1-2.1.1 Definition of Contract
1.2.2 ELEMENTS OF VALID CONTRACT
The general requirements for the formation of a valid contract include the following;
1. Offer
2. Unqualified acceptance 3. Consensus ad idem 4. Valuable Consideration
5. Intention to create legal relations 6. Genuineness of consent
7. Contractual capacity of parties 8. Legality of object
9. Possibility of performance 10. Certainty of terms
1-2.2.1 Offer
• Definition
An offer is a definite promise to be bound or expression of willingness to contract on specified terms and be made to a particular person or class of persons or public at large.
A person making the offer/promise/statement is offeror and the person to whom it is directed is the offeree.
NTHC Ltd v Antwi [2009] SCGLR 117 per Dr Date-Bah JSC;
“Basically, an offer is an indication in words or by conduct by an offeror that he or she is prepared to be bound by a contract in the terms expressed in the offer,………….
Accordingly, the offer has to be definite and final and must not leave significant terms open for further negotiation. Accordingly, the offer has to be definite and final and must not leave significant terms open for further negotiation.’
The characteristic of an offer lies in its finality and definiteness. Thus;
- An offer must be clear and unambiguous
- An offer may be made to a specific/particular person or group of or to the world at large
- An offer is a statement/promise or undertaking which the person making it is prepared to enter into a legal relationship along the terms stated,
- An offer must be firm and complete proposal to another leaving him or her to accept or reject.
- An offer must be effective without being a reply to a request for information or an advertisement or invitation to treat.
• Statements/Promise not binding or not constituting an offer a. Intention to make an offer:
An intention to make an offer is also described as invitation to treat and Chitty on Contracts, 28th Edition 1999 at page 93 states that;
“A communication by which a party is invited to make an offer is commonly called an invitation to treat. It is distinguishable from an offer primarily on the ground that it is not made with the intention that it is to become binding as soon as the person to whom it is addressed simply communicates his assent to the terms.’’
Invitiation to treat or intention to make an offer includes the following;
- Exhibition or display of goods for sale, Fisher v Bell - An advertisement that an auction sale is to be held
- Invitation to tender for the construction of building or engineering works
- the circulation of a price list
- invitation to bid or submit a proposal NTHC Ltd v Antwi [2009] SCGLR 117,
The plaintiff-respondent was formerly in the employment of the defendant–appellant company as head of its legal department. The company wrote to her whilst in its employment, the proposal of the company to sell the house being occupied by the management staff at a stated price and period for payment of amount.
The plaintiff responded by a letter accepting the offer to purchase the said house at the stated price and also requested for details of the bank account. There was no further
correspondence until when the plaintiff had left the employment of the defendant when the defendant wrote to withdraw the offer for sale of the said property to enable the company house its management staff. The company subsequently requested the plaintiff to vacate the house following her resignation from the employment of the defendant company. The plaintiff subsequently sued in the High Court claiming that the exchange of letters initially had resulted in an agreement and sought for specific performance of the agreement among others.
The defendant however averred that its first letter was not an offer but only an invitation to staff to make offers to purchase the premises.
The trial court held that the defendant’s letter was a mere invitation to treat. The Court of Appeal however reversed the trial court decision holding that the letter constituted an offer and therefore ordered specific performance of the contract. The defendant therefore appealed at the Supreme Court.
Held, unanimously dismissing the appeal and allowing for payment of interest
………An invitation to treat is to be distinguished from an offer on the basis of proposal’s lack of an essential characteristic of an offer, namely, its finality which gives a capacity to the offeree to transform the offer into a contract by the mere communication of his or her assent to its terms.’’
Carlill v Carbolic Smoke Ball Co. Ltd (1893)
The payment of 1000pounds which had been deposited at a Bank to demonstrate a good faith was a promise by a Defendant Company to anyone who contracted influenza after using the smoke ball as directed in an advertisement. The plaintiff bought the smoke ball and used it as advertised and yet contracted influenza. The Company said it was a mere puff and the plaintiff sued for the 1000pounds.
Held; The good faith which was demonstrated by the company by depositing the money at Bank was the companies willingness to pay anyone who accepts the offer and was not satisfied. The news paper advertisement cannot be considered a mere puff or intention to make an offer but an offer to the whole world which was accepted by the plaintiff, Mrs Carlill.
William Lacey Ltd (Hounslow) v Dan’s [1957] 1 WLR 932
A contractor was led to believe he would get the work. The Contractor submitted a tender which was not accepted but, believing that the contract would be given to him, he prepared further estimates, schedules etc. which the employer used for obtaining a war damage claim. No contract was placed with the contractor.
