PROJECT REPORT OF IInd SEMESTER, JANUARY 2019

LAW CONTRACT LAW- I

POWEL VS. LEE CASE ANalysis

Submitted By:

1 Year, 2 Semester, B.A. LL.B. (Hons.)

ST ND

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 ACKNOWLEDGEMENT

I am very thankful to everyone who has supported me, for I have completed my project
effectively and moreover on time. I am equally grateful to. She gave me moral support and
guided me in different matters regarding this topic. She has been very kind and patient while
suggesting me the outlines of this project and correcting my doubts I thank him for his overall
support.

Last but not the least, I would like to thank everyone who helped me in gathering different
information, collecting data and guiding me. I also thank my friends who were there with
their suggestions and comments for my project.

RESEARCH METHODOLOGY

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Method of Research

The researcher has adopted a purely doctrinal method of research. The researcher has made
extensive use of the library at the Chanakya National Law University and also the internet
sources.

Objective

To analyse the contract case of Powel Vs. Lee and discuss its judgement in detail

Hypothesis

In order that the acceptance can be treated as valid, it is necessary that the same must be
communicated to the offeror either by the offeree or by some duly authorized person on his
behalf. If the communication is made by an unauthorized person, it does not result in
contract.

Sources of Data

The following secondary sources of data have been used in the project-

1. Books
2. Websites

Method of Writing

The method of writing followed in the course of this research paper is primarily analytical.

Mode of Citation:

The researcher has followed a uniform mode of citation throughout the course of this research
paper.

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 TABLE OF CONTENTS

ACKNOWLEDGEMENT.…………………………………………………………….2

INTRODUCTION TO ENGLISH CONTRACT LAW………………………...…..5

CHAPTERISATION

1. POWEL VS. LEE : AN INTRODUCTION………………………………………..…..9

2. FORMATION OF CONTRACT………………………………………………..12

3.ACCEPTANCE ………………………..……..15

4.INTENTION AND CORRESPONDING EXPECTATION……..………17

5. JUDGEMENT OF POWEL VS LEE…………………………..…………..18

CONCLUSION……………………………………………………………….………19

BIBLIOGRAPHY…………….…………………………………………………….20

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 INTRODUCTION

English contract law is a body of law regulating contracts in England and Wales. With its roots in
the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a
heritage with countries across the Commonwealth (such as Australia, Canada, India), and to a lesser
extent the United States. It is also experiencing gradual change because of the UK's membership of
the European Union and international organisations like Unidroit. Any agreement that is enforceable
in court is a contract. Because a contract is a voluntary obligation, in contrast to
paying compensation for a tort and restitution to reverse unjust enrichment, English law places a high
value on ensuring people have truly consented to the deals that bind them in court.

Generally a contract forms when one person makes an offer, and another person accepts it by
communicating their assent or performing the offer's terms. If the terms are certain, and the parties
can be presumed from their behaviour to have intended that the terms are binding, generally the
agreement is enforceable. Some contracts, particularly for large transactions such as a sale of land,
also require the formalities of signatures and witnesses and English law goes further than other
European countries by requiring all parties bring something of value, known as "consideration", to a
bargain as a precondition to enforce it. Contracts can be made personally or through an agent acting
on behalf of a principal, if the agent acts within what a reasonable person would think they have the
authority to do. In principle, English law grants people broad freedom to agree the content of a deal.
Terms in an agreement are incorporated through express promises, by reference to other terms or
potentially through a course of dealing between two parties. Those terms are interpreted by the courts
to seek out the true intention of the parties, from the perspective of an objective observer, in the
context of their bargaining environment. Where there is a gap, courts typically imply terms to fill the
spaces, but also through the 20th century both the judiciary and legislature have intervened more and
more to strike out surprising and unfair terms, particularly in favour of consumers, employees or
tenants with weaker bargaining power.

