Higher National Diploma in International Business Management

Higher National Diploma In International Business Management
01. Introduction
Human beings are guided by the pleasure pain principles. They seek out for a thing which
brings them pleasure and avoid methods and that bring them pain. Therefore there is a set of
rules and regulations to balance conflicting situating among the society.
Law is a system of rules usually enforced through a set of institutions. It shapes politics,
economics and society in numerous ways. Law serves as the foremost social mediator in
relations between people.
Contract law regulates everything. Property law defines rights and obligations related to
transfer and title of personal and real property, for instance, in mortgaging or renting a home.
In this assignment I have discussed about the contact and briefly explained elements of a
contract. And also mentioned about the content which is an important to the contract and
representation and terms have discussed.
Finally I have discussed the process call termination of an offer, whereby a valid and
enforceable contract is brought to an end, thereby releasing the parties to it from all further
obligations. And the ways of terminating the contract also explained.
1
02. Contract
What is contract?
 A contract is an exchange of promises between two or more parties to do or refrain

from doing an act which is enforceable in a court of law. The parties must have the
necessary capacity to contract and the contract must not be trifling, indeterminate,
impossible or illegal.
 Contract law is based on the principle expressed in the Latin phrase pacta sunt
servanda.
 Breach of contract is recognized by the law and remedies can be provided. Sometimes
written contracts are required, such as when buying a house. However, most contracts
can be and are made orally, like buying a law textbook, or purchasing coffee at a shop.
Contract law can be classified, as is habitual in civil law systems, as part of a general
law of obligations.
Key elements for the creation of a contract
1) Offer
Agreement
2) Acceptance
3) Intention to create legal relations
4) Consideration
5) Capacity
6) Consent
7) Legality
2
03. An agreement
A contract may be defined as an agreement between two or more parties that is intended to be
legally binding.
Agreement is only a preliminary stage of a contract. The first requisite of any contract is an
agreement (consisting of an offer and acceptance). At least two parties are required; one of
them, the offeror, makes an offer which the other, the offeree, accepts.
Offer + Acceptance = Agreement
04. Offer
What is an offer?
An offer is a clear statement of the terms upon which an offeror is prepared to be

contractually bound. It generally takes the form of promise to do or to refrain from doing
something, and usually upon condition that the offeree (the party to whom it is addressed)
agrees to do or to refrain from doing something else.
An offer may be “express”, using written or spoken words, or it may be “implied” from the
offeror’s conduct. In either case the essential is that the offer must be promissory. That is, the
offeror must intend that it can be converted into binding obligation by valid acceptance.
Counter offer
If the offeree rejects the offer, the offer has been destroyed and cannot be accepted at a future
time. For example an item is being offered for £50 but the buyer offers £40 instead then this is
a counter offer.
3
A case illustrative of this is Hyde v. Wrench (1840), where in response to an offer to sell an
estate at a certain price, the plaintiff made an offer to buy at a lower price. This offer was
refused and subsequently, the plaintiffs sought to accept the initial offer. It was held that no
contract was made as the initial offer did not exist at the time that the plaintiff tried to accept
it, the offer having been revoked by the counter offer.
Cross offer
A cross offer is a situation where both parties are making consequently the same offer at the
same time. For example if “A” seeking a car for £500 and “B” wants to sell his buy car for
£500. These parties offers are mutual same at same time. So this offer calls cross offer.
Rules regarding to an offer
(1) If the offer is made to one specified person, only that person can accept it. If the offer
is made to a group of persons, any member in the group may accept the offer. If the
offer is made to the world at large it can be accepted by anyone who knows about it.
(2) An offer can be made expressly, either in writing or by word of mouth. Alternatively,
an offer can be made impliedly, by the conduct of the offerer.
e.g.:- placing the buyer basket on the cashiers’ desk in a super market.
(3) The offer must have been communicated to the offeree, in order to be effective. That is
someone who was unaware of the existence of the offer cannot accept it.
(4) An offer to be valid it has to be specific and it should be vague. In Gunthing v. Lynn,
the buyer of a horse offered to pay a further sum of money for the horse if it was
lucky. It was held that the offer was too vague and hence it was not valid.
(5) An ensure supply of an information with the offeree must be carefully distinguished
from an offer.
4
(6) An offer must be carefully distinguished from an invitation to treat. The main different
between the offer and invitation to treat, that an offer can be converted into a contract
by acceptance, whereas an invitation to treat cannot be accepted and converted into an
agreement.
Offers and mere supplying of information
An offer can only exist if there is a firm promise to do or to refrain from doing something. If
there is no firm promise, there is no offer. So if an “offeror” makes a statement that is only
intended to supply information upon which some future dealing may or may not be
negotiated, that statement is not an offer and it cannot be made binding by acceptance. The
mere supplying of information, whether in response to a request or otherwise, is not an offer
to deal.
To whom may offers be made?
Apart from specific statutory restrictions, there is no general restriction on the type or number
of persons to whom an offer may be made. It is exclusively a matter for the offeror and the
offer may be addressed to one person, to a particular group of people, to a class of persons
generally or even to the world at large.
Offer and invitations to treat
An invitation to treat is not an offer, but an indication of a person's willingness to negotiate a

