Tute 01 - The Law of Contract

CERTIFICATE LEVEL
Subject Fundamentals of Ethics, Corporate Governance & Business Law (BA4)

Dr. Dhanan Senathirajah
Lecturer FCMA; CGMA; Attorney At Law; D.Min.
Module Tute 01 - The Law of Contract
Code BA4/DS/19
CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS
CERTIFICATE LEVEL
FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND

BUSINESS LAW (BA4)
THE LAW OF CONTRACT
THE FORMATION OF CONTRACT

The chapter is intended to cover the following Learning Outcomes of Paper BA4:
Learning Outcome Learning Objective
3 (i) Identify the essential elements of a valid contract

and situations where the law requires the contract Comprehension
to be in a particular form
3 (ii) Explain how the law determines whether
negotiating parties have reached agreement and the Comprehension
role of consideration in making that agreement
enforceable
3 (iii) Explain when the parties will be regarded as
intending the agreement to be legally binding and Comprehension
how an agreement may be avoided because of
misinterpretation.
3 (iv) Explain how the terms of contract are established
and their status determined Comprehension
1. AGREEMENT VS CONTRACT
While in every contract there must be an agreement, every agreement need not result in a
contract. Agreements, where the following factors are absent may be denied legal validity:
a. Intention to create legal relationships

b. Contractual capacity
c. Legality of purpose
d. Reality of consent
e. Consideration
f. Prescribed form
2. DEFECTIVE CONTRACTS
The result is a defective contract. A defective contract may be:
1. Void Contracts: A void contract is no contract. It is an agreement, which has no legal

effect whatsoever, conferring no rights and imposing no obligations on either of the
BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 1

parties. As such even a third party who purchases goods that have been transferred
under this agreement will acquire no title to them and will have to deliver them to the
true owners.
2. Voidable Contracts: It is one which may be treated as void by one party at his option,
but which is valid and binding unless he exercises his right to avoid it. Therefore the
third party who purchases goods acquired a good title to the goods and cannot be
compelled to surrender them to the former owners if the purchase occurs before the
contract is repudiated.
3. Unenforceable: These contracts are perfectly valid, but for some technical defect
which renders it impossible for one or both of the parties to enforce the contract in a
court of law unless and until the defect is remedied.
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1. An agreement between Nigel and Rupert was brought before a court. The court
found that neither Nigel nor Rupert should be bound by the agreement and that
property transferred from one party to the other, but subsequently transferred to
Charles, should be recovered. The agreement was
A. Void
B. Voidable
C. Unenforceable
D. Illegal
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3. AGREEMENT
3.1. OFFER
The offer must conform to the following legal requirements:
a. Firm - This means that the offer must be made with a definite intention to adhere to
its terms and should not be vague or illusory.
GUNTHING VS LYNN
A promise to pay an increased price for a horse if it “proves lucky to me” was held to
be too vague.
‘An invitation to treat’ is a mere call to the other to start negotiations and
therefore not an offer.
PHARMACEUTICAL SOCIETY OF GREAT BRITAIN VS BOOTS CASH

CHEMISTS
Boots opened a self-service store in which 'prescription drugs' were for sale on a
counter with the price marked on them. A customer picked up drugs at the counter and
took them to the cashier near the exit to pay for them. Although by statute it was an
offence to sell, other than under the supervision of a qualified pharmacist, drugs which

were on the poisons list, no pharmacist supervised at the counter, But a pharmacist did
supervise the cashier. The question was whether the sale has taken place the counter, in
which case an offence had been committed; or whether it had taken place at the
cashier's desk.
Held: that the sale had taken place at the cashier's desk because the display of the drugs
on the counter was merely an invitation to treat. The offer was made by the customer
taking the drugs to the cashier, and the acceptance took place when the cashier received
the customer's money.
There are several types of invitation to treat
a. An exhibition of goods for sale

b. General advertising of goods
c. An auctioneer's request for bids
d. The issue of a prospectus by a company
e. An invitation for tender
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2. A Ltd placed the following advertisement in a local newspaper: “We are able to
offer for sale a number of smart phones at the specially reduced price of £5.90. Order
now while stocks last."
The advertisement contained a mistake in that the smart phones should have
been priced at £59.00. B Ltd immediately placed an order for 100 smart phones.
Which ONE of the following statements is CORRECT?
A. B Ltd has accepted an offer and is contractually entitled to the 100 smart phones.
B. A Ltd can refuse to supply B Ltd as the advertisement is not an offer, but an invitation
to treat.
C. A Ltd can only refuse to sell the smart phones to B Ltd if it has sold all its stock.
D. As B Ltd has not yet paid for the smart phones, the company has no contractual right to
them.
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3. What is the legal effect of the following statement in a newspaper?

"For sale, Lap top Computer in good condition. £500."
A. The statement is an offer for sale.

B. The statement is a "mere puff or boast".
C. The statement has no legal effect.
D. The statement is an invitation to treat.
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4. Charles recently purchased some goods at an auction sale. Which of the following
is CORRECT?
(i) The contract was concluded by the fall of the Auctioneer's hammer.
(ii) The Auctioneer's call for bids was an invitation to treat.

(iii) Once the bidding had started, the Auctioneer was unable to withdraw the
goods from the sale.
A. (i) only
B. (i) and (ii) only.
C. (ii) and (iii) only
D. (i), (ii) and (iii)
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5. Which of the following is an offer?
A. An advertisement in the newsagent's window

B. An invitation to tender
C. An auction bid
D. An exhibition of goods for sale
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6. Judy goes into a shop and sees a price label for £200 on a dishwasher. She agrees
to buy the dishwasher but the till operator tells her that the label is misprinted
and should read as £300. Judy maintains that she only has to pay £200. How
would you describe the price on the price label in terms of contract law?
A. An acceptance
B. An invitation to treat
C. An offer
D. A tender
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b. Communication: The offeree cannot accept an offer of which he does not know at the
time of his acceptance.
REX VS CLARKE
A reward was offered for information leading to the conviction of certain murderers
together with a promise that if the information was given by an accomplice, he would
receive a free pardon. C panicked and gave the information required, but admitted that
in his state of panic the question of the reward had passed out of his mind and all he
intended to do was to obtain the pardon.
Held: he was only entitled to receive the pardon and not the reward as his acceptance
was directed to the offer of the pardon.
c. In existence: The offer must not have been terminated before acceptance. The ways
in which the offer may come to an end are:
1. Revocation - The offer being withdrawn by the offeror.

.
a. The offer must be revoked before the acceptance is complete.
b. If the offer is one that is to be accepted by the performance of an act, it cannot be
revoked while the act is being done.

c. Where the offeror agrees to leave the offer open for a certain time, he is under no
obligation to abide by his promise unless it is made under seal or supported by
consideration.
d. The revocation must be communicated to the offeree before acceptance, but it need
not be conveyed by the offeror himself. If the communication is made by post, it
becomes valid only when the offeree actually receives the information
(The Reception of Information Theory). A communication made by other persons to

the offeree will suffice for this purpose, provided there are reasonable grounds for
believing in the accuracy of the fact communicated.
DICKINSON VS DODDS
X agreed to sell property to Y through a document, which stated “this offer to be left
open until Friday 9 a.m.”. On Thursday C contracted to sell the property to Z. Y
heard of this from B and on Friday at 7 a.m. he delivered to X his acceptance of the
offer.
Held: that Y could not accept K's offer after he knew it had been revoked by the sale
of the property to Z.
2. Rejection – The offer being rejected by the offeree. This may be expressed or
implied. Rejection is implied where the offeree:
a. Attempts to bargain
HYDE VS WRENCH
The defendant offered to sell an estate to the plaintiff for £1,000. In reply the
plaintiff sought to buy it for £950, which was rejected by the defendant
subsequently. The plaintiff wrote that he was prepared to pay £1,000, but the
defendant refused to sell the estate to him even at that price.
Held: that there was no contract.

