UK Contract Law

Sources and Character

English contract law is a common law system developed through judicial precedent. It governs England and Wales; Scotland has a distinct mixed system. Principal sources are case law from the Supreme Court, Court of Appeal, and High Court, supplemented by statutes including the Unfair Contract Terms Act (UCTA) 1977, the Consumer Rights Act (CRA) 2015, and the Sale of Goods Act 1979. The law emphasises freedom of contract, objective determination of agreement, and formal requirements of consideration and privity.

Elements of Formation

A binding contract requires offer, acceptance, consideration, intention to create legal relations, and capacity. Privity — only parties may enforce the contract — was modified by the Contracts (Rights of Third Parties) Act 1999, allowing third-party enforcement where the contract so provides or purports to confer a benefit.

The Objective Test

English law applies an objective test. In Smith v Hughes (1871), Blackburn J held that the test is what a reasonable person would understand from the parties’ words and conduct, not subjective intention.

Offers and Invitations to Treat

An offer is a definite expression of willingness to contract on specified terms, intended to be binding upon acceptance. An invitation to treat is an invitation to negotiate or receive offers. In Pharmaceutical Society v Boots (1953), the Court of Appeal held that goods on shelves are an invitation to treat; the customer offers at the cash desk. Carlill v Carbolic Smoke Ball Co (1893) established that an advertisement promising £100 to anyone contracting influenza after using the smoke ball was a unilateral offer accepted by performance, rejecting arguments that it was mere puff.

Postal Rule and Electronic Contracting

Under Adams v Lindsell (1818), postal acceptance is effective on posting, not receipt, if the offer contemplates that medium. Acceptance by instantaneous communication (telephone, email) is effective upon receipt (Entores v Miles Far East Corp, 1955). The Electronic Commerce Regulations 2002 require electronic contracts to be concluded upon acknowledgement of receipt.

Consideration

Defined in Currie v Misa (1875) as a right, interest, profit, or benefit accruing to one party, or forbearance, detriment, or responsibility undertaken by the other, consideration distinguishes binding promises from mere agreements. It must move from the promisee and be sufficient (having some value) but need not be adequate.

The pre-existing duty rule from Stilk v Myrick (1809) provides that performing an existing duty is not consideration. Williams v Roffey Bros (1991) modified this: a promise of extra payment may be enforceable if the promisee obtains a practical benefit and the promise is not procured by duress.

Promissory Estoppel

From Central London Property Trust v High Trees House (1947), promissory estoppel renders a promise enforceable without consideration if intended to be binding, intended to be acted upon, and acted upon, preventing the promisor from insisting on strict legal rights. The doctrine is suspensory and does not create new causes of action (Combe v Combe, 1951).

Intention to Create Legal Relations

Commercial agreements are presumed legally binding; domestic and social agreements are presumed not. Balfour v Balfour (1919) held a husband’s promise of allowance to his wife was domestic; Merritt v Merritt (1970) distinguished a written separation agreement between estranged spouses as binding.

Contractual Terms

Terms are conditions (major, entitling termination and damages), warranties (minor, damages only), or innominate terms. The innominate term approach from Hongkong Fir Shipping (1962) classifies terms by the effect of breach: if breach deprives the innocent party of substantially the whole benefit, termination is available.

Exclusion Clauses

Exclusion clauses are controlled at common law (incorporation by signature or notice; construction contra proferentem) and by statute. UCTA 1977 governs business-to-business contracts: exclusions for death or personal injury from negligence are void; others are subject to reasonableness. CRA 2015 governs consumer contracts, rendering void exclusions for death or personal injury and subjecting other exclusions to fairness review; terms excluding liability for statutory implied terms are non-binding.

Vitiating Factors

Misrepresentation renders a contract voidable. Fraudulent misrepresentation (Derry v Peek) gives rescission and tort damages; negligent misrepresentation gives rescission and damages under Misrepresentation Act 1967 § 2(1); innocent misrepresentation gives rescission or damages in lieu under § 2(2). Common law mistake renders the contract void only in narrow categories: common mistake (Bell v Lever Bros), mutual mistake (Raffles v Wichelhaus), and unilateral mistake known to the other party.

Duress extends to economic duress (Universe Tankships v ITWF, 1983). Undue influence is actual (class 1) or presumed (class 2A — recognised relationships like solicitor-client; class 2B — relationships of confidence). Allcard v Skinner (1887) established the doctrine; Barclays Bank v O’Brien (1994) and Royal Bank of Scotland v Etridge (No 2) (2001) developed principles for suretyship, requiring lenders to ensure guarantors receive independent legal advice.

Remedies

Expectation damages place the injured party as if the contract had been performed (Robinson v Harman, 1848). Remoteness follows Hadley v Baxendale (1854): damages for loss arising naturally or within the parties’ contemplation. The Achilleas (2008) added an assumption of responsibility requirement. Specific performance is equitable, available only where damages are inadequate, and never for personal service contracts (De Francesco v Barnum).