Held: the Contractor was entitled to a reasonable sum for the work done subsequent to the tender. Where a tenderer at the employer’s request does work outside the normal scope of tendering eg. designs there may be an implied promise to pay a reasonable sum for such work
The Contractor’s tender constitutes an offer which the client may accept or not. Similarly an invitation for the buyer to make an offer to buy, the invitation is not an offer.
This is a request made by a party to another to make a proposal for consideration. Thus, where a client identifies some works to be executed and ask particular contractors to
make a proposal to be considered by the client, it does not constitute an offer but an invitation to make an offer.
Gibson v Manchester City Council [1979] 1 All ER 972
Advertisement about auction sales and tenderers are intentions to treat or intention to make an offer yet to be considered by the employer or clients for its suitability
b. Request for information.
This is an inquiry to the offeree to supply information. A tenderer may request for information in the cause of preparation for a bid/tender, the request does not constitute an offer.
Dormins Fisheries Ltd v Bremen–Vegesacke Fischerei [1973] 2 GLR 490
In a response to the defendant’s written offer to the plaintiff, the plaintiff requested a three months moratorium.
Held: request was not a Counter offer but a request for information.
c. Expression of good intentions
This is a statement to another signifying that declarant is serious about the Transaction.
Okai v Ocansey [1992-93] 3 GBLR 1047 CA
Held: an intention to grant a lease was not the same as an agreement for a lease, notwithstanding taking possession, the making of advance payments and understanding some renovation. After all, there had been no agreement between the parties as to rent to be paid, duration and commencement. It is rather an expression of good intentions to grant a lease and not agreement for lease.
• Variation of Terms of Offer or Counter Offer
Where a term in an offer is waived by the offeree, the offeree’s document results in rejection of the offeror’s proposal or the offeree’s document now forms basis for a fresh contract or agreement not one initiated by the offeror. This new offer is best described as a Counter Offer to the original offer.
NTHC Ltd v Antwi [2009] SCGLR 117,
“If a communication during negotiations is not the final expression of an alleged offeror’s willingness to be bound, it may be interpreted as an invitation to the other party to use it as a basis for formulating a proposal emanating from him or her that is definite enough to qualify as an offer.’’
Deegbe v Nsiah & Another [1984-6]1 GLR 545
The plaintiff tenant in the 1st defendants house claims having orally been offered to purchase the house which he had written to accept but asked for reduction in price. He later received a letter from the 2nd Defendants lawyer giving his notice to vacate the house. High Court dismissed this action.
Court of Appeal held inter alia that acceptance must be absolute and unqualified of all terms of the offer and therefore request for reduction in price renders letter a counter offer.
A qualified acceptance amounts to rejection. e.g Request by tenderer to change the Bid Security period or non submission of required information intends to change or vary the terms of an offer.
• Withdrawal of Offer
Section 8(1) of the Contracts Act 1960, Act 25 – “A promise to keep an offer open for acceptance for a specified time shall not be invalid as a Contract by reason only of the absence of any consideration thereof.
- Until the offeree accepts the offer, the offeror may withdraw his offer at any time. The fall of hammer of an auctioneer shows the acceptance of an offer until then any offer made may be withdrawn.
- the withdrawal must be communicated to the offeror Domins Fisheries Ltd. V Bremen Vegesaker Fischerei [1973] 2 GLR 490
Held: The offeror is at liberty to withdraw his offer at anytime without obligation except where the offer has been accepted or the offeree has paid the offeror to keep it open.
Abban J held that the purported withdrawal was invalid coming after acceptance the previous day.
- The offer cannot be withdrawn when the offeree has initiated an act which forms part of the process of acceptance (part performanpce).
Erringhton v Erringhton & Woods (1952)
A father bought a house for his daughter and the son-in-law to live in upon marriage.
The father asked the young couple to pay the remaining mortgage instalment for him to give them the house. The couple duly commenced payment of the mortgage instalment but the father sought to revoke the offer.
Held; The father could not revoke the offer once the couple had commenced performance as specified.
A Contractor may withdraw his bid at any time before the employer’s letter of acceptance is received by the Contractor.
However, there is usually sum of money that a Contractor may forfeit when such withdrawal is made hence tender security guarantee required by the employer as one of the requirements for eligibility to make an offer.
- Withdrawal of offer through post
Withdrawal of an offer by post is complete upon receipt by offeree.
• Termination of offer
An offer may be terminated where o There is a lapse of time
Instructions to tenderer included in the tender documents always must specify time that the offer of the Contractor shall be valid.
o The offeree fails to satisfy pre offer conditions such as, failure to supply required information
o Death of offeror
o Rejection of offer by the offeree
• Standing Offer:
Where the advertisement or invitation to tender states that the Company may require some work to be done if and when demanded. The tender that Contractor made is called a standing offer. It may be revoked at any time provided it has not been accepted in legal sense. The tender is accepted in legal sense as soon as a requisition for a definite work is made each requisition by the offeree is an individual act of acceptance which creates a separate contract.
