THE LAW OF CONTRACTS 1 THE LAW OF CONTRACTS 2

Void – is no contract. It has no legal effect whatsoever.

Neither party has any rights or obligations.
Ownership does not pass under the contract.
Intention to create a Therefore property given under the contract can
Legal Relationship be recovered. Exception : illegal contracts
Examples: No intention to create a legal
relationship, some contracts entered into by
Capacity to Contract infants, contracts with enemy aliens, ultra vires
contracts, illegal contracts, mistake
and lack of consideration.

Legality of Purpose

Agreement Contract
(Cannot be (Legally DEFECTIVE Voidable – Where one party (usually the innocent
Legally enforced) Enforceable) CONTRACTS party) can choose whether to treat the contract
as valid or void. The other party has no
choice in the matter; he has to follow the
decision of the innocent party
Examples : Some contracts entered into by
Reality of Consent infants, contracts entered into by persons of
unsound mind and drunken persons,
misrepresentation, duress and undue
Consideration influence

Proper Form

Unenforceable – The contract is valid but for some

technical defect. Once the defect is remedied,
the contract becomes enforceable
Example : Improper Form.

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Offer Must be firm – Must be precise, clear and specific; but not be vague or ambiguous. Gunthing Vs. Lynn
(Offeror) * Must be distinguished from “An invitation to treat” i.e. An invitation to make an offer
Pharmaceutical Society of Great Britain Vs . Boots Cash Chemists
Examples : (1) Exhibition of goods for sale (2) General advertising of goods (3) An Auctioneer requesting for
bids (4) Company prospectus (5) An invitation for tenders.
Must be communicated by the offeror or his agent to the offeree or his agent - An offeree cannot accept an offer if he was
unaware of it. Rex Vs. Clarke
Must be in existence at the time of acceptance – An offer comes to an end in the following ways:
(1) Revocation by the offeror – (a) The offer must be revoked before acceptance is complete
(b) If acceptance is by the performance of an act, it cannot be revoked if the other party has already started
performing the act.
(c) Where the offeror promises to keep the offer open for a certain time, he is under no obligation to keep it
open till that time, except where it was made under seal (deed) or supported by consideration.
(d) Must be communicated by the offeror, his agent or even by a third party to the offeree or his agent
Dickinson Vs Dodds
(2) Rejection by the offeree
AGREEMENT (a) Express
(b) Implied - (i) Attempts to bargain – Hyde Vs Wrench
(ii) Attempts to introduce a new term Neale Vs Marriot
(iii) Conditional acceptance
(iv) Accepting in a manner other than the one prescribed
* Asking for information is not implied rejection – Stevenson Vs . Mc Lean
(3) Lapse If a time limit is specified – at the end of the time limit
(i) By time
If a time limit is not specified – at the end of reasonable time; will depend on the
goods involved and on the circumstances of the contract.
(ii) By death – of either party before the offer is accepted.
(iii) By damage or destruction of the subject matter Financings Ltd Vs Stimson
Must be absolute – Must accept the offer, as it is, nothing more and nothing less.
ACCEPTANCE Must be communicated – By the offeree or his agent to the offeror or his agent Powell Vs. Lee
(Offeree ) Exceptions : where the offer is made to the world at large or where the offeror expressly or impliedly waives
communications Carlill Vs. Carbolic Smoke Ball Company

Must be positive – Silence is not acceptance Felthouse Vs Bindley

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THE RECEPTION OF INFORMATION THEORY

When post is used as a means of communication. This rule generally works in favour of the offeree.

(1) Any communication from the offeror is valid only when it reaches the offeree.
(2) Any communication from the offeree is valid as soon as he properly posts the letter.

Household, Fire & Carriage Accident Insurance Co. Vs. Grant

Henthorn Vs. Fraser

Offeror Offer Offeree

Offeror Acceptance Offeree

Offeror Revocation Offeree

Offeror Rejection Offeree

Exception : If the offer stipulates a particular mode of communication, the postal rule will not apply.
Holwell Securities Vs Hughes

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Domestic or Social - The intention is not presumed. However, the parties may rebut the
Arrangements presumption

Balfour Vs Balfour

Jones Vs Padavatton

Simpkin Vs. Pays

INTENTION TO CREATE
A LEGAL RELATIONSHIP

Commercial - The intention is presumed. However, the parties may rebut the presumption
Transactions

Transactions binding in honour only – This amounts to an express denial of intention to

create legal relations. Jones Vs Vernon Pools

* Lack of intention to create a legal relationship makes the contract Void.

