FORMATION OF A CONTRACT
In order to establish a valid contract all the ten elements must exist and among them the
following are most important because they clearly confirm what the terms and intention of
parties were.
a) Offer
This is the first step towards formation of contract. It is made by a person who shall
be the offeror or implied. It is defined as an expression or willingness to contract on
definite terms once such terms are accepted. An offer must be clear and certain so
that it remains an offer and not an ‘invitation to treat’
An invitation to treat is simply an invitation to make an offer. It is a statement of
attraction made by a party to alert others about the existence of certain things or
situations.
It does not bind the maker and he can always change his mind without causing breach of
contract eg the display of goods in a supermarket is simply an invitation to treat and not
an offer for sale or purchase when he selects goods fromthe shelves and eventually
presents themto the cashier with an intention to pay.
It is thereafter, the prerogative (choice) of the cashier to decide on whether he should
accept to sell or simply reject the offer.
Meanwhile the customer retains the right to withdraw his offer at anytime before the
acceptance is made.
Case one: Pharmaceutical society of Great Britain
Versus
Boots
Facts
The defendant had a self service store with certain listed drugs displayed on the shelves.
The statutory requirement was that such drugs could only be sold under the supervision
of a registered pharmacist. The defendant had a registered pharmacist sitted at the
registered cash desk for away fromthe listed drugs.
A customer (decoy) entered the store and selected some of the listed drugs and thereafter
presented themfor payment at the cash desk.
The cashier received the payment and receipted the transaction only to be arrested
immediately thereafter by the decoy and charged with the offense of selling listed drugs
without the statutory supervision.
The main issue before the court was to determine whether the sale took place;
a. When the customer selected the drugs
b. When paid for themon the desk
Held
The sale took place when payment was tendered at the cash desk and it was therefore
accordingly supervised. The defendant was not liable as charged.
Case two: Fisher vs Bell
Facts
A shopkeeper was arrested and charged with the offense of offering a flick knife for sale
by displaying it in his shop window.
Held
The display of an article even if it has a price tag is simply an invitation to treat and not an
offer for sale. The shopkeeper was not liable for that particular offense and he ought to
have been charged with the offense of possession of a flick knife.
Legally an invitation to treat shall comprise of two distinct transactions i.e.
a. Declaration of intent (intention)
b. Supply of information
It is not easy to clearly distinguish between the two in some instances because they are
likely to overlap.
Generally on invitation to treat is the last point where after on offer shall be made i.e.
positive response to an offer becomes an acceptance where after a valid contract is
established.
a) Declaration of intent (intention)
This practically starts in the mind of a person. It arises where a person expresses or
declares that he is able or intends to do something.
The statement does not bind him and he can legally change his mind without causing
breach of contract.
Case: Harris vs Nickenson
An auctioneer advertised the sale of furniture and scheduled it for a specified date. A
prospective purchaser then travelled a long distance to participate in the auction only to
find it cancelled. He then sued him for breach.
Held
There was no breach of contract in the auctioneers change of mind because his
advertisement was simply a declaration of intention and not an offer for sale.
b) Supply of information
This arises where a person simply makes a statement in relationship to property to be sold
and on many occasions such statements will contain the lowest price at which the
property is likely to be sold. The statement does not bind the maker and be can legally
withdraw it without causing breach.
Case Harvey vs Facey
Facts
The plaintiff sent a telegramto the defendant and enquired ‘will you sell us Bumper Hall
Pen?’’. State lowest price’. The defendant replied “lowest price for property is 900
pounds”. The plaintiff then responded “we agree to buy property at 900 asked for by you”
the defendant did not bother to respond further and he infact refused to sell and was sued
for this.
Held
There was no breach of contract because the defendant’s statement was simply supply of
information. It is infact the plaintiff who had made an offer in his last statement and the
offer had been rejected.
The test to determine whether a statement amounts to an offer or an invitation to treat- is
to examine the content of such statement. An offer usually contains detailed and clear
statements such that an interested person can easily rely on the statement such that an
interested person can easily rely on the statement and make an informed choice and
decision.
