Law Of Contract

Introduction WHAT IS A CONTRACT? Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law. Section 2(e) defines agreement as “every promise and every set of promises forming consideration for each other.” Section 2(b) defines promise in these words: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.” From the above definition of promise, it is obvious that an agreement is an accepted proposal. The two elements of an agreement are: (i) offer or a proposal; and (ii) an acceptance of that offer or proposal. What agreements are contracts? All agreements are not studied under the Indian Contract Act, as some of them are not contracts. Only those agreements which are enforceable at law are contracts. The Contract Act is the law of those agreements which create obligations, and in case of a breach of a promise by one party to the agreement, the other has a legal remedy. Thus, a contract consists of two elements: (i) an agreement; and (ii) legal obligation, i.e., it should be enforceable at law. However, there are some agreements which are not enforceable in a law court. Such agreements do not give rise to contractual obligations and are not contracts. Examples (1) A invites B for dinner in a restaurant. B accepts the invitation. On the appointed day, B goes to the restaurant. To his utter surprise A is not there. Or A is there Law of Contracts 3 LAW OF CONTRACTS but refuses to entertain B. B has no remedy against A. In case A is present in the restaurant but B fails to turn-up, then A has no remedy against B. (2) A gives a promise to his son to give him a pocket allowance of Rupees one hundred every month. In case A fails or refuses to give his son the promised amount, his son has no remedy against A.

WHAT IS ACCEPTANCE Acceptance is derived from the Latin word ‘acceptare’ which means ‘to accept; to assent; to a promise made by another’. Acceptance denotes the act of receiving (willingly or with consent) Acceptance is main essential element for making a lawful contract. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted, becomes a promise. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. Thus “Acceptance” is the assent given to a proposal, and it has the effect of converting the proposal into promise.

RULES OF ACCEPTANCE Communication of acceptance  



 







The acceptance must be communicated: Robophone Facilities Ltd v. Blank [1966] 3 All E.R. 128. Prior to acceptance, an offer may be withdrawn. As acceptance must be communicated, the offeror cannot include an Acceptance by Silence clause. This was affirmed in Felthouse v Bindley, here an uncle made an offer to buy his nephews horse, saying that if he didn't hear anything else he would "consider the horse mine". This did not stand up in court, and it was decided there could not be acceptance by silence. An exception exists in the case of unilateral contracts, in which the offeror makes an offer to the world which can be accepted by some act. A classic instance of this is the case of Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q.B. 484 in which an offer was made to pay £100 to anyone who having bought the offeror's product and used it in accordance with the instructions nonetheless contracted influenza. The plaintiff did so and the court ordered payment of the £100. Her actions accepted the offer - there was no need to communicate acceptance. Typical cases of unilateral offers are advertisements of rewards (e.g., for the return of a lost dog). An offer can only be accepted by the offeree, that is, the person to whom the offer is made. An offeree is not usually bound if another person accepts the offer on his behalf without his authorisation, the exceptions to which are found in the law of agency, where an agent may have apparent or ostensible authority, or the usual authority of an agent in the particular market, even if the principal did not realise what the extent of this authority was, and someone on whose behalf an offer has been purportedly accepted may also ratify the contract within a reasonable time, binding both parties: It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance (called waiver of communication which is generally implied in unilateral contracts. If the offer specifies a method of acceptance (such as by post or fax), acceptance must be by a method that is no less effective from the offeror's point of view than the method specified. The exact method prescribed may have to be used in some cases but probably only where the offeror has used very explicit words such as "by registered post, and by that method only": see Yates Building Co. Ltd v. R.J. Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370. However, acceptance may be inferred from conduct (1877) 2 App. Cas. 666; Rust v. Abbey Life Assurance Co. Ltd