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A false statement or misleading conduct presenting a false picture by a party to the

contract or his agent – Silence is not misrepresentation Horsfall Vs Thomas; Ward
Vs. Hobbs
DEFINITION Exceptions –“Uberrimae Fidei” contracts E.g.: insurance, company prospectus
etc: where a previous truthful statement is not amended after it becomes
Misleading later With Vs O’flanagan

Of a material fact
The following are not material – Reference to future events; Opinions
of non-experts Bisset Vs Wilkinson; a business puff; A statement of law

Misrepresentation Must have induced the other party to enter into the contract
-VOIDABLE

Innocent - Making a false statement honestly believing it to be true

Remedy – Rescission or damages

TYPES Fraudulent - Making a false statement knowing it to be false, without

believing it to be true or recklessly and carelessly
Remedies – Rescission or damages or both; in addition, can sue
under tort for “deceit”

Negligent - An expert making a false statement in the area of his expertise,

while knowing that the other party is depending on his expertise
Hedley Byrne Vs Heller & Partners
Remedy – Rescission or damages under the Misrepresentation Act
1967

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Definition - What is given in return for a promise - some right, interest, profit or benefit accruing or some forbearance,
detriment, loss or responsibility given or undertaken;
An act or forbearance or a promise act or to forbear

Present tense - future tense -

Executed consideration Executory consideration

Past consideration is no consideration – consideration must always follow the promise

Promise Consideration Re McArdle

Exception: Bills of exchange e.g. Cheques

Must be legal – Example – a bribe cannot be valuable consideration

Must be real – Consideration need not be commercially adequate, but it must be legally sufficient
(a) A duty placed on a person as a citizen or as a human being is not sufficient
consideration e.g. The duty to drive carefully
CONSIDERATION Conditions (b) Consideration already given under an existing contract cannot be given as
consideration Stilk Vs Myrick; Hartley Vs Ponsonby
Williams Vs Roffey Bros & Nicholls (Contractors) Ltd

Must move from the promisee Dunlop vs. Selfridge: Tweddle Vs Atkinson

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Conditions – A term which goes to the essence of the contract; An important term of
contract, a breach of which makes the whole contract meaningless. Remedies - (1)
Repudiate the contract and sue for damages or (2) continue with the contract and sue
for damages Poussard Vs Spiers

Classification 1 Warranties – A relatively unimportant term of contract, a breach of which does

not significantly affect the contract. Remedy - cannot repudiate the
contract, must continue with it and sue for damages Bethini Vs Gye

Innominate terms – Also known as indeterminate or intermediate – where it is not clear whether a
term is a condition or a warranty, the court will treat the term as innominate. In the event of a breach if
the loss caused is high, the term will be regarded as a condition. Hong Kong Fir Shipping Company Ltd
Vs. Kawasaki Kisa Kaisha Ltd.

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Oral – Cheap and easy to make, but difficult to prove in a court of law

Signed documents- A person is bound by any document he signs, unless he

Expressed can plead “ non est factum” Curtis Vs Chemical Cleaning and Dyeing Co
terms .
Written

Must cater to a normal person – Even a blind or illiterate person

or a Foreigner will be bound by the terms
Classifications 2 Unsigned Thomson Vs. LMS Railway Co Ltd
Documents

Must be a contractual document – Ticket, bill, invoice, etc.,

but not a receipt. Chapleton Vs .Barry UDC

Must be communicated to the other party either before or at

the time of entering into the contract.
Olley Vs. Marlborough Court Ltd .

By the machinery or process provided by the parties themselves F & G Sykes Ltd Vs Fine Fare Ltd.
By the pervious course of dealings between the parties Hilas Vs Arcos
Implied By trade custom Smith Vs Wilson
terms By Statute – E.g. Sections 12 to 15 of the Sale of Goods Act 1979 and sections 13 to 15 of the Supply
of Goods and Services Act 1982
By Court to give the contract business efficacy by applying the “Officious by-stander” test
The Moorcock Case

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