BUSINESS LAW Definition

BUSINESS LAW

Definition

The word “law” is difficult to define, particularly as it is used

in many different ways. Following are some of them:

Law can be defined “As the standard of just and unjust”

Law is “a set of rules which govern the conduct of a given

society at a given time”

“A body of rules for the guidance of human conduct which are

imposed upon and enforced among the members of a given state”

Functions of Law

The basic functions of law are:

1. Keeping the peace.

2. Enforcing standards of conduct and maintaining order.

3. Facilitating planning.

4. Promoting social justice.

Sources of Law

Where do our laws come from?

Laws keep our society running as smoothly as possible. When you

think of the law, you probably think of rules that say what

people can and can’t do. We all know that you cannot steal from

others without getting into trouble. That’s one example of a law,

© Lecturer’s Notes: MOHAMED ABDULLAHI GULEID

but most laws set rules for how things work. There are laws about

how people buy and sell property, how we elect government

officials, and how activities in daily life should work. Where do

all these laws come from? There are three main sources of law in

the United States: constitutions, statutes, and regulations.

Constitutional Law: This is a branch of law that is based on

the constitutions in force in a particular area of

territory. A constitution is a body of principles that

establishes the structure of a government and the

relationship of the government to the people who are

governed. Constitutions are generally a combination of

written document and practices and customs that develop with

the passage of time and the emergency of new problems.

Statutory Law: This includes legislative acts declaring,

commanding or prohibiting something. Constitutions gives

power to Parliament to pass laws and regulations for the

country and any laws passed by parliament and signed by

president becomes Statute.

Case Law: These are principles that are expressed for the

first time in court decisions. For example when a court

decides a new question or problem, its decision becomes a

precedent, which stands as the law for that particular

problem in the future. A precedent is a decision that people

can point to and say, “here is how you handled this

situation before”. In this way, the court’s interpretation


acts as a law. Only the court can change a precedent. It

does this by interpreting the law differently, which creates

a new precedent.

Common Law: Court decisions do not always deal with new

problems or make new rules. In many cases, courts apply

rules as they have been for many years, event centuries.

These time-honored rules of the community are called common

law.

Customary Law: Custom is the most ancient of all the sources

of law and has held the most important place in the past

though it is importance is now diminishing with the growth

of legislation and precedent. Custom is a habitual course of

conduct observed uniformly and voluntarily by the people

concerned.

Classification of law

There are various ways in which the law may be classified; the

most important are as follows:

1. Public and private law. The distinction between public and

private law.

Public law: Public law is concerned with the relationship

between the state and its citizens. This comprises several

specialist areas such as:


(i) Constitutional law. Constitutional law is concerned with

the relationship between the government and and the

people that governed. It’s in the constitution of the

country where the structures of every government and

their responsibilities are found. It covers the areas and

procedures of Parliament, the functioning of central and

local government, citizenship and the civil liberties of

individual citizens.

(ii) Administrative law. There has been a dramatic increase in

the activities of government during the last hundred

years. Schemes have been introduced to help ensure a

minimum standard of living for everybody. Government

agencies are involved, for example, in the provision of a

state retirement pension, income support and child

benefit. A large number of disputes arise from the

administration of these schemes and a body of law,

administrative law, has developed to deal with the

complaints of individuals against the decisions of the

administering agency. Administration Law are the Rules

and regulations made, through proper procedures, by

agencies to which power has been delegated by a state

legislature.

Administrative agencies which a governmental body charged

with administering and implementing legislation. Any


agency may be a department, independent establishment,

commission, authority, or a board. The law governing

these agencies is called Administrative Law.

(iii) Criminal law. Certain kinds of wrongdoing pose such a

serious threat to the good order of society that they are

considered crimes against the whole community. The

criminal law makes such anti-social behavior an offence

against the state and offenders are liable to punishment.

The state accepts responsibility for the detection,

prosecution and punishment of offenders. Criminal law is

concerned with offences against the state, i.e. crimes

such as murder, housebreaking, and theft. The more

serious criminal cases are dealt with by a judge and

jury; less serious offences (the overwhelming majority)

are dealt with by magistrates.

