Elements of the Law of Contract

Contract law exists so that strangers can rely on each other across time. A promise about the future — to deliver goods in March, to build a wall by summer, to insure a ship — is worth little if the promisor can simply change their mind. By making some promises binding, contract lets people plan, trade and allocate risk before anything has happened. Almost all commercial life, and a surprising amount of ordinary life, runs inside that structure.

The law does not enforce every promise; the subject's first job is sorting the ones it does: English law enforces bargains, judged objectively by what the parties said and did rather than what they privately meant. From there the module runs the life of a contract in order — was one formed; what did it oblige; can it be unwound; how did it end; what is the innocent party owed. That sequence is the method: ask the questions out of order and the analysis collapses, which is why the subject's architecture matters more than any single rule inside it.

Agreement — offer, acceptance, certainty

Agreement is judged objectively, by what the parties' words and conduct would convey to a reasonable person. An offer is a willingness to be bound on stated terms the moment the other side accepts. Most preliminary moves are merely invitations to treat: a shop-window display is not an offer for sale, even of a flick knife (Fisher v Bell), nor are most advertisements. But a definite one can be: the promise in Carlill v Carbolic Smoke Ball Co to pay anyone who used the smoke ball and still caught influenza was an offer to the whole world, accepted by performance. A reply on different terms is a counter-offer, which kills the original (Hyde v Wrench). Instantaneous acceptances take effect when and where received (Entores); posted ones, anomalously, on posting (Adams v Lindsell). And the agreement must be certain enough to enforce; courts will not write it for the parties.

Consideration, estoppel, and the intention to be bound

Deeds aside, a promise binds only if it was bought: the promisee must give something of value in the eye of the law — consideration — in exchange. Sufficiency is required, adequacy is not: a peppercorn will do, because courts enforce bargains without auditing them. Performing a duty you already owe the promisor is classically no consideration for extra pay (Stilk v Myrick); but a real practical benefit to the promisor can be, at least absent duress (Williams v Roffey Bros). Part payment of a debt, though, does not discharge the balance (Foakes v Beer) — and in MWB v Rock Advertising the Supreme Court decided on another ground — upholding a no-oral-modification clause — and left Foakes for another day. Equity can still blunt enforcement: in Central London Property Trust v High Trees House, Denning J reasoned — strictly by the way, though the aside became the doctrine — that a relied-on wartime promise to accept half rent could not have been revoked for the period it covered — promissory estoppel, a shield against enforcing strict rights, never a sword. A bargain also needs an intention to create legal relations: domestic arrangements are presumed not binding (Balfour v Balfour), a presumption that dies with the relationship (Merritt v Merritt); commercial agreements are presumed binding.

Terms — what the contract actually contains

Then, the contract's contents. First, incorporation: is the term in the contract at all? A signed contractual document binds, read or unread (L'Estrange v Graucob); unsigned documents and notices need reasonable notice before contracting. Terms are also implied — by statute, in law for whole classes of contract, and in fact, but only where necessary to make this contract work (Marks and Spencer v BNP Paribas). What the words mean is a question of construction: what the words would convey to a reasonable person with the parties' background knowledge (Investors Compensation Scheme v West Bromwich Building Society), though Arnold v Britton pulled the exercise back towards the words themselves. Terms differ, finally, in what breach permits: any breach of a condition allows termination plus damages; breach of a warranty gives damages only; and most terms are innominate terms, where termination depends on whether the breach deprived the innocent party of substantially the whole benefit (Hong Kong Fir).

Exemption clauses and the statutory controls

An exclusion clause could hollow out everything above, so the law reads them through three filters, in order. Was the clause incorporated? Properly construed — ambiguity read contra proferentem, against the party relying on it — does it cover this breach? And does statute strike it down? Between businesses, the Unfair Contract Terms Act 1977 voids some exclusions outright — liability for death or personal injury caused by negligence — and subjects most others to a reasonableness test; in consumer contracts the Consumer Rights Act 2015 requires most non-core terms to be fair. The statute is the third question, never the first.

