Rights and obligations of parties under contract

A contract is an agreement between parties which is binding in law. Furthermore the rights and obligations of the parties under a contract may be enforced by the courts. The courts may compel performance of contractual obligations by the party in default or, more commonly, may award damages for breach of contract.

For a contract to be formed four basic elements must be present - offer,

acceptance, consideration and the intention to create legal relations. Generally much negotiation takes place between the parties before an agreement becomes binding and a contract is formed. It is important therefore to recognise the precise moment when a contract is formed as this is when the parties assume contractual obligations and the consequent risk of liability if the terms of the contract are breached

Common law

Law and the rights and protections formed under them are also created by judges’ decisions in court. This is known as common law. Common law has its basis in precedent – this means that judges follow decisions made in similar cases to create a consistent, just and fair system. However, there are cases when the circumstances or facts of the case are very different, have not arisen before or are viewed by a senior judge as not reflecting current society, so that a decision is made to create or amend the law.

In `common law` legal systems, the law is created and/or refined by judges: a decision in the case currently pending depends on decisions in previous cases and affects the law to be applied in future cases. When there is no authoritative statement of the law, common law judges have the authority and duty to `make` law by creating precedent. The body of precedent is called `common law` and it binds future decisions.

Different type of business agreement: there are three two of business agreement express term, implied term and Exemption clauses.

Express terms are terms that have been specifically mentioned and agreed by both parties at the time the contract is made. They can either be oral or in writing.

Breach of express term: Each time you discuss a product or service with a customer you become responsible for providing and agreeing specific information.

For services this may include a time when the service will take place and a price for the complete service

For a product this may include the price and product availability these are known as the express terms.

Exemption Clauses are a particular type of express term, taking two basic forms:

Clauses which exclude liability for the breach of a particular term or terms. This effectively negates any obligation to perform those terms. These may be called exclusion clauses.

Clauses which do not effect the obligation to perform, but which limit the remedies available for a breach. These may be called limitation clauses.

Implied terms on the other hand, are the unquestionable basic qualities of the product or service. Would you consider selling a product to your client that was of inferior quality? Would you mis-describe a product to a customer just to get a sale? Would you sell a service to a customer knowing full well that the service will not achieve the customer’s desired results?

The implied terms describe a basic level of trust between the vendor and the customer. The law provides that, in every transaction for the sale and supply of goods, certain terms are implied. The person selling the goods must have the right to do so, and the goods must:

Correspond with the description: Many transactions involve a description of some kind. When goods are supplied and the consumer relies on such a description, the goods must be 'as described'. If the description is false, a criminal offence may also have been committed.

Be of satisfactory quality: Goods must be of a standard that a reasonable person would regard as satisfactory. Quality is a general term which covers a number of matters including:

Appearance and finish

Freedom from minor defects



In assessing quality, all relevant circumstances must be considered, including price and description. In consumer contracts, the manufacturer’s advertising can also be taken into account.

Be fit for the purpose: When a consumer indicates that goods are required for a particular purpose or where it is obvious that goods are intended for a particular purpose, and a trader supplies them to meet that requirement, the goods should be fit for that specified purpose.

sometimes a term which has not been mentioned by either party will nonetheless be ‘included’ in the contract, often because the contract doesn’t make commercial sense without that term. Terms like this are called implied terms, and there are two main types:

Terms implied by statute: the Sale of Goods Act 1979. The key provisions are:

Section 12: the person selling the goods has to have the legal right to sell them.

Section 13: if you’re selling goods by description, e.g. from a catalogue or newspaper advert, then the actual goods have to correspond to that description.

Section 14: the goods must be of “satisfactory quality" – that is, they should meet the standard that a reasonable person would regard as “satisfactory". Also, if the buyer says they’re buying the goods for a particular purpose, there’s an implied term that the goods are fit for that purpose.

Section 15: if you’re selling the goods by sample – you show the customer one bag of flour and they order 50 bags – then the bulk order has to be of the same quality as the sample.

Terms implied by the courts…

As a matter of fact. Something that’s so obviously included that it didn’t need to be mentioned in the contract. If I agree to pay you £50 for a lawnmower, it probably wouldn’t occur to us to write down that we mean fifty pounds sterling, as opposed to any other sort of pound. That’s obvious to both of us. (Beware of this point – it has to have been obvious to both parties – it’s not enough to show that one party thought it was included, or that the contract would have been more reasonable with the added term.)

As a matter of law. This is about general considerations of public policy – the courts are laying down, as a matter of law, how the parties to certain types of contract ought to behave. For example, in one case, the courts held that landlords of blocks of flats ought to keep the communal areas (lifts, stairs etc) in a reasonable state of repair – so that term was implied into the rental contract.

Customary terms. Some terms are generally known to be included in contracts in a particular trade or locality. Amongst bakers, “one dozen" means thirteen – they don’t have to include terms in every contract specifying that.

Essentials Elements of a Valid Contract:

1. Proposal and acceptance

2. Consideration – lawful consideration with a lawful object

3. Capacity of parties to contract – competent parties

4. Free consent

5. An agreement must not be expressly declared to be void.

6. Writing and Registration if so required by law

7. Legal relationship

8. Certainty

9. Possibility of performance

10. Enforceable by law.

Offer and acceptance

Intention to create legal relations

Lawful consideration

Capacity of parties

Free consent

Lawful object

Writing and registration


Possibility of performance

Not expressly declared void

For a contract to be formed four basic elements must be present - offer,

acceptance, consideration and the intention to create legal relations.

An offer is a statement of willingness by one party to enter into a contract and is comprised of specific and defined terms. The offer must be full, complete, specific and capable of being accepted. It must include the fundamental terms of the agreement with the intention that no further negotiations are to take place. An offer can be “express" - for example if A tells B she will sell her television set for £100. An offer can also be “implied" from conduct - for example when A brings goods to the supermarket cash desk.


A fully binding contract is only formed if an offer is accepted. Acceptance is a final and unqualified acceptance of all the terms of the offer. The offer must be accepted without introducing new terms. If at this stage all the terms of the offer are not accepted or new terms are introduced then this is a counter-offer. A counter offer has the effect of rejecting the original offer. If the terms of the counter offer are accepted however then these become the terms of the contract.

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(ii) An Intention to be bound by contract. If the parties make an agreement without any intention of being legally bound then that agreement will not be regarded by the courts as a contract. In commercial agreements there is a presumption that the parties intend the agreement to be legally binding. To rebut this presumption a party will have to produce clear evidence to that effect. (iii) Consideration. An obligation under a contract can only be enforced if the party who wants to enforce that obligation has given (or given up) or promised something in return.

All parties to a contract must provide consideration and if no consideration has been provided by a party to the contract then the contract will only be enforceable if it is made as a deed. Provided the consideration provided has some value then the courts will not normally be concerned with the fairness of the contract or the adequacy of that consideration.

The person to whom the promise is made must have provided consideration and must do, give or promise something in return for it. For example - A cleans B's car and B gives A £10 in return.

Consideration must not be past. Something that has been done, given or promised prior to the formation of the contract will not count as consideration.

There are cases where no consideration has been provided and the law has introduced two ways to make certain promises binding in those circumstances.

P4 For an agreement to be regarded as a binding contract the terms must be certain. This means it cannot be vague, ambiguous or incomplete. Even if there is a clear intention to create legal relations, if the terms of the agreement are unclear then it cannot be viewed as a legally binding contract.

The courts will sometimes attempt to interpret ambiguous terms in a way that makes them more certain, by reference for example to trade custom or previous dealings between the parties, but this depends very much on the specific facts of the case.