KINDS OF ACCEPTENCE There are three types of acceptance including express acceptance, implied acceptance, and conditional acceptance. In the world of merchant agreements, formal contracts are sometimes too tedious for a busy schedule. Instead, merchants, contractors, and buyers have developed these types of acceptance of a contract. While all of these methods are valid, it is always best to eventually sign a formal contract to ensure that there is something binding in case of a dispute. Whether it’s a handshake or signing the contract, under express contract law, express acceptance is exactly as it sounds, you expressly give your consent for the contract. Examples of expressly accepting a contract include your signature, orally agreeing to the offer, shaking hands, or even exchanging business cards with the offer and accepted terms. Express acceptance is the most obvious and leaves no room for doubt that the offer was accepted. IMLIED ACCEPTANCE Implied acceptance typically only happens when a report has already been set between you and your customers. Implied acceptance typically does not involve a contract, but rather is oral and action-based in nature. For instance, if you’ve always hired the same person to paint your house every two years and you stop by their shop and tell them that it’s been two years, they may just simply show up and paint your house, knock on the door, and you pay them. This was implied acceptance of the offer. The customer offered to let the painter paint his house again, and the painter accepted by going over to his house and painting it. Remember that implied acceptance is typically only considered valid if you have a previous history of this type of acceptance already with these persons. CONDITIONAL ACCEPTANCE:Conditional acceptance places an expectation on how the offer is accepted. The most common example of conditional acceptance is placing a time condition on the agreement. For instance, “I accept your offer to buy my TV that I placed on Craigslist, as long as you pick it up within the next hour.” You are placing a condition on the sale. If the person does not come within the next hour, under conditional acceptance, the offer is no longer valid.

ESSENTIAL ELEMENTS OF A VALID ACCEPTANCE 1. Acceptance must be absolute and unqualified: Section 7(1) of the Indian Contract Act provides that 'In order to convert a proposal into a promise, the acceptance must be absolute and unqualified. A qualified and conditional acceptance amounts to a counter offer which amounts to non acceptance. Moreover, an offer must be accepted in full. If only a part of the offer is accepted, the acceptance will not be valid. For example X offers to sell 400 quintals of sugar to Y at a certain price. Y accepts to buy 280 quintals only. It is not a valid acceptance since it is not the whole of the offer. In McPherson Vs. Alana, AIR 1951 SC 184, the plaintiff offered Rs. 6,000 for the purchase of defendant's house and adding that he could pay more if found reasonable, to which defendant replied, "Won't

accept less than Rs. 10,000" that was accepted by the plaintiff as counter offer. Court held that no contract is concluded between the party as second reply was a tender for the offer and not acceptance. 2. Acceptance must be in prescribed manner: Acceptance has to be made in the manner prescribed or indicated by the offered. If the offer is not accepted in the prescribed manner it is up to the offered to accept or reject such acceptance. But when the acceptance is not in the prescribed manner and the offered wants to reject it, he must inform the acceptor within a reasonable time that he is not bound by acceptance since it is not in the prescribed manner. If he does not do so within a reasonable time, he will be bound by the acceptance. Where no manner is prescribed. When no mode of acceptance is prescribed, acceptance must "be expressed in some usual and reasonable manner." 3. Acceptance must be communicated: The acceptance is valid only when it has been communicated to the offered. A mere silence or mere mental acceptance not evidenced by words or conduct is no acceptance. However, the offered, while making an offer, cannot impose a burden on the other party to communicate his refusal or rejection. He can only prescribe the manner in which the offer is to be accepted. In case Felt house Vs. Bindley (1863), 7 L.T. 835, F offered by a letter to buy his nephew's horse for £30 saying if I hear no more about him, I shall consider the horse is mine . The nephew sent no reply at all but told Bindley, his auctioneer, not to sell that particular horse as he intends to sell it to his uncle. Bindley, however, sold the horse by mistake. F sued auctioneer. It was held that F would not succeed as his nephew had not communicated acceptance and hence there was no contract. In Delhi Development Authority vs. Ravinder Mohan Aggarwal, 1999(3), SCC 172, it has been held that mere noting on the file of acceptance of the bid is not enough, it should be duly communicated. The knowledge of the bidder of such noting is inconsequential and can not give rise to contract. 4. Only authorised person should communicate about the acceptance: In order to make an acceptance valid, it should be communicated by the offeree himself or by a person who has the authority to accept. In case, Powell vs. Lee (1908), 99 L.T. 284. P applied for the post of a headmaster in a school. The Managing Committee passed a resolution appointing P to the post but this decision was not communicated to P. However, a member of the Managing Committee, in his individual capacity and without any authority, informed P about the decision. Subsequently, the managing committee cancelled its resolution and appointed some one else. P filed a suit for breach of contract. It was held that he was not informed about his appointment by some authorized person; hence there was no communication of acceptance. 5. Acceptance should be made within the time prescribed or within a reasonable time: If the offerer has prescribed a time within which offer must be accepted as, it must be accepted within the prescribed time. If no time is prescribed for acceptance, the offer must be accepted within a reasonable time. Otherwise the proposal will lapse. If the offer stipulates a period of 15 days, time would run from the date of the offer, or its transmission. If such offer stipulates reply by return post, it may be accepted by a letter posted on that date. But where a

specific time is prescribed for the receipt of an acceptance, it must reach the addressee before that time.

