INTRODUCTION TO CONTRACT LAW
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FORMATION OF CONTRACT
A contract is a legally binding agreement between two or more parties.
The following are the elements that make a valid contract :
offer
acceptance
invitation to treat
consideration
intention to create legal relations
OFFER
This is simply a statement of terms on which an offer is willing to be bound.
It express the willingness to contract with the intention to become binding.
An offer is made between two parts; an offeror and offeree
If an offer has been accepted it creates an agreement.
TYPES OF AN OFFER
Bilateral offer: an offer made to a specific person or specific company.
Unilateral offer: an offer made to a group of people or simply the whole world.
Free offers: an offer made by providing free item per purchase of his particular
products.
RULES OF AN OFFER
An offer must be precise, meaning it must be accurate
SCAMMEL VS OUSTON (1941)
Ouston wished to trade on old van for a new van with Scammel. They agreed
a price for the old vans trade in but only that they would pay for the new
van on hire purchase for two years. Scammel subsequently pulled out the
agreement, and when Ouston attempt to sue, Scammel argued that
agreement could not be enforced because it was too uncertain.
Held that this was too vague for the contract to be enforced for the court
didn’t found objective standards in order to know what the price was
intended.
Meaning that each party should know what their rights and obligations are.
An offer made to a group of people can be accepted by any member of that group.
An offer must be complete, meaning that it must contain all the major terms of agreement.
An offer must be communicated to the offeree.
An offer may be revoked or lapse.
Can revoked when the offeror formally withdraws the offer.
It can lapse if not accepted within the time stated.
In the case of Hyde v Wrench (1840) where Wrench offered to sell his farm to Hyde
for 1200, an offer which Hyde declined. Wrench made another offer to sell his
farm at 1000 to Hyde and stated it to be final but Hyde offered 950 in his latter
and Wrench refused to accept it and he communicated to Hyde. After a long time
Hyde agreed to buy the farm at 1000. Wrench refused to sell thee farm he sued
for the breach of contract.
Held that there was no binding contract between the parties for the purchase. The
time for an offer to be accepted lapses.
It can also lapse when a counter offer was made.
TERMINATION OF AN OFFER
An offer can be terminated by each of the following;
Acceptance
Revoke or withdraw
Counter offer
Lapse of an offer
Death
ACCEPTANCE
For this type of contract to be formed, the first stage is for a valid offer to be
established, then the next stage in forming an agreement is to find an acceptance
for that offer. This can only be done while the offer is still available. And for an
agreement to be made, at least two parties are required; one of them has to make
the offer (the offeror or promisor) while the other accepts (the offeree or
promisee).
Acceptance is one of the ways an offer can also be terminated. Once an offer has
been accepted that results in a contract hence the offer will no longer be
available for acceptance.
Therefore the second most important requirement for the formation of a valid
contract is acceptance.
RULES RELATING TO A VALID ACCEPTANCE
Acceptance must be communicated. This is only complete when it has been
communicated to the offeror/promisor and can be in any form unless it has been
specified for example, via the post, by fax or telegram.
Acceptance must be according to a prescribed mode or a usual and reasonable
manner. Some further clarification can be laid under this rule such as; if a mode of
acceptance was prescribed it must be given accordingly, if no acceptance was
given a usual mode of acceptance can be used but in a case where the offeror
keeps quiet about the mode of acceptance this would mean the offer has been
accepted.
It must be definite and unqualified (clear and undoubtful). In addition to that it must
be in line with the terms of offer.
NOTE: A counter offer and conditional assent are often mistaken for an acceptance
but are NOT an acceptance. As for a counter offer, the offeree does not agree to
all the terms of offer instead suggests their own terms and this simply implies
that the offer has been rejected by the offeree. On the other hand, conditional
assent implies that an agreement is conditional on something and will happen or
continue if this thing happens.
Silence is not regarded as acceptance.
FELTHOUSE (Vs) BINDLEY (1862)
Bindley had been negotiating to buy his nephew’s horse. He wrote to his nephew
saying that the horse was his at his given price but the nephew did not reply to
this letter. He asked the auctioneer, who was involved in selling all his farm stock,
to not sale the horse because it was for the uncle. Accidentally during an auction
everything was sold including the horse despite the instruction. As a result the
uncle sued the auctioneers for selling his property. Even though the nephew had
mentally accepted the offer, some positive action had to be taken in order to make
a valid acceptance
JUDGEMENT: In this case, the nephew’s silence resulted in no valid acceptance
because the horse did not belong to the uncle. If the nephew had wanted the
uncle to own the horse he would have given a clear indication.
