DEFINITION - A contract is an agreement which binds the parties. There are agreements which are not contracts. A contract creates a legal obligation. There could also be a legal obligation w/out an agreement. (Eg. The Law of ).
Distinction between Contractual Obligation from Other Obligation In Feature - A contract is an agreement which is enforceable at law. Thus the enforcement at law does not necessarily mean that the court will always make an order compelling the other party to perform his part but in fact at times it does. Eg. The court can order to be made depending on the circumstances and if it would be justifiable for the court to order such a remedy. The most usual remedy for breach of contract is damages (payment to for breach of contract).
Two Types of Contract
1) Simple Contract 2) Specialty Contract Specialty Contract - Contracts that are made under seal. Eg. Wills, conveyances, deeds etc.
Simple Contract - Three fundamental elements can be established -
a) Agreement b) Intension to create legal relation/obligation c) Agreement - An agreement arises from an offer and an acceptance.
Offer - A contractual term for offer is a proposition put forward by one person(s) to another person(s) coupled with the intension to be bound by that proposition. It may be in writing, spoken word or conduct. It can take the form of an elaborate document such as a conveyance or flagging/waving a taxi driver (conduct).
Acceptance
This can be examined under two headings, (1) The Fact of Acceptance, (2) The Communication of Acceptance.
The Fact of Acceptance
Acceptance must be unqualified and must correspond exactly with the terms of the offer. A operates as a rejection of the offer. It kills the original offer which cannot be subsequently accepted. See case of Hyde v. Wrench, (1840); A offered to sell farm to B for GBP 1 Million. B offered GBP 950,000 which A refused. B purported to accept A’s offer. It was held that the counter proposal by B to buy at a lower price was a rejection of A’s offer to sell for GBP 1 Million and put an end to that offer. Sometimes the offeree may request that the offeror inform him whether he will be prepared to add a term to the offer. In such a case, the offeree’s request may be construed as a request for further information. In this event, since there has been no counter offer, the original offer remains open. See case of Stevenson v. McLean, (1885); the offered on Saturday to sell to the plaintiffs 3800 tons of iron ‘at 40's nett cash per ton, open till Monday’. Early on Monday, the plaintiffs telegraphed to the defendant: ‘Please wire whether you would accept 40 for delivery over two months, or if not longest limit you would give.’ No reply was received, so the plaintiffs accepted the original offer by a telegraph sent at 1:34 p.m. Meanwhile, the defendant sold the iron to a third person and informed the plaintiffs of this in a telegram dispatched at 1:25 p.m. The telegrams crossed. Plaintiffs sued for damages for breach of contract. They would be entitled to succeed if the original offer was still open when they sent their telegram at 1:34 p.m. because an acceptance is complete and effective the moment a letter is posted or telegram is handed in to the post office. Was their telegram a counter-offer which destroyed the offer or a request for information? Held that the plaintiffs had not made a counter-offer but had addressed to the defendant ‘a mere inquiry, which should have been answered and not treated as a rejection of the offer.’ Fitch’s Principle - (Must Acceptor Have Knowledge of Offer?)
Do contractual obligations arise if services are rendered which in fact fulfil the terms of an offer, but are performed in ignorance that the offer exists? The defendant may have offered a reward for information ensuring the of a criminal. If the plaintiff supplies the information before he knows of the reward, can he afterwards claim it? Academic objections to such claims were received as valid in the American case of Fitch v Snedaker, (1868), where Woodruff J, pertinently asked, “How can there be consent or assent to that of which the party has never heard?”
The above ruling was taken a little further in the Australian case of R v Clarke, (1927); the Government of Western Australia offered a reward of 1,000 Pounds for information leading to the arrest and conviction of the murderers of two police officers, and added that, if the information should be given by an , not being himself the murderer, he should receive a free pardon. Clarke saw the offer and some time later gave the necessary information. He claimed the reward from the Crown by Petition of Right. He admitted not only that he had acted solely to save his own skin, but that, at the time when he gave the information, the question of the reward had passed out of his mind. The High Court of Australia held that his claim must fail. He was, in their opinion, in the same position as if he had never heard of the reward. It was said that “ignorance of the offer is the same thing, whether it is due to never hearing of it or to forgetting it after hearing.”
Factors Which Render A Contract Unenforceable (
)
When a person signs a document, he is bound by his signature as a general rule. If he has not read the document, he is still, in general, bound by it. There is, however, a special remedy open to him; the of Non Est Factum - “This is not my deed”. A peculiar plea to signed documents, the law relating to it is quite separate from the general law of and mistake.
