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Law of Contract

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LAW OF CONTRACT

What is a Contract?• 1) A contract is an Agreement

• 2) Giving rise to Obligations

• 3) Enforced or recognised by the Law.

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LAW OF CONTRACT

AgreementThere must be :

• 1) a Definite Offer.

• 2) an Unqualified Acceptance.

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LAW OF CONTRACT

Agreement ?• Have the parties reached agreement?

• 1) The Courts will analyse by looking at the dealings in context of Offer and

Acceptance?

• 2) The test is objective !

Parties real Intention not relevant

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LAW OF CONTRACT

Analyse Agreement• Based on Offer and

acceptance model• “Mirror image rule”

e.g If seller’s offer(terms) differs from buyers, terms, No mirror image

• An unequivocal offer

matched by an

unequivocal acceptance

• Butler V Ex- Cell -O Corporation (1979)

• Held: Seller, became offeree who accepted the terms by replying thru tear off slip, to buyer.

• Gibson V Manchester City Council (1979)

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LAW OF CONTRACT

Objective test?• 1) Test : what parties actually said and did, and from

that, courts, will conclude as to what they agreed upon.• 2) (Not what they intended to say or do.)

see :• Smith V Hughes (1871) as Per J Blackburn• Centrovincial Estates V Merchant Investors (1983)• But see: The Hannah Blumenthal

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LAW OF CONTRACT

Offer-Definition

• 1) Definition of Offer - Expression of willingness to contract made with intention that it shall become binding on the offeror upon acceptance by the offeree.

• 2) Did parties make a definite offer and other responded with an unqualified acceptance of that offer.

• Butler V Ex-Cell O Corpn (1979)

• Gibson V Manchester City Council (1979) HL

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LAW OF CONTRACT

An Offer• ..Is a statement by

one party of a willingness to enter into a contract on stated terms, provided terms are accepted by other party or parties.

• Can be oral, written or by conduct

• Gibson V Manchester City(1978)CA (1979)HL.

Lord Denning said look at the intention from the general terms, even if some differ.

HL disagreed, said look at offer and acceptance.

Held : There was no offer

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LAW OF CONTRACT

OfferMay be in :

1) writing

2) Verbal

3) or implicit in conduct.

1)Bilateral or

2)Unilateral.

• i.e Offer may be made to one person or to the world at large

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LAW OF CONTRACT

Offer-Unilateral Contract• Offer can be

addressed to individual or to group or to world at large

• Carlill V Carbolic Smoke ball (1893)

• 1) Its possible to make an offer to the world.

• 2) the use of the ball (performance) amounted to acceptance.

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LAW OF CONTRACT

Invitation to treat V Offer1) Invitation to treat :• is an invitation to

make an offer• an expression of

willingness to enter into negotiations which could lead to conclusion of contract

• Gibson V Manchester City Council (1978)

• Held: letter by treasurer was an invitation to treat

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LAW OF CONTRACT

Invitation to treat• 1) Advertisements

• 3) Tenders

• 2) Display of Goods

• 4) Auctions

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LAW OF CONTRACT

Advertisements• Advertisements in

news papers, circulars, catalogues of goods for sale are purely Invitations

• Partridge V Critendden

advertisement in a periodical to sell a wild bird, held not to constitute offer, ..Protection of Bird’s Act 1954.

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LAW OF CONTRACT

Adverts v Unilateral contracts1) A contract arising

where an offer is made in the form of a promise to pay in return for the performance of an act…so that performance is taken as assent.

• Carlill V Carbolic Smoke ball (1893)

• No need for communication of acceptance in unilateral contract…all that’s required is performance

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LAW OF CONTRACT

Display of Goods• 1) A shopkeeper who

displays his goods with a price tag on it, is not making an offer…but merely asking public to make an offer for it….ie.He is inviting an offer

• Pharmaceutical Society of Great Britain V Boots cash Chemists (1953)

• Held : No offence because no sale done until acceptance by cashier.

• Fisher V Bell (1961) Flick Knife case

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LAW OF CONTRACT

Tenders• Tenders are

Invitations to treat…

Unless one expressly undertakes to accept the highest bidder, in a unilateral contract.

• Spencer V Harding (1870)

• Harvela Investments V Royal Trust (1986)

• HL Held: If in a confidential offer, one undertakes to accept highest offer…its an offer made to the to highest bidder.

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LAW OF CONTRACT

Auctions• The general rule is

that an auctioneer, when he invites the bids, is making an invitation to treat.

