📜 UNIT 2 – MODULE 2: LAW OF
CONTRACT
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 1: What is Contract Law?
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🧠 OVERVIEW
Contract law is a central branch of civil law that governs agreements between parties that are
legally enforceable.
It provides the legal framework for:
business transactions,
employment relationships,
sales of goods and services,
and everyday agreements.
👉 Core principle: Not every agreement is legally binding — only those recognised by law as
enforceable contracts.
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⚖️ DEFINITION OF CONTRACT
A contract may be defined as:
> a legally binding agreement between two or more parties that creates enforceable obligations.
This means:
parties make promises,
the law recognises those promises,
and courts can enforce them.
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🧠 KEY IDEA
A contract is NOT just an agreement.
It must be:
legally enforceable,
supported by intention,
and satisfy legal requirements.
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📚 ESSENTIAL ELEMENTS OF A CONTRACT (INTRO VIEW)
Although you will study these in detail later, a valid contract generally requires:
offer
acceptance
consideration
intention to create legal relations
capacity
legality
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⚖️ CONTRACT VS OTHER AREAS OF LAW
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📜 CONTRACT LAW
Contract law is based on:
voluntary agreements,
mutual promises,
and consent between parties.
👉 It enforces private obligations.
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Example
A student hires a tutor for lessons at an agreed price.
If the tutor fails to show up:
this may be a breach of contract.
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⚖️ TORT LAW (COMPARISON)
Tort law is based on:
civil wrongs,
not agreements.
👉 Duties exist automatically under law.
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Example
A driver negligently injures a pedestrian.
Even without any agreement:
the injured person can sue in negligence.
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⚖️ CRIMINAL LAW (COMPARISON)
Criminal law is based on:
offences against the state,
punishment and deterrence.
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Example
Theft or assault leads to:
prosecution by the state,
penalties like fines or imprisonment.
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⚖️ KEY DISTINCTIONS
CONTRACT LAW TORT LAW CRIMINAL LAW
based on agreement based on civil wrong based on offences against state
parties choose obligations duties imposed by law duties imposed by law
remedy = damages/enforcement remedy = compensation remedy = punishment
voluntary relationshipmay involve strangersinvolves society/state
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🧠 LEGAL PRINCIPLES
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Freedom of Contract
Parties are generally free to:
decide terms,
choose partners,
and enter agreements voluntarily.
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Pacta Sunt Servanda
Latin principle meaning:
> agreements must be kept.
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Enforceability
Courts only enforce agreements that meet legal requirements.
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📚 EARLY CASE PRINCIPLE
Carlill v Carbolic Smoke Ball Co
This case demonstrated that certain promises made to the public can become legally binding
contracts if accepted by performance.
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🧠 LEGAL JARGON BOOST
Contractual Obligation
A duty arising from a valid contract.
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Breach of Contract
Failure to perform contractual obligations.
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Enforceability
Whether the law will recognise and uphold an agreement.
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Legal Intention
The intention that an agreement should create legal consequences.
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🎯 EXAM-STYLE ANALYTICAL SUMMARY
Contract law governs legally binding agreements between parties. A contract is formed when
the law recognises an agreement as enforceable, distinguishing it from informal or social
arrangements. The key idea is that only certain agreements are legally binding.
Contract law differs from tort law, which is based on civil wrongs rather than agreements, and
from criminal law, which deals with offences against the state. Contractual obligations arise
voluntarily through mutual consent, and the law enforces promises where the necessary legal
requirements are satisfied.
The principle of enforceability is central, ensuring that parties who enter into valid agreements
are held to their promises under the doctrine that agreements must be kept.
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🧾 QUICK REVISION POINTS
📜 Contract law
legally binding agreement
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⚖️ Key idea
not all agreements are contracts
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📚 Compared with:
tort = harm
crime = offence against state
contract = agreement
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⚖️ Core principle
enforceable promises
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📚 Key case
Carlill v Carbolic Smoke Ball Co
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🔑 FINAL TAKEAWAY
Contract law is built on one core idea:
> only agreements recognised by law as serious and enforceable will be treated as contracts.
Tab 2
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 2: Formation of a Contract (HOW CONTRACTS ARE MADE)
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🧠 OVERVIEW
Formation of contract is the core foundation of contract law. It explains how a simple agreement
becomes a legally binding contract enforceable by courts.
