Contract Law

A Straightforward Guide

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• Publisher: Straightforward Publishing Digital
• Year: 2014
• Print ISBN: 9781847164766
• eBook ISBN: 9781847165305
• Topic: Law
• Subtopic: Contract Law
• Index: Law

Contract law is a very complex area, one that affects us all, in one way or another. Quite often we find ourselves in need of clear advice, which isn't available. However, this latest edition of A Straightforward Guide to Contract Law provides clear and comprehensive answers to all aspects of contract law and the formation of contracts. The book is concise and clear and updates the law to 2014

Ch. 1

Introduction

This latest book in the Straightforward Guides Series, Guide to Contract Law is a comprehensive and easy to understand introduction to the complex area of contract law.

Many people, either knowingly or unknowingly, enter into contracts without fully understanding the implications of what they are doing. Contracts can cover a number of areas, from hire purchase agreements to more complex finance agreements, contracts for construction of buildings, contracts for work around the house or contracts to supply goods.

Notwithstanding the type of contract or what area of life it relates to, there is a comprehensive framework of law, both in statute and also common law, which covers parties to a contract. This book will enable the reader, whether layperson or professional, to obtain the basic facts about contract law and also to see clearly where they stand in relation to their rights and obligations. Throughout the book there is reference to relevant court cases.

The necessity of contract law

Contract law is necessary because the law only enforces certain types of promises, basically those promises that involve some sort of exchange. A promise for which nothing is given in return is called a gratuitous promise, and is not usually enforceable in law (the exception being where the promise is put into some sort of document, usually a deed).

The main reason that we need contract law is because of the complex society we live in, a capitalist society. In capitalist society people trade freely on many different levels. There are many complex interactions, from small business endeavors to massive projects, such as construction projects where binding agreements are essential.

Contract law is there to provide a framework to regulate activities. Contract law will rarely force an individual or company to fulfill contractual promises. What it does do is to try to compensate innocent parties financially, usually by attempting to put them in a position that they would have been in if the contract had been performed as agreed.

Contract law-a brief history

Contract law, or the origins of contract law, goes back more than three hundred years. However, because of the very fast innovations in technology and the industrial revolution generally, the main body of contract law was established in the nineteenth century. Before that, contract law barely existed as a separate area of law.

Before the nineteenth century there were many areas of life where free negotiation was not an issue. Activities such as buying goods and then selling them on in the same market were illegal and were criminal offences. There was a basic right to a reasonable standard of living and no one was expected to negotiate that standard for themselves.

A similar, though less humane approach was taken to relationships between employer and employee, or master and servant as they were then called. Today, we all expect to have an employment contract detailing hours of work, duties and pay. This is the most basic of perceived rights. We may, in most cases, not be able to negotiate the terms, but at least it is a contract. In a status society (as it was called), employment obligations were quite simply derived from whether you were a master or a servant: masters were entitled to ask servants to do more or less anything, and an employee who refused would or could face criminal sanctions. Employers had less onerous obligations that could sometimes include supplying food or medical care. Both sets of obligations were seen as fixed and non-negotiable.

Along with the development of contract law within a rapidly changing laissez faire society, came a rapidly changing political consciousness. The view arose that society was no more than a collection of self-interested individuals, each of whom was the best judge of their own interests, and should as far as possible be left alone to pursue those interests.

This laissez faire approach gave birth to the law of contract, as we know it, in that, as we have seen, where people make their own transactions, unregulated by the state, it is important that they keep their promises.

Freedom of contract

Its origins in the laissez faire doctrine of the nineteen-century have had enormous influence on the development of contract law. The most striking reflection of this is the importance traditionally placed on freedom of contract. This doctrine promotes the idea that since parties are the best judges of their own interests, they should be free to make contracts on any terms they choose-on the most basic assumption that no one would choose unfavorable terms. The courts role is to act as umpire holding the parties to their promises, not to ask whether the bargain made was a fair one.

However, there are many problems with the freedom of contract:

•  Inequality of bargaining strength between the two parties

•  The acceptance of implied terms

•  The use of standard form contracts

•  Statutory intervention to protect consumers; and

•  The obligation to implement EU law.

Over the years, courts have moved away from their reluctance to intervene, sometimes through their own making sometimes through parliament, notably the Unfair Contract Terms Act 1997.

Contracts and the notion of fairness

Traditional contract law lays down rules that are designed to apply in any contractual situation, regardless who the parties are, their relationships to each other and the subject matter of a contract. The basis for this approach is derived from the laissez-faire belief that parties should be left alone to make their own bargains. It was thought that the law should be required simply to provide a framework, allowing parties to know what they had to do to make their agreements binding.

