Welcome to the Law of Contract!
Hello there! Welcome to your study notes for the Law of Contract. This is a huge part of your Paper 3 exam. Don’t worry if it feels like a lot to take in at first—contract law is actually something you use every single day! Whether you are buying a bus ticket, downloading an app, or buying a snack from the shop, you are making a contract. In this chapter, we will look at how these agreements are made, what happens when they go wrong, and how the law protects us.
1. How is a Contract Formed? (The Essentials)
To have a legally binding contract, you need four key ingredients. Think of this like a recipe for a cake; if you miss one, the cake won’t bake! The four ingredients are: Offer, Acceptance, Consideration, and Intention to Create Legal Relations.
Offer and Acceptance
An Offer is a clear statement of terms that someone is willing to be bound by.
Common Mistake: Many students think a price tag in a shop is an "offer." It’s actually an Invitation to Treat. This means the shop is inviting you to make an offer at the till. They can legally say no to selling it to you!
Acceptance is when the other person says a 100% "yes" to every part of the offer. If you say "Yes, but..." you haven't accepted; you've made a counter-offer, which kills the original offer.
Memory Tip: Acceptance must be a "mirror image" of the offer.
The Postal Rule
Usually, acceptance happens when the person offering hears it. However, the Postal Rule is a special exception. If acceptance is sent by post, it counts the moment the letter is dropped into the post box, even if the other person hasn't received it yet!
Consideration and Privity
Consideration is the "price" you pay for the promise. It doesn't have to be money; it just has to be something of value (like doing a job for someone).
Privity of Contract means that only the people who are part of the contract (the ones who provided consideration) can sue or be sued under it. If your mum buys a faulty toy for you, technically, the contract is between her and the shop, not you!
Intention to Create Legal Relations
The law assumes that in social or family settings (like a dad promising his son £10 for washing the car), there is no legal intention. In business or commercial settings, the law assumes there is an intention to be legally bound.
Quick Review: For a contract to exist, you need:
1. A clear Offer.
2. An unconditional Acceptance.
3. Consideration (something of value).
4. A clear Intention to be legally bound.
2. Contract Terms: What’s in the Deal?
Terms are the specific "rules" or promises inside the contract. They can be Express (written down or spoken) or Implied (put there by the law or custom, even if you didn't talk about them).
The Hierarchy of Terms
Not all terms are equally important:
- Conditions: These are "heart of the contract" terms. If they are broken, the contract can be ended. (Example: A car must have an engine).
- Warranties: These are minor terms. If broken, you can get money (damages), but the contract carries on. (Example: A car's cigarette lighter doesn't work).
- Innominate Terms: These are "wait and see" terms. Whether they are conditions or warranties depends on how serious the breach is.
Consumer Rights Act 2015 (CRA)
The law steps in to protect consumers when they buy from businesses.
For Goods (Sections 9, 10, 11): Everything you buy must be of Satisfactory Quality, Fit for a Particular Purpose, and Match the Description.
For Services (Sections 49, 52): A professional must work with Reasonable Care and Skill and finish within a Reasonable Time.
Did you know? If a shop sells you a "waterproof" jacket that leaks, they have breached section 11 (Description) and section 10 (Fitness for Purpose)!
3. Exclusion Clauses: The "Small Print"
An Exclusion Clause is a term that tries to stop one party from being responsible if something goes wrong. To be valid, it must be Incorporated (properly put into the contract). This can be done by signing it, by notice (a clear sign), or by a regular course of dealings.
Key Protection: Under the Unfair Contract Terms Act (UCTA) 1977 and the CRA 2015, businesses cannot exclude liability for death or personal injury caused by negligence. It is simply not allowed!
4. Vitiating Factors: What Makes a Contract Invalid?
Sometimes a contract looks fine on the outside, but something is wrong with how it was made. These are called Vitiating Factors.
Misrepresentation
This is a false statement of fact that makes someone enter a contract.
- Example: A seller tells you a car has done 10,000 miles when they know it has done 100,000.
The remedy for this is Rescission (putting things back to how they were before the contract started).
Economic Duress
This is "commercial bullying." It happens when one person puts unlawful pressure on another to change the contract (like threatening to go out of business and leave a project unfinished unless they get more money). The victim must have had no practical alternative but to agree.
5. Ending a Contract (Discharge)
A contract can be discharged (finished) in four ways:
1. Performance: Everyone does exactly what they promised.
2. Breach: One person fails to do what they promised. This can be an Actual Breach (at the time) or an Anticipatory Breach (they tell you in advance they won't do it).
3. Frustration: Something happens after the contract is made that is nobody's fault and makes the contract impossible (like a building burning down or a new law being passed).
4. Agreement: Both sides simply agree to stop.
Quick Takeaway: Frustration is rare! It only applies if the event is unforeseen and makes the contract radically different from what was planned.
6. Remedies: Fixing the Problem
If a contract is broken, the court can offer a Remedy.
Damages (Money)
The aim is to put the claimant in the position they would have been in if the contract had been performed correctly.
However, the claimant must try to Mitigate their loss. This means they can't just sit back and let the costs pile up; they have to try to keep the loss as small as possible.
Equitable Remedies
Sometimes money isn't enough. The court might order:
- Specific Performance: Forcing the person to do what they promised (usually used for selling land or unique items).
- Rescission: Cancelling the contract and returning everyone to the start.
Summary Checklist for the Exam
- Can you identify the four elements of formation?
- Do you know the difference between a condition and a warranty?
- Can you list the consumer rights under CRA 2015?
- Do you understand that death or injury can never be "excluded" by a clause?
- Do you know the remedies for breach of contract?
Don't worry if this seems tricky at first! Just remember that at its heart, contract law is about fairness and keeping promises. Keep practicing with real-life scenarios, and you'll be an expert in no time!