CONCEPT OF A CONTRACT AND FORMATION OF CONTRACT: OFFER NOTES

The Concept of Contract

A contract may be defined as agreement or bargain between two or more persons which is legally binding on the parties. The word ‘’person” is used here to include individuals, associations and corporations.

To say that an agreement is ‘’ legally binding” is merely a short way of saying that it is one to which the law gives its sanction. Sometimes, contracts are also referred to as legally enforceable agreements. This means that not all agreements are legally binding. For example, social arrangements are generally not legally binding and therefore outside the frame work of law. For example H, a husband makes a promise to his wife W, that on her next birthday he will give her a present of a car and the wife gladly accepts it. If H, refuses to give car to the wife on her next birthday, W cannot go to the court of law for the enforcement of that arrangement because social arrangements generally are not binding contracts.



Thus we can say that all contracts are agreements but not all agreements are contracts.

Take Note

A contract is a legally binding agreement.

 

4.4 Essentials of a Valid Contract

The essential intergradients or elements of a valid contract are:

1. There must be an agreement between two or more parties. One of them will make an offer and the other will indicate its acceptance. When an acceptance completely corresponds to the terms of the offer there is an agreement.
2. There must be an intention on the part of the part of the parties to create legal relationship. This means that if the parties to an agreement do not intend to produce legal consequences, the agreement does not qualify as a contract and is not legally binding on the parties.
3. There must be consideration unless the contract is under a seal.

The above three elements namely, agreement, intention to create legal relations and consideration must always be present for the formation of a contract, or before a contract can be said to have been concluded.

4. The parties to the contract must have capacity to contract.
5. Generally most contracts do not require a particular But certain contracts must be in writing or must be evidenced in writing or must be under seal or by deed.
6. Contents or terms of the contract. The parties will usually agree expressly on terms in their contract which they consider material. Such terms must be reasonably precise and complete. In addition, certain terms may be implied into a contract,
7. There must be genuine or real consent for an agreement to be a valid contract. Vitiating factors, such as mistake, misrepresentation, duress and undue influence may make a contract invalid because in these cases there is no genuine consent of the parties.
8. The agreement must be legal and possible. A contract is illegal when prohibited or forbidden by law, or contrary to public policy and is therefore void. Also, an agreement is not valid if it is impossible to perform at the time of making it.

If any of the above requirements is not present the contract is invalid and therefore not legally binding. If, on the other hand, all these essentials are present the agreement is legally binding. If any party refuses to abide by the contract there is a breach of contract and the other party is entitled to sue him for damages or other remedies.



4.5 Form of Contracts

(a) A contract can be made in any form. It may be in writing, or oral, or can be inferred from the conduct of the parties, or a combination of any of these. It is not necessary that a contract must be in writing.

Where parties make a contract by express words either oral or written, it is an express contract. Where a contract is not by express words but can be inferred from the conduct of the parties, it is an implied contract.

Example 1

A enters a shop and asks for a loaf of bread. B, the shopkeeper demands Kshs.35 for the loaf. A, pays Kshs.35 and collects the loaf. This is an illustration of an express contract where the parties expressly agree to make a contract.

Example 2

X enters a bus and pays the conductor the fare to his destination. Without saying anything. The conductor accepts the fare. This is an illustration of an implied contract where a contract is inferred from the conduct of the parties.

Generally no formalities are required to make a contract. There are, however, certain contracts which, in order to be binding, must be in writing and others which must be evidenced in writing.

• Contracts which must be in writing:

The following contracts are only valid if in writing:

1. Transfer of immovable property.
2. Hire purchase agreements.
3. Bills of exchange, promissory notes and cheques.
4. The transfer of shares in a registered company.
5. Acknowledgement of statute barred debts.
6. Employment contract for a period of three months or more. Intext Question

Name three contracts which must be in writing?

 

• Contracts which must be evidenced in writing

Certain contracts are only legally binding if they can be proved by evidence in writing. Such contracts include:

1. A contract of guarantee
2. Contracts for disposition of interest in land.
3. Money lender’s contracts.
4. Contracts for sale of goods worth over Ksh.200.

Intext Question

Name four contracts which are required to be evidenced in writing?

 

4.6 Classification of Contract

Contracts may be classified in the following different ways:

(a) Simple contracts and contracts under seal

Contracts may be classified according to their forms.

1. A simple contract can be made in any form. It need not be in any special form. It may be oral or in writing or it may even be inferred from the conduct of the parties. However, a simple contract must be supported by consideration otherwise it is void.
2. A contract under seal, also called a deed or a specialty contract is a contract which is required to be in writing and to be signed, sealed and delivered. Sealing and delivering are mere formalities

Section 2(1) of the Law of Contract Act in Kenya provides that no contract in writing shall be void or unenforceable merely on the ground that it is not under seal. If such contracts are not under seal they must be supported by consideration. A contract under seal or a deed need not be supported by consideration. The following contracts must be made under a seal:

• Contracts made without consideration
• Conveyance of the legal estate in land or any interest in land, including leases of land for more than three years.

(b) Void, Voidable, unenforceable and illegal contracts

Contracts may be classified according to their legal effects. A contract that does not

satisfy the relevant requirements of a valid contract may be void, voidable, unenforceable  and illegal contract.