Contract law works best when an agreement is performed, and recourse to the courts is never needed
because each party knows their rights and duties. However, where an unforeseen event renders an
agreement very hard, or even impossible to perform, the courts typically will construe the parties to
want to have released themselves from their obligations. It may also be that one party simply breaches
a contract's terms. If a contract is not substantially performed, then the innocent party is entitled to
cease their own performance and sue for damages to put them in the position as if the contract were
performed. They are under a duty to mitigate their own losses and cannot claim for harm that was a
remote consequence of the contractual breach, but remedies in English law are footed on the principle

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that full compensation for all losses, pecuniary or not, should be made good. In exceptional
circumstances, the law goes further to require a wrongdoer to make restitution for their gains from
breaching a contract, and may demand specific performance of the agreement rather than monetary
compensation. It is also possible that a contract becomes voidable, because, depending on the specific
type of contract, one party failed to make adequate disclosure or they made misrepresentations during
negotiations.

Unconscionable agreements can be escaped where a person was under duress or undue influence or
their vulnerability was being exploited when they ostensibly agreed to a deal. Children, mentally
incapacitated people and companies, whose representatives are acting wholly outside their authority,
are protected against having agreements enforced against them where they lacked the real capacity to
make a decision to enter an agreement. Some transactions are considered illegal, and are not enforced
by courts because of a statute or on grounds of public policy. In theory, English law attempts to
adhere to a principle that people should only be bound when they have given their informed and true
consent to a contract.

The modern law of contract is primarily a creature of the industrial revolution and the social
legislation of the 20th century. However, the foundations of all European contract law are traceable to
obligations in Ancient Athenian and Roman law, while the formal development of English law began
after the Norman Conquest of 1066. William the Conqueror created a common law across England,
but throughout the middle ages the court system was minimal. Access to the courts, in what are now
considered contractual disputes, was consciously restricted to a privileged few through onerous
requirements of pleading, formalities and court fees. In the local and manorial courts, according to
English law's first treatise by Ranulf de Glanville in 1188, if people disputed the payment of a debt
they, and witnesses, would attend court and swear oaths (called a wager of law). They
risked perjury if they lost the case, and so this was strong encouragement to resolve disputes
elsewhere.

The royal courts, fixed to meet in London by the Magna Carta 1215, accepted claims for "trespass on
the case" (more like a tort today). A jury would be called, and no wager of law was needed, but some
breach of the King's peace had to be alleged. Gradually, the courts allowed claims where there had
been no real trouble, no tort with "force of arms" (vi et armis), but it was still necessary to put this in
the pleading. For instance, in 1317 one Simon de Rattlesdene alleged he was sold a ton of wine that
was contaminated with salt water and, quite fictitiously, this was said to be done "with force and arms,
namely with swords and bows and arrows". The Court of Chancery and the King's Bench slowly
started to allow claims without the fictitious allegation of force and arms from around 1350. An action
for simple breach of a covenant (a solemn promise) had required production of formal proof of the
agreement with a seal. However, in The Humber Ferryman's case a claim was allowed, without any

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documentary evidence, against a ferryman who dropped a horse overboard that he was contracted to
carry across the River Humber. Despite this liberalisation, in the 1200s a threshold of 40 shillings for
a dispute's value had been created. Though its importance tapered away with inflation over the years,
it foreclosed court access to most people. Moreover, freedom to contract was firmly suppressed
among the peasantry. After the Black Death, the Statute of Labourers 1351prevented any increase in
workers' wages fuelling, among other things, the Peasants' Revolt of 1381.

Increasingly, the English law on contractual bargains was affected by its trading relations with
northern Europe, particularly since the Magna Carta 1215 had guaranteed merchants "safe and secure"
exit and entry to England "for buying and selling by the ancient rights and customs, quit from all evil
tolls". In 1266 King Henry III had granted the Hanseatic League a charter to trade in England. The
"Easterlings" who came by boats brought goods and money that the English called "Sterling", and
standard rules for commerce that formed a lex mercatoria, the laws of the merchants. Merchant
custom was most influential in the coastal trading ports like London, Boston, Hull and King's Lynn.
While the courts were hostile to restraints on trade, a doctrine of consideration was forming, so that to
enforce any obligation something of value needed to be conveyed. Some courts remained sceptical
that damages might be awarded purely for a broken agreement (that was not
[10]
a sealed covenant). Other disputes allowed a remedy. In Shepton v Dogge a defendant had agreed
in London, where the City courts' custom was to allow claims without covenants under seal, to sell 28
acres of land in Hoxton. Although the house itself was outside London at the time, in Middlesex, a
remedy was awarded for deceit, but essentially based on a failure to convey the land.