When he decides to go for what has been stated he is regarded as having made an
acceptance e.g in the sale of a motor vehicle the information likely to be given shall be
| The make | engine capacity |
| Model Date of manufacture/registration Colour |
contact address price |
Any interested person simply relies on this information and make an informed decision by
comparing this information with what he knows or has received elsewhere. An invitation
to treat will always be brief and sketchy such that no person can make an informed choice
or decision
.
The statement is aimed at provoking on interested person to more forward and seek
clarification and in doing so he will be making an offer e.g in the sale of a motor vehicle
the information likely to be given shall be the make price and contact address.
The best example of an invitation to treat shall be found in the advertisement for tenders
and in auction sale i.e in a tender the advertiser makes an “invitation” to treat” through
his advert whereafter interested persons send in their respective proposals as offers.
The advertiser eventually selects the best offer and makes an acceptance to it.
In an auction, the auctioneer’s initial statement is simply on invitation to treat. Whereafter
interested persons participate by making their respective bids as offers and counter
offers.
The auctioneer finally settles for the highest bidder and by so doing he makes an
acceptance.
TYPES OF OFFERS
Counter offer
This is a reply to the original offer with an intention to vary or alter the terms of such
original offer. The legal effect of the counter offer is that it shall extinguish the original
offer and become the new offer.
Case: Hyde vs Wrench
The defendant offered to sell the land to the plaintiff and $1 000 and the plaintiff offered
to purchase it at $950 hence the defendant refused to sell, subsequently the plaintiff
went back and insisted that he has accepted the original price of $1 000 and unfortunately
the defendant had changed his mind about selling the plaintiff then sued for breach.
Held
There was no breach of contract because the plaintiff reply to $950 was simply a counter
offer which extinguished the original offer of $1 000.
The contractual equation didn’t exist.
O+A=Contract
Cross offer
A cross offer shall comprise of at least two offers from opposite parties at the same time
and have having the same content.
Cross offers cannot be regarded as mutual acceptances of one another hence no
contract can result from them. The main reason is the fact that consensus ad-idem does
not exist. Legally one of the parties must first receive the others offer and then positively
respond to it.
Illustration A- offers to sell his house to B at 1 million and posts his letter of offer. At the
same time B who is in a different location offers to purchase A’s house at the same price
of 1 Mand also posts his letter. The two letters then bypass each other and as this is
taking place, the transaction cannot be regarded as one amounting to a valid contract.
Conditional offer
A conditional offer only becomes valid and effective after the specified condition is
fulfilled. Such condition may be set by the parties themselves or by law. However it must
be clear to the concerned parties that this condition exists as they enter the contract,
unless the conditions has been set by law whereby it will be immaterial if a party is not
aware of this fact because ignorance of law is no defense.
Case reference: Financing vs Stimson
Facts
The condition for the sale of the vehicle was that it could only be purchased if it remained
substantially in the same condition at the exact moment of delivery. Just before delivery
the vehicle was stolen and damaged but later recovered. The defendant was thereafter
compelled to take delivery of the vehicle in its damaged state and he resisted and was sued.
Held
The defendant was not legally bound to take delivery of the vehicle in its damaged state
because the condition upon which the offer had been made had not been fulfilled.
Single offer
This usually arises in tenders and may have requirements such as the following. The
tenderer is required to supply a specified quantity of goods within a certain period.
Delivery may be once or by installed e.g the supply of a 1 000 bags between January and
June delivery to be as and when demanded.
Explanation
A single offer is a definite offer to the extent that the consumer shall be legally bound to
pay for the entire consignment contracted for even if he will not have requisitioned for all
units by the time the contract period expires. This is due to the fact that a single offer
has a reservation element whereby the supplier takes the risk of setting aside the
contracted units specifically for a particular consumer and it will only be fair that the
consumer pays for everything by the time the contract period expires. On this basis it is
common practice for the supplier to expect a deposit payment at commencement of
contract whereafter he will continue to supply and only demand for the balance of
payment at or just before the end of the contract period. Breach of any part of a single
offer amounts to breach of the entire contract because a single offer results into one
contract.
