Contract Law


  • Christos Mitsides, Senior Partner
    Chr. P. Mitsides & Co LLC

Cyprus contract law

The Contract law of Cyprus which is contained in Cap. 149 of the Laws of Cyprus, originally enacted in 1957, during the time at which Cyprus was a British colony, is very similar to some extent identical to Indian Contract Law. As a result, assistance in its interpretation may be derived from Indian sources (A classic reference is Pollock & Mullaha’s Indian Contract and Specific relief Acts. See also Saab v The Holy Monastery of Ayios Neophytos (1982) 1 CLR, 499). In the course of this short Article, the object of which is to give a short nut comprehensive idea of Cyprus Contract Law, certain particularities of the Cypriot contract law will be demonstrated as well as some deviations from the English Contact Law from which the Cyprus and Indian Contract laws derive their roots.

The nature of a contract

A contract is a legally binding agreement. This would appear to be an elementary proposition even to a person who knows nothing about law. As a matter of fact it is not so elementary as it seems; in fact the idea that contractual obligation is based upon agreement is one which has evolved slowly, and even today it is not universally true to say that all contracts are agreements. Agreements are of two kinds, bilateral (or “synallagmatic”) and unilateral. A “bilateral” agreement is one in which both parties undertake mutual duties which are enforceable by law; and these are of course the commonest kinds of contracts. “Unilateral” contracts must not be confused with gratuitous promises; for they are supported by consideration (See below 3(d)) and are binding on one of the parties. They differ from bilateral contracts in that they consist of a contingent obligation by which the latter only is bound.

The elements of a contract

The various requirements which have to be satisfied before an agreement will be regarded as a legally binding contract are the following. First, the agreement must be one which is both intended to create and capable of affecting legal relations. Second, the parties must be persons of full contractual capacity. Third, in those instances in which special formalities are required by law to accompany the agreement, these formalities must be complied with. Fourth, there must normally be what is technically known as“consideration”. Fifth, the objects of the agreement must not be unlawful.

Offer and Acceptance

An agreement denotes a meeting of the minds of two or more persons upon some matter, a “consensus ad idem”, as it is sometimes called. All agreements are capable of analysis into an expressed “offer” and an expressed “acceptance”, either or both of which may be made by words or conduct.

An offer may be made to a particular person or persons, or it may be made to the world in general; in neither case, however, will there be an agreement until a particular person or persons accepts. Not only must the offer be made, but it must be communicated to the acceptor. What amounts to proper communication is always a question of fact. In order to become legally binding an offer must be clear and unequivocal; a statement made in the course of negotiation will thus not necessarily amount to an offer. With regard to acceptance it is clear that the acceptor must know of the offer at the time he signifies acceptance. It may sometimes be relevant, to determine the exact moment at which acceptance is made. Usually the answer to this question will depend upon all the circumstances; but there are certain circumstances in respect of which the courts have been forced to lay down arbitrary rules. In the familiar case of the sale of articles displayed in shops, in the absence of special circumstances the rule is that the display is only an invitation to treat (invitatio ad offerendum) and the customer’s act of selecting the article and taking it to the shop-keeper constitutes an offer to buy, not an acceptance of a general offer. Accordingly, until he has accepted this offer, by agreeing to sell the article, the shop-keeper is under no obligation to sell. It remains to be added that if there has been both offer and acceptance a contract can only be complete if all essential terms have been agreed upon; for there can be no agreement if any such terms remain to be settled. This does not, however, mean that everything must be completely finalized; it suffices that the essentials are agreed.

The Intention to Contract

We have seen that most contracts are agreements. It should now be noted that it is by no means true to say that all agreements are contracts. Many agreements fall outside the scope of the law of contract, either because they concern matters of moral, rather than of legal, obligation or because the parties expressly agree that they are not to be treated as enforceable contracts, or because they are not intended to be such. The intention, therefore, of the parties to enter into a binding agreement is an essential ingredient for a contract.


Generally speaking any“person”may be a party to a contract, but there are exceptions to this rule. Three classes of incapacity call for special treatment.


The common law rule is that infants’ contracts were voidable at the infant’s option: that is to say, anyone under eighteen years of age might treat a contract as a nullity if he so elected. There are some exceptions to this general rule which cannot be discussed here.


At common law, corporations could usually only contract by means of formal contracts authenticated by the use of their corporate seal. Agents of corporations may now make contracts on their behalf in connection to any matter within the corporate powers in whatever way similar contracts are made between individuals.