At first, this defence was made available to a person who could not read and had a document read over to him incorrectly. In such a case, he was not bound by the document; such a document was not merely voidable for the fraud of a reader but was altogether void. Later, the plea was extended to persons who could have read but did not read the documents. The plea was rather wide so it became established that it was not available to a signer who was in signing. In the case of Gallie v Lee, (1969), the plaintiff, Mrs.Gallie, was an old lady who owned a house held on a long lease. She had made a will, leaving the house to her nephew, Parkin, and handed the deeds of the house to him. Parkin and his friend, Lee, went over to Mrs.Gallie’s house and asked her to sign a document. Her understanding was that the point of the document was to enable Parkin and Lee to raise money jointly on the security of the house. She thought that the document was an assignment of the lease by deed of gift from herself to Parkin. She did not read the document because she had broken her glasses. The document actually was an assignment from Mrs.Gallie to Lee for 3,000 Pounds. Lee did not pay Mrs.Gallie this amount or anything at all, mortgaged the house to a Building Society and used the proceeds entirely for his own purpose. He defaulted on the mortgage payment and the Building Society sought possession of the house. Mrs. Gallie sued for a declaration that the assignment was void on the footing of Non Est Factum. Lee was the first defendant. The Building Society was the second defendant. At the court of first instance, judgement was given for Mrs.Gallie. However, the court of appeal reversed this decision, holding that the plea of Non Est Factum should fail whenever the signer of a legal document had been negligent in signing, in this context, taking the time to read the document. The essence of the plea of Non Est Factum is that the person signing a document believed that the document he signed had one effect, whereas in fact, its effect was quite different. The plea does not apply where negligence is proven. In the case of Carlisle and Cumberland Banking Company v Bragg, (1919), Bragg was fraudulently induced to sign a guarantee in the belief that it was a document concerning insurance. It was held that the guarantee was not binding. In the case of Macaulay v Hallowell, (1963), the defendant who was the plaintiff’s Grandson, took possession of a house on Orange Street, Kissy Village, which was owned by the plaintiff. The plaintiff contended that the taking of possession was unlawful and gave evidence of her title to the house. The defendant relied upon an alleged conveyance of the property to him by the plaintiff but the plaintiff denied signing any conveyance. The document relied upon by the defendant was put in evidence but the court found that when the plaintiff signed the document, she did not know that she was conveying her property. She, instead, thought that she was signing a guarantee for the defendant in his work. The court found that the plaintiff’s signature was induced by the fraud of the defendant and so the signature was of no legal effect.
Intention to Create Legal Relation
Intention to contract means the readiness of each party to accept the legal consequences if he does not perform his side of the contract. Therefore, not all types of agreement will create a contract. Eg. To invite someone for dinner will not give rise to a litigation if you fail to provide the hospitality for such a person you have invited. Therefore, we can classify agreements into Social and Domestic agreements on the one hand and Commercial agreements on the other.
Social and Domestic Agreements
Within this class, those between husbands and wives are the most likely to be non-contractual. In the case of Balfour v. Balfour, (1919), A CA decision, the defendant was a civil servant stationed in Ceylon. He and his wife, the plaintiff, went to England on leave. When his leave was over, he returned to Ceylon alone and his wife stayed in England on her doctor’s advice. The husband promised to give her 30 Pounds per month but did not keep his promise and his wife sued him. The Court of Appeal gave judgement for the husband. “One of the most usual forms of agreement which does not constitute a contract agreement appears to me to be the case between husband and wife”. This is so because no legal intention was imposed. But even in arrangements between husband and wife, the circumstance may be such as to lead a court to hold that legal relations are intended. Refer to McGregor v. McGregor, (1888), a CA decision. A husband and wife had taken out cross summonses against each other for . Before these were heard, they made an agreement to withdraw them and live apart. The husband agreed to allow the wife a weekly sum for maintenance and the wife made certain promises in return. The wife sued the husband for arrears in maintenance. CA held that the parties had intended to enter into legal relations and that the wife could enforce the agreement as a contract. There are situations where Balfour’s principle could be applied to other cases other than husband and wife. It is applicable to Mother and Daughter etc. Eg. Jones v. Padavatton, (1969), a CA decision. A mother agreed with her daughter who was a secretary in the USA that if she would give up her job and read for the bar in England, the mother would provide maintenance for her. The daughter went to England and began to read for the Bar. Later, the agreement was varied; the mother agreeing to provide a house for the daughter. On the mother’s claim for possession of the house, the court of appeal held that the agreement was not intended to be legally binding and that the mother was entitled to possession.