Standing offer
This also arises in tenders and may have requirements such as the following “the tenderer
may be required to supply goods not exceeding a certain limit within a given period”
delivery may be once or by installments e.g the supply of not more than 1 000 bags
between January and June delivery to be if and when demanded.
A standing offer is simply a cautious offer because the beneficiary or consumer is extra
careful not pay more than ordered or requisitioned. The supplier on the other hand will
ensure that every order is accompanied by payment upfront (i.e cash on delivery) because
there is no certainty that the beneficially will still be interested to deal with that
particular supplier after an order has been delivered. Standing offers result into a series
of contracts each one actionable on its own terms because every order amounts to an
acceptance.
Case
Great Northern Railway vs Witham(GNR vs Witham)
Facts
The plaintiff invited tenders for the supply of certain goods for a specified period. The
defendant then submitted his proposal to supply within the required period “such
quantities as the company may order from time to time” the plaintiff accepted the
defendants tenders and several orders were made and successfully delivered
subsequently but before expiry of the specified period, the plaintiff made an order but the
defendant was unable to deliver and the plaintiff sued.
Held
This was a typical standing offer which resulted into a contract each time a new order
was made the defendant was bound to deliver all orders already made but he was
thereafter free to withdraw from the agreement at anytime before a new order was made.
June 1 996 Q 4 b)
The ministry of home affairs invited tenders for the supply of blankets to government,
hospitals and prisons. John Biashara submitted a tender which was accepted by the
ministry in which he offered to supply blankets “in such quantities and at such times as
may be required by the ministry. Explain if
The ministry doesn’t place an order for any blankets
The ministry ordered for 20,000 blankets which John was unable to supply
John informed the ministry that he no longer intended to supply them with blankets
Answer
The question concerns a standing offer and in such offers every new order makes an
acceptance wher-e after a contract is established on its own terms.
i) When the ministry fails to place an order the contractual equations is not
completed because every order amounts to an acceptance. There is no breach
of contract. If sued the ministry can legally confirm to John that he bound
himself to supply ‘at such times’ and such times have not arisen.
ii) When the ministry orders 20,000 blankets it makes an acceptance and the
contractual equation is established whereby John must supply his failure
amounts to breach and the ministry can legally confirm that John bound himself
to supply ‘in such quantities’ and 2000 units accurately falls within this
description.
iii) The answer will depend on the moment when John attempts to revoke his offer
i.e if he informs the ministry before a new order is made his revocation will be
valid because an offer can be withdrawn at anytime before acceptance is made
but if he informs the ministry after a new order is made his attempted
revocation shall be futile because the order amounts to an acceptance
where after a contract is created and an acceptance once made cannot be
revoked. John will be in breach.
The offeree
The offeree may be an individual group of persons or the world at large (in personamor-in
rem). However it is only that person to whom an offer has been made who can legally make
an acceptance. This is supported by the doctrine of privity of contract.
Case
Carlile vs Carbolic Smoke Ball
I.e. The Smoke Ball case
The defendant manufactured medicine know as the Smoke Ball and advertised an offer to
be rewarded to any person who contracted flu after using the medicine in accordance to
the prescription. The plaintiff used the medicine accordingly but still contracted flu hence
she demanded compensation but the defendant objected and insisted that the two parties
had at no time communicated to each other about the offer hence there was no privity.
Held
An offer had been made in remand the plaintiff had known and deliberately made an
acceptance by performing conditions of the offer. Privity existed between the parties and
the plaintiff had to be compensated.
Communication of the offer
Both legally and practically it is necessary that an offer be communicated whether orally
or in writing because this is the only way an interested person will be able to know the
existence of the transaction.
Case
Powell vs Lee
The plaintiff attended a job interview where-after the interview committee received to
offer the job to the plaintiff. One of the committee members secretly and without
authority informed the plaintiff that he had been offered and out of excitement the
plaintiff hurriedly resigned from his existing employment s as to take up “new job”.
Meanwhile the committee had changed its mind and made the offer to another person. The
plaintiff realized this and sued.
Held
There was no breach of contract because the purported offer had not been validly made
in the first place. All that had happened was simply an expression in the mind of the
committee as a team and it had not been officially declared to the plaintiff. The claim failed.
