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Monday, 4 July 2016

LAW OF CONTRACTS: Your Sword, Your Shield 1

This write up on the law of contract, can be applied to all forms of businesses although my attention is focused on the entertainment and creative industries. I hope you will read and understand. 

Note that you will still need to employ the services of a lawyer/business manager/accountant to help you go through your contract.

I proceed.

A contract can be defined as an agreement between two or more persons, to create reciprocal rights and obligations recognized and enforceable in law or as a promise or set of promises that the law will enforce.

A contract may be oral, by conduct or written.

A contract may also be express or implied

It is express where the terms of the contract are stated clearly in an agreement and implied when the existence of the contract is construed from the conduct of the parties.

For there to exist a binding and enforceable contract in the eye of the law, the following elements must be present:
  1. Offer
  2. Acceptance 
  3. Intention to create a legal relationship 
  4. Existence of a valuable consideration 
  5. Legal capacity of the parties to enter into a contract 
  6. The terms of the contract

In this post, I will explain no. 1 and 2 only. Explanations for no 3-6 will follow subsequently.

Also note that the plaintiff is the person/party that sues another person/party to court. 

The defendant is the person/party that comes to court to defend himself.



To determine if there is an agreement between two parties, one party must have made an offer which the other party must have accepted.

An offer is a statement by one party requiring another to perform an act, on specified terms.

An offer may be made to one or more persons.

For a statement to constitute an offer, it must be precise and unequivocal, leaving no room for speculation or guess work as to what the person offering intended.

See the following scenario, in the case of:

Carlill v Carbolic Smoke Ball Co [1893] 
A Newspaper advert placed by the defendant stated:-

"£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball...

£1000 is deposited with the Alliance Bank, showing our sincerity in the matter."

Mrs. Carlill purchased some smoke balls and used them according to the directions and caught flu. She sought to claim the stated £100 reward.

The defendant raised the following arguments to demonstrate the advertisement was a mere invitation to treat rather than an offer:

  1. The advert was a sales buff and lacked intent to be an offer.
  2. It is not possible to make an offer to the world.
  3. There was no notification of acceptance.
  4. The wording was too vague to constitute an offer since there was no stated time limit as to catching the flu. 
  5. There was no consideration provided since the 'offer' did not specify that the user of the balls must have purchased them. 

The Court of Appeal held that Mrs. Carlill was entitled to the reward as the advert constituted an offer of a unilateral contract which she had accepted by performing the conditions stated in the offer. 
The court rejected all the arguments put forward by the defendants for the following reasons:

  1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a mere sales puff.
  2. It is quite possible to make an offer to the world.
  3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance.
  4. Whilst there may be some ambiguity in the wording this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls.
  5. The defendants would have value in people using the balls even if they had not been purchased by them directly.
Note that an invitation to treat is not an offer. A situation of an invitation to treat arises when one party invites another party to make an offer. 
An example of an invitation to treat is an advertisement by a film producer for actors to act in a film. In this situation, any interested actor can audition for the role and then negotiate his fees with the producer who may accept or decline the offer. 

See an example of an invitation to treat in the case of:

Fisher v Bell [1961]
The defendant had a flick knife displayed in his shop window with a price tag on it. Statute made it a criminal offense to 'offer' such flick knives for sale. 

The conviction of the plaintiff was quashed as goods on display in shops are not 'offers' in the technical sense but an invitation to treat. 

The court ruled that a product displayed in a shop is an invitation to treat only and therefore has no contractual significance in the shopping process.



This is an unconditional agreement to all the terms of the offer received. Therefore, an acceptance that varies or qualifies the terms of the offer becomes a counter offer. 

For example, if a show promoter offers a singer a 50-50 deal and the singer in his agreement demands a 70-30 deal, this amounts to a counter offer. The singer has made a counter offer.

See the case of:

Hyde v. Wrench, [1840]
Wrench (D) offered to sell his estate to Hyde for 1200 pounds and Hyde (P) declined. Wrench then made a final offer to sell the farm for 1000 pounds. Hyde in turn offered to purchase the property for 950 pounds and Wrench replied that he would consider the offer and give an answer within approximately two weeks.

Wrench ultimately rejected the offer and the plaintiff immediately replied that he accepted Wrench’s earlier offer to sell the real estate for 1000 pounds. 

Wrench refused and Hyde sued for breach of contract and sought specific performance, contending that Wench’s offer had not been withdrawn prior to acceptance.

If one party makes an offer and the offeree makes a counter offer, does the original offer remain open?

Holding and Ruling
No! A counter offer negates the original offer. To constitute a valid contract there must be a simple acceptance of the terms proposed. 
Hyde rejected the defendant’s offer to sell and made a counter proposal which terminated the offer. The offer was never accepted and cannot be revived later.

An offer may be terminated in the following instances:
  1. Where it is revoked at any time before it is  accepted
  2. Where the time fixed for acceptance has lapsed or after a reasonable time
  3. Upon the death of the person who makes the offer.
  4. Also, note that a request for information does not constitute as an offer or acceptance. 

See the case of:

Harvey v Facey [1893] AC 552  Privy Council.
Harvey sent a Telegram to Facey which stated: -
"Will you sell us Bumper Hall Pen? Telegraph  lowest cash price-answer paid;" 

Facey replied by telegram:-
"Lowest price for Bumper Hall Pen £900."

Harvey then replied:-
"We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession." 

The Privy Council held that there was no contract concluded between the parties.

Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer. 

There was thus no evidence of an intention that the telegram sent by Facey was to be an offer.

To be continued..........

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