The CA took a different decision in the case of Parker v. Clark, (1960). The plaintiffs were Mr. and Mrs. Parker and the defendants were Mr. and Mrs. Clark. The elderly couple(Clarks) invited the Parkers to share their house. The arrangement was held to be legally binding. The judge said that the question whether or not there is a binding contract must depend on the intention of the parties depending on the language used. The same question may arise in respect of social rather than domestic arrangements and between parties who are not even relatives. In the case of Simpkins v. Pays, (1955), a lodger and members of his family with whom he lived agreed to go into shares in a newspaper competition. They sent in a winning entry. It was held that there was an intention to be bound so the prize money should be shared according to the agreement. Meritt v Merritt Tannar v Tannar Commercial and Business Agreements The ordinary common sense implication is that in a commercial or business agreement, the parties intended that their agreement should be legally binding. If a party to a business agreement wishes to assert that legal relations were not intended when the agreement was made, the onus is on him to show that no legal relations where intended and the onus is a heavy one because by the nature of the agreement, one could infer that the intention is there. It is always open to parties to include a term in the agreement to the effect that it is not subject to the of the court. These are the devices which may be used to express the intention not to create legal relations. These expressions have the effect of rebutting the implication which ordinarily arises in contracts of business kind. If the parties have expressly declared that a transaction is not to be binding in law, the court will give effect to that declaration. Most football pools coupons create the following words: - “Binding in honor only”. In the case of Appleson v. Littlewood, (1939), a CA decision, It was held that a dissatisfied investor cannot sue on a coupon containing these words. There is a reported case where a similar form of words were inserted into what was otherwise an ordinary agreement for the sale of goods. See case of Rose and Frank Co. V. Crompton, (1925), HL decision. The agreement contained the following clause, “This agreement is not entered into as a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts but it is only a definite expression and record of the purpose and intention of the parties concerned to which they each honorably pledge themselves”. It was held by the HL that the agreement could not be sued upon. However, where there is any ambiguity in such a clause, the court will not shut itself out from adjudicating. See Edwards v. Skyways, (1964). An employee was dismissed as redundant. His employers promised to make him an ex-gratia payment of a specified amount. It was held that the word “ex-gratia” did not negative contractual intention. They simply meant that the employers did not admit any pre-existing liability on their part. Whilst it is permissible for the parties to agree that the agreement shall not have any legal effect at all, an agreement which removes the jurisdiction of the courts in favor of some other tribunal is greeted by the courts as void, as being contrary to public policy. Eg. Arbitrations - Say you insure your car with an insurance company and in a small clause is noted “In the case of any disagreement w/ the insurance company, you go to ”. It remains open to you if you’re dissatisfied to go to court. As a last resort, the court is open to you but you cannot just remove the jurisdiction of the court in favor of some other tribunal. There’s nothing objectionable about an arbitration agreement by which contracting parties provide that questions of law and fact shall be determined by an arbitrator provided that each party is left free to apply to the court after the arbitration, for the court to consider any points of law which are involved. The court could set aside the arbitration award if they find that certain principles have not applied. An agreement between husband and wife sometimes has a term purporting to remove the jurisdiction of the court. The wife, in return for an allowance, may promise not to apply to the court for maintenance. See case of Hyman v. Hyman, (1929), HL decision. The House of Lords decided that such an agreement did not prevent the wife from applying to the court for maintenance. The court held that the wife’s right to future maintenance is a matter of public concern which she cannot barter away.
Consideration
All contracts except specialty contracts have the element of consideration. It is not uncommon for a parent to make a deed of gift in favor of a child. Such a deed is enforceable even though no consideration was given by the child.
Definition - In Currie v. Misa, (1875), “A valuable consideration in the sense of law may consist either in some right, interest, profit or benefit occurring to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”. Briefly, we may say therefore that consideration is some benefit accruing to one party or some detriment suffered by the other. Often, benefit and detriment are the same thing, looked at from different points of view. Thus, in an action in contract, the plaintiff will be suing in his capacity as promisee. He has been given a promise by the defendant which the defendant has not carried out. To succeed in court, he has to show that he gave consideration; that is to show that he conferred some benefit on the defendant or that he himself suffered some loss or detriment. Eg. Suppose that the plaintiff, being so requested by the defendant, delivered to the defendant 5 pounds of steak and the defendant refuses to pay? Plaintiff sues for the agreed price. The plaintiff can show that he gave consideration because the delivery of 5 pounds of steak was a benefit conferred on the defendant and the giving up of 5 pounds of steak was a detriment suffered by the plaintiff. The situation may not always be so simple because Consideration does not necessarily take the form of an act. It may take the form of a promise. Eg. Suppose the butcher promised to deliver 5 pounds of steak on Saturday and the customer promised to pay on delivery? If the butcher does not deliver the meat, the customer can sue the butcher although he hasn’t paid for the meat. When he sues the butcher, the customer can point to his promise to pay as being the consideration for the butcher’s promise to deliver the meat. The promise to pay is a detriment to the customer and a benefit to the butcher. It is true that in such a case the customer is relived from having to implement his promise. It is enough that he was ready and willing to perform it at the due time. Whereas in the example above the consideration consists on both sides of a promise, each party is both promisor and promisee. He gives a promise and receives a promise but either party who has occasion to bring an action for breach of contract will be suing in his capacity as promisee. The plaintiff then has to show that he gave something in return for the promise which was made to him. We refer to that something in law as Quid Pro Quo. You give something for something and this may take the form of either an act or a promise. So consideration is one side of a bargain. The consideration given by the plaintiff and the consideration given by the defendant together, make up a bargain. Neither party in a contract is making a free gift to the other. The doctrine of consideration is that an agreement will only be enforceable as a contract if it is a bargain. It need not be a good bargain. Indeed it can be a thoroughly bad bargain.
