yjhbCHAPTER 3 

THE MAIN PRINCIPLES OF CONTRACTS UNDER ENGLISH LAW

I . The essential elements of the formation of a valid contract.

A / Offer and acceptance / Mutual intention to create legal relations

1) Offer

Definition :

It is a statement on the terms of which the offerer is willing to be bound.

It is a promise to do or not to do something in the future.

The offer must be expressed : by fax, email, writing, conduct.. ;And it must be communicated
to the offeree. If the offer is too vague, the contract may be void.

The offeree may be a specific person but the offer may also be made to any group of persons.

Offers must fulfill the following requirements to be valid :

- A serious intent to be bound by an agreement must be demonstrated. Eg : a joke may not be
considered as an offer.Some ways of communication cannot be considered as an offer : to be
considered as an offer, the Court had to deliberate over the useof language and apply in the
appropriate context. Eg : these are not offers = statement of opinion, statement of intention,
invitation to treat, preliminary negociation, estimate for services (=devis). The offer must show
there is a serious intention to be bound.
- The offer must reasonnably be certain and not to vague ( in this case the contract will be
considered as void because the acceptance is not valid). The terms of the offer must be clear,
not too ambiguous. In order to be clear, the offer should include the following elements :
 Subject matter
 Any additionnal terms that is important for the offeree to accept
 Consideration
 Must be communicated to the offeree

Revocation of an offer :

General rule : It can be revoked at any time before it is accepted. Before acceptance, the
offer can be revoked by the offerer if it has been communicated to the offeree.

Exceptions  :

- Once an offer has been accepted, the offer cannot be revoked even if the offerer made a
mistake except if you know or should have known that there was a mistake.
- Cases where the offer is automatically terminated :
 If death before the acceptance, the offerer can put an end to the offer
  If subject matter is destroyed before acceptance is made
 Legislation changes before the acceptance
 There is a too long lapse of time between the offer and the acceptance

2) Acceptance

It occurs when the offeree consents to the terms and communicates the acceptance to the
offerer either by words or by performance.

The person who accepts an offer may be aware that the offer was been made.

To be valid, the acceptance must meet a specific offer.

An offeree can do 4 things when he receives an offer :

 Accept
 Reject } the original offer is
 Make a counter offer } no longer valid
 Nothing

When a counter offer is made, the roles inverse : the offeree becomes the offere and
conversely.

To be valid, acceptance and offer must be :

- Unconditionnal and unequivocal : acceptance must mirror the terms of the offer with no
changes = mirror image rule.
However , sometimes acceptance is subject to a condition : as long as a condition is not fulfilled,
the party does not intend to be bound by the acceptance (frequent case). As soon as the
specific conditions are fulfilled, parties are bound by the acceptance .
- Acceptance must be made on time. Under the period of time attached to the offer or if there is
not, within a reasonnable period of time.
- Acceptance has to be communicated to the offerer. Sometimes, the contract is made between
non physical persons. In the UK law system, contracts are formed when the letter of acceptance
is posted or e-mailed (=the « mailbox rule »). It only applies to acceptance. The best way to
avoid an issue is to draft and to stipulate in the offer that acceptance of the offer is effective
when the acceptance is received.

Silence cannot be considered as the acceptance for any offer. There is an exception. For
example, if you pay and accept to receive some magazines, you are under the gareement as long as
you pay and accept the reception.

3) Mutual intention to create legal relations

Some agreements are not intended to be subject to legal actions. There are cases where
parties clearly indicates that they don’t intend to create legal relations.

The Court agrees to have 2 main presomptions regarding the intention to create legal
relations :
 - Domestic agreements are not enforceable without proof of the intention to create legal
relations
- Commercial agreements are enforceable in the absence of clear proff that legal relations where
not intended

*Cases where the parties have not expressly denied their intention to create legal relations. The
Court must deduce from the circumstances of the case whether or not there was this intention.
Sometimes they have not expressly denied their intention. Eg : advertisement : sometimes no
intention to be bound to the ad.

*Family agreements depend on the cases. Eg : pocket money.

* Cases in which it is expressly declared that the parties do not want to create legal relations. The
Court would accept and implement that the parties declared they do not want to create legal
relations. It is also the case for arrangements made prior to the contract.

*Statuory provisions which provide that an agreement is not enforceable. Eg : contract of
engagement but because of an Act of the Law Reform Act, the agreement to marry is not enforceable
at law because of a statuory presomption that there is no intention to create legal relations.

B / Consideration

It is an essentiel element under UK law.

The effect of the consideration rule is that an agreement, even if the parties intend to have
legal relations, it is not a contract unless it is supported by a proper consideration.

Exception : if the contract is made under seal or by deed = those contracts do not need
consideration.

