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order to make the promise enforceable. remedies or both.
Capacity – the contract parties must be The party in breach is liable for the losses
mentally capable of entering into the suffered by the innocent party as a result of
legally binding agreement. his breach.
Legality – the purpose and content of the
agreement must be legal in order for the Innocent Party
contract to be legally enforceable. Also known as an injured party and
aggrieved party, he is a person who suffers
Obligation a loss due to a breach of contract by the
It is a duty contract parties have to fulfil in other party.
order to avoid a breach of contract. If the contract is enforceable, he is entitled
A negative obligation means the party is to sue for damages or other equitable
refrained from doing something. remedies to cover his loss.
A positive obligation means the party is
required to do something. Equity
It is a particular body of law that was
Intention of the Parties originally developed in the English Court
Proper inference from the facts as a whole of Chancery.
as to what would have been the intention of Its general purpose was to provide a
a reasonable person in the position of the remedy for situations where the law was
parties. not flexible enough for the usual court
system to deliver a fair resolution to a case.
Implied vs Express For example, common law had damages
These two concepts are important for (i.e. monetary compensation) as the only
understanding how contract law works. remedy, which was often inadequate for
Things that are inferred from actions, achieving fairness.
conduct or circumstances are implied. The concept of equity is deeply intertwined
Things that are stated orally or in words are with its historical origins in the common
express. law system used in England.
An agreement or its terms can be implied However, equity is in some ways a separate
even if nothing has not been stated system from common law: it has its own
expressly. established rules and principles, and was
For implied agreements or terms to be historically administered by separate
legally binding, the inferences made must courts, called courts of equity or courts of
be reasonable. chancery.
Objective Interpretation History of Equity
What meaning a reasonable person would After the Norman Conquest of England in
have understood a party who intended to the 11th century, royal justice came to be
convey a meaning by his words or conduct, administered in three central courts: the
as in Smith v Hughes (1871). Court of King’s Bench, the Court of
Common Pleas, and the Exchequer.
Breach of Contract The Chancellors lacked formal legal
It occurs when a party to a contract fails to training in the common law tradition and
fulfil his obligations, whether partially or showed little regard for precedent, their
wholly, as described in the contract. decisions were often widely diverse.
It also occurs when a party communicates Common law developed based on statutes
an intent to fail the obligation or otherwise and precedents in these royal courts was
appears not to be able to perform his too rigid and inflexible in response to
obligation under the contract. changing situations.
Where there is breach of contract, the Aggrieved citizens found that otherwise
innocent party is entitled to damages (i.e. valid complaints were dismissed for failure
monetary compensation) or equitable to comply with technicalities.
Frustrated plaintiffs turned to the King, perform a particular act.
who referred their requests for relief to a Specific performance – a court order
royal court called the Chancery. which requires a party to perform a specific
The Chancery possessed the power to settle act stated in a contract.
disputes and order relief according to his Account of profits – a court order against a
conscience. defendant to recover the profits taken as a
The decisions of the Chancery were made result of the breach of duty.
without regard to common law, and they Estoppel – a doctrine used to prevent a
became the basis for the law of equity. person from going back on his promise that
The separate courts of common law and he has forgone.
equity were merged in the 19th century, but Rescission – it is unmaking of a contract
the different rules of common law and by allowing a contract party to cancel the
equity have been left intact. contract unilaterally.
Nowadays, the power to enforce them are Rectification – a court order which
now vested in all judges, and there are no requires a change in the contract to correct
separate rules of law and equity but simply errors.
rules of law. Restraining order – a command of the
court issued upon the filing of an
Equity vs Common Law application for an injunction, prohibiting
Common law is a complete judiciary the defendant from performing a
system independent of the Crown, and used threatening act until a hearing.
to believe in the strict interpretation of
statutes and precedents. Common Vitiating Factors
Equity produced results based on the whim A vitiating factor is an element that can
and conscience of the Chancery, and invalidate a contract.
presupposed the existence of the common Misrepresentation – it is a false statement
law. of fact or law which induces someone to
The courts of common law recognised and enter into a contract. The false statement
enforced the legal ownership, while the must be a major factor leading the person
courts of equity recognised and enforced to enter into a contract. It does not matter
the equitable ownership. even if the representee could verify but he
Equity prevails in case its rules and the did not do so, as in Redgrave v Hurd
common law rules are in conflict. (1881).