1. A void contract is one which has no legal effect. It is no contract at all. The contract fails from the very beginning and no consequences can ensue from it. Here, the parties have attempted to make a contract, but the law will not give effect to it. When a contract is void, the title or ownership of the property which is subject matter of the contract will not pass from the seller to the buyer. The original seller,

i.e. the owner will, therefore, be able to recover the property from the buyer or from any other person to whom the buyer has sold it. Examples of void contract includes simple contracts without consideration, contracts entered under a genuine mistake and contracts by a minor to buy goods which are not necessaries.

1. A voidable contract is one where the law gives option to one of the parties to avoid or set it aside, thus rendering it void. Until avoided it remains valid. Such a contract is binding if the innocent party elects to treat it as binding and void if he opts to avoid it. The other party, however, has no option to avoid it. Under a voidable contract if a buyer of the property resells the property to a third person before the contract is avoided, the third person will acquire a good title, provided he bought it in good faith. Examples of voidable contracts are those by which the minor acquires an interest in subject matter of a permanent or continuing nature such as land, share in a company or contracts of partnership, and where one of the parties has been induced by the other by misrepresentation or duress or undue influence to enter into the contract.

• An unenforceable contract is a valid contract but cannot be enforced because of some technical defect, such as the absence of a note or memorandum in writing required under a statutory law. Under an unenforceable contract any goods or money transferred cannot be recovered even from the other party to the contract. For example, the Hire Purchase Act requires that a hire purchase contract must be in writing otherwise it is unenforceable. Consequently, where a hire purchase contract is not in writing the owner of the goods cannot enforce the agreement as against the hirer and therefore cannot recover the goods from the hirer. The hirer may be able to use the goods indefinitely even without paying the due instalments. Intext Question

Distinguish between a void, voidable and unenforceable contract?

 

1. Illegal contract is a contract made illegal by a statute or the common law. Such contracts are prohibited or forbidden by law and therefore illegal and void. Illegal contracts include contracts to commit a crime, a tort or a civil wrong, contracts contrary to morality, contracts prejudicial to the public safety, contracts that tend to promote corruption in public life, contracts tending to pervert the course of justice and contracts to defraud public revenue.

(c) Unilateral, Bilateral and Multilateral Contracts

Contracts can also be classified on the basis of obligations of the parties

A unilateral contract is a contract under which only one party has an obligation but the other party has no obligation to perform. It has been defined as ‘’a contract where one party (the promisor) binds himself to perform a stated promise upon performance of a stated condition by the promisee, but under which the promisee gives no commitment to perform the condition but rather is left free to choose whether to perform or not’ In other words a unilateral contract is a contract where only one party has an obligation and the other party as such has no objection to perform ‘For example, consider the following:

A advertises in a newspaper offering Kshs.1,000/ reward to anyone who finds and brings his lost passport. B brings the passport to A. Here, only A has an obligation to pay Ksh.1000, B has no obligation to find and bring the passport but if he has done it he is entitled to the reward.

A bilateral Contract is a contract between two parties where obligations are on both the parties. For example if S sells some goods to B for Kshs.2,000/, S has the obligation to deliver the goods to B and B has the obligation to pay S Kshs2,000/.

A multilateral Contract is a contract involving more than two parties and obligations are on all the parties to the contract.

(d) Executed and Executory Contracts

Contracts may be classified on the basis whether they are performed or not.

Executed contract is a contract where nothing remains to be done by either party, and where the transaction is completed at the moment that the arrangement is made.

For example, where S sells his car to B for Shs1m. S delivers the car to B and B pays Shs.1m at the time of making the contract. Such a contract is an executed contract.

Executory contract is the one where some future act is to be done. For example S sells his house to B for Shs5m. S agrees to give possession of the house sometime in future and B promises to pay Shs5m at the time of taking possession. Such a contract is executory because it is to be executed sometime in future.

Agreement

An essential element of contract is that there must be an agreement between two or more parties. The agreement is normally reached where one party has made an offer and the other party has accepted it in its entirety.

4.7 Offer

An offer is a definite promise made with the intention that it shall become binding on the person making it as soon as it is accepted by the person to whom it is made.

4.8 Rules on Offer

The person who makes an offer is known as the offeror and the person to whom the offer is made is known as the offeree. If the offeree accepts the offer he is called the acceptor.

4.8.1 Form

The offer may be made orally or in writing or it may be inferred from the conduct of the parties.

However, before making a contract the parties may negotiate with each other for some time. Such negotiation need not always lead to a contract. Inquiries may be made or offers invited but no offer may be made or, if one is made, the other party may make a counter offer or may not accept it. It is, therefore, necessary to determine at what precise moment an offer is made and the moment at which it is accepted.

The essence of an offer is that of an” intention to be bound” and this is usually gathered from the wording, for example, “I shall sell you my only car for Kshs.600, 000/.”

In Harvey v. Facey (1893) P telegraphed D: “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”. D replied, ‘‘Lowest price for Bumper Hall Pen ₤900″, P then telegraphed, “We agree to buy Bumper Hall Pen for ₤900 asked by you”. D refused to sell and P sued contending that D’s reply had been an offer which he had accepted by his second telegram. It was held that D’s reply was not an offer because D had only supplied information requested, but there had been no unequivocal indication of a willingness to be bound by the mere acceptance of that information.

However, sometimes the intention may not be present in which case the statement or correspondence or declaration may only mean that an offer is to be made or invited in future. Statements indicating maker’s willingness to receive offers are invitation to treat. The expression ‘invitation to treat’ is commonly used to describe any negotiating statement falling short of an offer which furthers the bargaining process.