contract. The statement is not an offer but an invitation to others asking them to make offers.
Such invitations are called “invitations to treat”.
The distinction between offers and invitations to treat can be readily justified on a commercial
basis. When shopkeeper, or any person for that matter, advertises a willingness to deal on
certain terms, it is always possible that there will be more acceptors than can be supplied from
available stock. In such case the shopkeeper would be enforced to breach at least some of the
5
resulting “contracts”. Forcing anyone into that situation is clearly preposterous and the
concept of the invitation to treat avoids the absurdity.
Instance of invitation to treat
(a) Advertisements
Advertisements are usually regarded as invitation to treat. This is especially so with those
advertising goods for sale, whether the advertisement is in a catalogue or circular published
by the offeror, or in a newspaper or periodical.
(b) Displays of goods in shops

Most retail stores display their goods in shop windows and on the shop floor, usually with the
price clearly marked. While such display might seem to be offers to sell the goods at those
prices that is not the case. A mere display of goods for sale at marked price is generally
regarded as an invitation to treat.
(c)Auctions
An auctioneer’s call for bids is only an invitation to treat. When the buyer makes a bid, the
bid is an offer to buy at the price. It is then up to the auctioneer to either accept or reject the
bid on half of the principal.
(d) Tenders
In low, an announcement calling for tender is not usually regarded as an offer, it is normally
an invitation to treat; the offer comes from those submitting tenders and each such tender
constitutes a separate offer to deal on its own terms.
6
Case example:
Carlill v. Carbolic Smoke Ball Company
Medical firm advertised that its new wonder drug, a smoke ball, would cure people's flu, and
if it did not, buyers would receive £100. When sued, Carbolic argued the ad was not to be
taken as a serious, legally binding offer. It was merely an invitation to treat, and a gimmick.
But the court of appeal held that it would appear to a reasonable man that Carbolic had made
a serious offer, primarily because of the reference to the £1000 deposited into the bank.
People had given good "consideration" for it by going to the "distinct inconvenience" of using
a faulty product. "Read the advertisement how you will, and twist it about as you will," said
Lindley LJ, "here is a distinct promise expressed in language which is perfectly
unmistakable".
Where a product in large quantities is advertised in a newspaper or on a poster, it is as an

offer; however, if the person who is to buy the advertised product is of importance, for
instance because of his personality, etc., when buying a good such as land, it is regarded
merely as an invitation to treat. In Carbolic Smoke Ball, the major difference was that a
reward was included in the advertisement, which is a general exception to the rule and is then
treated as an offer.
7
Termination of an offer
The underlying principle is that an offer can be terminated at any time before acceptance. The
corollary of this, of course, is that an offer cannot be terminated once it has been accepted. An
offer may be terminated in any of the following way:
1. Revocation by the offeror
2. Rejection by the offeree
3. Lapse of time
4. Change of circumstances
5. Failure of a condition
6. Death of a party
7. Supervening incapacity
Revocation of offer
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. If the offer was made to
the entire world, 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.
If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract
entered into that guaranteed that the main contract would not be withdrawn, the contract may
be revoked at any time.
8
05. Acceptance
What is an acceptance?
An acceptance is a final and unqualified assent to the terms of the offer, made in the manner
specified or indicated by the offeror. It can occur orally, in writing or, occasionally, it may be
implied from the offeree’s conduct.
Acceptance is of great importance due to 3 reasons. Firstly, it produces something which

cannot be undone. Secondly, time of the contract is determined by the time of acceptance.
That is since when the contracts come in effect and there by parties are bound. Thirdly, place
of acceptance determines the place of the contract and thereby laws of which country govern
the contract.
The manner of acceptance
1. Acceptance must be communicated by the offeree

An acceptance can only be communicated by the offeree or by an agent duly appointed for
that purpose. In this respect the law
2. An offeror may waive the right to communication

While offerors cannot stipulate silence as a means of acceptance, they can waive their
right to have acceptance communicated to them.
3. Conduct can constitute acceptance

All that is required is that the offeror become aware that his or her offer has been
accepted.
4. Silent is ineffective
While an offeror can generally stipulate the means by which the offer is to be accepted, he
or she cannot stipulate that silence is one of those means.
9
Case e.g.:
Felthouse v. Bindley (1862), 11 Cb (NS) 869
Mr Felthouse wanted to buy one of his nephew's horses. Felthouse wrote to his nephew who
wanted to sell the horse to him, stating that "If I hear no more about him, I consider the horse
mine..." Subsequently, there was no notice from his nephew and Felthouse considered the
horse his own.
The horse was not delivered to uncle Felthouse and later there was an auction at the nephew's
property for the other livestock. By mistake the auctioneer sold and the uncle sued the
auctioneer. The basis of the uncle’s claim was that the auctioneer had sold his property. It was
held that the uncle had no claim. Although the nephew had mentally accepted the offer, some
form of positive action is needed. Therefore there was no contact between the uncle and
nephew and as a result ownership of the horse had not passed onto the uncle.
Comment: - the legal principle is acceptance must be positive. That offerees silence cannot be
taken as acceptance. There must be a positive action of offereee towards the offferer.
10
06. Intention to create legal relation
An intention to create legal agreement means that the parties to the agreement indented to be
legally bound by the agreement.
Intention to create legal relations
Social and domestic Business or commercial

agreements agreement
Social and domestic agreement
With social and domestic agreement there is a presumption of fact that the parties didi not
intended to create legal relations. That is, it is presumed that parties intended their agreement
to be legally enforceable. This is, however, only a presumption and, like all other presumption
of fact, it may be readily rebutted if the evidence discloses a contrary intention.
Social and domestic agreements fall into three sub classifications

