Contract Law
- Ioanna Christodoulatou
- Sep 14
- 5 min read
Contract law is an area of law establishing legally binding agreements which are enforced and upheld by business and individuals who benefit from the clarity, accountability, protection and predictability.
Formation of a contract:
i. Agreement – the basis of a contract, insufficient in itself to create legal obligations.
Primarily, an offer must be made -whereby a party expresses their willingness to contract on specified terms- followed by an acceptance -where the other party agrees- forming an agreement.
It is imperative to determine whether an actual offer has been made or whether it is simply an invitation to treat with no legal obligation -where an offer isn’t made but the other party is invited to do so- to ensure that both parties are negotiating with the same intent of creating a binding contract enforced once the other party has expressed their position regarding the terms. Invitations to treat include advertisements and displays of goods on a shelf. An example of miscommunication is evident in the case of Partidge v Crittenden [1968] where the defendant advertised cocks and hens for sale. Under the Protection of Birds Act 1954 it was unlawful to offer for sale any wild live bird, establishing the grounds on which the Royal Society for the Prevention of Cruelty to Animals brought a prosecution against the defendant. The Court ruled that the advertisement was not an offer but an invitation to treat, therefore deeming the defendant innocent.
The recipient of the offer can agree and accept all terms however, if they find it necessary, they can attempt to make alterations to the terms of the offer through making a counter-offer, which the original offeror can either accept or reject. A counter-offer constitutes a dismissal of the original offer, which can now neither be restored or accepted unless agreed upon by both parties.
An offer may be revoked at any point in time before its acceptance however it is essential that it is communicated to the offeree.
ii. Consideration
Consideration is when ‘something of value’ is exchanged, making the promise made enforceable in the contract.
Examples of consideration:
- Money for goods
- Services for money
- Promise for promise
- Forbearance
- Goods for goods
There are three main requisites regarding the consideration.
It must:
a) “be sufficient but not adequate”
The law requires that each party provides something of value however the exchange doesn’t necessarily have to be fair or equal
b) “not be from the past”
The consideration must not have been done or given before the promise was made as it is considered invalid. Evident in: “Lampleigh v Brathwait [1615]”
c) “move from the promisee.”
The promisee (the person to whom the promise is made) must provide the consideration
iii. Intention to create legal relations
Even if supported by a consideration, an agreement is not binding unless both parties intend it to be legally binding.
In the case of Balfour v Balfour [1919] the husband who worked overseas promised to send a monthly allowance to his wife, however he failed to do uphold it and thus faced charges from his wife who sued in order to enforce the agreement. The Court of Appeal ruled that it was simply a domestic arrangement and therefore it was presumed that the parties did not intend to have legal relations. Mrs Balfour had not provided any consideration, and this was presumed to be an agreement based on mutual trust –“to treat all such agreements as legally enforceable contracts would be impractical and could lead to a flood of litigation.”
iv. Capacity
The law states that in order for parties to be bound by a contract, all members must be of sound mind and legal age. They must: have mental capacity (the ability to understand the nature and consequences of the contract); be of legal age; not be intoxicated at the time of the making of the contract; must not be suffering from any health or mental conditions impairing their judgment and ability to understand the significance of their actions. Capacity ensures that the vulnerable members of a party are protected and not manipulated, and that the contract is enforceable and fair.
The case of Matthews v Baxter [1873] addresses the validity of a contract when entered by someone who is intoxicated. It was determined that “if a person is so intoxicated that they do not understand the nature of their actions, and the other party is aware of their intoxication, the contract is voidable.” This indicates that the member who was under the influence can either ratify the contract upon regaining sobriety -and thus make it binding- or repudiate it.
Breach of Contract
A breach of contract occurs when one of the parties fails or refuses to act according to the terms agreed upon in the contract, performs defectively (promises to do one thing but does another) and/or incapacitates oneself (e.g. a seller may breach a contract by selling a good to a third party). An anticipatory breach may occur through 1)repudiation, 2)disablement. Repudiation is a party’s absolute unwillingness and refusal to perform although they may be able to. Alternatively, there may be an anticipatory breach of contract due to a party’s inability to perform as a result of self-inflicted disablement or due to external factors.
Essentially, if one of the parties fail to fulfill their duty, the other will want to do anything to recover from the damages.
Hadley v Baxendale [1854] - Hadley sued Baxendale due to lost profits because of a delay
Example cases:
a) Leonard v PepsiCo [1996] – Importance of an offer and acceptance
A commercial advertised a Harrier jet as a prize for 7,000,000 Pepsi points, which John Leonard attempted to claim -but PepsiCo refused, leading to a lawsuit. The court sided with PepsiCo, ruling that no reasonable person would interpret the commercial as an offer rather than a joke, as alluded to by the “tone and content.”
b) Carlill v Carbolic Smoke Ball Co [1893] -defined the limits of damages recoverable for breach of contract
The Carbolic Smoke Ball company advertised their product and claimed that anyone who used their product and still got the flu would be awarded 100 British Pounds. Mrs Marlill used the product; contracted influenza and demanded compensation, however, the company refused to pay and were taken to court. The court ruled that the advertisement was a valid offer, the company’s claim to have deposited 1000 British pounds portrayed their seriousness and intention, and Mrs Carlill’s purchasing and use of the product constituted acceptance and consideration. Thus, deeming Carbolic Smoke Ball Co guilty of breaching the contract.
General Information
| Litigation | Arbitration | Mediation |
Process | Formal court process | Private | Voluntary process |
Decision-maker | A judge or jury | Arbitrator (chosen by parties) | Parties themselves (mediator helps with communications & negotiations) |
Control | Limited for parties | More control | Complete control |
Privacy | Public record | More private than litigation | Highly confidential |
Cost and time | Expensive and time consuming | Faster and less expensive than litigation | Less expensive and fast |
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