To form a valid contract, four essential elements must be present:
Offer and Acceptance
Intention to Create Legal Relations
Consideration
Capacity
👉 Key principle: If even ONE element is missing, there is usually no enforceable contract.
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📌 1. OFFER AND ACCEPTANCE
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📤 OFFER
An offer is:
> a clear, definite, and unconditional promise to be bound on specific terms once accepted.
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Key Features of an Offer
must be definite (clear terms),
must show intention to be bound,
must be communicated to the offeree.
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Example
“I will sell you my phone for $500.”
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📥 ACCEPTANCE
Acceptance is:
> an unqualified agreement to the terms of the offer.
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Key Rule (VERY IMPORTANT)
👉 Acceptance must mirror the offer exactly.
This is known as the:
“Mirror Image Rule”
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Example
If the offer is $500, acceptance cannot be $450 — that becomes a counter-offer.
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Case Principle
Hyde v Wrench
Held: A counter-offer destroys the original offer.
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⚖️ KEY IDEA
Once valid acceptance occurs: 👉 a binding contract is formed.
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📌 2. INTENTION TO CREATE LEGAL RELATIONS
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🧠 MEANING
The parties must intend their agreement to have legal consequences.
Not all agreements are meant to be legally binding.
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⚖️ PRESUMPTIONS
The law applies different presumptions depending on the context:
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🏠 DOMESTIC / SOCIAL AGREEMENTS
Presumption: 👉 NO intention to create legal relations.
Examples:
friends making promises,
family arrangements,
casual agreements.
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💼 COMMERCIAL / BUSINESS AGREEMENTS
Presumption: 👉 INTENTION TO CREATE LEGAL RELATIONS EXISTS.
Examples:
contracts between companies,
employment agreements,
sales contracts.
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CASE PRINCIPLE
Balfour v Balfour
Held: Domestic agreements between spouses are generally not legally enforceable.
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BUSINESS EXCEPTION CASE
Carlill v Carbolic Smoke Ball Co
Held: A business advertisement showed clear intention to be legally bound.
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📌 3. CONSIDERATION 💰
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🧠 DEFINITION
Consideration is:
> something of value given by each party in exchange for a promise.
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⚖️ CORE RULE
👉 “No consideration = no contract”
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📚 TYPES OF CONSIDERATION
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1. EXECUTORY
Promises to be performed in the future.
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2. EXECUTED
Act already completed in exchange for a promise.
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💡 KEY IDEA
Each party must “pay a price” for the promise.
This “price” does NOT have to be money — it can be:
goods,
services,
promises,
or actions.
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CASE PRINCIPLE
Currie v Misa
Defined consideration as:
> “something of value in the eyes of the law.”
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📌 4. CAPACITY
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🧠 MEANING
Capacity refers to the legal ability of a person to enter into a binding contract.
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⚖️ PERSONS WITH LIMITED CAPACITY
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👶 MINORS (UNDER 18)
Minors generally have limited contractual capacity.
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RULE
Contracts with minors are usually:
void,
voidable,
or only enforceable if for necessities.
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Examples of valid contracts for minors:
food and clothing,
education,
essential services.
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⚠️ KEY IDEA
The law protects minors from exploitation.
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🧠 MENTALLY INCAPACITATED PERSONS
Contracts may be invalid if a person:
lacks mental capacity,
does not understand the nature of the agreement.
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⚖️ GENERAL PRINCIPLE
A contract is only valid if:
the person understands what they are agreeing to,
and is capable of making legal decisions.
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🎯 EXAM-STYLE ANALYTICAL SUMMARY
The formation of a contract requires four essential elements: offer and acceptance, intention to
create legal relations, consideration, and capacity. A valid offer must be clear, definite, and
communicated, while acceptance must be unconditional and mirror the terms of the offer, as
established in Hyde v Wrench.
Intention to create legal relations distinguishes social and domestic agreements, which are
generally presumed not to be legally binding, from commercial agreements, which are
presumed to be enforceable, as seen in Balfour v Balfour and Carlill v Carbolic Smoke Ball Co.
Consideration requires that each party provide something of value, whether a promise or
performance, while capacity ensures that parties such as minors or mentally incapacitated
individuals are protected from unfair contractual obligations.
