Hamsha Selvanayagam LL.

B
Attorney-at-law

The Law of Contract

The Definition of a Contract
“A contract is a legally binding agreement made between two or more parties with the
intention of creating legally binding relationship”-Sir William Anson. All agreements are
not legally binding. For an agreement to be legally binding certain elements should be
present. There are two essential elements in a contract. They are,

1. An Agreement between parties

2. The intention to create legal relationship

The elements of a contract

For an agreement to be legally binding certain elements should be present .the

following elements are essential to create a valid and enforceable contract.

1. An offer and acceptance

2. Valuable consideration
3. Capacity of a parties
4. Possibility of performance
5. Intention to create legal relations
6. Genuine consent
7. Legality
8. Terms of the contract to be certain

Requirement of writing
There is no requirement that a contract should be in writing. Therefore a valid contract
could be made

Verbally or

In writing or

It could be assumed by the conduct of the parties.( by implication)

However, certain statutes expressly prescribe certain contracts to be in a particular

form i.e. either as a deed or as a written document. When a statute makes such a
provision contracts should be in that form or method and n relief whatsoever could be
obtained from the court o law when such requirement is ignored.

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 Hamsha Selvanayagam LL.B
Attorney-at-law

Examples:-

1. Prevention of fraud ordinance (section 2) states that agreements relating to

immovable property should be in writing should be signed by the parties and by
two parties and by two witnesses and by notary public. This document knows as
a “deed “
2. The bills of exchange ordinance provides that bills of exchange and cheques must
be always in writing

1. Offer
An offer is defined as follows “AN OFFER IS A DEFINITE PROMISE TO BE BOUND ON
CERTAIN SPECIFIC TERMS” According to the definition we may be say that an offer is a
conditional promise. If there are no conditions attached to a promise it is not an offer.
One who makes the offer is called the offeror. And the person to whom it directed is
known as Offeree.

There are several pre requisites to a valid offer

1. It should be a definite promise and it should not be a doubtful one.

Gibson Vs Manchester City Council
The council sent a letter to Gibson, stating “The Corporation may be prepared to
sell the house to you at the purchase price of £ 2.725” the court held that this is
not a valid offer

2. The terms should be specific. It cannot be vague

Gunthing Vs Lynn
In this case an offer was made as “If your horse is lucky i will pay you more.” It
was held that it is not a valid offer. The term is not specific it is vague.

3. A definite offer need not be made to a particular person. It could be made to a class
of persons or to the entire world
Carlills Vs Carbolic Smoke Ball Company
In this case the manufacturers of a medicine called smoke ball , advertised that a
£100 reward will be paid to any person who has influenza after having used the
smoke ball three times daily for two weeks. The advertisement added that the
manufacturer had deposited £1000 in the bank to show their sincerity in the
matter. The plaintiff read the advertisement, bought the medicine and used it as
directed.
But the influenza was not cured. Therefore she claimed the reward of 100.
The manufacturer argued that they are not liable to pay the reward because
there is no contract between the plaintiff and the manufacturer, because the offer
was not specifically made to the plaintiff. But the court held that there is a
contract between the plaintiff and the manufacturer, because an offer can be
made even to the whole world. If any person acts according to the offer that is

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 Hamsha Selvanayagam LL.B
Attorney-at-law

acceptance, consideration is the reward of £100 and getting influenza. Intention

to create legal relations is presumed by the deposit of £1000 in the bank.
Therefore the plaintiff is entitled to the reward

4. A reply made to an inquiry does not amount to an offer , because an offer is a definite
promise and not a mere supply of information
Harvey Vs Facey
P telegraphed to d asking whether d would sell Bumper Hall Pen and inquired the
lowest cash price. D telegraphed in reply and mentioned that lowest price for the
Bumper Hall Pen was £ 900. Then p telegraphed and stated that he accepted the
offer held that d’s telegraph was merely an answer to a question and it is not an offer
to accept.

5. Declaring an intention to do a thing is not an offer

Harris Vs Nickerson
An auctioneer advertised for the sale of furniture. A broker came from London to
purchase the furniture but the furniture was withdrawn. Broker sued for loss of
time and expenses from the auctioneer. Held a declaration of intention to do a thing
does not amount to be an offer for the broker to accept, therefore a binding contract
has not been created, and the broker is not entitled to claim damages for breach of
contract.

Invitation to treat
An offer should be distinguished from an invitation to treat. If an offer is accepted, an
agreement is made but if an accepted, an agreement will not made. Accepting an
invitation is treated as an offer. There are many types of invitations.

1. An advertisement is generally treated as an invitation to treat

Partridge Vs Crittenden
P advertised for the sale of “quality British Bramble finch hens” the protection of Birds
Act 1954 made it an offence to sell or offer for sale these birds. P was accused of
committing the offence of offering for sale, a Bird, by advertising. Held, P was not guilty
because the advisement was not an offer to sell.

However it should be noted that advisement regarding rewards for the performance of
activities are offers. Example: - CarlillVs Carbolic smoke ball company.

