Agreements enforceable by law are
contracts
Who will ensure that the
agreements are honoured? Certainly not the disputing parties themselves. It has
to be somebody beyond and above them, who can force them to fulfil their
respective obligations. And that is the state, the governing mechanism of the
society. More specifically, it is the courts, which decide disputes on
contracts.
We have an expectation from
people that they will do what they have agreed to do. If they do not fulfil
their agreements, agreements would be meaningless. There will be chaos in all
spheres of social and economic life. In fact, human society, with all its
complex transactions, has survived because people have, one way or the other,
fulfilling what they have agreed to do. For the very survival of human
society, it is necessary to ensure that the agreements are honoured.
The Contract Law is mostly
Commonsense.
Formation of agreements
An agreement is about the meeting
of two minds. This can be formed when one party makes an offer and the
other accepts it. An offer or proposal can be accepted or rejected. If the
offer is rejected, that is the end of it. However, if an offer is accepted, an
agreement is formed.
Offer and acceptance can be
express (spoken or written in words) or implied in gestures, body language,
actions, commissions and omissions.
Contracts formed through spoken
or implied offers and/or acceptances, are as valid as contracts formed through
a written offer and acceptance
The founding principle for the
formation of agreements is the meeting of minds (consensus ad idem),
offer and acceptance is only a modality.
OFFER
Section 2(a) of the Indian
Contract Act, 1872 defines the term "Proposal"
as when one person signifies to another his willingness to do or to abstain
from doing something with a view to obtaining the assent of the other to such
an act or abstinence, he is said to make a proposal. The person making the
'proposal' or 'offer' is called the
'promisor' or 'offeror', the person to whom the offer is made is called the 'offeree'.
An offer is an expression to
contract without further negotiations. It requires only acceptance from the
other party to form a contract.
· Offer
must be communicated to the offeree. [Lalman
Shukla v Gauri Datta (1913)] It is the duty of the offeror to
communicate all the terms of the offer to the offeree. Actual communication of
such terms may not be required.
· Offer
constitutes a willingness to do some act or abstinence.
· Offer
must be made to some other person. An offer can be made to a particular
person. Offer can be made to a group of persons. Offer can be made to the
whole world (such offers can be Continuing Offers or Offers of Reward for
Information). [Carlill v Carbolic Smoke Ball Co (1893)]
· Offer
may be expressed or implied.
· Offer
must be made with a view to obtaining the assent of the other and should not be
an expression of intention or enquiry. [Harris
v Nickerson (1872) & Harvey v Facey (1893)]
· Offer
may be conditional.
· The
terms of the offer must be certain.
· An
offer must not thrust the burden of acceptance on the offeree. [Felthouse v Bindley (1862)]
Revocation of Offer
· An
offer can be revoked.
· It
may come to an end due to lapse of time.
· It
may be revoked when the acceptor fails to fulfil the condition precedent to
acceptance.
· It
may be revoked by the death or insanity of the proposer.
· A
long silence implies a rejection of an offer.
Note
· Internet
is only a medium for communication. The content of the communication decides
whether it is an invitation to offer or an offer.
· Advertisements
can be offers or invitations to offer depending upon the intended
communication.
· Ordinarily,
displays in shop windows, product catalogues and price lists are invitations to
offer. [Fisher v Bell (1961)]
· Ordinarily,
in a self-service store, the customer offers.
· Ordinarily,
in auctions and tenders, the bidders offer.
· Choice
of words used to express an offer will not decide whether a communication is an
offer or not. The essence of communication is important for this purpose.
Cases:
1.
Lalman Shukla v Gauri Datta (1913)
‘It is the duty of the offeror to communicate
all the terms of the offer to the offeree. Actual communication may not be
required.’
Summary:
Defendant’s nephew absconded from home. He sent
his servant in search of the boy. When the servant had left, the defendant by
handbills offered to pay Rs.501 to anybody discovering the boy. The servant
came to know of this offer only when he had already traced the missing child.
He, however, brought an action to recover the reward. But his action failed.
2.
Carlill v Carbolic Smoke Ball Co
(1893)
It is an English contract law
decision by the Court of Appeal, which held an advertisement containing certain
terms to get a reward constituted a binding unilateral offer that could be
accepted by anyone who performed its terms.
Summary
The Carbolic Smoke Ball Co. made a product
called the "smoke ball" and claimed it to be a cure for influenza and
a number of other diseases. (The 1889–1890 flu pandemic was estimated to have
killed 1 million people. The smoke ball was a rubber ball with a tube attached.
It was filled with carbolic acid (or phenol). The tube would be inserted into a
user's nose and squeezed at the bottom to release the vapours. The nose would
run, ostensibly flushing out viral infections.
