Sample questions & answers of Contract Law

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Although contract law is an extremely detailed and complicate subject, it can be broken down into a few key areas. Understanding these topics is both an important part of formal study of contract law, and a useful way to get insight into how the law affects specific real world situations. Remember that in many cases answering an examination or assessment question will not simply be a case of remembering and reciting key principles, but rather explaining in detail how they would apply to a particular hypothetical case.

What is a contract?

A contract is a specific form of agreement. Firstly, it must create obligations on behalf or, more commonly, both parties. Secondly, these obligations are recognised in law and one party can force the other by legal means to live up to the obligation.

What are the basic components of a contract?

As a general principle, a contract is valid if it meets three requirements. Firstly the two sides must have made an agreement, usually through one side making an offer and the other accepting it. (This isn't always clear-cut: for example, most companies listing a sale price do so as information rather than an offer: it is the customer showing an interest in buying that counts as the formal offer, meaning the company doesn't have to sell at the advertised price.) Secondly, both sides must make the agreement with a clear intention of forming a legal contract. Finally, the principle of consideration means both sides must offer something for exchange, such as money in return for goods or services. This means that somebody promising to do something without asking for anything in return cannot be forced to keep this promise.

What is privity?

Privity is a principle (or "doctrine") that means contracts are usually only binding on the people or organisations making the agreement and not on third parties. For example, Fred cannot make an agreement with Joe that Bill will cut Joe's lawn in return for a payment. Of course, Fred is perfectly at liberty to hire Bill to mow Joe's lawn, but Bill will not be legally responsible to Joe. If the lawn isn't mowed, it is Fred who bears responsibility towards Joe. The privity principle can be complicated in practice where companies have subsidiaries.

What if the contract proves impossible to live up to?

Tthe doctrine of frustration comes into effect if one side is unable to live up to the contractual obligations because of an unforeseen event that was not its fault and was out of its control. If the doctrine takes effect, any obligations yet to come into force are cancelled, but obligations that have already arisen are still enforceable. This could be significant with, for example, a contract which calls for part payment up front and part payment upon delivery of goods or services.

What if one side fails to live up to the contract?

Assuming the doctrine of frustration doesn't apply, the side failing to meet the contract terms is liable for damages. The general principle is that these damages only cover the actual losses caused to the side that isn't at fault and that it doesn't profit overall from receiving damages. Depending on the situation, a court might also order the party at fault to live up to its contractual promise, or ban the party from doing something that would breach the contract.

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