specific
performance where it would not generally be
allowed
62
Discharge of a contract
➢ A contract imposes obligations on the parties from which they
may be discharged in various ways. The main ways in which a
contract may be discharged as follows.
➢ • Performance: both parties do exactly what they agreed to do.
➢ • Agreement: both parties agree to terminate before completion.
➢ • Breach: one party breaches a term of the contract.
➢ • Frustration: circumstances change and it becomes impossible

to fulfill the contract
63
Performance
A contract becomes discharged through performance where

both parties have fully performed their contractual obligations. If
one party does not fully perform the contract this will amount to a
breach of contract and the other party may have a claim for
damages unless the contract has been frustrated. If the non-
performance amounts to a repudiatory breach (breach of
condition) the other party will be released from their obligations.
64
Agreement
➢ A contract may be discharged by agreement when both
parties agree to bring the contract to an end and release each
other from their contractual obligations. For a contract to be
discharged through agreement there must be Accord &
Satisfaction.
➢ Accord = agreement
Each party must agree to end the contract. The agreement must
be freely given.
➢ Satisfaction = consideration
65
. parties must also provide consideration. If both
Both
parties have continuing obligations then generally the
consideration will be simply each of them giving up their
rights under the contract. The only time consideration
becomes an issue is where one party has fully
performed their part of the contract when the other has
not. The non-performing party must then provide
consideration to make the agreement binding. Also if the
agreement is made by deed there is no requirement to
provide consideration. There is in effect a contract to
end a contract. 66
Discharge by breach
A contract may, in some circumstances,
be discharged by a breach of contract. Where
there exists a breach of condition (as oppose to
breach of warranty) this will enable the innocent
party the right to repudiate the contract (bring the
contract to an end) in addition to claiming
damages. A contract cannot be discharged by a
breach of warranty.
67
Anticipatory breach
Where a party indicates their intention not to

perform their contractual obligations, the
innocent party is not obliged to wait for the
breach to actually occur before they bring
their action for breach:
68
Frustration
A contract may be discharged by frustration. A
contract may be frustrated where there exists a change
in circumstances, after the contract was made, which is
not the fault of either of the parties, which renders the
contract either impossible to perform or deprives the
contract of its commercial purpose. Where a contract is
found to be frustrated, each party is discharged from
future obligations under the contract and neither party
may sue for breach.
69
Frustration fall in one of the following descriptions:
➢ • Impossible
➢ • Illegal
➢ • Subject matter unavailable
➢ • Impractical
➢ • Radically different from that originally

contemplated by the parties
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➢ AGREEMENT AND CONTRACTS
➢ Bilateral Contract: It is type of contract where both the parties to the contract
makes the promises. (An example of a bilateral contract would be the contract for
the sale of a home. A home buyer agrees to pay the seller a certain amount of
money in exchange for the title to the home; the home seller agrees to deliver the
title in exchange for the specified sale price. When the contract is not fulfilled there
is a breach in contract.
Unilateral Contract: It is type of contract where only one party referred as the
promissory makes the promise.
➢ The classic example of a unilateral contract is a newspaper notice offering a reward

for the return of a lost dog. The offeree is under no obligation to look for the dog, but
if he or she does in fact return the dog, then the offeror owes him or her reward
money. Another example is a brokerage company that promises to pay a $1,000
bonus to the salesperson who sells the most units in a specific condominium project
71
➢ Quasi contract: (Implied in law) This is not an actual contract. It is
based on the concept that a contract should have been formed. These
are obligations imposed by law to prevent the unjust enrichment of one
person at another’s expense.
➢ Implied Contract: (Implied in fact) This is a contract in which the

terms of contract are wholly or partly inferred from the conduct of the
parties (work out from available information) or the surrounding
circumstances and their tacit understanding (means without being
stated). ( Example Doctor & Patient)
➢ Express Contract: It is a contract in which all the terms of the contract

are agreed either in verbal or a written form. It is the opposite of
implied contract. (Normal Contract)
72
➢ The legal requirement that an express contract must be supported
by consideration requires that the parties exchange something of
value, or suffer a detriment, for their promised performance under
the agreement. The element of consideration is most frequently
satisfied by the payment of money in exchange for goods delivered
or services rendered to the other party. An agreement in which one
party offers to paint another’s house in exchange for the payment of
$1,000 US Dollars (USD), satisfies the requirement for
consideration, because neither party was legally obligated
previously to do the acts that the contract requires.
➢ As is: A contract phrase referring to the condition of the goods or

service to be exchanged at the moment of transaction and used as
a disclaimer of liability.
73
➢ Adhesion or Boilerplate Contract: It is between two parties where
the terms and conditions of the contract are set by one of the parties,
and the other party is placed in a "take it or leave it" position with little
or no ability to negotiate terms more favorable to it. (Examples of
standard form contracts are insurance policies (where the insurer
decides what it will and will not insure, and the language of the
contract) and contracts with government agencies (where certain
clauses must be included by law or regulation)
➢ Verbal Contract: It is a contract that is verbally agreed and is still