4.8.2 Distinction Between Offer and Invitation to Treat

The distinction between an offer and invitation to treat is that an offer once accepted results in a binding contract provided other requirements of a valid contract are present whereas an invitation to treat is not capable of being turned into a contract by acceptance. The distinction can be further explained by the following examples:

4.8.2.1. Advertisements

An advertisement in a newspaper or magazine or even a price-list is only intended to be an invitation to treat, that is, to invite offers.

In Grainger v. Gough (1896), a wine merchant’s catalogue and price-list was held to be an invitation to treat. Patridge v. Crittenden (1968) is also to the same effect. In that case, PP was charged for the offence of offering for sale such birds for sale. Held, P was not guilty because the advertisement did not amount to an offer, but was merely an invitation to treat. inserted an advertisement in a periodical indicating that he had certain wild birds for sale. To sell, offer for sale or have in possession for sale of these birds was an offence under a statute.

Thus, the normal situation is that advertisements are only invitation to treat. However, advertisements for a promise to pay money in return for the performance of an act amount to offers since they clearly show that there is an intention to be bound.

In Carlill v Carbolic Smoke Ball Co. (1892), the defendants, who were the manufacturers of a medical preparation called ‘The Carbolic Smoke Ball’, issued an advertisement in which they offered by way of reward ₤100 to any person who contracted influenza after using their smoke ball in a specified manner. They also stated that they had deposited ₤1,000 in a particular bank in order to meet any claims made. The plaintiff, Mrs. Carlill on the faith of the advertisement bought and used the smoke ball as prescribed but had caught influenza. She sued the defendant company for ₤100 reward money.

The company sought to avoid having to pay the promised sum by raising several defences, but the House of Lords rejected all of them and held that the company was bound to pay the reward money. The company contended that:

• The advertisement was merely a puff and a gimmick and not an offer. The House of Lords, however, treated the deposit money as an indication of willingness to be bound by the terms of the advertisement thus, constituted an offer.
• There could be no contract because there would otherwise have been a unilateral contract with the whole world. Bowen LJ rejected this argument by saying that the company was not making a contract with the whole world, but an offer can be made to the world at large which can be converted into a contract by anybody by a performing the condition.
• No obligation to pay the reward money had a risen because there had been no communication of acceptance of the offer by the plaintiff. The Court was of the view that in unilateral contracts as this, if the offeror expressly or impliedly intimated in his offer that it would be sufficient to act on his offer without communicating acceptance to him; the acceptance was constituted by performance of condition in the offer without notification.
• The promise was no more that gimmick or puff and hence there was no intention to create legal relations. The Court rejected the contention by holding that the deposit of ₤1,000 was an indication that the company was serious and therefore there was an intention to create legal relations.
• The promise to pay ₤100 was not supported by consideration. The Court held that the inconvenience of sniffing the smoke ball in the prescribed manner was sufficient consideration.
  • Offer

An offer is a definite promise made with the intention that it shall become binding on the person making it as soon as it is accepted by the person to whom it is made.

• Rules on Offer

The person who makes an offer is known as the offeror and the person to whom the offer is made is known as the offeree. If the offeree accepts the offer he is called the acceptor.



4.8.1 Form

The offer may be made orally or in writing or it may be inferred from the conduct of the parties.

However, before making a contract the parties may negotiate with each other for some time. Such negotiation need not always lead to a contract. Inquiries may be made or offers invited but no offer may be made or, if one is made, the other party may make a counter offer or may not accept it. It is, therefore, necessary to determine at what precise moment an offer is made and the moment at which it is accepted.

The essence of an offer is that of an” intention to be bound” and this is usually gathered from the wording, for example, “I shall sell you my only car for Kshs.600, 000/.”

In Harvey v. Facey (1893) P telegraphed D: “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”. D replied, ‘‘Lowest price for Bumper Hall Pen ₤900″, P then telegraphed, “We agree to buy Bumper Hall Pen for ₤900 asked by you”. D refused to sell and P sued contending that D’s reply had been an offer which he had accepted by his second telegram. It was held that D’s reply was not an offer because D had only supplied information requested, but there had been no unequivocal indication of a willingness to be bound by the mere acceptance of that information.  Take Note

An offer is definite promise made by the offeror to enter into a contract on a particular set of term made with an intention that it shall become binding on him as soon as it is accepted by the offeree.

 

However, sometimes the intention may not be present in which case the statement or correspondence or declaration may only mean that an offer is to be made or invited in future. Statements indicating maker’s willingness to receive offers are invitation to treat. The expression ‘invitation to treat’ is commonly used to describe any negotiating statement falling short of an offer which furthers the bargaining process.

 

4.8.2 Distinction Between Offer and Invitation to Treat

 





The distinction between an offer and invitation to treat is that an offer once accepted results in a binding contract provided other requirements of a valid contract are present whereas an invitation to treat is not capable of being turned into a contract by acceptance. The distinction can be further explained by the following examples:

4.8.2.1. Advertisements

An advertisement in a newspaper or magazine or even a price-list is only intended to be an invitation to treat, that is, to invite offers.

In Grainger v. Gough (1896), a wine merchant’s catalogue and price-list was held to be an invitation to treat. Patridge v. Crittenden (1968) is also to the same effect. In that case, PP was charged for the offence of offering for sale such birds for sale. Held, P was not guilty because the advertisement did not amount to an offer, but was merely an invitation to treat. inserted an advertisement in a periodical indicating that he had certain wild birds for sale. To sell, offer for sale or have in possession for sale of these birds was an offence under a statute.