(b) Private law (Civil Law). Private law is primarily

concerned with the rights and duties of individuals

towards each other. The state’s involvement in this area

of law is confined to providing a civilized method of

resolving the dispute that has arisen. Thus, the legal

process is begun by the aggrieved citizen and not by the

state. Private law is also called civil law and is often

contrasted with criminal law. Civil law is concerned with

private litigation, e.g. breaches of contract, disputes


concerning property. The complainant (Plaintiff) issues a

statement of claim, setting out the facts he alleges

against the defendant and asking for damages or other

remedy. The defendant puts in his defense to the

allegations of the complainant.

2. Customary Law

The first source of the law is the customary conduct of

community life. Group life creates customs, and when these

customs become stabilized to the extent that each member of

society is justified in assuming that every other member of

society will respect them and will act in conformity with

them, it can be said that rules of conduct have been

formulated. When these rules of conduct have received the

recognition of the community in general and have become

formally expressed in legislative enactments or in judicial

decisions, the "Law" is made. Conflicts between members of

society arise from time to time as to the application of

these rules of conduct, and, in order to determine whether a

member of society has violated a rule, or whether a member

of society has a right to be recompensed for an injury by

reason of the violation, courts are set up to settle the

dispute.

3. Substantive law: sets out the rights and duties governing

people as they act in society. Duties tend to take the form

of a command: “Do this!” or “Don’t do that!” An example is


the Civil Rights Act of 1964. It tells employers that they

must not discriminate among people in hiring and employment

on the basis of race, color, religion, sex, or national

origin. Substantive law also establishes rights and

privileges. An example is the freedom of speech granted by

the U.S. Constitution. Another is the right you have to

defend yourself if physically attacked—the so-called right

of self-defense. A slightly different example is the

privilege of receiving food stamps if you meet the

qualifications set up by Congress.

4. Procedural law: establishes the rules under which the

substantive rules of law are enforced. Rules as to what

cases a court can decide, how a trial is conducted, and how

a judgment by a court is to be enforced are all part of

procedural law. Consider the following case, which

illustrates the overlap between substantive and procedural

law. Be certain to identify when the court is dealing with

substantive law and when it is examining procedural law.

Simultaneously, consider how the growth of the Internet has

brought about clashes between the rules of differing

nations.

Criminal versus Civil Law

Criminal and Civil law. Legal rules are generally divided into

two categories: criminal and civil. It is important to understand


the nature of the division because there are fundamental

differences in the purpose, procedures and terminology of each

branch of law.

(a)Criminal law. The criminal law is concerned with forbidding

certain forms of wrongful conduct and punishing those who

engage in the prohibited acts. In criminal cases you have a

prosecutor who prosecutes a defendant in the criminal

courts. The consequences of being found guilty are so

serious that the standard of proof is higher than in civil

cases: the allegations of criminal conduct must be proved

beyond a reasonable doubt. If the prosecution is successful,

the defendant is found guilty (convicted) and may be

punished by the courts. The Criminal Justice Acts sets out

for the first time in legislation the purposes of sentencing

adult offenders, which are punishment, crime reduction, the

reform and rehabilitation of offenders, and reparation.

Punishments available to the court include imprisonment,

fines, or community orders such as an unpaid work

requirement. If the prosecution is unsuccessful, the

defendant is found not guilty.

(b)Civil law. The civil law deals with the private rights and

obligations which arise between individuals. The Purpose of

the action is to remedy the wrong that has been suffered.

Enforcement of the civil law is the responsibility of the


individual who has been wronged; the state’s role is to

provide the procedure and the courts necessary to resolve

the dispute. In civil proceedings a claimant sues a

defendant in the civil courts. The claimant will be

successful if he can prove his case on the balance of

probabilities, i.e. the evidence weighs more in favor of the

claimant than the defendant. If the claimant wins his

action, the defendant is said to be liable and the court

will order an appropriate remedy, such as damages (financial

compensation) or an injunction (an order to do or not do

something). If the claimant is not successful, the defendant

is found not liable. Many of the laws affecting the

businessperson are part of the civil law, especially

contract, tort and property law.

Legal Rules

At its most basic level, law can be seen as rules that limit

people’s freedom of action. These rules may be called “laws,” or

“statutes,” The label doesn’t really matter. The important thing

they have in common is that they require people to conform their

behavior to some particular standard. This concept of law may be

viewed as a set of principles that:

1. Have general application to society.

2. Were developed by a legitimate authority within society.


3. May threaten sanctions against those who fail to comply with

the principles.