Consideration is an offer characterised as the price of a promise. It involves the payment of

money for products, services, for doing something or not doing something. It must be capable of
being valued in terms of economics. Sometimes, consoderation is just the fact that you give up some
rights. A party to a contract must give something of value to the other party but there is no
obligation to do so.

Consideration indues the parties enter into an agreement. Consideration is the element of
the contract which makes the difference with a gift, a donation.

In case of dispute, we must ensure that consideration is present and it is up to the parties to
value it.

When the consideration is of a very small value, there is suspecyion of fraud, duress, indue
influence on the part of the person gaining the advantage. What is important is the existence of
consideration but not its adequacy (exception in case of fraud).

Consideration must be sufficient (sufficient is the contrary of adequacy). One must issue that
the consideration which is offered is not an act or an omission which the person is not already bound
to perform. Consideration must be new.
 Consideration must be legal.

Consideration must not be past. It corresponds to the situation in which one party to the
contract would put forward as consideration must perform before any promise of reward was made
by the offer. The act of one party can only be regarded as consideration if it was carried out in
response to some promise of the other.

Consideration must move from the promisee to the promisor (=the person to whom the
promise is made). It has effects toward third parties : it leads to the consequence that, in general,
third parties cannot sue for the performance of the promises made by a contract.

A contract is discharged when its performed (=all obligations have been fulfilled). When an
agreement is discharged by a new contract, the question is raised to know to what extend this new
contract requires consideration.

UK law has developped several doctrines.

- Under Common Law, there is the « doctrine of accord and satisfaction ». The party is
discharged of the obligation by replacing it by another obligation. Eg : B must agree to give up
his right and A must provide B with some other consideration. The contract is discharged by
another agreement, so the obligation of the first contract is replaced.
In the Pinnel case 1602, there is a sum of money due from Pinnel to Cole . The Court decided
that the payment of a partial sum on the due date in place of the original sum of money cannot
be considered as discharging the agreement. Payment of the due sum on the due date is
consideration. Consideration here is the sum given before the due date.
Exception to this doctrine :
 When there is a dispute as to the amount of money owed to a party
 When the creditor agrees to take something different in kind (=en l’espèce) =
the debt is discharged by substituted performance.
 When the payment of smaller sums occurs before the due date
 If the debtor makes an arrangement with the creditor (creditor accepts to be
paid less than what was initially decided = discharged).
 The payment of a smaller sum by a third party can be considered as a
discharge if the creditor agrees

- The equitable doctrine, doctrine of « Promissory Estoppel ». This doctrine has the following
ingredients :
 It arises from a promise made with the intention that it should be acted
upon. The person who had received the promise must show that he has
relied on it.
 It only related to a variation of the contract by an agreement and must not
affect the consideration made.

4) Capacity

Adults are able to enter any contract, but some adults have disabilities.
 Some people do not have the power to make contracts :

- Children under 7
- People who are mentally insane
- People who are drugged or drunk

 Children under 7 .

Minors are individual under 18 years old and the ones who are not yet emancipated from their
parents or guardian supervision.

Minors between 7 and 18 have the ability to enter into some contracts. The position on the
minors come from the Minor Contracts Act. It stipulates that minors are permitted to enter into
contracts for limited purposes if they are capable to understand the contract and its scope.

However, the UK law assumes that a minor cannot understandthe application of a contract. So,
if there is a dispute, it is up to the other party to prove that the minor could understand.

A contract made with a minor is voidable. The minor may cancell the contract at any time if he
does not ratify or affirm the contract.

Exception :

- When the contract is made for the minor’s benefit. When they relate to employment,
education, services, they are binding to the minor.
- When the contract is made for « necessaries » ( Sales of Goods Act ) = for the supply of food,
accomodation, clothing and over things. The good must be necessary and the child must pay a
reasonnable price for it.

 Persons suffering from mental disorder.

The Mental Health Act 1959 provides protection for those who have mental disabilities. It
applies to every person whatever the age.

There are 3 categories of people suffering from mental disability :

- People whose mental state is such taht their affairs are under control of the court. Mental
Capacity Act 2003 : if a court takes over the individual power to make contract, any contract
made by this category of people will be unenforceable.
- People whise mental state is that, enve though they are not under the control of the Court,
they are unable to appreciate the nature of the contract they are entering into. Contracts lade
by this category of people are enforceable against them unless it is proved that the other party
was aware of the incapacity. It must be shown that the disability was apparent to the other
party at the time of the contract. Eg : drunk people
- People who are able to understand the transaction but who are more susceptible to enter into
disadvantaging contracts. Eg : very old people. Contracts made by such people are binding
unless affected by the rules related to undue influence.
 5) Legality

It is an essential element of the contract in order to be valid. If a contract is considered

illegal, it is void from the begining . it cannot be enforced. The object of the contract must be lawful.

