Lecture 2
Law of Contract
An agreement is an expression by two or more persons of assent in regard to some present or
future performance by one or more of them. Agreement is in some respects a wider term than
contract. It covers executed sales, gifts, and other transfers of property. It also covers promises to
which the law attaches no legal obligation.
One of the simplest descriptions of a contract is that, it is a ‘legally binding agreement’.
Therefore, as it relates to the law of contract, all contracts are the outcome of agreements, but not
all agreements are contracts. In other words, not all agreements can be enforced in a court of law.
In order to determine, whether the courts can enforce a particular agreement, the rules and
principles of contract law must be carefully interpreted and applied.
FORMALITIES
In contract law, formality is typically required for large engagements. This includes the sale of
land, a lease of property over three years, a consumer credit agreement, and a bill of exchange. A
contract for guarantee must also, at some stage, be evidenced in writing.
A contract of employment requires no form to be effective. However, an employee has a right
to receive written particulars stating the contract from the employer. This may not in fact be the
contract, which a court can construe from all the circumstances, but will be strong evidence of it.
Classification of Contracts
Definition of a Contract
Per Treitel: “A contract may be defined as an agreement which is either enforced by law or
recognised by law as affecting the legal rights or duties of the parties”. The factor which
distinguishes contractual from other legal obligations is that they are based on the agreement of
the contracting parties.
Professor Corbin defines contract as "the legal relations between persons arising from a
voluntary expression of intention, and including at least one primary right in personam, actual
or potential, with its corresponding duty." However, the terms of a contract do not necessarily
include all the rights and duties which the law imposes when the contract is formed.
 Forms of Contracts
A contract can be expressed where it is written or oral in nature, or it can be implied where the
terms of the contract are drawn, at least in part, from the conduct of the parties.
 Types of Contracts
A contract can be:
i. Bilateral (both parties performing under the contract) - this is where the offer is open as to a
method of acceptance;
ii. Unilateral (only one party performs under the contract) - this is where the offer specifies
performance as the only permitted method of acceptance; or
iii. Inchoate (incomplete contract) – where the agreement remains incomplete in relation to
certain terms.
Other Types of Contracts
iv. Electronic Contracts or E-Contracts - these are any kind of contract formed in the course
of e-commerce by the interaction of two or more individuals using electronic means, such as email, the interaction of an individual with an electronic agent, such as a computer program, or
the interaction of at least two electronic agents that are programmed to recognize the existence of
a contract. Traditional contract principles and remedies also apply to e-contracts. This is also
known as electronic contract.
v. Quasi-Contract (or implied-in-law contract) – this is a fictional contract created by courts
for equitable, not contractual purposes. A quasi-contract is not an actual contract, but is a legal
substitute for a contract formed to impose equity between two parties. Where there is no contract
binding the parties but benefits have passed from one party to another which requires
remuneration, the concept is that a contract should have been formed in the circumstances, even
though in actuality it was not. The doctrine of quasi-contract is used when a court finds it
appropriate to create an obligation upon a non-contracting party to avoid injustice and to ensure
fairness. It is invoked in circumstances of unjust enrichment, and is connected with the concept
of restitution.
vi. Unenforceable Contracts - Agreements which are neither void nor voidable may,
nevertheless, be unenforceable by one or both parties. If such contracts produced no legal
consequences whatever, they would not be contracts at all. If either or both parties had the right
to avoid them at will, they would properly be described as voidable. But there is another class of
agreements which though not enforceable by ordinary legal remedies may, nevertheless, produce
certain legal consequences for the parties to them. Such agreements are sometimes called
agreements of imperfect obligation; but they may also be called unenforceable contracts. A
contract may be unenforceable because (1) no ordinary remedy is provided by the law for
obligations of such a character; (2) because some prerequisite for the full validity of the
obligation has not been performed; (3) because the remedy has been lost. Illustrations of the first
type are contracts with a government. These are enforceable against the government only so far
as it chooses; and yet such contracts are recognized by the law, and produce certain legal
consequences. Illustrations of the second type of case may be found in contracts within the
Statute of Frauds. The Statute does not render the original contract void, but a right of action is
denied against either or both parties while the requirements of the statute are not complied with.
