English Contract Law: Formation of a Contract

• Contract law is a crucial area within the English legal system, governing agreements between parties, whether individuals, businesses, or organizations
• It dictates the requirements for a valid contract, the rights and obligations of the parties involved, and the remedies available in case of breach

Formation of a Contract

• Agreement, intention to create legal relations, and consideration are essential
• An offer must be clear, definite, and communicated to the offeree
• An invitation to treat is merely an invitation to make an offer (e.g., goods displayed in a shop)
• Acceptance must be a final and unqualified agreement to all the terms of the offer
• The "mirror image rule" requires acceptance to correspond exactly with the offer
• Acceptance must generally be communicated to the offeror
• The postal rule states acceptance is effective when posted, not when received (applies only when reasonable to use post)
• An intention to create legal relations is presumed in commercial agreements, but not in social or domestic arrangements
• Consideration is something of value given by each party to support the contract; it must be sufficient, but need not be adequate
• Past consideration is generally not good consideration
• Consideration must move from the promisee

Contractual Terms

• Terms can be express (explicitly stated) or implied (not expressly stated but included by law, custom, or the facts)
• Express terms are those specifically agreed upon by the parties, either orally or in writing
• Implied terms can be implied by statute (e.g., Sale of Goods Act 1979), by custom, or by the courts
• Terms are categorized as conditions (major terms, breach allows termination and damages) or warranties (minor terms, breach allows damages only)
• Innominate terms (intermediate terms): the remedy depends on the severity of the breach
• Exemption clauses (limitation or exclusion clauses) attempt to limit or exclude liability
• Exemption clauses must be incorporated into the contract (e.g., by signature, reasonable notice)
• Exemption clauses are interpreted contra preferentem (against the party relying on them)
• The Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 regulate the use of exemption clauses

Vitiating Factors

• Mistakes, misrepresentation, duress, and undue influence can render a contract void or voidable
• A common mistake occurs when both parties share the same fundamental mistake about a fact essential to the contract
• A mutual mistake occurs when parties are at cross-purposes, each mistaken about the other's intention
• A unilateral mistake occurs when only one party is mistaken, and the other party knows or ought to know of the mistake
• A misrepresentation is a false statement of fact made by one party to another that induces the latter to enter the contract
• Misrepresentations can be fraudulent (deliberate), negligent (careless), or innocent (genuinely believed to be true)
• Remedies for misrepresentation depend on the type of misrepresentation and may include rescission (setting aside the contract) and/or damages
• Duress is coercion or illegitimate pressure that forces a party to enter a contract against their will
• Undue influence is where one party abuses a position of trust or power to influence the other party to enter a contract
• Undue influence can be actual or presumed

Discharge of Contract

• Performance, agreement, breach, or frustration can discharge a contract
• Discharge by performance occurs when both parties fulfill their contractual obligations exactly
• Discharge by agreement occurs when the parties mutually agree to end the contract
• Discharge by breach occurs when one party fails to perform their obligations
• Anticipatory breach occurs when a party indicates in advance that they will not perform their obligations
• Discharge by frustration occurs when an unforeseen event makes performance impossible or radically different from what was intended
• Frustration must not be self-induced

Remedies for Breach of Contract

• Damages, specific performance, and injunctions are potential remedies
• Damages aim to compensate the injured party for their losses
• Damages are usually assessed on an expectation basis (to put the claimant in the position they would have been in had the contract been performed)
• Remoteness of damage: damages must be a reasonably foreseeable consequence of the breach (Hadley v Baxendale)
• Mitigation of loss: the injured party must take reasonable steps to minimize their losses
• Specific performance is a court order requiring a party to perform their contractual obligations (usually granted where damages are inadequate)
• An injunction is a court order prohibiting a party from doing something (e.g., breaching a contract)

Key Legislation

• Sale of Goods Act 1979: Implies terms into contracts for the sale of goods (e.g., satisfactory quality, fitness for purpose)
• Supply of Goods and Services Act 1982: Implies terms into contracts for the supply of services (e.g., reasonable care and skill)
• Unfair Contract Terms Act 1977: Regulates the use of exemption clauses, particularly in business-to-business contracts
• Consumer Rights Act 2015: Consolidates and updates consumer protection law, including implied terms and unfair terms in consumer contracts

Third Party Rights

• The Contracts (Rights of Third Parties) Act 1999 allows a third party to enforce a term of a contract if the contract expressly provides they can or if the term purports to confer a benefit on them (unless the parties did not intend it to be enforceable by the third party).

Explore the basics of contract law, including offer, acceptance, and intention to create legal relations. Learn about the mirror image rule and the postal rule. Understand the requirements for a valid contract.