Case: Ahmed V Jama:

Ahmed was driving his car on speed when he hit Jama’s car at an

intersection after running a stop sign. Jama was hurt in the

accident. Ahmed was driving his car on speed in populated area

and ignored The Speed Limit Indicator. This is violation of

traffic road laws.

Taking Sides

Defendant: someone who is charged with a crime (criminal) or

complaint.

Plaintiff: someone who files a lawsuit against someone else in

a civil court.

NATURE AND CLASSES OF CONTRACT LAW


This introductory will familiarize you with the terminology

needed to work with contract law. The whole essence of business

life is the making of contracts – contracts to perform work;

contracts to buy and sell; contracts to make something; or to

employ someone; or to use something. We must, therefore, know

what a contract is, and when we have one.

A contract is an agreement between two or more people. Every

contract is an agreement – but not every agreement is a contract.

Two people agree about something to be done. They are called “the

parties”. First, the subject of their agreement may be such that

neither of them has the remotest intention that any legal

consequences should flow from it. For example, you invite someone

to dinner and he says “Yes, I would love to come”. You have an

agreement. However, if he just does not turn up, neither of you

would expect to hurry round to court and sue for the cost of the

wasted food! So, the first essential of a contract is that the

parties should intend their agreement to have legal consequences.

A contract is a legally binding agreement. By one definition, “a

contract is a promise or a set of promises for the breach of

which the law gives a remedy, or the performance of which in some

way recognizes as a duty. Contacts arise out of agreements, so a

contract, so a contract may be defined as an agreement creating

obligation.

Essential Elements of a Valid Contract


In order that an agreement can be a valid contract which the law

recognises and will enforce, it must contain certain essential

features. We shall be discussing them all in much greater detail

later, but at this stage you should know what they are.

(a) There must be agreement between the parties.

(b) Usually, there must be “consideration” present – that is,

something of value must be given in exchange for a promise.

(c) There must be an intention to create legal relations.

(d) The parties must have legal capacity to contract. They must

be competent

(e) There must be no circumstances surrounding the contract which

make it unenforceable, void

(I.e. as if it had never existed).

Subject Matter of Contracts

The subject matter of a contract may relate to the performance of

personal services, such as contracts of employment to work on as

a secretary, to build a house, to work as supervisor for short

period of time. The contact may provide for the transfer of


ownership of property, such a house from one person to another

person. A contract may also call for a combination of these

things. For Example, a builder may contract to supply materials

and do the work involved in installing the materials, or a person

may contract to build a house and then transfer the house and the

land to the buyer.

Parties to a Contract

A person whom makes a promise is the promisor, and the person to

whom promise is made is called the promise. If the promise is

binding, it imposes on the promisor a duty or obligation, and the

promisor may be called the obligor. The promisee who can claim

the benefit of the obligation is called obligee. The parties to a

contract are said to stand in privity with each other, and the

relationship between them is termed privity of contract.

In written contracts, parties may be referred to by name. More

often, however, they are give special names that serve to better

identify each party. For example, consider a contract by which

person agrees that another may occupy a house upon the payment of

money. The parties to this contract are called landlord and

tenant, or lessor and lessee, and the contract between them is

known as a lease. Parties to other types of contracts also have

distinctive names, such as shipper and carrier for the parties to

a transportation and insurer and insured for the parties to an

insurance policy.


A party to a contract may be an individual, a partnership, a

corporation, or a government. A party to a contract may be an

agent acting on behalf of another. One or more persons may be on

each side of a contract.

How a Contract Arises

A contract is based on an agreement. An agreement arises when one

person, the offeror, makes an offer and the person to whom the

offer is made, the offeree, accepts. There must be both an offer

and an acceptance. If either is lacking, there is no contract.

Offer + acceptance = Promise

+

Consideration

=

Agreement

+

Enforceability by Law

Contract

Definition of terms

1. Promise: A Proposal when accepted becomes a promise. In

simple words, when an offer is accepted it becomes promise.


2. Promisor and Promisee: When the proposal is accepted, the

person making the proposal is called as promisor and the

person accepting the proposal is called as promisee.

3. Agreement: Every promise and set of promises forming the

consideration for each other. In short, agreement = offer +

acceptance.