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 Hamsha Selvanayagam LL.B
Attorney-at-law

1. Goods displayed in a shop with price marked by the seller are not offers it is only
an invitation to treat. the customer who enters the shop makes the offer when he
demands the articles by tendering the price the seller is free to accept or reject
the offer

Fisher Vs Bell (1960)

Under a law, offering flick knives for sale was an offence. A shop keeper was
keeping in his shop flick knives with price tag for sale. He was prosecuted for
offering for sale flic knives. Court held he was not guilty. Because keeping goods
in the shop for sale is not an offer. But it is an invitation.

2. Displaying notices, hand bills, circular, prospectus etc. are invitations

Termination of offer
An offer can be terminated in many ways

1. Revocation by the offeror

2. Rejection by the offeree
3. counter offer
4. Laps of time
5. death of offeror or offeree
6. conditional acceptance

1. Revocation
a. The offer may be revoked by the offeror at any time before the offer is accepted
by the offeree. That is an offer cannot be revoked after acceptance.
b. Revocation is valid only when it is communicated to the offeree and the offeree
receives that information.

Byrne Vs Van tienhoven(1880)

A offered to sell Goods to B by his letter of 1 st October. B received it on the 11 th October
and immediately telegraphed his acceptance. But A wrote another letter on 8 th October
and revoked his offer and it was received by B on 20 th October. Held, the revocation was
of no effect until it reached B, and a contract was made by B’s telegraph. However
revocation can be communicated directly by the offeror to the 0fferee or through some
other reliable source.

Dickinson Vs Dodds (1876)

X agreed to sell a house to Y for £800, through a document which state “this offer is
open until Friday 9am”. On Thursday X sold the house to C and Y heard of this from

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 Hamsha Selvanayagam LL.B
Attorney-at-law

the brother in law of X. but before Friday 9am Y delivered the letter of acceptance.
The court held that the offer had been revoked by the time it was accepted. If a
person knows about the revocation, he cannot accept it even though he received the
information through an outsider.

c. Revocation is possible at any time even though there has been a promise to
keep the offer open for the specified period.

RoutledgeVs Grant
G offered buy R’s house and gave him six weeks to decide whether or not to accept.
Before the end of six weeks G withdrew his offer. Held G was entitled to revoke the offer
even though he promised to keep it open for six weeks. Because no consideration has
been given by R to G to reserve the offer for six weeks

But in two circumstances a promise to keep an offer cannot be revoked. They are

1. If such a promise is given by a deed or

2. If such promise is supported by consideration.

2. Rejection of offer
If an offer is made it can be either accepted by the offeree or rejected by him. If he
accepts it a contract is made, but if he rejects it the offer is terminated. After rejecting
the offer, the offeree cannot again accept it.
An offer may be rejected in two ways.
I. by an express rejection by the offeree
II. by a counter offer from offeree

3. Counter offer or a refusal

A counter offer can be made in two forms.
a. By making a fresh offer

Hyde Vs. Wrench

W offered to sell a property to H for £1000. H started that he would take it for £950. W
refused to give it at that price. Then H agreed to pay full £1000. Held that the original
offer of £1000 was rejected by the counter offer of £950. Therefore, there is no contract
between W and H.

b. By accepting the offer by laying down conditions

A counter offer must be distinguished from a request as to whether or not or the
terms could be acceptable, since such request does not, by itself, terminate an offer.

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Hamsha Selvanayagam LL.B
Attorney-at-law

Stevenson Vs Mclean
The defendants offered to sell some Iron to the plaintiffs for cash. Plaintiffs asked
whether they could have four month credit. That inquiry was held not to be a counter-
offer, but only a request for information, with the result that later acceptance of the
original offer created a binding contract.

4. Lapse of time
An offer may be started to exist for a particular period. If it is no acceptance
within that time, the offer will terminate. If no time is mentioned, it expires after
a reasonable time.

Ramsgate Victoria hotel co Vs Montefiore

D applied to the company in June for share and paid a deposit at the end of
November; the company sent him an acceptance by issues of a letter of allotment
and requested payment of the balance due. Held that the offer can exist for a
reasonable time only and five months was much more than reasonable. Therefore
the offer had expired and it could no longer be accepted.

5. Death of either the offerer or the offeree

It is clear that the oferee cannot accept after he has had notice of the death of the
offeror. However, where the offeree performance an act of acceptance in ignorance
of that death of the offeror, the legal positions becomes more problematic. In such
an event, are the offeror’s personal representative bound to perform the contract?
Cheshire, fifoot and furmston here draws a distinction between offers which are
independents of the offerors personality and can be satisfied out of his estate, and
offers such as an offer to write a book or paint a picture which involves some
elements a personal to the offeror. The opinion is expressed that death
automatically terminates the latter but not the former type of offer.

In the converse situation where the offeree dies before acceptance, probably in
offer comes to an end by operation of law as the offer cannot be accepted by his
personal representatives after his death.

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Hamsha Selvanayagam LL.B
Attorney-at-law

2.Acceptance
Acceptance means unconditional approval to all the terms of the offer once the offer is accepted,
the offer becomes irrevocable. Or an acceptance is a final and unqualified expression of assent
to the terms of an offer.

