Business and Corporate Law Assignment: Contract Law in the UK

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BUSINESS AND CORPORATE
LAW- ASSIGNMENT
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Table of Contents
Introduction................................................................................................................................3
The formation of a contract under the United Kingdom Contract Law.....................................4
1. The presence of an agreement.........................................................................................4
2. The contract is to be certain............................................................................................4
3. The element of consideration..........................................................................................5
4. Privity of contract............................................................................................................5
Types of common mistakes........................................................................................................6
Nature of common mistake........................................................................................................6
Meaning of rescission................................................................................................................7
Definition of rescission..............................................................................................................8
1. Right to rescission to be exercised for the termination of the contract...........................8
2. Right to rescind under common law...............................................................................8
3. Rescission as per the doctrine of equity..........................................................................8
The case of Great Peace Shipping Ltd v. Tsavliris (International) Ltd [2002] EWCA Civ
1407, [2003] QB 679..................................................................................................................9
Conclusion..................................................................................................................................9
References................................................................................................................................10
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Introduction
An agreement is a voluntary consent between two or more parties where the parties enter
with an intention to fulfil their obligations. When this agreement becomes enforceable by the
court, it is termed as a contract. In the United Kingdom, the English contract law is governed
by an enacted codified Act which provides for the provisions for the governance of rights and
obligations of the parties of the contracting parties. The formation of a contract requires the
fulfilment of certain essential elements, the absence of which may make the contract declared
as void or voidable by the court. One of the most important elements for the formation of the
contract is the free and true consent of the parties willing to form the contract. Hence, the
contract shall be entered upon without undue influence, coercion, misrepresentation and
mistake and a genuine consent must be given by the contracting parties.
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The formation of a contract under the United Kingdom Contract Law:
Usually, a contract is formed when the offer or proposal to contract is made by one party and
the acceptance is given the other party. Such acceptance is given by communicating their
consent or by doing any action by which it is depicted that he is interested in performing the
terms of the contract. The contract may be in an express term that is written or may be
implied terms that are it is depicted by the behaviour of the parties. The nature of the contract
that whether it will be express or implied depends upon the amount of transaction which is to
be made. For example, the sale of immovable property (land) requires the contract to be in
express terms including all the details and terms of the contract. It also requires the attestation
through signatures done by the contracting parties. Further, there are also contracts which do
not require to be in expressed terms and it can also be depicted form the behaviour of the
parties, for example, the purchase of any item from shops (Marshall, 2012).
Under the United Kingdom contract law, there is a requirement of various essential which is
to be fulfilled for its enforcement in the court. The following are the essentials of a valid
contract under the English contract law:
1. The presence of an agreement:
The approach of the court regarding the existence of the agreement is that there is an offer
made by one party which is accepted by the other. But the acceptance by the party is
determined by the court by overviewing the intention of the party which existed at the time of
the formation of the contract. But it is also important to note that there is a difference between
an offer and an invitation to treat. An offer is when a party makes a proposal to the other
party with an intention to enter a contract for a valid consideration. But an invitation to treat
is an invitation for the offers to be made. Further, the acceptance must also be communicated
to the party making the offer for the contract to exist (Lomfeld, 2013).
2. The contract is to be certain:
Agreements are considered as the basis of every contract but it is not necessary that all
contracts are enforceable in the court. For the contract to be enforceable it requires the
element of certainty and the terms should be reasonable. In the case of Hillas & Co Ltd v.
Arcos Ltd, [1932] UKHL the court held that in the formation of a valid contract and for its
enforcement the terms of the contract must be specific and certain and free from ambiguous
terms and unclear clauses.
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The form in which the contract is to be formed is determined by the codified statute and all
the contracts entered shall be in accordance with the provisions of the statute. The court while
making its judgment regarding the enforcement of the contract also interpret the judicial
precedents (court judgments) and the provisions of the statute.
3. The element of consideration:
The formation of a valid contract has one of the most essential requirements as the presence
of consideration. Any contract whether express or implied becomes invalid if there is no legal
consideration in the contract. Hence, offering gratuity in the formation of a contract makes it
invalid and unenforceable. Consideration is the payment of the price which is required while
fulfilling the terms of the contract. Hence, this price shall be in clear figure and shall not
include such terms so as to make it ambiguous (Marshall, 2012).
But the doctrine of consideration is not an absolute one and is subjected to the doctrine of
equity. This doctrine means and includes the principle that if a person has committed any
wrong, he shall not be benefited for his own wrong. This doctrine also states that when
assurance is given by one person regarding any commitment made, the other person relies on
that commitment and the person making the assurance cannot deny his given assurance.
Hence, in this case, the consideration is at stay. In a landmark judgment of Hughes v.