(a) Husband and wife agreement
(b) Other family agreement
(c) Purely social agreement
11
Case example:
Balfour v. Balfour
One early example is found in Balfour v. Balfour. Using contract-like terms, Mr. Balfour had
agreed to give his wife £30 a month as maintenance while he was living in Ceylon. Once he
left, they separated and Mr. Balfour stopped payments. Mrs. Balfour brought an action to
enforce the payments.
At the Court of Appeal, the Court held that there was no enforceable agreement as there was
not enough evidence to suggest that they were intending to be legally bound by the promise.
Comment
• The parties had not indented to be legally binding. So there is a presumption that
domestic arrangements are not intended.
Business or commercial agreement
With business agreements there is a presumption that the parties did intend to create legal
relations. Therefore, the courts will enforce such agreements unless there is very clear and
cogent evidence that is not what was intended.
Case e.g.:-
Rose and Frank v. Crompton Bros (1925)
The defendants were paper manufacturers and entered into an agreement with the plaintiffs
whereby the plaintiffs were to act as sole agents for the sale of the defendant's paper in the
US. The written agreement enclosed a clause that it was not entered into as an official or legal
agreement and would not be subject to legal jurisdiction in the courts but was a record of the
idea and intention of the parties to which they honorably promised themselves that it would
be carried through with shared loyalty and friendly co-operation. The plaintiffs placed orders
for paper which were accepted by the defendants. Before the orders were sent, the defendants
finished the agency agreement and refused to send the paper.
It was held that the sole agency agreement was not binding owing to the insertion of the
"honorable pledge clause". Concerning the orders which had been placed and accepted,
12
however, contracts had been created and the defendants, in deteriorating to perform them,
were in breach of contract.
07. Consideration
Consideration is something of value given by both parties to a contract that induces them to
enter into the agreement to exchange mutual performances.
It may consist of a promise to perform a desired act or a promise to refrain from doing an act
that one is legally entitled to do. In a bilateral contract an agreement by which both parties
exchange mutual promises each promise is regarded as sufficient consideration for the other.
Examples for consideration
(1) A promise to deliver goods to B, who then promises to pay for them when they are
delivered. The promise to pay is the consideration for the promise to deliver the
goods. This called executory consideration.
Promise to deliver a T.V
A B
Promisor Promise
Promise to pay upon delivery
13
(2) A bookshop receives ₤25 from A, for the promise made by the book shop to
deliver 12 magazines on monthly basis. The money received by the book shop is
the consideration for the promise to deliver 12 magazines. This is called executed
consideration.
Promise to deliver 12 magazines
Bookshop A
Promisor Promise
Already paid ₤25
(3) A lend a book to B and B promises to return it within two weeks. The detriment
suffered by an in parting with his book is the consideration for B’s promise to
return the book. This is also another kind of executed consideration.
Promise to return the book in two weeks
B A
Promisor Promise
Detriment suffered – executed consideration
(4) A washed B’s car and subsequently B promises A to pay ₤20. This is called past
consideration since the promise has been made after the consideration.
Washed B’s car
A B
Promisor Promise
Pay ₤20
14
Features of consideration
1. Consideration is the price for the promisor’s promise

2. Consideration moves from the promise
3. Consideration may be a benefit to the promisor or a detriment to the promise
4. Consideration may be executed, executory, but not past
5. Consideration must be something of value consideration must be distinguished from
motive
Case e.g.:-
Rascorla v Thomas
After Thomas sold Rascorla his horse, he promised Rascorla that it was healthy and not
vicious. When the horse turned out to be quite vicious, Rascorla sued for breach of contract.
The English Court of the Queen’s Bench held that: the promise that the horse was not vicious
was given after the sale had been completed. Thus, no consideration had flowed to Thomas,
the promisor, and he could not be liable for breach of contract. Rascorla v Thomas (1842) 3
QB 234
Comment: if these facts occurred today, Rascorla may have rights against Thomas for
breaches of s 52 and/or of the trade Practices Act 1974 (Cth).
Promissory estoppel
Promissory estoppel allows a party to recover on a promise even though that promise was
made without consideration. Essentially it prevents, or estops, a person from arguing that his
or her promise should not be upheld. It also requires that reliance on the promise was
reasonable, and that the person trying to enforce the promise actually relied on the promise to
his or her detriment. The precise legal requirements for promissory estoppel may vary
between jurisdictions.
15
An example of promissory estoppel is where an employer orally promises to pay an employee

