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1
Law of Contract
2
LAW OF CONTRACT
What is a Contract?• 1) A contract is an Agreement
• 2) Giving rise to Obligations
• 3) Enforced or recognised by the Law.
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LAW OF CONTRACT
AgreementThere must be :
• 1) a Definite Offer.
• 2) an Unqualified Acceptance.
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LAW OF CONTRACT
Agreement ?• Have the parties reached agreement?
• 1) The Courts will analyse by looking at the dealings in context of Offer and
Acceptance?
• 2) The test is objective !
Parties real Intention not relevant
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LAW OF CONTRACT
Analyse Agreement• Based on Offer and
acceptance model• “Mirror image rule”
e.g If seller’s offer(terms) differs from buyers, terms, No mirror image
• An unequivocal offer
matched by an
unequivocal acceptance
• Butler V Ex- Cell -O Corporation (1979)
• Held: Seller, became offeree who accepted the terms by replying thru tear off slip, to buyer.
• Gibson V Manchester City Council (1979)
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LAW OF CONTRACT
Objective test?• 1) Test : what parties actually said and did, and from
that, courts, will conclude as to what they agreed upon.• 2) (Not what they intended to say or do.)
see :• Smith V Hughes (1871) as Per J Blackburn• Centrovincial Estates V Merchant Investors (1983)• But see: The Hannah Blumenthal
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LAW OF CONTRACT
Offer-Definition
• 1) Definition of Offer - Expression of willingness to contract made with intention that it shall become binding on the offeror upon acceptance by the offeree.
• 2) Did parties make a definite offer and other responded with an unqualified acceptance of that offer.
• Butler V Ex-Cell O Corpn (1979)
• Gibson V Manchester City Council (1979) HL
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LAW OF CONTRACT
An Offer• ..Is a statement by
one party of a willingness to enter into a contract on stated terms, provided terms are accepted by other party or parties.
• Can be oral, written or by conduct
• Gibson V Manchester City(1978)CA (1979)HL.
Lord Denning said look at the intention from the general terms, even if some differ.
HL disagreed, said look at offer and acceptance.
Held : There was no offer
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LAW OF CONTRACT
OfferMay be in :
1) writing
2) Verbal
3) or implicit in conduct.
1)Bilateral or
2)Unilateral.
• i.e Offer may be made to one person or to the world at large
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LAW OF CONTRACT
Offer-Unilateral Contract• Offer can be
addressed to individual or to group or to world at large
• Carlill V Carbolic Smoke ball (1893)
• 1) Its possible to make an offer to the world.
• 2) the use of the ball (performance) amounted to acceptance.
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LAW OF CONTRACT
Invitation to treat V Offer1) Invitation to treat :• is an invitation to
make an offer• an expression of
willingness to enter into negotiations which could lead to conclusion of contract
• Gibson V Manchester City Council (1978)
• Held: letter by treasurer was an invitation to treat
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LAW OF CONTRACT
Invitation to treat• 1) Advertisements
• 3) Tenders
• 2) Display of Goods
• 4) Auctions
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LAW OF CONTRACT
Advertisements• Advertisements in
news papers, circulars, catalogues of goods for sale are purely Invitations
• Partridge V Critendden
advertisement in a periodical to sell a wild bird, held not to constitute offer, ..Protection of Bird’s Act 1954.
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LAW OF CONTRACT
Adverts v Unilateral contracts1) A contract arising
where an offer is made in the form of a promise to pay in return for the performance of an act…so that performance is taken as assent.
• Carlill V Carbolic Smoke ball (1893)
• No need for communication of acceptance in unilateral contract…all that’s required is performance
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LAW OF CONTRACT
Display of Goods• 1) A shopkeeper who
displays his goods with a price tag on it, is not making an offer…but merely asking public to make an offer for it….ie.He is inviting an offer
• Pharmaceutical Society of Great Britain V Boots cash Chemists (1953)
• Held : No offence because no sale done until acceptance by cashier.
• Fisher V Bell (1961) Flick Knife case
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LAW OF CONTRACT
Tenders• Tenders are
Invitations to treat…
Unless one expressly undertakes to accept the highest bidder, in a unilateral contract.
• Spencer V Harding (1870)
• Harvela Investments V Royal Trust (1986)
• HL Held: If in a confidential offer, one undertakes to accept highest offer…its an offer made to the to highest bidder.
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LAW OF CONTRACT
Auctions• The general rule is
that an auctioneer, when he invites the bids, is making an invitation to treat.