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7. Tee Ltd. placed some computers in its shop window with a notice, which read:
"Special offer. Lap top computers for sale at £400." Which of the following is
CORRECT?
(i) The notice amounts to an invitation to treat.

(ii) When Anne called in to the shop and offered £350 for one of the
computers, she had made a counter offer.
(iii) Tee Ltd. is obliged to sell a computer to anyone who can pay the price.
A (i) and (ii) only

B (i) only
C (i), (ii) and (iii)
D (ii) only

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b. Attempts to introduce a new term
NEALE VS MARRlOT
Buyer sent a cheque for part of the price and offered to pay the rest by monthly
installments.
Held: there was no contract.

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8. Alexander wrote to Brian and offered to sell him his set of antique cigarette cards
for £300. Brian wrote back that he accepted the offer and would pay for them in
two installments of £150. Is there a contract?
A.
Yes. There is offer, acceptance and consideration. The contract is valid.
B.
No. Alexander's letter was not an offer but an invitation to treat.
C.
No. Until Alexander receives Brian's letter, the acceptance is not valid.
D.
No. Brian's letter has varied the terms and so is a rejection of Alexander's original
offer.
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c. Makes a conditional acceptance.
d. If a particular manner of acceptance has been requested, accepts in some other

manner.
An implied rejection amounts to a 'counter offer'. A mere seeking of information,

however, is not a counter offer.
STEVENSON VS MC LEAN
M made an offer to sell iron to S at 140 on nett cash per ton and S replied by asking
whether the delivery, could be over 2 months. M subsequently sold the iron
elsewhere, but before the revocation of the offer had been communicated to S. S
accepted on the terms proposed by M.
Held that the acceptance by S was valid in law and therefore M was in breach of
contract.
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9. Samantha offered to sell her car to Patrick for £2,000. She said he could think
about it until Monday. Patrick rang her on Saturday and left a message on her
machine asking if she would agree to his paying in monthly installments for six
months. She rang back in the evening to say she would want the full cash sum. On
Sunday, Patrick accepted the original offer. Meanwhile, Samantha had sold the
car to Iain on Saturday night. What is the legal position?

A. Patrick's telephone message amounted to a counter-offer which was a final
rejection of the original offer.
B. Patrick's telephone message was a counter-offer but he still had an option on the car
until Monday.
C. Patrick's telephone message was merely a request for information, but as he and
Samantha did not yet have agreement, she was free to sell the car to someone else.
D. Patrick's telephone message was a request for information only, Samantha had not
revoked the offer, so his acceptance on the original terms means they have a
contract.
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3. Lapse – Time, death of the parties or destruction of the subject matter.
a. By Time
Where the offer is expressed to be open for a definite period of time, it will
automatically terminate at the end of that period. If the time for acceptance is
not stipulated, it will lapse if the acceptance is not made within a reasonable
time. Reasonable time depends on the circumstances of the case.
b. By Death
The death of the offeree before acceptance causes the offer to lapse. The death
of the offeror causes the offer to lapse where the death is known to the offeree
when he accepted. Where the death is not known, it has no effect on the offer if
the contract is one, which does not require personal service from the offeror.
c. By damage or Destruction
FINANCINGS LTD VS STIMSON
Before the offer was accepted for the sale of a car, the car had been stolen and
badly damaged.
Held: no contract, as when the subject matter of the contract is damaged

without the knowledge or fault of either party, the offer automatically lapses.
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10. Which of the following is NOT a means by which an offer to enter into legal
relations is terminated?
A. The period over which the offer is expressed to be kept open expires without
acceptance by the offeree.
B. The offeror tells the offeree before the latter’s acceptance that the offer is
withdrawn.
C. The offer is accepted by the offeree.
D. The offeree responds to the offer by requesting further information.
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3.2. ACCEPTANCE
An acceptance is the unconditional assent to all the terms of the offer by the offeree. Thus
acceptance must be:
a. Absolute
It has already been shown that a counter offer operates as a rejection and renders the
offer not possible of acceptance.
b. Communicated
Normally an acceptance is ineffective unless and until it is communicated to the offeror,

but not when the offeror expressly or impliedly waives communication, as where the
offer requires merely conduct as acceptance.
CARLILL VS CARBOLIC SMOKE BALL CO
The following advertisement appeared in the newspapers: “£ 100 reward will be paid by
the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic
colds, influenza or any other diseases caused by taking cold, after having used the Ball
three times daily for two weeks according to the printed directions supplied with each
ball. £1,000 is deposited with the Alliance Bank, Regent Street, showing our good faith
in the matter“. C, in reliance on this advertisement bought a smoke ball and used it
according to the directions, but nevertheless suffered an attack of influenza. She clamed
£100 from the company.
Held: that the offer contained an intimation that performance of the condition sufficient
acceptance and that there was no need for notification of acceptance to be given to the
offeror.
Where post is used as a means of communication, the acceptance is complete on

posting, where the letter of acceptance be delayed or even lost, provided the letter is
pre-paid and correctly addressed.
HOUSEHOLD FIRE & CARRIAGE ACCIDENT INSURANCE CO VS GRANT
The defendant offered to buy shares in the plaintiff's company. The secretary of the
company made out the letter of allotment in favour of the defendant and posted it to him,
but the letter never reached its destination. The Company having become insolvent, the
defendant repudiated his liability to pay for the shares.
Held: that the defendant was nevertheless liable as a shareholder.
HENTHORN VS FRASER
F handed to H a written option on some property at £750. The next day F posted a
withdrawal of the offer. This was posted between 12.00 and 1.00 p.m., and did not reach

the offeree until after 5.00 p.m. In the meantime at 3.50 p.m. H had posted an
acceptance.
Held: that although the offer was not made by post, yet the parties must have
contemplated the post as a mode of communication of the acceptance. F's revocation
was of no effect until it actually reached H, and it did not operate from the time of
posting. A binding contract was made on the posting of H's acceptance.
Under the postal rule, the offeror may be unaware that a contract has been made. If that
possibility is clearly inconsistent with the nature of the transaction, the letter of
acceptance takes effect only when received. In particular, if the offer stipulates a
particular mode of communication, the postal rule may not apply.
HOLWELL SECURITIES VS HUGHES
Hughes granted to the plaintiff an option to purchase land to be exercised “by notice in
writing”. A letter giving notice of the exercise of the option was lost in the post.
Held: The words “notice in writing” must mean notice actually received by the vendor;
hence notice had not been given to accept the offer.
Acceptance must be made by, or with the authority of the offeree:
POWELL VS LEE
The plaintiff was a candidate for the headmastership of a school and the Board of
Managers with whom the appointment lay, passed a resolution selecting him for the
post. One of the managers, acting in his individual capacity, informed the plaintiff of
what has occurred, but he received no other information. Subsequently the resolution
was rescinded and the plaintiff was not appointed to the post.
Held: that in the absence of an authorised communication from the offeror (the whole
body of managers) there was no contract.
C. Positive
There must be active acceptance. A mere passive intention to accept is ineffective.

