Contract law – short introduction

Contract law deals with promises which create legal rights. In most legal systems, a contract is formed when one party makes an offer that is accepted by the other party. Some legal systems require more, for example that the parties give each other, or promise to give each other, something of value. In common law systems, a one sided promise to do something (e.g. a promise to make a gift) does not lead to the formation of an enforceable contract, as it lacks consideration.

When the contract is negotiated, the offer and acceptance must match each other in order for the contract to be binding. These means that one party must accept exactly what the other party has offered. If the offer and acceptance do not match each other, then the law says that the second party has made a counter-offer (that is, a new offer to the first party which then may be accepted or rejected).

For there to be a valid contract, the parties must agree on the essential terms. These include the price and the subject matter of the contract.

Contracts may be made in writing or by spoken words. If the parties make a contract by spoken words, it is called an oral contract. In some jurisdictions, certain special types of contracts must be in writing or they are not valid (e.g. the sell of land).

Contracts give both parties rights and obligations. Rights are something positive which the party wants to get from a contract (e.g. the right to payment of money). Obligations are something which a party has to do or give up to get those rights (e.g. the obligation to do work).

When a party does not do what it is required to do under a contract, this party is said to have breached the contract. The other party may file a lawsuit against the breaching party (sometimes called the injured party) may try to get a court to award damages for the breach. Damages refers to money which the court orders the breaching party to pay to the non-breaching party in compensation. Other remedies include specific performance, where a court orders the breaching party to perform the contract (that is, to do what it promised to do).

A party may want to transfer its rights under a contract to another party. This is called assignment. When a party assigns (‘gives’) its rights under the contract to another party, the assigning party is called the assignor and the party who gets the rights is called assignee.


If a contract is broken, the injured party might be expected to demand any of the following:
– RESTITUTION – to have what they gave returned to them
– DAMAGES – compensation for their loss
– SPECIFIC PERFORMANCE – the other party to be forced to perform the contract.
In the common-law tradition, damages is the usual remedy that a court awards for a broken contract. Restitution and specific performance are available only in certain circumstances.