a monthly amount for the remainder of her life as retirement. If the employee reasonably
relies on the promise and retires, the employer will likely be estopped, based on the doctrine
of promissory estoppel, from reneging on his promise to pay a monthly retirement payment.
Usually, in cases of promises or contracts, the law requires that a party receive consideration
for the deal. Consideration is some type of value that is being exchanged between the parties.
08. Capacity
The law recognises that there are certain classes of people in society who have neither the
maturity nor the capacity to filly understand the nature and extent of the agreements they
make with others. Such people are incapable of giving a true consent and, therefore, need
protection from their more predatory fellows. The law provides such protection by simply
refusing to enforce certain contracts against them. Those included in this category are:
(a) Minors –
A minor in Sri Lanka is anyone under the age of 18 years. Where a minor does repudiate
such contracts, the minor is frees from all future liability under them but he or she will
still be liable for all obligations that accrued prior to the repudiation.
(b) The mentally incapable and Drunkards -

The mentally incapable and drunkards are treated in basically the same way as minors.
They may be made liable under contracts for the provision of necessaries but all other
contracts they enter into during periods od incapability may be voidable by them.
There are in addition, other group whose contractual ability has been limited to varying
extents for various reasons, usually for society’s protection rather than for their protection
from society. These other groups include:
(a) Convicted felons –

Those who were convicted of treason or felony and who were sentenced to death or who
had judgment of outlawry people have no rights at common law and thus no rights to sue
under contract.
16
(b) Aliens –
There are specific restrictions on contracts involving foreign investment, exports, imports
a certain professional qualifications.
(c) Bankrupt-
A bankrupt is not, by bankruptcy, deprived of contractual capacity. He or she may make
good and binding contracts but the trustee of the bankrupt’s estate may disclaim them.
(d) Corporations-
Corporation can created in 3 ways: By Royal charter, by special act of parliament or under
the general legislation governing the incorporation and regulation of companies. If
corporation created by royal charter then it had power to do whatever an individual person
could do. If it incorporated by special statue then it had only power that were expressly or
impliedly conferred on it by that special statute. If it general statue the incorporation and
regulation of company’s contractual power were laid down in the objects clause and if a
company contracted in respect of something not permitted by the object clause, the
contract was ultra vires and, thus invalid and unenforceable.
Case e.g.:-
O’Connor v. Hart
A contract is not valid for mental incapacity unless one party was incapable and the other
knew or should have known about it.
An elderly New Zealand farmer contracted to sell land to Hart for a very low price. After the
farmer died, his beneficiaries argued that the contract should be voided because their relative
had been mentally incapable when he entered it.
The Privy Council ruled that: the contract was valid. Person who seeks to void a contract on
the basis of mental incapacity must prove that (1) one party was incapable and (2) the other
party was aware or should have been aware of this fact. The beneficiaries had not satisfied the
second test.
17
09. Consent
The parties who are involved in a contract should have a clear apprehension and should be
able express their reputed source consent. If this consent is obtained through mistake,
misrepresentation, compulsion or undue influence it is not reputed source. The contract
will not be valid if it is not in reputed source conditions
Mistake
The common low view of mistake ties in which the requirement for mutuality as an
element of the contract, unless the parties are agreed on the same thing, there is no
meeting of the minds.
There are 3 types of mistakes that can affect the validity of a contract. They are:
(a) Common mistake – common mistake occur where the parties make the same mistake.
That is, both parties enter into the contract under same mistaken belief that a particular
underlying fact is correct.
Ex: - at 12.15 contracts was entered into buy/ sell a mobile phone. But unknown to
both the parties the phone has bee destroyed by fire at 12.10
(b) Mutual mistake – mutual mistake occurs where the parties each misunderstand what
the other means. That is, the parties deal at cross purposes.
Ex: - Contract was entered into to buy /sell a car. While the buyer was expecting an
Aston martin to arrive, the seller delivered a corolla.
(c) Unilateral mistake - Unilateral mistake occurs where only one party is mistaken and
the party knows or ought to know of that mistake yet purports to proceed with the
contract anyway.
18
Case e.g.:-
Couterier v Hastie (1856) 5 HL Cas 673
The plaintiff merchants shipped a cargo of Indian corn and sent the bill of lading to their
London agent, who employed the defendant to sell the cargo. On 15 May 1848, the defendant
sold the cargo to Challender on credit. The vessel had sailed on 23 February but the cargo
became so heated and fermented that it was unfit to be carried further and sold. On May 23
Challender gave the plaintiff notice that he repudiated the contract on the ground that at the
time of the sale to him the cargo did not exist. The plaintiffs brought an action against the
defendant to recover the purchase price.
Martin B ruled that the contract imported that, at the time of sale, the corn was in existence as
such and capable of delivery, and that, as it had been sold, the plaintiffs could not recover.
This judgment was affirmed by the House of Lords.
Misrepresentation
Misrepresentation is a contract law concept. It means a false statement of fact made by

one party to another party, which has the effect of inducing that party into the contract.
There are 3 categories of misrepresentation. They are:
(a) Fraudulent misrepresentation
(b) Negligent misrepresentation
(c) Innocent misrepresentation
Case e.g.:-
Peek v. Gurney
In Peek v. Gurney, an investor, on the faith of statements appeared in the prospectus of a