Therefore, although the offeror may stipulate how the acceptance is to be made, he
cannot by his own act stipulate that silence shall amount to acceptance.
FELTHOUSE VS BINDLEY
F offered to buy his nephew's horse for £50. In the letter containing the offer F wrote “If
I hear no more about him I consider the horse mine at the price”. The nephew did not
reply to this letter. Six weeks letter when the nephew was about to sell his farming stock
he instructed B, an auctioneer, to keep the horse out of the sale as it had been already
sold. B inadvertently sold the horse. F sued B for conversion.
Held: that the nephew had not communicated his acceptance and therefore there was no
contract.

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11. Anne offered to sell her computer to Ben for £600. Which of the following would
terminate the offer?
(i) Before Ben had replied, Anne wrote to Ben withdrawing the offer. Anne’s
letter was not received by Ben.
(ii) Ben offered Anne £500 for her computer.
(iii) Anne told Carl that she had changed her mind about selling the computer to
Ben. Carl told Ben before he had accepted Anne’s offer.
A. (i) only
B. (i) and (iii) only
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12. Maud goes into a shop and sees a price label for £20 on an ironing board. She
takes the board to the checkout but the till operator tells her that the label is
misprinted and should read £30. Maud maintains that she only has to pay £20.
How would you describe the price on the price label in terms of contract law?
A. An offer
B. A tender
C. An invitation to treat
D. An acceptance
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4. INTENTION TO CREATE LEGAL RELATIONS
4.1. DOMESTIC ARRANGEMENTS
In most agreements no intention is expressly stated. If it is a domestic agreement between

husband and wife, relatives or friends it is presumed that there is no intention to create legal
relations unless the circumstances point to the opposite conclusion.
a. Husband and Wife
BALFOUR VS BALFOUR
The defendant was employed in Ceylon. He and his wife returned to the UK on leave but
it was agreed that for health reasons she should not return to Ceylon with him. He
promised to pay her £30 a month as maintenance. Later the marriage ended in divorce
and the wife sued for the monthly allowance, which the husband no longer paid.
Held: An informal agreement of indefinite duration made between husband and wife
whose marriage had not at the time broken up was not intended to be legally binding.

b. Relatives
JONES VS PADAVATTON
The plaintiff wanted her (divorced) daughter to move from the USA to England in order
to train as a barrister and offered to pay a monthly allowance while she read for the Bar.
The daughter did so in 1962. In 1964 the plaintiff bought a house in London; part of the
house was occupied by the daughter and part let to tenants whose rent covered the
daughter's maintenance. In 1967 the plaintiff and her daughter quarreled and the
plaintiff issued a summons claiming possession of the house.
Held: there were two agreements to consider: the daughter's agreement to read for the
bar in exchange for a monthly allowance, and the agreement by which the daughter
lived in her mother's house and the rent from tenants covered the maintenance. Neither
agreement was intended to create legal relations. They were family arrangements, which
depended on the good faith of the promises made and were not intended to be rigid,
binding arrangements.
c. Other domestic arrangements
SIMPKINS VS PAYS
The defendant, her granddaughter and the plaintiff, a paying boarder, took part together
each week in a competition organised by a Sunday newspaper. The arrangements over
postage and other expenses were informal and entries were made in the grandmother's
name. One week they won £75; the paying boarder claimed a third share, but the
defendant refused to pay on the grounds that there was no intention to create legal
relations.
Held: there was “mutuality” in the arrangements between the parties, amounting to a
joint enterprise. As such it was not a “friendly adventure” as the defendant claimed, but
a contract.
4.2. COMMERCIAL AGREEMENTS
When business people enter into commercial agreements it is presumed that there is an
intention to enter into legal relations unless this is expressly disclaimed. Any express statement
by the parties of their intention not to make a binding contract is conclusive.
4.3. TRANSACTIONS BINDING IN HONOUR ONLY
If the parties state that an agreement is 'binding in honour only', this amounts to an express
denial of intention to create legal relations.
JONES VS VERNONS POOLS

The plaintiff argued that he had sent to the defendant a football pools coupon on which
his predictions entitled him to a dividend. The defendants denied having received his
coupon. A c1ause stated that the transaction should not “give rise to any legal
relationship ... but .... be binding in honour only”.
Held: this clause was a bar to an action in court.

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13. Which of the following statement is/are CORRECT?
(i) The parties to a social or domestic arrangement are presumed not to have
intended the arrangement to be legally enforceable.
(ii) The parties to a commercial transaction are presumed to have intended the
arrangement to be legally enforceable.
A. (i) only.
B. (ii) only.
C. Both (i) and (ii)
D. Neither (i) nor (ii)
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14. In which of the following circumstances would legal intention be inferred?
A. A husband promising to pay his wife a regular maintenance allowance.

B. A signed agreement between husband and wife that the wife would pay the
mortgage and the husband would transfer ownership of the house to the wife.
C. A mother agreeing to pay her daughter an allowance in return for the daughter
taking legal exams.
D. An agreement between a father and son that the father would buy the son a car
providing the son worked in the father’s garden for a year.
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15. Which of the following statements is/are CORRECT?
(i) If an agreement is stated to be "binding in honour only", the parties have

decided that the agreement should not have contractua1 force.
(ii) If an agreement is not in writing, the parties are presumed to have intended
that it should not be legally enforceable.
A. (i) only.
B. (ii) only.
C. Neither (i) nor (ii)
D. Both (i) and (ii)
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16. In which of the following is there a presumption that legal relations are intended?
A A promise by a father to make a gift to his son

B. A commercial transaction
C. A domestic arrangement

D. A social arrangement
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17. In the absence of express statements as to whether or not legal relations are
intended:
A. The courts always assume that legal relations were not intended.
B. The courts assume that legal relations were not intended unless they were social
arrangements.
C. The courts will assume that legal relations were intended unless the parties can
prove otherwise.
D. The courts assume that legal relations were intended in commercial cases unless
proved otherwise.
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5.1. MISREPRESENTATION
5.1.1. DEFINITION
a. A false statement or a misleading conduct presenting a false picture made by one

party to the contract or his agent.
b. of a “material fact”
c. which induces the other party to enter into the contract
A False Statement
This means that for misrepresentation to be actionable, it must be positive because even
here the principle of 'caveat emptor’ generally applies. Each person must protect his
own interest unaided.
HORSFALL VS THOMAS
Thomas bought a gun, which had been manufactured for him by Horsfall. The gun had
a defect, which made it worthless, and Horsfall cleverly concealed the defect by
inserting a metal plug into the weak spot in the gun. Thomas never inspected the gun.
He accepted it and upon using it the gun burst.
Held: there was no misrepresentation, as the attempt to conceal produced no effect

upon the mind of the buyer because he had never examined the gun.
For the same reason, keeping silent is also not actionable.
WARD VS HOBBS
H sold pigs to W that had swine fever without telling him that they were ill.
Held: that it could not have the contract set aside.