The Company published advertisements in the
Pall Mall Gazette and other newspapers on November 13, 1891, claiming that it
would pay £100 to anyone who got sick with influenza after using its product
according to the instructions provided with it.
“£100 reward
will be paid by the Carbolic Smoke Ball Company to any person who contracts the
increasing epidemic influenza colds, or any disease caused by taking cold,
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, Regent Street, showing our sincerity in the matter.
During the last epidemic of influenza many thousand carbolic smoke balls were sold as
preventives against this disease, and in no ascertained case was the disease
contracted by those using the carbolic smoke ball.
One carbolic smoke
ball will last a family several months, making it the cheapest remedy in the
world at the price, 10s. post-free. The ball can be refilled at a cost of 5s. Address:
“Carbolic Smoke Ball Company”, 27, Princes Street, Hanover Square, London.”
Mrs Louisa Elizabeth Carlill saw the
advertisement, bought one of the balls and used it three times daily for nearly
two months until she contracted the flu on 17 January 1892. She claimed £100
from the Carbolic Smoke Ball Company. They ignored two letters from her
husband, a solicitor. On the third request for her reward, they replied with an
anonymous letter that if it is used properly the company had complete
confidence in the smoke ball's efficacy, but "to protect themselves
against all fraudulent claims", they would need her to come to their
office to use the ball each day and be checked by the secretary. Mrs Carlill
brought a claim to court. The barristers representing her argued that the
advertisement and her reliance on it was a contract between the company and
her, so the company ought to pay. The company argued it was not a serious
contract.
3.
Felthouse v Bindley (1862)
It is the leading English
contract law case on the rule that one cannot impose an obligation on another
to reject one's offer. This is sometimes misleadingly expressed as a rule that
"silence cannot amount to acceptance".
Summary
Paul Felthouse was a builder who
lived in London. He wanted to buy a horse from his nephew, John Felthouse.
After a letter from the nephew concerning a discussion about buying the horse,
the uncle replied saying,
"If I hear no more about him, I consider the horse mine at
£30.15s."
The nephew did not reply. He was
busy at auctions on his farm in Tamworth. He told the man running the auctions,
William Bindley, not to sell the horse. But by accident, Bindley did. Uncle
Felthouse then sued Bindley in the tort of conversion - using someone else's
property inconsistently with their rights. But for the Uncle to show the horse
was his property, he had to show there was a valid contract. Bindley argued
there was not, since the nephew had never communicated his acceptance of the
uncle's offer.
Note: Later the case has been rethought because it appeared
that on the facts, acceptance was communicated by conduct.
4.
Harris v Nickerson (1872)
The case established that an
advertisement that goods will be put up for auction does not constitute an
offer to any person that the goods will actually be put up and that the
advertiser is, therefore, free to withdraw the goods from the auction at any time
prior to the auction.
Summary
The defendant was an auctioneer
who had advertised in the London papers that he would sell certain brewing
materials, plant, and office furniture by auction at Bury St. Edmunds over a
period of three specified days. The plaintiff was a commission broker in
London, who attended the sale on the final day (on which it had been advertised
that the office furniture, which he had commissioned to purchase, would be sold).
However, on that day, the defendant withdrew all the lots of furniture.
The claimant sought to recover
his expenses and the time which he had wasted in attending the auction from the
defendant, arguing that the withdrawal of the lots was a breach of contract
which had been formed by the offer made by the defendant in the advertisement,
and accepted by the claimant in attending the auction.
5.
Harvey v Facey (1893)
Its importance in case law is
that it defined the difference between an offer and supply of information. The
Privy Council held that indication of the lowest acceptable price does not
constitute an offer to sell. Rather, it is considered an offer to treat (i.e.,
to enter into negotiations).
Summary:
The case involved negotiations
over a property in Jamaica. The defendant, Mr LM Facey, had been carrying on
negotiations with the Mayor and Council of Kingston to sell a piece of property
to Kingston City. On 7 October 1891, Facey was travelling on a train between
Kingston and Porus and the appellant, Harvey, who wanted the property to be
sold to him rather than to the City, sent Facey a telegram. It said, "Will
you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid".
Facey replied on the same day: "Lowest price for Bumper Hall Pen
£900." Harvey then replied in the following words. "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."
Facey, however, refused to sell at
that price, at which Harvey sued. Harvey succeeded in his action at trial, but
Facey appealed to the Court of Appeal, which reversed the trial court decision.
The appellants obtained leave from the Supreme Court of Judicature of Jamaica
to appeal to the Queen in Council (i.e. the Privy Council). The Privy Council
reversed the Supreme Court's opinion, reinstating the trial court's decision
and stating the reason for its action.
The Privy Council advised that no
contract existed between the two parties. The first telegram was simply a
request for information, so at no stage did the defendant make a definite offer
that could be accepted.