enforceable. There can be many exceptions, therefore it is ‘Best
practise’ to conclude all the contracts formally in writing. (Verbal
Instructions)
➢ Aleatory contract: It is a contract in which the performance promised

by at least one party, depends upon the occurrence of an uncertain
74
future event. Insurance Policy contract is an example.
➢ Novation agreement: It is a legal instrument executed by one party
(transferor), the successor in interest (transferee) and the buyer, by which
the transferor and transferee guarantees the contract performance and the
buyer recognizes the transfer of contract.
➢ For example, if there exists a contract where A will give a TV to B, and

another contract where B will give a TV to C, then, it is possible to novate
both contracts and replace them with a single contract wherein A agrees to
give a TV to C. Contrary to assignment, novation requires the consent of all
parties
➢ Another classic example is where Company A enters a contract with

Company B and a novation is included to ensure that if Company B sells,
merges or transfers the core of their business to another company, the new
company assumes the obligations and liabilities that Company B has with
Company A under the contract. So in terms of the contract, a purchaser,
merging party or transferee of Company B 'steps into the shoes' of
Company B with respect to its obligations to Company A. 75
Unconscionability: By the contract law this term used to describe a
defense against the enforcement of a contract based on the presence of
terms that are excessively unfair to one party. Typically, such a contract is
held to be unenforceable because the consideration offered is lacking or is
so obviously inadequate that to enforce the contract would be unfair to the
party seeking to escape the contract.
Breach of Contract: This refers to the failure without any legal excuse, to
perform any promise which forms the whole or any part of the contract.
76
➢ Nondisclosure agreement (NDA): Also known as confidentiality
agreement, is a legal contract between at least two parties that outlines
confidential material, knowledge, or information that the parties wish to
share for a certain purposes, but wish to restrict access to by third parties.
➢ NDAs are commonly signed when two companies, individuals, or other

entities (such as partnerships, societies, etc.) are considering doing
business and need to understand the processes used in each others
business for the purpose of evaluating the potential business relationship.
NDAs can be "mutual", meaning both parties are restricted in their use of
the materials provided, or they can restrict the use of material by a single
party.
➢ It is also possible for an employee to sign an NDA or NDA-like agreement

with an employer. In fact, some employment agreements will include a
clause restricting employees' use and dissemination of company-owned
"confidential information."
77
➢ GAURANTESS AND INDEMNITIES
➢ Difference between Indemnity and Guarantee
➢ • A guarantee is a promise to someone that a third party will

meet its obligation to them. “If they do not pay you, I will pay
you”.
➢ • An indemnity is a promise to be responsible for another

person’s loss and to agree to compensate them for any loss or
damage on mutually agreed terms. For example, one agrees to
pay the difference of repairs if they exceed a certain limit.
78
QUANTUM MERUIT
Quantum meruit is an equitable remedy available when a contract

has been part-performed, but where the innocent party is
prevented from completing the contract by the conduct of the
defaulting party. Although equitable, it is similar to damages in that
it involves payment of compensation. In these circumstances, the
claimant may be awarded payment for the work done on a
provisional basis. Where there is a precise provision for
remuneration, a quantum meruit cannot usually be used to alter
the price, even if extra work is done.
79
➢ The Settlement of Commercial Disputes
➢ Litigation
➢ The English system of civil dispute resolution via litigation (the courts)
is adversarial in nature. This means that there are two sides – the
claimant and the defendant – who present cases, and who, by and
large, control the course of the proceedings. The role of the judge and
court is passive compared to the European inquisitorial system, where
it is the judge who controls proceedings and the parties who present
information.
➢ Litigation suffers from various disadvantages. Legal fees are costly.

The timescale is lengthy. And proceedings are public, not confidential.
80
➢ The nature of arbitration
➢ To avoid all this, it is common for buyers and sellers to try other options first
and to treat court proceedings as a last resort. Often they do so by including a
provision in their contract to the effect that any dispute must be referred to
arbitration. This allows the parties to choose an arbitrator in whom they both
have confidence, and to explain their differences privately. The parties agree
that the arbitrator’s decision is final.
➢ Arbitration offers greater privacy, reduced confrontation, greater speed and

less cost than litigation. Proceedings are governed by the Arbitration Act 1996.
Judicial intervention is kept to a minimum.
➢ Alongside this treatment of arbitration agreements between commercial

enterprises there is also an arbitration service within the County Court
structure, sometimes referred to as the ‘small claims procedure’, for use by
consumers.
81
➢ Alternative dispute resolution – mediation and conciliation
➢ Increasingly, parties in the commercial world seek to avoid the