Thus, the normal situation is that advertisements are only invitation to treat. However, advertisements for a promise to pay money in return for the performance of an act amount to offers since they clearly show that there is an intention to be bound.

In Carlill v Carbolic Smoke Ball Co. (1892), the defendants, who were the manufacturers of a medical preparation called ‘The Carbolic Smoke Ball’, issued an advertisement in which they offered by way of reward ₤100 to any person who contracted influenza after using their smoke ball in a specified manner. They also stated that they had deposited ₤1,000 in a particular bank in order to meet any claims made. The plaintiff, Mrs. Carlill on the faith of the advertisement bought and used

the smoke ball as prescribed but had caught influenza. She sued the defendant company for ₤100 reward money.

The company sought to avoid having to pay the promised sum by raising several defences, but the House of Lords rejected all of them and held that the company was bound to pay the reward money. The company contended that:

• The advertisement was merely a puff and a gimmick and not an offer. The House of Lords, however, treated the deposit money as an indication of willingness to be bound by the terms of the advertisement thus, constituted an offer.
• There could be no contract because there would otherwise have been a unilateral contract with the whole world. Bowen LJ rejected this argument by saying that the company was not making a contract with the whole world, but an offer can be made to the world at large which can be converted into a contract by anybody by a performing the condition.
• No obligation to pay the reward money had a risen because there had been no communication of acceptance of the offer by the plaintiff. The Court was of the view that in unilateral contracts as this, if the offeror expressly or impliedly intimated in his offer that it would be sufficient to act on his offer without communicating acceptance to him; the acceptance was constituted by performance of condition in the offer without notification.
• The promise was no more that gimmick or puff and hence there was no intention to create legal relations. The Court rejected the contention by holding that the deposit of ₤1,000 was an indication that the company was serious and therefore there was an intention to create legal relations.
• The promise to pay ₤100 was not supported by consideration. The Court held that the inconvenience of sniffing the smoke ball in the prescribed manner was sufficient consideration.

Activity 4.1

Look through the classified advertisements in a daily newspaper and identify three examples of advertisements which are invitation to treat and which are offers.

 

The second typical situation where there is no offer but an invitation to treat is display of goods in a shop or on supermarket shelves. In Fisher v Bell (1961), a shopkeeper who displayed ‘flick knives’ with a price ticket stating a price, was charged for an offence to offer for sale the flick knives under a statute which made it an offence to ‘offer for sale’ certain weapons including flick knives. Held, the shopkeeper was not guilty of the offence because he had not offered the knives for sale since goods on display were not an offer for sale, but an invitation to treat.

Also, in Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953) where a statute required that certain drugs and medicines only be sold under the supervision of a qualified

pharmacist. Boots operated self-service stores where cash desks were supervised by such a person but not at shelves on which the drugs were displayed. A customer selected his purchases of medicines from the shelves and put them into a basket supplied by Boots. Boots was charged for selling medicines without the supervision of a qualified pharmacist as was required by the statute. The crucial question before the Court was whether the sale took place or the contract was formed at the time when goods were taken from the shelf or at the time when the goods were presented at the cash desk. Held, the display of drugs in the shelves was an invitation to treat, the customer’s tender of the medicines at the cash desk was an offer and his offer was accepted by accepting money at the cash desk where there was a qualified pharmacists to supervise and Boots, therefore, had committed no offence.

4.8.2.3 Vending Machines, Car Parks and Plying of Buses

Goods displayed in an automatic vending machine must be construed as an offer to sell goods in question. The acceptance takes place when the customer puts his money into the slot. Similarly, at ‘pay on exit’ car parks, the offer is the sign ‘parking’ outside the car park and the acceptance is the customer placing his car on the spot which caused automatic machine to operate. Also, plying of bus itself is an offer and when a passenger boards the bus there is an acceptance.

4.8.2.4 Auction Sale

In auction sales, a declaration of intention to hold an auction amounts merely to an invitation to treat. In Harris v Nickerson (1873), an advertisement indicating that an auction was to be held on a particular day at a particular place was held to be an invitation to treat. Accordingly, a person who traveled to the place only to find that it had been cancelled could not sue to recover damages for his expense and loss of time. However,, in auction sales, the general rule is that an offer is made by the bidder and accepted by the auctioneer when he indicates his acceptance in the customary form by bringing down his hammer. Until such announcement is made any bid may be retracted. If the auction is subject to a reserve price, then the auctioneer is not under any obligation to sale goods to the highest bidder if the bid is lower than the reserve price. There will be no contract even if the auctioneer mistakenly accepts the bid which is lower than the reserve price.

4.8.2.5 Company Prospectus

A company prospectus or advertisement to subscribe shares or debentures in a company is an invitation to treat, i.e. an invitation to make an offer. When a member of the public makes an application for shares or debentures an offer is made. It is for the company to accept or reject the application. If the company rejects the application there is no contact. If the company accepts the offer in whole or in part there is a binding contract. Partial acceptance of the offer to subscribe shares or debentures in a company is an exception to the general rule that the acceptance must precisely correspond to the offer.