There are 2 main categories of unlawful contracts :

- Contracts contrary to to legislation

- Contracts contrary to public policy

Some countries have enacted statutes prohibiting certain conducts. Eg : competition rules.

Contracts may have a negative effect on society. Eg : immoral contracts. These contracts are
void, they are not enforceable (parties cannot sue for performance).

6) Formalities

English law does not require a contract to be made according to any specific formalities.

Contracts can be made either orally, in writing, partly orally and partly by writing are valid.

When it is made in writing, the contract can be :

- Under hand (sous seing privé)

- By deed (acte authentique)

Exceptions :

- Sale or purchase of real estate

- Consumer credit agreement
- Bills of exchange, acknowlegment of debts

II . Void, voidable and unenforceable contracts.

A / Absence of one or more of these elements.

1) Misrepresentation

The Misrepresentation Act of 1967 defines misrepresentation as a false statement of fact

made by one party to another party which induce the other party to enter the contract.

Effect of misrepresentation : it makes the contract voidable giving the innocent party the
right to rescind (= to terminate the contract) and/or to claim damages. Misrepresentation is an
untrue statement of fact. Its effect is to lead the other party to enter the contract and as the result of
which the injured party suffers loss. It is a false statement made on some specific existing fact. But
some facts are excluded from misrepresentation. Eg : statements of law, statements as to future
conduct , statement of opinion, advertisement.
 Silence or non disclosure by one of the party doesn’t affect the contract except if :

- The statement is a half truth : if the statement made is partially true and that a false impression
is created.
- The statementwas first true but became false after the contract being concluded. It is an
obligation for the parties to disclose a change when they are aware of it . Eg : Financial Services
Act : the company has to disclose some provisions : market, products ... otherwise it is
considered as misrepresentation.

« Caveat emptor » : no obligation to inform the other party if you think he is making a mistake
but there must not be undue influence.

Exception is « Uberrimae fidei » : it is about contracts of good faith which are contracts where
the contracting parties must disclose facts to the other party. In some contracts where material
facts are required by law, silence is considered as misrepresentation . Eg : contract of insurance :
duty of the person who is assured to disclose to the insuror the facts that may influence the price.
Also, there is sometimes a duty of disclosure where there is a confidential or fiduciary relationship
(=specific relationships between two persons). Eg : doctor / patient, sollicitor / client.

In order to operate as an inducement, it has to be made with :

- The intention that the other party is ggoing to act upon the representation
- The representation must indue the contract. The person making the claim that he has been
misled must not have relied upon his own skills
- The representation must be material = it must have affected the plaintiff’s judgement
- The representation must be known by the plaintiff after he entered into the contract

In cases which are brought before the Courts, there are 2 kinds of misrepresentation :
- Innocent misrepresentation : innocent of frand (did not know it was untrue)
- Fraudulent misrepresentation : involves dishonesty

 Innocent misrepresentation :

It is a false statement made by a person who has reasonnable grounds to believe that the
statement was true not only when he made it but also at the time of the conclusion of the contract.
There are 2 kinds of innocent misrepresentation :

 Negligent misrepresentation : it is a false statement made without

dishonesty by a person but that person had no reasonnable ground
to believe that the statement was true.
 Totally innocent misrepresentation 

 Fraudulent misrepresentation :

It is a false statement of a material fact, knowing that the statement was untrue.

There are various possible remedies for misrepresentation. :

 - Rescission of the contract : it is an equitable remedy which restores the parties to their
situation prior to entering into the contract. It sets aside transactions and all payments made
under the contract which are given back to the other party. But this decision may not be
available in all situations. Rescission will not be granted by the court if the parties cannot be
restored into their original position.Rescisson is not possible as a remedy if the thrid parties’
right would be affected by the rescission (if innocent third party). Under English law, a lapse of
time has no effect on rescisson when fraud is alledged as long as the action is brought within 6
years at the time when the fraud could have been discovered with reasonnable diligence
(prescription). = Limitation Act 1980. If rescisson is not possible, the Court can grant damages
instead of accepting rescission.
- There can be a refusal of the injured party to perform its part of the contract if he has not
already done it.
- Damages can be awarded in caseof fraudulent misrepresentation and the following cases :
 Negligent misrepresentation : damages can be claimed unless the defendant can
prove that the statement was made at the time of contracting.
 Innocent misrepresentation : it will be the decision of the Court to award damages
instead of rescission.

Sometimes, misrepresentation can lead to criminal offenses. It is a criminal offense for a

person to describe goods falsely or misleadingly.

2) Duress and indue influence

 Duress

Duress is a Commn Law concept and affects all contracts prooved by its use.

It includes violence, threat of violence and unlawful constrainst to a person who is the
contracting party or a person near the contracting person.

