Notes on Contract I.

Lecture 1

Introduction to the law of Contract

Historical origins of Contract Law arise out of the Roman law of obligations. The Roman’s
divided Private law into the Law of Obligations, Law of Persons and Law of Property. The law
of obligations, according to Gaius covers voluntary and involuntary obligations. Voluntary
obligations are ones which were create ourselves and involuntary ones are created for us by law.
An example of voluntary obligations is contract, an obligation which we freely create for
ourselves, and torts are obligations forced upon us by the applications of law.

Law governing Contracts in Pakistan is the Contract Act 1972. Contract I covers section 1-75 of
the act that deal with general issues related to the law of contract without going into the details of
specific forms of contract, which are dealt in Contract II.
In section 2(h) of the Contract Act, a contract is defined as 1) An Agreement, that is 2) Legally
Enforceable. An agreement is said to have been formed in section 2 when there is a promise and
every promise and every set of promises forms the consideration for each other. Wwhen at the
desire of the promisor, the promisee acts or abstains from doing something or promises to act or
obstain from doing something, such action or inaction is the consideration for the promise.
So, a contract is an agreement, an agreement is a promise, a promise is an accepted proposal. But
not all agreements are contracts. As we have seen above, for an agreement to be a contract, it
needs to be enforceable legally.
Section 10 of the act sets out the conditions under which agreements become contracts.

1) Capacity (Nemo dat quod non habet)
2) Free Consent of Parties
3) For lawful Consideration
4) With Lawful Object
5) Not Void by law

Formation of a Contract, Offer
The universally accepted method for the formation of a contract is by making an offer, and the
acceptance of this offer. Offer therefore forms the starting point of any contract. Contract Act
defines an offer as the event when one person signifies to another his willingness to do
something or abstain for doing something with a view to obtaining the other person’s assent to
that act or omission, an offer is made. The word “signify” indicates that an offer is only made
when it is declared to the other person or in the language of Contract law, communicated to the
other person. This maybe done orally, in writing, or may even be inferred by the behavior of the
party. An offer which is made in words or in writing is called an express offer. An offer which is
implied by the behavior of the party is called an implied offer. (Section 9)

or entering into a buffet hall will be taken as an implied offer to buy the goods and buy the food respectively. this is not always the case. making a bid at an auction. the clause was held to negate the contractual effect of the agreement. The servant became aware of the offer only after he had found the child. Whereas dealings in the course of business are assumed to create legal relations. as in Rose & Frank v Crompton. and later circulated handbills offering to pay Rs 501 to anyone who found the child. communication is complete when the proposal comes to the knowledge of the person to whom it was made. It was held that there was no contract.For example. The nephew made no reply but withdrew the horse from the auction. It was held that since his offer was not communicated to the defendant. In the case of Balfour v Balfour the defendant. since the acceptance was not communicated to the plaintiff. who therefore had no chance to accept or reject the offer. Taylor v Laird The plaintiff was engaged to command the defendant’s ship but gave up command midway. ‘if I hear no more about it. Haridas Ranchordas v Mercantile Bank of India: When the customer of the bank didn’t object to a change in the compound rate of interest in the natural course of the business of the bank. the wife sued for the recovery of the arrears. a clause in the agreement where the parties expressly stated that the agreement was not intended to create legal relations. an agreement to share a house between . and that idle chatter should not be allowed to constitute a contract. The auctioneer though accidently sold the horse. The action therefore failed. there is no contractual obligation between the parties. who resided in Ceylon agreed to send his wife 30 pounds a month if she didn’t join him there but stayed in England. stepping into a bus was considered in the case of Wilkie v London Transport Board as an implied offer to avail the services of the transport company. Communication According to section 4 of the act. although social or family relations are not intended to create legally binding agreements. for example an agreement to take a walk. Later on when the parties fell out. the contract was not valid Felthouse v Bindley Both offer and acceptances have to be communicated. since there could be no contract unless the offer had been communicated to the servant prior to his finding the child. Lord Atkin in his speech held that in many instances where the parties did not envisage the agreement creating legal consequences. The defendant sent her servant looking for the child. I’ll consider the horse mine’. he was held to have given implied consent to pay the compounded interest rate. there must be the intention of the parties to enter into a legal relationship. Both sued the auctioneer. Similarly. Lalman v Gauri Dut: The defendant’s nephew ran away from home. Intention to create legal relations It is an accepted tenant of English contract law that for there to be a contract. The plaintiff offered to buy his nephew’s horse by writing. Similarly. or an agreement to hold a social engagement. but continued to work on the ship and demanded wages for work done.

for example the finding of the dog. The second telegram was the one where the offer was made and refused. Advertisements are generally held to be merely invitations to treat. General Offers Weeks v Tybald (1605) Mere puffs. For example in a case where one puts out notices promising to pay a sum to someone who finds their lost pet. (Harbhajan Lal v Harcharan Lal) A general offer is out and open to the public until retracted. This is contained in the section 8 of the Contract Act whereby performance of the condition of the offer is the acceptance of the offer. the terms need to be worded in a way that are definitive and require only the assent of the other party for the formation of an agreement. Offer and Invitation to Treat An offer must be distinguished from an invitation to treat. The case of Harvey v Facey demonstrates how communication may not constitute offer. The Court held that the second telegram by the defendant didn’t agree to sell. 900 pounds. or invitations to receive offers. or invitations to start negotiations. . It may be sufficient for the conduct of the parties to constitute acceptance of the contract. like promise to pay 100 pounds to anyone who married the defendants daughter with his consent did not constitute an offer. and performance by the person who finds the dog is acceptance and performance of the contract.relations (Parker v Clarke) or an agreement between husband and wife where to wife agreed to withdraw her complain upon the husband’s promise to make a payment (McGregor v McGregor). For there to be a proper offer. the agreements were held to be legally binding. In cases of general offer. the communication of acceptance is not necessary for the formation of the contract. Plaintiff Telegraph: We agree to buy Bumper Hall Pen from you for 900 pounds. but general offers concerned with the performance of one act cease to exist when the act if performed. Plaintiff Telegraph: Will you sell us bumper Hall Pen? Telegraph Lowest Cash price? Defendant Telegraph: Lowest price for Bumper Hall Pen. it is not necessary for the offer to be accepted. Carlill v Carbolic Smoke Factory The offer to pay 100 pounds to anyone who became sick after using the smoke ball was held to be not a mere puff since the defendants by adding the statement of depositing 1000 pounds in an account to show their sincerity had taken the statement away from being a mere puff and had made it into a serious contractual offer. The plaintiff sued. The defendant refused to sell the pen. It merely stated the price. The latter is merely an indication to receive offers.

Displays in shop windows are not offers but invitations to treat. Harris v Nickersen A notice that goods will be put up for auction does not constitute a promise that the same will be done as the notice is also mere invitation to treat. . Display of goods at a shop. Fisher v Bell illustrates this point when a knife in a shop windows was deemed not for sale and thus not violating any law on ban of such sale. Partridge v Crittenden No offence committed under wildlife protection law since the offer to sell wild birds was mere invitation to treat and not an offer. Spencer v Harding The bidding in an auction is also mere invitation to treat and the highest bid is an offer by the buyer which requires its acceptance from the seller. even a self service shop does not constitute an offer on behalf of the owner of the shop to sell and goods and constitutes a mere invitation to treat. which is usually in the form of the stroking of the hammer to indicate the close of the auction by agreeing to the highest bid. Pharmaceutical Society of GB v Boots Chemists.