LAW OF CONTRACT
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MAIN COMPONENTS OF A CONTRACT
1. INTENTION TO CREATE AN AGREEMENT
BETWEEN PARTIES
2. AGREEMENT BETWEEN PARTIES: Offer
and Acceptance
3. CONSIDERATION/ REASONABLE CAUSE
4. CAPACITY TO ENTER IN TO A
CONTRACT
5. AGREEMENT MUST NOT BE DEFECTIVE:
cannot be affected by factors such as
mistake, fraud, misrepresentation etc,
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1. INTENTION TO CREATE
LEGAL RELATIONS
• DOMESTIC/SOCIAL AGREEMENTS –
General Rule - no legal intention
• Balfour v Balfour [1919] 2 KB 571
Exception
• Simpkins v Pays [1955] 1 WLR 975
• PRESUMPTION IN FAVOUR OF LEGAL
INTENTION IN AGREEMENTS
BETWEEN BUSINESS PEOPLE
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2. AGREEMENT BETWEEN
PARTIES
• OFFER –
What constitutes an Offer?
Invitation to make an Offer Vs. Offer
– Pharmaceutical society of GB Vs. Boots
[1953] 1 QB 401
Auction Sale – Payne Vs. Cave (1789)
Lapse/Revocation/Rejection of an Offer
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2. AGREEMENT BETWEEN
PARTIES
• ACCEPTANCE –
Offer must still be in force
Acceptance must be absolute and
unqualified
Acceptance by acting on the Offer
Postal Rule on Acceptance
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2. AGREEMENT BETWEEN
PARTIES
• Tenders: Invitation to treat - Tenderer’s
reply to a Notice is an Offer
• Rewards: Acting in the offer without prior
Notice of Acceptance. But knowledge of
the “Reward” is mandatory
– Crown v Clarke (1927) 40 CLR 227
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3. CONSIDERATION /
REASONABLE CAUSE
• The money value passed.
• To distinguish between moral and serious
promises / Reasonable cause to contract
• Mutual benefit of Parties
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4. CAPACITY TO CONTRACT
All persons have the Capacity to Contract. But the Law
provides Protection to certain persons:
• Minors [below 18 years]
– Persons who supply “necessities” to Minors are entitle to recover
a reasonable price
– Ratification of Contract by the minor after becoming a Major.
• Mentally Unsound Persons
– At the time of Contracting if insane, then Contract is null and void
even though the other party has entered into the Contract
without knowing – Soysa v Soysa 19 NLR 314
– Persons who supply “necessities” to such persons are entitle to
recover a reasonable price
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WHAT IS IN A CONTRACT
• CONDITIONS AND WARRANTIES
• Condition – Vital term going to the foundation of the
Contract.
• Warranty – a terms that is subsidiary – an obligation is
something which must be performed but is not vital that a
failure to perform will not affect the substance of the Contract
• TERMS AND REPRESENTATIONS
• Couchman v Hill 1947 KB 554
• IMPLIED TERMS
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FORMAL REQUIREMENTS IN A
CONTRACT
• Certain Contracts must be in writing and
notarially executed – S. 2 Prevention of
Frauds Ordinance
• Sale, Transfer etc. of immovable property
• Contracts dealing with Guarantee or
suretyship, mortgage of a Policy of
Insurance must be in writing and signed by
the person undertaking liability – S. 18 of
Prevention of Frauds Ordinance
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5. FACTORS AFFECTING A
CONTRACT
1. MISTAKE
– A Contract is void on the grounds of
mistake only when the mistake is such
that there was no real Agreement. Eg:
• Mistake as to the Nature of the Contract
• Mistake as to the identity of the persons
contracted with
– Mistake of the Quality has no effect
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5. FACTORS AFFECTING A
CONTRACT
2. MISREPRESENTATION:
A Misrepresentation is relevant only if the
following conditions are present
– Must be a representation of a material fact
– Must be made before conclusion of Contract to
induce the Party
– Intention to misrepresent
– Misrepresentation must be acted upon
Three types of misrepresentation
1. Innocent Misrepresentation
2. Negligent Misrepresentation
3. Fraudulent Misrepresentation
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5. FACTORS AFFECTING A
CONTRACT
3. DURESS AND UNDUE INFLUENCE
4. LEGALITY OF CONTRACT
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PRIVITY OF CONTRACT
• ie- Only Parties to a Contract may
sue or be sued upon.
• Dunlop Tyre Company v Selfridge (1915)
AC 847 – Third Parties are not subject to
liabilities or restrictions under a Contract
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DISCHARGE OF CONTRACTS
• Performance
• By Agreements
• Frustration
• Breach
• By Law
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