disadvantages of both arbitration and litigation – cost, time,
publicity, and damage to commercial relationships – by
pursuing two forms of alternative dispute resolution (ADR)
which have become popular in the US: mediation and
conciliation. Both seek to help the parties, by means of an
independent third party, to settle their dispute amicably.
➢ In conciliation, the conciliator aims to find common ground

between the parties so they can find a settlement based on it,
whereas a mediator is slightly more active in that he aims to
bring the parties together with a solution of his own. The results
82
of a conciliation process are not legally enforceable.
➢ Parties to a mediation scheme employ a neutral mediator to
assist them in reaching a mutually agreeable settlement.
➢ As already explained, litigation is costly and risky for all parties.

It can also be lengthy, inefficient and frustrating. By its
adversarial approach it leads to hostility between the parties,
which means that future business relations are endangered.
➢ ADR attempts to overcome these drawbacks. It is based on an

idea that there should be no ‘winners’ and ‘losers’ in a
commercial dispute. It is non-adversarial, speedy, confidential,
and inexpensive. It usually avoids the bad feeling that may ruin
future business relations.
83
➢ The term ‘adjudication’ is used almost exclusively for dispute
resolution under Part II of the Housing Grants, Construction and
Regeneration Act 1996 (HGCRA). Under the HGCRA
construction contracts must include a provision for adjudication,
with the adjudicator giving a decision within 28 days of referral.
84

02a Contract Law

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02a Contract Law

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1

Law is the system of rules which a particular country or

➢ Common Law also called case law

➢ Statutory legislation is increasingly regulating contract

➢ primary legislation (acts of parliament)

➢ secondary legislation (statutory instruments and

an agreement enforceable by law between two or more

The courts decide if there is a contract by reference to the

➢ “obligations are links or ties between persons under which each

➢ In every contract there must be a meeting of minds (consensus in

➢AGREEMENT (OFFER AND ACCEPTANCE)

➢INTENTION TO CREATE LEGAL RELATIONS

Offer is one of the central parts of a contract. It is the expression

It is distinguished from an invitation to treat which is not

➢ The acceptance must be always communicated and can only

➢ If the offer specifies a method of acceptance, acceptance must

➢ Secondly, where there has been a course of dealing between the

➢ Death of offeree: An offer is rendered invalid upon the death

➢ Death of offeror: Generally death (or incapacity) of the

➢ Whether an act is construed as an offer or an invitation to

➢ Consideration must be valuable, but need not be

➢ Consideration must move from the promisee (in other

➢ Consideration must be provided at the time the contract is made or

➢ Performance of existing contractual obligations cant be good

➢ An existing public duty will not amount to valid

➢ Part payment of a debt is not valid consideration for a

➢ A company is capable of entering a contract in its own name, but not

➢ Companies A company should only enter into contracts

➢ Incapacity caused by alcohol or drugs

In such cases, the offer/acceptance analysis is strained to

The case of Butler Machine Tool Co. Ltd. v Ex-Cell-O Corporation

undue influence, and

➢ Most contracts can be agreed in any form: orally, by formal

➢ Agreements contrary to good morals

➢ Agreements to commit a crime or civil wrong

➢ Agreements in restraint of trade

➢ Rule 2- Where parties not equally blameworthy, the ‘guilty’

➢ Rule 3- Where parties not equally blameworthy, the ‘innocent’

The effect of a finding of duress and undue influence is that

➢ Common mistake - Where both parties make the same

➢ Res extincta - the subject matter of the contract no longer

➢ Res sua - where the goods already belong to the

The courts apply an objective test to see if the contract can be

➢ There are two categories within unilateral mistakes: mistakes

➢ Where a statement made during the course of negotiations is

➢ An action for misrepresentation may be available where the

There must be a false statement of fact or law as oppose to opinion or

➢ Conduct as a ‘statement’ Sometimes conduct alone can constitute a

➢ Expression of Opinion as a Statement The statement must be a false

➢ Statements of Law Such a statement can qualify as a statement of

Assuming the utterance is a statement of fact, how do we know when it

➢ Indication of Future Intention A misrepresentation is not made when

➢ Silence Can a misrepresentation be made by saying nothing? There

Assuming the aggrieved party can establish that a

The party seeking to cancel the contract on the basis of a

➢ There are three types of misrepresentation: innocent,

➢ fraud is proved when it is shown that a false representation

➢ Innocent Misrepresentation Here the false statement is made in the

The remedy available depends on the type of

An express term of a contract is one that the parties have specifically

➢ Where the Referring Document is Signed If the party affected by

➢ Incorporation by Notice Here, the party who seeks to disown the

➢ the parties must have intended it

➢ it is so obvious it goes without saying