Note: legally an offer is deemed effective from the exact moment the offeree receives
communication and not when the offeror sends it unless the offer itself states that its
effective moment shall be a particular date and time.
Termination of the offer
By revocation (withdrawal)
This is effective withdrawal of the offer by the offeror at anytime before acceptance is
made. However, revocation is only revalued after it has been communicated to the offeree
or his agent. An exception can only arise where the parties are transacting “interpraesentis” (in the physical presence of each other) whereby common sense shall dictate
that the offeree notices the offeror change in mind.
Case: Dickson vs Dodds
Facts : the defendant offered to sell property to the plaintiff and the offer was to remain
valid until Friday 9am. On Thursday the defendant contracted to sell the property to
another person and the plaintiff was informed about this. On Friday 7amthe plaintiff made
his acceptance of the offer only to find the property sold the plaintiff then sued.
Held
No contract existed between the plaintiff and defendant because revocation had been
made in good time and it had been effectively communicated.
By rejection (refusal)
This arises where the offeree refuses to accept the offer. If for any reason the offeree
changes his mind and wants to accept a he had rejected he will be gambling with the
situation because there is no guarantee that the offeror will still be interested in the
matter.
By lapse of time
Can also be referred to as efflux of time, in ordinate delays expiry of time, acquienscence
or laches. It is based on the equitable maxim “delay defeats equity” where time has been
specified by the offer it must be respected otherwise the offeree will find the offer
terminated.
Meanwhile where the offer hasn’t specified time limitation, it will lapse upon expiry of
reasonable time. This shall be determined by the nature of transaction and subject matter
of contract.
By death
An offer shall terminate upon the death of a party but only where such party was to
render personal service. Hence where a party is a company and the offer is made through
such company authorized agent eg the director his death shall not terminate contract
because his company has perpetual succession and the transaction can be carried out by
any other authorized agent of the company.
By failure of condition
Where a condition made in the offer has not been fulfilled such offer must terminate.
By counter offer
A counter offer extinguishes the original offer and becomes the new offer.
Ref: Hyde vs Wrench
By acceptance
Once an offer has been accepted the contractual equation is established and no further
acceptance can be made to that specific offer because it will have legally dissolved in the
contract.
By supervering in-capacity
This includes legal disability eg bankruptcy and insanity and any physical incapacity eg
server sickness. Where a person is unable to accomplish the assigned task due to severe
sickness or other incapacity the offer shall terminate.
Case: Robinson vs Davidson
Facts: a person offered to play the piano for another and subsequently fell off such that
he could no longer play.
Held: offer was terminated due to physical incapacity if the contract had to come to an
end.
By subsequent illegality
Where an offer is made when purpose is lawful but it subsequently becomes illegal, such
offer subsequently terminates because the law of contract shall not support illegality.
Rules of the offer
1 . An offer may be made to an individual, group of persons/the world at large (in
personumor in jus)
Ref: Smoke Ball Case
2. An offer must be definite, clear and never be ambiguous.
Ref: Taylor vs Portington
Facts: the defendant agreed to take a house on rental basis for a specified period,
provided the house was “put into thorough repair and handsomely decorate” according to
the present style”
Held
The offer was ambiguous because the expression meant different things to different
persons, places and time. It could not result into a contract.
3. An offer must have intent to create a legal relationship. It should not have been a
social and domestic transaction.
Case: Balfour vs Balfour
Facts: the parties who were wife and husband were on holiday abroad. Towards the end of
the holiday the wife fell ill and she had to be left behind to recover as the husband
resumed duty. Meanwhile he promised to send her a monthly maintenance allowance but
soon failed on the promise.
Upon the return of the wife back home she sued for divorce and claimed “inter-acia”
(among other things) the promised maintenance.
Held:
Although the divorce petition could succeed for other reasons the promised maintenance
could not be awarded because it was based on social and domestic arrangement.