6. Acceptance must be after an offer There can be no acceptance without an offer. The accepter must be aware of the proposal at the time of acceptance. Thus, acceptance must succeed the offer. In other words, acceptance should follow the offer and not precede it. Example In a company share were allotted to a person who had not applied for them. Subsequently when he applied for shares, he was unaware of the previous allotment. The allotment of shares previous to the application is invalid.

CASE LAWS Harvey v Facey [1893] AC 552 Privy Council Harvey sent a Telegram to Facey which stated: -"Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid;" Facey replied by telegram:-"Lowest price for Bumper Hall Pen £900." Harvey then replied:- "We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession."

Held: The Privy Council held that there was no contract concluded between the parties. Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer. There was thus no evidence of an intention that the telegram sent by Facey was to be an offer

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Court of Appeal A Newspaper advert placed by the defendant stated:- £100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball £1000 is deposited with the Alliance Bank, shewing our sincerity in the matter." Mrs Carlill purchased some smoke balls and used them according to the directions and caught flu.

She sought to claim the stated £100 reward.

The defendant raised the following arguments to demonstrate the advertisement was a mere invitation to treat rather than an offer: 1. The advert was a sales puff and lacked intent to be an offer. 2. It is not possible to make an offer to the world. 3. There was no notification of acceptance. 4. The wording was too vague to constitute an offer since there was no stated time limit as to catching the flu. 5. There was no consideration provided since the 'offer' did not specify that the user of the balls must have purchased them.

Held: The Court of Appeal held that Mrs Carlill was entitled to the reward as the advert constituted an offer of a unilateral contract which she had accepted by performing the conditions stated in the offer. The court rejected all the arguments put forward by the defendants for the following reasons: 1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a mere sales puff. 2. It is quite possible to make an offer to the world. 3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance. 4. Whilst there may be some ambiguity in the wording this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls. 5. The defendants would have value in people using the balls even if they had not been purchased by them directly.

R v Clarke - rewards (1927) 40 CLR 227 Australian High Court A reward has been offered for anyone giving information which led to the conviction of those responsible for the murders of policemen. Clarke gave information which led to such arrest and conviction. However, his claim to the reward was resisted. Clarke's motive and intention in giving the evidence was to protect himself and to clear himself of the charge of murder. Only after arrest, conviction and appeal by the others, did Clarke think of claiming the reward

It was held that Clarke did not act "in reliance upon the offer or with the intention of entering into any contract" - although clearly, the convictions would not have come about without his evidence. Isaacs ACJ points out in his judgment the difficult case of Gibbons v Proctor (1891) where, by contrast, a policeman was allowed to recover a reward, although he did not know of the existence of the reward when he sent off the information. He points out that in Anson on Contracts it was stated that that decision was wrong, and that he (Isaacs) thought it was too. So a mere coincidence between the act required and the doing of that act is not sufficient - it requires some mental element connecting the two - and which we would call anintention - although we also know of course that in many cases, the intention involved does not go beyond the doing of the act itself - the intention to get on the bus, seldom involves an "intention" to create a contract, but we have no problems construing the situation as if there were such an intention. This is often done via the "objective test" idea - which was obviously thought not to be appropriate to this type of situation.

Gibson v Manchester City Council - reciprocity not imposed[1979] House of Lords We looked at this case in the previous lecture, (sale of Council houses) - the letter said it was not a formal offer and invited applications - Gibson sent in his letter saying "I accept" - the H/L held that the purported acceptance could not have been a real acceptance, because there was no offer on the table. Lord Diplock pointed out that Denning had rejected the conventional approach and said one should look at the position as a whole i.e. one should take a "global approach". But he pointed out that this may make outcomes less certain as the criteria involved are none too clear. The conventional approach does well for all but exceptional cases. Diplock also pointed out that there was a claim that Gibson had done much to improve his house, therefore there was a reliance based argument which did not prevail here - it being none too clear what Gibson had actually done. It should be noted that 2 offers, identical in terms, made at the same time or which cross in the post, will not create a contract because neither offer counts as an informed acceptance of the other -

