What is a contract and why do we need contract law?
A contract is an agreement that the law will enforce. Every agreement is not a contract: a promise to meet a friend for a film is not.
Contracts let people trust strangers. A farmer can sell wheat to a mill in another city because both know a court will step in if one side cheats. Contract law is part of civil law (disputes between people or companies), not criminal law.
Contracts can be spoken, written or made by conduct (tapping your card at a shop). Some, like buying land, must be in writing.
Formation: the essential elements
1. Offer
A clear, definite promise to be bound on certain terms. An advert or a price tag on a shelf is usually only an invitation to treat (an invitation to make offers). An offer ends if it is rejected, withdrawn before acceptance, lapses after a time, or a counter-offer is made.
2. Acceptance
Unconditional agreement to all the terms (the "mirror image" rule) and it must be communicated. Silence is not acceptance.
3. Consideration
Each side gives or promises something of value: money, goods, a service or a promise not to do something. It need not be equal, but it must have some value.
4. Intention to create legal relations
Business deals are presumed to be legally binding. Family and social arrangements are presumed not to be.
5. Capacity
Parties must be legally able to contract. Minors and people who cannot understand the agreement (e.g. due to mental illness) have limited capacity; the exact rules vary by country.
6. Free consent and legal purpose
Agreement must be given freely and the purpose must be lawful. A contract to do something illegal is void.
Contract terms: conditions, warranties and exclusion clauses
Express terms are stated in words. Implied terms are added by law or custom, for example that goods sold match their description and are of satisfactory quality.
- Condition: a main term that goes to the root of the contract. Breaking it lets the other side end the contract and claim damages.
- Warranty: a minor term. Breaking it allows only damages; the contract continues.
- Innominate term: the remedy depends on how serious the effect of the breach is.
Exclusion clauses try to limit liability ("not responsible for loss"). Consumer-protection laws in most countries stop businesses from excluding basic rights such as safe, working goods.
Vitiating factors: when consent is spoiled
- Misrepresentation: a false statement of fact that led the other side to agree. Contract is usually voidable (the victim can cancel).
- Duress: threats or illegitimate pressure. Voidable.
- Undue influence: a trusted person takes unfair advantage (e.g. guardian over an elderly relative). Voidable.
- Mistake: some serious shared mistakes (the item did not exist) make the contract void.
- Illegality: unlawful purpose makes it void.
Void = never valid. Voidable = valid until the wronged party chooses to cancel it.
Discharge, breach and remedies
A contract ends (is discharged) by:
- Performance: both sides do what they promised.
- Agreement: both agree to end it.
- Frustration: an event nobody caused makes it impossible (the hall booked for a wedding burns down).
- Breach: one side fails to perform.
Remedies for breach
- Damages: money to put the victim where they would have been if the contract had been performed. Loss must be caused by the breach and not too remote; the victim must try to reduce (mitigate) the loss.
- Specific performance: court orders the party to do what they promised (used for unique things like land).
- Injunction: court order to stop doing something.
- Rescission: cancelling the contract and returning both sides to their starting point.
Contract vs tort: a contract duty comes from an agreement; a tort duty (like not being careless and injuring someone) exists even with no agreement. A hotel owes its guests both.
Key formulas and definitions
- Valid contract = Offer + Acceptance + Consideration + Intention + Capacity + Free consent + Legal purpose
- Invitation to treat (advert, price tag) โ offer
- Counter-offer = rejection of the original offer
- Condition broken โ end contract + damages; Warranty broken โ damages only
- Void = never valid; Voidable = valid until victim cancels
- Remedies: damages, specific performance, injunction, rescission
Worked examples
1. A shop shows a phone at 9,999 rupees by mistake (real price 19,999). You take it to the counter. Must the shop sell it at 9,999?
No. A price tag is an invitation to treat. You make the offer at the counter; the shop can refuse to accept it.
2. Sara offers her laptop for 20,000. Kabir replies "I'll pay 18,000." Sara says no. Kabir now says "OK, 20,000 then." Is there a contract?
No, not yet. Kabir's 18,000 reply was a counter-offer, which killed the original offer. His new message is a fresh offer that Sara may accept or refuse.
3. A caterer promised a wedding buffet (main term) and paper napkins with gold print (minor term). They serve the food but plain napkins. What remedy?
The napkins are a warranty, so the family can claim damages (e.g. the extra cost) but must still pay for the buffet. If the food had not come, that breaks a condition: they could end the contract and claim damages.
Common mistakes
- Thinking an advert or price tag is an offer. It is usually an invitation to treat.
- Thinking a counter-offer keeps the original offer open. It rejects it.
- Mixing up void (never valid) and voidable (valid until cancelled).
- Thinking every broken term lets you end the contract. Only breach of a condition (or a serious innominate breach) does.