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Contract Law explained

Contracts are part of our daily lives, but we can’t pretend; English Contract Law is complex. Fortunately for us, in England and Wales, we have a well-defined body of law that regulates contracts.

What is Contract Law?

If you’re employed, you’ll no doubt have a contract. When you buy house insurance, or buy the house itself, there’ll be a contract. Even buying half a dozen eggs or a newspaper from the corner shop will be governed by the Law of Contract.  

In essence, any agreement that is enforceable in a court of law is a contract. English Contract Law attempts to adhere to a simple principle: that you should only be bound when you have given your informed and true consent to a contract.

The main areas under Contract Law include:

  • Formation of contract (offer, acceptance, consideration, intention)
  • Capacity to form contract
  • Contents (terms, exclusions, privity)
  • Vitiating factors (misrepresentation, mistake, duress, illegality, etc.)
  • Discharge (performance agreement, breach, frustration); and
  • Remedies (damages, performance, injunction, etc).

As you can see, it’s quite a hefty area of law. And because of its complexity, it’s usually dealt with by qualified solicitors, specialist lawyers (in every law you can possibly imagine), or by legal executives.

How is a Contract formed?

Formation and capacity

Usually a contract forms when one person makes an offer and another person accepts it by performing the offer's terms or communicating their approval. Furthermore, if the terms are certain, and the two people can be presumed from their behaviour and actions to have intended that the terms are binding, then the agreement is (generally) enforceable.

Some contracts, for example, the sale of land, or other particularly large transactions, also require the formalities of signatures and witnesses (sometimes in the form of a deed). English Contract Law requires all people, known as ‘parties’, to bring something of value, known as ‘consideration’, to a bargain as a precondition to enforce it.

The Content of Contract

The terms in a contractual agreement are incorporated through definitive promises by reference to other terms or through a course of dealing between two people. English Contract Law allows plenty of freedom for people to agree the terms and content of a deal.

Contract Law is at its best when an agreement is performed and resorting to the courts is never needed because each party knows their rights and duties (for example, a shareholder agreement).

Vitiating factors, discharge and remedy

If an event occurs which was unforeseen and could make an agreement impossible to perform (or the agreement can be considered ‘very hard’) the courts might decide that the parties involved would have wanted to release themselves from their agreement obligations. Sometimes, it may be fairly straightforward in that one party breaches a contract's terms.

If it turns out that a contract is not substantially performed, and you are the innocent party, then you are entitled to cease your own performance, that is, stop doing stuff. Furthermore, you can sue for damages to put yourself in the position you would have been in as if the contract had been performed fully.

However, as the innocent party, you are under a duty to reduce the severity of your losses (this is known as ‘mitigating your losses’) and you cannot claim for harm that was a remote consequence of the contractual breach.

Nonetheless, remedies in English Contract Law are such that full compensation for all losses (whether money-related or not) should be made good. For example, in exceptional circumstances, if your wrongdoer breaches the terms of the contract, the courts may demand ‘specific performance’ of the agreement by the wrongdoer rather than monetary compensation to you.

Also, depending on the specific type of your contract, it is possible that your contract is cancelled or invalidated if one of you failed to make adequate disclosure, or if either of you made misrepresentations during your negotiations.

You can get out of unreasonable agreements if:

  • You were under duress
  • You were under undue influence
  • Your vulnerability was being exploited at the time when you agreed to a deal
  • The transactions in relation to the agreement are considered illegal

What next?

If you’re uncertain about any contractual agreement, it’s well worth having a chat with a qualified solicitor. Personal recommendations are often best, but there are lots of excellent solicitors who specialise in Contract Law, who can give you peace of mind and some sound advice. 

Published on 24th January 2013
(Last updated 26th November 2013)

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