1. Acceptance may be made by express words, by action or may be inferred from the
conduct of the Offeree. Where a statute or the offer specifies that it should be done is
accordance with the prescribed form,and then it should be adhered to

Brogden V. Metropolitan Railway Co.

Brogden had for years supplied the defendant company with coal
without a formal agreement. At last the parties decided to regularise the
situation. Therefore, the company’s agent sent a draft form of
agreement to Brogden and the latter, having inserted the name of an
arbitrator in a space which had been left blank for this purpose, signed
it and returned it marked ‘approved’. The company’s agent put it in his
desk and there it lay for two years, nothing been done further to
complete its execution. And for two years, Brogden sent, and the
company paid for, deliveries of coal in accordance with the terms of the
draft. Then a dispute arose, and Brogden denied that any binding
contract existed. Held that a contract had been created by conduct, and
that is came in to existence either when the company ordered its first
load of coal upon the terms of the draft or at least when Brogden
supplied it.

2. There must be an act on the part of the Offeree to indicate to the Offeror. That he is
accepting the offer. Offeree’s silence cannot be treated as acceptance

Felthouse vs bindley(1863)
P wrote to his nephew offering to buy the nephew’s horse,
and stated , if i hear no more about him i consider the horse
as mine at £ 30.15”. Though the nephew intended to accept,
he did not communicate his acceptance to the plaintiff. He
instructed the defendant, an auctioneer, no to sell the horse.
Due to a misunderstanding, the horse was sold and the
plaintiff sued claiming the horse. Held, acceptance was not

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Hamsha Selvanayagam LL.B
Attorney-at-law

communicated by the nephew to the plaintiff. Therefore the

plaintiff has no titled to the horse.
This case is an example to show that even where an offer has been accepted by conduct
that conduct requires to be communicated, since it is evident from nephew’s conduct that
although he mentally accepted his uncle’s offer. He failed to reveal that conduct to his
uncle.

3. The acceptance must be communicated by the Offeree or by his agent

Powel Vs Lee
The plaintiff applied for the head mastership of a school. The
managers of the school decide, by a narrow majority, to
appoint him. One of the managers, without being authorized
to do so send a telegram to the plaintiff telling him that he
had been appointed. At a later meeting the managers
rescinded their former resolution and appointed someone
else. The plaintiff sued for damages for breach of contract.
The court rejected his claim since acceptance had not been
properly communicated with him.
4. Acceptance is not effective if made in ignorance of offer.
R vs Clarke (1972)
The Government of Western Australia offered a free pardon to the accomplices of
certain murderers if they gave evidence that would lead to their arrest and conviction.
Clarke provided the information but admitted that he was not aware of the reward at
the time he gave the information to the authorities. Held he was not entitles to the
reward because he was not aware of the offer at the time he gave the information.

5. If two offers cross in the post, there is no contract, because, there is no acceptance.
For example X writes a letter offering to buy Y’s car for $1000, without knowing of this
letter Y writes a letter to X offering to sell his car to X for $1000. Both letters cross in the
post.
When similar facts were found in TinnVs Hoffman (1873) the court said that in this
situation there is no contract because there are two offers but no acceptance.

Communication of Acceptance Rule

The general rule is that an acceptance must be communicated to the Offeror, and the Offeror
should receive that information.

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 Hamsha Selvanayagam LL.B
Attorney-at-law

But there are two exceptions to this general rule. They are,
1. The postal rule
If the parties have agreed to communicate the acceptance expressly or impliedly by post the
postal rule applies. The postal rule is that the acceptance is complete as soon as the letter of
acceptance is posted even though the letter is delayed or lost in the post, It will not prevent the
creation of the contract.

Household Fire Insurance Co vs Grant (1879)

In this case, X applied for same shares in a company. The company sent a
reply accepting the offer but the letter was lost in post. Later when the
company demanded money for the shares, X refused to give money saying
that he didn’t know about the company’s acceptance. But the court held
that when the letter of acceptance is posted the contract was made.
Therefore X should pay money.

Postal rule doesn’t apply if the letter is not properly addressed or if it

insufficiently stamped. Also this postal rule will not apply to instantaneous
contracts such as contracts made through the telephone.

2. Unilateral Contracts
When an acceptance requires a particular task to be completed such contracts are known as
unilateral contracts. In such contracts performance is the acceptance. It is not necessary to
communicate their intention to fulfill the task. Usually these are offers made to the world at
large. Eg. Carlil vs Carbolic Smoke Ball Co. ltd

Example-
X lost his dog and published an advertisement saying that the person, who returns the dog,
will receive a gift of $100. Here finding and returning the Dog is acceptance. Those who
search the Dog need not communicate their intention to search the dog.

Acceptance Subject to Contract

When the acceptance is “Subject to Contract”, the parties do not intend to be bound until a
formal contract is signed.

Chillingworth vs Esche
C & D signed an agreement for the purchase of a house by D Subject to a proper contract to
be prepared by C’s solicitors. A contract was prepared by D’s solicitors but D refused to sign
it. Held D was entitled to do so because the agreement was a conditional one; he may either
sign the contract or refuse to sign it.