The Law of Contract Essentials. 2 Remedies for a Breach of Contract. 6 Essential Ingredients of a Valid Contract.
The law of contract
In essence a Contract is an agreement between two (or more) people which
is intended to have the force of law. It can be made in any of the following
• In writing. Some contracts, such as Hire Purchase Agreements, must be
• Commercially. contracts involving large sums of money should be written,
if only for the sake of clarity. Most large export transactions are the
subject of a written contract.
• Orally. The method for conducting everyday transactions such as buying
food and transport services.
• By conduct. Boarding a single-fare bus or buying goods from a vending
machine are simple examples of contract by conduct.
• By any combination of the above.
Certain ingredients are essential for there to be a valid contract. There must
be an offer and acceptance which match. A verbal offer at a price of £10
followed by an acceptance at £9 clearly does not signify an agreement
between the parties. The response constitutes a counter offer and a rejection
of the original offer which is thereby terminated. An acceptance must exactly
fit the offer and any attempt to accept on new terms amounts to a rejection
of the original offer accompanied by a counter-offer.
There must be consideration – something in return. No promise for which
consideration in return is not given can be enforced in law. The only
exception to this general rule is if a special legal document, called a deed is
drawn up. Each party must have capacity to contract – in other words, the
right to enter into legally binding contracts. Making a contract without
capacity means that it cannot be enforced against the counter party. It does
not mean that it is an offence or in any way illegal for them to make a
The parties must be ad idem, which means that they must be making the
same contract. Essentially the buyer and seller in a transaction must be
intending to deal in the same product or service of the same at the same
price and on the same terms and conditions.
True consent. There must be an intention by both parties to create legal
relations and for the contract to have the force of law. In commercial
situations it is assumed that there is such an intention but an inclusion in
the documentation of ‘binding in honour only’ would likely make the contract
There must be true agreement to the contract, which means an absence of
• operative mistake
• undue influence
Illegality. The law may refuse to give effect to a contract on the grounds
that it involves the execution of a legal wrong: a crime, a tort, or a breach of
contract. A statute may make the formation of certain kinds of contracts
Contracts contrary to public policy. Certain contracts, including those
which are void for illegality, are regarded as injurious to society and
therefore void. Contracts which restrain trade are an important category
unless they can be regarded as reasonable between the parties or as regards
the public interest when they were made.
Breach of contract
The remedies for a breach of contract may be categorized as legal remedies
and equitable remedies with following sub-classification:
• Termination. Where a breach of an important term of a contract has
occurred the innocent party may be entitled to bring the contract to an
end, as well as to claim damages. The contract will then be terminated
from the date of the breach and the parties will not have been bound by
the contracts from that day forward. Following termination the innocent
party cannot claim specific performance or an injunction.
• Rescission and damages for misrepresentation. Effectively, rescission
means cancelling the contract. After rescission for misrepresentation the
contract is regarded as having been void from the beginning and the
innocent party can be awarded damages for misrepresentation which are
assessed differently from damages for breach of contract.
• Action for an agreed sum. An action for the price of goods or services sold
when the purchaser does not pay is described as an action for an agreed
sum. It is not an action for damages and is only available if the contract
subsists. One cannot terminate for breach or rescind for misrepresentation
and then sue for price.
• Specific performance. In certain very limited circumstances where
damages would not be enough to compensate the injured party, the court
may award an order against the party in breach of a contract to carry it
• Injunction. An injunction is a court order restraining a defendant from
carrying out an act in breach of the contract.