4. An offer must be communicated. It is not legally possible for a person to claim
having accepted what he has never been aware of
Ref: Powell vs Lee
5. Declaration of intention is not an offer
Ref: Harris vs Nickenson
6. Invitation to treat is not an offer
Ref:
A )A pharmaceutical society of Great Britain Vs Boot
c) Fisher vs Bell
7. Supply of information is not on offer
Ref: Harvey vs Facey
8. Cross offers are not offers neither are they mutual acceptances for one another.
Acceptance
This is the manifestation of the offerees intention to contract with the offeror on definite
terms. It is the 2nd step towards formation of contract and it is simply a positive response
to the offer.
Acceptance may be expressed or by implication although the offer itself will on many
occasions dictate the mode of acceptance. And where this is the case such mode must be
respected. Acceptance must be clear and certain not vague or ambiguous otherwise it will
simply amount to a counter offer.
Any person who claims to have made an acceptance should be able to prove that he was
aware of the existence of offer and that his intention was to accept it because legally
accidental acceptance shall not qualify as valid acceptance.
Case reference
Republic vs Clarke (R vs Clarke)
Facts
A reward was offered by the state to any person giving information that could lead to the
arrest and subsequent conviction of certain murder suspects. Clarke (one of the suspects)
who had known about the reward but had forgotten with time gave the required
information hoping that he would be pardoned by the police. Upon further interrogation
clerk revealed that he had actually forgotten about the reward when giving the
information and all that had been on his mind was a chance to be pardoned by the police.
Subsequently Clarke requested for the reward.
Held:
there was not privity of contract between Clarke and the state because Clarke had
simply accidentally performed the terms of the offer and he did not qualify for the reward.
The advertisement in the paper amounts to an offer in rem because it is not specific to
any person and anyone who positively responds to it qualifies as an offeree.
If responded to, it results into a unilateral contract because it is only the offeror that
shall be bound to the terms of his offer. The offer is conditional as to giving information
that would lead to the arrest and conviction of a particular person and where a condition
is made in an offer it must be fulfilled.
Ole Ndume performs the conditions of the offer and under normal circumstances he
should qualify for the reward, however one of the rules of acceptances emphasizes that a
person who claims to have made acceptance should have been aware of the offer
because accidental acceptance does not legally qualify as valid acceptance therefore Old
Ndume does not qualify because his action was accidental and voluntary.
Under equity a quasi contract is established between Ole Ndume and the inspector and Old
Ndume can claim compensation on Quantum Meruit basis if he proves expenditure. Such
compensation shall no be based on the Shs. 1 00,000 reward hence it may be more or less
than that amount. This position is further justified by the equitable principle “no man
should grow rich out of another man’s misfortune”
A person making an acceptance should communicate such acceptance to the offeror or
any to her person authorized by the offeror because the general rule is that silence shall
not amount to acceptance.
Held:
there was no privity between the plaintiff and the nephew because the nephew
silence did not in any way amount to an acceptance.
Communication of acceptance
Acceptance is a positive response to an offer and it shows an intention to transact with
the offeror on the offerors terms. One of the rules of acceptance emphasizes that it
must be communicated. These are
Where the offer itself waives the need for acceptance by the offeree. Ref: Smoke Ball
Case
It was sufficient for the plaintiff to follow the prescription even before communicating
the acceptance because in doing so she had by conduct made an acceptance.
The offer is made in rem. This shall result into a unilateral control and the best example is
an offer made via advertisement.
Acceptance is made to an agent of the offeror. Legally an agent represents his principle
and where an agent receives communication on behalf of the principle the law regards it,
that such principle has also received it yet he may not even be award of such transaction
until much later.
Offeror’s own default – where the offeree can proof that he actually made acceptance in
accordance with the prescribed mode but the offeror could not receive it due to the fault
of his eg having provided the wrong address or having a mechanical fault with the
machines which receive communication the offeree would be regarded as having
performed his part and it will be upon the offeror to perform it or fulfil it.
Where acceptance is by past (the portal rule)- this rule governs acceptance of offers
where such acceptance has been made by certificate of posting ie registered mail and not
ordinary mail.
The rule states the following “acceptance by post shall be deemed effective at the exact
moment of posting such letter offer . it has been properly addressed and stamped and
neither lossnor delay shall ruin these acceptance because acceptance once made cannot
be revoked “however this rule only applies where the made prescribed for acceptance is
none other than acceptance post.