Rules Governing Consideration
1) Consideration need not be adequate but must be real.
2) It must move from the promisee.
3) It must not be past.
4) Consideration must not be illegal.
5) It must not be vague.
6) It must be possible of performance.
According to the doctrine of freedom of contract, the court will not interfere with a bargain freely reached by the parties. It is not part of the court’s duty to assess the relative value of each party’s contribution to the bargain. Once it is established that a bargain was freely reached, it will be presumed that each party stipulated according to his wishes and intentions at the time. There’s no reason, for example, why a party should not be bound to sell a brand new C class Mercedes Benz for LE 600,000. If the agreement was freely reached, the inadequacy of the price is immaterial to the existence of a binding contract. See case of Thomas v. Thomas, (1842); the plaintiff was the widow of one Thomas, who just before his death said that he wished for his wife to go on living in his house after his death . His will made no mention of this wish, however, his brothers, as executors, knew of his wish. After the death of Thomas, the executors agreed with the plaintiff that she pay 1 Pound each year towards the rent and that she keeps the house in good repair. After the death of one of the executors, the remaining executor disposed the plaintiff of the house and she brought an action for breach of contract. It was argued that the motive of the executors, that is their respect for the wish of the deceased, was consideration. This argument was rejected by the court and it was held that the stipulation for the payment towards rent was in fact consideration, quite independent of the moral feelings which disposed the executors to enter into such a contract. Counsel for the executor admitted that he could not base his argument upon the manifest inadequacy of the consideration.
In the case of Chappel and Co.Ltd v Nestles and Co.Ltd, (1960), the Nestle Company offered to the public, gramophone records of a popular dance tune for 1 Shilling and 6 Pence each together with 3 chocolate bar wrappers. The wrappers were thrown away upon receipt by the company. The question is, can we regard the wrappers as part of a consideration given for each record? It was held by the House of Lords that the wrappers were part of the consideration even though they were of no further value once received by the company. However, consideration must be real (must have some value). It matters not how small the value. It follows that where a party performs an act which is merely a discharge of a preexisting obligation, there is no consideration but where a party does more than he was already bound to do, there may be consideration. See the case of Stilk v Myrick, (1809); the captain of a ship promised his crew that if they shared between them the work of 2 seamen who had deserted, the wages of the deserters would be shared between them. It was held that the promise was not binding because the seamen gave no consideration. They were already contractually bound to do any extra work to complete the voyage. Contrast that with the case of Hartley v Ponsonby, (1857) ; a ship’s crew had been seriously depleted by a number of desertions. The captain promised the remaining crew members 40 Pounds extra pay if they would complete the voyage. It was held that the promise was binding because it was dangerous to continue the voyage in a ship so badly short of crew. The seamen were not obliged to do this under their contract of service and were therefore free to enter into a fresh contract for the remaining part of the voyage. The difference in circumstance was that in the first case, the was minor compared to the desertion in the second case, where the desertion was so great that the contract could be regarded as discharged. In the second case they were doing more than they were contractually bound to do. See the case of Glassbrook Bros.Ltd v Glamorgan County Counsel, (1952); at the time of a strike at a coal mine, the managers asked for police protection of the coal mine’s property. The superintendent of police thought that a mobile patrol would be sufficient but he agreed to supply a standing guard on payment by the coal mine for such services. It was claimed that the promise to pay was not binding as the police were under a duty to protect the property and there was therefore no consideration. The House of Lords held that the promise was binding because the police had done more than they were bound to do under their public duty. The test here is whether or not the person claiming to have given consideration has done more than he or she is contractually bound to do. There is authority for the proposition that performance of an existing contractual obligation to a third party may amount to consideration. See the case of Shadwell v Shadwell, (1860); After becoming engaged to be married, the plaintiff received a letter from his uncle stating that he was glad to hear of the intended marriage and that he would make an annual payment of 150 Pounds to the plaintiff in starting his career as a barrister. The plaintiff did marry but at the time of his Uncle’s death, the promised payments were not all made. The plaintiff brought an action against the personal representatives for their recovery. The defendants contended that the plaintiff had given no consideration to support the Uncle’s promise because he was already contractually bound to marry his fiancé at the time the Uncle made the promise. It was held that the plaintiff’s marriage was an object of interest to the Uncle and was therefore sufficient consideration to support the promise of the annual payment.
