UGBS 203 Commercial Law I: Contract Law Formation

Course Information

• This is Lecture 2 of UGBS 203 Commercial Law I
• The lecture focuses on the Law of Contract and its formation
• Nasir Alfa Mohammed, Esq delivers the lecture
• Lectures take place on Tuesday 26th November 2024, 12pm-2pm for Group E and 4pm-6pm for Group A

Learning Objectives

• Explain the importance of studying contract law for business executives
• Explain the concept of a contract
• Describe the basic doctrines/principles of contract law
• Identify the essential elements for forming valid contracts: offer, acceptance, consideration, intention to create legal relations, and capacity

Why Study Contract Law?

• Professor Samuel Kofi Date-Bah highlights contract enforcement as vital for modern business or commercial law
• The Law of Contract forms the base of Business/Commercial Law

What is a Contract?

• A contract is an agreement that binds parties
• The parties of a contract intend to be legally bound
• Contracts are legally binding agreements in which persons undertake specific obligations, and enjoy specific rights
• Contracts give rise to obligations which the law enforces or recognises
• Sir Frederick Pollock describes a contract as an agreement involving exchange of promises
• The exchange of promises gives rise to enforceable rights and obligations
• A contract consists of an offer and acceptance with the mutual intention of being legally enforceable
• Therefore contracts must be voluntary, deliberate, legally binding agreements between two or more competent parties

Law of Contract Summary

• Contract law requires an existing agreement
• The parties must mutually agree on the subject matter and terms, usually in their mutual benefit
• The agreement contains promises made between persons to carry out obligations enforceable in court

Contract Doctrine

• Contracts facilitate exchange of goods and services in a business or commercial context (Adagewine, 2014)
• Contracts provide legal devices, procedures, rules, and principles for creating legal rights and obligations, which enables exchange to take place

Contractual Rights and Obligations

• A "right" is an entitlement, meaning someone is entitled to it and must have it
• An "obligation" is a duty to act or not act in a specified manner
• Contracts create contractual "rights" and "obligations" through binding agreements or promises
• Contractual rights & obligations are voluntarily undertaken by one or more parties

Binding Promises

• Parties are obligated to honor the contract terms
• Parties must intend to adhere to, and be bound by the mutually exchanged promises
• Legitimate expectations arise from the parties' mutual intention to be bound
• Breach of contract may cause disappointment or economic loss, entitling the other party to a cause of action
• Cause of action: A factual situation that entitles one party to a remedy against another in court

Promises vs Binding Relationships

• Not all promises are intended to create binding legal relationships
• Some promises, such as making a promise in jest, lack the intention to create a binding legal relationship
• There can be no legitimate expectation of performance for those promises
• Breaching a promise made in jest is unlikely to result in a cause of action
• In addition to obligation to honor contract terms, a contract is binding when the Parties clearly intend/desire to adhere to the mutually exchanged promises

Contract Parties

• Contracts are formed when persons (natural and legal) wish to do business
• Persons who enter a contract are "Parties"
• There must be certainty about the identity and capacity of parties to contract

Contract Subject Matter

• Every contract has a subject matter, which details the the parties agree to do or not do
• The subject matter is the reason for the contract
• Contracts must be lawful and ethical

Contract Freedom

• Contract parties are the best judges of their own interest
• The courts respect pre-agreed terms and will enforce them as binding when two capable parties voluntarily/freely enter into a genuine contract
• The courts do not interfere if the agreement is voluntary/free by competent Parties who have the capacity to contract

Contract Sanctity

• Parties can freely determine the terms of their contract
• Obligations undertaken voluntarily must to be abided by
• The Courts compel parties to keep promises unless terms are illegal, onerous, unjust, or unfair

Contract Privity

• Contracts primarily benefit/grant rights to the parties, not third parties
• There are some exceptions discussed in later lectures

Binding Contracts

• A binding contract requires offer, acceptance, intent to create legal relations, consideration, capacity, and legality

What is an Offer?