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🧾 QUICK REVISION POINTS
📤 Offer & Acceptance
must match exactly (mirror rule)
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🏠 Intention
social/domestic = usually no contract
business = usually contract
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💰 Consideration
something of value must be exchanged
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👶 Capacity
minors and mentally incapacitated persons have limited capacity
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📚 Key cases
Hyde v Wrench
Balfour v Balfour
Carlill v Carbolic Smoke Ball Co
Currie v Misa
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🔑 FINAL TAKEAWAY
A contract is only formed when:
> there is a clear offer and acceptance, supported by intention, consideration, and legal
capacity.
Tab 3
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 3: Privity of Contract
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🧠 OVERVIEW
The doctrine of privity of contract is a key principle in contract law that determines who can
enforce a contract.
It establishes that only the parties who are directly involved in a contract have legal rights and
obligations under it.
👉 Key principle: A stranger to a contract cannot sue or be sued on it.
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⚖️ MEANING OF PRIVITY OF CONTRACT
Privity of contract means:
> only those who are parties to a contract can enforce its terms or be bound by its obligations.
This means:
third parties (outsiders) have no legal standing,
even if the contract affects them indirectly.
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📌 BASIC RULE
👉 “Only parties to a contract can sue or be sued on it.”
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Example
A contracts with B
C is not part of the contract
👉 C cannot enforce or challenge the contract, even if it affects them.
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📚 IMPORTANT CASE
Tweddle v Atkinson
Held: A person who is not a party to a contract cannot enforce it, even if the contract benefits
them.
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📚 ANOTHER KEY CASE
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
Held: Only parties to a contract can sue for breach of it.
This case strongly reinforced the privity rule.
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⚖️ WHY PRIVITY EXISTS
The doctrine exists to:
maintain certainty in contracts,
protect freedom of contract,
ensure only intended parties have obligations,
prevent unnecessary litigation from outsiders.
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⚖️ EXCEPTIONS TO PRIVITY
Although the rule is strict, several important exceptions exist.
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🛡️ 1. INSURANCE CONTRACTS
A third party may benefit under insurance agreements.
Example:
life insurance policies,
motor insurance claims.
👉 Beneficiaries may enforce rights even if not direct parties.
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📚 2. TRUSTS
A beneficiary under a trust can enforce the terms even though they are not a contracting party.
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Example
A holds property on trust for C
C can enforce the trust
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🤝 3. AGENCY RELATIONSHIPS
An agent can enter contracts on behalf of a principal.
👉 The principal can enforce the contract even if not directly named.
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📚 4. COLLATERAL CONTRACTS
A separate contract may exist alongside the main contract, allowing third-party enforcement in
certain situations.
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⚖️ MODERN DEVELOPMENT
Some jurisdictions have modified the strict rule of privity through legislation, allowing limited
third-party rights in specific cases.
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🧠 KEY LEGAL PRINCIPLES
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Freedom of Contract
Only parties who choose to enter a contract should be bound by it.
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Legal Certainty
Privity ensures clear identification of who can enforce obligations.
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Intention Requirement
Courts look for intention to benefit a third party before allowing exceptions.
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⚖️ PRACTICAL IMPACT
Privity affects:
insurance claims,
consumer rights,
business contracts,
family arrangements.
It often creates situations where: 👉 a person benefits indirectly but cannot enforce directly.
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🧠 LEGAL JARGON BOOST
Privity
Legal relationship between parties to a contract.
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Third Party
A person not involved in the contract.
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Beneficiary
A person intended to benefit from a contract.
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Enforceability
Whether a person can legally bring an action on a contract.
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🎯 EXAM-STYLE ANALYTICAL SUMMARY
The doctrine of privity of contract states that only parties to a contract are legally entitled to
enforce its terms or be bound by its obligations. This principle ensures that contractual rights
and duties are restricted to those who have entered into the agreement.
This rule was firmly established in cases such as Tweddle v Atkinson and reaffirmed in Dunlop
Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, where the courts held that third parties cannot sue
for breach of contract even if they benefit from it.
However, exceptions exist in areas such as insurance, trusts, and agency relationships, where
third parties may acquire enforceable rights. The doctrine reflects the principle of contractual
autonomy while balancing fairness in limited situations.