4.8.2.6 Tenders

The request for tenders from those interested in supplying goods or service is a negotiating device common in commercial contracts. In normal circumstances the request or invitation for tenders does not amount to an offer. In that case submission of a tender itself is an offer, but the acceptance of a tender has different legal results, which we shall discuss in the following lecture. However, in certain circumstances an invitation to tender could give rise to binding contractual obligations in the part of the inviter to consider tenders which conformed with the conditions of the tender. (See Blackpool and Fylde Aero Club Ltd v Blackpool

Borough Council 1990)

Activity

The main distinction between an offer and invitation to treat is that in an offer there is an intention to be bound and in invitation to treat intention is not present. Invitation to treat is invitation to negotiate or receive offers. Also, as soon as an offer is accepted it creates a legally binding contract. Acceptance of an invitation to treat, on the other hand, does not result in a binding contract.

 

4.8.2 Distinction Between Offer and Invitation to Treat

 

The distinction between an offer and invitation to treat is that an offer once accepted results in a binding contract provided other requirements of a valid contract are present whereas an invitation to treat is not capable of being turned into a contract by acceptance. The distinction can be further explained by the following examples:

4.8.2.1. Advertisements

An advertisement in a newspaper or magazine or even a price-list is only intended to be an invitation to treat, that is, to invite offers.

In Grainger v. Gough (1896), a wine merchant’s catalogue and price-list was held to be an invitation to treat. Patridge v. Crittenden (1968) is also to the same effect. In that case, PP was charged for the offence of offering for sale such birds for sale. Held, P was not guilty because the advertisement did not amount to an offer, but was merely an invitation to treat. inserted an advertisement in a periodical indicating that he had certain wild birds for sale. To sell, offer for sale or have in possession for sale of these birds was an offence under a statute.

Thus, the normal situation is that advertisements are only invitation to treat. However, advertisements for a promise to pay money in return for the performance of an act amount to offers since they clearly show that there is an intention to be bound.

In Carlill v Carbolic Smoke Ball Co. (1892), the defendants, who were the manufacturers of a medical preparation called ‘The Carbolic Smoke Ball’, issued an advertisement in which they offered by way of reward ₤100 to any person who contracted influenza after using their smoke ball in a specified manner. They also stated that they had deposited ₤1,000 in a particular bank in order to meet any claims made. The plaintiff, Mrs. Carlill on the faith of the advertisement bought and used the smoke ball as prescribed but had caught influenza. She sued the defendant company for ₤100 reward money.



The company sought to avoid having to pay the promised sum by raising several defences, but the House of Lords rejected all of them and held that the company was bound to pay the reward money. The company contended that:

• The advertisement was merely a puff and a gimmick and not an offer. The House of Lords, however, treated the deposit money as an indication of willingness to be bound by the terms of the advertisement thus, constituted an offer.
• There could be no contract because there would otherwise have been a unilateral contract with the whole world. Bowen LJ rejected this argument by saying that the company was not making a contract with the whole world, but an offer can be made to the world at large which can be converted into a contract by anybody by a performing the condition.
• No obligation to pay the reward money had a risen because there had been no communication of acceptance of the offer by the plaintiff. The Court was of the view that in unilateral contracts as this, if the offeror expressly or impliedly intimated in his offer that it would be sufficient to act on his offer without communicating acceptance to him; the acceptance was constituted by performance of condition in the offer without notification.
• The promise was no more that gimmick or puff and hence there was no intention to create legal relations. The Court rejected the contention by holding that the deposit of ₤1,000 was an indication that the company was serious and therefore there was an intention to create legal relations.
• The promise to pay ₤100 was not supported by consideration. The Court held that the inconvenience of sniffing the smoke ball in the prescribed manner was sufficient consideration.

Activity 4.1

Look through the classified advertisements in a daily newspaper and identify three examples of advertisements which are invitation to treat and which are offers.

 

The second typical situation where there is no offer but an invitation to treat is display of goods in a shop or on supermarket shelves. In Fisher v Bell (1961), a shopkeeper who displayed ‘flick knives’ with a price ticket stating a price, was charged for an offence to offer for sale the flick knives under a statute which made it an offence to ‘offer for sale’ certain weapons including flick knives. Held, the shopkeeper was not guilty of the offence because he had not offered the knives for sale since goods on display were not an offer for sale, but an invitation to treat.

Also, in Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953) where a statute required that certain drugs and medicines only be sold under the supervision of a qualified

pharmacist. Boots operated self-service stores where cash desks were supervised by such a person but not at shelves on which the drugs were displayed. A customer selected his purchases of medicines from the shelves and put them into a basket supplied by Boots. Boots was charged for selling medicines without the supervision of a qualified pharmacist as was required by the statute. The crucial question before the Court was whether the sale took place or the contract was formed at the time when goods were taken from the shelf or at the time when the goods were presented at the cash desk. Held, the display of drugs in the shelves was an invitation to treat, the customer’s tender of the medicines at the cash desk was an offer and his offer was accepted by accepting money at the cash desk where there was a qualified pharmacists to supervise and Boots, therefore, had committed no offence.

4.8.2.3 Vending Machines, Car Parks and Plying of Buses

Goods displayed in an automatic vending machine must be construed as an offer to sell goods in question. The acceptance takes place when the customer puts his money into the slot. Similarly, at ‘pay on exit’ car parks, the offer is the sign ‘parking’ outside the car park and the acceptance is the customer placing his car on the spot which caused automatic machine to operate. Also, plying of bus itself is an offer and when a passenger boards the bus there is an acceptance.