• An offer is an expression of willingness to contract on certain terms with the intention that it becomes binding upon acceptance (NTHC v Antwi)
• An offer is a proposal by an Offeror/Promisor to an Offeree/Promisee, expressing intent to contract if the Offeree/Promisee accepts

Offer Forms

• Offers can be made in words (orally), with exceptions for sale of land contracts
• Offers can be made in writing which creates a binding contract once the other accepts and communicates acceptance
• Offers can be be inferred from conduct: when actions imply intent to contract on certain terms

Valid Offer

• An offer has defined terms and conditions upon which the Offeror intends to be bound and the Offeree is willing or expected to act
• Terms are important, as they allow the Offeree to evaluate whether or not to accept

Clear and Precise Offers

• It is important that contract terms must be clear, precise and definite in substance
• Clear terms ensure common understanding and minimise disputes
• Ad idem is when their minds do not meet or they do not share a common understanding of the terms
• The courts usually decline to enforce a contract lacking clarity

Raffles v Wichelhaus

• Raffles v WWichelhaus (1864): A buyer contracted to buy cotton which would arrive on the ship "peerless" from Bombay
• Two ships were named peerless which sailed from Bombay, one in October, and one in December
• The buyer meant the October ship and the seller meant the December ship
• No contract existed because the agreement was ambiguous and failed to specify which ship

Communicated Offer

• An Offer must be communicated so the other party can to accept or reject
• Communication can be in words, writing, or conduct

Identifying the Offeree

• The communication must be made to the Offeree (a particular person, group/class of persons, or the whole world)
• An offer must be directly communicated to the Offeree in order to successfully establish a relationship
• Offers must have the conditions on which the relationship is proposed
• This provides the Offeree the ability to to accept or reject the Offer (Taylor v Laird (1856))

Objective Test Theory of Contract

• The Objective Test Theory of Contract applies when an offer is communicated to an unintended offeree who accepts it

Relevant factors are:

• Agreement testing should be objective (based on judging intentions from reasonable meanings of words and conduct)
• It should be based on subjective meanings
• Implication: Offers only apply to the intended parties, not simply anyone
• Only a direct offeree can accept to form a contract
• Offers are not transferrable

Offer to Class/Group of Persons

• Valid acceptance is determined by what constitutes the class/group
• Acceptance must also be by the class/group as a unit

The objective intention of the Offeror is paramount

• If the intention is to contract with each individual, then each can accept the offer
• Alternatively, if the intention is to contract with the class/group united, then the class/group can accept the offer as a unit

Offer to General Public

• These offers request an action to be performed or the fulfillment of a condition for reward
• Any aware member of the public can accept the Offer, if they are are interested through fulfilling conditions
• An Offeror doesn't have to be interested in every Offeree. They can be indifferent as to whom they perform the act, and are willing to work with whoever

Carbolic Smoke Ball

• While offers can be directed to the masses, a person cannot contract with the whole world
• Read Carlill v Carbolic Smoke Ball (1982) 2 QB 484
• The Offeror only intends to do business with those public members aware of the Offer and its specific conditions
• Acceptance of an offer without the knowledge of its existence does not result in a contract
• The essential characteristic of a valid offer is its finality which distinguishes it from "invitation to treat"
• Must not leave any significant terms open for negotiation during further negotiations
• It may be interpreted as an invitation for the other party to put forward a proposal that qualifies as an offer

Counter Offers,

• A counter-offer responds to a prior offer and is made during final contract negotiations
• Tinn v. Hoffman (1873) Counter offers reject or nullify a prior offer and won't a create binding contract

Invitations to Treat

• Invitations to treat are invitations to initiate negotiations. It is not intended to create any immediate result in a contract
• Gibson v. Manchester City Council (1979) The language "we may be prepared to sell to you” is not final, thus cannot be a contract
• NTHC v. Antwi clarifies offers need to be definite/final, not leaving significant terms open

