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Summary Notes - Contract Law (LA247)
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Complete study notes detailing each week of the contract law course at the university of Warwick.
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CONTRACT LAW, LA243What is a contract?
• It is an Agreement on something between two or more parties. à most basic sales
contract: buying a coffee à product in exchange for money
• Some contracts can be very straight forward while other are complicated,
• Involves an exchange of X for Y.
• There are many different types of contracts:
o Informal v Formal (usually written and signed)
o Written v Oral
o Standard form (pre-drafted, like letting agreements) v Specifically negotiated
(can be based on a draft but with negotiation to change it)
o Bilateral v Unilateral
o Simultaneous exchange (here and now coffee) v Extended time for
performance (pay for contractor in instalments, he builds the house over time)
Contract Law (CL):
Ø What you need in an agreement to make it a legally binding contract.
Ø The contract has to be entered into it voluntarily by all parties, which is unlike tort
where duties are automatically imposed.
Ø Theoretical basis to contract law? The issue has led to a lot of debate:
o Will theory: parties are obligated to fulfil a contract because the expressed
their willingness to be legally bound to their promise.
o Reliance Theory: a contract is binding because the parties rely on the promise
made by the other.
o There are many other rationales, and often a mix is applied.
Ø Although contract law is mostly common law based, there are some very important
and relevant statutes, especially those which impose implied terms on contracts.
Why do we need CL?
• To know when a contract starts and ends
• To know EXACTLY what obligations parties, owe to one another (both the explicit ones
in the contract and the implicit ones imposed either by statutes or norms)
• To see the consequences of a FLAW (or vitiating factor) that occurred in the making of
a contract and how to deal with it.
• How parties can escape a contract? (completion, breach, vitiating factors,
frustration…)
• What remedies are available if a party breaches a C partly or completely?
Basics of C Making:
1- Offer
+
2- Acceptance à = Agreement
+
3- Intention to create legally binding relations (commercial – presumed, social – not)
+
1
, 4- Consideration – whether both parties provide something of economic value to the
other.
1, 2, 3, 4 = Contract is formed. If only agreement à not necessarily a contract.
Stages of a Contract:
1- Pre-contractual: negotiation over terms
2- Contract formation: concluding a binding contract
3- Determining the substance of a contract (interpreting its terms and content)
4- Performance of the contract
5- Discharge
Basics:
Ø Vitiating Factors: Flaw in the contract while being made. Will only stop the contract if
actually proven in court:
o Duress, Undue Influence, Misrepresentation, Mistake.
Ø Terms & Interpretation: terms show what is meant by the contract and what it
promises, but they still need interpretation and there is a variety of terms:
o Express Terms, Standard Terms, Implied Terms.
o Courts interpret what they mean but it can often be ambiguous so they take
an OBJECTIVE APPROACH.
o Interpretation also serves for the policing of terms: if the courts find something
that is extremely unfair and can’t actually be contracted away, they don’t allow
it to be in the contract. Eg. Implied terms because of the Consumer Rights Act.
Ø Breach of Contract: what is it? Is it partial or complete? Does it end the contract or
does it continue with added damages? What are the remedies other than damages?
Why is forced performance so unusual
Ø Frustration: a completely unexpected event which makes the completion of a contract
impossible to perform by one or more parts. à BREXIT????
Context of Contract Law:
• Mostly shown on Commercial Deals.
• BUT, even for those, what is the relevance of an actual written contract? It is very
relevant but apparently not that important. Why?
• A CONTRACT is used for PLANNING:
o What should be done by the parties.
o A record of the agreement made by the parties
o To check correct performance of the agreement (although sometimes it may
deviate slightly, but that is acceptable)
• A CONTRACT is used for DISPUTES:
o When problems happen during performance, and relationships between the
parties’ break, the parties can come back to the contract and deal with the
issues. (generally, the very small details tend to not be that important)
• English CL: it is not interventionist, but rather lets people do their own agreements
thanks to freedom of contract, and will only intervene if illegal. à which is why a lot
of people and companies using it a low although they have no connection to it.
Freedom of Contract:
2
, Ø Fundamental principle in CL.
Ø People usually agree with what they want to do, and there tends not to be problems,
although they can come up.
