ATHE Level 3 Diploma in Law

London School of Law

Topic: Contract Law
1.1 According to Duxbury, R (2008) a contract is a legally binding agreement, we mean that
it generates rights and obligations that can be enforced by legal action in court. For a contract
to be legally binding there must be an offer, acceptance and consideration for it to be legally
binding there must be meetings of mind or Ad idem.
A contract is an agreement between two or more parties in order to create legal relations. A
contract is defined as a legally binding promise or a set of promises between two parties. In
this context a promise is an undertaking by one person to do something or refrain from doing
something if another person does something or refrains from doing something or makes a
promise in return. This is an enforceable agreement by law.
For a contract to binding and valid the parties must have reached an agreement, by one party
making an offer and the other party accepting the offer which is called acceptance. These
principles will constitute that parties have entered into an agreement, which are the principles
that will make a contract valid.
The key principles of Contract Law (Essential elements of a Contract) entails the following:
1. Agreement- This is where there must be an offer an acceptance with a definite agreement
between the parties. Hence one party must make a clear offer, and the other party must accept
it.
2. Consideration- Consideration is the exchange of promises by the parties to the contract or
agreement. It can be the payment of money, the delivery of equipment, the promise to do or
perform a service or work, the promise not to take an action or not to take or enforce a right.
3. Intention- This is where each person, on entering a contract, must intend to be bound by it.
For a person to be bound to a contract, he or she must seriously intend to create legal
obligations and have intended the agreement to have legal consequences or legal
relationships.
4. Capacity- In the legal principle of law of contract in regards to having capacity, both
parties who enters into a contract must have the necessary mental capacity to understand
what they are doing. In other circumstances under common law anyone has the right to enter
into a contract, however there are people who are likely to lack the capacity to enter in a
contract such as:

Individuals with mental impairment (including an intellectual disability)

Young people (persons under the age of eighteen); and
Those under the influence of drugs or alcohol

However on the basis for an individual to avoid a contract base on the grounds of their
incapacity, they must be able to show that they lacked capacity to enter into a contract and
that the other party knew or ought to have known what their incapacity.
In addition a contract is voidable at the option of a party who, as a result of mental disorder
or intoxication, is unable to understand the nature of the contract being made, as long
as the other party is aware or have known of the persons disability. The party that is
seeking to withdraw from the contract has an onus of providing the necessary requirements
that the individual/s was suffering from such a disability and that the other party was aware of
this.
5. Genuine Consent- This consist both parties agreeing to a contract on their own free will.
Genuine consent is an essential element for a contract to be legally binding.
Genuine consent to enter into a contract can be affected by contractual negotiations, there
may have been influenced by the following:
What makes a makes a contract invalid, see below.

Undue influence. Undue influence exists there is an inequality of power between the
contracting parties which results in the weaker party entering into a contract with the
dominant party. Where the weaker party cannot be said to have entered into the
contract voluntarily because of the influence of the dominant party, the influence is
said to be undue and the court may set the contract aside.

Mistake Where a mistake has occurred which shows that the parties have agreed to
different things, or where there are such different beliefs that the contract was never
properly understood, the contract may be declared void. Mistake is a complex area of
contract law and one where judges have traditionally been pretty unsympathetic to
someone who argues that he or she has made a terrible mistake. As a general rule,
being mistaken about some aspect of a contract will not provide a party with a right to
escape contractual obligations even if that mistake is fundamental.

Misrepresentation is the giving of false information by one party to the other before
the contract is made, which induces them to make the contract. If you make a contract
in reliance on a misrepresentation and suffer loss as a result, you can cancel the
contract or claim damages.

Duress; Duress is defined as actual or threatened violence to an individual to obtain a

contractual promise. If it is established that consent is obtained through duress then
the weaker party may choose to avoid the agreement.

Unconscionable conduct; Unconscionable conduct also deals with transactions

between dominant and weaker parties; it therefore overlaps with duress and undue
influence.

6. Legality - A contract may be illegal because its subject matter that is prohibited by statute
or because it infringes a rule/s of public policy. A contract containing illegal acts, promises or
objects would violate this condition.