4. Consideration: Is what a promisor demands and receives as

the price for the promise. Or something of value (either a

promise, an act or an object) that a promisor receives from

a promisee in return for his promise.

For example: Ben promises to wash Jerry’s car in exchange

for Jerry’s promise to pay him $500. Ben and Jerry have each

bargained for the other’s promise. Ben considers his promise

to wash Jerry’s car as the price he needs to pay to get

Jerry’s $500 and Jerry considers his promise to pay $500 as

the price he has to pay for Ben’s promise to wash his car.

This exchange of promises is consideration.

5. Contract: is a legally enforceable agreement.


5. Offer: An offer is an expression by one person (the

“offeror”) that he is willing to contract with another the

(“offeree”) on specified terms.

6. Acceptance: When the person to whom the offer is made

( offeree”) accepts the proposal with the terms specified.

Because a contract is based on the consent of the parties and is

a legally binding agreement, it follows that the parties must

have intent to enter into an agreement that is binding. Sometimes

the parties are in agreement, but their agreement doesn’t produce

a contract. If there is no intention the agreement becomes

invalid.

CLASSES OF CONTRACTS

Contracts are classified according to their form, they in which

they were created, their binding character, and the extent to

which they have been performed.


Contract on the Basis of their Validity

a. Valid:

A valid contract is one which is enforceable by law. the

object of such contract is to create an outstanding

obligations between the parties, one party shall be bound to

some performance, the other shall have a legal right to

enforce.

b. Void:

An agreement which is not enforceable by law is void. Such

an agreement creates no legal right and obligations on

either side, e.g. an agreement with an alien enemy, an

agreement by way of wages, an agreement in restraint of

trade. It is, in fact, a mere nullity. It may be treated as

of no legal effect because it is contrary to some law or

opposed to public policy.

c. Voidable Contract:

A voidable contract is “an agreement which is enforceable by

law at the option of one or more of the parties thereto, but

not at the option of the other or others”. e.g. a contract

induced by fraud or misrepresentation or coercion, in other

words, this type of contract is a contract where aggrieved

party, thereto may avoid or repudiate while the other party

cannot do so.

d. Unenforceable:


The court, under certain circumstances, will not enforce

contract which are otherwise valid because of the technical

difficulty created by the law of procedure generally, Such

contracts are also called unenforceable which are incapable

of proof owing to the neglect of some formalities required

by special provisions of law. The most important contracts

in this class are contracts of guarantee and contracts for

the sale or other disposition of land of any interest in

land.

e. Illegal Contract:

The term “illegal” is used generally the wider sense. These

types of contract are considered contrary to law and

prohibited by law on pain of penalty where a void contract

does not. All illegal contracts are void, but all void

contracts are not illegal such as wagering agreement is void

but not illegal.

Contract on the Basis of their Performance

a. Executed Contract:

An executed contract is one that has been fully performed by

all parties. It is obvious, of course that a contract may at

a give time be at one of the various stages of execution.

A contract may be executed at once, as in the case of cash

sale; or it may be executed or performed in the future.

b. Executory Contract: © Lecturer’s Notes: MOHAMED ABDULLAHI GULEID

An executory contract is one upon which no performance has

taken place. For example, if a utility company agrees to

furnish electricity to another party for a specified period

of time at a stipulated price, the contract is executory. If

the entire price is paid in advance, the contract is still

deemed executory, although, strictly speaking, it is

executed on one side an executory on the other.

Contract on the Basis of Creation

a. Express Contract:

An express contract is the result of the written or spoken

words of the parties; these words establish the contractual

relationship. The agreement and its terms are declared by

the parties and are not left to interference or to be

understood.

b. Implied Contract:

An implied contract is one in which the evidence of the

agreement is not shown by words, written or spoken, but by


the acts and conduct of the parties. Such a contract arises,

for example, when one person, without being requested to do

so, renders services under circumstances indicating that the

expects to be paid for them, and the other person, knowing

such circumstances accepts the benefit of those services.

c. Quasi Contract:

Under certain circumstances the law imposes an obligation to

pay for a benefit received as through a contract had

actually been made. This will be done in a limited number of

situations in order to attain an equitable or just result.

For Example, when a homeowner permits repairs to be made on

his home with the knowledge that they are being made by a

stranger who would expect to be paid for such repairs, there

is quasi contractual duty to pay for the reasonable value of

the improvements. In order to distinguish this type of

obligation from a true contract which is based upon the

agreement of the parties, the obligation is called a Quasi

Contract.