Metropolitan Railway Co. (1877) 2 App Cas 439, the court held the same judgment that a
person cannot deny form any assurance which he has made during the formation of the
contract as this shall be inequitable on the grounds of equity.
4. Privity of contract:
The doctrine of privity of contract has its origin from the common law of the United
Kingdom which provides that a contract cannot be enforceable by any person who is not a
party to the contract. Hence, this doctrine restricts third parties from conferring any rights and
obligations upon them and provides a constraint on third parties to sue. This doctrine was
well interpreted by the English court in the famous case of Tweddle v. Atkinson [1861]
EWHC QB J57] (1861) 1 B&S 393 (1861) 121 ER 762 where the court held that the
plaintiff has no right to sue the party of the contract as the plaintiff was not the party at the
time of the formation of the contract and the contract was entered upon by plaintiff's father.
Hence, the court restricted the plaintiff to exercise his right to sue to be a third party
(Lomfeld, 2013).
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One of the most essential elements for the formation of a valid contract is the free and
genuine consent of the parties. The parties of the contract shall have entered in the contract
without any misrepresentation or coercion and without any mistake or fraud. Under the
contract law of the United Kingdom, a mistake is considered as an erroneous trust at the time
of contracting regarding the genuine nature of certain facts. This term is argued in defence
when a party entered in a contract by mistake and if this argument is raised successfully, the
contract shall be declared as void or voidable at the option of the aggrieved party (Lomfeld,
2013).
Types of common mistakes:
Under the common law, the court has identified three types of mistakes likely to occur in the
formation of the contract. These are:
 The unilateral mistake: This mistake occurs when one party of the contract is
mistaken regarding the facts and terms of the contract. This is the most common
mistake occurring in the formation of contracts. But this mistake does not make the
contract void as the court gives the party an option to ratify the occurred mistake.
 The mutual mistake: This mistake occurs when both the parties are mistaken about
the facts and the terms of the contract. This mistake makes the contract voidable and
provides an option of recession to the parties. In this, each party has a different
understanding regarding the terms of the contract. Though there is a meeting of the
minds under this contract both the parties remain unaware regarding the different
meaning in each other's mind.
 The common mistake: This mistake occurs where both the parties are mistaken on
the same facts and terms of the contract. This mistake makes the contract void if the
subject matter on which the parties are mistaken are of a fundamental nature and
make its identity adequately different from what was intended (Barbulescu, 2015).
Nature of common mistake:
A mistake is an error which may occur in the mind of either one party or in both the parties.
But whether a mistake can be ratified or not depends on the nature of the mistake. Under the
United Kingdom contract law there is two nature of mistake being identified. They are:
 Mistaken by fact: This mistake occurs when the parties enter into an agreement under
a mistake of fact which is essential to the terms of the contract. This makes the
contract null and void.
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 Mistaken by law: This mistake occurs when the parties enter into a contract without
the knowledge of the existing law prevailing in the country. The ignorance observed
here is not excusable under the law hence, the contract is not void.
Example of the famous case Gustavus Couturier & Others v. Robert HASTIE & Another.
[1856] UKHL J3 (1856) 5 HLC 673 can be taken which concerns about the common
mistake which may occur between the parties to the contract regarding the performance of the
terms of the contract. Here the court held that when the consideration for which the contract
is done is not in existence and the parties are mistaken regarding its existence, the contract for
the same consideration is void and cannot bind the parties.
But the judiciary has also stated that the requirement for the proving of the existing mistake is
on the basis of the doctrine of equity. Further, the mistake in relation to the title of the
contract in cases of sale deed and transfer of property from one person to another also makes
the contract void. Also, the mistakes relating to the performance of the contract makes it void
when the terms of the contract become impossible.
Equitable remedies for mistake under Common Law:
Equitable remedies are those remedies which are given by the courts through its judgments to
the aggrieved party. It acts as a flexible response to the social conditions which are
continuously changing and hence, aids in meeting the needs of the people as per the change.
There are a variety of equitable remedies present to meet the need of people and address their
issue and indemnify their loss. These include rectification, injunction, estoppel, subrogation
and rescission. The remedy available for the mistake occurred under the contract law is
rescission (Gavrilescu, 2013).
Meaning of rescission:
Under the law of contract prevailing in the United Kingdom, rescission is considered as a
remedy provided by the court to the contracting parties in order to cancel the contract. The
party who has become a victim of the mistake in the contract or who is aggrieved may opt to
rescind from the obligations under the contract. This is based on the principle that the parties
shall be placed in the same position as they were before entering into the contract. Further,
the decision of the rescission is at the discretion of the court. The court may decline to
terminate or rescind the contract if it is of the view that the party has affirmed the terms of the
contract by doing some actions. It may also decline if any third party has acquired any rights
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in the contract. Thus, the rescission is the termination of the contract by the court which is
exercised when the party proposing rescission has given back all the benefits which he has
incurred under the contract (Gavrilescu, 2013).