4.8.2.4 Auction Sale

In auction sales, a declaration of intention to hold an auction amounts merely to an invitation to treat. In Harris v Nickerson (1873), an advertisement indicating that an auction was to be held on a particular day at a particular place was held to be an invitation to treat. Accordingly, a person who traveled to the place only to find that it had been cancelled could not sue to recover damages for his expense and loss of time. However,, in auction sales, the general rule is that an offer is made by the bidder and accepted by the auctioneer when he indicates his acceptance in the customary form by bringing down his hammer. Until such announcement is made any bid may be retracted. If the auction is subject to a reserve price, then the auctioneer is not under any obligation to sale goods to the highest bidder if the bid is lower than the reserve price. There will be no contract even if the auctioneer mistakenly accepts the bid which is lower than the reserve price.

4.8.2.5 Company Prospectus

A company prospectus or advertisement to subscribe shares or debentures in a company is an invitation to treat, i.e. an invitation to make an offer. When a member of the public makes an application for shares or debentures an offer is made. It is for the company to accept or reject the application. If the company rejects the application there is no contact. If the company accepts the offer in whole or in part there is a binding contract. Partial acceptance of the offer to subscribe shares or debentures in a company is an exception to the general rule that the acceptance must precisely correspond to the offer.

4.8.2.6 Tenders

The request for tenders from those interested in supplying goods or service is a negotiating device common in commercial contracts. In normal circumstances the request or invitation for tenders does not amount to an offer. In that case submission of a tender itself is an offer, but the acceptance of a tender has different legal results, which we shall discuss in the following lecture. However, in certain circumstances an invitation to tender could give rise to binding contractual obligations in the part of the inviter to consider tenders which conformed with the conditions of the tender. (See Blackpool and Fylde Aero Club Ltd v Blackpool

Borough Council 1990)

Activity

The main distinction between an offer and invitation to treat is that in an offer there is an intention to be bound and in invitation to treat intention is not present. Invitation to treat is invitation to negotiate or receive offers. Also, as soon as an offer is accepted it creates a legally binding contract. Acceptance of an invitation to treat, on the other hand, does not result in a binding contract.

 

4.8.3 Making an Offer

An offer may be made to a definite person or to a definite group or class of persons, or to the world at large. If the offer is made to a definite person it can only be accepted by that person and by no one else. An offer to a definite group or class can only be accepted by a member of that group or class and not by an outsider. If an offer is to the world at large or to the general public, anyone can accept it. In Carlill v. Carbolic Smoke Ball Co., the fact of which discussed earlier, the defendant company contended that there could be no contract because there would otherwise have been a unilateral contract with the whole world. Rejecting this contention it was held that an offer could be made to the entire world which results in a contract with anybody who comes forward and performs the condition of the offer.

4.8.4 Communication of Offer

An offer must be communicated to the offeree before it can be accepted. Communication means when the offer actually reached the offeree. The offeree cannot accept an offer unless he knows of its existence. No contract can arise where a person fulfils the terms of the offer in ignorance of the fact that the offer exists at all. In R. v. Clarke (1927) C, supplied information to the police on certain murderers but at the time of doing so he was unaware of the fact that there was a reward of ₤1,000 for such information. Held, C could not claim the reward because he could not be deemed to ‘accept’ an offer of which he was not aware at the relevant time.

4.8.5 Termination of Offer

An offer may be terminated in the following ways:

4.8.5.1 Revocation or Withdrawal of the offer

The general rule is that an offer may be revoked any time before acceptance. Once an acceptance has taken place the offer is irrevocable. In Khale v Athamas Bros (Aden) Ltd (1968). A, a majority shareholder in a company offered to buy B’s minority shares in the company. After negotiations for sometime B accepted an offer of ₤40,000 for his shareholding. A final contract was prepared but B refused to sign demanding some alterations. The alterations were finally made and BA then purported to revoke the offer. Held, A’s revocation of offer was not valid because it came after B’s acceptance when B had already signed the contract. signed the contract.

The rule that an offer may be revoked anytime before acceptance applies even where it was originally promised that the offer would remain open for a specific period of time.

In Routledge v Grant (1828), D offered to take a lease of premises belonging to P and told P that the offer would remain open for six weeks. After three weeks D withdrew his offer. P purported to accept it within the six week period. Held, D had been under no obligation to keep the offer open and was free to withdraw it anytime provided it had not already been accepted.

However, if there is a consideration for keeping the offer open for a certain period, (that is, option), the offer cannot be revoked before the expiration of that time, otherwise there would be breach of contract.

Revocation, however, is not effective until it is communicated to the offeree. Communication of revocation does not always have to be made by the offeror himself, but can be made by any reliable source.

In Dicknson v Dodd (1876), P was invited to buy property from D, who promised to keep the offer open until 9 a.m. June, 12. D, however, sold the property to another person. P learnt of this sale from a third party on June 11. He then purported to accept the offer at 7 a.m. June 12. Held, this was not a valid acceptance since an offer could be withdrawn at any time before expiry of the duration promised and that P learnt from a reliable source that D had sold the property to another person thereby revoked his offer.

In case of unilateral contracts the rule is that once the offeree has started to perform the requested act, the offer can no longer be withdrawn and the offeree must be allowed to complete.

