Cambridge A Level Law (9084): Law of contract – Study Guide

A contract is an agreement that the law will enforce. Cambridge A Level Law asks you to understand how a valid contract is formed, what its terms are, how it comes to an end and what a court can order when it is broken. The assessment rewards candidates who state a rule precisely, support it with an authority, apply it to the facts and weigh the arguments. This guide covers the four parts of the topic in that spirit and finishes with a worked damages problem.

Where this fits in the specification

Law of contract is Topic 3 of the A Level stage, in four parts: 3.1 formation, 3.2 contents, 3.3 discharge and 3.4 remedies for breach. Analysis and evaluation are tested through problem scenarios and essays. This guide gives the standard core, so check the syllabus for the precise list.

Formation of a valid contract

A valid contract usually needs agreement, consideration, intention to create legal relations and capacity. Some contracts also need a particular form, such as writing for the sale of land.

Agreement: offer and acceptance

An offer is a clear statement of willingness to be bound by stated terms. It is different from an invitation to treat, which invites others to make offers: an advertisement of goods for sale (Partridge v Crittenden, 1968), a shop display (Pharmaceutical Society v Boots, 1953) and an auction lot are examples. A statement of the lowest price a seller would accept is an answer to a question, not an offer (Harvey v Facey, 1893). A unilateral offer is accepted by performing the act asked for, as in Carlill v Carbolic Smoke Ball Co (1893). An offer can be withdrawn before acceptance if the withdrawal is communicated, even by a third party (Dickinson v Dodds, 1876). A counter-offer ends the original offer (Hyde v Wrench, 1840), whereas a mere request for information does not (Stevenson, Jaques v McLean, 1880).

Acceptance must be unconditional, match the offer and be communicated to the offeror. Silence cannot be acceptance (Felthouse v Bindley, 1862). The postal rule is an exception: acceptance by post takes effect when posted (Adams v Lindsell, 1818) and instantaneous communication takes effect on receipt (Entores v Miles Far East, 1955).

Consideration

Each party must give something in return, which is consideration. It must be sufficient, which means it has some legal value, but need not be adequate (Chappell v Nestle, 1960). It cannot be past (Roscorla v Thomas, 1842). Doing something that one is already bound to do is not normally valid (Stilk v Myrick, 1809), but a practical benefit to the promisor may count (Williams v Roffey Bros, 1991). Part payment of a debt is not good consideration for a promise to forgive the rest (Foakes v Beer, 1884), although promissory estoppel may stop the creditor going back on a promise to accept less (Central London Property Trust v High Trees House, 1947). The doctrine of privity means only parties can sue on the contract (Tweddle v Atkinson, 1861), subject to the Contracts (Rights of Third Parties) Act 1999.

Intention and capacity

In social and family arrangements it is presumed that no legal relations are intended (Balfour v Balfour, 1919), but the presumption may be rebutted (Merritt v Merritt, 1970). In commercial dealings the opposite presumption applies. As to capacity, a minor is bound by contracts for necessaries and beneficial contracts of service, but other contracts are generally not enforceable against them.

Contents of a contract

The terms are what the parties have promised. A representation is a pre-contract statement that induced the contract but is not part of it. A statement is more likely to be a term where it was important, made by an expert, or put in writing (Bannerman v White, 1861; Dick Bentley Productions v Harold Smith Motors, 1965; Oscar Chess v Williams, 1957).

• Express terms are stated by the parties. Implied terms come from custom, statute or the courts. A court implies a term to give business efficacy (The Moorcock, 1889) or as a matter of law (Liverpool City Council v Irwin, 1977).
• Statute implies terms in sales: the Sale of Goods Act 1979 for business sales and the Consumer Rights Act 2015 for consumer sales, requiring that goods match their description, are of satisfactory quality and are fit for purpose.
• Conditions, warranties and innominate terms. Breach of a condition allows the innocent party to end the contract and claim damages (Poussard v Spiers and Pond, 1876). Breach of a warranty gives only damages (Bettini v Gye, 1876). For an innominate term the remedy depends on how serious the effect of the breach is (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha, 1962).
• Exclusion clauses limit or remove liability. To be effective, a clause must be part of the contract (a signed document binds, L’Estrange v Graucob, 1934; notice must come in time, Olley v Marlborough Court Hotel, 1949), must on its true meaning cover the breach, and must pass statutory controls. The Unfair Contract Terms Act 1977 forbids excluding liability for death or personal injury caused by negligence and applies a reasonableness test to other terms; the Consumer Rights Act 2015 lets consumers avoid unfair terms.

Discharge of a contract

Discharge is the end of the parties’ obligations.

• Performance. The general rule is that performance must be exact and complete (Cutter v Powell, 1795). Exceptions include substantial performance (Hoenig v Isaacs, 1952) and prevention of performance by the other party.
• Agreement. The parties may release each other, provided there is fresh consideration or the release is made by deed.
• Breach. A breach that is serious, such as breach of a condition or a repudiation, allows the innocent party to end the contract. Anticipatory breach occurs when one party announces in advance that they will not perform (Hochster v De la Tour, 1853), and the other may sue at once or wait for the time for performance.
• Frustration. A contract is frustrated if an event, without the fault of either party, makes performance impossible, illegal or radically different. Cases include destruction of the subject matter (Taylor v Caldwell, 1863) and loss of the main purpose (Krell v Henry, 1903, where the coronation procession was cancelled, but contrast Herne Bay Steam Boat v Hutton, 1903). It will not apply where the event is self-induced (Maritime National Fish v Ocean Trawlers, 1935) or merely makes performance more expensive (Tsakiroglou v Noblee Thorl, 1962). Frustration ends the contract automatically, and the Law Reform (Frustrated Contracts) Act 1943 allows adjustment for money paid and benefits conferred.