The third type of case is illustrated by Statutes of Limitations, which though they bar a right of
recovery do not prevent the law from recognizing in various ways the existence of a contract.
Certain illegal contracts may also be classed as unenforceable by one or both parties rather than
as void or voidable, since legal effects are often produced by such contracts and their avoidance
does not always depend upon the wishes of the parties.
OFFER AND ACCEPTANCE
OFFER
What is an Offer?
An offer is a statement by one party of a willingness to enter into a contract on specified terms,
provided that these terms are, in turn, accepted by the party or parties to whom the offer is
addressed: Storer v Manchester City Council.
There is generally no requirement that the offer be made in any particular form; it may be made
orally, in writing or by conduct.
What are not Offers
When trying to identify whether the statement made was an offer or not, care must be taken as
sometimes another statement which appears to be an offer is made. Such statements may be:
1) A Mere Statement of Intention – this statement cannot form the basis of a contract even
though the party to whom it is made acts on it. Such statements can be altered in the future as the
party who makes them is only indicating what he believes that he would do and not what he is
sure that he wants to do: Re Fickus.
2) A Mere Supply of Information – this statement is simply a statement of information such as
supplying someone with the lowest prices on Televisions. The person receiving this information
cannot accept it and sue you if you do not deliver the T.V.’s in other words, when you enter a
store and ask the price of a pair of shoes, when the sales girl gives you the price, the store is not
obligated to sell you the pair of shoes. They were just supplying information to a question and
not making an offer to you that you could accept or reject: Harvey v Facey.
3) An Invitation to Treat: this is an expression of willingness to enter into negotiations with the
hope that a contract will be concluded: Gibson v Manchester City Council
An Invitation to Treat may arise in various circumstances:
 Advertisements – General Rule: ads in a newspaper (or on a billboard, on the internet,
light pole etc) are an invitation to treat: Partridge v Crittenden (1968) in this case, a
person was charged with offering a wild bird for sale, contrary to the protection of Birds
Act 1954, after he had placed an advertisement relating to the sale of such birds in a
magazine. The courts held that he could not be guilty of offering the bird for sale, as the
advertisement amounted to no more than an invitation to treat. However, where the
advertisement in question contains words of limitation such as “first come, first serve” as
in the American case of Lefkowitzor where there are words such as “we’ll accept the
lowest bid offered”.
Noteworthy, where an advertisement can be accepted through performing some act and
there is no need for any communication with the person responsible for placing the
advertisement in the newspapers or on the internet for example, then this can give rise to
an offer, e.g. An ad offering a reward to find a lost dog. In many instances, these ads can
be offers made to the whole country or the world according to the case of Carlill v
Carbolic Smoke Ball Company
 Display of Goods in a Shop Window – where goods are displayed in a showcase it does
not amount to an offer, but is only an invitation to treat. The classic case relating to goods
in a showcase is Fisher v Bell (1961) in this case a shopkeeper was prosecuted for
offering offensive weapons for sale, by having flick-knives on display in his window.
The courts held that the shopkeeper was not guilty, as the display in the shop window
was not an offer for sale; it was only an invitation to treat.
 Display of Goods on a Shelf Service Shelf - Pharmaceutical Society of Great Britain
v Boots Cash Chemist (1953) in this case the defendants were charged with breaking the
law which provided that certain drugs could only be sold under the supervision of a
qualified pharmacist. They had placed the drugs on open display in their self-service store
and although a qualified person was stationed at the cash desk, it was alleged that the
contract of sale had been formed when the customer removed the goods from the shelf,
the display being an offer to sell. The courts held that Boots were not guilty. The display
of goods on the shelf was only an invitation to treat.
 Tenders – are generally invitations to treat since a party is merely invited to make a bid
which gives rise to an offer and the other party issuing the invitation to tender, may
accept or reject that bid. However, all bids sent in on the deadline, must be considered
before any one bid is chosen: Blackpool
Also, if in the wording of the invitation to tender, there are words such as “the
lowest bid will be accepted, subject to the bidder complying with all the rules and
regulation to tender”, then the party inviting bids, might be bound to accept the
lowest bid once all the regulations were complied with.