company, purchased some shares in the company from an existing shareholder. Some of the
statements were false and the investor sued the directors. It was held that the statement was
only intended to induce the potential shareholders who purchased shares directly from the
company. Since this investor was not an original subscriber, he was not within the class
intended to be mislead. Therefore the investor could not maintain the action.
19
Comment:-
Only a person to whom misrepresentation was addressed can sue for misrepresentation. That
is it has to be acted upon by the person to whom it was addressed.
Duress
Duress indicates some form of pressure exerted by one party to coerce another party to act in
a particular way. It is pressure exerted by one party to coerce another to contract on particular
terms. In general terms, duress of the person will arise through:
(a) Actual violence to the person being coerced or to something with whom he or she is
associated
(b) A person threat of violence to that person or to someone with whom he or she is
associated
(c) Actual or threatened imprisonment of that person or of someone with whom he or she
is associated
Case e.g.:-
Barton v Armstrong [1976] AC 104
A (the former chairman of a company) threatened B (the managing director) with death if he
did not agree to purchase A's shares in the company. There was some evidence that B thought
the planned agreement was an acceptable business arrangement both from his outlook and that
of the company. B performed an action on behalf of the company carrying out the agreement.
He wanted a declaration that the deed was executed under duress and was void.
The Privy Council held that if A's threats were "a" reason for B's executing the deed he was
permitted to respite even though he might well have entered into the contract if A had
expressed no threats to induce him to do so. The responsibility was on A to show that the
threats he made contributed nothing to B's decision to sign.
20
Undue influence
Undue influence operates where one party uses the influence that he or she has over the other
party to obtain some undue benefit. Therefore allows a court to set aside gifts or contracts
where they are tainted by pressure that falls short of duress.
Case e.g:-
Allcard v Skinner (1887) 36 Ch D 145
In 1867 an unmarried woman aged 27 sought a clergyman as a confessor. The following year
she became an associate of the sisterhood of which he was saintly director and in 1871 she
was admitted a full member, taking vows of poverty, chastity and compliance. Without
independent advice, she made gifts of money and stock to the mother greater on behalf of the
sisterhood. She left the sisterhood in 1879 and in 1884 claimed the return of the stock.
Procedures to recover the stock were commenced in 1885.
It was held by the Court of Appeal that although the plaintiff's gifts were voidable because of
undue influence brought to bear upon the plaintiff through the training she had received, she
was disentitled to recover because of her conduct and the delay.
21
10. Legality
The purpose of the agreement must be legal or contrary to public policy.
A contract which possesses all these requirements is said to be legal. The absence of an
essential element will render the contract void, voidable or unenforceable
In addition, a contract consists of various terms, both express and implied. A term may be
inserted into the contract to exclude or limit one party's liability. A term may also be regarded
as unfair. A contract may be invalidated by a mistake and where the contract has been induced
by misrepresentation the innocent party may have the right to set it aside. As a general rule,
third parties have no rights under a contract but there are exceptions to the doctrine of
privities. There are different ways of discharging a contract and remedies are available for
breach of contract at common law and in equity.
Case e.g.:-
Parkinson v College of Ambulance
Money paid in return for a promise of a knighthood could not be recovered-the contract was
illegal.
Mr. Parkinson made a substantial donation to a major ambulance service in return for a
promise of some of its members that they could secure him a knighthood. He sued to recover
his donation.
The English Court of Appeal (King’s Bench) held that: since the contract was illegal from
formation the contract was void and Parkinson had no right to recover his donation.
22
11. Contents of a contract
When parties are making or negotiating a contract they are likely to make a number of
statements. If every statement made of negotiations became a contractual term, then the
process of reaching agreement would be impossibly complicated.
Contents of a contract mainly include 2 variables:-
1. Representations
2. Terms
12. Statement
Parties will make a variety of statements in the negotiations that guide to the making of a
contract and will specify that some should be incorporated into the contract itself. Statements
can be classified as:
 Opinion
 Puffery
 Invitation to treat
 Representation
Statement includes representation and terms. Below diagram show it clearly.
Statement
Representation Terms
23
13. Representation
A representation is a statement of fact made by one party which induces the other to enter into
the contract. If it turns out to be incorrect the innocent party may sue for misrepresentation.
Breach of a term of the contract entitles the injured party to claim damages and, if he has been
deprived substantially what he bargained for, he will also be able to repudiate the contract.
If a statement is not a term of the principal contract, it is possible that it may be enforced as a
collateral contract.
Types of representation
a. Time
b. Reduce into writing
c. Reliance on special knowledge and skill
Case e.g.:-
Routledge v McKay [1954]
In the written contract, signed a week later, no mention was made of the date of the model. It
was held, on this point, that what the parties intended to agree on was recorded in the written
agreement, and that it would be inconsistent with the written agreement to hold that there was
an intention to make the prior statement a contractual term.
14. Terms
A contractual term is "a provision forming part of a contract" Each term gives rise to a
contractual obligation, breach of which can give rise to litigation. Not all terms are stated
expressly and some terms carry less legal gravity as they are marginal to the objectives of the
contract. The first step in determining the terms of a contract is to establish what the parties
said or wrote.
24
Express terms
These are terms openly agreed between the parties either in writing or word of mouth. They
must be clear and definite.
In a small cash sale for example, where goods and money are exchanged, such terms may bu
virtually non-existent.
Implied terms
A legally binding agreement must be complete in its terms. However, it is always possible for
the parties to leave an essential term to be settled by other means.
Implied terms are terms or obligation the parties haven’t openly agreed. But these obligations
are introduced into contract by statue, courts, etc. implied terms are equally important as
expressed terms.
Classification of terms
(a) Condition
Condition is a very vital term that goes to the root of the contract, and affects the main
purpose of the contract. When condition in breach the affected party may repudiate the
contract and claim damages. Ordinarily the affected party may continue the contract and still
claim damages.
Case e.g.:-
Poussard v Spiers (1876)
In Poussard v Spiers (1876), Madam Poussard agreed to sing in an opera throughout a