Contracts on the Basis of Nature

a. Bilateral Contracts:

A bilateral contracts is created by an exchange of promises.

Illustration


X promises to marry Y, and Y promises to marry X, this is a

bilateral agreement.

b. Unilateral Contract:

This type of contract is an exchange of a promise for an

act. Since only one party is obliged to perform after the

contract has been made, this is called unilateral contract.

Illustration

One party makes a promise that the other party can accept

only by doing something.

c. Contingent Contract:

Where the performance of contract depends upon the happening

of uncertain event in the future it is called contingent

contract.

“Contingent contract” is a contract, to do or not to do

something, if some event, collateral, to such contract, does

or does not happen.

d. Formal Contract:

Formal contractors are those which are required to meet

established standards of form, such as negotiable

instruments; or those executed under seal. A formal contract

in order to be valid must have the following essentials:-

i. Writing

ii. Signature


iii. Seal

iv. Delivery

e. Informal Contract:

Most contracts are not required to conform to a set form or

pattern. Such contracts are referred to as being informal or

simple. It may be written or oral.

An informal contract must have consideration to support it

otherwise it is not enforceable.

THE AGREEMENT

A contract consists of enforceable obligations that have been

voluntarily assumed. Thus, one of the essential elements of a

contract is an agreement. It’s very important to explain how the

basic agreement arises, when there is a contract, and how there

can be merely unsuccessful negations without a resulting

contract.

A. Requirements of an Offer

An offer expresses the willingness of the offeror to enter a

contractual agreement regarding a particular subject. It is a


promise that is conditional upon an act, a forbearance

(refraining from doing something one has legal right to do), or a

return promise.

1. Contractual Intention

To make an offer, the offeror must appear to intend to create a

binding obligation. Whether this intent exists is determined by

objective standards. This intent may be shown by conduct. For

example, when one party signs a written contract and sends it to

the other party, such action is an offer to enter into a contract

on the terms of the writing. There is no contract when a social

invitation is made or when an offer is made in excitement. A

reasonable person would not regard such an offer as indicating a

willingness to enter into a binding agreement.

a) Invitation to Negotiate

The first statement made by one of two persons is not necessarily

an offer. In many instances, there may be a preliminary

discussion or an invitation by one party to the other to

negotiate or to make an offer. Thus, an inquiry by a school as

whether a teacher wished to continue the following year was

merely an invitation to negotiate and was not an offer that could

be accepted. Therefore, the teacher’s affirmative response did

not create a contract.


Ordinarily, a seller sending out circulars or catalogs listing

prices is not regarded as making an offer to sell at those

prices. The seller is merely indicating a willingness to consider

an offer made by a buyer on those terms. The reason for this rule

is, in part, the practical consideration that because a seller

does not have an unlimited supply of any commodity, the seller

cannot possibly intend to make a contact with everyone who sees

the circular. The same principle applied to merchandise that is

displayed with price tags in stores or store windows and to most

advertisements. A “for sale” advertisement in a newspaper is

merely an invitation to negotiate and is not an offer that can be

accepted by a reader of the paper.

Quotations of prices, even when sent on request, are likewise not

offers unless there have been previous dealings between the

parties or unless a trade custom exists that would give the

recipient of the quotation reason to believe that an offer was

being made.

In some cases, the fact that important terms are missing

indicates that the parties are merely negotiating and that an

oral contract has not been made. When a letter leaves many

significant details to be worked out late, the letter is merely

an invitation.

Class Exercise One:


Assume that a seller displayed goods with their price in a

certain market. Is he making a valid offer? Why or Why Not?

Justify your answer.

b) Statement of intention.

In some instances, a person may make a statement of intention but

not intend to be bound by a contract. For example, a certain

lease does not expressly allow the tenant to terminate the lease

in case of a job transfer. The landlord states that should the

tenant be required to leave for that reason, the landlord would

try to find a new tenant to take over the lease. This declaration

of intention does not give rise to a binding contract. The

landlord cannot be held liable for breach of contract if the

landlord should fail to obtain a new tenant or not even attempt

to obtain a new tenant.

c) Agreement to make a contract at a future date

No contract arises when the parties merely agree that a future

date they will consider making a contract or will make a contract

on terms to be agreed on that time. In such a case, neither party

is under any obligation until the future contract is made.