• Thus a bid is an offer and the fall of the hammer is the acceptance

• British Car Auctions V Wright (1972)

• Payne V Cave (1789)• S 57 (2) : fall of the

hammer. & S58 (2) : bidder may withdraw offer before hammer.

• Sale of Goods Act 1979

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LAW OF CONTRACT

Auctions• An advertisement that

an auction would take place is an invitation to treat,..not an offer.

• Offer is made only when the bidder bids and its accepted by the fall of the hammer.

• Harris V Nickerson (1873)

• Held : Advertisement of auction was an invitation.

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LAW OF CONTRACT

Public Transport• Offer made by the

transport company, plying the route, and the acceptance occurs when the passengers board the bus.

• Wilkie V London Passenger Transport Board (1947).

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LAW OF CONTRACT

Sale of Shares• When a company

“offers to the public” shares for them to subscribe to , they are inviting an offer for the public to make an offer for the share allotments.

• Exception :• When the company

issues shares, as rights issues to its existing shareholders,... the letter informing shareholders is an offer.

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LAW OF CONTRACT

Bilateral and UnilateralBilateral Contracts• A promise for a

promise.

Unilateral Contracts• A Promise for an Act.

• Calls for an acceptance in the form of an unqualified promise to perform according to terms.

• Unilateral - Carlill V Carbolic Smokeball (1893).

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LAW OF CONTRACT

Revocation of Offer

• Offer can be revoked at anytime before acceptance

• Payne V Cave(1789)

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LAW OF CONTRACT

Revocation of Offer• Exceptions to the

rule, above.• Where Offeror

promises to keep the offer open for a specified period & offeree has given some consideration (option agreement).

• Routledge V Grant (1829)

• Held : An option agreement (is a separate contract), is an agreement to keep offer open till, the specified date.

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LAW OF CONTRACT

Communication of Revocation1) Revocation of offer is

only effective if and when offeror actually communicates his withdrawal to the offeree, before the acceptance.

• Byrne V Van Tienhoven(1880)

• Held : Revocation effective only upon actual communication..ie upon the receipt of the letter of revocation.

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LAW OF CONTRACT

Communication of Revocation

1) Revocation need not be communicated directly.

2) Offer cannot be accepted after Offeror had decided to sell the land, and the offeree had the knowledge of the sale, to someone else.

• Dickinson V Dodds (1876) CA

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LAW OF CONTRACT

Communication of Revocation

• In the case of Unilateral Offers, Offer cannot be revoked once performance

(acceptance) has begun,..even if it had not been completed.

• Errington V Errington and Woods(1952) CA

• Facts : Father bought son & Daughter in law, a house, and they were required to pay off the mortgage.

• Held : as per Denning LJ, since they started to pay the mortgage offer cannot be revoked.

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LAW OF CONTRACT

Communication of Revocation• Once Offeree

embarks on the performance of his promise, its too late for the offeror to revoke.

• Daulia Ltd V Four Millbank Nominees (1978)

• But see : Luxor Ltd. V Cooper (1941)

• Held : Claimant not entitled to commission because payable only upon completion of sale.

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LAW OF CONTRACT

Lapse of OfferAn Offer may lapse when : • 1) Rejected by Offeree

• 3) Lapse of time

• 2) Occurrence of a Terminating condition

• 4) Death of Offeror or Offeree

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LAW OF CONTRACT

Rejection of Offer• 1) An offer that is

rejected by an Offeree cannot be subsequently accepted by him.

• 2) A Counter-Offer is considered as a rejection of the original Offer.

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LAW OF CONTRACT

Terminating conditions• An Offer and its

acceptance, can be made subject to a condition.

• If that condition is not satisfied, the offer is not capable of acceptance.

• Financings Ltd. V Stimson (1962)

• Facts : express provision that car will be in good condition not met during acceptance, thus Offer not capable of acceptance.

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LAW OF CONTRACT

Lapse of time• 1) If an offer is not

accepted after an unreasonable amount of time : offer lapses

• 2) Where an Offer is stated to be open for a specified period of time : it terminates after expiry of time period.

• Ramsgate Victoria Hotel V Montefiore (1866)

• Facts : 08th June, D offered to buy shares, 23rd Nov, P accepted the Offer.

• Held : 06mths delay unreasonable. Offer Lapsed.

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LAW OF CONTRACT

Death of Offeror/Offeree• If performance of

promise by Offeree, personal to Offeror, then upon knowledge of death of Offeror,..the Offer lapses.

• Upon death of an Offeree, the Offer lapses.

• Bradbury V Morgan (1862)

• Reynolds V Atheron (1921)

• Held : obiter : Upon Offeree’s death Offer lapses, and thus