Introduction to Contract Law
Contract law is one of the foundational subjects in any UK law degree and a core component of the SQE1 examination. It governs the creation and enforcement of legally binding agreements between parties.
Understanding contract law requires mastery of several interconnected elements: formation, terms, vitiating factors, discharge, and remedies. This guide covers the essential topics you need to know for exams and coursework, with references to leading cases and statutory provisions.
💡 Key Takeaway
Contract law problem questions almost always follow the same structure: formation → terms → vitiating factors → discharge → remedies. Master this sequence and you'll have a reliable framework for any exam question.
1. Formation of a Contract
A valid contract requires four elements: offer, acceptance, consideration, and intention to create legal relations. Each element has been extensively developed through case law.
Offer
An offer is a clear and definite statement of willingness to be bound on specified terms. It must be distinguished from an invitation to treat, which is merely an invitation for others to make offers.
Key Case: Carlill v Carbolic Smoke Ball Co [1893] — A unilateral offer made to the world at large can create a binding contract when the conditions are met. The advertisement was held to be an offer, not an invitation to treat, because of the deposit of £1,000 showing sincerity.
Invitation to treat examples: Display of goods in a shop window (Fisher v Bell [1961]), goods on supermarket shelves (Pharmaceutical Society v Boots [1953]), advertisements (Partridge v Crittenden [1968]), and auction bids (Harris v Nickerson [1873]).
Acceptance
Acceptance must be unconditional and communicated to the offeror. A counter-offer destroys the original offer (Hyde v Wrench [1840]), but a mere request for information does not (Stevenson v McLean [1880]).
The postal rule provides that acceptance by post takes effect when the letter is posted, not when received (Adams v Lindsell [1818]). However, this rule does not apply to instantaneous communications such as email or fax (Entores v Miles Far East [1955]).
📝 Exam Tip
In problem questions, always check whether a response is a true acceptance or a counter-offer. The "battle of the forms" scenario (where businesses exchange standard terms) is a favourite exam topic — remember Butler Machine Tool v Ex-Cell-O [1979].
Consideration
Consideration is "some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other" (Currie v Misa [1875]).
Key rules of consideration include: it must be sufficient but need not be adequate(Chappell v Nestlé [1960]), and past consideration is not good consideration(Re McArdle [1951]) unless the Lampleigh v Braithwait exception applies.
Performance of an existing duty is generally not good consideration (Stilk v Myrick [1809]) unless there is a practical benefit (Williams v Roffey Bros [1991]).
Intention to Create Legal Relations
There is a rebuttable presumption that domestic and social agreements lack intention (Balfour v Balfour [1919]), while commercial agreements are presumed to have intention (Edwards v Skyways [1964]). These presumptions can be rebutted by evidence.
2. Terms of a Contract
Contract terms can be express (explicitly agreed) or implied (by statute, custom, or the courts). Terms are classified by importance:
| Type | Definition | Remedy for Breach | Key Case |
|---|---|---|---|
| Condition | Fundamental term going to the root of the contract | Repudiation + damages | Poussard v Spiers [1876] |
| Warranty | Minor term, subsidiary to the main purpose | Damages only | Bettini v Gye [1876] |
| Innominate term | Classified by the seriousness of the breach | Depends on consequences | Hong Kong Fir v Kawasaki [1962] |
Exclusion Clauses
Exclusion clauses must be incorporated into the contract (by signature, notice, or course of dealing) and construed against the party relying on them (the contra proferentem rule).
The Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015impose statutory controls on exclusion clauses.
⚠️ Common Mistake
Students often apply UCTA to consumer contracts. Since 2015, consumer contracts are governed by the Consumer Rights Act 2015, not UCTA. UCTA now applies only to business-to-business contracts. Getting this wrong in an exam will cost you marks.
3. Vitiating Factors
Even where a valid contract has been formed, certain factors may render it void or voidable.
Misrepresentation
A misrepresentation is a false statement of fact (not opinion or future intention) that induces the other party to enter the contract. Under the Misrepresentation Act 1967, the innocent party may claim rescission and/or damages depending on whether the misrepresentation was fraudulent (Derry v Peek [1889]), negligent (s.2(1) MA 1967), or innocent.