Persons Of Unsound Mind And Drunken Persons

Mentally disordered persons may be subject to the control of the Court and that if they are, contracts may be made by their guardian or receiver on their behalf. Apart from this, in the case both of persons of unsound mind and of drunken persons the rule is that their contracts will be voidable at their option if, and only if, it can be established that they were wholly incapable of understanding what they were doing at the time of contracting and that the person with whom they contracted knew of their condition.


No contract will be enforced unless the plaintiff can show that he has furnished consideration. What is “consideration”? Thebenefitconferredorthelosssufferedconstitute“consideration”.Considerationwas defined by the courts as follows: “A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other.”Since consideration is one of the essential elements which distinguish binding contracts from unactionable promises, we must now consider some of the rules concerning it.

The Nature of Consideration

As a general rule, any act, or the promise to perform any act, may form valid consideration. This proposition, however, is subject to the qualification that consideration must be “real” i.e. it must be something of some actual value. A promise of a vague and indefinite nature will not constitute sufficient consideration. For instance a promise to perform a public duty can be no consideration. Thus a policeman cannot claim a proffered reward for stolen property which he recovers in the course of his duties.

The Rules Governing Consideration

Three important rules require mention: (1) although consideration must be real, it need not be adequate; (2) consideration must move from the promisee; (3) consideration must not be “past”. For the purposes of the law of contract, the common law regards the ordinary man as a commercial man. He must stand on his own feet, and make his own bargains.“Caveat Emptor” (buyer beware) is a maxim of importance. Consideration, therefore, need not be “adequate”. Consideration must move from the promisee. In order to sue upon a broken contract the promisee (the plaintiff, to whom the promise has been made) must normally show that he has furnished the consideration:


No action will lie upon a contract which involves the doing of something illegal if the plaintiff has to rely upon the illegal purpose.

The terms of a contract

The Kinds of Terms

A contract being concluded when an offer is accepted, it thereafter becomes necessary to examine the terms of the completed agreement. By tradition terms are of two kinds: they are either conditions or warranties. Conditions, are terms of major importance which form the main basis of the contract and breach of a condition gives the party aggrieved a right to damages or a right, at his option, to repudiate the contract. Warranties are terms of minor importance and breach of warranty gives a right only to damages. Traditionally the question whether a particular term is a condition or a warranty is referred to the intention of the parties themselves to be gathered either from any statements they may make as to the comparative importance of the term in question or from the general tenor of the contract as a whole.

This general statement, however, requires being qualified. In the first place, once the contract is executed, that is to say substantially entered upon, a condition becomes an “ex post facto” warranty; this means that it is treated as if it were a warranty and its breach gives rise only to a claim to damages. The reason for this is that repudiating is generally really practical as long as the parties have not done anything under the contract to alter their position. All agreements are made in the light of circumstances known to the parties and these circumstances may bear upon the agreement as being a tacitly accepted part of it; terms that are understood but not declared. Terms may be implied for any number of reasons, the sole basis of the implication being that the parties may be taken to have tacitly agreed to them. There are, however, certain common sources of implication. One such source is usage: where a contract is made between people of the same trade it may usually be assumed that it is to be conducted against the accepted background of that trade (for instance the term “dozen” means 12) or where a contract is made in a particular locality it may be assumed that it is made in the light of the customs of that locality.

Exclusion Clauses

In many business transactions (especially contracts of sufficiently frequent occurrence to necessitate the use of written or printed documents in “common form”) it has long been customary for one of the parties to contract upon the basis that restrictions are to be placed upon his liabilities. There are thus many common form types of exclusion clauses by which a party offering some service -such as transport or warehousing -enters the transaction only upon the basis that he is to be exempt from liability, or that the extent of his liability is to be limited in numerous ways. This raises a question of policy, whether the courts ought to give full effect to such clauses, thereby permitting one party -who, is often in a strong economic position vis-a­vis the other to escape obligations which it may be thought he ought as a matter of fairness to honour. The principle of freedom of contract comes near to self-defeat when one party is free to refuse to be bound by the very obligations which on the face of it he appears to be undertaking. It is the duty of the courts to prevent sharp practice and to protect the weak against the strong, but it is also their duty to uphold the principle of freedom of contract. Hence a middle path has been chosen: such clauses have been allowed to operate, but the scope of their effectiveness has been kept within limits.

Void and voidable contracts

Sometimes an agreement may be legal and may apparently contain all the elements of a valid contract and yet certain factors may in reality be present which render it void or voidable. A void contract is a nullity, and no rights can be acquired under it. A voidable contract is one which may be treated as ineffective by one of the parties, subject to certain conditions. The factors which have to be considered are Mistake and Misrepresentation.