However, there are some situations where keeping silent could amount to
misrepresentation. The main exceptions being
1. 'Uberrimae fidei' contracts – “Utmost good faith” contracts. Failure to disclose
renders these contracts voidable. E.g. Insurance contracts and company prospectus.
2. Where a previous truthful statement is not amended after it becomes
misleading later.
WITH VS O’FLANAGAN
During the negotiations for the sale of a doctor’s practice, the correct turnover
figure was stated. Later however the doctor fell ill and due to his resultant absence
the turnover figure reduced drastically. The doctor however didn’t communicate
the new turnover figure to the buyer.
Held: That this amounted to misrepresentation.

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18. Elaine is selling her house to Catherine. They are about to exchange contracts. All
the searches have been completed, but then Elaine finds out that a shopping
centre is going to be built on the land to the side of the house. She has previously
told Catherine that she did not know of any such development plans.
May Catherine claim for misrepresentation if the contracts are exchanged now?
A. No, because silence cannot be construed as misrepresentation.

B. Yes, because what Elaine has told Catherine has become misleading.
C. No, because Catherine should have found that out on her own behalf.
D. Yes, because with contract for property, all known facts must be stated.
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Material facts
The following are considered as not material:
a. Reference to future events.
b. An opinion actually held (however an opinion expressed by a person who might be

expected to know the facts, such as by an expert on his own subject, may amount to
misrepresentation if false).
BISSET VS WILKINSON
The vendor of a piece of land in New Zealand told a prospective purchaser that in his
opinion the land would carry 2,000 sheep. In fact the land would not carry that number
of sheep.
Held: that there was no misrepresentation because the statement was one of opinion
honestly believed to be true.

c. A business puff - The law allows a trader a good deal of latitude in his choice of
language when commending his wares
d. A statement of law
Inducement
The statement must be relied upon. There is no misrepresentation: therefore, where the
statement:
a. was not made during the course of negotiations leading to the formation of the
contract (example: made after the agreement)
b. was not actually communicated to the other party;
c. did not affect the other party's decision to enter into the contract;
d. was known to be untrue by the other party or he did not believe it to be true.
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19. Henry agreed to sell his horse to Richard at a given price. When the negotiations
were over and the contract formed, Henry told Richard that the horse was
sound and 'free from vice'. The horse turned out to be vicious and Richard wants
to bring an action against Henry. Richard will fail in his action because Henry's
promise that the horse was not vicious was:
A. A statement of opinion not fact

B. Made after the original contract and was not supported by consideration
C. Not relied upon by Richard
D. Merely a 'sales puff’
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6.1.2. TYPES OF MISREPRESENTATION
a. Innocent misrepresentation
A statement made in the belief that it is true and with reasonable grounds for that belief.
An innocent misrepresentation made without fault.
b. Fraudulent misrepresentation
A statement made with knowledge that it is untrue, or without believing it to be true, or

recklessly, careless whether it be true or false. An absence of honest belief is essential
to constitute fraud.
c. Negligent misrepresentation
A statement made in the belief that it is true but without reasonable grounds for that
belief.

HEDLEY BYRNE VS HELLER & PARTNERS
The plaintiffs were advertising agents acting for a new client E. If E defaulted on
payment, the plaintiffs would themselves be liable. They checked E's financial position
by asking their bank to make enquiries of E's bank (the defendants). Relying on the
replies they placed orders and suffered substantial losses when E went into liquidation.
Held: the action failed because the defendants were able to rely on a disclaimer.
However, had it not been for this, an action for negligence would have succeeded.
Liability for negligent statements depends upon the existence of a “special
relationship” i.e. the defendants knew what the information was to be used for.
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20. Which ONE of the following is CORRECT?
A. Professional advisers cannot be liable in respect of negligent advice in the tort of

negligence, but may be liable for breach of contract.
B. Professional advisers cannot be liable for breach of contract in respect of negligent
Advice, but may be liable in the tort of negligence.
C. Professional advisers may be liable in respect of negligent advice in either contract or
tort.
D. Professional advisers cannot be liable in respect of negligent advice in either contract
or tort.
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5.1.3. REMEDIES FOR MISREPRESENTATION
There is a fundamental principle that the effect of a misrepresentation is to make a contract

voidable and not void.
a. Rescission
Rescission entails setting the contract aside as if it had never been made i.e. putting the
parties in their pre-contractual position.
•
Rescission is available to all types of misrepresentation.
•
The decision to rescind must be communicated by the injured party to the other.
•
The right to rescind is lost if
- the subject matter of the contract has been transferred to an innocent third party
- it is impossible to return the parties to the pre-contractual position
- the victim of misrepresentation affirms the contract
- the victim of misrepresentation has acted inequitably
- if there is unreasonable delay in rescinding
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21. Which ONE of the following statements is INCORRECT?
A. An unreasonable delay by a victim of misrepresentation in claiming rescission will

cause the remedy to be lost.
B. If the victim of a misrepresentation affirms the contract, the remedy of rescission is
lost.
C. A victim of a misrepresentation is entitled to rescission even if damages would
compensate the victim for his loss.
D. If the victim of a misrepresentation has acted inequitably, the remedy of rescission is
lost.
___________________________________________________________________________
b. Damages
Fraudulent misrepresentation
In a case of fraudulent misrepresentation the party misled may in addition to rescinding

the contract recover damages for any loss under an action for the tort of deceit.
Negligent misrepresentation
The injured party may claim damages for any actual loss caused by negligent
misrepresentation, under the Misrepresentation Act 1967. The court may grant
damages in lieu of rescission under the Misrepresentation Act 1967.
Innocent misrepresentation
In a case of innocent misrepresentation the party misled may be awarded damages in

lieu of rescission if the court considers it equitable to do so.
___________________________________________________________________________
22. Adam entered into a contract after relying on Brian's fraudulent misrepresentation.
Which of the following statements is/are CORRECT?
(i) Adam may recover damages from Brian under the tort of deceit.
(ii) Adam may claim rescission of the contract.
A. (i) only.
B. (ii) only.
C. Both (i) and (ii)
D. Neither (i) nor (ii)
___________________________________________________________________________
23. A contract entered into as a result of a misrepresentation is
A. Unenforceable
B Voidable
C. Void
D. Absolutely valid

___________________________________________________________________________
24. Which of the following is INCORRECT?
(i) Legal title cannot pass on a contract induced by misrepresentation.

(ii) Misrepresentation renders a contract voidable.
(iii) A victim of negligent misrepresentation may seek rescission and damages.
A. (i) only.
B. (ii) only.
C. (i) and (iii) only
D. (ii) and (iii) only.
___________________________________________________________________________
25. Jack was induced to enter into a contract with Karl by Karl's negligent
misrepresentation.
Which of the following are CORRECT?
(i) Jack has a remedy against Karl in the tort of negligence.

(ii) Jack has a remedy against Karl under the Misrepresentation Act 1967.
(iii) Jack has a remedy against Karl in the tort of deceit.
A. (i) only.
B. (i) and (ii) only.
C. (ii) and (iii) only.
D. (i), (ii) and (iii).
__________________________________________________________________________
26. A misrepresentation is
(i) A statement of fact, which proves to be untrue.

(ii) A statement of law, which proves to be untrue.
(iii) Made by one party to the other before the contract is formed in order to
induce the latter to enter into the contract.
(iv) A statement, which affects the plaintiff’s judgment.
A. (ii) and (iv) only.