Rationale vs Justification
Justification of this rule is that where acceptance is made by post the post offce legally
becomes the offeror agent for purposes of receiving communication and in the invent
that their arises any dispute regarding loss or delay of the letter such dispute must be
solved by the offeror (principal) and the post office (agent).
Meanwhile the offeree will have discharged his obligation.
Case 1 : Household Fire Insurance vs Grant
Facts
The defendant applied for shares in the plaintiff company and a notice of allotment of
shares was posted to indicate acceptance but unfortunately it never reached the
defendant; 3yrs later the company went into liquidation and the defendant being regarded
as a shareholder was called upon to pay up his unpaid shares. He resisted the demand and
insisted that he was not a shareholder because he had never received notice of allotment.
Held: Failure to receive the notice of allotment was immaterial because acceptance had
been upon posting and this had been proved. The defendant was liable.
Case 2: Adams vs Lindsell
Facts: the defendant posted letter of offer to the plaintiff on 2nd September and clearly
stated that “acceptance should be by post”
The letter was misdirected and it ended up reaching the plaintiff n 5th September on which
date the plaintiff immediately posted his letter of acceptance.
On 8th September the defendant having waited in vain for the response ended up selling
the goods to another person only to receive the letter of acceptance the next day. The
plaintiff then sued for breach.
Held: a valid contract had been established between the parties on 5th September when
the plaintiff posted his acceptance loss or delay could not ruin that acceptance.
NB: legally an acceptance once made cannot be revoked even if by use of faster means
and it is immaterial that the information regarding revocation reaches the offeror before
the information regarding acceptance because acceptance by post is effective at the
exact moment of posting.
Rules of acceptance
Acceptance may be oral, written or implied by behavior of the parties.
Acceptance must be unconditional and in the terms of the offeror
Ref: Hyde vs Wrench
Silence shall not amount to acceptance
Ref: Felthouse vs Bindley
The party accepting an offer must have been aware of its existence
Ref: Republic vs Clarke
In unilateral contracts commencement of the act constituting acceptance shall be
equivalent to full acceptance.
Ref: Smokeball case
An offer must be accepted within the stipulated time
Dickinson vs Dodds
Acceptance is only possible whole the offer remains in force.
Hyde vs Wrench, Dickinson vs Dodds
Acceptance once made cannot be revoked
Adams vs Lindsell
Acceptance must be communicated in the manner prescribed
Case: Tinn vs Hoffman
Facts:
The plaintiff wrote to the defendant requiring him to sell certain goods and clearly stated
that acceptance should be made by post. Subsequently the defendant disregarded the
directive.
Held: no valid contract was established because the wrong mode had been adopted in
making the acceptance. However court noted that when the mode eventually adopted is
faster or equally as fast as the prescribed mode, a valid contract may be established. This
shall greatly depend on the nature of the transaction.
Acceptance must be communicated to the relevant party. Otherwise privity of contract
will not exist.
Acceptance by post shall be effective at the exact moment of posting such letter after it
has been properly addressed and stamped. Neither loss nor delay shall ruin the
acceptance.
Distinctions between offer and acceptance
| Offer | Acceptance |
| An expression of willingness to contract on definite terms with the one offeree once such terms have been accepted. |
Manifestation of the offeree’s intention to contract with the offeror on definite terms. |
| It is made by the offeror | Made by the offeree |
| It is the first step towards formation of a contract |
It is the final step towards the formation of a contract and it establishes the contractual equation |
| An offer can be withdrawn without breach of contract ie by revocation |
Acceptance once made cannot be revoked |
| An offer can be conditional | Acceptance must be in the terms of the offer and never conditional otherwise it will simply amount to a counter offer. |
| An offer by post effective when received by the offeree |
Acceptance by post is effective when posted by the offeree |
| An offer must always be communicated | Acceptance need not always be communicated |
| An offer can be in remie no privity is required when making it because a person can effectively make a blind offer. |
Acceptance must always be in personum and specifically to the offer because it is provoked and attracted by the offer (privity must therefore exist) |
Consideration
This is the price for which the promise of the other is bought. It is one thing for another
or something in return ie “quid pro quo”. Consideration must always exist in a contract
even though it need not be adequate as long as it has economic value. On this basis
inadequacy of consideration shall not “per se” be a good ground of refusing to fulfil an
obligation unless the inadequacy was as a result of a vitiating factor.