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🧾 QUICK REVISION POINTS
📜 Rule
only parties to contract can enforce it
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🚫 Third party
cannot sue or be sued
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🛡️ Exceptions
insurance
trusts
agency
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📚 Key cases
Tweddle v Atkinson
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
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🔑 FINAL TAKEAWAY
Privity of contract means:
> only people who are part of the agreement have legal rights and obligations under it.
Tab 4
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 4: Contract Terms 📄
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🧠 OVERVIEW
Contract terms are the specific rules, promises, and obligations that make up a contract. They
define what each party must do, how they must do it, and what happens if they fail.
👉 Key idea: Contract terms determine the rights and responsibilities of the parties.
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⚖️ TYPES OF CONTRACT TERMS
Contract terms are generally divided into:
Express terms
Implied terms
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📌 1. EXPRESS TERMS
Express terms are:
> terms that are clearly stated by the parties (written or spoken).
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Examples
“I will sell you my phone for $500.”
Written clauses in contracts
Verbal agreements in negotiations
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Key idea
These are the actual agreed rules of the contract.
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📌 2. IMPLIED TERMS
Implied terms are:
> terms not written or spoken, but inserted by law, custom, or courts.
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Sources of implied terms
Law (statutes or common law)
Trade customs
Courts (to make contracts workable)
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Example
A service must be done with reasonable skill and care even if not stated.
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⚖️ TYPES OF CONTRACTUAL OBLIGATIONS
Contract terms are also classified by their importance and legal effect when breached.
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📌 1. CONDITIONS
A condition is:
> a major term of the contract.
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Legal Effect
👉 Breach of a condition allows the innocent party to:
terminate the contract, AND
claim damages.
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Example
Delivery of essential goods on a specific date.
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Key idea
Conditions go to the root of the contract.
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📌 2. WARRANTIES
A warranty is:
> a minor term of the contract.
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Legal Effect
👉 Breach of warranty allows:
damages only,
but NOT termination of the contract.
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Example
Minor defect in packaging that does not affect main purpose.
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Key idea
Warranties are secondary terms.
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📌 3. INNOMINATE (INTERMEDIATE) TERMS
An innominate term is:
> a term whose classification depends on the seriousness of the breach.
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Legal Effect
The court looks at:
consequences of breach
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Outcomes:
serious breach → contract may end
minor breach → damages only
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Key idea
It is flexible and case-dependent.
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📚 IMPORTANT CASE
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
Held: The effect of breach determines whether termination is allowed.
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🚫 EXCLUSION CLAUSES
An exclusion clause is:
> a term that tries to limit or exclude liability for breach or negligence.
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Example
“We are not responsible for any loss or damage.”
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⚖️ COURT CONTROL OF EXCLUSION CLAUSES
Courts carefully examine exclusion clauses to ensure fairness.
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1. INCORPORATION
Was the clause properly included in the contract?
signed agreement,
clear notice,
reasonable opportunity to see terms.
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2. INTERPRETATION
Courts interpret clauses strictly:
unclear wording is interpreted against the party relying on it.
This is known as:
contra proferentem rule
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3. STATUTORY CONTROL
Some laws restrict unfair exclusion clauses, especially in consumer contracts.
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🧠 KEY PRINCIPLE
👉 Exclusion clauses must be:
clearly stated,
fairly included,
and not unfairly broad.
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⚖️ POLICY CONSIDERATIONS
Contract law balances:
freedom of contract (parties choose terms),
fairness (protect weaker parties),
certainty (clear enforcement of terms).
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🧠 LEGAL JARGON BOOST
Express term
Clearly stated contract provision.
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Implied term
Unwritten term inserted by law or courts.
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Condition
Major term; breach allows termination.
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Warranty
Minor term; breach allows damages only.
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Innominate term
Term classified based on seriousness of breach.
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Exclusion clause
Clause limiting or excluding liability.
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🎯 EXAM-STYLE ANALYTICAL SUMMARY
Contract terms define the obligations of parties within a contract and are classified as express or
implied terms. Express terms are clearly stated by the parties, while implied terms are inserted
by law or courts to ensure fairness and functionality.
Terms are also categorised based on importance: conditions, warranties, and innominate terms.
Conditions are essential terms where breach allows termination of the contract, while warranties
allow only damages. Innominate terms depend on the seriousness of the breach, as established
in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd.
