Understanding the Fundamentals of Contract Law

 
Introduction to Contract Law
 
- Varsha Aithala
 
Basics of contract
 
A promise 
or set of promises for 
breach
 of which the law gives a 
remedy,
 or the 
performance
 of
which the law regards as a 
duty
- 
Offer v/s Invitation to treat
Example 1: Mr. A inserts a notice in Classified Advertisements section of a  magazine -
‘Bramblefinch cocks and hens, 25 shillings each’
-
binding offer? Why?
Example 2: 
A is a tenant of B’s house. Tenancy gets over after 1 year. A continues to live in the
house and pays regular rent to B. B continues to accept the rent
Example 3:  On Aug 1, A offers to sell his house to B for $1000.  On Aug 5, B replies and says he
will purchase the house for $900.  On Aug 7, A refuses the price. So, on Aug 8, B emails A that he
is prepared to pay $1000.
-
Acceptance
Example 4: Paul writes to John on 2 Feb offering to buy his horse for $30 and adding “If I hear no
more about him, I consider the horse mine at that price’. John does not reply to this message. He
then sells the horse on 20 Feb to Mary. Paul sues John.
Has a contract been formed?
What are the elements covered in both exchanges?
 
 
Contract formation
 
-
Consideration
Example 5
:
A promises to pay B $100 to buy all the wine in B’s cellar – but B 
has no wine in her cellar!
v/s B promises to deliver wine to A in future.
-
Intention to create legal relations
Example 6: 
Pepsico ran an advertisement for a promotion in which a person could obtain “Pepsi
points” by drinking Pepsi and then use them to purchase items from a catalogue. The back of the
order form stated that a person could purchase Pepsi points for ten cents a point. The
advertisement featured a Harrier Jet and said it cost 7,000,000 Pepsi points. Plaintiff filled out an
order form, asked for the Harrier Jet, sent in fifteen Pepsi points and approximately $700,000.00
in a check to PepsiCo and demanded the jet.
Practice point: Be clear when writing a contract – certainty of terms
 
 
Types of contracts
 
Unilateral
EXAMPLES: Reward for providing information or promotion contracts- to provide
an item when a set of tokens collected are produced or when repeat goods are
supplied in a long term contract to deliver goods, as and when ordered, etc.
Bilateral
Multilateral
EXERCISE
: 
Has a contract been made in each of these cases
?
Chiara’s grandma has recently died and Chiara is selling her bungalow. She puts
the house up for sale and Adele and Louis come to view the house. They like the
house very much and offer Chiara £100,000 for it. She wants a bit more money
than that so she turns them down. They then offer her £105,000 for the house.
Chaira agrees and says she will see her solicitor in the morning.
 
 
 
 
Arwen wants to sell her squash racquet. She knows her friend Ryan is a
keen squash player. She thinks she will sell it to him for £5. She has not yet
seen him to suggest this to him.
Heath is a very talented young football player. Manchester United want
him to play for them. A representative from the football club takes a
contract to his house. The contract says that Heath will play exclusively for
the club for two years and they will pay him £5,000 a month. Heath, who is
18 at the time, signs the written contract.
Kai wants to sell his Ferrari. It is in good condition and should sell quickly.
He goes to the shop where he meets his friend Cyril. On hearing that the
car is for sale Cyril immediately offers to buy it for £28,000. Kai agrees and
the two friends shake hands and then go for lunch to celebrate their deal.
Lillian wants to employ a new gardener. She sees her friend Ingrid when
she is shopping in Morrisons on Saturday. Ingrid’s son is looking for a job.
Lillian says to her friend ‘would your son like the job, its £40 a week’. Ingrid
accepts this offer on behalf of her son.
 
Termination
 
 
-
Mistake
1.
Mutual mistake:
Example 7: 
A agrees to buy and B agrees to sell 700 bags of specific nuts lying in a particular warehouse.
Unknown to both parties, 109 bags have been stolen prior to the sale!!
2.  Unilateral mistake:
Example 8: A buys B’s horse- he thinks it is sound and pays the price for a sound horse. He does not ask B
whether the horse is sound. Now??
-
Misrepresentation
“A person who makes a false statement intended to be acted on must make good the damage that naturally
results from it being acted on”
Example 9: 
Seller of goods deliberately concealed defects in them by nailing down planks and closing seams
of a rotten ship.
- Partial non-disclosure!
Example 10
: Laundry shop assistant made a customer sign a receipt for cleaning her dress – she told her the
receipt excludes liability of the shop for any damage to beads and sequins in the dress. In fact, the receipt
excluded all liability
 
 
Duress
Example 11: For a major international exhibition, A was to erect
exhibitions stands for B for £3,500. B had let out these stands to
various exhibitors to use at the exhibition. One week before the
exhibitions, A refused to work unless their pay was increased to £
4,500. B had to pay that amount to avoid further serious loss and
claims by disappointed exhibitors.
Undue influence
Example 12: A mother was forced to agree to a second mortgage on
the family home as security to finance share purchases made by her
son, under sustained pressure.
 