Contract In Restraint of Trade
A contract in restraint of trade is one by which a party restricts his future liberty to carry on his trade, business or profession in such manner and with such persons as he chooses. The law may refuse to give full effect to such a contract because it is contrary to public policy. It may only be held binding if it is proved to be justifiable in the circumstances from the point of view of the parties themselves aswell as the community. This has been the legal effect for 2 familiar types of contract: -
1) When an employee agrees that after leaving his present employment, he will not compete against his present employer, either by setting up business on his own account or by entering the service of a rival trader.
2) An agreement by which the vendor of the of a business agrees not to carry on a similar business in competition with the purchaser.
The following general propositions may be stated -
1) The doctrine of Restraint of Trade does not apply to a negative covenant by which a lessee or purchaser of land agrees not to use the premises for trading purposes. However, the doctrine applies to
a) A contract under which an employee restricts his liberty to compete against his employer when he shall have left his present employment.
b) Contracts by which the vendor of a business restricts his liberty to compete against the purchaser.
2) If a particular contract comes within the gambit of the doctrine and contains restrictions on a person’s liberty to trade, it is void and will only be saved if it is reasonable.
3) To pass the test of reasonableness, the restraint must be reasonable as between the parties and from the point of view of the community.
4) To be held reasonable, the restraint must protect some propriety or other legitimate interest of the promisee and consequently, the restraint must not be excessive as regards the area covered, the time of operation or the trades which it forbids.
A restraint imposed on an employee is never reasonable unless there is some propriety interest of his employer which requires the protection. The only matters in which he will be held to have such interest are
a) His trade secrets if any and
b) His business connection. Thus in the case of Eastham v Newcastle United Football Club, (1964), it was held that the rules of the FA and the football league relating to the retention and transfer of professional football players did not protect any interest of the employer which the law would recognize for the purpose and consequently, they were void. A good example of a trade secret case is that of Forster & Sons v Suggett, (1918); the works manager of the plaintiffs who were chiefly engaged in making glass and glass bottles was instructed in certain confidential methods concerning inter alia, the correct mixture of gas and air in the furnaces. He agreed that during the five years following the determination of his employment, he would not carry on the business concerned in the U.K. or be interested in glass bottle manufacture or any other business connected with glass making as conducted by the plaintiffs. It was held that the plaintiffs were entitled to protection in this respect and that the restraint was reasonable. In such a case, the employer must prove definitely that the servant had acquired substantial knowledge of some secret process or mode of manufacture used in the course of his business. A good example of a business connection case is that of Fitch v Dewes, (1921); a solicitor’s managing clerk at Tamworth agreed that after leaving his employer, he would never practice within 7 miles of Tamworth Town Hall. The restraint was upheld. There are many cases where the restraint has been held void because it was too wide in area or too long in duration. It all depends on the circumstances for this determines what is reasonable. If a restraint is imposed by some indirect means then the doctrine still applies and the restraint will be void if it is not reasonable. In the case of Bull v Pitney Bowes, (1967), the plaintiff was employed by the defendants, manufacturers of postal franking machines and it was a condition of his employment that he should become a member of a non- pension scheme. Rule 16 of the scheme required that a retired member should be liable to forfeit his pension rights if he engaged in any activity or occupation which was in competition with or detrimental to the interests of the defendants. After some 26 years of service, the plaintiff voluntarily retired and joined another company carrying on a business similar to that of the defendants. On being warned that he might lose his pension unless he left his new employment, he sued for declaration that Rule 16 was an unreasonable restraint of trade and therefore void. It was held that Rule 16 was void; it was equivalent to a covenant in restraint of trade and was unreasonable. The court held that it was contrary to public policy that the community should be deprived of the services of a man skilled in a particular trade. In the case of Kores Manufacturing Co. Ltd v Kolok Manufacturing Co.Ltd, (1959), a CA decision - Two companies, manufacturers of similar products, agreed that neither would employ any servant who had been employed by the other during the prior 5 years. The defendants broke their promise and in the resulting action, the arguments and the decision turned solely upon whether the agreement was unreasonable as between the parties. The Court of Appeals held it to be unreasonable in this respect since it imposed upon the parties, a restraint grossly in excess of what was adequate to prevent a misuse of their trade secrets and confidential information. Restraint could also arise in the case of a sale of a business. The courts are more willing to uphold a restraint on the vendor of a business than one on an employee. The idea being that buyers of a business would not be forthcoming if they could not have protection against competition. For example, no one would like to buy a garage maintenance business if the vendor was to be left free to start up a new garage maintenance business next door. Such a restraint is valid but only if connected with the proprietary interest which had been bought. In the case of British Reinforced Concrete Engineering co. v Schelff, (1921), the plaintiff carried on a large business for the manufacture and sale of “B.R.C” road reinforcements and the defendants carried on a small business for the sale of “Loop” road reinforcements. The defendant sold his business to the plaintiffs and agreed not to compete with them in the manufacture or sale of road reinforcements. It was held that the agreement was void; all that the defendant transferred was the business of selling the reinforcement called “Loop”. The interest which the plaintiff’s company had bought was the business of selling and not making “Loop” reinforcement. It was therefore not justifiable to restrain the defendant from competing with the plaintiff’s company in road reinforcements in general. It was therefore only with regard to that particular variety that it was justifiable to curb his future activities. This case illustrates the unreasonableness in the excessive wideness of the forbidden trade.
