Contracts - Midlands State University

Business law 1(guiding notes to the Lecture)
Henry Cheeseman
Contracts give the means for individuals to sale ,exchange and transfer their property
services and other rights .Contracts vary in nature –
Sale of books and other commodities =contract of sale.
Hiring of employees =employment contract
Leasing of property =contract of lease
Acting on behalf of someone =Agency contract
The point to note is without enforceable contracts commerce would collapse. The terms
of these contracts become private law .The performance of contracts are dependent on the
willing ness of the parties to the contract and they are not always guided by the courts
hence a contract between parties becomes the law between them .illegal contracts are not
enforceable they are void ab initio.
Cheeseman ;A contract is an agreement enforceable at law .
Bampton and Drury:An agreement which creates and defines or intends to create and
define legal obligations within the parties themselves .
Parties to a contract
Offeror –He makes the offer to the offeree
The offeree has the power to accept
Rules of offer and acceptance
The validation of an offer is the basis of a valid contract,An offer is a proposal by one
party to another to enter into a contract .The person making the proposal is the offere and
the one accepting is the offeree ‘
must be seriously intended;this is the intention to be seriously bound by the offer
and ensure that it is enforceable at law.An invitation to negotiate must not be
mistaken for an offer.The offer must be separated from a mere invitation to do
business .Adverts are invitations to do business and they do not constitute an offer
ie in the case of Crowley vs Rex.The advert was used as an invitation to conduct
business ,There are however exemptions in which an advert can come up to an
offer ie case of Carlill v Carbolic Smoke Ball Company .In Bloom vs American
Swiss watch Co.
must be definite and certain
must be communicated to the offeree .offers can be made in ,many ways ,by
telephone ,electronic mail ,fax or other methods .
Acceptance is an unqualified willingness to go by the offer.
Unconditional acceptance
Methods of acceptance
Termination of an offer
Even after proper communication the offer can be terminated
Revocation ,which is taking back an offer by the offerer before it has been
accepted .the revocation become effective when communicated by the offerer to
the offeree.
Rejection :refusal of an offer
Counter offer
Expiration of time
Death or Insanity
Essentials of valid contract
there must be an agreement
parties must be of the same mind(consensus ad idem )case;Rafles vs
Wichelhouse (refer to my handout)
parties must communicate their intention
the agreement must not be vague
agreement must be lawful(lion match co vs Wessel )
parties must seriously intend to be bound (animus contra hendi )
agreement must be within the limits of their contractual capacity
agreement must be possible of performance
An Agreement :there are not mutual promises and they create legal relationships
.Contracts creates rights that are enforceable at law .contracts can be made orally
,but some need to be reduced to paper .ie sale of immovable
property,employment contracts .
NB not all agreements are contracts due to the social nature they are prescribed.
Balfour v Balfour
Husband promised to pay his wife a stated weekly allowance during his absence
abroad .Mr Balfour faulted and the sued .
Held:there was no contract since the agreement was a mere domestic arrangement
between spouses and there existed no evidence of serious intention to create a
legal relation.
Consensus Ad Idem(being of the same mind )
Raffles vs Whichelhouse
Parties agreed to the sale of cotton to be delivered by sheep from Bombay
however there were 2 ships named peerless and in the agreement each party
refered to a different ship.Because there time for the two ships was materially
different neither party was willing to agree to the shipment of the other peerless.
Held :there was no contract since each party had a different ship in mind .
Characteristics of the contract
Contracts have 4 characteristics
Valid ;this means the contract os legally good ,it can be enforceable at law .The next term
is void meaning that the contract is not legally binding and it is illegal in nature .This is
an agreement that lacks the above essentials .Voidable contract when one party has the
capacity to withdraw from a contract for legal reasons it becomes a voidable contract ,it is
a contract that is not void in itself but can be voided by another party .A contract between
a minor and an adult can be voided by the minor and not the adult .Unenforceable
contracts ,this may exist as a result of a rule of law that cannot be enforceable at courts
.eg a plaintiff who waits too long to bring suit .
Contracts can be viewed in terms
Express terms ;are the stated terms that can also be made in writing,the contract is a
result of oral expression that can create a binding contract.
An implied term one comes from the actions of the people .very often people enter into
contracts without exchange of words .
Bilateral contract ;this is a two sided contract,it contains two promises by the persons
involved .one person promises to do something in exchange of the other doing something
too.Two friends promise each other;iwill sell you my car for $2000.The friend also
promises to pay the amount .
Unilateral contract
Contains one person promise ,it becomes binding when the other party accepts the
prescribed act .I will sell you my car if you make the paymebnt before 12;00 on Monday
the 25th .When the other party makes a payment on Monday before 12;00 then it becomes
a valid contract .
Formal Contracts
These require special method of formation ie the contract underseal ,Recognizances
negotiable instruments ,letters of credit .
The Quasi-Contracts (implied in law contracts )the courts may provide monetary
payment to an act done on behalf of a party by a plaintiff for providing work .This
document is meant to avoid unjust enrichment and Detriment .
Example ;A Docter attends an unconscious accident victim on the roadside .Because of
the service rendered the Docter has the right to claim for the medical fees .He /she can
recover the funds under the quasi –contract doctrine .
Reading list
Brian etal (1996)understanding Business and Corporate Law,Mcgraw hill ,Wasterville .
Henry R Cheeseman()Business Law
Bumton and Drury;l