English Law/Contract

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English Law

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A contract is an agreement enforceable in court. Contract law regulates every transaction, from buying a tube ticket to computerised derivatives trading.

Contract law is a branch of English law that deals with the regulation of contracts. Essentially any agreement that is enforceable in court is a contract. The courts attempt to ensure that people have genuinely consented to the deals that bind them because a contract is a voluntary obligation.

Generally a contract forms when one person makes an offer, and another person accepts it by communicating their assent or performing the offer's terms. If the terms are certain, and the parties can be presumed from their behaviour to have intended that the terms are binding, generally the agreement is enforceable. Some contracts, particularly for large transactions such as the sale of land, also require the formalities of signatures, witnesses and "consideration" (something of value), to a bargain as a precondition to enforce it.

Learning note

After you have read the relevant material in this unit and the accompanying chapter in the book, it is good practice to reflect by asking as many 5W & H questions as possible:

  • What is a contract?
  • What' are the elements of a contract?
    • How is a contract formed?
    • Who is involved in a contract?
    • Who cannot enter a contract?
    • When is a contract formed?
  • Why do contracts exist?
  • What types of agreements are not contracts?

Contracts can be made personally or through an agent acting on behalf of a principal, if the agent acts within what a reasonable person would think they have the authority to do. In principle, there is extensive freedom to agree on the contents of a deal. Terms in an agreement are incorporated through express promises, by reference to other terms or potentially through a course of dealing between two parties. Those terms are interpreted by the courts to seek out the true intention of the parties, from the perspective of an objective observer, in the context of their bargaining environment. Where there is a gap, courts typically imply terms to fill the spaces, but also through the 20th century both the Judiciary and Parliament have intervened more and more to strike out surprising and unfair terms, particularly in favour of consumers, employees or tenants with weaker bargaining power.

Contract law works best when an agreement is performed, and recourse to the courts is never needed because each party knows her rights and duties. However, where an unforeseen event renders an agreement very hard, or even impossible to perform, the courts typically will construe the parties to want to have released themselves from their obligations. It may also be that one party simply breaches a contract's terms. If a contract is not substantially performed, then the innocent party is entitled to cease performance and sue for damages to put them in the position as if the contract were performed.

The parties are under a duty to mitigate losses and cannot claim for harm that was a remote consequence of the contractual breach, but remedies are based on the principle that full compensation for all losses, pecuniary or not, should be made good. In exceptional circumstances, the law goes further to require a wrongdoer to make restitution for their gains from breaching a contract, and may demand specific performance of the agreement rather than monetary compensation. It is also possible that a contract becomes voidable, because, depending on the specific type of contract, one party failed to make adequate disclosure or they made misrepresentations during negotiations.

Unconscionable agreements can be escaped where a person was under duress or undue influence or their vulnerability was being exploited when they ostensibly agreed to a deal. Children, mentally incapacitated people and companies, whose representatives are acting wholly outside their authority, are protected against having agreements enforced against them where they lacked the capacity to enter an agreement. Some transactions are considered illegal, and are not enforced by courts because of a statute or on grounds of public policy. In theory, people should only be bound when they have given their informed consent to a contract.

Learning note

When you feel that you have begun to grasp the basic principles outlined on this page, it is time to tackle the elements of a contract. Go through the pages listed to the left and for each one take some time to reflect as suggested above.

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