Contract Law
What exactly is a contract?
Simply put, a contract can be described as a legally binding oral or written agreement which exchanges
any combination of goods, services, money and property. It is a common misconception that a contract
may only be in written form, as oral or conduct agreements can be just as credible in contract formation.
A contract is unique in that unless certain exceptions apply, parties are free to agree to whatever terms
they choose, this is known as the ‘freedom of contract’.
You may unknowingly enter hundreds of contracts a year, for example, in buying groceries from a
supermarket, you have entered into a contract for the exchange of money in return for goods. This is an
example of a very simple contract, but contracts can be extremely complex, owing to the parties’
freedom to agree to whatever terms they see fit.
What are the sources of contract law?
Contractual relations are between individuals, and therefore contract law is a form of civil law. The
dominant source of contract law is common law, whereby the previous decisions of the courts form part
of the current law. There are also various statutory provisions which support contract law, one example
which will be discussed later in this guide is the Unfair Contract Terms Act 1977.
What is contract law and what does it aim to do?
Contract law aims to provide an effective legal framework for contracting parties to resolve their
disputes and regulate their contractual obligations. The law of contract is mostly self-regulatory, with the
majority of contracts requiring no intervention. The courts make no consideration for whether the
contract was fair or not; if it was agreed, it should be enforced. Despite this, on some occasions, the
courts are willing to depart from the principal of contractual freedom. This is often where there has been
an abuse of bargaining power by one contracting party.
Here is a breakdown of the main sections:
Formation - How is a contract formed, how does an individual create a legally binding agreement
with another and what may prevent an agreement operating as a contract?
Privity Of Contract - Exactly who are contractual obligations owed to?
Contract Construction - What kind of obligations can be included in a contract?
Vitiating Factors - When might a contract be void, or voidable?
Discharge Of Obligations - At what point are the parties free from their contractual obligations?
Contract Remedies
Formation
- Offer
, - Acceptance
- Certainty
- Consideration
Offer in Contract Law
This contract law lecture covers the areas of what makes an offer, offer vs invitation to treat, and
the revocation of an offer.
What makes an offer?
The first requirement of a legally binding agreement is that there is an offer. One party is the offeror,
who presents the offer, and one party is the offeree, who is the potential acceptor of the offer.
The case of Storer v Manchester City Council [1974] 1 WLR 1403 outlines that an offer is:
1. An expression of willingness to contract on specified terms
2. With the intention that it is to be binding once accepted
Storer v Manchester City Council confirmed that in assessing whether these conditions have been met,
the courts will take an objective approach. Therefore, the courts will consider how the conduct of the
offeror would appear to an objective party, which requires an application of the ‘reasonable man’
standard. Therefore, the question to ask is:
‘On examination of the offeror’s conduct as a whole, would the reasonable person consider the offeror
to have expressed a willingness to contract on specified terms with the intention that it is to be
binding once accepted?’
This test means there is no consideration of the intentions of the offeror or their state of mind. Even if
the offeror did not intend his conduct to amount to an offer at all, the courts may still find contractual
intent based on this test. This is an interesting standard to apply, as most other civil laws apply a
subjective test.
The courts have admitted that the ‘reasonable man’ standard is inherently difficult to apply, as it is
always difficult to be completely impartial or reasonable. However, owing to the lack of a better
alternative, the courts will apply the ‘reasonable man’ standard, if this standard did not apply, there
would be a high amount of absurd rulings and decisions, as will become clearer on consideration of
some of the rules of contract law.
It is also important to note that the offer must be communicated to the offeree (Taylor v Laird (1856)
25 LJ Ex 329)
Offer v Invitation to Treat
,An important distinction to make in contract law is that between an offer and an invitation to treat. An
invitation to treat is usually an invitation for another party to make an offer. It may also be defined as
an indication that a party is open to negotiation.
The case of Gibson v Manchester City Council [1979] 1 WLR 294, held the following words to be an
invitation to treat
“May be prepared to sell the house to you”
There was clearly no display of contractual intent, due to the words “may be prepared”, which suggest
the Council were open to negotiation, and therefore the statement was construed as an invitation to
treat, rather than an offer. Applying the standard from Storer v Manchester City Council and the
‘reasonable man’ standard, would the reasonable man consider the words “may be prepared to sell
the house to you” as being an unequivocal display of contractual intent?
Here are some key distinctions of offers and invitation to treats.
Offer:
Certain promise to be bound
Clear and specified terms
The conduct or words of the party show certainty
There is no room for negotiation
Invitation to treat:
There is room for negotiation
There is an invitation for offers
There is a request for information
Lack of certainty
Presumptions
Throughout the history of contract law, there has been various disputes over the distinction between
an offer and an invitation to treat. Therefore, in order to provide consistency, there are a number of
presumptions which are applied to certain types of conduct.
Presumption one - Display of goods
The case of Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401 confirms
that a display of goods is considered to be an invitation to treat. The specific approach taken is as
follows:
The display of goods in a shop/self-service shop are an invitation to treat
The customer makes the offer to the cashier by presenting the goods at the service desk
The cashier accepts the offer by scanning the goods and requesting payment
, Reasons why a display of goods is an invitation to treat: There are a multitude of reasons for which the
court construed the display of goods in this way. It is evident that there would be various issues with
the display of goods constituting an offer. If a display of goods was an offer, the acceptance would
occur when the customer removes the goods from the shelves. The type of problems that may occur
are:
The shopkeeper has no choice whether or not to sell to somebody once they have removed an
item from the shelves, preventing the shopkeeper’s ability to choose their customers
The acceptance has occurred at the price specified for the goods, meaning there can be no
negotiation between the buyer and seller. This is not particularly relevant in most shops where
negotiation is not possible, but it is still a relevant issue in some cases, and particularly if an
item is mispriced
A customer couldn’t choose to exchange the item for another once they have removed it from
the shelf, or replace the item, as acceptance has already occurred. Otherwise, they would be
in breach of contract
Presumption two - Display of goods in a shop window
The case of Fisher v Bell [1961] QB 394 is the legal precedent that confirms the display of goods in a
shop window is an invitation to treat. In this case, the defendant had a knife in the window of their
shop with a price tag attached, which was held to be an invitation to treat.
Reasons why a display of goods in a shop window is an invitation to treat: This presumption is based
upon the rules from the above case of Pharmaceutical Society v Boots Cash Chemists, in that if it was
considered an offer, the shopkeeper could not pick and choose his customers.
There is a further consideration for display of goods in a shop window; the shop may have a limited
stock of the item, therefore if two individuals saw the ‘offer’ at the same time and there was only one
available item, the shopkeeper would be in breach of contract to one of the individuals.
Presumption three - Advertisements
As a general rule, the case of Partridge v Crittenden [1968] 2 All ER 421 rules that an advertisement is
an invitation to treat. The primary reason for this is the “multi-acceptance” principle.
The multi-acceptance principle: If an advertisement is considered an offer, theoretically, an unlimited
amount of people could accept that offer, which causes obvious problems when the advertisement is
for a limited amount of goods, as the seller would be in breach of contract to each individual whom
they could not provide goods for.
This statement from Lord Herschell in the case of Grainger & Son v Gough [1896] AC 325 HL succinctly
describes this issue:
“The transmission of such a price-list does not amount to an offer to supply an unlimited quantity of
the wine described at the price named, so that as soon as an order is given there is a binding contract
to supply that quantity. If it were so, the merchant might find himself involved in any number of
contractual obligations to supply wine of a particular description which he would be quite unable to
carry out, his stock of wine of that description being necessarily limited.”