 Auctions – General Rule: An auctioneer, by inviting bids to be made, makes an invitation
to treat. The offer is made by the bidder which, in turn, is accepted when the auctioneer
strikes the table with his hammer: British car Auctions Ltd v Wright.
i.
The advertisement of an auction is an invitation to treat: Harris v Nickerson;
ii.
Where the advertisement for an auction contains the words “without reserve”
then according to the case of Warlow and Harrison, the auctioneer makes an
offer that the sale will be without a reserve price and that offer is accepted by
the person who makes the highest bid (N.B. this offer is made by the
auctioneer and not owner of the goods. There is no concluded contract
between the owner of the goods and the highest bidder. All that there is, is a
separate contract between the auctioneer and the highest bidder);
To Whom Can An Offer Be Made?
 To a particular party or parties and cannot be accepted by anyone else: Boulton v Jones
in this case the defendant sent an order to a shop, not knowing that the shop had been
sold to the plaintiff. The plaintiff supplied the goods and the defendant consumed them
but did not pay, as he had a right to offset the debt against money the former owner owed
him. The plaintiff sued for the price of the goods. The defendant argued that there was no
contract obliging him to pay because his offer was an offer only the former owner could
accept because of the right to offset and the lack of knowledge of the sale of the business.
The courts agreed with the defendants and held that there was no contractual obligation to
pay.; or
 To the entire world through some medium as an advertisement in a newspaper, on the
internet, over the radio etc, where the courts can show that the person responsible for
placing the advertisement intended by his actions to be bound by the conditions contained
in the advertisement. Such was the case in Carlill v Carbolic Smoke Ball Company.
Knowledge of the Offer
A person cannot accept an offer that he/she does not know about. Therefore, if my dog is lost and
I place an ad in the supermarket offering a reward for its return and you return it without
knowing of that reward, then you are not entitled to claim the reward.
However, if you know about the reward, but your motive for performing the act was not really
based on the said reward, you can still claim it. Two cases have shed some clarity on this issue:
 An acceptance which is wholly motivated by factors other than the existence of the offer
has no effect: R v Clarke (1927) 40 CLR 227
 Where, however, the existence of the offer plays some part, however small, in inducing a
person to do the required act, there is a valid acceptance of the offer: Williams v
Carwardine (1833) 5 Car & P 566.
Vague Offers
 Vague about the price
Under the common law, where an offer is vague about the price, the offer will not be
enforceable. For example, if A offers to sell his car to B for a “fair price”, this will not be
a valid offer as the term “fair price” is vague.
 Vague about the Subject-Matter
Where the subject-matter of an offer is vague, this does not invalidate the offer, as
evidence can be brought to show what was meant by the offer.
Termination of the Offer
An offer may be terminated or brought to an end by:
 Acceptance
 Rejection
 Lapse of time: (a) after a specific period of time; or (b) after a reasonable time has
passed
 Revocation – this means cancellation of the offer. To cancel an offer, the following must
be satisfied: (i) the offer must be revoked any time before it is accepted, (ii) revocation
must be communicated to the offeree: Byrne v Van Tienhoven, but it does not have to
come from the offeror himself. It can come from a reliable third party (such as the
offerors wife): Dickenson v Dodds
 Death: (i) where the offeree dies the offer automatically ends, (ii) where the offeror dies
and the offer was for personal services such as to sing at a wedding, the offer terminates,
but if the offer was for something such as a stamp collection, after the offeror dies the
Legal Personal Representative of his estate may still complete the contract: Bradbury v
Morgan
 Counter-Offer: Where the offeree proposes to accept the offer on certain conditions,
then he/she destroys the original offer and cannot accept it at a later date: Hyde v
Wrench (1840) Wrench offered to sell his farm for £1000.00. Hyde offered £950.00,
which Wrench rejected. Hyde then informed Wrench that he accepted the original offer.
The courts held that there was no contract. Hyde’s counter-offer had effectively ended the
original offer and it was no longer open to him to accept it; Hyde was now making a new
offer to buy for £1,000.00, which Wrench could accept or reject.
ACCEPTANCE
In order to be valid, an acceptance must be an unqualified acceptance of all the terms of the
contract.
