Barrister Muniza Kabir

Law of Contract

What is law of contract?

An agreement enforceable by law is a contact. In a contract there MUST be:

 An agreement and
 The agreement must be enforceable by law

We have to understand first what is ‘agreement’.

 
 Every promise and every set of promises, forming the consideration for each other, is
an agreement.
 Some agreements cannot be enforced through the courts of law.

According to Salmond a contract is

 "an agreement creating and defining obligations between the parties"

According to Sir William Anson,

 “A contract is-an agreement enforceable at law made between two or more persons, by
which rights are acquired by one or more to acts or forbearances on the part of the other
or others.“

Two types of contract –

a) Bilateral Contract: Each party takes an obligation, usually by promising the other for
something. Example: Ann Promises to sell something and Ben to buy it.

b) Unilateral Contract: Only one party assumes an obligation under the contract. Example:
Promising to give your friend Tk 100, if he gives up smoking for a year. Here one party
has assumed an obligation; and you are obliged to pay your friend if he gives up
smoking, but he has not promised in turn to give up smoking.

Objective of the Law of Contract

 Is to introduce certainty in commercial and other transaction.
 Anson observes that, “ the law of contract is intended to ensure that what a man has been
led to expect shall come to pass; and what has been promised to him shall be performed”.

Method of Formation –
a. Express Contract - Expressed in words spoken or written.

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b. Implied Contract – Understood from the acts, the conduct of the parties and/or the course of
dealing between them.

c. Quasi Contract
There are certain dealings, which are not contracts strictly, though the parties act as if there is a
contract.

Steps involved in a contract:

An agreement becomes enforceable by law when it fulfills certain conditions. These conditions,
which may be called the Essential Elements of a Contract, are explained below –

a) Offer and Acceptance:

• A lawful offer by one party and a lawful acceptance by the other party or parties.

b) Intention to create Legal Relationship:

• An agreement to dine at a friend' house is not an agreement intended to create legal
relations and is not a contract.
• An agreement to buy and sell goods or an agreement to marry, are agreements intended to
create legal relationship and are therefore contract.

c) Lawful Consideration:
• An agreement is legally enforceable only when each of the parties [gives something and
gets something in return-is called consideration].
• An agreement to do something for nothing is usually not enforceable by law.
• The consideration may be an act (doing something or not) or a promise to do or not to do.
• Consideration may be past, present or future. But only valid considerations are "lawful
consideration”

d) Capacity of Parties:
• Legally capable of entering into an agreement otherwise not enforceable by a court of
law.
• The agreement is not enforceable by law if any of the parties suffers from minority,
lunacy, idiocy, drunkenness, and similar other factors.

e) Free Consent:
• An agreement must be based on the free consent of the parties.
• Absence of genuine consent of the agreement is induced by coercion, undue influence,
mistake, misrepresentation, and fraud.

f) Legality of the Object:

• Object not to be illegal, immoral or opposed to public policy.

g) Certainty:
• Terms must not be vague.

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h) Possibility of Performance:
• The agreement must be capable of being performed.
• A promise to do an impossible thing cannot be enforced.

i) Void Agreements

j) Writing, Registration and Legal Formalities:

• An oral, contract is valid, except in those cases where writing and/or registration is
required by some statute. The terms of an oral contract are sometimes difficult to prove.
• Writing is required in cases of lease, gift, sale and mortgage of immovable property,
negotiable instruments; memorandum and articles of association of a company etc.

Classification of the invalid contract:

A contract which does not satisfy the above tests may be either void, voidable or unenforceable.
• A void contract is not a contract at all.
• A voidable contract is a contract which one party may avoid, that is terminating at his
option.
• A contract is usually unenforceable when the required of its terms, for example written
evidence of a contract relating to land is not available

Offer and Acceptance -

Rules regarding offer:

1. An offer may be express or may be implied from the circumstances:
An offer may be made in two ways:
a. by words, spoken/oral or written and
b. by conduct.

2. An offer may be made to a definite person; to some definite class of people; or to the world at
large.
3. Legal relationship is required
4. The terms of the offer must be certain, definite, unambiguous and not vague
5. A mere statement of intention is not an offer
a) intention to sell
b) Quotation of prices
c) Advertisements
d) Catalogue
e) time-table
f) Question and Reply
g) Auction
6. Offer must be communicated to the offeree
7. An offer may be conditional
a) Strict enforcement of Clauses

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 b) No reasonable notice
c) Against public interest
d) Unreasonable

Conditional offers are invalid under the following circumstances

1. Lack of reasonable notice.
2. Unreasonable terms.
3. Breach of fundamental rights
4. Tortious action by offeror

Who can Accept?