The contract is more likely to be made by threat of violence than violence.

The threat must be illegal. A threat must be a threat to commit a crime or a tort.

The doctrine of duress has evolved. Traditionnaly, duress only related to duress to the
person. Other forms of duress were not recognized. However, recent court cases agreed that Courts
may be inclined to take a more flexible approach, in particular with the development of economic
duress. The Courts were however divided whether this kind of threat should be considered as duress.
The Courts consider the individual circumstances of each case. In the case Atlas Express v. Kafco
1999, the Court held that threat could lead to a breach of the rules of a contrcat. The Court
considered this threat as duress. The Court had taken a different position in CTN Cash and Carry v.
Gallaghin 1994.

A contract affected by duress is voidable but not void.

 Undue influence
 It was developed by equity to deal with cases where duress was not applied. It is apllicable
when an agreement has been obtained by pressure. It is another case of threat or pressure but does
not correspond to the definition of duress. This concept is designed to deal with contracts obtained
without free consent, by the influence of one party over another.

Undue influence operates where exists a relationship between the parties which has been
exploited by one party to gain an unfair advantage. Undue influence is based on the misuse of a
relationship of trust or confidence between the parties. Unfortunately, the Courts have not provided
a precise definition of undue influence . The term is still imprecise. So, it will depend on the facts of
the court case to know if there was undue influence or not.

The Court defines 2 types of undue influence :

- Actual undue influence : used by the Court when there is no special relationship between the
parties. However, it is up to the person claiming undue influence to prove it. The burden of
proof lies on the claimant.
- Presumed undue influence : when there is a relationship between the parties (one party puts
his confidence in the other party. Eg : parent and child, trustee and beneficiary, sollicitor and
client...). In all those types of relationship there is a presomption of unue influence. The parties
in whom the confidence was reposed on must show that undue influence was not used.

Effect on the contract : Undue influence makes the contract voidable, it may be rescinded
(recission). There must be no delay in claiming relief after the influence has ceased to those effect,
too much delay may bar the claim. If the delay is too long, the claim must be rejected by the Court
(considered as if the party agreed to ratify). Innocent third parties are not afeccted by the rescisson
even if there is undue influence on the « first contract ». So, contract entered as a result of undue
influence is voidable.

3) Mistake

It obviously affects the validity of the contract and it is called an operative mistake when the
mistake has actually this effect. An operative mistake makes the contract void. To affect the validity
of the contract, the mistake must have induced the contract.

Errors of judgement are not operative mistakes. A mistake which is made by one party as to
his capacity or power to perform a contract is not an operative mistake.

An operative mistake can be classified into the following categories :

- Document mistakenly signed

It is an exception to the error of judgement. A mistake occrus if a person signs a contract in the
mistaken belief he is signing a document of a totally different nature. You must show it was not
a negligence.
- Mistake made by one party only = unilateral mistake 
One party is mistaken and the other party knows about it, and takes advantage of the error. In
this case, it is an operative mistake. In case of unilateral mistake, if it is made as to the terms of
 the contract and the other party knows about the mistake, such mistake will render the
contract void.
- Mistake made by both parties = bilateral mistake
 Common or identical mistake : both parties have reached an agreement and both
parties have made an identical mistake as to the fundamental facts concerning the
contract. The mistake must exist at the time the contract is made. Effect of common
mistake under Common law : this mistake would have no effect on the contract and
the parties would be bound in the absence of fraud and misrepresentation.
Exception : there are some cases in which the Common Law will regard a common
mistake as rendering the contract void.
 Identical mistake as to the subject matter : it can be considered as
void when the mistake is made as to the existence of the subject
matter, and when the subject matter didn’t exist or have stopped to
exist before the parties have entered into the contract. If the goods
ceased to exist after the contract was made, the contract is valid
because the property of goods has validly passed.
 Identical mistake as to the title : when there is an agreement to
tranfer property from one person to another but the buyer already
owns the property and neither party is aware of it.
 Identical mistake as to the possibility of performing the contract : the
contract will be deemed void.

Under Commen Law, the courts consider that under these 3 exceptions, the contract
is void. Sometimes, even though the contrcat may be valid in Common law, it may be
voidable under equity (or conversely). There is a difficulty between the kinds of
mistake Common Law and Equity. For instance, under equity, the court will order
rectification instead of rescission .

 Mutual or non identical mistake occurs when both parties made a mistake but each
party has made a different mistake. It is when there is a misunderstanding between
the parties as to each other’s intention. Effects of non identical mistake : under
Common Law, the contract will be deemed void except if the Court finds the « sense
of the promise ». Everytime a mistake made is considered as a fundamental mistake,
then the contract will be void. But if the mistake is not fundamental and there is a
« sense of promise », the contract is regarded as valid .