Mistake – it is a factual error or erroneous
Elements of Equity belief held by one or both contract parties.
Equitable principles – they are legal The contract is void if both parties enter
maxims (i.e. maxims of equity) that serve into a contract under a factual mistake that
as a set of general principles or rules which is fundamental to the contract, as in Cooper
are said to govern the way in which equity v Phibbs (1867).
operates. For example, the clean hands Non est factum – also called ‘it is not by
doctrine is derived from the equitable deed’, it refers to a plea that the signature
maxim of ‘he who comes to equity must on the contract was signed by mistake,
come with clean hands’. without knowledge of the meaning of the
Equitable remedies – they are judicial terms, but was not done so negligently, as
remedies developed by courts of equity (i.e. in Gallie v Lee (1971).
equitable relief) to provide more flexible Illegality – contracts that are tainted with
responses to changing social conditions unlawful elements are not enforceable, e.g.
than was possible in precedent-based a contract to commit fraud. A party should
common law. not be permitted to recover damages that
arise from his own illegal or immoral
Common Equitable Remedies conduct, as in Les Laboritoires Servier v
Injunction – a court order by which a Apotex (2014).
person is required to perform or not to Duress – it arises where a person enters
into a contract as a result of violence, does not need to make any promise in
threat, coercion, or other pressure. So long return, e.g. an open request with rewards.
as a threat is just one of the reasons a In this case, it can be accepted by
person enters the contract, even if not the performance, and the communication of
main reason, the contract is voidable, as in acceptance is not required, as in Carlill v
Barton v Armstrong (1973). Carbolic Smoke Ball Company (1893).
Undue Influence – it is power used to push Collateral contract – a party enters into
a person in a weaker person into making a another contract which co-exists side by
decision which would not otherwise have side with the main contract, e.g. assurance,
been made. It operates where there exists a as in Heilbut, Symons v Buckleton (1913).
relationship between the parties which has For example, a party may rely on a
been exploited by one party to gain an collateral contract for quality assurance to
unfair advantage. Any contract formed enter into the main contract with a
under this situation is voidable, as in Royal manufacturer for production of goods.
Bank of Scotland v Etridge (2001).
Restraint of trade – a contractual Offer
undertaking not to trade may be void and It is an expression of willingness to
unenforceable against the promisor as contract on certain terms.
contrary to the public policy of promoting It must be made with the intention that it
trade, unless the restraint of trade is will become binding upon acceptance (i.e.
reasonable to protect the interest of the intention to be legally bound).
purchaser of a business, as in Nordenfelt v It must not require further negotiations or
Maxim Nordenfelt Guns and Ammunition discussions.
(1894). For an offer to become binding, the
Incapacity – it refers to the mental ability agreement must be certain, and the
of a contract party to enter into legally acceptance of the offer must be
binding relations. If a party does not have communicated.
the capacity (i.e. of full age and sound
mind) to do so, then the subsequent Intention to Be Legally Bound
contract is voidable, as in Nash v Inman It is an agreement between the parties who
(1908). wish that it can be enforced by a court (i.e.
intention to create legal relations).
2. Offer and Acceptance The parties must intend to enter into a
legally binding arrangement in which the
Terminology rights and obligations of the agreement are
Contract – it is a legally enforceable enforceable, as in Storer v Manchester City
agreement that creates, defines, and Council (1974).
governs mutual rights and obligations
among its parties. Types of Offer
Law of contract – it provides for the Counter offer – it is another offer made by
creation and enforcement of duties and the offeree, serving as a rejection of the
obligations created by an agreement original offer. The offeree attempts to add
between parties. new terms or amend existing terms. This
Entering into a contract – the parties have new offer must be communicated and
voluntarily assumed liabilities with regard accepted by the offeror to form a binding
to the promises made to each other. contract, as in Hyde v Wrench (1840).
Cross offer – both parties make the same
Types of Contract offer to each other without realising that the
Bilateral contract – both parties make a same offer has been made by each other at
promise to each other, as in Partridge v that time. For example, you make an offer
Crittenden (1968). to sell your car for £1,000 to your friend,
Unilateral contract – a party makes a but your friend did not realise that and offer
promise to the world, and the other party you £1,000 to buy your car. A cross offer is
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