Contracts are made to allow parties to exchange goods or services and are fundamental to the functioning of an economy. There are 3 questions which the law asks of contracts:

  • Has a binding agreement been formed?
  • What are the obligations imposed upon each party?
  • What are the possible remedies for a breach?

Initially, the focus of this section will be on the first question: has a binding agreement been formed? There are a few points to note at the outset.

Firstly, there are 2 types of contracts: unilateral and bilateral contracts. A unilateral contract is one where a conditional promise is made to a group of people. For example, if I promise you £100 for finding my dog (if I had a dog) and bringing it back to me; if you had performed those conditions, I would be obliged to pay you £100. A bilateral contract is what most people would say is a typical contract. It is a promise for a promise, where both sides agree to do something in an exchange.

Secondly, any contractual dealings are based on a test of objectivity, as was said in the case of Smith v Hughes [1871] that:

If, whatever a man’s real intentions may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.

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