Vitiating factors — undoing what was agreed

A contract flawlessly formed may still be undone by how it was induced. Misrepresentation — an unambiguous false statement of fact (or, these days, law) helping to induce the contract — makes it voidable: rescission unwinds it from the start, and damages turn on whether the statement was fraudulent, negligent or innocent. Under section 2(1) of the Misrepresentation Act 1967, a negligent misrepresentor is liable unless they prove reasonable grounds for belief — a reversed burden that makes the statute the workhorse; the common-law route via Hedley Byrne requires an assumption of responsibility. Mistake is far narrower than students expect: a shared mistake voids the contract only where it makes performance impossible or essentially different, and since Great Peace Shipping there is no equitable jurisdiction to rescind for anything less. Duress — illegitimate pressure leaving no practical choice, economic pressure included — and undue influence, the abuse of a relationship of trust, also make contracts voidable; Royal Bank of Scotland v Etridge (No 2) sets the modern framework, including a lender's duties when one spouse guarantees the other's debts.

Privity and the 1999 Act

At common law only the parties can sue or be sued on a contract — the doctrine of privity. So a contract made for a third party's benefit gave the third party nothing — long criticised for defeating the parties' own intentions. The Contracts (Rights of Third Parties) Act 1999 now lets a third party enforce a term that expressly provides they may; or one that purports to confer a benefit on them — though this second route yields if, on a proper construction, the parties did not intend the third party to be able to enforce it. Burdens remain untouched: no one is bound who never agreed.

Discharge — performance, breach, frustration

Contracts end by performance, by sufficiently serious breach, or — rarely — by being overtaken by events. Breach does not end a contract by itself: a repudiatory breach gives the innocent party an election, to terminate or to affirm. Frustration discharges both parties automatically where a supervening event, without fault, makes performance impossible or radically different: the burnt music hall (Taylor v Caldwell); the room hired for a coronation procession that was cancelled (Krell v Henry). The test is strict — radically different, not merely harder or dearer (Davis Contractors) — and the financial fallout is adjusted under the Law Reform (Frustrated Contracts) Act 1943.

Remedies — what the promise was worth

Damages are the default remedy, and their aim was fixed by Robinson v Harman: put the claimant, so far as money can, where performance would have put them — the expectation measure, with wasted expenditure — the reliance measure — as the fallback. Expectation is not automatically the cost of cure: where that cost is wholly disproportionate to the benefit, a modest award for lost amenity may be right instead (Ruxley Electronics v Forsyth, the shallow swimming pool). Recovery is then bounded. Remoteness: loss must arise in the usual course of things, or from special circumstances known to both parties at contracting (Hadley v Baxendale); The Achilleas added a contested gloss: did the defendant realistically assume responsibility for that kind of loss? Mitigation: loss that reasonable steps would have avoided is irrecoverable. Specific performance is exceptional and discretionary, for cases where damages are inadequate. And parties may fix the consequences of breach in advance: since Cavendish Square v Makdessi, such a clause fails as a penalty clause only if its detriment is out of all proportion to any legitimate interest in performance.

These are the places where the law is unsettled, criticised, or split — which makes them exactly where essays and first-class problem answers are won.

