Introduction to Law of Contract

A contract could be defined as an agreement which intends to create a legal obligation

between the parties
The essence of a contract is that there should be an agreement between parties.
The agreement is normally constituted by one party making an offer and the other party
accepting that offer.

Following elements are essential for a formation of a valid contract.

1. Offer and acceptance
2. Intention to create legal relations
3. Capacity to contract
4. Consideration
5. Adherence to legal formalities if any

Offer
An offer is an expression of willingness to contract on certain terms made with the
intention that it shall become binding as soon as it is accepted by the person to it is
addressed. ( G.H. Treitel- Law of Contract - p 8- 6ed. 1983)
Offer may be expressed or implied

expressed- verbally or writing

Implied by the conduct of parties

1. offer must be definitive- Not vague

Gibson Vs. Manchester City Council

The council sent a letter to Gibson indicating The council may be prepared
to sell the house to you at the price of Pounds 2725 The court held that
may is not a definite offer.

Gunthing vs. Lynn

Offer was made as if your horse is lucky I will pay you more The court held that it is not
a valid offer as the term lucky is not specific and it is vague

2. A definitive offer may be made to a particular person, group or world

at large

Carlil Vs. carbolic Smoke Ball Co 1893

Pragash//

A manufacture in UK produced a medicine for influenza called smoke ball.

They advertised Pounds 100 will be rewarded to a person attract influenza
after having used their smoke ball in the prescribed manner. The
advertisement further indicated that they have already deposited pounds
1000 in the bank towards this reward in order to show their sincerity. Mrs.

Carlill purchased the smoke ball and used in the prescribed manner but she
got influenza and sued the company for the reward advertised.

The company argued among other things that Mrs. Carlill cannot accept the
offer as it was not specifically made to her. Further she did not inform the
company that she has accepted the contract.

The court denied both arguments and said that a contract made to the whole
world can be accepted by anyone. Further, it went on to say that there is no
need to inform the acceptance as the acceptance takes place as soon as the
plaintiff act upon the offer. That is buying and using in the manner prescribed
amounts to acceptance. Therefore the Mrs. Carill was entitle to the money
claimed.

3. All offers must be communicated to the offeree.

(A person cannot accept an offer without having knowledge of the offer- e.g. Ranil looses
his dog and he put up an advertisement in the papers that any body brings his lost dog will
be given a reward of Rs. 100,000. Weerawansa finds a dog on the road and he identifies that
the dog is Ranils. He catches the dog and hand over it to Ranil and go home. On his way
back he meets Mangala a good friend of Ranil and he tells him about the loss of Ranils dog
and the reward available for the finder of the dog. Weerawansa will not be able to claim the
reward now as he did not act upon the advertisement. He did not know that there was a
reward before he finds and handed over the dog to Ranil)

4. A reply to an inquiry does not amount to an offer

Offer should be a definitive statement/promise and it cannot be just a statement of
information
Harvey Vs. Facey

The plaintiff telegraphed the Defendant whether defendant would sell a land and
inquired the lowest cash price. Defendant telegraphed and mentioned that the
lowest price for the land was pound 900.00 Then Plaintiff telegraphed and stated
that he accepted his offer. However, it was held that there was no offer to accept as
mere information of the selling price cannot be considered as an offer. There was no
indication to prove that he was willing to sell that property to Plaintiff at the price
quoted.

5. Declaration of intention to do something is not an offer

Harris Vs. Nickerson
An auctioneer advertised an auction of sale of furniture. However, he later withdrew the
furniture from the auction. A broker came for the auction to buy furniture and found there
was no furniture to be sold. He sued the auctioneer for his travel expenses and for the loss
of time. However, court held that 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 therefore the broker is not entitled to claim damages under breach of contract

6. An invitation to treat is not an offer.

A. goods displayed in a shop is not an offer but an invitation to treat

Pragash//

Pharmaceutical society of Great Britain Vs. Boots Cash Chemist 1953

a self service pharmacy displays drugs in racks and allows customers to

select and buy the product. A customer selects a product that cannot be sold
without the authority of a pharmacist.

The pharmacy was sued for contravention of Drugs Act. However, it was
revealed in evidence, even though the customer could select a drug, he will
be allowed to buy it only when the pharmacist approves the purchase.
However, it was argued that the contract takes place as soon as the drug is
selected by the customer and therefore the pharmacy was in breach of law.

The court held that there was no breach of law as the mere display of goods
in the shelf does not amount to an offer and offer is made by the customer
( can I buy this ? ) at the time he shows the product to the pharmacist and
the contract takes place only if the pharmacist approves and accepts the
offer of the customer.

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

Partridge Vs. Crittenden

Partridge advertised to sell some birds ( Quality British Bramble Finch hens) that are
prohibited to offer to sell or to sell under the Protection of Birds Act of UK. Partridge was
sued for offering the birds for sale by advertising.