Turner Kempson & Co v Camm - suggestions, not stipulations? (1922)Sup Ct Vict - Full Ct. Here we had an exchange of documents dealing with the sale of raspberry pulp. The final contract note delivered by the plaintiff to the defendant supplier, had provisions for delivery to take place in 3 lots of 5 tons each, with 10 days between

each delivery and contained provisions dealing with claims. At this stage the defendant claimed there was no contract and sought to avoid completion Counsel for the plaintiff suggested that the differences were not stipulations, but suggestions. However the view was taken that the effect of the letter with the contract note is to specify the terms of the acceptance, which is not an acceptance pure and simple - what purports to be an acceptance, attempts to incorporate different terms - it is clear that an acceptance is not to add anything to the offer, even if consistent with it.

R.A. Brierley Investments Ltd - no matching offer and acceptance(1966) 120 CLR 224 High Court of Australia Appeal from Supreme Court NSW On 1 October 1965, Brierley (the vendor) was the registered holder of 13,000 shares in the Hawkesbury Co. By 21 October it had 46,825 shares. On 16 Sept, another company called Landmark made offers for 51% of the share capital of Hawkesbury at 17s per share. Shortly after 1 Oct, B received the offer to buy which said that the offer would remain open for one month after 1 Oct. On 29 Oct, B accepted the offer with regard to 51% of its then holding (23, 880 shares). Landmark said the offer was only for 51% of the shares which were registered at 1 Oct and said it was prepared to treat the acceptance of the offer as a valid acceptance for 51% of the shares which were held at 1 Oct i.e. some 6,000. B said that the offer must be understood to relate to the number of shares at the time of the acceptance. B sought specific performance of the sale of the shares. If you look at this arrangement carefully you will find that there is no actual correspondence between any of the purported offers and acceptances. The majority of the court thought that the letter from Landmark to treat the acceptance for a reduced amount, gave rise to an implied acceptance of this by Brierley. The minority thought that this could not be right, for B continued to assert that there had been an acceptance for the whole amount. This need for harmony between offer and acceptance will not be satisfied in a situation called a battle of the forms where buyer and supplier of goods both issue their standard form contracts and each attempts to insist that it is its own document which constitutes the contract between the parties. How is this problem to be resolved?

Butler Machine Tool v Ex-Cell-O Corp - battle of the forms[1979] Court of Appeal In essence this was a transaction so typical of the modern ways of doing business. Both buyer and seller deal with each other in accordance with their standard forms for doing business, thinking little about the details of the transaction until something goes wrong - then each appeals to the forms which they sent to try and settle the matter. So whilst Lawton agrees with Denning as to outcome, could we say that his understanding of the analysis is the same? No, the "global approach" of Denning is clearly contrary to the "set rules" preferred by Lawton. Denning said that in deciding what terms prevail, one could take the first shot approach, the last shot approach, or a combination. Here the trial judge thought that the terms of the initial document prevailed throughout. Denning thought one should go by the last form which was sent without objection being raised. A lack of identity between alternative or competing forms may not be vital if one signifies or may be taken to signify the acceptance of the other to the exclusion of any consideration of the differences contained in them.

Sindel v Georgiou - "correspondence" depends upon intention(1984) 154 CLR 661 High Court of Australia - Appeal from Sup Ct NSW Here we had an "exchange of contracts" as part of a conveyancing transaction. The actual documents exchanged did not correspond with each other. The court held that the parties had agreed on the salient issues, and intended to enter a binding relationship. Although there were some blanks in the documents, they did not contradict each other, therefore the court would hold there to be a binding contract.

The United Nations Convention Contracts for the International Sale of Goods (1980) This provides that an acceptance which limits or modifies the offer is a counteroffer. A reply, purporting to be an acceptance with different terms (but not materially different) is an acceptance, unless the offeror objects promptly orally or in writing. A material difference will include matters such as price, quantity, quality, delivery details, provisions re liability or the settlement of disputes. Where acceptance is an executory promise in exchange in for another executory promise (an offer), it is BILATERAL

Where acceptance is an act in exchange for an executory promise (an offer), it is UNILATERAL

CONCLUSION For every agreement or proposal there is two basic elements that is offer and acceptance. Acceptance- When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Without the acceptance with full willingness of both the parties the agreement cannot be completed. Acceptance also has its types and it is treated as one of the most important component of agreement in any contract. It comes under section.2 of Interpretation clause of 2(b).