Consideration must be monetary or moneys worth ie it should be something by which each
party aims to derive an advantage from the others possession. Generally contracts without
consideration shall not be enforceable by law even if they are binding in honour. This is
based on the principle which states that the law of contract shall not support bare or
naked promises ie “ex nudo pacio non ortur actio” where the (deal) pact is nude (empty) no
action can arise”
Exceptions
There are two instances where contracts without consideration shall nevertheless be
binding and enforceable. This area) Bequests – a bequest is a gift froma dead person to one who is alive. It is
transmitted out of natural love and affection and only becomes effective upon the
death of the donor. Bequests fall in the category of gratuitors promises; hence
they must be evidenced in writing and registered in accordance with the transfer of
property’s act. The best example of a bequest is the transmission of the estate of
a deceased person through a valid will.
b) Gifts –inter-vivos – these are simply gifts between the living and they are also
transmitted out of natural love and affection. They fall in the category of gratuitos
promises and must therefore be evidenced in writing and registered in accordance
with the transfer of properties Act.
Types of consideration
Consideration may be executor or execute but it must not past” explain this statement by
reference to decided cases and statutory provisions
Consideration is an element of contract and it simply means something in return. This
statement does actually identify the main types of consideration and it is also a rule of
consideration. The main types are:
Executed consideration- this is present consideration and a fulfilled promise. It can
therefore be correctly identified as price paid. It arises where a party has discharged his
obligations and no longer owes the other anything. Where both parties have fully
discharged their specific obligations the contract is then discharged by performance.
Executor consideration- this is future consideration and it can therefore be regarded as
price promised (but not yet paid)it arises where a party is yet to full his promise.
Post consideration – legally this is interpreted as no consideration (zero). It is promise
made at the present time to pay for something which was done in the past. Such
consideration cannot be relied upon at law. And it is therefore unenforceable. Parties are
under obligation to informeach other about their contractual requirements as they enter
the contract and any new promise that comes up after conclusion of the deal shall not be
regarded as part of the original contract. It will be past consideration not enforceable at
law.
Case Ruscorla vs Thomas (“The horse with vice”) case
Facts
The plaintiff bought a horse fromthe defendant and after the contract of sale was
completed to the satisfaction of both parties the defendant went back and affirmed that
the horse was free fromvice. Subsequently the horse proved vicious and the plaintiff
sued the defendant on the new promise.
Held: the new promise was made after the main contract had been concluded. It was
therefore past consideration not enforceable at law.
Exceptions to past consideration
Doctrine of Estoppel- this is a principle under the law of evidence and it is also known as
promissory estoppels, equitable estoppels or rule in the “High Trees House “case. The
doctrine simply governs and fulfills promises. Every person is at liberty to decide on
whether or not he should make a promise but once he decides and makes a promise he
puts himself under the legal obligation to fulfil it. The rule states the following “where a
person makes a promise to another and the other relies on it to his detriment the
promissor shall be stopped (precluded, blocked)s fromturning against his earlier promise”
in simple terms the basic rule is that promises voluntarily made must be fulfilled at all cost.
Case: Central London Property Trust Ltd vs High Tree House Ltd
Facts
The defendant rented a house from the plaintiff for $2500 pounds per annumowing to the
2nd world war unrest many residents were vacating the city inorder to move to safer
locations ans as an incentive to retain tenants the plaintiff landlord made a verbal promise
to the defendant tht they shall henceforth pay a reduced rent of $1 250 per annum. The
new promise was not supported by any consideration and it took effect immediately upon
pronouncement several years later the war came to an end and people started moving
back to the city. The plaintiff realized this and suddenly changed his mind by demanding
that the defendant pays the original rent of $ 2500 per annumand the arrears of $1 250
per annumfor every previous year. The defendant resisted the demand and was sued.