series of performances. Owing to illness she was unable to appear on the opening night
and the next few days. The producer engaged a substitute who insisted that she should
be engaged for the whole run. When Madam Poussard recovered, the producer declined
to accept her services for the remaining performances. It was held that failure to sign on
25
the opening night was a breach of condition which entitles the producer to treat the
contract for the remaining performances as discharged.
(b) Warranty
A warranty is a less important term of a contract, but connected to the main purpose of the
contract. When a warranty is in a breach of the affected party is unable to repudiate the
contract, but the party may claim damages or compensations.
Case e.g.:-
Bettini v Gye (1876) 1 QBD 183.
In Bettini v Gye (1876), an opera singer was engaged for a series of performances under
a contract by which he had to be in London for rehearsals, six days before the opening
performance. Owing to illness he did not arrive until the third party before opening. The
defendant refused to accept his services, treating the contract as discharged. It was held
that the rehearsal clause was subsidiary to the main purpose of the contract and
therefore it is a warraty. Contract could not be considered as discharged.
(c) Intermediate term
This is contractual term which cannot be classified as condition or warranty until its actual
breach. After the breach of the term it is named as condition if the harm is big. If the harm is
small it is termed as warranty.
The consequence of a terms being classified as innominate is that the court must decide what
the actual effect of its breach is. If the nature and effect of the breach is such as to deprive the
injured party of most of his benefit form the contract then it will be treated as a breached
condition.
26
Case e.g.: -
The Hansa Nord [1976] QB 44
Citrus pulp pellets for use in animal food had been sold for £100,000 under a contract which
provided for "shipment to be made in good condition." Part of the goods had not been so
shipped and in addition the market value in such goods had fallen at the delivery date. The
buyers rejected the goods which were later resold pursuant to a court order and ultimately
reacquired by the original buyers for just under £34,000. The buyers then used the goods for
the originally planned reason of making cattle food, though the faulty part of the goods
yielded a somewhat lower extraction rate than sound goods would have done.
The Court of Appeal held that rejection was not justified. The term as to shipment in good
condition was neither a condition nor a warranty but an intermediate term; and there was no
finding that the effect of its breach was sufficiently serious to justify rejection. The buyers
seem to have tried to reject, not because the utility of the goods was impaired, but because
they saw an opportunity of acquiring them at well below the originally agreed price. In this
situation their only remedy was in damages: they were entitled to the difference in value
between damaged and sound goods at the agreed destination.
Exclusion clauses
These are expressed terms included in contracts in order to exclude the liability altogether or
limit the liability. This is a valid tool used in business to pass the risk on to the other party.
If parties have equal bargaining power principles of freedom of contract is applicable, that is
both the parties are able to negotiate freely the terms of a contract. Therefore exclusion
clauses in such contracts are valid.
There are 3 ways to protect consumers form the harsher effects of exclusion clauses.
(a) Incorporation of exclusion clauses

(b) Interpretation of exclusion clauses
(c) Fundamental breach
27
Case e.g.:-
L’Estrange v Grauchob (1934)
In L’Estrange v Grauchob (1934), the defendant sold to the claimant, a shopkeeper, an

automatic cigarette vending machine. The claimant signed a document described as a
“sales agreement” and including clauses in “legible, but regrettably small print”, which
excluded liability. It was that the conditions were binding on the claimant since she had
signed them. It was not material that the defendant had given her no information of their
terms nor called her attention to them.
Comment: - an exclusion clause in a signed document is considered as properly