• Does Foakes v Beer survive Williams v Roffey? If a practical benefit buys a promise of more pay, why does the benefit of receiving part of a doubtful debt not buy a promise to forgo the rest? The lines coexist by authority, not logic; MWB v Rock Advertising noticed the problem and deliberately left it unsolved.
• Estoppel: shield or sword? English law insists promissory estoppel only defends; other jurisdictions have let reliance on a serious promise found a claim. If reliance holds the landlord to High Trees, why can it never justify enforcement directly? The doctrine is a standing critique of consideration.
• Text against context. Investors Compensation Scheme made background central to construction; Arnold v Britton reasserted the primacy of the words; Wood v Capita insists they were never in conflict. In a hard case they still pull opposite ways — and which wins is genuinely unpredictable.
• What did The Achilleas actually decide? The speeches disagree among themselves; later courts treat assumption of responsibility as a refinement for unusual cases, leaving Hadley v Baxendale the working rule. Whether remoteness rests on foreseeability or on the risks the parties priced is a live argument.
• Why police penalties at all? Cavendish v Makdessi rebuilt the rule around legitimate interests and proportionality, but the prior question survives: why refuse to enforce a remedy two commercial parties freely agreed? And is "out of all proportion" workable law or a delegation to instinct?
• Mistake without a safety valve. Great Peace closed equity's jurisdiction to rescind for common mistake, preferring a narrow, certain doctrine to a flexible, discretionary one. Hard cases falling just outside the common-law test now have nowhere to go. Rigour against justice: know the trade-off before taking a side.
• Good faith. English law has no general doctrine of good faith in contracting; it solves particular problems with particular rules. First-instance decisions such as Yam Seng have implied duties of honesty into long-term "relational" contracts, and the direction of travel is contested. Most civilian systems impose a general duty — the comparison earns credit.
• What is contract law protecting? Ruxley forces the question: if damages track neither the cost of cure nor any fall in value, what exactly was lost? The performance-interest debate — does the law adequately value receiving the very thing promised? — runs underneath the whole of remedies.

Not a case list — a working set. Know what each of these is for, and note the marked corrections: older material online still states the displaced law.

• Carlill v Carbolic Smoke Ball Co — a definite advertisement can be a unilateral offer to the world, accepted by performance.
• Hyde v Wrench — a counter-offer destroys the original offer.
• Williams v Roffey Bros — a practical benefit can be consideration for a promise of more pay for the same work.
• Foakes v Beer — part payment of a debt is no consideration for forgoing the balance; still standing, uneasily.
• High Trees — promissory estoppel: a relied-on promise to accept less suspends strict rights; a defence, never a claim.
• L'Estrange v Graucob — a signed contractual document binds whether or not it was read.
• Hong Kong Fir — innominate terms: whether breach justifies termination depends on the gravity of its consequences.
• Investors Compensation Scheme — construction restated: what the words convey to a reasonable reader with the parties' background knowledge.
• Marks and Spencer v BNP Paribas — terms implied in fact only where necessary: business efficacy or obviousness, not reasonableness.
• Hedley Byrne — an assumption of responsibility grounds liability for a negligent misstatement causing economic loss.
• Great Peace Shipping — correction: common mistake lives only in the narrow common-law doctrine; Solle v Butcher was held wrongly decided, so the equitable rescission in older material is gone.
• Royal Bank of Scotland v Etridge (No 2) — undue influence in guarantee cases: when a lender is put on inquiry and the independent-advice regime that follows.
• Davis Contractors — frustration's modern test: performance must become radically different, not merely more onerous.
• Robinson v Harman — the expectation principle: damages put the claimant where performance would have put them.
• Hadley v Baxendale — the two limbs of remoteness: losses in the usual course of things, and special circumstances made known at contracting.
• Ruxley Electronics v Forsyth — where cost of cure is unreasonable and value undiminished, damages may compensate the lost amenity instead.
• Cavendish Square v Makdessi — correction: penalties now turn on proportionality to a legitimate interest in performance; "genuine pre-estimate of loss" no longer states the test.

Terms that look like English but carry technical loads. When one of these appears dotted-underlined in the text above, tap it for the definition in place.

Consideration

The price of a promise: something of value in the eye of the law, given in exchange. Sufficiency required; adequacy not.

Invitation to treat

An invitation to negotiate or make offers — a shop display, most adverts. It cannot be accepted.

Promissory estoppel

Equity's brake on going back on a relied-on promise not to enforce strict rights. A shield, not a sword.

Privity

Only the parties can sue or be sued on a contract. The 1999 Act qualifies the benefit side only.

Condition

A major term: any breach lets the innocent party terminate and claim damages.

Warranty

A minor term: breach gives damages only. Not the consumer-electronics meaning.

Innominate term

A term with neither label in advance; the remedy depends on how serious the breach's consequences prove.

Incorporation

How a term enters the contract — signature, reasonable notice before contracting, or a course of dealing. Not company law.