Duress and Undue Influence
Duress involves illegitimate pressure (physical, economic, or to goods) that leaves the victim with no practical alternative. Economic duress was recognised inUniverse Tankships v ITF [1983].
Undue influence may be actual (Class 1) or presumed (Class 2), as established in Royal Bank of Scotland v Etridge (No 2) [2002].
Mistake
Operative mistake renders a contract void. Key categories include: common mistake(both parties share the same mistake — Bell v Lever Bros [1932]), mutual mistake(parties at cross-purposes — Raffles v Wichelhaus [1864]), and unilateral mistake(one party knows of the other's mistake — Cundy v Lindsay [1878]).
4. Discharge and Remedies
Discharge
A contract may be discharged by: performance (complete and exact — Cutter v Powell [1795]),agreement (bilateral or unilateral), frustration (supervening impossibility or illegality — Taylor v Caldwell [1863]), or breach (actual or anticipatory —Hochster v De La Tour [1853]).
Remedies
The primary remedy for breach of contract is damages, assessed on the expectation measure (putting the claimant in the position they would have been in had the contract been performed).
Damages must not be too remote — the loss must arise naturally from the breach or be within the reasonable contemplation of the parties (Hadley v Baxendale [1854]). The claimant has a duty to mitigate their loss.
Equitable remedies include specific performance (ordering the party to perform their obligation) and injunctions (restraining a party from breaching). These are discretionary and only available where damages would be inadequate.
💡 Key Takeaway
Always discuss remoteness of damage in problem questions about remedies. The two-limb test from Hadley v Baxendale is essential: (1) losses arising naturally from the breach, and (2) losses within the reasonable contemplation of both parties at the time of contracting.
Exam Tips for Contract Law
When answering contract law problem questions, always use the IRAC method: identify the issue, state the relevant rule with authority, apply the rule to the facts, and reach a conclusion.
📝 Exam Tip
Avoid these common pitfalls: confusing offers with invitations to treat (always cite authority), forgetting to discuss consideration separately from formation, applying UCTA to consumer contracts, failing to discuss remoteness when calculating damages, and not addressing both parties' arguments in problem questions.
Frequently Asked Questions
How do I structure a contract law problem question answer for exams?
For any contract law problem question, the best approach is to follow the logical sequence of a contract's life. Start by establishing formation (offer, acceptance, consideration, intent), then analyze the terms, consider any vitiating factors like misrepresentation, and finally, discuss discharge and remedies. Using the IRAC method for each issue is crucial for a high-scoring answer. You can get personalized feedback on your structure using our essay marking service.
What is the difference between an offer and an invitation to treat?
An offer is a definite promise to be bound by specific terms, as seen in Carlill v Carbolic Smoke Ball Co. In contrast, an invitation to treat is merely an invitation for others to make offers, such as goods displayed in a shop (Fisher v Bell). The key distinction is the intention to be legally bound upon acceptance; an offer has this intention, while an invitation to treat does not.
When does the "practical benefit" rule from Williams v Roffey apply to consideration?
The "practical benefit" principle from Williams v Roffey Bros applies when one party promises to pay more for the other to complete their existing contractual duty. For it to be valid consideration, there must be no economic duress, and the promisor must obtain a genuine practical benefit from the completion of the duty. This rule is an exception to the general principle in Stilk v Myrick that performing an existing duty is not good consideration. Test your knowledge of this with our quiz generator.
How do I know whether to apply UCTA 1977 or the Consumer Rights Act 2015?
This is a common point of confusion. The Unfair Contract Terms Act 1977 (UCTA) applies to business-to-business (B2B) contracts, regulating clauses that exclude or limit liability. The Consumer Rights Act 2015 (CRA), on the other hand, governs contracts between a trader and a consumer (B2C). Always identify the nature of the parties in a problem question before analyzing an exclusion clause.
What are the key elements to discuss when analyzing remedies for breach of contract?
When discussing remedies, start with damages, the primary remedy. You must analyze the basis of assessment (usually the expectation measure) and then consider limiting factors like remoteness, applying the two-limb test from Hadley v Baxendale. Also, remember to discuss the claimant's duty to mitigate their loss. If damages are inadequate, briefly consider equitable remedies like specific performance. For more complex scenarios, you can always ask our AI tutor for guidance.