Display of goods

• Displaying goods on shelves does not signify an offer
• It implies an invitation to offer / negotiate the terms of an agreement

Fisher v. Bell

• Fisher v. Bell [1961] A shopkeeper displayed a flick knife, which the court held as an invitation to treat. it was not an offer because it was not final

Boots Cash

• Pharmaceutical Society of Great Britain v Boots Cash [1953] the court held that Displaying items is not an offer, nor is taking items
• If the item is brought to the cash desk it implies and offer,

Grainger v. Son & Gough

• Grainger v. Son & Gough (1896) found that price lists, catalogues and brochures are not offers, they are treated as invitations to treat because the terms are not finalized

Advertisements as invitation to treat

• Goods advertised are typically interpreted as invitations to negotiate, not offers

Partridge v. Crittenden

• Partridge v. Crittenden (1968); An advert advertised "Bramblefinch cocks and hens – 25s each" and was considered an invitation to treat
• The general rule is that promises in advertisements create intention to contract if they were designed in that way

Carlill v. Carbolic Smoke Ball

• Carlill v. Carbolic Smoke Ball the company was bound to award a reward for consumers if what it said in the advertisement was complied with"

Auctions

• Advertised auctions are invitations to offers, not contractual bids
• Harris v. Nickerson (1873), the sale of certain goods advertised was not an offer at a specific time

Key Auction Elements,

• Bidders can withdraw from auctions and their sale at any moment
• The fall of the hammer indicates price and quantity of an auction
• No withdrawals can be made with Single bids before the fall of the hammer

Reserve Prices

Where the auction is "without reserve price", the winner is binded to offer or reserve price

Offer Termination Conditions

• Termination happens when it has been revoked, this cannot be accepted and with no consequence
• Revocation must be done at any time before it's accepted
• You cannot revoke an offer once it has been accepted

Postal Communication,

Rules of Postal Communication:

• It has to be communicated to the Offeree done expressly of through inference
• You must ensure the Offeree receives it; This is a departure from postal rule
• The date of revocation is not when postmarked, it's when it's received,
• Unilateral promises cannot be revoked, if the act performed has already started, Errington v. Errington (1952)

Offer can terminate through rejection

• The Offeror is at liberty to revoke the Offer if it can be established that the Offer has been rejected by the Offeree
• Tinn v. Hoffman (1873) It was held that Counter offers can reject or nullify your binding

Offers can terminate through Counter-Offer,

• Hyde v. Wrench (1840), the Defendant wrote to Plaintiff offering to sell his farm to him for £1,000 but Plaintiff's agent wrote an Offer of £950
• the Plaintiff then wrote accepting the original Offer of June 6 then this means that there was no sale
• The court held that if the offer was already rejected with a counter-offer, then there's no contract
• This killed or destroyed the original Offer

More Offer Termination Conditions

• The offer can be terminated through The passing of specified time, invalidating any offers after
• Ramsgate Victoria Co. v. Montefiore (1866) is you don't specify reasonable time then it's implied, Manchester Diocesan Council for Education v. Commercial and General Investment Ltd. (1970), then it will also lapse
• The Offer will terminate on the death of the Offeree or Offeror, and a member cannot do so on anyone elses behalf and offer cannot be transferred (Bradbury v. Morgan (1862))

Contract Acceptance

• To accept implies an understanding to agree with what has been offered and accepted in the process
• This refers to the authorization of what has been signed, the qualified agreement in how the parties will do business (or not) based on the agreements being set forth

Some of the Key factors are:

• This refers to final details within the terms that dictate the authorized offer from therein, and this must be communicated to the Offeree, whether done expressly or by way of conduct (Holwell Securities v. Hughes)
• In most instances, the offer has to be written by all Parties (especially with something pertaining to money) and so all have a certain means regarding their decision in good standing

Lecture 2 of UGBS 203 covers contract law formation. It Highlights the importance of contract enforcement in modern business. Key elements for valid contracts including offer, acceptance, consideration, intention, and capacity are identified.