It was held that he was not guilty for the offence as the advertising does not amount to
an offer. It was merely an invitation for treat.

7. Tender Notice is not an offer

Calling for Tenders to sell a product or buy a product or service will not amount to an offer.
All the prices quoted by others to the tender Notice are offers. He can either accept or
reject the offer. Tenderer is not bound to accept the lowest price or highest bid.

8. Auctions
Auctions are requests for bids. Bids are the offers. Auctioneer may accept or reject the
offer. Unless there is a condition that the highest bid will be accepted.

Revocation (withdrawal) of offer

An offer may be revoked at any time before it is accepted.
However a revocation of an offer will not take place until it is actually communicated to
the offeree.
Byrne Vs. Van Tienhoven ( 1880)
B in Cardiff sends an offer to T in NewYork. T accepts in on 11 th by telegraph. B revokes in
on 8th by posting a letter. T receives in on the 20 th. Held revocation will not have effect
until it reaches T and therefore T s acceptance is valid and there is a contract.

3. Revocation is possible at any given time even if there has been a promise to keep it
open until a specific period. However, if it is given by a deed or supported by
consideration, then it cannot be revoked until the date specified.
Pragash//

4. Revocation can be communicated directly by the the offeror or by a third party

Dickinson Vs. Dodds ( 1876)

A offered to sell a property to B, through a document which stated that this offer is
valid until Friday 9.00 a.m. On Thursday A sold the house to Y and B came to know
about this sale through the brother in law of A. B, before 9.00 a.m. of Friday
delivered his letter of acceptance through his Brother in law. Court held that there
is no contract. By knowing that the sale was concluded and having not paid any
consideration to keep for a period of time, B has no offer valid to accept.

Rejection of offer
1. Offeree can reject the offer at anytime saying that he has no interest in accepting
the offer.
2. A counter offer from offeree also makes the offer rejected.

Hyde Vs. Wrench ( 1840)

Wrench offered a sell a property for pounds 1000. Hyde then offered to buy it for pounds
950 but Wrench did not accept the offer. Then he agreed to pay pound 1000.
Court held; As soon as the counter offer of pound 950 was offered the original offer is
rejected and therefore there is no offer to accept in the second time.

3. By accepting the offer with conditions

Such as I accept the price of Rs. Five Million for your House, but I will pay in three
installments ,
I will buy the car at the price quoted by you only if you can do the repairs I mentioned in
my visit.
4. Lapse of time

Lapse of reasonable time depending on the mode of offer, nature of the product and also
of the nature of the trade practice.

ACCEPTANCE
Acceptance to be valid, it should be accepted when the offer is valid.
1. Acceptance must be unconditional
Eg.I will buy the car at the price quoted by you only if you can do the repairs I mentioned in my
visit.
2. Acceptance has to be communicated to the offeror.

Pragash//

In an instantaneous contracts , such as telephone or telex ( may be chat on internet

or fax ) The contract will be completed only when the acceptance is actually
received by the offeror. Mere transmission will not be sufficient.

Postal rule for acceptance

When the option is given by the offeror to accept the offer by way of post or telegram,
courts adopt a different theory in constructing a contract.
The theory adopted is that as soon as the letter is duly posted or telegram is handed over
to the postal counter, the acceptance takes place and a contract will be formed. This could
be effective even if the letter of acceptance or telegram reaches the offeror or not.
Adams Vs. Lindsell ( 1818)
A by Letter dated Sept 2nd offered goods( wool) to L and wrote receiving your answer
in course of post . The letter was misdirected and did not reach L untill 5 th, when the
offer was immediately accepted. The acceptance reached A on the 9 th. But on the 8th A
not receiving an answer as expected by 7th, sold the goods to X .
Held that there is a contract on 5th September when L posted the acceptance.
However, in order for this theory to be effective, there shall not be a postal strike or any
unusual delay in the post and the correct address etc. has to be written on the envelop.
Further, international acceptance ( beyond boundaries of a country) is excluded on this
theory and the letter should reach the offeror for the acceptance to be valid.
In the modern day communications, postal rule could apply for emails. If offeror allows the
oferee to confirm the acceptance by way of an email, then the email is properly sent to
the inbox of the offeror then the postal rule may apply even if the offeror, has not opened
the mail.
One principal that the court may follow, is that the offeror has selected the
method and therefore, if there are any drawbacks or risks of the method, the
offeror should bear it.

Pragash//

Pragash//

Termination of offer
1. Revocation of the offer ( already discussed)
2. Rejection of the offer ( already discussed)
3. Lapse of Time ( already discussed)
4. Death of one of the Parties or insanity or change of status
5. Failure of a condition subject to which the offer was made

Pragash//