Law of Contract

Course Description:
This foundational course examines the basic doctrines and issues of contract law, including the
creation of rights and obligations from voluntary undertakings, the doctrines which circumscribe the circumstances under which the law permits a dissolution of the contract, and the remedies that the law provides for the breach of contractual obligations. In exploring the constituent components of contracts - formation, privity, frustration, breach, remedies, terms and vitiating factors - the course also examines challenges to the traditional model of contract law, tensions arising from the pulls of certainty and fairness, and other broader issues.


  1. Why do we need contract law?
  • Promises should be binding
  • We live in a market capitalist society where people buy and sell freely; for a free market economy to work efficiently its members must be able to plan their business activities, and they can only do this if they know that they can rely on promises made to them
  • In reality it is often difficult to choose business partners who we know would be unlikely to dishonour agreements, thus contract law is needed to render certain promises and agreements legally binding
  • Law of contract also prescribes the steps that can be taken by the other party in the event that such promises or agreements are not in fact performed
  1. Scope and basis of Law of contract
  • Contract Law is premised on two very important principles: the sanctity of contract (when parties enter into a contract, they are held sacred by the law) and the freedom of contract (freedom of all parties to agree upon any contractual terms they please)
  • The law provides a framework allowing parties to know what they had to do to make their agreements binding, and was intended to treat everyone equally, since to make different rules for one party than for another would be to intervene in the fairness of the bargain [procedural fairness]
  • The problem is that if people are unequal to begin with, equal treatment simply maintains the inequality, and this has serious repercussions in contract law (e.g. employer / employee)
  • Over the last century, substantive fairness (distributive justice) has developed, which aims to redress the balance of power between unequal parties, giving protection to the weaker one, like employees (cannot be dismissed without reasonable grounds), tenants, consumers, persons who are not of full age or understanding
  • Also, law of contract exists to protect public interest, for example where public policy requires that contracts entered into for illegal purposes should not be enforceable
  1. The objective approach
  • Problems may arise as to what the parties agreed to in a contract, for e.g. clean your car = cleaning the outside only (my terms) but vacuuming the inside as well (your terms)
  • Contract law’s approach is to look for the appearance of consent, such that if my words or actions would suggest to a reasonable person that I was agreeing to (clean the inside as well) then that is what I have to do before I am paid
  • Quote Blackburn J: “If, whatever a man’s real intention 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.”
  • A potentially harsh result may arise in the situation where a person who sings a contractual document is bound by it, even though they may not have understood or even read it

Summary flowchart of the Life of a contract

Legal issues which may arise in the formation and performance stages of a contract

Making a contract

There are four basic elements in the formation of a contract:

  • An agreement between the parties (which is usually shown by the fact that one has made an offer and the other has accepted it);
  • An intention to be legally bound by that agreement (often called intent to create legal relations);
  • Consideration provided by each of the parties – put simply, this means that there must be some kind of exchange between the parties. If I say I will give you my car, and you simply agree to have it, I have voluntarily made you a promise (often called a gratuitous promise), which you cannot enforce in law if I change my mind. If, however, I promise to hand over my car and you promise to pay me a sum of money in return, we have each provided consideration

In addition, the parties must have the legal capacity to contract, and comply with certain formalities in certain cases. Also, other than a few exceptions, it is not necessary for a contract to be in writing – a contract is an agreement, not a piece of paper.

Unilateral and bilateral contracts

  • Bilateral contract: Each party takes on an obligation, usually by promising the other something – for example, X promises to sell something and Y to buy it (although called bilateral, there may be more parties involved)
  • Unilateral contract: One party promises to do something (usually to pay money) if someone else does a certain thing (or in certain cases, does not do a certain thing). For example, you promise to pay a $100 reward to anyone who finds your lost purse. Only one party has assumed an obligation (you are obliged to pay a reward but nobody need actually have undertaken to do so)
  • Common example of unilateral contract is that between estate agents and people trying to sell their homes – the seller promises to pay a specified percentage of the house price to the agent if the home is sold, but the agent is not required to promise in return to sell the house or even to try to do so
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Part One: Agreement

For a contract to exist, usually one party must have made an offer, and the other must have accepted it (an agreement is reached). Once acceptance takes effect, a contract will usually be binding on both parties, and the rules of offer and acceptance are typically used to pinpoint when a series of negotiations has passed that point, in order to decide whether the parties are obliged to fulfil their promises. There is generally no halfway house – negotiations have either crystallised into a binding contract, or are not binding at all.

  1. Offers vs. Invitations ...

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