 
Discharge of parties
 
-
Impossibility
Example 13
: 
A had agreed to lease their stadium to B for the band ‘Guns & Roses’ to
perform. Just before performance date, the stadium was declared unsafe because of
some accident in it. No other venue could be made available due to short notice. B sued
A for loss caused. A argued that accident was the reason for non-performance. The
contract contained no express provision for such eventuality.
- Frustration:
Example: Coronation case
https://www.youtube.com/watch?v=NcPUrSVOnsI
-
Breach
-
Agreement
Remedies:
Damages
Specific performance
Injunction
 
Q
u
i
z
 
The new law will reduce the time it takes to get from the ‘sale agreed’ stage to _____________ of contracts.
(?)
exchange
trading
conveyance
_____________ of contract is the principle that a contract cannot give rights to, or impose obligations on, any
person who is not a party to the contract.(?)
Privacy
Primacy
Privity
After _____________, the company assumed liability for the contracts entered into by Ranger Ltd
assignment
assertion
assumption
As used in this section, ‘total _____________ paid includes money or anything of value which is paid or
delivered in exchange for the sale (?)
compensation
payment
consideration
The two parties to the contract were located in India and Brazil, so two original, signed ______________ of
the contract were produced.(?)
counterparts
pleadings
provisions
 
 
 
The UK airport operator has begun legal proceedings in the High Court to seek ______________ of
its contract with Eurotunnel.(?)
rescission
remedy
assertion
____________________ are those damages awarded for losses suffered in reasonable reliance on
a promise. (?)
reliance damages
special damages
expectation damages
 
They have yet to receive adequate legal ____________________ and financial compensation. (?)
Rebuff
Reliance
Redress
The parties came to a ____________________ settlement (=money paid when a case is settled).
fiduciary
pecuniary
mercantile
 
 
The company sought ____________________ relief in various member states against
competing mobile device makers based on alleged infringements of certain of its patent
rights. This would mean that these competing devices could no longer be sold.(?)
injunctive
considerable
temporary
 
The client could not ____________________ the contract in part by continuing the
relationship but discontinuing employment. (?)
repudiate
repatriate
requisition
 
The parties were excused from performing the contract due to ____________________,
as the painting in question had been destroyed by fire. (?)
mistake
necessity
frustration
 
Quick recap
 
Contract
 – A legally binding agreement between two or more parties where
all parties have given their consideration.
Consideration - 
what people give or promise under a contract
Offer
 – when the offeror sets out their terms
Invitation to treat 
– an invitation to make an offer
Acceptance
 – when the offeree agrees to the terms of a contract
Rules on Offer
An offer can be made orally, in writing or by conduct
An offer can only be accepted by the person or group of people to whom it is made
An offer must be communicated
An offer must be distinguished from an invitation to treat
 
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This text delves into the basics of contract law, covering topics such as offer vs. invitation to treat, contract formation, consideration, intention to create legal relations, and types of contracts like unilateral and bilateral. Through various examples, it illustrates crucial elements of contract formation and different scenarios where contracts may or may not be formed.


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  1. Introduction to Contract Law - Varsha Aithala

  2. Basics of contract A promise or set of promises for breach of which the law gives a remedy, or the performance of which the law regards as a duty - Offer v/s Invitation to treat Example 1: Mr. A inserts a notice in Classified Advertisements section of a Bramblefinch cocks and hens, 25 shillings each - binding offer? Why? Example 2: A is a tenant of B s house. Tenancy gets over after 1 year. A continues to live in the house and pays regular rent to B. B continues to accept the rent Example 3: On Aug 1, A offers to sell his house to B for $1000. On Aug 5, B replies and says he will purchase the house for $900. On Aug 7, A refuses the price. So, on Aug 8, B emails A that he is prepared to pay $1000. - Acceptance Example 4: Paul writes to John on 2 Feb offering to buy his horse for $30 and adding If I hear no more about him, I consider the horse mine at that price . John does not reply to this message. He then sells the horse on 20 Feb to Mary. Paul sues John. Has a contract been formed? What are the elements covered in both exchanges? magazine -

  3. Contract formation - Consideration Example 5: A promises to pay B $100 to buy all the wine in B s cellar but B has no wine in her cellar! v/s B promises to deliver wine to A in future. - Intention to create legal relations Example 6: Pepsico ran an advertisement for a promotion in which a person could obtain Pepsi points by drinking Pepsi and then use them to purchase items from a catalogue. The back of the order form stated that a person could purchase Pepsi points for ten cents a point. The advertisement featured a Harrier Jet and said it cost 7,000,000 Pepsi points. Plaintiff filled out an order form, asked for the Harrier Jet, sent in fifteen Pepsi points and approximately $700,000.00 in a check to PepsiCo and demanded the jet. Practice point: Be clear when writing a contract certainty of terms

  4. Types of contracts Unilateral EXAMPLES: Reward for providing information or promotion contracts- to provide an item when a set of tokens collected are produced or when repeat goods are supplied in a long term contract to deliver goods, as and when ordered, etc. Bilateral Multilateral EXERCISE: Has a contract been made in each of these cases? Chiara s grandma has recently died and Chiara is selling her bungalow. She puts the house up for sale and Adele and Louis come to view the house. They like the house very much and offer Chiara 100,000 for it. She wants a bit more money than that so she turns them down. They then offer her 105,000 for the house. Chaira agrees and says she will see her solicitor in the morning.