Held: it would be unjustified for the plaintiff to be allowed to turn against his earlier
promise and insist on the arrears because the defendant has innocently relied on the new
promise and was likely to suffer great loss. The defendant was protected against the
increase.
Cast II: Century Automobile Ltd vs Hutchings Bremer
The tenancy agreement was subject to 3 months notice on either side. The tenants
proceeded to carry out expensive renovations on the promises on the verbal assurance of
the landlord that the tenants could regard themselves secure forth next 3yrs. Upon
completion of renovations the landlord suddenly issued notice of termination stating that
the tenants had 3months to vacate as per the original agreement. The tenants resisted
and were sued.
Held: the remarks made by the landlord had been a clear representation and the landlord
could not be allowed to turn against the new promise. The tenants were protected to
retain premises for the new agreed period.
NB: Estopell is applied by the defendant and not the plaintiff. Hence it is regarded a shield
and not a sword. However the defendant can only apply it upon proving the following
perquisites.
There must have been an original agreement between the promissor and promisee’
Out of the original agreement, a new agreement must have arisen between the same
parties but no consideration from the promise’
The promisee’ must have relied on this agreement and suffered loss.
A time barred debt/statute barred debt- renewed by a written promise shall hold the
promissor liable to the promisee’ ie under the law of contract the statutory limitation
period of filing a claimis 6years. However a debtor who has gone beyond the limitation
period shall impose upon himself a new obligation to repay what he owes if he makes a
written undertaking to this effect. The creditor then gets a new period of 6years within
which he can sue.
Under the law of negotiable instruments the beneficially of the value of an instrument ie
holder-in-due-course retains the right to sue upon the dishonored instrument even though
it concerns the payment for something which was done in the past.
Where there exists a moral obligation- it may be enforced against the promissory eg where
a promise is made through a valid will.
Case: Lee vs Muggeridge
The testator masde an undertaking that her executor shall settle the debts incurred as a
result of expenses met by the brother in law
No consideration was given for this promise and the executor subsequently refused to
honour the undertaking.
Held: the testator had a moral obligation to fulfill her promise and the executor was
ordered to pay.
Where there exists a contractual duty to performan obligation- the promissor of a past
act shall be legally bound to make good his promise as long as he is still within the
statutory limitation period.
Where past acts are done at the promissors requests they become biding upon him, if such
promissor had undertaken that consideration will be paid and it will be immaterial that the
promise was made after services had been rendered.
Case: Lampleigh vs Braithwaite
The defendant had murdered a person and upon his request the plaintiff obtained the
kings pardon on his behalf after working hard and travelling a long distance at this own
expense. The defendant was pardoned by the king and out of excitement he promised to
pay the plaintiff 1 000 pounds which he subsequently refused to honour by insisting that
it was past consideration.
Held: even though this was past consideration the plaintiffs efforts for the defendants
benefit amount to sufficient executed consideration which had to be reciprocated. The
defendant was ordered to pay.
Principals/ rules of consideration
Consideration must be real but it need not be adequate as long as it has economic value.
It is upon parties to the contract to decide their favourable consideration and such
consideration will be enforceable if the parties applied free consent.
Consideration must not be illusory– it should not be the performance of a duty already
imposed by law eg a promise to reward a police officer for investigating crime.
Case: Stilk vs Myrik
While on voyage certain sailors’ deserted ship due to rough sea and the master then
promised an incentive of extra wages to any sailor who would remain on board. Those who
volunteered to remain on board did thereafter demand to be paid the extra wages but the
master refused to honour his promise.
Held: there was no breach of contract in the refusal because it was already an obligation
on all sailors to work the ship home under all emergencies.
Consideration must be legal otherwise the contract shall be invalid
Case: Foster vs Driscoll
The parties entered a contract for transportation of liquor from England to USA at a time
when such transactions had been banned by the state.
Held: part of the consideration was illegal and the contract was therefore void.
Natural love and affection do not constitute consideration
– Exceptions
– Bequest
– Gift –inter-vivors
Consideration may be executor or executed but it must be past.
Payment of less sum than owed in satisfaction of the entire debt shall not be good
consideration.