Communication of Acceptance
The general rule is that acceptance must be communicated to the offeror. An acceptance speaks from the moment it is communicated. Where the offeree merely intended to accept but did not communicate intension to the offeror, there is no contract. In other words, mere mental acceptance is not sufficient. Moreover, the offeror is not allowed to take silence to be acceptance and thus bind the offeree. See the case of Felthouse v. Bindley, (1863); F offered to buy his nephew’s horse for GBP 30.15. In the letter containing the offer, F wrote “if I hear no more about the horse, I consider the horse mine at GBP 30.15. The nephew never replied. Six weeks later, when the nephew was about to sell his property, he instructed B, an auctioneer, to keep the horse out of sale as it had already been sold. B inadvertently sold the horse. F sued B for . It was held that the nephew had not communicated his intension to sell the horse to F. Therefore, there was no contract and no title to prove that the horse had ever vested in F. There are two exceptions to the above rule
1) Where performance constitutes acceptance,
2) Where acceptance is duly made by post; the post office rule.
Where Performance Constitutes Acceptance
In the case of a unilateral contract, the offeror is deemed to have included in his offer a term providing that performance by the offeree shall be sufficient acceptance and communication is not necessary. The offeror is bound when the offeree performs whatever act is required of him according to the terms of the offer. See case of Carlill v.Carbolic Smoke Ball Co. In cases where a reward is offered for a specific piece of information or the finding of a specific item, acceptance can be made only once even though the offer was made to the public at large. Eg. Reward for information in catching a thief. The first informant gets the reward.
Where Acceptance Is Duly Made By Post
Where acceptance is done by post, the acceptance is effective from the moment the letter is properly posted. It must be properly addressed and dropped in the post box. If there is any error on the face of the letter or the letter given to another person who doesn’t do the posting, there is no acceptance. The rule applies even where acceptance is delayed or lost in the post. See the case of Henthorn v. Frazer, (1892); F, representing a building society, offered in writing to sell certain houses to H. The offer may remain open for fourteen days. H received the offer in person; the next day, the following took place; at 12 mid-day, the society sent a letter of revocation to H. At 3:50, H posted his letter of acceptance. At 5:30 H received the letter of revocation. It was held that a contract was made at 3:50 when H posted his letter of acceptance. The judge said inter-alia “where the circumstances as such that it must have been within the contemplation of the parties that according to the ordinary usage of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted. From the above, two principles can be noted -
1) The moment the letter of acceptance is posted, there is acceptance.