In a famous case of Leaf v. International Galleries [1950], 2 KB 86 the court interpreted the
concepts of misrepresentation and mistake along with the breach of contract and provisions
providing for the remedy of rescission. The court, in this case, held that the plaintiff who
claims right to rescind shall establish that the mistake for which he is entitled to rescind is a
fundamental one in the subject matter of the contract. Further, the court also provided that the
party must approach the court in due time. The lapse of too much time shall reject the remedy
and the claimant shall be left with no other remedy.
Definition of rescission:
The term rescission is used in a variety of sense in the prevailing law of the country. It is the
duty of the court to decide as to in what nature rescission shall be made applicable as per the
facts and the circumstances of the case. The following is the nature where rescission shall be
implemented:
1. Right to rescission to be exercised for the termination of the contract: In this
sense, the aggrieved party opt for the termination of the contract but it is covered
under two situations:
a. When the parties expressly exercise their right to terminate the contract, it is
presumed that it has exercised its right to rescind the contract.
b. When the party faces rejection of the offer or the proposal, it may choose to
rescind the contract. In this sense as well, the party is referred to as choosing
for rescission.
2. Right to rescind under common law: The term rescission under common law is a
self-help tool which is being given by the court to the party who is aggrieved or
misrepresented by facts while entering in a contract. But this right is only available
where the party is made to enter in a contract through fraudulent means and undue
influence. This makes the contract null and void right from the beginning but the
court shall only give this right if the parties can be restored in their places as they
were before entering in the contract (Bant, 2015).
3. Rescission as per the doctrine of equity: This right can also be exercised in
furtherance of the doctrine of equity for example in a case where there has been a
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misrepresentation or equitable fraud or where there are unacceptable conduct and
many more (Mitchell, 2017).
The case of Great Peace Shipping Ltd v. Tsavliris (International) Ltd [2002]
EWCA Civ 1407, [2003] QB 679
This case is an English contract case where the court investigated as to when a common
mistake shall render a contract as void. Phillips, L., held in this case that similar to the
doctrine of frustration where it applies when the contract is silent and contains no provision
regarding the same, the same is true with a common mistake as well.
But it has also been held in the same case that there are certain essentials which are required
for making the contract void by virtue of common mistake. These essentials are:
 The parties must have assumed commonly regarding the existence of the affairs of
the contract.
 There shall be no pledge or assurance by any of the party regarding the existence
of the state of affairs which are in question.
 Where the particular affairs do not exist, it shall not be a fault of either of the
party.
 The affairs in question shall make the performance of the contract impossible.
Conclusion
Hence, to conclude, it is stated that the United Kingdom contract law has provided provision
for the mistakes in various forms which may occur incidentally or may be done intentionally
by any party. It also provides for the provisions under which the contract shall be declared as
void by the court hence, providing the aggrieved party with an option of rescinding the
contract in case there has been intentional mistake done by the other party. Hence, while
entering in a contract the parties shall abode by the statutory provisions in existence in the
country and shall also have respect for each other’s rights as parties of the contract.
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References
 Bant, E., 2015. Statute and common law: Interaction and influence in light of the
principle of coherence. UNSWLJ, 38, p.367.
 Barbulescu, O., 2015. The utility of the rescission clause in the settlement of disputes
arising from international trade contracts. Bulletin of the Transylvania University of
Brasov. Economic Sciences. Series V, 8(2), p.373.
 Gavrilescu, L.C., 2013. The Meaning of the Expression: Rescission by Operation of
Law. AGORA Int'l J. Jurid. Sci., p.49.
 Great Peace Shipping Ltd v. Tsavliris (International) Ltd [2002] EWCA Civ 1407,
[2003] QB 679.
 Gustavus Couturier & Others v. Robert HASTIE & Another. [1856] UKHL J3 (1856)
5 HLC 673.
 Hillas & Co Ltd v. Arcos Ltd, [1932] UKHL.
 Hughes v. Metropolitan Railway Co. (1877) 2 App Cas 439.
 Leaf v. International Galleries [1950] 2 KB 86.
 Lomfeld, B., 2013. Contract as deliberation. Law & Contemporary Problems, 76, p.1.
 Marshall, B.A., 2012. Reconsidering the proper law of the contract. Melbourne
Journal of International Law., 13, p.505.
 Mitchell, C., 2017. Rescission of voluntary settlements and dispositions of the trust
property on the ground of mistake. Private Client Business, 2017(2), pp.41-53.
 Tweddle v. Atkinson [1861] EWHC QB J57] (1861) 1 B&S 393 (1861) 121 ER 762.
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