1. An individual
2. Any member of the Class
3. Any person of the World

Rules regarding Acceptance:

1. Must be an absolute and unqualified acceptance of all the terms of the offer-Sec 7(1).
2. Conditional Acceptance – counter offers
3. Contracts subject to condition – (The agreement may contain such a term as ‘subject to
the purchaser’s solicitors approving the title’)
4. Clarification : The seeking clarification of offer neither amounts to the acceptance of the
offer nor to the making of a counter offer.
5. The acceptance must be expressed in same usual or reasonable manner Sec 7(2). A) Oral
or Writing , B) Conduct- if the offeree does what the offeror wants him to do
6. Mental acceptance or uncommunicated assent does not result in a contract
7. The mode of acceptance: where the offeror says acceptance to be sent by a telegram.
8. Time of Acceptance
9. When acceptance is complete
10. Before Offer
11. The acceptance must be made while the offer is in force

Revocation of offer:

1. By notice
2. By lapse of time
3. After expiry of reasonable time
4. By failure of a condition precedent
5. By death or insanity
6. Death of the Offeror
7. Death of the Offeree
8. Counter Offer
9. By refusal

Revocation of Acceptance:

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Section 5 of the Contract Act provides that an acceptance can be revoked any time before the
acceptance comes to the knowledge of the offeror but not afterwards

A. Requirements of a valid Offer: (caselaws)

i) An offer is a definite promise to be bound on specific terms.

Gunthing v Lynn: The offeror offered to pay a further sum for a horse if it was `lucky'.
Held: the offer was too vague.
 
ii) An offer must be distinguished from the mere supply of information;
Harvey v Facey: A telegraphed to B ‘will you sell us bumper hall pen? Telegraph lowest
cash price’. ‘B replied lowest price for bumper hall pen $ 900’. A telegraphed to accept
what he regarded as an offer; B made no further reply.
Held: B's telegram was merely a statement of his price if a sale were to be agreed. It was
not an offer which A could accept. No contract had been made.
 
iii) But if, in the course of negotiations for a sale, the vendor states the price at which he
will sell, that statement may be an offer which can be accepted.
Bigg v Boyd Gibbons: X in the course of correspondence rejected an offer of $20,000 by
Y and added `for a quick sale I would accept $26,000 ..., if you are not interested in this
price would you please let me know immediately'.
Held: in this context X must be treated as making an offer (at $ 26,000) which Y-had
accepted.  

iv) An 'invitation to treat', is not an offer to sell

Fisher v Bell: a shopkeeper was prosecuted for offering for sale an offensive weapon by
exhibiting a flick knife in his shop window.
Held: 'the display of an article with a price on it in a shop window is merely an invitation
to treat. It is in no sense an offer for sale.'
 

v) An offer may only be accepted by a person to whom the offer has been made.
Carlill v Carbolic Smokeball Co: The manufacturers of a patent medicine published an
advertisement by which they undertook to pay `£ l00 reward ... to any person who
contracts …. influenza, colds, .... after having used the Smokeball three times daily for
two weeks.
Held: it was an offer to the whole world which C could accept and had accepted. Point
(1) did not succeed since the court found that the terms of the offer were sufficiently
clear. They were not vague.

B. Termination of Offer: (caselaws)

An offer may only be accepted while the offer is still open. An offer is terminated in any of
the following circumstances:

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  if it has expired by lapse of time,
 if the offeror has revoked it;
 if the offeree has rejected it:
 if the offeree dies or if the offeror dies.

i) An offer would last for a specified time.

Ramsgate Victoria Hotel Co v Montefiore: M applied to the company for shares and
paid a deposit to the company's bank.
Held: M's offer was for a reasonable time only and five months was much more than that.
The offer had lapsed.

ii) The offeror may revoke his offer at any time before acceptance.
Routledge v Grant: G offered to buy R's house, requiring acceptance within six weeks.
Within the six weeks G withdrew his offer. Held: as there was no option agreement, G
could revoke his offer at any time.
 
