The Process of Contract Formation Explaining the Methods by Which the Courts Decides Whether or Not the Parties Have Reached an Agreement. Essay
The Process of Contract Formation Explaining the Methods by Which the Courts Decides Whether or Not the Parties Have Reached an Agreement.
To establish whether the parties have formed a contract, the courts begin from examining the elements of offer, acceptance, whether or not there was a consideration or the bargain and the contractual intent to make a binding contract and any other external positive factors. The coincidence of offer and corresponding acceptance results in a contract. In some instances contracts are inferred from the conduct of the parties without a direct offer and a corresponding acceptance. Hence the courts further tries to see if the minds of the offeror and the offeree had actually met (the principle of consensus ad idem) for the contract to be formed. CONTRACT FORMATION
For a contract to be formed there must be an offer from an offeror and a corresponding acceptance by an offeree. An offer was defined in NTHC Limited v Antwi as “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 if the offeree communicates to the offeror his or her acceptance of those terms”. It can be inferred from the above that for an offer to be valid, it must assume the following characteristics; A.The offer must be clear and not ambiguous and its understanding should be simple. B.It must be definite
C.It must be final
D.And it must not leave any room significant changes in the terms or further negotiations. An offer however can be made to an individual and only that individual or his legal representative can respond to the offer. As seen in Boulton v Jones, another person cannot accept an offer not made to him or her. An offer can be addresses to a group and only that group may accept it. Here again an offer can be made to the whole world or the world at large or to an infinite audience. This is the case in Carlil v Carbolic Smock Ball Company, the case in which the defendant advertised that they would pay 100 pounds to anyone who would contract influenza after using their medical preparation for a fortnight. The plaintiff complied by strictly following
the instructions but later contracted the influenza. She sued for the reward of 100 pounds but the defendant argued that the advertisement was to the whole world and one cannot contract with the whole world. The court held that advert constitutes a general offer and further stated that the contract was made to a limited portion of the public who came to perform the conditions. In establishing the presence of an offer, the court deliberately tries to differentiate offers from invitations to treat. This is so because these two concepts in contract law are very much confusing. An invitation to treat unlike an offer acceptance of which would evolve a contract is rather an offer calling on some target audience to make an offer. The examples of invitation to treat are;
a.Advertisements, (but excluding unilateral advertisements such as reward announcements) b.Auction sales
d.Display of goods in a shop with or price tags
e.Circulation of company price lists
An example of advertisement as an invitation to treat can be seen in Domenyor v Johnson Motors Limited. The defendant a car repairer made an announcement on radio and made public announcement that they had spare parts for repair of vehicles including Peugeot cars. The Plaintiff towed his massively damaged car to the garage of the defendant in June 1980 through his agent with no instructions. Two weeks later the defendant wrote to the plaintiff that work would commence upon his acceptance of the estimates. The plaintiff ignored the notice and in February 1981 he wrote for the release of his car. The defendant demanded 4500 cedis as charges for risk and custody before the release of the vehicle. The plaintiff refused to and sued. It was held that the advertisement in themselves could not constitute a valid binding agreement. In Ghana the law on Auction sales is Auction sales law, 1989 (PNDC Law 230). Section 13 of the Auction Sales Law requires that the goods for auction shall not be perishable or damaged and auctioneer shall give not less than 7 days notice of the auction and also to indicate the venue of the auction. An example can be seen in Harris v Nickerson the plaintiff a broker received a commission to buy a furniture lot advertised in the London papers but the lot was withdrawn without notice, he sued and the courts held
that auction notice is a mere declaration of intent and not a binding contract. Tender notices inviting people to submit their tenders is an invitation to treat. Example is Spencer v Harding in this case the defendant sent out circulars to offer for sale by tender certain goods and gave date, time and venue. The plaintiff contended that the circular constituted an offer to sell to the highest bidder and they had submitted the highest bid. The court held that circular or tender notice is no offer it is a mere proclamation. Another example of invitation to treat is goods on display in a shop. In Fisher v Bell a displayed flick knife in a shop window with the tag Ejector knife 4s. The shop keeper was charged with offering offensive weapon for sale in contravention with the Restriction of Offensive Weapons Act. It was held that in contract law, display of goods with a price tag is a mere invitation to treat and not an offer. The issue or circulation of price list or catalogues is another form of invitation to treat. In Grainger & Son v Gough it was held that the transmission of price list by a wine merchant in England did not amount to offer acceptance of which will constitute a binding contract. Having explained the differences between an offer and invitation to treat, it is imperative to consider the various types of offer that exist. The various types of offers are a.General offers
b.Counter offers and
A general offer is an offer made to the public at large or to a particular person by way of public notice. An example of a general offer is seen in the Carlil v Carbolic Smoke ball Company. Counter Offer is an offer made to an original offeror when an offeree in purporting to accept an offer introduces new terms by varying, adding or subtracting from the original terms. A counter offer kills the original offer. Butler Machine Tool v Ex-Cell-O Corporation  1 WLR 401 Ex-Cell-O wished to purchase a machine from Butler. Butler sent out a quotation of £75,535 along with a copy of their standard terms of sale. The terms included a price variation clause and a term that the seller’s terms would prevail over any terms submitted by a purchaser. The machine would be delivered in 10 months. Ex-Cell-O put in an order for the machine at the stated price and sent a set of their terms which did not include the price variation clause. The order contained an
acknowledgement slip which required a signature by Butler and was to be returned to Ex-Cell-O.