For example, a contract whereby party A agrees to supply party B with a large quantity of
cocaine if B kills C will obviously be considered fundamentally illegal. Where a contract is
classified as illegal or contrary to public policy it is generally held to be unenforceable.- but
many contracts are not so obviously illegal. As an example, a contract to sell your car to a
friend without a roadworthy certificate might be illegal because of the restrictions placed on
the sale and purchase motor vehicles by the Transport Operations Act 1995 (Qld).
Principles of Contract Law available at
https://legalcontract.wordpress.com/2010/05/11/fundamental-principles-of-contract-law/
accessed 15/08/2016
Elements of Contract Law available at:
http://www.londoninternational.ac.uk/sites/default/files/programme_resources/laws/ug_
subject_guides/elements_law_contract-subjectguide4chapters.pdf accessed 15/08/2016
1.2 Duxbury, R. (2008) states that one way of classifying contracts is to distinguish between
promises which are contained in a deed and agreements that are simple contracts. Duxbury
(2008) defines deeds, simple contracts, unilateral contracts and bilateral contract as
classification of contracts.
1. Deed- The concept of deed signifies an obligation that is binding merely because of the
form in which it is made, its binding effect does not rest on an agreement at all. Historically a
deed had to be signed, sealed and delivered, but in the modern times the sealing and
delivery were loosely interpreted by the courts and sealing is no longer necessary where the
deed is executed by an individual. A Deed should be signed, witnessed and delivered. In
addition deed does not require to be supported by consideration. Duxbury, (2008) confirms
that certain types of transaction must effected by Deed. For example: the transfer of the legal
estate in land, however any other transaction can be put into the form of deed if the parties
involve wishes to do so.
2. Simple Contracts- An agreement that are not contained in a deed but which are still
legally binding are known as simple contracts. A simple contract does not necessarily need
any formalities in order to it be binding. This can be made in writing or can be done orally or
it can be implied by conduct. For eg: a person buying a newspaper form a news vendors
stand, in which the customer pick up the newspaper and hand the correct money, nothing is
said and no receipt given. However looking at this objectively, base on this example it is
obvious that a binding contract for the sale of goods has taken place, ie sale of the newspaper.
Another example is the purchase of goods from a vending machine that is operated
automatically by the insertion of coins. However in some situations, from the standpoint of
proof and evidence, it is desirable that the contract is recorded and put writing. However,
written contract is not a general requirement of a Simple Contract.
3. Unilateral Contract This is when one party promises to do something in return for an act
by the other party. For example: Party A issues an advertisement promising a reward of 100
to anyone who find his lost dog. The overall essence of this transaction is that only one party
party, A, is obliged to do anything. Base on the advertisement, no one is bound to go and
search for the lost dog, but if B having seen the offer, finds the dog and return the dog, B is
entitled to the reward. For example in the case of, United Dominions Trust (Commercial) Ltd
v Eagle Aircraft Services Ltd. This confirms that a unilateral contract of itself never gives rise

to any obligation upon the promise to do or refrain from doing anything, Adams and
Brownsword (1987).
Unilateral contracts frequently involves offers made to the world at large. For example in the
case of Carlill v Carbolic Smoke Ball Company, whereby the company (carbolic smoke ball)
made an offer to reward 1000, to anyone who caught the influenza after using their medical
preparation of the Carbolic Smoke Ball. The company Carbolic Smoke Ball Company was
held to be bound to pay to the promise of 1000 reward in this case to Mrs Carlill as this was
a unilateral contract, because she caught influenza in the process of using the smoke ball.
4. Bilateral Contract In this contract a promise is made by one party in exchanged for a
promise by the other. The exchange for example takes place at the till, whereby I went to
Tesco paid for a candy bar, I paid for my candy bar at the till and the cashier gave me a
receipt for the payment of my candy bar. The contract takes place at the till as this contract
entails an exchange for a promise (my candy bar), so I gave my money and I receive my
candy bar. This is called a bilateral contract. The exchange of the promises is enough to
render both enforceable in the court of law. Once this agreement has been reached, both
parties are contractually bound with each party simultaneously as promisor and ad promisee.
2.1 Distinguish between an offer and an invitation to treat
It is important for this company now under my management to distinguished between offers and invitation to treat as accepting an offer
creates a binding contract while accepting an invitation to treat is considered as actually making an offer.
In the context of contract law, an offer and an invitation to treat are two different concepts. An offer is a promise in exchange for
performance by another party. For example A lost his dog B promises to give B 500 reward if he brings his dog back. Therefore in this
example A will give B the reward of 500 if B brings the dog back. Generally rewards are offers.
Further examples are as follows:
Gibson v. Proctor (1891) 64 LT 594
Taylor v. Allon [1966] 1 QB 304
R v. Clarke (1921) 40 CLR 227
Williams v. Cowardine (1833) 5 C&P 566
Duxbury (2008) also confirms the fact that an offer is a statement of willingness to enter into a contract on specific terms made with the
intention that if accepted will become a binding contract. The offer is therefore made on the basis that if this was accepted by the
offeree will con contractually bound and no further negotiation is envisaged (Duxbury 2008).
An offer can be expressed orally, or in writing or it may be implied by conduct. For example when a bus travels along the 45 bus route to
Westminister it is making an offer of carriage to any passengers which is accepted when the passenger by conduct, places him or
herself in the bus (Duxbury 2008). (Example of offer by Conduct).
An offer can be addressed to one person in particular, or to a group of persons or to the world at large. For example in the case of
Carlill v Carbolic Smoke Ball Company. In this case the company, proprietors of medical preparation, the Carbolic Smoke Ball issued an
advertisement in which they promised to pay a reward of 100 to any person who used one of their smoke balls in the prescribed
manner (inhalation three times per day for two weeks, contracted influenza. The company also stated in their advertisement that 1000
had been deposited in the Alliance Bank, Regent Street, showing their sincerity in the matter.Mrs Carlill contracted influenza having
used the Smoke ball (having performed the condition).
Before the court of appeal: Lindley L.J. said ,the words of this advertisement is to anyone who performs the condition (which Mrs
Carlill did by using the smoke ball. This case was concluded that this was of the unilateral type (offer to the world).
However in some cases advertisement can be considered as offers for example in the case of: Carlill V Smoke Ball Company which is
concluded to be a unilateral contract an offer made to the world, as a promise was made to the world at large and anyone seeing the
advertisement and fulfil the conditions would be entitled to a reward.
An invitation to treat is classified as generally advertisement where one party makes and offer and it is not intended to be binding
(Poole 2012). Mckendrick (2011) also states that an invitation to treat is an action inviting other parties to make an offer to form a