4.8.5.2 Rejection – An offer is rejected:

1. if the offeree communicates his rejection to the offeror. Once the offer is rejected, it is terminated and the offeree cannot subsequently accept it.
2. where the acceptance is qualified or conditional. In such a case the offeree makes a counter-offer, that is a new offer of his own in the hope that it will be accepted by the offeror. Counter-offer is a final rejection of the original offer.

In Hyde v Wrench (1840), D offered to sell his farm to P for ₤1,000, P in reply offered ₤950 which was refused by D. P subsequently said that he was prepared to pay ₤1,000 but D decided not to sell the farm to P. Held, there was no contract. P by counter offer of ₤950 had rejected the original offer as a result the original offer had been terminated. There was, therefore, no offer in existence when P purported to accept for ₤1,000.

4.8.5.3 Lapse of an Offer

An offer may lapse in the following ways:

• Non-acceptance within the time period stipulated by the offeror.
• If no time period is stipulated, by non-acceptance within a reasonable time. What amounts to a reasonable time depends upon the facts and circumstances of the case. In Ramsgate Victoria Hotel Co. v. Montefiare (1866) D had applied for shares in the company in early June and had paid deposit into the company’s bank. He heard nothing until the end of November, when AD refused to take the shares. Held, D was entitled to refuse because the company’s response to D’s offer has not been within the reasonable time. In Virji Kimji v Clutterbuck, A ordered timber from B. A did not hear anything from B but after about four and half months B purported to supply timber to A. Held, the delay amounted to lapse of time whereby A’s received a letter of allotment of shares, that is, the acceptance of his offer and was asked to pay the balance due upon them. offer was revoked.
• Death – the effect of death upon the continuity of an offer is not clear. The death of the offeree may terminate an offer since the offer is peculiar to the offeree. In the case of the death of the offeror the offer lapses if the offeree has the knowledge of the death of the offeror or where the contract requires performance of a personal service by the offeror.

4.8.5.4 Conditional Offer – where an offer is conditional and if the condition fails to be  satisfied, the offer will come to an end.

4.8.4 Communication of Offer

An offer must be communicated to the offeree before it can be accepted. Communication means when the offer actually reached the offeree. The offeree cannot accept an offer unless he knows of its existence. No contract can arise where a person fulfils the terms of the offer in ignorance of the fact that the offer exists at all. In R. v. Clarke (1927) C, supplied information to the police on certain murderers but at the time of doing so he was unaware of the fact that there was a reward of ₤1,000 for such information. Held, C could not claim the reward because he could not be deemed to ‘accept’ an offer of which he was not aware at the relevant time.



4.8.5 Termination of Offer

An offer may be terminated in the following ways:

4.8.5.1 Revocation or Withdrawal of the offer

The general rule is that an offer may be revoked any time before acceptance. Once an acceptance has taken place the offer is irrevocable. In Khale v Athamas Bros (Aden) Ltd (1968). A, a majority shareholder in a company offered to buy B’s minority shares in the company. After negotiations for sometime B accepted an offer of ₤40,000 for his shareholding. A final contract was prepared but B refused to sign demanding some alterations. The alterations were finally made and BA then purported to revoke the offer. Held, A’s revocation of offer was not valid because it came after B’s acceptance when B had already signed the contract. signed the contract.

The rule that an offer may be revoked anytime before acceptance applies even where it was originally promised that the offer would remain open for a specific period of time.

In Routledge v Grant (1828), D offered to take a lease of premises belonging to P and told P that the offer would remain open for six weeks. After three weeks D withdrew his offer. P purported to accept it within the six week period. Held, D had been under no obligation to keep the offer open and was free to withdraw it anytime provided it had not already been accepted.

However, if there is a consideration for keeping the offer open for a certain period, (that is, option), the offer cannot be revoked before the expiration of that time, otherwise there would be breach of contract.

Revocation, however, is not effective until it is communicated to the offeree. Communication of revocation does not always have to be made by the offeror himself, but can be made by any reliable source.

In Dicknson v Dodd (1876), P was invited to buy property from D, who promised to keep the offer open until 9 a.m. June, 12. D, however, sold the property to another person. P learnt of this sale from a third party on June 11. He then purported to accept the offer at 7 a.m. June 12. Held, this was not a valid acceptance since an offer could be withdrawn at any time before expiry of the duration promised and that P learnt from a reliable source that D had sold the property to another person thereby revoked his offer.

In case of unilateral contracts the rule is that once the offeree has started to perform the requested act, the offer can no longer be withdrawn and the offeree must be allowed to complete.

4.8.5.2 Rejection – An offer is rejected:

1. if the offeree communicates his rejection to the offeror. Once the offer is rejected, it is terminated and the offeree cannot subsequently accept it.
2. where the acceptance is qualified or conditional. In such a case the offeree makes a counter-offer, that is a new offer of his own in the hope that it will be accepted by the offeror. Counter-offer is a final rejection of the original offer.

In Hyde v Wrench (1840), D offered to sell his farm to P for ₤1,000, P in reply offered ₤950 which was refused by D. P subsequently said that he was prepared to pay ₤1,000 but D decided not to sell the farm to P. Held, there was no contract. P by counter offer of ₤950 had rejected the original offer as a result the original offer had been terminated. There was, therefore, no offer in existence when P purported to accept for ₤1,000.

