Exam Notes Sample: Contract Law Revision Notes

Model Answer

1. Formation of a Contract

A binding contract requires offer, acceptance, consideration, an intention to create legal relations and sufficient certainty of terms. Each element must be checked in turn before advising on enforceability.

• Offer: a clear statement of terms that the offeror is willing to be bound by if accepted. Distinguish from an invitation to treat, where a party merely invites offers to be made, as with goods displayed in a shop window (Fisher v Bell [1961]) or a newspaper advertisement (Partridge v Crittenden [1968]).
• Acceptance: an unqualified agreement to all the terms of the offer. A counter-offer destroys the original offer (Hyde v Wrench [1840]). The postal rule provides that acceptance sent by post is effective on posting, not receipt (Adams v Lindsell [1818]).
• Revocation: an offer may be withdrawn at any time before acceptance, provided the revocation is actually communicated to the offeree (Byrne v Van Tienhoven [1880]). A unilateral offer generally cannot be revoked once performance has begun (Errington v Errington [1952]).
• Certainty and completeness: the courts will not enforce an agreement that is too vague to give practical effect to (Scammell v Ouston [1941]), although minor gaps may sometimes be filled by trade custom or a reasonable price.

2. Consideration and Intention to Create Legal Relations

Consideration is often described as “something of value in the eyes of the law” moving from the promisee. It need not be adequate, but it must be sufficient.

• Past consideration is no consideration: an act done before the promise was made cannot generally support it, subject to the narrow exception recognised in Pao On v Lau Yiu Long [1980].
• Existing duty rule: performing an existing contractual duty is not normally good consideration for a fresh promise, unless a practical benefit is conferred on the promisor, as in Williams v Roffey Bros [1991].
• Part payment of a debt does not discharge the whole debt (Foakes v Beer [1884]), although promissory estoppel may prevent a creditor going back on a promise to accept less where it would be inequitable to do so (Central London Property Trust v High Trees House [1947]).
• Intention to create legal relations is presumed in commercial agreements and presumed absent in domestic or social arrangements, though both presumptions are rebuttable on the facts (Balfour v Balfour [1919]; Merritt v Merritt [1970]).

3. Terms of the Contract

Once formation is established, the next step is identifying exactly what was agreed.

• Express terms are those actually stated, orally or in writing. A term may be incorporated by signature (L’Estrange v Graucob [1934]), by reasonable notice given before the contract is made (Olley v Marlborough Court [1949]), or by a consistent course of prior dealing between the parties.
• Implied terms arise by statute (for example, satisfactory quality and fitness for purpose under the Consumer Rights Act 2015), by custom, or by the courts where necessary to give business efficacy to the agreement (The Moorcock [1889]).
• Exclusion and limitation clauses must be validly incorporated, must cover the loss on their true construction, and must satisfy the reasonableness test under the Unfair Contract Terms Act 1977 where the clause attempts to exclude liability for negligence or breach of an implied term.
• Classification of terms: conditions (breach entitles the innocent party to terminate), warranties (damages only) and innominate terms, where the available remedy depends on the seriousness of the consequences that actually flow from the breach (Hong Kong Fir Shipping v Kawasaki [1962]).

4. Vitiating Factors

Even a validly formed contract may later be set aside where genuine consent was not properly obtained.

• Misrepresentation: a false statement of fact that induces the other party to enter the contract. Classified as fraudulent, negligent (Misrepresentation Act 1967, s.2(1)) or innocent, each carrying different available remedies, including rescission and, for fraudulent or negligent misrepresentation, damages.
• Mistake: common mistake (both parties share the same false assumption), mutual mistake (the parties are genuinely at cross-purposes) and unilateral mistake (only one party is mistaken, and the other party knows or ought reasonably to know of it).
• Duress: illegitimate pressure, whether directed at the person or of an economic nature, that leaves the victim with no realistic practical alternative but to agree to the contract (Barton v Armstrong [1976]; North Ocean Shipping v Hyundai [1979]).
• Undue influence: actual or presumed, particularly relevant to relationships of trust and confidence such as solicitor and client, or bank and customer (Royal Bank of Scotland v Etridge (No 2) [2001]).

5. Discharge of the Contract

• Performance: generally must be precise and complete, subject to recognised exceptions for divisible obligations, substantial performance and voluntary acceptance of partial performance by the innocent party.
• Breach: actual breach occurs on the due date for performance; anticipatory breach occurs where a party indicates in advance that it will not perform, entitling the innocent party to treat the contract as immediately discharged or instead to affirm it and wait for the due date.
• Frustration: discharges the contract automatically where a supervening event, not caused by either party, renders performance impossible, illegal or radically different from what was originally undertaken. The Law Reform (Frustrated Contracts) Act 1943 governs the recovery of money paid and expenses reasonably incurred.
• Agreement: the parties may discharge the contract by mutual consent, accord and satisfaction, or the operation of a condition subsequent already built into the agreement.

6. Remedies for Breach

The primary common law remedy is damages, intended to place the innocent party in the position they would have occupied had the contract been properly performed, subject to the rules on remoteness set out in Hadley v Baxendale and the ongoing duty to mitigate loss. Equitable remedies such as specific performance and injunctions are discretionary and only available where damages alone would be an inadequate response to the breach.

7. Privity of Contract and Third-Party Rights

The doctrine of privity provides that only the parties to a contract may sue or be sued upon it, even where a term was plainly intended to benefit someone else entirely (Dunlop Pneumatic Tyre Co v Selfridge [1915]). This traditional position caused practical difficulty wherever a contract deliberately conferred a benefit on a third party who then had no direct means of enforcing it.

• The Contracts (Rights of Third Parties) Act 1999 now allows a third party to enforce a term where the contract expressly provides for this, or where the term purports to confer a benefit on that third party, unless the parties clearly did not intend the term to be enforceable by them.
• Established common law exceptions to strict privity include agency, collateral contracts, and the equitable device of a trust of a contractual promise, illustrated by the unusual remedy granted in Beswick v Beswick [1968].
• Exam questions often ask students to apply the 1999 Act step by step: identify the term, ask whether it was intended to benefit the claimant, and check whether the parties excluded third-party enforcement.

Exam Tips

• Always work through formation, terms, vitiating factors, discharge and remedies in that order — problem questions are marked on structured application, not on case-name recall alone.
• State the legal test first, apply it carefully to the facts given, then reach a clear conclusion; examiners consistently reward a clear IRAC or ILAC structure over narrative description of the law.
• Where a question raises an exclusion clause, treat incorporation, construction and statutory control under UCTA 1977 as three separate steps, not one.
• Keep case citations short and accurate; a well-applied principle without a perfectly recalled case name still scores well, but a mis-stated legal rule generally does not.
• For remedies questions, briefly consider every available remedy on the facts, even where you conclude that only one is genuinely appropriate.