Construction

Interpretation: what the words objectively mean to a reasonable reader with the parties' background knowledge.

Contra proferentem

Ambiguity in a clause is read against the party who proffered it and relies on it.

Misrepresentation

A false statement of fact inducing the contract. Classify it — fraudulent, negligent, innocent — before discussing remedies.

Rescission

Unwinding a voidable contract from the beginning. Lost by delay, affirmation, or third-party rights.

Repudiatory breach

A breach grave enough to allow termination — though the innocent party may instead affirm. Never automatic.

Frustration

Automatic discharge where a supervening, no-fault event makes performance impossible, illegal or radically different.

Expectation measure

The position the claimant would have enjoyed had the contract been performed. The reliance measure recovers wasted expenditure instead.

Remoteness

The cut-off for recoverable loss: the usual course of things, or special circumstances both parties knew at contracting.

Mitigation

Loss the claimant could reasonably have avoided is not recoverable. A limit on damages, not a duty.

Specific performance

An order to perform the contract itself. Discretionary and exceptional; damages must be inadequate.

Penalty clause

An agreed-damages clause that fails as out of all proportion to any legitimate interest in performance.

Openly published, deliberately. If you can answer these without notes, the module's architecture is in place. Each reveal describes what a good answer contains — not a script to memorise.

The carpenters in Williams v Roffey were promised extra money for doing what they were already bound to do, and the promise bound. Mrs Beer's promise to forgo part of a debt did not. What separates the two — and can the separation be defended?

An existing duty is no consideration (Stilk v Myrick); Roffey accepts a practical benefit as consideration for paying more; Foakes v Beer still governs promises to accept less. A good answer sees that a creditor accepting part payment often gets a practical benefit too, so the line rests on precedent rather than principle, and that MWB left the question open. The strongest answers take a side: let duress police renegotiations, or defend Foakes as protecting pressured creditors.

A landlord tells a struggling tenant to pay half rent "until things pick up"; for two years the tenant does. The landlord now demands full rent plus the arrears. What can the tenant resist — and what could the tenant never have done with that promise?

The elements of High Trees: a clear promise intended to affect legal relations, reliance, and circumstances making it inequitable to resile. A good answer separates the arrears — the promise bites, and the difference is irrecoverable for the period it covered — from the future, where rights generally revive on reasonable notice; and it states the limit: the tenant could never have sued on the promise, because estoppel is a defence. The best answers notice the open question whether estoppel suspends rights or extinguishes them.

A chartered ship turns out to have worn-out engines and too few crew. Seaworthiness is plainly broken — yet you cannot yet say whether the charterer may terminate. Why not?

Classification before consequences. Hong Kong Fir treats seaworthiness as innominate — breakable trivially or catastrophically — so termination depends on whether this breach deprived the charterer of substantially the whole benefit: length of delay, remediability of the defects. A good answer applies that test and sees the policy trade-off: conditions buy certainty but let parties escape bad bargains over trivial breaches. Noticing that wrongful termination is itself a repudiation earns extra credit.

A builder delivers a swimming pool shallower than specified. It is perfectly safe and the property is worth not a penny less; rebuilding would cost a fortune. If damages protect expectation, what should they be?

The Robinson v Harman principle, then the three candidate measures: cost of cure (disproportionate), difference in value (nil), and Ruxley's answer — a moderate award for lost amenity. A good answer explains why reasonableness controls the choice: the owner would never rebuild — the cost would be a windfall. The strongest reach the underlying debate — is a modest sum real protection of expectation, or an admission that damages undervalue performance itself?

A courier delivers a machine part late, and the factory that needed it stands idle for a week. Its owner claims a lucrative season's lost profits. Why might the courier answer for far less?

Remoteness. Under Hadley v Baxendale the courier answers for loss in the usual course of things, and for unusual loss only if the special circumstances were known to both parties at contracting — so everything turns on what the courier was told: urgency? a total stoppage? the exceptional season? A good answer works each limb, adds mitigation, and explains the point: liability tracks risks a party could price when contracting. Mentioning The Achilleas and its confinement to unusual cases shows where the argument now lives.