The Acceptance of Standing Offer or tender does not convert the offer into binding contract.
Great Northern Rly Co. v Witham [1873] LR9
Defendant refused to supply goods written a schedule in a contract which specified that company may order from time to time.
Held: Breach of contract for tender was standing offer to be converted to services.
1.2.2 ACCEPTANCE
Acceptance is the assent of all the terms of the offer.
NTHC Ltd v Antwi [2009] SCGLR 117 @ 125 per Dr Date-Bah JSC;
“……….the mere acceptance of an offer is sufficient to turn the offer into a contract, if there is consideration for it, together with an intention to create legal relations.’’
• Essentials of Acceptance
1. Acceptance must in all cases be unqualified – Deegbe v Nsiah & Another [1984-6]1 GLR 545
The plaintiff tenant in the 1st defendants house claims having orally been offered to purchase the house which he had written to accept but asked for reduction in price. He later received a letter from the 2nd Defendants lawyer giving his notice to vacate the house.
High Court dismissed this action.
Court of Appeal held inter alia that acceptance must be absolute and unqualified of all terms of the offer and therefore request for reduction in price renders letter a counter offer.
A qualified acceptance amounts to rejection.
Tinn v Hoffman [1873]
An offer to sell 1200 tons of iron was met with a reply asking for 800 tons.
Held: this amounted to a qualification of an offer and doesnot constitute an acceptance.
No contract came into being.
The unqualified acceptance means;
a) Acceptance must be precise
b) Insertion of a new term into the agreement by the acceptance really amounts to a counter offer rather than acceptance
c) Where words such as “subject to” are added the effect is to prevent the agreement from becoming binding until what “subject to” refers is made complete
d) Addition of meaningless terms such as “subject to the usual terms of acceptance” (where there are no such usual terms) will not prevent a legal objection arising immediately.
2. Silence in Contract does not always amount to acceptance
An offeree may decide within himself that he has accepted the offer but this may not constitute an acceptance. For acceptance to be valid it must be communicated to the offeror in an express or implied terms in a manner that the offeror understands. It must be demonstrated in some acts such as spoken or written.
In Powell v Lee (1908) it was held that absence of communication invalidates the contract.
3. Acceptance of a Contract may have a retroactive effect if it is shown that this was the intention of the parties.
Trollope & Colls v Atomic Power Construction [1963] 1 WLR 333
A contractor was instructed to proceed and start work while the contract for the works was still under negotiation
Held: parties had intended such works to be governed by the contract as eventually made of an acceptance will not be necessary
4. Acceptance must normally be properly communicated to the offeror. Exceptions Include;
a. Where acceptance is given to an agent of the party (the post office, messenger courier etc. acts as agent of offeror if he elects this mode of response).
b. Where the offeror has intimated that communication of contracts by the subsequent acts of the company.
Trollope & Colls v Atomic Power Construction [1963] 1 WLR 333
c. where the agreement has been concluded through the post eg. where the letter is lost in the post
5. Offeree can revoke his acceptance before the offeror actually receives the earlier Communication of acceptance - Dormis
• Valid Acceptance It is that:
1. Offeree must show that he knows of the offer, intend to accept it, actually accepts it and communicated the acceptance to the offeror or offeror’s agent
This means that;
- Where there is no offer there could not be effective communication to the offeree and the offeree could not subsequently make an acceptance.
- The offeror or his agent must actually receive the acceptance, the offeror is not bound to use the same mode of communication if not expressly stated.
Dormins Fisheries Ltd. V Bremen Vegesaker Fischerei [1973] 2 GLR 490
• Effect of Acceptance of Tenders
When company invites tenders for execution of some works, the contractor who puts in a tender intimating that he is prepared to do the work over a period of time at a certain price when the client accepts the tender, there is a binding contract.
• Acceptance by Post
Acceptance is complete upon posting. This is the ‘Postal Rule". The word “posted”
connotes putting into the control of the Post Office, or his agent, employees authorized to receive letters. An e-mail system may be described as posting.
Posting must be reasonable to do so eg. Posting responses to e-mail messages may not be reasonable unless access to the internet is not available.
A posted acceptance is effective even if it was never received as a result of accident through the post.
Self-Assessment 1 –2
1. “Sanctity of Contracts” is one of the principles of contract. Explain 2. Distinguish Bilateral contract from unilateral contract.
3. What is “Parol Evidence Rule” ?
4. State the principles in contract established by the case of Deegbe v Nsiah and Another [1984-86] 1 GLR 545
5. At what stage can an offer be withdrawn?
State circumstances under which an offer could be terminated.
6. What constitute a valid acceptance of an offer in a contract