Similarly, there is no contract between the parties if essential

terms are left open for future negotiations. Thus a promise to

pay a bonus or compensation to be decided on after three months

of business operation is not binding. Likewise, no binding

contract to renew a contract when it expires was created by a


provision in the original contract that when it expires the

parties intend to “negotiate in good faith to renew this

agreement for an additional year upon the terms and conditions to

be negotiated”. When the parties have prepared a draft agreement

but it is clear that such agreement is not regarded by them as

final, the draft is merely a step in negotiations and is not a

contract.

The fact that all material terms have not been agreed upon is

significant in concluding that there is no contract. Thus an

agreement to construct a house was not binding when the six and

shape of the house were not specified.

2. Definiteness An offer, and the resulting contract, must be definite and

certain. If an offer is indefinite or vague or if an essential

provision is lacking, no contract arises from an attempt to

accept it. The reason is that courts cannot tell what the parties

are to do. Thus, an offer to conduct a business for as long as it

its profitable is too vague to be valid offer. The acceptance of

such an offer does not result in a contact that can be enforced.

Likewise, a promise to give an injured employee “suitable”

employment that employee “able to do” is too vague to be a

binding contract. A statement by a landlord to the tenant that

“some day it (rented land) will be your own land” is too


indefinite to be an offer, and no contract is for the sale of the

land arises when the tenant agrees to the statement.

If the offer if is not clear at the beginning, the agreement

formed by the acceptance of a vague offer will definitely lack

clarity. If the agreement is not clear, the obligations in effect

will not be clear. If obligations are not clear, there is no way

for courts to enforce the obligations in the in the contract. For

example, a person may offer to sell his second hand television

without mentioning the price he expects from the offeree. Since

the offer he is not clear as to the price of the commodity, the

offer is not valid.

If a term that is too vague is not important, it may sometimes be

ignored. If the balance of the agreement is definite, there can

be a binding contract. For example, where the parties agreed that

one of them would manage a motel that was being constructed for

the other, and where it was agreed the contract would start to

run before the completion of the construction, the management

contract did not fail because it did not specify any date on

which it was to begin. It was apparent that the exact date was

not essential and could not be determined at the time when the

contract was made.


Class Exercise Two:

Assume that a person offers you to buy his laptop for $ 400.

Although the offer has lots of things to say, it does not mention

as to the type of compute. But incidentally it happened that

person offering to sell a laptop has two laptops. Each with

market price of $ 350 and $ 450 Dollars respectively. What is the

clear problem of this offer? Is it a valid offer? Reason your

answers!

3. Communication of Offer to Offeree

An offer must be communicated to the offeree. Otherwise, the

offeree cannot accept. A person cannot accept an offer without

knowing about it. Obviously, if the offer is not told or

communicated to the offeree, there is nothing to accept. For

instance, if Ahmed wants to sell his computer for $ 400 USD to

Fadumo, He must tell her so. Otherwise, there is no valid offer.

Normally, the communication can be carried out in writing,

orally, by signing or by conduct depending on offeror’s choice.

What matters to the law is whether the offeree understood the

terms of the offer. There is no strict requirement that the offer

must be made in writing. In addition it must be ascertained that

communication is directly from the offeror to offeree. If the

offeree knows about the existence of the offer sources other than

the offeror himself, there is no valid offer made. Not only the

offer must be communicated, but it must be communicated by

offeror or by the offeror’s direction.


Class Exercise Three:

Assume that Faarax, the owner of a certain building, intended to

make an offer to Ali, a builder for the construction of his

house. He wrote down a clear proposal as to the price he intends

to pay time of completion of the work, the materials that must be

used in the work etc. He signed, the proposal letter. But before

he gave it to Ali, he changed his mind, folded the proposal

letter and threw it in a basket. But the Janitor found the folded

piece of paper and delivered it to Ali. Ali having read the paper

claimed that there was an offer made to him. Is His claim

justified? Why or Why Not? Legally reason your answers.

B. Termination of Offer

An offer cannot accept a terminated offer. Offers may be

terminated by revocation, counteroffer, rejection, lapse of time,

death of disability of a party, or subsequent illegality.