Ø It gives people freedom but holds the accountable to the decisions they make:
v Arnold v Britton à C and D made an agreement for a letting in a period of high inflation
which later meant that the money paid for the service charge would be too much (£1
million) as inflation did not keep raising à HELD: contract was not to be changed as it
was not actually wrong and both parties entered into it voluntarily with complete
knowledge of the current situation.
Judicial Ideologies:
• There are distinctions in the opinions of judges and what they follow:
o Formalism: application of legal rules to a given case, irrespective of what the
outcome will be.
o Realism: result-oriented decisions to make sure its an acceptable outcome and
its not absurd.
• Adams and Brownsword: 2 more distinctions within Realism.
o Market-individualism: CL facilitates commercial relationships but they still
need recognition and to follow proper legal procedures, so they NEED to be
held to the bargains they freely enter into!
o Consumer-Welfarism: emphasis on Fairness and reasonableness, so they
sometimes allow parties out of a bad deal in the interest of justice.
FORMING A CONTRACT:
An agreement (Offer + Acceptance) is simply not enough to have a valid, legally binding
contract, as the enforceability criteria (intention + consideration) also needs to be in place.
The legal system is relatively strict when it comes to these criteria’s and it necessary to have
the four key requirements although there are some exceptions.
AGREEMENT:
Fully objective assessment of facts to determine the validity and legality of the contract.
v Smith v Hughes à basic contract for the sale of oats. The C wanted to buy old oats
while the D had fresh oats to sell, but this was not made clear. à C was bound to
fulfilling the contract and buying the oats as he had a binding agreement to buy them!
THEREFORE: if A conducts himself in a way in which a reasonable man (holding the objective
standard) believes that A is agreeing to enter into a contract, then A will find himself legally
bound to the agreement.
v RTS Flexible Systems v Molkerei Alois Muller à (more modern precedent) what is
communicated, through word or conduct that leads to the objective conclusion that
there was intention to make the agreement, will lead to a legally binding contract.
Said by LORD CLARKE.
Consequences: Things may go wrong
v Centrovincial Estates v Merchant Investors Assurance à a mistake was made by the
landlord’s solicitors and the price arranged was much less than it should be. (126k to
3
, 65k) à because the lower price was accepted by both parties, there was a binding
agreement.
Exception: there are often exceptions for very big Mistakes. Law tends to find the way around
it by claiming that the agreement lacked intention to be developed.
v Hartog v Colin and Shields à very big mistake in the quote of a price (quoted pound
instead of piece), which made the product much cheaper and the buyer accepted it.
D claimed it was a mistake and breached the contract when he refused to sell à court
found that the mistake was just that and only on the final letter of the whole
agreement, and if looked at it in the context, it could be seen it was clearly a mistake
and it didn’t reflect the intention of the D, so there was no contract.
v CF. Chwee Kin Keong v Diglilandmall.com Pte Ltd à product advertised online with
the wrong (very low) price which lead to thousands of orders, which then the D didn’t
deliver. à the court held that because the price was so low, it was clear that there
was a mistake, so there was no agreement. (what if the mistake had been small?)
Whose OBJECTIVE approach is it used when determining the legality of an agreement?
Ø Howarth: three points of view that can be taken depending on the case
o Totally detached and completely objective
o Promisee objective
o Promisor objective
Ø McKendrick: it is better to look from the objective viewpoint of the C or the D to
understand what they were thinking of.
Ø OBJECTIVITY DEPENDS ON A CASE BY CASE BASIS
OFFER:
It is an expression of willingness to enter into a contract, made on specified terms, where
the intention of the parties is that the contract will be legally binding. It needs a simple,
positive affirmation to become an agreement and be binding.
Bilateral and Unilateral Contracts:
• BILATERAL:
o the more common form of contract
o involves two or more parties and is binding on both of them
o promise for a promise
• UNILATERAL:
o Involves a promise in exchange for an act.
o Its binding on the promisor only (party A), UNTIL, party B performs the act
stated in the contract and becomes bound to it
v Carlill v Carbolic Smokeball Co à D placed an ad on a newspaper promising £100 to
anyone that used their product and still got sick. Meant it in a serious way by saying
that they even placed £1000 in a bank to safeguard the price. C used the product and
still got sick. à court held that the contract was a unilateral one and because the C
performed, then the D owed the money. (also made for policy reasons as there was a
lot of medical malpraxis and ads like this everywhere à sometimes open promises
can constitute an offer.
4
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