This slip stated that the contract would be subject to the terms stated overleaf. Butler duly signed the slip and returned it. The machines were then delivered and Butler sought to enforce the price variation clause and demanded an extra £2,893. Ex-Cell-O refused to pay. The court held that the offer to sell the machine on terms provided by Butler was destroyed by the counter offer made by Ex-Cell-O. Therefore the price variation clause was not part of the contract. The contract was concluded on Ex-Cell-O’s terms since Butler signed the acknowledgement slip accepting those terms.
This concept was also explained in Nsiah v Deegbe & Another. And in Hyde v Wrench on June 6, Wrench wrote to Hyde offering to sell his farm for 1000 pounds, Hyde’s agent called immediately called and made an offer of 950 pounds. On June 27, the defendant wrote to say that he could not accept the counter offer. On June 29, the plaintiff wrote accepting the June 6, offer and the defendant refused. The plaintiff sued for specific performance. The court held that there was no valid contract between the parties. Cross offer on other hand is an offer identical in terms of another which crosses en route in the post. These are two separate offers without a corresponding acceptance of any. ACCEPTANCE
Acceptance is the expression of willingness and readiness of the offeree to be bound by the terms of the offer. The offeree accepts by assenting to the terms of the offer. In Fofie v Zanyoh, three administrators of an estate offered in a letter to sell a building out of the estate to the plaintiff argued that he had accepted the offer and made installment payments. The defendant pleaded that that the installments were rent for an earlier agreement. The Supreme Court held that an acceptance of an offer need to be positive evidence by words, in writing or conduct from which acceptance can be inferred by the court. Communication of Acceptance
For acceptance to be effective, the offeree must communicate it through writing or an overt conduct or expressly in certainty. A case for example is
Fofie v Zanyoh. Postal Acceptance
In postal acceptance the parties are known to negotiating through the post. A contract is formed when the acceptance letter is posted. The contract becomes binding as soon as letter is put in the post box. The decided case is Adams v Lindsell (1818). The court held in this case that a contract is formed the moment the acceptance letter is posted and that it does not matter it is properly addressed or it got missing en route as it was the judgment in Heuthorn v Fraser. It was also not of concern to the offeree if the acceptance letter was destroyed by household fire. This was heard in the case of Afolabi v Polymera Nigeria Limited. Determination of Agreement (consensus ad idem)
The two courts use two main approached to determine if the parties had reached an agreement. The two approaches are; (a.) The traditional or conventional approach and (b.) the flexible approach.
The traditional or conventional approach to Contract Agreement Determination This approach is also referred to as the subjective test. To determine if the agreement had been reached, the court tries to see if the meeting of the minds of the parties had occurred. But it said that even the devil himself does not know the mind of man. In this approach the courts concentrate on the phenomenon of the agreement which are the external signs or appearance or positive acts which are offer and acceptance, consideration and the intent to create legal relations rather than the actual intention of the parties. This approach is formulary or schematic and not flexible. Example is found in Butler Machine Tool Co. v Excel O Corporation.
The Flexible Approach or the Objective Test to Contract Agreement Determination The objective test is of agreement is premised on the judgment of intention from the reasonable meaning of the words. This approach concerns itself with the totality of the contract. It takes into account all the relevant documentations that make up the contract in question rather than the search of external signs. In NTHC Limited v AntwiSCGLR 117, 125, Professor Darteh Baah decided on the flexible approach. This approach emphasizes that the duty of a judge is to not to seek to discover the
elusive mental state of parties rather to ensure that the reasonable expectations of honest men are not disappointed. In P.Y Atta & Sons ltd v Kingsman Enterprises Ltd. The Supreme Court of Ghana noted that in considering every agreement, the paramount consideration was what the parties themselves intended to be contained in the agreement. The intention should prevail at all times and the rule is that the document should be given its ordinary meaning.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 30 March 2016
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