Exclusion clauses attempt to limit liability but are strictly controlled by courts to ensure fairness,
proper incorporation, and clear wording.
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🧾 QUICK REVISION POINTS
📄 Types of terms
express
implied
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⚖️ Types of obligations
condition → terminate + damages
warranty → damages only
innominate → depends on seriousness
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🚫 Exclusion clauses
must be clear
must be fair
courts interpret strictly
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📚 Key case
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
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🔑 FINAL TAKEAWAY
Contract terms are the backbone of agreement law:
> they define what parties promised, how serious those promises are, and what happens when
things go wrong.
Tab 5
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 5: Misrepresentation ❌
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🧠 OVERVIEW
Misrepresentation is a key doctrine in contract law that deals with false statements of fact which
induce a person to enter into a contract.
👉 Core idea: If someone is tricked into a contract by false information, the law may provide a
remedy.
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⚖️ DEFINITION OF MISREPRESENTATION
Misrepresentation is:
> a false statement of fact (not opinion or future intention) that induces another party to enter
into a contract.
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📌 KEY ELEMENTS
To prove misrepresentation, the claimant must show:
a false statement was made
it was a statement of fact
it was addressed to the claimant
it induced the claimant to enter the contract
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🚨 IMPORTANT DISTINCTION
Misrepresentation is NOT:
opinion,
sales puff,
or future intention (unless false at the time made).
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⚖️ TYPES OF MISREPRESENTATION
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1. FRAUDULENT MISREPRESENTATION 😈
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Meaning
A false statement made:
knowingly,
without belief in its truth,
or recklessly as to whether it is true or false.
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Legal Idea
👉 This is an intentional lie.
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Case Principle
Derry v Peek
Held: Fraud requires proof of dishonesty or reckless disregard for truth.
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Remedy
rescission of contract
damages for all losses suffered
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2. NEGLIGENT MISREPRESENTATION ⚠️
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Meaning
A false statement made carelessly, without reasonable grounds for believing it is true.
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Legal Idea
👉 No intention to lie, but lack of reasonable care.
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Key Principle
Duty of care may arise in professional or advisory relationships.
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Case Principle
Hedley Byrne & Co Ltd v Heller & Partners Ltd
Held: Liability can arise for careless statements causing economic loss where reliance is
reasonable.
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Remedy
damages (often under tort principles)
rescission may also be possible
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3. INNOCENT MISREPRESENTATION 🙂❌
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Meaning
A false statement made:
honestly,
and with reasonable belief it was true.
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Legal Idea
👉 No fault or intention to deceive.
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Remedy
rescission of contract (main remedy)
damages may be awarded in some jurisdictions instead of rescission
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⚖️ EFFECT OF MISREPRESENTATION
Where misrepresentation is proven, the contract is not automatically void, but the innocent party
may seek remedies.
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📌 1. RESCISSION
Rescission means:
> cancelling the contract and restoring parties to their original position.
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Effect
contract is treated as if it never existed,
both parties return benefits received.
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📌 2. DAMAGES 💰
Damages are monetary compensation for losses suffered.
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When awarded:
fraudulent misrepresentation → full damages
negligent misrepresentation → damages possible
innocent misrepresentation → limited or equitable remedies
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⚖️ LIMITS TO RESCISSION
Rescission may be refused if:
restitution is impossible,
third-party rights are affected,
there has been affirmation of the contract,
excessive delay occurs (laches).
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🧠 LEGAL JARGON BOOST
Misrepresentation
False statement inducing contract.
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Rescission
Cancellation of a contract.
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Inducement
When a statement causes someone to enter a contract.
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Fraud
Intentional deception.
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Negligence
Failure to take reasonable care.
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🎯 EXAM-STYLE ANALYTICAL SUMMARY
Misrepresentation occurs where a false statement of fact induces a party to enter into a
contract. The law classifies misrepresentation into fraudulent, negligent, and innocent
categories depending on the defendant’s state of mind.
Fraudulent misrepresentation, as established in Derry v Peek, involves deliberate or reckless
falsehoods and allows full damages and rescission. Negligent misrepresentation arises where
there is a failure to exercise reasonable care, as seen in Hedley Byrne & Co Ltd v Heller &
Partners Ltd, and may also result in damages. Innocent misrepresentation involves honest
mistakes and typically leads to rescission.