This is the most difficult and controversial branch of the law of contract. Where an operative

(i.e. legally effective) mistake is established, it results to serious consequences since, amongst other things, third party rights may be jeopardized. Such a state of affairs, threatening as it may the security of completed transactions, is not easily to be inferred and it will be seen that in consequence the ambit of operative mistake is severely restricted. Two points need notice at the start. In the first place, if a party makes a mistake as to some minor matter the law will not heed his complaint. In the second place, people who allege that they have contracted under the influence of a mistake must necessarily be judged by their actions rather than by reference to their innermost thoughts. We may now turn to a consideration of the various kinds of operative mistake. The subject will be discussed under three heads. i) Mistake at common law; ii) Mistake in equity; iii) the non est factum plea.

Mistake at Common law

At common law, Mistake may have one or the other of two effects: it may be such as to nullify what appears on the face of it to be a valid contract, or it may so operate as to destroy consensus by producing a situation in which the offer given does not correspond with the acceptance made, thus preventing any contract from coming into being. A typical example of a mistake nullifying a valid contract is the mistake as to the existence of the subject-matter. Obviously here the mistake is fundamental; what appears to be a contract about something is really a contract about nothing: such a transaction must therefore generally be void. A Mistake which nullifies consensus produces the effect that the parties are in agreement (ad idem) as in the case when A is making one kind of offer, B accepting another. One party had one in mind, the other had the other. The contract was held to be void.

Mistake In Equity

When equitable relief is sought, as by way of specific performance or rescission or rectification, the grant of it is discretionary and in exercising this discretion the courts will take the effect of mistake into account upon grounds wider than the grounds recognized by the common law. This equitable jurisdiction is, however, discretionary and as such impossible to define accurately: moreover, where equity does grant relief it will do so upon its own terms.

Non Est Factum“

“Non est factum” (I did not make it) is an ancient plea. Originally it applied to a case where a man denied liability arising under a document which bore his signature upon the ground that the signature was not his. Later the defence came to be applied to people who were blind or (as used often to be the case) illiterate, and who had been persuaded to sign away things which they did not intend through misrepresentations by others as to the nature of the document. It is a defence which may still be relied upon, but to a rather limited extent.


We have seen that the terms of a contract are promises or statements which are intended to form the framework of the contract, and which define the mutual obligations of the parties. It often happens, however, that, at or about the time of the making of a contract, one of the parties makes a statement of fact which, though it is not intended to be a term of the contract, nevertheless induces the other party to contract. Statements of this sort are called representations.When a representation is untrue it is called a Misrepresentation. Just as parties are free to make whatever terms they like, so also they are not bound to make representations. Only active misrepresentations will therefore normally give rise to a cause of action; mere silence, even as to known defects, does not normally amount to misrepresentation. The effect of misrepresentation varies according to whether it is fraudulent or innocent.

Fraudulent Misrepresentation

A fraudulent misrepresentation is one which constitutes the tort of fraud (or “deceit”). This tort is committed when a person makes a false representation of fact, knowing it to be false, or without believing it to be true, or recklessly, careless whether it be true or false. The false representation must, further, be made with the intention that it is to be acted upon by the party deceived; and before an action can be brought upon it this person must show that he actually did act upon it to his detriment. Where a misrepresentation which is fraudulent in the sense above defined induces a person to make a contract the contract will be void if the effect of the fraud is to induce an operative mistake; hence no property can pass under it and the plaintiff may claim from the fraudulent person or third parties anything that has been transferred. As has already been explained, however, by no means all frauds do induce operative mistake and the more usual effect of fraudulent misrepresentation is to render the contract voidable at the option of the person defrauded. The effect of this is that that person may: -(i) Recover damages for fraud (or deceit); i.e. in tort, in respect of any loss; (ii) He may, upon discovering the fraud -and within a reasonable time he must -make an election whether to affirm or repudiate the con-tract; then the result will depend on his choice. (a) If he affirms, the contract remains valid and he may insist upon its performance; (b) If he repudiates within a reasonable time, the contract is avoided and he may take back anything he had lost under it.

Innocent Misrepresentation

This is a matter which, as will be seen, has recently received the attention of the Legislature. Any misrepresentation which is not “fraudulent” in the sense defined above is “innocent”, whether negligently made or not. The law governing such misrepresentations has much in common with fraudulent ones. First, as in the case of fraudulent misrepresentation so in the case of innocent; unless the effect of the statement is to produce operative mistake the contract is voidable at the plaintiff’s option; not void. Second, the party aggrieved may affirm the contract either by words or conduct, and although mere lapse of time after knowledge of the misrepresentation will not normally amount to an affirmation in itself, it may be treated as evidence of it. Lapse of time beyond the appropriate limitation period will of course, per se, form a complete bar.