• Thus a bid is an offer and the fall of the hammer is the acceptance
• British Car Auctions V Wright (1972)
• Payne V Cave (1789)• S 57 (2) : fall of the
hammer. & S58 (2) : bidder may withdraw offer before hammer.
• Sale of Goods Act 1979
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LAW OF CONTRACT
Auctions• An advertisement that
an auction would take place is an invitation to treat,..not an offer.
• Offer is made only when the bidder bids and its accepted by the fall of the hammer.
• Harris V Nickerson (1873)
• Held : Advertisement of auction was an invitation.
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LAW OF CONTRACT
Public Transport• Offer made by the
transport company, plying the route, and the acceptance occurs when the passengers board the bus.
• Wilkie V London Passenger Transport Board (1947).
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LAW OF CONTRACT
Sale of Shares• When a company
“offers to the public” shares for them to subscribe to , they are inviting an offer for the public to make an offer for the share allotments.
• Exception :• When the company
issues shares, as rights issues to its existing shareholders,... the letter informing shareholders is an offer.
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LAW OF CONTRACT
Bilateral and UnilateralBilateral Contracts• A promise for a
promise.
Unilateral Contracts• A Promise for an Act.
• Calls for an acceptance in the form of an unqualified promise to perform according to terms.
• Unilateral - Carlill V Carbolic Smokeball (1893).
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LAW OF CONTRACT
Revocation of Offer
• Offer can be revoked at anytime before acceptance
• Payne V Cave(1789)
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LAW OF CONTRACT
Revocation of Offer• Exceptions to the
rule, above.• Where Offeror
promises to keep the offer open for a specified period & offeree has given some consideration (option agreement).
• Routledge V Grant (1829)
• Held : An option agreement (is a separate contract), is an agreement to keep offer open till, the specified date.
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LAW OF CONTRACT
Communication of Revocation1) Revocation of offer is
only effective if and when offeror actually communicates his withdrawal to the offeree, before the acceptance.
• Byrne V Van Tienhoven(1880)
• Held : Revocation effective only upon actual communication..ie upon the receipt of the letter of revocation.
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LAW OF CONTRACT
Communication of Revocation
1) Revocation need not be communicated directly.
2) Offer cannot be accepted after Offeror had decided to sell the land, and the offeree had the knowledge of the sale, to someone else.
• Dickinson V Dodds (1876) CA
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LAW OF CONTRACT
Communication of Revocation
• In the case of Unilateral Offers, Offer cannot be revoked once performance
(acceptance) has begun,..even if it had not been completed.
• Errington V Errington and Woods(1952) CA
• Facts : Father bought son & Daughter in law, a house, and they were required to pay off the mortgage.
• Held : as per Denning LJ, since they started to pay the mortgage offer cannot be revoked.
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LAW OF CONTRACT
Communication of Revocation• Once Offeree
embarks on the performance of his promise, its too late for the offeror to revoke.
• Daulia Ltd V Four Millbank Nominees (1978)
• But see : Luxor Ltd. V Cooper (1941)
• Held : Claimant not entitled to commission because payable only upon completion of sale.
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LAW OF CONTRACT
Lapse of OfferAn Offer may lapse when : • 1) Rejected by Offeree
• 3) Lapse of time
• 2) Occurrence of a Terminating condition
• 4) Death of Offeror or Offeree
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LAW OF CONTRACT
Rejection of Offer• 1) An offer that is
rejected by an Offeree cannot be subsequently accepted by him.
• 2) A Counter-Offer is considered as a rejection of the original Offer.
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LAW OF CONTRACT
Terminating conditions• An Offer and its
acceptance, can be made subject to a condition.
• If that condition is not satisfied, the offer is not capable of acceptance.
• Financings Ltd. V Stimson (1962)
• Facts : express provision that car will be in good condition not met during acceptance, thus Offer not capable of acceptance.
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LAW OF CONTRACT
Lapse of time• 1) If an offer is not
accepted after an unreasonable amount of time : offer lapses
• 2) Where an Offer is stated to be open for a specified period of time : it terminates after expiry of time period.
• Ramsgate Victoria Hotel V Montefiore (1866)
• Facts : 08th June, D offered to buy shares, 23rd Nov, P accepted the Offer.
• Held : 06mths delay unreasonable. Offer Lapsed.
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LAW OF CONTRACT
Death of Offeror/Offeree• If performance of
promise by Offeree, personal to Offeror, then upon knowledge of death of Offeror,..the Offer lapses.
• Upon death of an Offeree, the Offer lapses.
• Bradbury V Morgan (1862)
• Reynolds V Atheron (1921)
• Held : obiter : Upon Offeree’s death Offer lapses, and thus