Contract is a Legally-enforceable Promise

Introduction:

Contract is a legally-enforceable promise by one party to another. Contract is legally binding agreement concerning a bargain. It is essentially for sale or hire such as goods services or land. In English Law, there are three important key for the creation of a contract. These are agreement, intention and consideration.

In agreement there is offer and acceptance. Offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed”, the “offeree”. An offer is a statement of the terms on which the “offeror” is willing to be bound. Acceptance is a final and unqualified expression of assent to the terms of an offer.

There Are Some Rules For Acceptance These Are:

• The acceptance must be communicated: see Powell v. Lee (1908) 99 L.T. 284; Robophone Facilities Ltd v. Blank [1966] 3 All E.R. 128. Prior to acceptance, an offer may be withdrawn.
• An exception exists in the case of unilateral contracts, in which the offeror makes an offer to the world which can be accepted by some act. A classic instance of this is the case of Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q.B. 484 in which an offer was made to pay £100 to anyone who having bought the offeror’s product and used it in accordance with the instructions nonetheless contracted influenza. The plaintiff did so and the court ordered payment of the £100. Her actions accepted the offer – there was no need to communicate acceptance. Typical cases of unilateral offers are advertisements of rewards (e.g., for the return of a lost dog).
• An offer can only be accepted by the offeree, that is, the person to whom the offer is made.

• An offeree is not usually bound if another person accepts the offer on his behalf without his authorization, the exceptions to which are found in the law of agency, where an agent may have apparent or ostensible authority, or the usual authority of an agent in the particular market, even if the principal did not realize what the extent of this authority was, and someone on whose behalf an offer has been purportedly accepted it may also ratify the contract within a reasonable time, binding both parties: see agent (law).
• It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance (called waiver of communication – which is generally implied in unilateral contracts): see also Re Selectmove Ltd [1994] BCC 349.
• If the offer specifies a method of acceptance (such as by post or fax), acceptance must be by a method that is no less effective from the offeror’s point of view than the method specified. The exact method prescribed may have to be used in some cases but probably only where the offeror has used very explicit words such as “by registered post, and by that method only”: see Yates Building Co. Ltd v. R.J. Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370.
• However, acceptance may be inferred from conduct, see, e.g.: Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666; Rust v. Abbey Life Assurance Co. Ltd [1979] 2 Lloyd’s Rep. 334; Saint John Tugboat Co. v. Irving Refinery Ltd (1964) 46 DLR (2d) 1; Wettern Electric Ltd v. Welsh Development Agency [1983] Q.B. 796.

The contract in Carlill v. Carbolic Smoke ball case was a unilateral contract, one in which the offeree accepts the offer by performing his or her side of the bargain. It can be contrasted with a bilateral contract, where there is an exchange of promises between two parties. Revocation offer means an offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. And another thing it is not a counter offer. In counter offer, the offeree rejects offer, the offer has been destroyed and cannot be accepted at a future time. The “mirror image rule” states that if you are to accept an offer, you must accept an offer exactly, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer: Hyde v. Wrench (1840) 3 Beav 334. However, a mere request for information is not a counter-offer: Stevenson v. McLean (1880) 5 Q.B.D. 346. It may be possible to draft an enquiry such that it adds to the terms of the contract while keeping the original offer alive.

An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror: Dickinson v. Dodds (1876) 2 Ch.D. 463. If the offer was made to the entire world, such as in Carlill’s case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option.

The option contract provides an important role in unilateral contracts. A problem arises with unilateral contracts because of the late formation of the contract. With classical unilateral contracts, a offeror can revoke his offer for the contract at any point prior to the offeree’s complete performance. So, if an offeree provides 99% of the performance sought, the offeror could then revoke without any remedy for the offeree. The offeror has maximum protection and the offeree has maximum risk in this scenario.

An option contract can provide some security to the offeree in the above scenario. Essentially, once an offeree begins performance, an option contract is implicitly created between the offeror and the offeree. The option contract here is a bilateral contract; the offeror impliedly promises not to revoke the offer and the offeree impliedly promises to furnish complete performance. The consideration is provided by the offeree’s beginning of performance.

There is an example; Manchester City Council was being run by the Conservative Party, which was running a policy of selling council houses to the occupants. Mr. Gibson applied for details of his house price and mortgage terms on a form of the council. In February 1971, the treasurer replied, the corporation may be prepared to sell the house to you at the purchase price of £2,725 less 20% = £2,180 (freehold)… This letter should not be regarded as a firm offer of a mortgage. If you would like to make formal application to buy your Council house please complete the enclosed application form and return it to me as soon as possible.

In March 1971, Mr. Gibson completed the application form, except for the purchase price and returned it to the council. In May, the Labour party came back to power and halted sales. Mr. Gibson was told that he could not complete the purchase. So Mr. Gibson sued the council, arguing that a binding contract had already come into force.

In the judgment, Lord Denning MR held that there was a contract, because one should “look at the correspondence as a whole and at the conduct of the parties and see there from whether the parties have come to an agreement on everything that was material.”

Geoffrey Lane LJ dissented, and would have held there was no contract. The Council appealed.

The House of Lords unanimously upheld the Council’s appeal, so Mr. Gibson did not get his house. The court held that the Council’s letter was not an offer as the letter stated that “The Corporation may be prepared to sell the house to you” and that “If you would like to make formal application to buy your Council house, please complete the enclosed application form and return it to me as soon as possible.” As there was never an offer available to be accepted, no contract had been formed and by extension the council had not been in breach.

After these rules and example of acceptance I analyze that case and find that is an option contract under the unilateral contract. This case is like

http://en.wikipedia.org/wiki/Offer_and_acceptance

1. G.H. Treitel, The Law of Contract, 10th edn, p.8.
2. (1871) LR 6 QB 597
3. [1893] 1 Q.B. 256
4. [1893] A.C. 552
5. [1979] 1 W.L.R. 294
6. [1974] 3 All E.R. 824

http://www.investorwords.com/3482/option_contract.html