6.
Fisher v Bell (1961)
The case established that, where
goods are displayed in a shop together with a price label, such display is
treated as an invitation to treat (to enter into negotiations) by the seller,
and not an offer. The offer is instead made when the customer presents the item
to the cashier together with payment. Acceptance occurs at the point the
cashier takes payment
Summary
The Defendant displayed a flick
knife in the window of his shop next to a ticket bearing the words
"Ejector knife – 4s" (i.e. four shillings). Under the Restriction of
Offensive Weapons Act 1959, section 1(1), it was illegal to manufacture, sell,
hire, or offer for sale or hire, or lend to any other person, amongst other
things, any knife "which has a blade which opens automatically by hand
pressure applied to a button, spring, or other devices in or attached to the
handle of the knife". On 14 December 1959, the Claimant, a chief inspector
of the police force, brought forward information against the Defendant alleging the
Defendant has contravened section 1(1) by offering the flick knife for sale.
Unqualified
Acceptance
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;
· An
offer should be accepted without changing its terms.
· Changing
the terms of the offer amounts to an implied rejection of the offer.
· An
acceptance changing the terms of an offer is a counter-offer.
· Acceptance
should be directed and communicated to the person making the offer.
· Mental
acceptance is no acceptance. [Felthouse v
Bindley (1862)]
· Silence
can only imply rejection, not acceptance.
· An
offer can specify the modality of communication of acceptance.
· It
cannot be made in ignorance of the offer.
· It
must be given before the offer lapses.
Intention to create legal
relations
The requirement of intention
to create legal relations in contract law is aimed at sifting out cases
that are not really appropriate for court action. Not every agreement leads to
a binding contract that can be enforced through the courts. For example, you
may have an agreement to meet a friend at a restaurant. You may have
a moral duty to honour that agreement but not a legal duty to do so. This is
because, in general, the parties to such agreements do not intend to be legally
bound, and the law seeks to mirror the party's wishes. In order to determine which
agreements are legally binding and have an intention to create legal
relations, the law draws a distinction between social and domestic
agreements and agreements made in a commercial context. [Balfour v Balfour (1919), Merritt v Merritt
(1970) & Rose & Frank Co v JR Crompton & Bros Ltd (1924)]
Cases:
1.
Balfour v Balfour (1919)
It is a leading English contract
law case. It held that there is a rebuttable presumption against an intention
to create a legally enforceable agreement when the agreement is domestic in
nature.
Summary
Mr Balfour was a civil engineer and worked for the Government as the Director of Irrigation in Ceylon (now Sri
Lanka). Mrs Balfour was living with him. In 1915, they both came back to
England during Mr Balfour's leave. But Mrs Balfour had developed rheumatic
arthritis. Her doctor advised her to stay in England because the Ceylon
climate would be detrimental to her health. Mr Balfour's boat was about to set
sail, and he orally promised her £30 a month until she came back to Ceylon.
They drifted apart, and Mr Balfour wrote, saying it was better that they remain
apart. In March 1918, Mrs Balfour sued him to keep up with the monthly £30
payments.
2.
Merritt v Merritt (1970)
It is an English contract law
case on the matter of creating legal relations. While under the principles
laid out in Balfour v Balfour, domestic agreements between spouses are rarely
legally enforceable. This principle was rebutted where two spouses who formed
an agreement over their matrimonial home were not on good terms.
Summary
Mr Merritt and his wife jointly
owned a house. Mr Merritt left to live with another woman. They made an
agreement (signed) that Mr Merritt would pay Mrs Merritt a £40 monthly sum and eventually transfer the house to her if Mrs Merritt kept up the monthly
mortgage payments. When the mortgage was paid, Mr Merritt refused to transfer
the house.
3.
Rose & Frank Co v JR Crompton &
Bros Ltd (1924)
It is a leading decision on
English contract law, regarding the intention to create legal relations in
commercial arrangements.
Summary
Rose and Frank Co was the sole US
distributor of JR Crompton's carbon paper products. In 1913, the parties signed
a new document which included this clause:
This arrangement is not entered into, nor is this memorandum written,
as a formal or legal agreement and shall not be subject to the legal jurisdiction
in the law courts ..., but it is only a definite expression and record of the
purpose and intention of the three parties concerned to which they each
honourably pledge themselves with the fullest confidence, based upon past
business with each other that it will be carried through by each of the three
parties with mutual loyalty and friendly co-operation.
The relationship between the two
parties broke down as JR Crompton refused to supply some of the orders of the
plaintiff. Rose & Frank Co sued on enforcement of the agreement. Held that
there was no binding and legally enforceable contract between the two companies
as there was no intention to create a legal relationship.
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