Contracts In Which Disclosure Is Required

The duty which the law in general imposes upon people negotiating a contract is, as we have seen, the purely negative duty to refrain from making misrepresentations. But there are two special classes of contracts in respect of which such people are required to make positive disclosure of facts known to them, but unknown to the other party: First, where the parties are in a confidential relationship, equity requires the person in whom confidence is reposed to make full disclosure of all material facts in respect of any contract he may make with the other party. This is a general rule, and it is not limited to particular classes of relationships. The lawyer-client relationship is a typical example of such a relationship. Second, there are certain classes of contracts in respect of which one party has means of knowledge which, in the nature of things, the other party cannot be expected to possess. These contracts are called contracts “uberrimae fidei” (of the utmost good faith). Here the party having the special means of knowledge must make full disclosure of all material facts, known to him, which might influence the other party’s decision to enter upon the contract or to continue to perform it once it has been entered upon. By far the most important of the contracts uberrimae fidei are contracts of insurance.

Privity of contract

A contract creates a kind of special law for the parties who enter upon it. It follows logically from this that only such people as are “privy” (parties) to a contract can normally be affected by it. This aspect of the law of contract is often epitomized in the Latin maxim “res inter alios acta”“An agreement can only bind the parties; it can neither impose obligations upon other people, nor confer rights upon them.”

Assignment of contractual rights and liabilities 

Assignment of Rights An “assignment” is a transfer of an existing right from one person to another. Negotiable instruments became freely assignable by the custom of merchants, and most other choses in action have been made expressly so by various statutes: copyright and patent rights may be instanced as examples. No particular formalities are required for an equitable assignment. It is sufficient for the assignor to transfer his right to the assignee by any appropriate means. It does not, however, follow that all purported assignments will be valid. The reason for this is that there are certain rather complicated rules which govern equitable assignments. These rules cannot be discussed here.

Discharge of contract

Contractual obligations may be discharged by performance, by agreement, by supervening impossibility, and by breach.


It is obvious that a party to a contract who has performed his obligations will be discharged from further liability. He will also normally be discharged if he makes a valid offer (or“tender”) of performance which the other party rejects. Mere tender of a money debt will not, however, operate as a discharge; in order to escape liability a debtor must show, not merely that he tendered the correct sum upon the date on which it was due, but also that he was ready and willing to pay, up to the time that the creditor brought his action for the recovery of the debt. He should then pay the money into court.

Discharge by Agreement

This may take four forms. First, the contract may be discharged by“waiver”; that is to say, both parties may mutually agree to forgo each other’s obligations. In this case the waiver by one party constitutes consideration for the waiver by the other, and the transaction is therefore binding. Where, however, one party has performed his own obligations, he cannot be bound by a mere promise to waive the obligations of the other. A waiver of this sort will only be valid if it is supported by independent consideration. In the second place, an existing contract may be mutually discharged, and a new one substituted in its place: this is a form of novation. In the third place, the contract may be subject to condition precedent or condition subsequent in which case failure of the condition may give rise to discharge. In the fourth place, a contract may be discharged by accord and satisfaction --as where B owing A €200, the latter agrees to accept a motor cycle in satisfaction of the debt. Where an agreement contains no provision as to rights of determination it is a matter for the court to decide, in view of all the available evidence bearing upon the parties’ original intention, whether one of them who seeks to terminate the contract is entitled to do so.


It sometimes happens that, in the course of the performance of a contract which is intended to last over a period of time unforeseen events occur which render further performance impracticable or impossible. Examples of such events are sickness, accident, war, the interference of third parties and legislation which renders further performance illegal. The intervention of such unforeseen occurrences will now normally have the effect of “frustrating” the contract. That is to say, the courts will excuse further performance of it if the effect of the event has been to render such performance substantially impossible. Similarly, where war breaks out unexpectedly, commercial contracts, such as contracts for the chartering of ships, have often been held to be “frustrated” where the outbreak renders voyages to enemy or prohibited destinations impossible. The doctrine of“frustration”is also subject to three major limitations. In order for it to operate the following conditions must be satisfied: (i) The supervening event must not normally be one which the parties expressly provided against in the contract. (ii) The frustration must not be “self-induced” by one of the parties. (iii) The event relied upon must destroy the very root of the contract. Once it has been proved that a contract has been frustrated, it is automatically avoided.