The primary remedy is rescission, which seeks to restore parties to their pre-contractual
position, though damages may also be awarded depending on the type of misrepresentation.
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🧾 QUICK REVISION POINTS
❌ Types
fraudulent → intentional lie
negligent → careless statement
innocent → honest mistake
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⚖️ Remedies
rescission (cancel contract)
damages (compensation)
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📚 Key cases
Derry v Peek
Hedley Byrne & Co Ltd v Heller & Partners Ltd
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🔑 FINAL TAKEAWAY
Misrepresentation protects fairness in contracts:
> if a contract is entered because of false information, the law may cancel it and/or award
compensation.
Tab 6
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 6: Discharge of Contract 🔚
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🧠 OVERVIEW
Discharge of contract refers to the termination or ending of a contractual obligation so that
parties are no longer legally bound.
Once a contract is discharged:
obligations come to an end,
parties are released from further performance,
and liability may arise depending on how it ended.
👉 Key idea: A contract does not last forever — the law provides ways for it to end.
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⚖️ METHODS OF DISCHARGE
A contract may be discharged in four main ways:
Agreement
Performance
Breach
Frustration
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📌 1. DISCHARGE BY AGREEMENT 🤝
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🧠 MEANING
A contract can end when both parties mutually agree to terminate it.
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Forms of Agreement Discharge
mutual rescission (both cancel contract),
substitution (new contract replaces old one),
waiver (one party gives up rights).
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Example
Two parties agree to cancel a delivery contract before performance begins.
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⚖️ KEY IDEA
👉 If both sides agree, the law respects their decision to end obligations.
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📌 2. DISCHARGE BY PERFORMANCE ✔️
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🧠 MEANING
A contract is discharged when both parties fully complete their obligations.
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Rule
👉 “Complete performance = contract ends.”
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Example
Seller delivers goods
Buyer pays full price
Contract is completed.
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IMPORTANT IDEA
Performance must usually be:
exact,
complete,
and in accordance with terms.
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📚 KEY PRINCIPLE CASE
Cutter v Powell
Held: Strict compliance with contractual terms is required for payment.
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📌 3. DISCHARGE BY BREACH 🚨
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🧠 MEANING
A contract may be discharged when one party fails to perform obligations properly.
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Types of breach
minor breach (warranty)
major breach (condition)
repudiatory breach (serious refusal to perform)
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⚖️ LEGAL EFFECT
Depending on severity:
innocent party may terminate contract,
and/or claim damages.
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Example
A contractor fails to complete building work on time, causing financial loss.
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📌 4. DISCHARGE BY FRUSTRATION 💥
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🧠 MEANING
Frustration occurs when an unforeseen event makes performance impossible or radically
different from what was agreed.
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Legal Effect
👉 Contract ends automatically without fault of either party.
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Common Causes
destruction of subject matter
death or incapacity
change in law
extreme unforeseen events
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📚 KEY CASE
Taylor v Caldwell
Held: Contract was discharged when a music hall was destroyed by fire, making performance
impossible.
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⚖️ LIMITS OF FRUSTRATION
A contract is NOT frustrated if:
performance is just more difficult,
or more expensive.
It must be truly impossible or radically changed.
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🧠 LEGAL JARGON BOOST
Discharge
Termination of contractual obligations.
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Mutual Agreement
Both parties consent to end contract.
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Performance
Completion of contractual duties.
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Breach
Failure to perform contractual obligations.
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Frustration
Unforeseen event making performance impossible.
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🎯 EXAM-STYLE ANALYTICAL SUMMARY
Discharge of contract refers to the termination of contractual obligations, releasing parties from
further performance. Contracts may be discharged by agreement, performance, breach, or
frustration.
Discharge by agreement occurs where both parties mutually consent to end the contract.
Discharge by performance arises where both parties fully complete their obligations, as required
under strict contractual standards, illustrated in Cutter v Powell.
A contract may also be discharged by breach, where one party fails to perform their obligations,
allowing the innocent party to terminate the contract and claim damages. Finally, frustration
occurs where an unforeseen event makes performance impossible or radically different, as
established in Taylor v Caldwell.