incorporated into the contract. Therefore it is binding on the parties.
28
15. Termination of a contract
How contract may be terminated?
“Termination” simply refers to the process whereby a valid and enforceable contract is
brought to an end, thereby releasing the parties to it from all further obligations. Contract
can be terminated in 5 ways:
(a) Termination by performance
(b) Termination by Agreement
(c) Termination by Frustration
(d) Termination by Operation of law
(e) Termination by Breach
Unless one of these occurs, the contract remains on foot and its obligations can be
enforced by either party. However, if the contract is brought to an end, the parties’
consequential rights, duties, and liabilities depend on the type of termination involved.
16. Termination by performance
When parties enter into a contract it is because they want to achieve certain mutual end aims.
One party wants some service, while the other party is willing to perform that service but
wants payment in exchange. When the service has been performed and payment has been
made there is nothing left to do the parties mutual obligations, freely created under their
contract, have been discharged and so too, has the contract.
Case e.g.:-
Cutter v powell (1795) 6 TR 320; 101 ER 573
Cutter signed on as second mate on a ship sailing from Jamacica. The contract stipulated that
he was to be paid 30 guineas “provided he proceeds, continues and does his duty to the port of
29
Liverpool”. Three quarters of the way through the voyage he died. His wife sued for a
proportionate share of his wages on a quantum meruit
Her action failed. Cutter’s contract was “entire”, meaning that he had to serve out the full
voyage before he became entitled to nay part of the 30 guineas. As he had not completed the
voyage he had not performed as required and, consequently, was not entitled to any payment
at all.
17. Termination by Agreement
Contract can be both discharged and varied by agreement between the parties. Such agreement
can be found in either;
(a) The original contact it self
(b) Some subsequent agreement
Termination by prior agreement
There is nothing to prevent a contract from containing a term providing for its own
termination on either the occurrence or failure of some named event. Such terms are called,
respectively, conditions subsequent and conditions precedent. The occurrence of a condition
subsequent or the non-fulfilment of a condition precedent will result in the underlying
contract being discharged, either automatically or at the election of one of the parties.
Case e.g.:-
Head v Tattersall
Head bought a horse from tattersall. The contract warranted that the horse had hunted with
the Bicester and Duke of Grafton’s hounds and expressly provided that if this were not the
case, the horse could be returned. When head discovered that the horse had never hunted
as warranted, he returned it within the time allowed and demanded a refund of the price.
30
He was entitled to the refund. A valid contract of sale had arisen but it was subject to a
condition subsequent that if the warranty proved to be untrue and the horse was returned
by the specific date, the contract would terminate and the price would be refunded.
Termination by subsequent agreement
Even if the parties have not made express provision for early discharge, they may still do so
by subsequent agreement. Such subsequent agreement is itself contractual and, as such, must
be supported by consideration. In some cases it may also have to comply with required
formalities. Discharge by subsequent agreement can take one of 2 forms:
(a) Unilateral discharge
(b) Mutual discharge
18. Termination by Frustration
If a contract is made, and for whatever reason it later becomes impossible to for one party to
perform their obligations, or no fault of either party when contract is come to end call
frustration.
If a contract was impossible to perform right from the outset, then the issue is one of mistake
and not frustration.
Case e.g.:-
Taylor v cadwell (1863) 3B & s 826; 122 ER 309
Cadwell hired a concert venue known as the surrey gardens and music hall to Taylor. Before
Taylor’s scheduled first performance took place the hall burnt down. Taylor claimed damages
for breach of the agreement.
As destruction of the hall had occurred without fault of either party, both were excused from
future performance. The contract was subject to an implied term that if performance became
31
impossible because of some supervening event, without default by either party, both parties
would be discharged from further obligation.
Examples of frustration
A) Obliteration of the specific object essential for performance of the contract
Case – Taylor v Caldwell (1863) (above).
B) Personal incapability
Case - Condor v The Baron Knights [1966] 1 WLR 87
C) The non-occurrence of a specified event
Cases:- Krell v Henry [1903] 2 KB 740
D) Interference by the governments
Case – Metropolitan Water Board v Dick Kerr [1918] AC 119.
E) Supervening illegality
Case - Denny, Mott & Dickinson v James Fraser [1944] AC 265
F) Delay
Case – Jackson v Union Marine Insurance (1873) LR 10 CP 125.
32
19. Termination by Breach
A breach of contract occurs where a party to a contract fails to perform, precisely and exactly,
his obligations under the contract. This can take various forms for example, the failure to
supply goods or perform a service as agreed.Consequently, there are 2 distinct categories of
breach.
1. Actual breach
2. Anticipatory breach
Any breach of contract, whether actual or anticipatory, entitles the innocent party to sue for
damages. Ex- Foran V Wight (1989) 168 CLR 385.
If the breach is serious enough, that is, if it goes to the root of the contract, that party may also
treat the contract as discharged. Ex- Shevill V Buiders licensing Board (1982) 149 CLR and
Hill v Canberra Centre Holdings (1995) 122 FLR 434.
Actual breach
Actual breach occurs where one party refuses to form his side of the bargain on the due date
or performs incompletely. For example: Poussard v Spiers and Bettini v Gye
Actual breach can occur in a number of ways:

1. By failure to perform – that is, when performance become due, one party either
refuses to or cannot perform so performance does not occur;
2. By defective performance – where although the contract is performed, one or
more of its terms are breached and, consequently, it is not performed as
initially envisaged;
3. By one of the underlying terms of the contract providing to be unfounded or
untrue
33
Anticipatory breach
Before the time for performances arrives a party to the contract may declare his intention of
not performing the contract. This is called an anticipatory breach.
Case e.g.:
(1) In Frost v Knight, Knight promised to marry Frost on the death of his father. The
father still living, Knight informed Frost that he would not marry her on his father’s
death. Frost sued him at once for breach of promise. It was held that frost was entitled
to accept K’s repudiation of the contract to marry her and to bring her action for
breach of promise at once.
(2) In Hochester v De La Tour (1853), the plaintiff was engaged by the defended in April
1852 to act as a courier for travel in travel in Europe from 1 June 1852. On 11 may the
defendant wrote to the plaintiff to inform him that his services were no longer
required. The plaintiff started an action for breach of contract on 22 may. Although the
dada for performance has not yet arrived. It was held that the defendant’s letter
constituted an actionable breach of contract.
34
20. Termination by Operation of law
Under common law, a contract can be terminated without either party wishing it to be so.
The operation of the law brings about the discharge on the occurrence of below event.
(1) Alternative or cancellation of written instrument