Time is regarded as important in acceptance. If time has been specified within the
terms of an offer then acceptance must be given within that specified period but
in a situation where there is no time specification, the acceptance must be given
within a reasonable time.
Acceptance can only be given by the party or parties to whom the offer was made.
BOULTON (vs) JONES (1857)
Boulton purchased a hose-pipe business from Brocklehurst. Then Jones placed an
order for the supply of certain goods from Brocklehurst who owed him a debt.
Instead of Brocklehurst supplying the goods, Boulton supplied the goods
regardless of the order not been addressed to him. As a result, Jones did not pay
Boulton because he did not make the offer to him and his intention was to enter
into a contract with Brocklehurst in order to set off his debt against Brocklehurst.
JUDGEMENT: the offer cannot be accepted by another person without the consent of
the offeror nor can it be accepted by someone it was not addressed to. Hence the
offer made to Brocklehurst was not in Boulton’s power to accept and as a result
no contract was formed.
Acceptance must be given either expressively or implied. Expressed acceptance is
expressed by words either orally or written while implied or tacit acceptance is
derived or deduced from conduct, action or circumstances of the case from one or
more parties in an agreement.
INVITATION TO TREAT
An invitation to treat is a concept in contract law which refers to an action of inviting
other parties to make an offer to form a contract.
Categories of invitation to treat.
Advertisement
Self-service shop display/window shop display
Invitation to tender
Mere statement of price
Auctions
ADVERTISEMENT
Advertisements are usually invitation to treat which allows sellers to refuse to sell
products at prices mistakenly marked.
Usually goods for sale or services are advertised in newspapers, magazines,
catalogues and price-lists distributed by traders > a contract will not be formed
until the person seeing the advertisements has made the offer to buy, which has
then been accepted by the advertiser (!)
SELF-SERVICE SHOP DISPLAY/WINDOW SHOP DISPLAY
This is the invitation to treat were the customer makes an offer to the cashier by
presenting the goods at service desk, the cashier accepts the offer by scanning
the goods and requesting for payment.
Fisher Vs. Bell (1960)
The case: The defendant,(accused person) a shopkeeper, displayed in his shop
window a flick knife, priced at 4 Shilling. He was charged with offering for sale a
weapon what was prohibited by the Offensive Weapons Act 1959.
The court’s decision: That according to the law of contract “the display of an article
with a price on it in a shop window is an invitation to treat "rather than an offer
for sale. Therefore the prosecution under the 1959 Act failed .
MERE STATEMENT OF PRICE
A statement of the minimum price at which a party may be willing to sell does not
amount to an offer.
Harvey Vs. Facey(1893)
The case: The claimant(someone making a claim) wanted to buy the defendant’s
farm and sent a telegram stating: “Wi ll you sell me Bumper Hall Penn? Telegraph
lowest price.” The defendants telegram replied: “Lowest price acceptable is 900
Pounds.” The claimant argued that he had then accepted this (offer).
The court’s decision: The court held that the defendant’s statement was merely a
statement of price and was not an offer open to acceptance.
AUCTION
At an auction(with a reserve price) the auctioneer is making invitation to treat, not
an offer. The offer is made by the person who makes a bid for the lot. The
auctioneer then accepts the bid on the fall of his hammer.
Harris Vs. Nickerson (1873)
The case: The defendant, an auctioneer, advertised that a sale of office furniture
would take place at the town Bury. The claimant travelled down from London to
Bury to attend the auction, but found the furniture had been withdrawn from the
sale. He thereupon sued the defendant for his loss of time and his expenses.
The court’s decision: That the advertisement was a mere declaration of intent and
did not create a binding contract with the claimant.
INVITATION TO TENDER
Invitations to tender are normally invitations to treat.
The person making the invitation is not bound to accept any of the responses and
can make a choice after checking all companies > unless the person making the
invitation to tender stated that he will accept the highest offer to buy goods or
the lowest for the supply of goods or services > than he is bound to the offer.
CONCLUSION
To crown it up, we need to understand that contract is not just a written documents
but can even be made verbally.
In our daily lives we do contract in many ways which can include renting a flat,
entering into the bus.
We also need to understand the difference between an offer and invitation to treat:
an offer is just a willingness to contract on the specific terms whilst invitation to
treat is invitation to make an offer.
An offer is made when a person shows willingness to enter into legally binding
contract while an invitation to treat is merely supply of information to tempt a
person into making an offer.
