THE ESSENTIAL E LEMENTS OF CONTRACT

1. What is law of contract?

An agreement enforceable by law is a contract.
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
 Objective of the LOC
 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”.
2. Classification of the law of contract:
a. The rules on formation of contract
Offer and Acceptance
Intention to create Legal Relationship
lawful Consideration
Capacity of Parties
Certainty

b. The rules on discharge of contract;

•Performance
•Frustration
•Breach
•Agreement
c. The remedies for breach of contract.
Damages
Action for an agreed sum
Specific performance
Injunction
3. Method of Formation:
a. Express Contract
Expressed in words spoken or written.
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
4. Steps involved in contract:
An agreement becomes enforceable by law when it fulfils 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.

An offer may be express or may be implied from the circumstances

An offer may be made to a definite person
legal relationship is required
The terms of the offer must be certain, definite, unam­biguous and not vague
A mere statement of intention is not an offer
Offer must be communicated to the offeree

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 if 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.
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:

There are five categories of agreements which are expressly declared to be void. They are:
i) Agreement in restraint to marriage; ii) of trade; iii) of proceedings.
iv) Agreements having uncertain meaning. v) Wagering agreement.

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.

5. 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
 THE ESSENTIAL ELEMENTS OF CONTRACT

Essential Elements of a Contract

1. offer and Acceptance

2. Intention to create Legal Relationship
3. lawful Consideration
4,. Capacity of Parties
5. free Consent
6.legality of the Object
7.Certainty
8.Poissiblity of Performance
9.void.4greements
10. Writing, Registration and Legal Formalities

contracts can be classified into four broad divisions, namely,

(I) the method of formation of a ,contract,

(2) the time of its performance,
(3) its parties, and
(4) its legality or validity:
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.

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.
For a contact to exist, usually one party must have made an offer, and the
other must have accepted it.
Proposal: When one person signifies to another his willingness to do or
to abstain from doing anything, with a view to obtaining the assent of that
other to such act or abstinence, he is said to make a proposal/offer.

Offeror-
Offeree-

Promise and acceptance: When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted. A proposal when
accepted becomes a promise.

Promisor-
Promisee
 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 :
1. by words, spoken or written and
2. 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
I. intention to sell:
II. Quotation of prices :
III. Advertisements :
IV. Catalogue :
V. time-table
VI. Question and Reply :
VII. Auction
6.offer must be communicated to the offeree :
7.an offer may be conditional
I. Strict enforcement of Clauses:
II. No reasonable notice
III. Against public interest :
IV. 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:
 OFFER AND ACCEPTANCE
Who can Accept- To whom the offer is intended
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
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. he acceptance must be made while the offer is in force,
REVOCATION

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

Section 5 of the Contract Act provides that an acceptance can be revoked any time before the
acceptance comes to the knowledge of the proposer but not afterwards.
 A) Offer and Acceptance:
X says to Y, "Will you buy my house for Rs 50,000?”This is an offer. If Y says, "Yes", the offer is
accepted and a contract is formed.

 a) Requirements of a valid offer:

 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 shop keeper 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). The use or absence of the word `offer' is not conclusive.
For example, a. company is said to make an `offer' of its shares when it publishes a prospectus, but is an
invitation to the public to make offers.

 vi). 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:
 i). an offer may only be accepted while the offer is still open. An offer is terminated in any of
the following circumstances:
 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.
 
 ii). 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.

 iii). 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.
 
 vi) 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.
 
 v. 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.
 
 vi. 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.

 Requirements of a valid acceptance:

 
 1. Acceptance may be by express words or by action or by implied from conduct.
 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.
 
 Communication of acceptance:
 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.

 
 
 6. The offeror may be unaware that a contract has been made by acceptance of his offer.
 
 7. Acceptance of an offer may only be made by a person authorised to do so.
 
Powell v Lee: P applied for a job and after a series of interviews the management decided to
give it to him no decision was made as to how the appointment was to be communicated.
 
Held: since communication of acceptance was unauthorised, there was no valid agreement and
hence no contract;

 Agreement without offer and acceptance:

 
 1. Offer and acceptance are essential to make a contract.
 
 2 Problems arise in the following circumstances:
(a) Reward cases;
(b) Cross-offers;
(c) Collateral contracts.
 
 3. If A offers a reward to anyone who finds and returns his lost property and B, in ignorance of the offer,
does in fact return it to him, is B entitled to the promised reward? There is no contract by which A is
obliged to pay the reward to B (R v Clarke).
 
 4. Acceptance may still be valid even if the offer was not the sole reason for it being made.
 
Williams v Carwardine: A reward was offered to bring criminals to book. W, an accomplice in the crime,
supplied the information, with knowledge of the reward but moved primarily by remorse at her own part
in the crime.
 
Held: as the information was given with knowledge, the acceptance was related to the offer despite the
fact that remorse was the prime motive.
 
 5. After an inconclusive discussion, X writes to offer to buy property from Y and Y at the same time
writes to offer to sell the property to X on the same terms, these 'cross offers' establish agreement, but
neither offer has been accepted..
 
 6. If there are two separate contracts by offer and acceptance between A and B and A and C on terms
which involve some concerted action between B and C, there may be a contract between B and C. "this is
explained as 'collateral contract'
 
Clarke v Dunraven: B and C were competitors in a yacht race and each (by his entry form) agreed with
the race organiser (A) to pay 'all damages' caused by fouling. B fouled C's yacht and caused her to sink.
Held: there was a contract between B and C under which B must pay for the damages to C's yacht.
 Intention to Create Legal Relations

• An agreement does not become a binding contract unless there is an intention to enter
into legal relations.
• The parties must intend that the transaction should be attended by legal consequences
and create legal obligations.
• An agreement which does not create any legal obligation will not be enforced by law.
• The intention of the parties must derive from the terms of the agreement and the
surrounding circumstances.
 Examples:
1. R company made an agreement with G company whereby they were made agents of the latter. One
clause in the agreement was as follows “ this agreement is not entered into as a formal or legal;
agreement and shall not be subject to legal jurisdiction in the law courts”.

 Held: there was no intention to create any legal relation; hence there was no contract.

 A company agreed with V that on expiration of V’s existing contract, they would “favorably
consider” the renewal of his contract.

 Held: No obligation was created to renew the contract

• It is up to the court to decide whether the parties have intended to enter into legal obligations.