This framework was intended to treat everyone equally, since to make different rules for one type of contracting party than for another would be to intervene in the fairness of the bargain. As a result the same rules were applied to contracts in which both parties had equal bargaining power as to those where one party had significantly less economic power, or legal or technical knowledge, such as a consumer contract.

This approach, often called procedural fairness, or formal justice, was judged to be fair because it treats everyone equally, favoring no one. There are, however, big problems inherent in this approach in that, if people are unequal to begin with, treating them equally simply maintains the inequality.

Over the last century the law has, to some extent at least, moved away from procedural fairness, and an element of substantive fairness, or distributive justice has developed. Substantive fairness aims to redress the imbalance of power between parties, giving some protection to the weaker one. For example, terms are now implied into employment contracts so that employers cannot simply dismiss employees without reasonable grounds for doing so. Similar protections have been given to others, such as tenants and consumers.

The objective approach

Contract law claims to be about enforcing obligations that the parties have voluntarily assumed. Bearing in mind that contracts do not have to be in writing, it is clear that enforcing contract law might be a problem. Even where contracts are in writing important areas may be left out. Contract law’s approach to this problem is to look for the appearance of consent. This approach was explained by Blackburn J in Smith v Hughes (1871)-

“if, whatever a man’s real intentions may be, he so conducts himself that a reasonable man would believe he was assenting to the terms proposed by the other party and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms”.

It can be seen that the area of contract law is complex and yet is governed by basic principles.

In this book we cover, amongst other areas:

•  Contracts and the law generally

•  The formation of a contract

•  The terms of a contract

•  Implied terms

•  Misrepresentation

•  Remedies if a contract is breached.

A basic understanding of contracts will prove invaluable to any person who takes the time to understand more. This brief book will enable the reader to obtain that basic understanding.

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Ch. 2

Forming a Contract

In this chapter we look at the main principles underpinning forming a contract. We look at the nature of contracts and the notion of offer and acceptance plus certainty of contract and terms implied into a contract. The intention to create legal relations is examined along with different types of contract and capacity to enter into a contract.

Underpinning all contracts are four main principles:

1) A contract is an agreement between the parties to that contract-one person makes an offer and the other accepts that offer

2) Both parties have an intention to be legally bound by the agreement-this is usually known as an intention to create legal relations

3) Parties to the agreement need to be absolutely clear as to the terms of the agreement – this is the main area of contention with contracts, as we will see later

4) There must be consideration provided by each of the parties to the contract – this means that one person promises to give or deliver and the other promises to pay. The offer and the payment – either monetary or in kind - is the consideration. When making a contract, or entering into a contract all parties to the contract must have the legal capacity to enter into a contract. Very importantly, a contract, in most cases, does not have to be in writing – a piece of paper is not necessary, the agreement and evidence of that agreement forms the basis of contract. There are a few important exceptions, including contracts relating to interests in land (Law of property (Miscellaneous Provisions) Act 1989, s 2(1)) and consumer credit (Consumer Credit Act 1974). We will outline those contracts that do need to be in writing later on in this chapter. Other factors affecting formation include:

• Form-the way the contract is created (e.g. the sale of land can only be made in the form of a deed) Form is an issue with specialty contracts but not with simple contracts

• Privity of contract and the rights of third parties-generally a contract is only enforceable by or against a party to it, subject to exceptions and certain third party rights are now protected in the Contracts (Rights of Third Parties) Act 1999.

The nature of contracts – unilateral and bilateral contracts

The majority of contracts entered into are known as bilateral contracts. This quite simply means that each party to a contract agrees to take on an obligation. This obligation is underpinned by a promise to give something to the other party. A unilateral contract will arise where one party to the contract will make a promise to do something (usually to pay a sum of money) if the other party carries out a certain task. Examples of this are where you might undertake to pay someone a sum of money if they shave off their hair for charity or give up smoking. Estate agents enter into unilateral contracts whereby a percentage of sales go to the agent if they sell the property. However, the agent is not legally bound to sell the property, just to try to sell it.

The notion of offer and acceptance

As we have seen, for a contract to have legal status, usually one of the parties to the contract must have made an offer and the other party must have accepted the offer. Once the contract is accepted the agreement will be legally binding. The person making the offer is called the offeror and the person to whom the offer ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• 1 Introduction
• 2 Forming a Contract
• 3 Consideration and Contracts
• 4 Terms of Contracts
• 5 Errors and contracts
• 6 Contracts and illegality
• 7. Duress and Undue Influence
• 8. Third Party Rights
• 9 Discharge of a Contract
• 10 Remedies for Breach of Contract
• Glossary of terms
• Index