Formulation of Contract

LLJ 3245
Lecturer – Dulmi Jayasinghe
Contract vs Agreement
All contracts are Agreements
But All Agreements are not Contracts

Agreement

Contract
What is a contract means?

A legally enforceable promise or set of

promises
Requirements for the Formation of a Legally Valid
Contract

1. A minimum of two parties should be there with the contractual capacity.

2. Agreement between parties by a way of offer and acceptance

3. The intention of creating a legally binding agreement

4. Valuable consideration/ Justa Causa

5. If the law prescribes any format compline with that format

1.Contractual Capacity

With Contractual Capacity

(Natural / Artificial)

According to the Age of Majority Ordinance in Sri Lanka, the age

of the majority is 18. Thereby, all the natural persons who are
of full age have full contractual capacity.
Exceptions for the General Rule

Minor

Insanity, Drunkenness

Insolvency

Marriage

Juristic or Artificial Person

 Assisted
Contract

By a minor with By the guardian,

By the court
the assistance of on behalf of the
approval
a guardian minor
Unassisted Contract

Ratification
Repudiation

Minors are not

bound by the
Necessaries

unassisted contracts
benefits
2. Offer and Acceptance

1. Two types of offers – Specific and General offer

2. Requirements for valid offer – Clear Intention, Definiteness, serious
intention
3. Difference between offer and invitation to treat
4. Type of offers
5. Termination of offer
Offeror – Party who Offeree – Party who
makes the offer either accept or reject
the offer
 Offer – Definite promise that
given by one person to another
person
Acceptance – Final and
unqualified expression of assent
to the terms of an offer
 General and Specific Offer

Specific - A promise to do or General- A general obligation in

give something specific Common

Example 1 - Special Power of Example 1 -Special Power of Attorney

Attorney
Example 2- Carlill v Carbolic Smokeball
Example 2 - Boulton v Jones Co. (1892)
There should be: Clear Intention or willingness to enter into a contract

Definiteness 1. If the horse is lucky, I will pay some money

2. Promise to rent a building for a time of war

It must be a serious intention - Jokes do not constitute an offer

Weeks v Tybald (1960)
Offer Verses Invitation to treat
Offer Invitation to treat

An invitation communicated by one party to An invitation to enter negotiation with a

another to enter a legally binding contract view to creating an offer
on certain specified term
Offer does not remain open indefinitely May remain open indefinitely

Be accepted or terminated May not be accepted or terminated

Examples of invitation to treat
1. An Advertisement for the sale
of goods
2. An Advertisement for tender
3. An Advertisement by an
auctioneer
4. Tender’s Price List
5. Priced goods in a shop
window
Type of Offers

Optional Offer - Offers where the offeror agrees to keep the offer open for a definite
indefinite time period

Cross offer – Two parties offer at the same time without prior consent or knowledge
Tinn v. Hoffman

Counter offer - If the offeree is indicated that he is willing to enter into a contract on
different terms.
Hyde v. Wrench
How the offer can be terminated
1. Death of a party – Death of either party before acceptance resulted in a termination
However it is depending on the nature of the contract. If that contract is of a personal
nature, this rule applies. If that contract is not related to personal nature, the offer will
not necessarily be terminated.

2. Counteroffer by offeree – If that counter offer is rejected by the offeror

3. Lapse of the time – After a fixed or specific time period or reasonable time period

4. Revocation before acceptance – If the offeror wishes to withdraw the offer, it should
communicate before acceptance.

5. Failure of a condition precedent ( subject matter)

Acceptance
What is acceptance?
Acceptance means the final and unqualified expression of assent to the terms of an offer.

Acceptance Agreement/
Offer
Contract

Agreement can not be revoked after acceptance. If one party has done so, that is a
breach of contract.
If one party revoke the offer before acceptance, Other party can not accept it.
The Requirements of Acceptance
By whom offer should be accepted

The general rule is that only the offeree is entitled to accept the revocable offer. Agent can
accept on behalf of the principal. If it is accepted by 3rd party, and there is no concurrence
of mind, there is no contract.
Boulton v Jones (1857)

Acceptance to be manifested (Express or implied)

Counteroffer Hyde v Wrench
Acceptance must be communicated (Powell v Lee (1908) )

Mere silence of the offeree does not amount to acceptance. However, the postal acceptance
rule is an exception

Acceptance by post takes effect when the acceptance is posted and not when the acceptance
is received.
Henthorn v. Fraser (1892) 2 ch 27 (Revocation)

Henthorn (P) and Fraser (D) negotiated to purchase a house.

“I hereby give you the refusal

P called the D’s office and verbally informed offered to purchase the of the Flamank Street
property for € 750 (on 7th of July) property at £750 for fourteen
days”

8th of July, D’s office found a new purchaser to buy this property for € 760 and sent a withdrawal letter
around 12 noon and delivered it to the P around 5 pm, but he was not at the office at that time.

In the meantime, P had already responded to the offer by post with an unconditional acceptance to buy
the houses for £750.
Presentation Title 21
Judgment

Court held that “a person who has made an offer

must be considered as continuously making it until he
has brought to the knowledge of the person to whom
it was made that it is withdrawn. This seems to me to
be in accordance with the reasoning of the Court of
King’s Bench in the case of Adams v. Lindsell”
The revocation has
bought to the Acceptance posted at
knowledge of person 3.50 pm
9/3/20XX at 8 pm 22
 Postal Acceptance Rule Instantaneous Communication
Offer When it received by Offer When it received by
offeree offeree (hears the word)
Acceptance As soon as it posted by Acceptance Received by offeror
offeree (hears the word of
acceptance by offeror)
Revocation When it received by
the offeree Revocation Received by offeree
(Hears the word of
acceptance by offeree)

9/3/20XX Presentation Title 23

3. Intention of creating a
legally binding Agreement

Intention

Legal Intention

Business or
Social and Domestic
commercial
Agreement
purpose agreement
Parties do not intend legal Parties do intend to create
relationship legal relations
4. Consideration and Justa
Causa
Valuable Consideration Justa Causa
Parties should contribute a material Binding for a mere reason that a serious
share to the contract. promise has been made.
Promisor has received a benefit and Broder concept than valuable
promisee has suffered a detriment consideration
Something of value has been given on Serious intention is sufficient
both sides
There should be consist of money or
something that can be estimated
Deed of transfer – 40perches for 100 Deed of gift – 40perches gift
millions
Executory Consideration – A promise made by
one contracting party in return for another
promise by the other party

Executed Consideration – One of the contracting

party perform an act instead of a promise

Past Consideration – Not valid consideration under EL

Legality --- what are illegal contracts?
• Acts that are Prohibited by law
• Contracts relating to the seashore, Public streams,
state lands
• Immoral contracts