Discharge by Breach

Where one of the parties to a contract breaks his side of it entirely, the other may, if he wishes, repudiate it and he will then be discharged himself from further performance, and he may also claim for any loss he has suffered. Where, before a contract is due to be performed, one party renounces his obligations, or renders performance impossible by his own act, he is said to have committed an“anticipatory” breach. Cyprus Law, unlike most other systems, gives effect to anticipatory breaches.

Remedies for breach of contract

Having considered the circumstances in which a contract may be dis-charged (i.e. terminated) as the result of a breach, we must now consider the nature of the principal remedies which are open to the party injured by the breach. These are damages, quantum meruit, specific performance and injunctions, and rescission and rectification.


Damages are a common law remedy, and they may be claimed by an injured party as of right. They are money compensation for loss suffered. The object of granting them is to put the injured party, as far as money can do it, into the position in which he would have been had the loss not been suffered, i.e. as if the contract not been broken (restitutio in intergum). Thus, there can be no rule which will prescribe in every case what damages the plaintiff will obtain: the amount of damages must always depend upon the “value” of the loss. The “value” of the loss is generally assessed, not according to the price the plaintiff puts upon it, but objectively, according to the value that an ordinary, reasonable, person would put upon it. Damages may only be recovered in respect of loss arising from the breach of contract itself. There can be no claim in respect of loss which is too “remote” from the breach to be regarded as a proximate result of it. There must be a causal connexion between the defendant’s default and the plaintiff’s loss; for the former cannot by any test be held responsible for something which he did not cause.

Quantum Meruit

A claim for damages is a claim for compensation for loss. A claim upon a“quantum meruit”(for an amount “earned”) is a claim in respect of unremunerated services. Where, under the terms of a contract, one person performs services for another, and the other breaks or repudiates the contract, the person who has performed the services may usually, instead of claiming damages, sue upon a quantum meruit to recover the amount earned by his labours.

Specific Performance

Specific performance will never be decreed where damages will provide an adequate remedy; for equity “follows the law”, it is designed to supply the defects in it, not to override it. Thus, though a purchaser may obtain specific performance of a contract to purchase land, there can never be a decree for specific performance in respect of a mere money loan. Land is a thing of peculiar value; damages will not always compensate a man for the loss of land which he has agreed to purchase.


Injunctions are orders of the court. For the purposes of the law of contract they are in general “prohibitory”; that is to say, they are orders commanding a person to refrain from doing something. Thus a man who has undertaken not to do some particular thing may be forced by an injunction to refrain from doing it. They may, however, also be used as an indirect means of obtaining specific performance where, for some reason, remedy is unobtainable. For example, if B contracts to obtain supplies only from A the contract cannot be specifically enforced, for enforcement would require continuous supervision; but an injunction may be granted to restrain B from obtaining supplies from elsewhere.


The court, in exercise of its equitable jurisdiction, may order rescission of a contract where it would, on account of mistake, misrepresentation or otherwise, be unreasonable to tie the parties to it.


This equitable remedy applies where it is sought to correct, or rectify, a document which purports to embody some prior agreement, whether oral or in writing, and this prior agreement has not -due to mutual mistake -been properly reproduced in the document. Except in cases of grave injustice the courts will seldom, in the exercise of this discretionary jurisdiction, rectify a contract where the alleged mistake is unilateral.

Liquidated damages

The institution of liquidated damages is well known to Cyprus Law. Section 74 of the Law provides that: “ When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.” English Law requires that liquidated damages constitute a genuine pre-estimate of the loss. Although Cyprus law derives its roots from Common Law it differs in this respect, as can be seen form the wording of the above quoted section of the law.


Rights of action cannot be allowed to endure for ever. People must be made to press their claims with reasonable diligence. Hence rules of limitation have to be made, i.e. rules which prescribe the time within which actions are to be brought. The cause of action normally “accrues” at the time when the contract is broken.

Special contracts

There is an ever growing number of special contracts which require special treatment. Agency contracts, Sale of Goods Contracts, Carriage of Goods Contracts, Computer Contracts and the newly emerged type of E-Commerce contract are a few examples. Due to the limited space available, however this cannot be treated in this article. Notwithstanding the aforesaid there is a special type of contract particular to Cyprus law that needs to be mentioned. This is the Bond in customary Form. A Bond in Customary Form is defined by Section 78 of the law as a “promise in writing made by oe person top another signed by the maker in the presence of at least two witnesses themselves competent to contract, engaging to pay on demand or at a fixed or determinable future time a sum of money, to a person specified therein together with interest.. and in the event of legal proceedings thereon the costs thereof”. According to Section 80 of the Law the only two defences open to a Bond in Customary Form are coercion or fraud (forgery). This makes the Bond in Customary Form a very powerful security instrument.

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