B. (i), (iii) and (iv) only.
C. (i), (ii) and (iv) only.
D. (i), (ii), (iii) and (iv).
___________________________________________________________________________
27. One party has been induced to enter into a contract by a negligent
misrepresentation of the other party. Which of the following is INCORRECT?
A. If rescission is available, damages in lieu may be awarded at the court's discretion

under the Misrepresentation Act 1967.
B. Rescission cannot be ordered if it is impossible to return the parties to their
pre-contract position.

C. Despite being the victim of a misrepresentation, the misrepresentatee may affirm
the contract.
D. For this type of misrepresentation, damages may be obtained under the tort of
negligence but not under the Misrepresentation Act 1967.
___________________________________________________________________________
28. A fraudulent misrepresentation renders a contract:
A. Valid
B. Void
C. Voidable
D. Illegal
___________________________________________________________________________
29. Deb was induced to enter into a contract by the negligent misrepresentation of
Dave. The contract was to buy three concert tickets. Deb wants rescission of the
contract.
Which of the following is INCORRECT?
A. Deb must tell Dave that she wishes to rescind the contract.
B. If Deb has sold one of the tickets to an innocent third party she cannot rescind the
contract.
C. Deb will only be granted rescission within a reasonable time from the date of the
contract.
D. Deb is not entitled to rescission because Dave's misrepresentation was not
fraudulent.
___________________________________________________________________________
30. The vast majority of contracts are "simple". What is the meaning of the word
"simple" in this context?
A. The terms of the contract are set out in writing.

B. The contract does not need to be in any particular form to be binding,
C. The contract contains fewer than ten provisions,
D. The contract is not supported by consideration,
___________________________________________________________________________
6. CONSIDERATION
6.1. THE NATURE OF CONSIDERATION
There have been a number of case law definitions of consideration.
CURRIE VS MISA
“A valuable consideration in the sense of the law consist either in some right, interest,
profit or benefit accruing to one part or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other”

6.2. TYPES OF CONSIDERATION
a. Executed consideration
Executed consideration is an act in return for a promise. The consideration for the
promise is a performed, or executed act. If, for example, A offers a reward for the
return of lost property, his promise becomes binding when B performs the act of
returning A's property to him. A is not bound to pay anything to anyone until the
prescribed act is done.
b. Executory consideration
Executory consideration is a promise given for a promise. The consideration in support

of each promise is the other promise, not a performed act. If for example, a customer
orders goods, which a shopkeeper undertakes to obtain from the manufacturer, the
shopkeeper promises to supply the goods and the customer promises to accept and pay
for them. Neither has yet done anything but each has given a promise to obtain the
promise of the other.
6.3. VALID CONSIDERATION
6.3.1. Past consideration
Both executed and executory consideration are provided at the time when the promise is
given. Anything, which has already been done before a promise in return is given, is past
consideration, which is not sufficient to make the promise binding.
RE MCARDLE
Under a will the testator’s children were entitled to a house after their mother's death. In the
mother's lifetime one of the children and his wife lived in the house with the mother. The
wife made improvements to the house.
The children later agreed in writing to repay the wife the sum of £488 “in consideration of
your carrying out certain alterations and improvements” to the property in settlement of
the amount spent on such improvements. But at the mother’s death they refused to do so.
Held: the work on the house had all been completed before the documents were signed. At
the time of the promise the improvements were past consideration and so the promise was
not binding.
Exception: Past consideration is sufficient to create liability on a bill of exchange

(such as a cheque) under a 27 Bills of Exchange Act 1882
6.3.2. Consideration must move from the promisee
TWEDDLE V ATKINSON
The plaintiff married the daughter of G. On the occasion of the marriage, the plaintiff's
father and G exchanged promises that they would each pay a sum of money to the plaintiff.

The agreement between the two fathers expressly provided that the plaintiff should have
enforceable rights against them. G died without making the promised payment and the
plaintiff sued G's executor for the specified amount.
Held: the plaintiff had provided no consideration for D’s promise. In spite of the express
terms of the agreement he had no enforceable rights under it.
6.3.3. Consideration must be legal
A promise to pay a reward for a criminal act would be unenforceable.
6.3.4. Adequacy of consideration
a. Consideration need not be adequate. There is no remedy at law for someone who simply
makes a poor bargain.
b. Consideration must be sufficient. It must be capable in law of being regarded as
consideration.
The courts will not enquire into the adequacy of consideration. It is presumed that each
party is capable of serving his own interests, and the courts will not seek to weigh up the
comparative value of the promises or acts exchanged.
6.3.5. Sufficiency of consideration
a. Performance of existing contractual duties
Performance of an existing obligation is no consideration for a promise or reward.
STlLK VS MYRICK
Two members of the crew of a ship deserted in a foreign port. The master was unable to
recruit substitutes and promised the rest of the crew that they should share the wages of
the deserters if they would complete the voyage home shorthanded. The ship owners
however repudiated the promise.
Held: in performing their existing contractual duties the crew gave no consideration for
the promise of extra pay and the promise was not binding.
HARTLEY VS PONSONBY
17 men out of a crew of 36 deserted. The remainder was promised an extra £40 each to
work the ship to Bombay. The plaintiff, one of the remaining crewmembers, sued to
recover this amount.
Held: the large number of desertions made the voyage exceptionally hazardous and this
had the effect of discharging the original contract. The plaintiff had therefore been left
free to enter into a new contract, under which his promise to complete the voyage
formed consideration for the promise to pay additional £40.

The courts now appear to be taking a slightly different line on the payment of additional
consideration. The principles of consideration may be applied if the dispute can be dealt
with on an alternative basis.
WILLIAMS VS ROFFEY BROS & NICHOLLS (CONTRACTORS) LTD
The plaintiffs agreed to do carpentry work for the defendants, who were engaged as
contractors to refurbish a block of flats, at a fixed price of £20,000. The work ran late
and so the defendants, concerned that the job might not be finished on time and that they
would have to pay money under a penalty clause, agreed to pay the plaintiffs an extra £
10,300 to ensure the work was completed on time. They later refused to pay the extra
amount.
Held: The fact that there was no apparent consideration for the promise to pay the extra
amount was not held to be important, as in the court's view both parties derived benefit
from the promise. The telling point was that the defendant's promise had not been
extracted by duress or fraud: it was therefore binding.
___________________________________________________________________________
31. Consideration:
(i) Must be of adequate and sufficient value

(ii) Must move from the promisee
(iii) May be the performance of an existing contractual duty
(iv) Must be provided at the time the contract is made
A. (i) only
B. (ii) only
C. (ii), (iii) and (iv) only
D. (iii) and (iv) only
___________________________________________________________________________
32. Following Carol’s retirement as a senior employee, Tee plc offered her an “ex
gratia payment” of £50,000 “in recognition of Carol’s excellent service to the
company”. Carol accepted. Which of the following statements is INCORRECT?
(i) Although there is agreement between T plc and Carol, Carol has no
contractual right to payment, as her consideration is past.
(ii) Although there is agreement between T plc and Carol, Carol has no
contractual right to the payment because by using the expression “ex
gratia”, the company is stating that it has no intention to create legal
relations.
(iii) As there is agreement between T plc and carol, the payment is enforceable
as any between an employer and an employee is presumed to have legal
intent.
A. (i) only.
B. (ii) only.
C. (iii) only
D. (ii) and (iii) only

___________________________________________________________________________
33. Valid consideration
(i) Must be of adequate and sufficient value.

