Revise Nature of a contract for Cambridge 9084 (3.1.1)

A contract is fundamentally a legally enforceable agreement. While many agreements are made daily, only those recognised by law as binding constitute a contract. The definition often cited is from Sir Frederick Pollock: 'a promise or set of promises which the law will enforce'. This enforceability is what distinguishes a contract from a mere social arrangement. For an agreement to gain this legal status, it must contain three core elements: a clear agreement (formed by offer and acceptance), an intention by the parties to create legal relations, and consideration (something of value exchanged). These elements create rights and obligations for the parties, which can be upheld in a court of law, providing certainty and a framework for commercial and private dealings.

Contracts are primarily classified as either bilateral or unilateral. A bilateral contract, the most common form, arises from an exchange of promises. Both parties are immediately bound by their respective promises. For example, if A promises to sell a textbook to B for £30, and B promises to pay the £30, a bilateral contract is formed. In contrast, a unilateral contract involves a promise in exchange for an act. Only one party makes an express promise, and the other party accepts by performing the requested act. The classic case is Carlill v Carbolic Smoke Ball Co [1893], where the company promised £100 to anyone who used their product and still caught influenza. Acceptance was the act of using the ball as directed, not a communicated promise to do so.

The foundation of any contract is agreement, often described by the Latin phrase 'consensus ad idem' – a meeting of the minds. Traditionally, the law identifies this meeting of minds through the mechanics of offer and acceptance. An offer is a definite promise to be bound on specific terms, while acceptance is the unqualified agreement to those terms. However, the courts do not try to discover the secret intentions of the parties. Instead, they apply an objective test, considering what a reasonable person would believe the parties intended based on their words and conduct. As established in Smith v Hughes (1871), if a party's actions lead a reasonable person to believe they are assenting to the terms, they will be bound, regardless of their actual state of mind.

The promises and stipulations that form the substance of a contract are known as its terms. Express terms are those that the parties have explicitly stated and agreed upon, whether orally or in writing. They are the declared content of the agreement. In addition, contracts can contain implied terms, which are not expressly stated but are read into the contract. Terms may be implied by the courts to give the contract 'business efficacy' (The Moorcock [1889]) or because they are customary in a particular trade. More significantly, terms are often implied by statute to protect parties, particularly consumers. For example, the Consumer Rights Act 2015 implies terms that goods must be of satisfactory quality and fit for purpose into consumer contracts.

A core principle of classical contract law is 'freedom of contract'. This doctrine holds that parties should be free to create their own agreements on their own terms, without government interference. It is based on the assumption that parties have equal bargaining power and can best judge their own interests. However, in the 20th and 21st centuries, both Parliament and the courts have recognised that this is often not the case, leading to significant limitations on this freedom to protect weaker parties and uphold public policy.