Business contracting – generally
Once the businessman has decided on the particular
form of business organisation that suits his needs, he
can concentrate on his main purpose: establishing and
building up the business. This will involve acquiring
premises and equipment, taking on employees, buying
raw materials and stock, marketing the product or ser-
vice and meeting orders. Underpinning all these business
transactions is the presence of a contract.
Most people think that a contract is a formal written
document which has been signed by the parties in the
presence of independent witnesses. If all contracts took
this form, there would be little room for argument about
whether the parties had entered into a legally binding
agreement, the obligations they had undertaken or the
consequences of failing to carry out the terms of the
agreement. In practice, however, few contracts are like
this. The vast majority of contracts are entered into
without formalities. The parties may even be unaware of
the legal significance of their actions. Think about the
agreements you have made over the past week:
■buying a newspaper;
■taking the bus or train into work or college;
■agreeing to complete an assignment by a particular
date;
■getting a cup of coffee at breaktime;
■arranging to meet a friend for lunch.Can all these transactions be classed as contracts? You
probably feel that some of them were never intended to
have legal consequences. So, what then is a contract?
When is a contract formed? What are the obligations of
the parties to a contract? What happens if either party
breaks the agreement? The answers to these questions
are provided by the law of contract.
The foundations of the present-day law of contract
were laid in the 19th century. This period in our history
saw the rapid expansion of trade and industry, and,
inevitably, an increase in the volume of commercial dis-
putes. Businessmen turned to the courts for a solution.
Gradually, the judges developed a body of settled rules
which reflected both the commercial background of the
disputes from which they arose and the prevailing beliefs
of the time. The dominant economic philosophy of the
19th century was laissez-faireindividualism – the view
that the state should not meddle in the affairs of business
and that individuals should be free to determine their
own destinies. This philosophy was mirrored in the law
of contract by two assumptions: freedom of contract and
equality of bargaining power. The judges assumed that
everyone was free to choose which contracts they entered
into and the terms on which they did so. If negotiations
could not produce an acceptable basis for agreement,203Chapter 7 Introduction to the law
of contract
Learning objectives
After studying this chapter you should understand the following main points:
■the distinction between a contract and other types of non-binding
agreement;
■the essential elements of a binding contract;
■the factors which may affect the validity of a contract;
■the ways in which the obligations under a contract may be discharged;
■the remedies available for breach of contract.