(ii) Must move from the promisee.
(iii) Must be given in every binding agreement.
(iv) May be given before a promise in return.
A. (ii) and (iii) only.

B. (iii) and (iv) only.
C. (i), (ii) and (iii) only.
D. (ii), (iii) and (iv) only.
___________________________________________________________________________
7. TERMS OF CONTRACT
7.1. CONDITIONS AND WARRANTIES
Each term of the contract is either a condition or a warranty, depending upon its
importance with regard to the purpose of the contract. The distinction between a
condition and a warranty becomes significant only when there is a breach.
7.1.1. CONDITION
A term, which goes to the essence of the contract, a breach of which makes the
whole contract meaningless, is a condition.
Breach of a condition entitles the injured party:
i. to treat the contract as at an end; or

ii. to treat the breach as a mere breach of warranty, claim damages and insist on
the contract being performed.
POUSSARD VS SPIERS
Madame Poussard agreed to sing in an opera throughout a series of performances.

Owing to illness she was unable to appear on the opening night and the next few
days. The producer engaged a substitute who insisted that she should be engaged
for the whole run. When Madame Poussard recovered, the producer declined to
accept her services for the remaining performances.
Held: Failure to sing on the opening night was a breach of a condition, which
entitled the producer to treat the contract for the remaining performances as
discharged.
7.1.2. WARRANTY
A relatively unimportant term, a breach of which does not significantly affect the
contract, is a warranty.

Breach of warranty entitles the injured party to sue for damages, but he cannot
regard the contract as at an end and therefore he must perform his part of it.
BETTINI VS GYE
A promised to attend rehearsals for 6 days before a concert, but arrived in London
only in time for 2 days of rehearsals. C claimed that the contract was discharged by
breach of condition.
Held: that the attendance at rehearsals was a warranty and therefore the contract was
not discharged although C was entitled to damages.
_____________________________________________________________________
34. Which ONE of the following is INCORRECT?
A. A condition is a term, which the parties intended to be of fundamental importance.

B. A warranty is a term, which the parties did not intend to be of fundamental
importance.
C. If a condition is breached, then the contract must be terminated.
D. If a warranty is breached, then the innocent party cannot terminate the contract.
_____________________________________________________________________
35. ABC Ltd. has contracted with DEF Ltd. If ABC Ltd. acts in breach of a
warranty, which of the following is CORRECT?
(i) DEF Ltd. may terminate the contract and sue for damages.
(ii) DEF Ltd. may sue for damages but may not terminate the contract.
(iii) DEF Ltd. may ignore the breach and continue with the contract.
A. (i) only.
B. (i) and (iii) only.
C. (ii) and (iii) only.
D. (i), (ii) and (iii).
_____________________________________________________________________
36. Which of the following entitles the innocent party to cancel the contract?
(i) A breach of warranty.

(ii) A breach of a condition.
(iii)An express term authorising termination of the contract.
A. (i) only
B. (i) and (ii) only
D (i), (ii) and (iii)
_____________________________________________________________________
37. Dee Ltd has broken one of the terms of its contract with E Ltd. If that term is a
condition, which of the following is CORRECT?

A. E Ltd is entitled to damages only.
B. E Ltd is entitled to sue for damages or to repudiate the contract.
C. E Ltd is only entitled to repudiate the contract.
D. E Ltd may repudiate the contract and sue for damages.
_____________________________________________________________________
7.1.3. INNOMINATE TERMS
The court will only construe a broken term as a condition or warranty if the parties’
intentions, when the contract was formed, are very clear. Where it is not clear what
the effect of breach of the term was intended to be, it will be classified by the court
as innominate, intermediate or indeterminate (the three are synonymous).
HONG KONG FIR SHIPPING CO LTD VS KAWASAKI KlSA KAISHA LTD
The defendants chartered a ship from the plaintiffs for a period of 24 months. A
term in the contract stated that the plaintiffs would provide a ship, which was “in
every way fitted for ordinary cargo service”. Because of the engine's age and the
crew's lack of competence the ship's first voyage, from Liverpool to Osaka, was
delayed for 5 weeks and further repairs were required at the end of it. The
defendants purported to terminate the contract, so the plaintiffs sued for breach of
contract; the defendants claimed that the plaintiffs were in breach of a contractual
condition.
Held: The term was innominate and could not automatically be construed as either
a condition or a warranty. The obligation of 'seaworthiness' embodied in many
charter party agreements was too complex to be fitted into one of the two
categories. The ship was still available for 17 out of 24 months. The consequences
of the breach were not so serious that the defendants could be justified in
terminating the contract as a result.
_____________________________________________________________________
38. A breach of which one of the following types of term entitles the innocent
party to repudiate the contract?
A. An innominate term.
B. A condition
C. A warranty.
D. A minor term.
_____________________________________________________________________
39. Which of the following statements is CORRECT?
(i) A condition is a term, which the parties intended to be of fundamental

importance.
(ii) A warranty is a term, which the parties did not intend to be of fundamental
importance.
(iii)If an innominate term is broken the innocent party has the option whether or
not to terminate the contract.

A. (i) only
B. (i) and (ii) only
_____________________________________________________________________
7.2. EXPRESSED AND IMPLIED TERMS
7.2.1. EXPRESSED TERMS
There is a general presumption that the parties have expressed orally or in writing
every material term, which they intend should govern their contract. Oral evidence
is accepted by court in addition to a written contract if it can be shown that the
document was not intended to comprise all contract terms. These terms may be on
a:
7.2.2. SIGNED DOCUMENT
The party is absolutely bound by them whether he has read them or not, unless he
could plead “non est factum”.
CURTIS VS CHEMICAL AND DYEING COMPANY
C left her wedding dress for cleaning with D and was told that they would accept no
liability for beads and sequins. She was asked to sign a document headed ‘receipt’,
which contained a condition exempting from liability for any damages, however,
caused.
Held: that the statement D would accept no liability for beads and sequins was a
misrepresentation of the extent of the terms which induced C to sign the document.
A receipt is not a contractual document.
7.2.3. UNSIGNED DOCUMENT
The party tendering the terms must do what is reasonably necessary to bring them
to the notice of the other party before the contract is concluded. Reasonable notice
is considered in relation to -
a. A normal person - Therefore a blind or illiterate person or a foreigner who

cannot read the language will be bound clearly by the terms.
THOMSON VS LMS RAILWAY CO LTD
An illiterate old lady bought a tour ticket from the railway. The face of the ticket
contained the words “turn see back for terms”. The terms contained an exception
clause that the company was not liable for any injury suffered by the passenger
during the journey. The old lady suffered an injury and claimed damages from the
company.