2) If you are using the post to revoke the offer, that revocation is not effective until the offeree gets the letter of revocation. In the case of Henthorn v. Frazer, the offeror could have used a telephone before 3:50 to revoke the offer for the revocation to be effective. In the case of Household Insurance Co.v. Grant, (1879); G applied for shares in the plaintiff’s company. The company sent a letter of acceptance by post but it never reached G. The company went into liquidation. The Liquidator, on behalf of the company, sued for the balance outstanding on the shares. G contended that he was not bound to pay since he had not received a reply to his offer to buy the shares. It was held that a contract was made the moment the letter of acceptance was posted. In cases of International element, it is sometimes necessary to establish where a contract was made so that it is known which country’s law is applicable. If all the agreements are reached between the parties present in a particular country, the contract is obviously made in that country. But where the parties are in different countries and they use the post as a means of communication, then the contract is made in the country where acceptance is posted. Similarly, where acceptance is made by cable, the contract is made in the country from which the acceptance was sent. If however, the communication is instantaneous Eg. Telex, then the contract is made where the acceptance is received. Therefore, the rule on instantaneous communication between parties is different from the post office rule. The contract is only complete when the acceptance is received by the offeror and the contract is made at the place where the acceptance is received. See the case of Entores v. Miles Far East, Corporation, (1955); In that case, the plaintiff had an office in London and the defendant had an office in Holland. Both the plaintiff and the defendant had equipment known as Telex service whereby message could be sent by a teleprinter operated like a typewriter in one country and almost instantaneously received and type-printed in another country. By this instrument, the plaintiff made an offer to the defendant to buy goods from them and they later accepted the offer. The defendant contended that he had accepted the offer in Holland and that the contract had therefore been made in Holland. The court of appeal held that the parties were in the same position as if they had contracted in each other’s presence or over the telephone and there was no binding acceptance until it had been received by the plaintiff and that this took place in London. In effect, if contracting over the telephone eg. A makes an offer to B but before B could finish his acceptance, the telephone goes dead without A hearing the acceptance, there is no contract. Also, if A shouts an offer over the river but while B accepts the offer, a jet flies overhead and A did not hear the acceptance, there is no contract. B must shout his acceptance again when it is quiet. In short, the offeror must know what the acceptance is before a contract could be said to be in effect.
Distinguishing an Offer from an Invitation to Treat
An is a first step in negotiation which may or may not lead to a firm offer. There are decided cases 1) Fisher v. Bell, 1960, 3 AELR 731
2) Pharmaceutical Society of Great Britain v. Boots Chemist, (1953); Boots ran a self service shop. A customer selected goods, put them in a basket and took them to the cash desk. Near the desk was a registered pharmacist who was authorized, if necessary, to stop a customer from removing any drug from the shop. Court had to decide whether defendants had broken the provisions of section 18 of the Pharmacy and Poisons Act, 1933, which made it unlawful to sell any listed poison ‘unless the sale is effected under the supervision of a registered pharmacist’. The vital question was what time the ‘sale’ took place, and this depended on whether the display of goods with the prices attached was an offer or an invitation to treat. According to the plaintiffs, it was an offer, accepted when the customer put an article into his basket, and, if this article was a poison, it was therefore ‘sold’ before the pharmacist could intervene. According to the defendants, the display was only an invitation to treat. An offer to buy was made when the customer put an article in the basket and this offer the defendants were free to accept or to reject. If they accepted, they did so only with the pharmacist’s approval near the cash desk. Lord Goddard ruled that the display was only an invitation to treat and the law had not been broken. This was upheld by the Court of Appeal.
In Fisher v.Bell, (1960), Lord Parker agreed saying that according to the ordinary law of contract, the display of an article with the price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract.
The same rule applies to advertisement. A sales person advertising goods is not an offer but invitation to treat. Eg. Catalogs including an offer to treat. However, there are situations wherein advertisements are not invitation to treat but an offer. Eg. Wherein an advertisement offers a reward for lost property. If the finder returns the property with knowledge of the reward offered, he is entitled to the reward and the owner cannot say it was an invitation to treat. Therefore, a contract can be made to people or to the world at large. It is a one sided contract in the sense that one party binds itself by a conditional promise leaving the other party free to perform the condition or not as he pleases. Therefore, in an unilateral contract, the offeror will not know whether the contract is on until the other party has performed his part. See case of Carlill v.
Carbolic Smoke Ball Co., (1893); the defendants who were the proprietors of a medical preparation called ‘The Carbolic Smoke Ball’, issued an advertisement in which they offered to pay 100 Pounds to any person who succumbed to influenza after having used one of their smoke balls in a specified manner and for a specified period. They added that they had deposited a sum of 1,000 Pounds with their bankers ‘to show their sincerity’. The plaintiff, on the faith of the advertisement, bought and used the ball as prescribed, but succeeded in catching influenza. She sued for the 100 Pounds. The Court of Appeal found that although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. The defendants were advised to pay compensation. In an auction sale, the bidder is the offeror. His bid which may be by word or conduct is the offer. The auctioneer accepts the offer by striking the hammer. It follows that the auctioneer can withdraw an item at any time provided that he has not accepted the bid. See case of Harris v. Nickerson, (1873); the plaintiff failed to recover damages for loss suffered in travelling to the advertised place of an auction sale which was ultimately cancelled. His claim was condemned as ‘an attempt to make a mere declaration of intention a binding contract.
When does an imvitation to treat becomes an offer?