4.8.5.3 Lapse of an Offer

An offer may lapse in the following ways:

• Non-acceptance within the time period stipulated by the offeror.
• If no time period is stipulated, by non-acceptance within a reasonable time. What amounts to a reasonable time depends upon the facts and circumstances of the case. In Ramsgate Victoria Hotel Co. v. Montefiare (1866) D had applied for shares in the company in early June and had paid deposit into the company’s bank. He heard nothing until the end of November, when AD refused to take the shares. Held, D was entitled to refuse because the company’s response to D’s offer has not been within the reasonable time. In Virji Kimji v Clutterbuck, A ordered timber from B. A did not hear anything from B but after about four and half months B purported to supply timber to A. Held, the delay amounted to lapse of time whereby A’s received a letter of allotment of shares, that is, the acceptance of his offer and was asked to pay the balance due upon them. offer was revoked.
• Death – the effect of death upon the continuity of an offer is not clear. The death of the offeree may terminate an offer since the offer is peculiar to the offeree. In the case of the death of the offeror the offer lapses if the offeree has the knowledge of the death of the offeror or where the contract requires performance of a personal service by the offeror.

4.8.5.4 Conditional Offer – where an offer is conditional and if the condition fails to be  satisfied, the offer will come to an end.

4. 9 Summary Summary

This lecture has introduced you to the concept and formation of a contract. We considered that a contract can be in any form but certain contracts are required by law to be in writing whereas others must be in writing as well evidenced in writing. Contracts are classified in various ways such as simple contracts and contracts under seal or deeds, or void, voidable, unenforceable, illegal contracts, or unilateral, bilateral and multilateral contracts, and executory and executed contracts. There are certain essential requirements of valid contract such as an agreement intention to create legal relations, consideration, capacity to contract, reality of consent, etc. It any of these requirements are not present the contract may not be a valid contract. One such requirement the agreement is constituted by an offer and acceptance of that offer. This lecture considered the question what amounts to an offer? We have distinguished an offer from an invitation to treat. Advertisements generally, display of goods in a shop or supermarket, a company prospectors, invitation to bid at an auction sale and invitation for tenders are not offers but invitation to treat. We have also examined rules on offer, including those for the termination of an offer. We have supported our arguments by the decided cases so that you may grasp the subject easily.

 

Activity

Activity 4.2 1)           Explain briefly essentials of a valid contract. 2)           Discuss various classifications of contract. 3)           Distinguish between an offer and invitation to treat by looking at different examples. 4)           Explain with the help of decided cases rules on offer. 5)           Discuss the legal position in the following cases: a) A advertises in a news paper offering Kshs.1,000 to any one who

participate in a hunger walk on Sunday. b) X sends a price list to Y offering to sell a car for Kshs.2 million. a)  A matatu goes along the road. b)  D by letter dated July 13 offers to sale his farm to P for Kshs.3 million. The letter reaches P on July 20, which he immediately accepted. On July 16 DX sold the farm to c)           Odek enters into a hire purchase contract orally with Kimani d)           Mbugua on May 20 offered to buy 1,000 bags of maize from Ouma at a certain price. There was no reply from Ouma. On Dec 13, Ouma supplied 1000 bags of maize but Mbugua refuse to take the delivery. Advise Ouma.

 

Answering problems questions.

The problem question are important for you as law students since they test your understanding of law and your ability to apply the principles of law to a set of given facts.

There is no outright formula for answering problems questions but the following guidelines may assist you in applying the relevant law in a clear and reasoned manner. While answering problems questions you may proceed as follows:

1. Identify the area, in which the problem falls, for example, offer, acceptance, consideration, termination of contract, remedies, etc Then you write a para on two on the key features of the area. For instance, if the problem question is on display of goods in a shop or on the shelves of a supermarket say it is not an offer but an invitation to treat. Then explain what is an offer and an invitation to treat and the distinction between them and the court’s view on them.
2. Outline the main principles of law which are relevant. Your statement of relevant principles must be supported by reference to authority, i.e., cases or statutes. Reference to cases as authorities should include the following:
3. i) Name of the case(s) ii) The relevant facts which explain or give meaning to the principles of law iii) The arguments of the parties.
4. Decision of the court
5. Principles of law on which the case was decided.

(For example, recall Carlill v Carbolic Smoke Ball Co. discussed earlier). The statement of the principles must be clearly tied in with the situation in the question.

Reference to the statute should include the relevant provision of the statute referred.

3. Apply the principles, rules or statutory provision to the facts of the problem question. For this purpose you should:

• Discuss the facts of the problem in the light of the relevant principles
• Analyse the facts which are significant and which support your argument.
• Compare the facts of the cases referred to with the facts of the problem showing that facts of the cases are of sufficient similarities with the facts of the problem questions.

4. Draw conclusion. You conclusion must be based on the legal reasoning. If there are conflicting opinions of the courts, select the opinions which are better in your view giving reasons for your selection. Also, if you feel that a particular case was wrongly decided you may discuss that in a reasoned and logical way and if possible quoting other authorities.

You should take into account of the requirement of the question, e.g., advise, legal position, etc you advise must be based on the true and honest position of law not the one favorable to the person you are advising.

4.10 References

4.10 References

1.           Paul Dobson, Charlesworth’s Business Law (London: Sweet & Maxwell, Sixteen Edition, 1997) Chapters 1 & 2. 2.           Keith Abbot, Norman Pendlebury & Kevin Wardman (2007) Business Lawth Edition), Chapter 13 (London: Thomson, 8 3.           Patricia Hirst & Michael Hirst, Textbook on A Level Law (London: Blackstone Press, 2nd Edition), Chapter 19.