Revocation of offer by offeror

Normally, an offeror can revoke the offer before it is

accepted. If this is done, the offeree cannot create a

contract by accepting the revoked letter. However, if the


offeror makes sure that the revocation letter reaches the

offeree before or simultaneously with the offer, the

revocation wil be valid and the offer will be terminated. So

our time references are the time when the offer reaches and

the time when the revocation of acceptance is received by

the offeree. If they ( the offer and the revocation ) reach

the offeree together, the revocation is valid and the offer

shall be terminated. Likewise, if the revocation reached

earlier the offer, still revocation is acceptable and valid

contract will not exist. In any other case revocation is

not allowed. No particular form or words are required to

constitute a revocation. Any words indicating the offeror’s

termination of the offer are sufficient. A notice sent to

the offeree that the property that is the subject of the

offer has been sold to a third person is a revocation of the

offer. A customer’s order for goods, which is an offer to

purchase at certain prices, is revoked by a notice to the

seller of the cancellation of the order provided such notice

is communicated before the order is accepted. A revocation

of an offer is ordinarily effective only when it is made

known to the offeree. Until it is communicated to the

offeree, directly or indirectly, the offeree has reason to

believe that there is still an offer that may be accepted.

Class Exercise Three:

Assume that on February 5, 2013, Faarax sent a letter proposing

the sale of his Second hand Surf car to Kaltuun for $ 5000. This


letter reached kaltuun on February 11, 2013. But on February, 6

Faarax had changed his mind and sent a revocation letter that

reached Kaltuun on February 12. On February 13, 2013 despite the

revocation information she received, declared that she accepted

the offer and there was a contract between the two. Is there an

agreement between the parties? (Your answers should depend on the

existence of valid offer i.e. whether the revocation is valid or

not).

Counter-Offer

An offeree who accepts an offer must accept it exactly as

made. If the offeree qualifies the offeror’s proposal in any

way, the result is termination of the original offer and the

reply will be a counter-Offer, which is equivalent to a new

offer. In making a counter offer the offeree says in effect

“ I refused your offer; here is my counter-offer”. Thus, a

counter-offer not only terminates the original offer, it

also immediately becomes a new offer. For example: if Jama

makes an offer, such as to sell a used iphone 5, to Ahmed

for $ 700, and in reply makes an offer to buy at $ 550, the

original offer is terminated. Ahmed is in effect indicating

a refusal of of the original offer and in its place making a

different offer. Such an offer by the offeree is known as

counter-offer.

Rejection By the Offeree


This is a negative response given to an offer. If the

offeree rejects the offer and communicates this rejection to

the offeror, the offer is terminated. Communication of of a

rejection terminates an offer even though the period for

which the offeror agreed to keep the offer open has not yet

expired. For example: the seller may propose to sell his

property and give 20 days for the buyer to think about the

offer, if the buyer within 3 days declares that he rejected

the offer, the offer shall be terminated by rejection. After

the rejection the buyer cannot change his mind and say that

he accepts or wants be bound by the offer. Once an offer is

terminated acceptance is not allowed.

Death or Disability of Either Party

If either the offer or the offeree dies or becomes insane

before the offer is accepted, the offer is automatically

terminated. For example: John offers to sell his land to

David. Five days later John Dies in a airplane crash. David

rites to his son William that his father’s offer is

accepted. This cannot be done as the offer made by John died

with him.

Subsequent Illegality

If the performance of the contract becomes illegal after the

offer is made, the offer is terminated. Thus, if an offer is


made to sell alcoholic liquors but a law prohibiting such a

sale is enacted before the offer is made is accepted, the

offer is terminated.

Lapse of time

When the offer states that it is open until a particular

date, the offer terminates on that date if it has not yet

been accepted. This is particularly so where the offeror

declares that offer shall be void after expiration of the

specified time. Such limitations are strictly construed.

This is the case where the offeror has clearly set a time

limit for acceptance. If the offeror declared that

acceptance must be made within 5 days, the offer, unless

accepted by the offeree within this duration, will expire

following the lapse of the 5 days. After that period

acceptance is not allowed. But it may happen that offeror,

for whatever reason, did not say anything as to the of

acceptance, in such case do you think that the offer will

stay for ever allowing the offeree to accept any time he

wants, even after the expiry of say 10 years. Hopefully,

your answer will be no. where no express provision is

contained in the offer, it will any event lapse after a

reasonable time. What is reasonable time? What constitutes a

reasonable time depends on largely on the subject matter of

the offer. An easy way for you to tell a reasonable time

for a given case is to ask yourself: How much time does it


take to me to decide on a proposal made to me, a day or a

week? If your answer this question reasonably, that would be

the reasonable time for our discussion here.