Held: that the plaintiff's illiteracy did not alter the fact that the railway had done
everything reasonable to notify her, particularly since the railway did not know that
she was illiterate.
b. A document which a reasonable man would assume to be absolutely

contractual (not merely a receipt).
CHAPLETON VS BARRY U.D.C
C took a deckchair from a pile under a notice “Hire for chairs 3p”. Later an
attendant came to collect the money and C paid him, receiving in return a ticket,
which said, “The council will not be liable for any accident or damages arising
from the hire of the chairs”. C put the ticket in his pocket without reading it,
thinking that it was merely a receipt. The chair collapsed and he was injured. He
sued the council.
Held: that the council could not rely on the exception clause on the ticket.
c. The terms must be communicated to the other party before the contract is
entered into.
OLLEY VS MARLBOROUGH COURT LTD
A husband and wife arrived at a hotel and paid for a room in advance. On reaching
their bedroom they saw a notice on the wall by which the hotel disclaimed liability
for loss of valuables unless handed to the management for safekeeping. The wife
locked the room and handed the key in at the reception desk. A thief obtained the
key and stole the wife's furs from the bedroom.
Held: the hotel could not rely on the notice disclaiming liability since the
contract had been made previously and the disclaimer was too late.
_____________________________________________________________________
40. Jack and Jill booked into a hotel for the night. On arriving in their room they
noticed that there were many conditions of contract pinned to the back of the
door, including clauses limiting liability by the hotel for loss of valuables
which were not placed in the hotel safe. Jack and Jill had never seen these
conditions before. Which of the following is CORRECT?
A. The hotel has adequately disclosed the exclusion clause and Jack and Jill are bound
by the conditions.
B. Jack and Jill have signed for their room at the reception, so the conditions are
binding on them.
C. The hotel has given them a misleading explanation of the terms, so Jack and Jill are
not bound by the terms, even though they have signed for them.
D. Jack and Jill are not bound by the terms, because the contract was made before they
reached the room, so the hotel cannot rely on the exclusion clause.
_____________________________________________________________________

7.2.4. IMPLIED TERMS
If the terms are not expressed, there are various ways in which the court will
attempt to infer them. An implied term is binding to the same extent as an expressed
term.
a. By the machinery provided by the parties themselves.
F & G SYKES LTD VS FINE FARE LTD
A five-year contract for the supply of chickens failed to state the number of
chickens, but stated that all disputes should be referred to arbitration.
Held: that the arbitrator could fix the number of chickens.
b. By the previous course of dealings between the parties.
HILAS VS ARCOS
A contracted to sell timber to B in 1930. The contract gave B an option to purchase

further timber in 1931. No details were given as to the size, quantity and date of
shipment of the timber referred to in the option.
Held: that the option was a definite offer to sell timber in 1931 on the terms of the
1930 contract, where all such details were settled.
c. By trade custom
SMITH VS WILSON
A usage of the fur trade that a “thousand rabbits means 1,200 rabbits” was implied.
d. By statute
E.g. Sale of Goods Act 1979; The Supply of Goods and Services Act 1982
e. By court to give the contract business efficacy by applying the 'officious

by-stander’ test
If at the time of negotiations an officious by-stander had said to the parties “is this a
term of a contract?” and they would have replied “of course” it is then such a term
will be implied.
THE MOORCOCK CASE
D contracted to allow F to unload and reload his ship at D's Thames side jetty. The
Moorcock was accordingly moored alongside the wharf. But at low tide, it sank on
the hard ground and was damaged, The contract contained no stipulation as to the
safety of the mooring.

Held: that the term the bed of the river would be suitable for mooring was implied
by the officious by-stander test and F was allowed to recover damages for breach.

THE LAW OF CONTRACTS 1 THE LAW OF CONTRACTS 2
Void – is no contract. It has no legal effect whatsoever.

Neither party has any rights or obligations.
Ownership does not pass under the contract.
Intention to create a Therefore property given under the contract can
Legal Relationship be recovered. Exception : illegal contracts
Examples: No intention to create a legal
relationship, some contracts entered into by
Capacity to Contract infants, contracts with enemy aliens, ultra vires
contracts, illegal contracts, mistake
and lack of consideration.
Legality of Purpose
Agreement Contract
(Cannot be (Legally DEFECTIVE Voidable – Where one party (usually the innocent
Legally enforced) Enforceable) CONTRACTS party) can choose whether to treat the contract
as valid or void. The other party has no
choice in the matter; he has to follow the
decision of the innocent party
Examples : Some contracts entered into by
Reality of Consent infants, contracts entered into by persons of
unsound mind and drunken persons,
misrepresentation, duress and undue
Consideration influence
Proper Form
Unenforceable – The contract is valid but for some

technical defect. Once the defect is remedied,
the contract becomes enforceable
Example : Improper Form.
BA4 Nov. 2020 – Tute 01 - The Law of Contract – Dhanan Senathirajah 30

THE LAW OF CONTRACTS 3
Offer Must be firm – Must be precise, clear and specific; but not be vague or ambiguous. Gunthing Vs. Lynn
(Offeror) * Must be distinguished from “An invitation to treat” i.e. An invitation to make an offer
Pharmaceutical Society of Great Britain Vs . Boots Cash Chemists
Examples : (1) Exhibition of goods for sale (2) General advertising of goods (3) An Auctioneer requesting for
bids (4) Company prospectus (5) An invitation for tenders.
Must be communicated by the offeror or his agent to the offeree or his agent - An offeree cannot accept an offer if he was
unaware of it. Rex Vs. Clarke
Must be in existence at the time of acceptance – An offer comes to an end in the following ways:
(1) Revocation by the offeror – (a) The offer must be revoked before acceptance is complete
(b) If acceptance is by the performance of an act, it cannot be revoked if the other party has already started
performing the act.
(c) Where the offeror promises to keep the offer open for a certain time, he is under no obligation to keep it
open till that time, except where it was made under seal (deed) or supported by consideration.
(d) Must be communicated by the offeror, his agent or even by a third party to the offeree or his agent
Dickinson Vs Dodds
(2) Rejection by the offeree
AGREEMENT (a) Express
(b) Implied - (i) Attempts to bargain – Hyde Vs Wrench
(ii) Attempts to introduce a new term Neale Vs Marriot
(iii) Conditional acceptance
(iv) Accepting in a manner other than the one prescribed
* Asking for information is not implied rejection – Stevenson Vs . Mc Lean
(3) Lapse If a time limit is specified – at the end of the time limit
(i) By time
If a time limit is not specified – at the end of reasonable time; will depend on the
goods involved and on the circumstances of the contract.
(ii) By death – of either party before the offer is accepted.
(iii) By damage or destruction of the subject matter Financings Ltd Vs Stimson
Must be absolute – Must accept the offer, as it is, nothing more and nothing less.
ACCEPTANCE Must be communicated – By the offeree or his agent to the offeror or his agent Powell Vs. Lee
(Offeree ) Exceptions : where the offer is made to the world at large or where the offeror expressly or impliedly waives
communications Carlill Vs. Carbolic Smoke Ball Company
Must be positive – Silence is not acceptance Felthouse Vs Bindley

THE RECEPTION OF INFORMATION THEORY
When post is used as a means of communication. This rule generally works in favour of the offeree.
(1) Any communication from the offeror is valid only when it reaches the offeree.
(2) Any communication from the offeree is valid as soon as he properly posts the letter.
Household, Fire & Carriage Accident Insurance Co. Vs. Grant

Henthorn Vs. Fraser
Offeror Offer Offeree
Offeror Acceptance Offeree
Offeror Revocation Offeree
Offeror Rejection Offeree
Exception : If the offer stipulates a particular mode of communication, the postal rule will not apply.
Holwell Securities Vs Hughes

Domestic or Social - The intention is not presumed. However, the parties may rebut the
Arrangements presumption
Balfour Vs Balfour
Jones Vs Padavatton
Simpkin Vs. Pays
INTENTION TO CREATE
A LEGAL RELATIONSHIP
Commercial - The intention is presumed. However, the parties may rebut the presumption
Transactions
Transactions binding in honour only – This amounts to an express denial of intention to

create legal relations. Jones Vs Vernon Pools
* Lack of intention to create a legal relationship makes the contract Void.