Termination of An Offer
1) Revocation
1) Revocation - An offer can be revoked at any time before it is accepted. For revocation to be effective, it must be communicated to the offeree. Eg. The case of Henthorn v. Frazer . Unlike an acceptance, a revocation need not be communicated by the party himself. It is sufficient if the offeree learns from a third party that the offer has been revoked. See the case of Dickinson v. Dodds, (1879); Dodds offered to sell a house to Dickinson for GBP 800. The offer to be left over until Friday, 12th June at 9 AM. On Thursday, 11th June, Dodds sold the house to one Allan and that same evening, Dickinson was told of the sale by a man called Berry. Before 9 AM on June 12th, Dickinson handed to Dodds a letter of acceptance. The Court of Appeal held that there was no contract. Dodds’ offer had been withdrawn before acceptance. It must be noted that revocation must be communicated to the offeree. This is so even though the Post is used as the channel of communication. And so the rule that an acceptance by Post takes effect from the moment of posting does not apply to revocation. See the case of Byrne v. Van Tienhoven, (1880); On the 1st of October, the defendant posted a letter in Cardiff to the plaintiff in New York offering to sell one thousand boxes of steel plates. On the 8th of October, the defendant posted a letter revoking the offer. On the 11th of October, the plaintiff received the offer letter and telegraphed their acceptance. On the 20th of October, the letter of revocation reached the plaintiff. It was held that the revocation could only be effective on the 20th of October. The plaintiff had already accepted.
Infants - (Capacities of contracting Parties)
Incapacity is imposed by law upon an infant not as a kind of punishment but in an attempt to protect the infant from the consequences of his inexperience. Infants’ contracts are divided into 3 groups -
a) Valid Contract
b) Voidable Contract
c) Contracts which at Common Law are binding on the infant only if he ratified them on attaining maturity. This class of contract is governed by the Infant Relief Act of 1874. There are 2 points common to all these contracts -
1) A parent is not liable on his child’s contract unless the child was acting as the parent’s agent.
2) An infant’s contract can never be validated by the consent or authority of his parents.
Valid Contract
1) Contract for Necessaries - Necessaries may be goods or services. An infant is bound by contract for necessaries only if it is on the whole for his benefit. He is not bound if it contains harsh terms. Nor is he bound by one entire contract comprising of necessaries and non-necessaries. Necessaries have been statutorily defined in Section 2 of the Sale of Goods Act as “goods suitable to the condition in life of the infant and to his actual requirement at the time of the sale and delivery”. From this definition we look for 2 things which show that what is necessary for one infant may not be necessary for another. So whether a particular article is a necessary or not depends on 2 factors -
1) The condition in life of the infant.
2) His actual requirement at the time.
Eg. Infants A & B. A might be the son of a wealthy banker while B is the son of a 3rd grade clerk in the civil service. So we see that both infants are not in the same condition in life. The courts have held that mere luxuries could not be necessaries. In the case of Nash v Inman, (1908), CA decision; an exclusive tailor in London sued an infant who was a Cambridge undergraduate for the price of clothes supplied, including 11 fancy waist coats. The tailor failed in his action because he did not prove that the infant was not already adequately supplied with the clothes. It must be noted that not only goods can be necessaries but services can as well. Services have not been statutorily defined but the tests are the same as for necessary goods. Necessary services include education, both liberal and vocational. As well as legal and medical advise. It is clear that a contract for necessaries made by an infant is valid in the sense that the infant himself can sue on it and there’s no doubt that the other party can sue on it when he has performed his part but doubts have been expressed whether the other can sue on the contract where it is still executing. In Nash v Inman, one of the Judges held that an infant will be liable for necessaries because he had been supplied with the goods and not because he had contracted. But in this same case, another Judge said that the infant is liable in contract. The Sale of Goods Act of 1893 provides that “when necessaries are sold and delivered to an infant, he must pay a reasonable price therefore.” 2 things are important -
1) Sold and delivered.
2) Reasonable price.
Because the act makes the infant liable to pay a reasonable price, not necessarily the price agreed upon in the contract, it suggests that the liability does not appear to be based on the contract and it seems to support the view that an infant is not liable on an executory contract for necessaries. There is, however, a decided case in favor of the view that an infant can be liable on an executory contract for necessaries. In the case of Roberts v Gray, (1913), CA decision; the plaintiff was a famous billiards player who agreed to take the infant defendant on a world billiards tour and to pay for his boarding, lodging and travelling expenses. This was a contract for necessaries in the sense that its object was to teach the defendant the profession of a billiards player; it was therefore a kind of education. Roberts expended time and trouble and incurred certain liabilities in making the preparations. A dispute arose between the parties and before the tour began, Gray repudiated the contract. He was held liable in damages. It may be that one has to draw a distinction and say that contracts for necessary goods are not enforceable against the infant if executory. But that contracts for necessary services are so enforceable as in Roberts v Gray.