  5. Arwen wants to sell her squash racquet. She knows her friend Ryan is a keen squash player. She thinks she will sell it to him for 5. She has not yet seen him to suggest this to him. Heath is a very talented young football player. Manchester United want him to play for them. A representative from the football club takes a contract to his house. The contract says that Heath will play exclusively for the club for two years and they will pay him 5,000 a month. Heath, who is 18 at the time, signs the written contract. Kai wants to sell his Ferrari. It is in good condition and should sell quickly. He goes to the shop where he meets his friend Cyril. On hearing that the car is for sale Cyril immediately offers to buy it for 28,000. Kai agrees and the two friends shake hands and then go for lunch to celebrate their deal. Lillian wants to employ a new gardener. She sees her friend Ingrid when she is shopping in Morrisons on Saturday. Ingrid s son is looking for a job. Lillian says to her friend would your son like the job, its 40 a week . Ingrid accepts this offer on behalf of her son.

  6. Termination - Mistake 1. Example 7: A agrees to buy and B agrees to sell 700 bags of specific nuts lying in a particular warehouse. Unknown to both parties, 109 bags have been stolen prior to the sale!! 2. Unilateral mistake: Example 8: A buys B s horse- he thinks it is sound and pays the price for a sound horse. He does not ask B whether the horse is sound. Now?? - Misrepresentation A person who makes a false statement intended to be acted on must make good the damage that naturally results from it being acted on Example 9: Seller of goods deliberately concealed defects in them by nailing down planks and closing seams of a rotten ship. - Partial non-disclosure! Example 10: Laundry shop assistant made a customer sign a receipt for cleaning her dress she told her the receipt excludes liability of the shop for any damage to beads and sequins in the dress. In fact, the receipt excluded all liability Mutual mistake:

  7. Duress Example 11: For a major international exhibition, A was to erect exhibitions stands for B for 3,500. B had let out these stands to various exhibitors to use at the exhibition. One week before the exhibitions, A refused to work unless their pay was increased to 4,500. B had to pay that amount to avoid further serious loss and claims by disappointed exhibitors. Undue influence Example 12: A mother was forced to agree to a second mortgage on the family home as security to finance share purchases made by her son, under sustained pressure.

  8. Discharge of parties - Impossibility Example 13: A had agreed to lease their stadium to B for the band Guns & Roses to perform. Just before performance date, the stadium was declared unsafe because of some accident in it. No other venue could be made available due to short notice. B sued A for loss caused. A argued that accident was the reason for non-performance. The contract contained no express provision for such eventuality. - Frustration: Example: Coronation case https://www.youtube.com/watch?v=NcPUrSVOnsI - Breach - Agreement Remedies: Damages Specific performance Injunction

  9. Quiz Quiz The new law will reduce the time it takes to get from the sale agreed stage to _____________ of contracts. (?) exchange trading conveyance _____________ of contract is the principle that a contract cannot give rights to, or impose obligations on, any person who is not a party to the contract.(?) Privacy Primacy Privity After _____________, the company assumed liability for the contracts entered into by Ranger Ltd assignment assertion assumption As used in this section, total _____________ paid includes money or anything of value which is paid or delivered in exchange for the sale (?) compensation payment consideration The two parties to the contract were located in India and Brazil, so two original, signed ______________ of the contract were produced.(?) counterparts pleadings provisions

  10. The UK airport operator has begun legal proceedings in the High Court to seek ______________ of its contract with Eurotunnel.(?) rescission remedy assertion ____________________ are those damages awarded for losses suffered in reasonable reliance on a promise. (?) reliance damages special damages expectation damages They have yet to receive adequate legal ____________________ and financial compensation. (?) Rebuff Reliance Redress The parties came to a ____________________ settlement (=money paid when a case is settled). fiduciary pecuniary mercantile

  11. The company sought ____________________ relief in various member states against competing mobile device makers based on alleged infringements of certain of its patent rights. This would mean that these competing devices could no longer be sold.(?) injunctive considerable temporary The client could not ____________________ the contract in part by continuing the relationship but discontinuing employment. (?) repudiate repatriate requisition The parties were excused from performing the contract due to ____________________, as the painting in question had been destroyed by fire. (?) mistake necessity frustration

  12. Quick recap Contract A legally binding agreement between two or more parties where all parties have given their consideration. Consideration - what people give or promise under a contract Offer when the offeror sets out their terms Invitation to treat an invitation to make an offer Acceptance when the offeree agrees to the terms of a contract Rules on Offer An offer can be made orally, in writing or by conduct An offer can only be accepted by the person or group of people to whom it is made An offer must be communicated An offer must be distinguished from an invitation to treat

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