A false statement or misleading conduct presenting a false picture by a party to the

contract or his agent – Silence is not misrepresentation Horsfall Vs Thomas; Ward
Vs. Hobbs
DEFINITION Exceptions –“Uberrimae Fidei” contracts E.g.: insurance, company prospectus
etc: where a previous truthful statement is not amended after it becomes
Misleading later With Vs O’flanagan
Of a material fact
The following are not material – Reference to future events; Opinions
of non-experts Bisset Vs Wilkinson; a business puff; A statement of law
Misrepresentation Must have induced the other party to enter into the contract
-VOIDABLE
Innocent - Making a false statement honestly believing it to be true

Remedy – Rescission or damages
TYPES Fraudulent - Making a false statement knowing it to be false, without

believing it to be true or recklessly and carelessly
Remedies – Rescission or damages or both; in addition, can sue
under tort for “deceit”
Negligent - An expert making a false statement in the area of his expertise,

while knowing that the other party is depending on his expertise
Hedley Byrne Vs Heller & Partners
Remedy – Rescission or damages under the Misrepresentation Act
1967

Definition - What is given in return for a promise - some right, interest, profit or benefit accruing or some forbearance,
detriment, loss or responsibility given or undertaken;
An act or forbearance or a promise act or to forbear
Present tense - future tense -

Executed consideration Executory consideration
Past consideration is no consideration – consideration must always follow the promise
Promise Consideration Re McArdle
Exception: Bills of exchange e.g. Cheques
Must be legal – Example – a bribe cannot be valuable consideration
Must be real – Consideration need not be commercially adequate, but it must be legally sufficient
(a) A duty placed on a person as a citizen or as a human being is not sufficient
consideration e.g. The duty to drive carefully
CONSIDERATION Conditions (b) Consideration already given under an existing contract cannot be given as
consideration Stilk Vs Myrick; Hartley Vs Ponsonby
Williams Vs Roffey Bros & Nicholls (Contractors) Ltd
Must move from the promisee Dunlop vs. Selfridge: Tweddle Vs Atkinson

Conditions – A term which goes to the essence of the contract; An important term of
contract, a breach of which makes the whole contract meaningless. Remedies - (1)
Repudiate the contract and sue for damages or (2) continue with the contract and sue
for damages Poussard Vs Spiers
Classification 1 Warranties – A relatively unimportant term of contract, a breach of which does

not significantly affect the contract. Remedy - cannot repudiate the
contract, must continue with it and sue for damages Bethini Vs Gye
Innominate terms – Also known as indeterminate or intermediate – where it is not clear whether a
term is a condition or a warranty, the court will treat the term as innominate. In the event of a breach if
the loss caused is high, the term will be regarded as a condition. Hong Kong Fir Shipping Company Ltd
Vs. Kawasaki Kisa Kaisha Ltd.

Oral – Cheap and easy to make, but difficult to prove in a court of law
Signed documents- A person is bound by any document he signs, unless he

Expressed can plead “ non est factum” Curtis Vs Chemical Cleaning and Dyeing Co
terms .
Written
Must cater to a normal person – Even a blind or illiterate person

or a Foreigner will be bound by the terms
Classifications 2 Unsigned Thomson Vs. LMS Railway Co Ltd
Documents
Must be a contractual document – Ticket, bill, invoice, etc.,

but not a receipt. Chapleton Vs .Barry UDC
Must be communicated to the other party either before or at

the time of entering into the contract.
Olley Vs. Marlborough Court Ltd .
By the machinery or process provided by the parties themselves F & G Sykes Ltd Vs Fine Fare Ltd.
By the pervious course of dealings between the parties Hilas Vs Arcos
Implied By trade custom Smith Vs Wilson
terms By Statute – E.g. Sections 12 to 15 of the Sale of Goods Act 1979 and sections 13 to 15 of the Supply
of Goods and Services Act 1982
By Court to give the contract business efficacy by applying the “Officious by-stander” test
The Moorcock Case

Tute 01 - The Law of Contract

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Tute 01 - The Law of Contract

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CERTIFICATE LEVEL

Subject Fundamentals of Ethics, Corporate Governance & Business Law (BA4)

Module Tute 01 - The Law of Contract

FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND

THE LAW OF CONTRACT

THE FORMATION OF CONTRACT

Learning Outcome Learning Objective

3 (i) Identify the essential elements of a valid contract

a. Intention to create legal relationships

The result is a defective contract. A defective contract may be:

1. Void Contracts: A void contract is no contract. It is an agreement, which has no legal

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 1

The offer must conform to the following legal requirements:

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN VS BOOTS CASH

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 2

There are several types of invitation to treat

a. An exhibition of goods for sale

Which ONE of the following statements is CORRECT?

3. What is the legal effect of the following statement in a newspaper?

A. The statement is an offer for sale.

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 3

5. Which of the following is an offer?

A. An advertisement in the newsagent's window

1. Revocation - The offer being withdrawn by the offeror.

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 4

(The Reception of Information Theory). A communication made by other persons to

Held: that there was no contract.

(i) The notice amounts to an invitation to treat.

A (i) and (ii) only

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 5

b. Attempts to introduce a new term

Held: there was no contract.

c. Makes a conditional acceptance.

d. If a particular manner of acceptance has been requested, accepts in some other

An implied rejection amounts to a 'counter offer'. A mere seeking of information,

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 6

3. Lapse – Time, death of the parties or destruction of the subject matter.

FINANCINGS LTD VS STIMSON

Held: no contract, as when the subject matter of the contract is damaged

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 7

Normally an acceptance is ineffective unless and until it is communicated to the offeror,

CARLILL VS CARBOLIC SMOKE BALL CO

Where post is used as a means of communication, the acceptance is complete on

HOUSEHOLD FIRE & CARRIAGE ACCIDENT INSURANCE CO VS GRANT

Held: that the defendant was nevertheless liable as a shareholder.

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 8

HOLWELL SECURITIES VS HUGHES

Acceptance must be made by, or with the authority of the offeree:

There must be active acceptance. A mere passive intention to accept is ineffective.

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 9

4. INTENTION TO CREATE LEGAL RELATIONS

4.1. DOMESTIC ARRANGEMENTS

In most agreements no intention is expressly stated. If it is a domestic agreement between

a. Husband and Wife

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 10

c. Other domestic arrangements

4.2. COMMERCIAL AGREEMENTS

4.3. TRANSACTIONS BINDING IN HONOUR ONLY

JONES VS VERNONS POOLS

BA4 Nov. 2020 – Tute 01 - The Law of Contract - Dhanan Senathirajah 11

Held: this clause was a bar to an action in court.

13. Which of the following statement is/are CORRECT?

14. In which of the following circumstances would legal intention be inferred?

A. A husband promising to pay his wife a regular maintenance allowance.