contract. Advertisements are usually invitations to treat, which allows sellers to refuse to sell products at mistakenly marked. In agreeing
with (Poole 2012), Duxbury (2008) states that an invitation to treat is inviting people to make come forward and make an offer, in this
process the parties are still in negotiations , unlike offers, there is no final intention to bound to buy for example the washing wash
machine that was advertised by Argos. Thus, leaving the offeree with a choice of acceptance or rejection.
An advertisement in a newspaper or magazine is not an offer but an

Invitation to Treat.

Examples of key cases involve with an invitation to treat:

Partridge v. Crittenden [1968] 1 WLR 1204, where the appellant places an advertisement in the publication, Cage and Aviary Birds,
stating, Bramblefinch cocks, bramlefinch hens, 25s each. This advertises was placed inside the classified advertisement column, and
there was no direct words which states, offer or sales
Fisher v. Bell [1961] 1 QB 394: a knife with a price label on it in a shop window was not an offer but an invitation to treat.
Pharmaceutical Society of Great Britain v. Boots [1953] 1 QB 401
2.2 Explain the issues regarding the postal rule
The postal rule only applies to letters of acceptance and not to offers, revocation of offers or counter-offers. The postal rule only applies
to the post and it must be communicated between the parties involved in the contract, stating that this is the only method of acceptance.
Examples of leading cases:
Adams v. Lindsell [1818]: the postal rules state that a letter of acceptance takes effect at the moment of posting.
2.3 Explain consideration, the rules of condition and the test of enforceability
To enforce a contract both parties must adhere to the rules of contract which will be binding on both individuals with consideration of
their (Rights of the third parties) Act 1999.
3.1 Analyse the difference between a condition and a warranty, using cases to exemplify the analysis.
The condition is the term of a contract that if not performed will go the heart of the contract. The breach of the condition will gives the
innocent party the right to end the contract if he or she chooses, in addition to the rights to claim damages for an damages.
A condition is regarded as a fundamental or important terminology in contract law, as this go to the root of the contract. However if there
is a breach of a condition, this will entitled the injured party to repudiate the contract as well as the right to claim damaged for the loss
he or she suffered.
On the other the warranty is a minor terms (term of lesser importance) of the contract if not perform will cause loss, but will not go the
heart of the contract. The breach of warranty will not necessarily end the contract but will give rise or entitled the injured party to claim
for damages occurred as a result of breach of warranty. This is based on Sale of Goods Act 1893.
Key examples as follow:
In the case of Arcos v Ronaasen, in which the timber staves were described as being half an inch in thickness were purchased for
making into a cement storage barrels. However the timber that was actually supplied was one sixteenth of an inch thicker than was
described but did not make any difference to the usefulness of the wood for making the barrels. This was classified as a breach of
condition in accordance to section 13 of the Sale of Goods Act 1893, therefore the buyer was entitled to reject the entire consignment.
However in accordance to, The Sale and Supply of Goods Act 1994, section 15A, and Sale of Goods Act 1979, sections, 13, 14, 15,
states that it would be unreasonable for the buyer to reject the goods, if the buyer does not deal as consumer. Based on this new
additional to the law (modernisation), which states the breach should not be treated as a breach of condition, but as a breach of
warranty. In the case however where the buyer does not deal as a consumer they have the right to reject the goods (for example in the
case above with the timber).
Furthers examples of cases on condition and warranty as follows:
Poussard v Spicers and Pond: This is the case where the claimant enters into a contract with the defendant so as to take the female
lead in a new operetta for three months season at the defendant theatre. The claimant fell sick and miss the first four nights of
rehearsals and performances as a result the defendant had to engage a substitute. The claimant turned up on the fifth night of the
performances and the defendant refuses her services and purported to terminate the contract. The claimant therefore sued the
defendants staying she had been wrongfully dismissed. The court concluded that her promise to perform from the opening night was a
condition.
Bettini v Gye.