Revocation may be an express statement or an act of the offeror to that effect.
Byrne v Van Tienhoven: The offeror was in Cardiff: the offeree in New York. Held: the
letter of revocation could not take effect until received (20 October); it could not revoke
the contract made by acceptance of the offer on 11 October. Simply posting a letter does
not revoke the offer until it is received.
 
iii) An offer may be rejected outright or by a counter-offer made by the offeree. Either
form of rejection terminates the original offer.
Hyde v Wrench: W offered to sell property to H for £ 1,000. H made a counter offer
of £ 950 which W rejected three weeks later.
Held: the original offer of £ 1,000 had been terminated by the counter offer of £ 950; it
could not therefore be accepted.

iv) Death of the offeree terminates the offer. Death of the offeror terminates the offer
unless the offeree accepts it in ignorance of the offeror's death, and the offer is not of a
personal nature.
 
Bradbury v Morgan: A offered to guarantee payment (up to $ 100) for X in respect of
goods to be supplied by B on credit to X. A died and B, in ignorance of his death,
continued to supply goods to X. Held: A's offer was a continuing commercial offer which
B had accepted by supply of goods after A's death.

C. Requirements of a valid acceptance: (caselaws)

 
1. Acceptance may be by express words or by action or by implied from conduct.

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Brogden v Metropolitan Railway Co: For many years B supplied coal to M. He suggested
that they should enter into a written agreement and M's agent sent a draft to him for
consideration.
Held: the draft agreement became the contract between the parties as soon as M ordered and
B supplied coal after the return by B of the draft to M's agent.
 
2. There must be some act by the offeree to indicate his acceptance.

Felthouse v Bindley: After previous negotiations had produced an agreed price P wrote to J
offering to buy a horse for £ 30.75, adding `If I hear no more about him, I consider the horse
mine at that price'.
Held: there could be no acceptance by silence in these circumstances - the offeror cannot
impose acceptance merely because the offeree does not reject the offer.

3. Goods which are sent or services which are rendered to a person who did not request them
are not ‘accepted’ merely because he does not return them to the sender.
 
4. Acceptance must be unqualified agreement to the terms of the offer.

Neale v Merrett: A offered to sell land for £280 to B. B replied accepting the offer,
enclosing £80 and undertaking to pay the balance of £200 by monthly installments of £50.
 
Held: there had been no acceptance. The normal terms are that the entire price is payable as a
single sum at completion.
 
5. It is possible to respond to an offer without accepting or rejecting it by a request for
information or by acceptance 'subject to contract'.
 
Stevenson v. McLean: M offered to sell iron at £2 per ton. S enquired whether M would
agree to a contract by which delivery would be spread over two months.
 
Held: there was a contract since S had merely enquired as to a variation of terms which was
not a rejection.
 
6. Acceptance 'subject to contract' is neither acceptance nor rejection by counter offer.

7. Acceptance 'subject to contract' must be distinguished from outright and immediate

acceptance

Branca v Cobarro: A vendor agreed to sell a mushroom farm under a contract which ended
'this is a provisional agreement until a fully legalised agreement drawn up by a solicitor and
embodying all the conditions herewith stated is signed.'
 Held: the parties were bound by their provisional contract until, by mutual agreement, they
made another to replace it.

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D. Communication of acceptance: (caselaws)

1. The general rule is that acceptance must be communicated to the offeror and is not
effective until this has been done.
 Entores v Miles Far Eastern Corporation: The offeror sent off an offer by telex to the
offeree's agent in Amsterdam and the latter sent an acceptance by telex. '
 Held: the acceptance took effect when the telex message was printed out on the offeror's
terminal in London.

2. But the offeror may by his offer dispense with communication of acceptance.
 
3. The offeror may call for acceptance by specified means.
Yates Building Co v R J Pulleyn & Sons (York): The offer called for acceptance by
registered or recorded delivery letter. The offeree sent an ordinary letter which arrived
without delay.
 
Held: the offeror had suffered no disadvantage and had not stipulated that acceptance must be
made in this way only. The acceptance was valid.
 
4. The offeror may expressly or by implication indicate that he expects acceptance by letter
sent through the post.
Adams v Lindsell: L made an offer by letter to A requiring an answer ‘in course of post'.
 Held: the acceptance was made 'in course of post' and effective when posted.
 
5. The intention to use the post for communication of acceptance may be deduced from the
circumstances -
Household Fire and Carriage Accident Insurance Co v Grant: G handed a letter of
application for shares to the company's agent in Swansea with the intention that it should be
posted to the company in London.
 Held: the parties intended to use the Post Office as their common agent and delivery of the
letters of allotment to the Post Office was acceptance of G's offer.