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🧾 QUICK REVISION POINTS
🔚 Methods of discharge
agreement
performance
breach
frustration
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✔️ Performance
full completion ends contract
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🚨 Breach
failure to perform
may allow termination + damages
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💥 Frustration
unforeseen event
makes contract impossible
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📚 Key cases
Cutter v Powell
Taylor v Caldwell
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🔑 FINAL TAKEAWAY
A contract can end in four main ways:
> by agreement, by completion, by breach, or when unforeseen events make performance
impossible.
Tab 7
📜 UNIT 2 – MODULE 2: LAW OF CONTRACT
⭐ Topic 7: Illegality 🚫
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🧠 OVERVIEW
Illegality in contract law deals with agreements that the law will NOT enforce because they
involve wrongdoing or go against public interest.
👉 Key idea: Even if a contract looks valid, it will not be enforceable if it is illegal.
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⚖️ DEFINITION OF ILLEGAL CONTRACT
An illegal contract is:
> an agreement that is prohibited by law or contrary to public policy, and therefore void and
unenforceable.
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🚫 EFFECT OF ILLEGALITY
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⚖️ VOID CONTRACT
👉 The main effect is that the contract is:
void
treated as if it never existed
unenforceable in court
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Consequences:
no legal remedy for either party,
courts refuse to assist either side,
parties usually left where they stand.
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📌 TYPES OF ILLEGAL CONTRACTS
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1. STATUTORY ILLEGALITY 📜
Contracts that break written law.
Examples:
drug trafficking agreements,
illegal gambling contracts,
unlicensed trading.
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2. COMMON LAW ILLEGALITY ⚖️
Contracts against public policy.
Examples:
contracts encouraging crime,
contracts interfering with justice,
contracts restraining trade unfairly.
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⚖️ PUBLIC POLICY
Public policy means:
> protecting the welfare, safety, and moral standards of society.
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📚 IMPORTANT LEGAL PRINCIPLES
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1. COURTS WILL NOT ENFORCE ILLEGALITY
👉 “Ex turpi causa non oritur actio”
Meaning:
> no action arises from a dishonourable cause.
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⚖️ EXCEPTIONS (LIMITED CASES)
Sometimes courts may partially assist where:
one party is less blameworthy,
withdrawal occurs before illegal act is completed,
statute allows recovery.
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📚 IMPORTANT CASES YOU MUST KNOW
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🔥 Carlill v Carbolic Smoke Ball Co
Carlill v Carbolic Smoke Ball Co
Held:
advertisement can be a valid offer
acceptance can be by performance (action)
👉 VERY IMPORTANT FOR OFFER + ACCEPTANCE
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🏠 Balfour v Balfour
Balfour v Balfour
Held:
domestic agreements between spouses are generally NOT legally binding
no intention to create legal relations
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❌ Derry v Peek
Derry v Peek
Held:
fraud requires proof of dishonesty or reckless disregard for truth
👉 VERY IMPORTANT FOR MISREPRESENTATION
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⚖️ LEGAL CONSEQUENCES OF ILLEGALITY
contract is void
no damages awarded
courts refuse enforcement
parties may be denied restitution
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🧠 LEGAL JARGON BOOST
Illegality
Contract prohibited by law or public policy.
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Void Contract
Contract with no legal effect.
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Public Policy
Principles protecting society’s welfare.
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Ex turpi causa
No claim arises from illegal conduct.
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🧠 SUPER SIMPLE MASTER SUMMARY
Contract Law includes:
📌 Formation
offer + acceptance + intention + consideration + capacity
📌 Terms
conditions, warranties, exclusions
📌 Problems
misrepresentation
breach
frustration
illegality
📌 Ending contract
agreement
performance
breach
frustration
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🎯 ONE-LINE MEMORY HOOK
👉 Contract law = rules that decide when promises become legally enforceable agreements.
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🔥 EXAM STRATEGY (HIGH MARK METHOD)
For problem questions ALWAYS do:
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1. IDENTIFY THE ISSUE
Is it breach?
misrepresentation?
illegality?
frustration?
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2. STATE THE RULE
define relevant legal principle clearly
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3. APPLY THE FACTS
link law directly to scenario
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4. CONCLUDE
state likely legal outcome clearly
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🧾 FINAL TAKEAWAY
Illegality ensures that:
> the law will not enforce agreements that are unlawful or harmful to society, even if all other
contract requirements are met.