Commercial Law 1. Creation of Contract 2. Elements of Contract 3. Offer and Acceptance

Creation of Contract In simple words, a contract is a bargain, a deal from which both parties expect to benefit. The business world is built on the ability to make an agreement and to know that it will be carried out or that some remedy will be obtained instead. Knowledge of the basic principles of law governing contracts will be very useful in every business enterprise. Essential to be able to distinguish those agreements which are contracts and legally enforceable from those which are not. Contract = Agreement enforceable by law, i.e. legally binding between the parties. Law = Contracts Act 1950

Elements of a Contract 1. Offer 2. Acceptance of that offer (some books may consider offer-acceptance as one topic) 3. Capacity 4. Consideration 5. Intention to create legal relation 6. Certainty of contract

Offer An offer or proposal is necessary for the formation of an agreement Definition of offer Section 2(a): when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal Section 2(c): the person making the proposal is called the “promisor” and the person accepting the proposal is called the “promisee”

Difference between invitation to treat and offer Offer should be contrasted with an option and an advertisement. Option is merely an undertaking to keep the offer open for a certain period of time. While an advertisement is an attempt to induce offer i.e. invitation to treat (ITT)

Advertisements Whether an advertisement is an offer or an ITT depends on the intention of the parties in each case. This can be illustrated in the case of Partridge v Crittenden [1968] 1 WLR In this case the court held that a classified advertisement in a magazine did not amount to an offer to contract. There is no sufficient offer to contract. An advertisement is usually silent on matters which are valid to the contract. For example, the availability of the product or service advertised. Thus, advertisements are not made as offers, but as an expression of willingness to negotiate. It invites the reader of the advertisement to request the service or goods mentioned. The reader is the party who make the offer to the advertiser upon which the advertiser may either accept or reject.

Display of Goods It is an ITT. An offer is made when the customer puts the goods in a basket or takes the item off the shelf. The contract is only made at the cashier’s desk when the customer pays for the items. This can be illustrated in the case of Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953] 1 QB 401 Facts: The defendants were charged under the Pharmacy and Poisons Act (UK), which made it unlawful to sell certain poisons unless such sale was supervised by a registered pharmacist. The case depended on whether there was a sale when a customer selects items he wished to buy and placed them in his basket. Payment was to be made at the exit where a cashier was stationed and in every case involving drugs, a pharmacist supervised the transaction and was authorized to prevent a sale. Held: The display was only an ITT. A proposal or offer was made when the customer put the goods in the basket. Hence the contract would only be made at the cashier’s desk. As such, the shop owners had not made an unlawful sale.

How about brochures? How about booking forms?

Elements of Offer 1. Certainty of offer 2. Communication of offer

Certainty of offer an offer must be a definite promise to be bound provided certain specified terms are accepted. It must be firm. What if the offeror use words such as “I hope to be able” or “I need to check with my business partner first…”? Do the words above indicate commitment?

Communication of offer Section 4(1) the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. This can be illustrated in the case of Carlill v Carbolic Smoke Ball Co. Ltd. [1893] 1 QB 256. Facts: In this case, the company advertised that they would offer $1000 to anyone who still succumbed to influenza after using a certain remedy for a fixed period. The plaintiff duly used it but nevertheless succumbed to influenza. The plaintiff then sued for the money. Held: The Court held that the communication of offer was completed when the offer came to the knowledge of the plaintiff. Hence since the plaintiff had accepted the offer made to the world at large, she is entitled to the money. Offer can be communicated either expressly or impliedly as per section 9.

Acceptance Section 2(b) - 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.

Elements of acceptance For a proposal to be converted into a promise, the acceptance of that proposal must be absolute and unqualified as per section 7(a). If parties are still in negotiation, an agreement is not yet formed. An acceptance is deemed qualified by introduction of new terms. Courts may consider this as counter offer which has the effect of destroying the original offer. This is illustrated in the case of Hyde v Wrench [1840] 3 Beav 344 – 49 ER 132. Facts: In this case the defendant offered to sell his estate to the plaintiff for $1000. In reply the plaintiff made a counter proposal to purchase at $950. Held: The court held that there was no contract existed between them.

Acceptance: Time & Manner Acceptance must be made within a reasonable time period as per Section 6(b). What amounts to reasonable time is a question of fact depending on the circumstances of each case. Acceptance must be done in some usual and reasonable manner, unless the proposer prescribe the manner in which it is to be accepted under section 7(b). If the acceptor deviates from the prescribed form, the offeror must not keep silent. If he is silent then he is considered as having agreed with the acceptance in the modified manner as per section 7(b).

Communication of Acceptance Acceptance is effective when it has been communicated. Section 4(2)(a) provides that communication of acceptance is complete as against the proposer when it is put in a course of transmission to him. Section 4(2)(b) provides that communication of acceptance is complete as against the acceptor when it comes to the knowledge of the proposer.

Acceptance by post This can be illustrated in the case Ignatius v Bell [1913] 2 FMSLR 115. In this case the letter of acceptance was not delivered by the postman but remained in the post office. The court held that acceptance was complete upon posting.

Acceptance by instantaneous methods Acceptance made by this mode must be actually come to the knowledge of the offeror in order to be effective and form a binding contract by virtue of the case Entores Ltd. V Miles Far East Corporation [1955] 2 QB 327.

Revocation of offer and acceptance Section 5(1) provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. A proposal may be withdrawn in any of the following circumstances, as per section 6(a) – (d) (a) by the communication of notice of revocation by the proposer to the other party; (b) by the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance; (c) by the failure of the acceptor to fulfil a condition precedent to acceptance; or (d) by the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance

Communication of Revocation Section 4(3)(a) The communication of a revocation is complete as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it. Section 4(3)(b) The communication of a revocation is complete as against the person to whom it is made, when it comes to his knowledge.

Following the rule stated above where acceptance is effective as against the acceptor only when it comes to the knowledge of the proposer, one may note that the acceptor can therefore revoke his acceptance before it comes to the knowledge of the proposer that is when he is able to revoke his acceptance by some speedier means of communication.