Remedies for breach of a contract

• Damages are the main remedy. The purpose is to put the claimant in the position they would have been in had the contract been performed. The claimant must show causation, the loss must not be too remote (Hadley v Baxendale, 1854: losses arising naturally, or in the contemplation of both parties when the contract was made), and the claimant must mitigate their loss. Reliance damages compensate wasted expenditure where profit is hard to prove (Anglia Television v Reed, 1972), and damages for lost enjoyment are available where enjoyment was the purpose of the contract (Jarvis v Swans Tours, 1973).
• Liquidated damages are a sum agreed in advance. They are enforceable if they protect a legitimate interest and are not out of all proportion to it, and unenforceable if they are a penalty (Dunlop Pneumatic Tyre v New Garage, 1915; Cavendish Square Holding v Makdessi, 2015).
• Specific performance is a court order to perform. It is discretionary, not available where damages are an adequate remedy, and not for personal services (Beswick v Beswick, 1968, is an example where it was granted).
• Injunction is an order to stop or prevent a breach (Warner Brothers v Nelson, 1937).
• Quantum meruit is a reasonable sum for work done where no price was agreed.

Worked example

Facts: Kessler Builders agrees in writing to buy 2,000 roof tiles from Orlov Supplies at 1.80 pounds each for delivery on 1 June. The contract says Orlov will pay 40 pounds per day for late delivery. Orlov delivers nothing. Ten days late, Kessler ends the contract and buys 2,000 equivalent tiles elsewhere at 2.15 pounds each. Advise Kessler.

1. Valid contract: written agreement, price as consideration, and commercial intention is presumed.
2. Breach: failure to deliver on the due date is a breach. Time was probably of the essence for a building programme, so Kessler could end the contract and buy substitutes. It acted reasonably in mitigating.
3. Cost of cover: the contract price was 2,000 x 1.80 = 3,600 pounds. The replacement cost was 2,000 x 2.15 = 4,300 pounds. The extra cost is 4,300 - 3,600 = 700 pounds.
4. Liquidated damages: the clause covers delay up to the point the contract ended, which is 10 days x 40 = 400 pounds. If it is a genuine pre-estimate of loss it is enforceable and not a penalty.
5. Total possible claim: 700 + 400 = 1,100 pounds, provided Kessler does not recover twice for the same loss.
6. Specific performance is not suitable because substitutes are easily bought.

Common mistakes

• Treating adequacy and sufficiency of consideration as the same thing.
• Saying that an advertisement is always an offer.
• Confusing frustration with a mere increase in cost, or calculating damages without mitigation and remoteness.
• Listing cases without applying them to the facts.

Exam technique

Command words include explain, discuss, evaluate and advise. For problem questions identify the issue, state the rule with authority, apply it and conclude. For essays, argue both sides, such as certainty against fairness, and reach a clear conclusion. Cite a case only when you are sure of its name and what it decided.

Check your understanding

1. What is the difference between an offer and an invitation to treat? An offer can be accepted to form a contract; an invitation to treat only invites offers.
2. Explain why Hyde v Wrench matters. A counter-offer rejects and ends the original offer.
3. Define sufficient consideration. Something of real legal value, though it need not match the value of the promise.
4. How does a condition differ from a warranty? Breach of a condition allows termination and damages; breach of a warranty allows damages only.
5. Give one reason a frustration claim would fail. The event was self-induced, or performance only became more expensive.
6. What are the two limbs of the remoteness rule in Hadley v Baxendale? Losses arising naturally from the breach, and losses within the parties’ contemplation when the contract was made.
7. A buyer is promised 500 units at 12 pounds each and buys at 14 pounds elsewhere. What are the damages? 500 x 2 = 1,000 pounds.

Frequently asked questions

What are the requirements for a valid contract in A Level Law? A valid contract usually needs agreement (offer and acceptance), consideration, intention to create legal relations and capacity. Some contracts, such as those for the sale of land, also need a particular form like writing.

What is the difference between a condition and a warranty? Breach of a condition allows the innocent party to end the contract and claim damages, as in Poussard v Spiers and Pond (1876). Breach of a warranty gives only damages, as in Bettini v Gye (1876).

When is a contract frustrated? A contract is frustrated when an event that is neither party’s fault makes performance impossible, illegal or radically different, as in Taylor v Caldwell (1863). Frustration does not apply where the event is self-induced or only makes performance more expensive.

What is the remoteness test for contract damages? Under Hadley v Baxendale (1854), a claimant can recover losses arising naturally from the breach and losses that were in the contemplation of both parties when the contract was made. The claimant must also show causation and mitigate their loss.

Which part of the Cambridge 9084 syllabus covers the law of contract? Law of contract is Topic 3 of the A Level stage of Cambridge International A Level Law 9084, covering 3.1 formation, 3.2 contents, 3.3 discharge and 3.4 remedies for breach.