Communication of Acceptance
General Rule: In order to be effective, Acceptance must be communicated to the offeror. This
may be done by:
Word of mouth (orally)
In writing
Or by conduct
The Instances Where the Offeror Waives His Right to Communication of Accptance
Although the general rule is that acceptance must be communicated to the offeror, there are
instances where the offeror waives his right and the offeree does not need to communicate
acceptance to the offeror. These instances will arise where:
 There is Silence – the offeror informs the offeree that if he does not hear from him by a
certain date, he’ll deem that the offeree accepted his offer: Felthouse v Bindley;
 There is a Unilateral Contract – where the offeree need only enter into performance of
the act (e.g. responding to a flyer to find a lost dog). Where the offeree accepts the offer,
he only needs to communicate with the offeror when the act is completed: Carlill v
Carbolic Smoke Ball Company;
 The Postal Rule Operates: where this applies, there is no need to communicate
acceptance to the offeror: Adams v Lindsell(the rule is discussed in detail below).
Modes of Communication
The offeree may use one of two modes to ensure that the offeror is aware of his acceptance of the
offer in question. These are:
1. Instantaneous – face to face, telex, fax, text messaging, BBM, phone call etc. Where an
instantaneous mode of communication is used, the fax, text, etc is only effective when it comes
to the offeror’s attention: Entores v Miles Far East Corp. For example, if there was face to face
communication and a plane passed overhead at the same time, then the offeree would have to
repeat what he said. However, if the offeree was speaking clearly and audibly and the offeror did
not hear properly, a contract will be concluded. In this case it is for the offeror to let the offeree
know that he did not hear and ask him to repeat what he said.
As for messages sent by e-mail, fax, BBM etc, if the offeror did not receive them because the fax
machine or computer was not working due to his fault, then a contract will be concluded, but if it
was not his fault, then no contract will deem to have been concluded.
In Entores v Miles Far East Corp [1955] 2 QB 327 the courts looked at the issue of defects in
the offeror’s equipment. If it is as a result of the offeror’s fault, then a contract would exist, but
as Lord Denning stated, if the offeree sends for example a fax believing it to have gone and the
offer does not receive it as due to some technical difficulty that is not his, then no contract should
exist.
2. Non-instantaneous – The Postal Rule - Where acceptance by post has been requested or
where it is an appropriate and reasonable means of communication between the parties, then
acceptance is complete as soon as the letter of acceptance is posted, even if the letter is delayed,
destroyed or lost in the post so that it never reaches the offeror: Adams v Lindsell (1818) 1 B
&Ald 681, Household Fire Insurance Co. v Grant (1879) 4 Ex D 216.
However, the postal rule is a very harsh rule and applies to communications of acceptance by
cable, including telegram, but not to instantaneous modes such as telephone, telex and fax.
Therefore to offer some balance between the liability of the offeror and the rights of the offeree,
postal rule will not apply:
 Where the letter of acceptance has not been properly posted, as in Re London and
Northern Bank (1900), where the letter of acceptance was handed to a postman only
authorised to deliver mail and not to collect it;
 Where the letter is not properly addressed. There is no authority on this point;
 Where the express terms of the offer exclude the postal rule, i.e. if the offer specifies that
the acceptance must reach the offeror. In Holwell Securities v Hughes (1974), the postal
rule was held not to apply where the offer was to be accepted by "notice in writing".
Actual communication was required;
 It was said in Holwell Securities that the rule would not be applied where it would
produce a "manifest inconvenience or absurdity".
In the 2005 case of LJ Korbetis, the courts held that where the letter is lost or delayed in the
post as a result of the offeree’s negligence in addressing and posting the letter, then there would
be no liability on the part of the offeror for breach of contract.
Revocation of Posted Acceptance
Can an offeree withdraw his acceptance, after it has been posted, by a later communication,
which reaches the offeror before the acceptance?
There is no clear authority in English law. The Scottish case of Dunmore v Alexander (1830)
appears to permit such a revocation but it is an unclear decision. A strict application of the postal
rule would not permit such withdrawal. This view is supported by decisions in: New Zealand in
Wenkheim v Arndt (1873) and South Africa in A-Z Bazaars v Ministry of Agriculture
(1974). However, such an approach is regarded as inflexible.