C.Acceptance of OfferAn acceptance is the assent of the offeree to the terms of

the offer. A valid acceptance of a valid offer results in

contract. It is after acceptance that the court will

recognize person’s contractual obligations. For the

acceptance to be valid, it must meet a certain requirements

it too, like an offer,

o It must be made only by the person or persons to whom

the offer was made,

o It must be identical and unconditional in terms with

the offer; and

o It must be communicated to the offeror directly.

No particular form of words or mode of expression is required,

but there must be a clear expression that offeree agrees to be

bound by the terms of the offer. If the offeree reserves the

right to reject the offer, such action is not an acceptance.

a. Privilege of offeree

Ordinarily, the offeree may refuse to accept an offer. If

there is no acceptance, by definition there is no contract.


The fact that there had been a series of contracts between

the parties and that one party’s offer had always been

accepted before the other does not create any legal

obligation to continue to accept subsequent offers. Certain

partial exceptions to the offeree privilege of refusing to

accept an offer.

I. Places of Public Accommodation and Public Utilities

Places of public accommodation and public utilities are

under a duty to serve any fit person. They cannot

refuse to serve a person because of a disability. When

a person offers to register at a hotel, the hotel has

the obligation to accept the offer and to enter a

contract for the renting of the room. However, ther is

no duty on the part of the hotel to accept unless the

person is properly attired, is behaving properly, and

the hotel has pace available.

II. Antidiscrimination

When offers are solicited from members of the general

public, an offer generally may not be rejected because

of the race, nationality, religion, or color of the

offeror. If the solicitor of the offer is willing to

enter a contract to rent, sell or employ,

antidiscrimination laws compel the solicitor to accept

an offer any otherwise fit person.

III. Consumer Protection


Statutes and regulations designed to protect consumers

from false advertising may require a seller to accept

an offer from a customer to purchase advertised goods

and may impose a penalty for an unjustified refusal.

b. Effect of Acceptance

When an offer has been accepted, a binding agreement or

contract is created, assuming that all of the other elements

of a contract are present. Neither party can subsequently

with draw from or cancel the contract without the consent of

the other party. For example, Jama mailed ABC Company a

letter accepting an offer made by ABC Company. Jama then

realized that he had been reckless and phoned ABC Company

that he would be able to pay only one half of the offer

price. Jama is bound by contract to pay the amount stated in

the offer as that offer had been accepted by him when he

mailed the letter of acceptance.

c. Nature of the Acceptance

An acceptance is the offeree’s manifestation of intent to

enter into a binding agreement on the terms stated in the

offer. Whether there is acceptance depends on whether the

offeree has manifested intent to accept. The acceptance must

be absolute and unconditional. It must accept just what is

offered. If the offeree changes any terms of the offer or


adds any new term, there is no acceptance because the

offeree does not agree to what was offered.

Where the offeree does not accept the offer exactly as made,

the addition of nay qualification converts the “acceptance”

in to a counter-offer, and no contract arises unless such

counter-offer is accepted by original offeror. The addition

of new terms in the acceptance, however, does not always

mean the attempted acceptance fails. The acceptance is still

unqualified.

d. Who May Accept

An offer may be accepted only by the person to whom it is

directed. If anyone else attempts to accept it, no agreement

or contract with that person arises. If the offer is

directed to a particular class rather than a specified

individual, it may be accepted by anyone within that class.

If the offer is made to the public at large, it may be

accepted by any member of the public at large having

knowledge of the existence of the offer. When a person to

whom an offer was not made attempts to accept it, the

attempted acceptance has the effect of an offer, if the

original offeror is willing to accept this offer, a binding


contract arises. If the original offeror does accept the new

offer, there is no contract.

Illustration

Contract Formed?

Offer Yes Acceptance

Offer No Counter-Offer

Acceptance Yes

Offer, no contractual intent No Acceptance

Offer not definite No Acceptance

Offer No No Acceptance

Invitation to Negotiate No Acceptance

Terminated Offer No Acceptance


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