Any unauthorised alternation to the instrument evidencing a contract will discharge
that contract at least in the sense that thereafter it cannot be by party altering it.
(2) Bankruptcy
While Bankruptcy relieves the bankrupt of personal liability under his or her contracts,
it does not automatically discharge those contracts. They can still be enforced by the
against the bankrupt’s estate.
(3) Merger
An inferior right may be merged with a superior right, in which case the inferior right
loses its separate character and if it derives from contract, that contract is discharged.
(4) Death of either party

Death of either party in a contract for personal services will discharge the contract.
Other contract can be enforced against or on behalf of the estate of the deceased
person.
(5) Lapse of time
35
Conclusion
In above information there the several topics have discussed which are come under contract,
content and termination of a legally enforceable contract. There are some cases also included
to explain the related title.
From preliminary stage of a contract to termination of the contract has explained. And rules
regarding the contact and relevant case decision and personal point of view have mentioned
above.
36
Reference
 http://en.wikipedia.org/wiki/Consideration
 http://www.rpemery.com/articles/whatisconsideration.html
 http://www.lawteacher.net/contract.php#4
 http://www.a-level-law.com/contract/contents/terms_lecture1.htm
 http://www.goldsmithibs.com/resources/free/Breach-of-Contract/notes/Breach-of-
Contract-Remedies.pdf
 http://tutor2u.net/law/notes/contract-representation-terms.html
 http://legal-dictionary.thefreedictionary.com/anticipatory+breach
 http://en.wikipedia.org/wiki/Law
 http://law.freeadvice.com/general_practice/legal_remedies/breach_contract.htm
 http://legal-dictionary.thefreedictionary.com/anticipatory+breach
37

Higher National Diploma in International Business Management

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Higher National Diploma in International Business Management

Uploaded by

Copyright:

Available Formats

Higher National Diploma In International Business Management

 A contract is an exchange of promises between two or more parties to do or refrain

Key elements for the creation of a contract

Offer + Acceptance = Agreement

An offer is a clear statement of the terms upon which an offeror is prepared to be

Rules regarding to an offer

Offers and mere supplying of information

To whom may offers be made?

Offer and invitations to treat

An invitation to treat is not an offer, but an indication of a person's willingness to negotiate a

Instance of invitation to treat

(b) Displays of goods in shops

Carlill v. Carbolic Smoke Ball Company

Where a product in large quantities is advertised in a newspaper or on a poster, it is as an

Acceptance is of great importance due to 3 reasons. Firstly, it produces something which

The manner of acceptance

1. Acceptance must be communicated by the offeree

2. An offeror may waive the right to communication

3. Conduct can constitute acceptance

06. Intention to create legal relation

Intention to create legal relations

Social and domestic Business or commercial

Social and domestic agreement

Social and domestic agreements fall into three sub classifications

Business or commercial agreement

Rose and Frank v. Crompton Bros (1925)

Examples for consideration

Promise to deliver a T.V

Promise to pay upon delivery

Promise to deliver 12 magazines

Already paid ₤25

Promise to return the book in two weeks

Detriment suffered – executed consideration

Washed B’s car

1. Consideration is the price for the promisor’s promise

An example of promissory estoppel is where an employer orally promises to pay an employee

(b) The mentally incapable and Drunkards -

(a) Convicted felons –

Couterier v Hastie (1856) 5 HL Cas 673

Misrepresentation is a contract law concept. It means a false statement of fact made by

In Peek v. Gurney, an investor, on the faith of statements appeared in the prospectus of a

Barton v Armstrong [1976] AC 104

Allcard v Skinner (1887) 36 Ch D 145

The purpose of the agreement must be legal or contrary to public policy.

11. Contents of a contract

Contents of a contract mainly include 2 variables:-

Statement includes representation and terms. Below diagram show it clearly.

Routledge v McKay [1954]

Poussard v Spiers (1876)

In Poussard v Spiers (1876), Madam Poussard agreed to sing in an opera throughout a

Bettini v Gye (1876) 1 QBD 183.

(c) Intermediate term

The Hansa Nord [1976] QB 44

(a) Incorporation of exclusion clauses

L’Estrange v Grauchob (1934)

In L’Estrange v Grauchob (1934), the defendant sold to the claimant, a shopkeeper, an

Comment: - an exclusion clause in a signed document is considered as properly

15. Termination of a contract

How contract may be terminated?

16. Termination by performance

Cutter v powell (1795) 6 TR 320; 101 ER 573

17. Termination by Agreement