Notes on Contract I.

Lecture 1

Introduction to the law of Contract

Historical origins of Contract Law arise out of the Roman law of obligations. The Romans
divided Private law into the Law of Obligations, Law of Persons and Law of Property. The law
of obligations, according to Gaius covers voluntary and involuntary obligations. Voluntary
obligations are ones which were create ourselves and involuntary ones are created for us by law.
An example of voluntary obligations is contract, an obligation which we freely create for
ourselves, and torts are obligations forced upon us by the applications of law.

Law governing Contracts in Pakistan is the Contract Act 1972. Contract I covers section 1-75 of
the act that deal with general issues related to the law of contract without going into the details of
specific forms of contract, which are dealt in Contract II.
Definition
In section 2(h) of the Contract Act, a contract is defined as 1) An Agreement, that is 2) Legally
Enforceable. An agreement is said to have been formed in section 2 when there is a promise and
every promise and every set of promises forms the consideration for each other. Wwhen at the
desire of the promisor, the promisee acts or abstains from doing something or promises to act or
obstain from doing something, such action or inaction is the consideration for the promise.
So, a contract is an agreement, an agreement is a promise, a promise is an accepted proposal. But
not all agreements are contracts. As we have seen above, for an agreement to be a contract, it
needs to be enforceable legally.
Section 10 of the act sets out the conditions under which agreements become contracts.

1) Capacity (Nemo dat quod non habet)

2) Free Consent of Parties
3) For lawful Consideration
4) With Lawful Object
5) Not Void by law

Formation of a Contract, Offer

The universally accepted method for the formation of a contract is by making an offer, and the
acceptance of this offer. Offer therefore forms the starting point of any contract. Contract Act
defines an offer as the event when one person signifies to another his willingness to do
something or abstain for doing something with a view to obtaining the other persons assent to
that act or omission, an offer is made. The word signify indicates that an offer is only made
when it is declared to the other person or in the language of Contract law, communicated to the
other person. This maybe done orally, in writing, or may even be inferred by the behavior of the
party. An offer which is made in words or in writing is called an express offer. An offer which is
implied by the behavior of the party is called an implied offer. (Section 9)
For example, stepping into a bus was considered in the case of Wilkie v London Transport Board
as an implied offer to avail the services of the transport company. Similarly, making a bid at an
auction, or entering into a buffet hall will be taken as an implied offer to buy the goods and buy
the food respectively.
Haridas Ranchordas v Mercantile Bank of India: When the customer of the bank didnt object to
a change in the compound rate of interest in the natural course of the business of the bank, he
was held to have given implied consent to pay the compounded interest rate.

Communication
According to section 4 of the act, communication is complete when the proposal comes to the
knowledge of the person to whom it was made.
Lalman v Gauri Dut: The defendants nephew ran away from home. The defendant sent her
servant looking for the child, and later circulated handbills offering to pay Rs 501 to anyone who
found the child. The servant became aware of the offer only after he had found the child. The
action therefore failed, since there could be no contract unless the offer had been communicated
to the servant prior to his finding the child.
Taylor v Laird The plaintiff was engaged to command the defendants ship but gave up command
midway, but continued to work on the ship and demanded wages for work done. It was held that
since his offer was not communicated to the defendant, who therefore had no chance to accept or
reject the offer, the contract was not valid
Felthouse v Bindley Both offer and acceptances have to be communicated. The plaintiff offered
to buy his nephews horse by writing, if I hear no more about it, Ill consider the horse mine.
The nephew made no reply but withdrew the horse from the auction. The auctioneer though
accidently sold the horse. Both sued the auctioneer. It was held that there was no contract, since
the acceptance was not communicated to the plaintiff.
Intention to create legal relations
It is an accepted tenant of English contract law that for there to be a contract, there must be the
intention of the parties to enter into a legal relationship, and that idle chatter should not be
allowed to constitute a contract. In the case of Balfour v Balfour the defendant, who resided in
Ceylon agreed to send his wife 30 pounds a month if she didnt join him there but stayed in
England. Later on when the parties fell out, the wife sued for the recovery of the arrears. Lord
Atkin in his speech held that in many instances where the parties did not envisage the agreement
creating legal consequences, for example an agreement to take a walk, or an agreement to hold a
social engagement, there is no contractual obligation between the parties.
Whereas dealings in the course of business are assumed to create legal relations, this is not
always the case, as in Rose & Frank v Crompton, a clause in the agreement where the parties
expressly stated that the agreement was not intended to create legal relations; the clause was held
to negate the contractual effect of the agreement. Similarly, although social or family relations
are not intended to create legally binding agreements, an agreement to share a house between
relations (Parker v Clarke) or an agreement between husband and wife where to wife agreed to
withdraw her complain upon the husbands promise to make a payment (McGregor v
McGregor), the agreements were held to be legally binding.

General Offers
Weeks v Tybald (1605) Mere puffs, like promise to pay 100 pounds to anyone who married the
defendants daughter with his consent did not constitute an offer.
Carlill v Carbolic Smoke Factory The offer to pay 100 pounds to anyone who became sick after
using the smoke ball was held to be not a mere puff since the defendants by adding the statement
of depositing 1000 pounds in an account to show their sincerity had taken the statement away
from being a mere puff and had made it into a serious contractual offer.
In cases of general offer, the communication of acceptance is not necessary for the formation of
the contract. It may be sufficient for the conduct of the parties to constitute acceptance of the
contract. For example in a case where one puts out notices promising to pay a sum to someone
who finds their lost pet, it is not necessary for the offer to be accepted, and performance by the
person who finds the dog is acceptance and performance of the contract. This is contained in the
section 8 of the Contract Act whereby performance of the condition of the offer is the acceptance
of the offer. (Harbhajan Lal v Harcharan Lal)
A general offer is out and open to the public until retracted, but general offers concerned with the
performance of one act cease to exist when the act if performed, for example the finding of the
dog.

Offer and Invitation to Treat

An offer must be distinguished from an invitation to treat. The latter is merely an indication to
receive offers. Advertisements are generally held to be merely invitations to treat, or invitations
to receive offers, or invitations to start negotiations. For there to be a proper offer, the terms need
to be worded in a way that are definitive and require only the assent of the other party for the
formation of an agreement. The case of Harvey v Facey demonstrates how communication may
not constitute offer.
Plaintiff Telegraph: Will you sell us bumper Hall Pen? Telegraph Lowest Cash price?
Defendant Telegraph: Lowest price for Bumper Hall Pen, 900 pounds.
Plaintiff Telegraph: We agree to buy Bumper Hall Pen from you for 900 pounds.
The defendant refused to sell the pen. The plaintiff sued. The Court held that the second telegram
by the defendant didnt agree to sell. It merely stated the price. The second telegram was the one
where the offer was made and refused.
Displays in shop windows are not offers but invitations to treat. Fisher v Bell illustrates this point
when a knife in a shop windows was deemed not for sale and thus not violating any law on ban
of such sale.
Pharmaceutical Society of GB v Boots Chemists. Display of goods at a shop, even a self service
shop does not constitute an offer on behalf of the owner of the shop to sell and goods and
constitutes a mere invitation to treat.
Partridge v Crittenden No offence committed under wildlife protection law since the offer to sell
wild birds was mere invitation to treat and not an offer.
Spencer v Harding The bidding in an auction is also mere invitation to treat and the highest bid is
an offer by the buyer which requires its acceptance from the seller, which is usually in the form
of the stroking of the hammer to indicate the close of the auction by agreeing to the highest bid.
Harris v Nickersen A notice that goods will be put up for auction does not constitute a promise
that the same will be done as the notice is also mere invitation to treat.