The resolution of these restrictions came shortly after 1585, when a new Court of Exchequer
Chamber was established to hear common law appeals. In 1602, in Slade v Morley, a grain merchant
named Slade claimed that Morley had agreed to buy wheat and rye for £16, but then had backed out.
Actions for debt were in the jurisdiction of the Court of Common Pleas, which had required both (1)
proof of a debt, and (2) a subsequent promise to repay the debt, so that a finding of deceit (for non-
payment) could be made against a defendant. But if a claimant wanted to simply demand payment of
the contractual debt (rather than a subsequent promise to pay) he could have to risk a wager of law.
The judges of the Court of the King's Bench was prepared to allow "assumpsit" actions (for
obligations being assumed) simply from proof of the original agreement. With a majority in the
Exchquer Chamber, after six years Lord Popham CJ held that "every contract importeth in itself an
Assumpsit". Around the same time the Common Pleas indicated a different limit for contract
enforcement in Bret v JS, that "natural affection of itself is not a sufficient consideration to ground an
assumpsit" and there had to be some "express quid pro quo". Now that wager of law, and sealed
covenants were essentially unnecessary, the Statute of Frauds 1677 codified the contract types that
were thought should still require some form. Over the late 17th and 18th centuries Sir John Holt, and
then Lord Mansfield actively incorporated the principles of international trade law and custom into

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English common law as they saw it: principles of commercial certainty, good faith, fair dealing, and
the enforceability of seriously intended promises. As Lord Mansfield held, "Mercantile law is not the
law of a particular country but the law of all nations", and "the law of merchants and the law of the
land is the same".

Over the industrial revolution, English courts became more and more wedded to the concept of
"freedom of contract". It was partly a sign of progress, as the vestiges of feudal and mercantile
restrictions on workers and businesses were lifted, a move of people (at least in theory) from "status to
contract". On the other hand, a preference for laissez faire thought concealed the inequality of
bargaining power in multiple contracts, particularly for employment, consumer goods and services,
and tenancies. At the centre of the general law of contracts, captured in nursery rhymes like Robert
Browning's Pied Piper of Hamelin in 1842, was the fabled notion that if people had promised
something "let us keep our promise". But then, the law purported to cover every form of agreement, as
if everybody had the same degree of free will to promise what they wanted. Though many of the most
influential liberal thinkers, especially John Stuart Mill, believed in multiple exceptions to the rule
that laissez faire was the best policy, the courts were suspicious of interfering in agreements, whoever
the parties were. In Printing and Numerical Registering Co v Sampson Sir George Jessel
MR proclaimed it a "public policy" that "contracts when entered into freely and voluntarily shall be
held sacred and shall be enforced by Courts of justice."[The same year, the Judicature Act
1875 merged the Courts of Chancery and common law, with equitable principles (such
as estoppel, undue influence, rescission for misrepresentation and fiduciary duties or disclosure
requirements in some transactions) always taking precedence.

The essential principles of English contract law, however, remained stable and familiar, as an offer for
certain terms, mirrored by an acceptance, supported by consideration, and free from duress, undue
influence or misrepresentation, would generally be enforceable. The rules were codified and exported
across the British Empire, as for example in the Indian Contract Act 1872. Further requirements of
fairness in exchanges between unequal parties, or general obligations of good faith and disclosure
were said to be unwarranted because it was urged by the courts that liabilities "are not to be forced
upon people behind their backs". Parliamentary legislation, outside general codifications of
commercial law like the Sale of Goods Act 1893, similarly left people to the harsh realities of
the market and "freedom of contract". This only changed when the property qualifications to vote for
members of parliament were reduced and eliminated, as the United Kingdom slowly became more
democratic.1

1
https://en.wikipedia.org/wiki/English_contract_law#History

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 CHAPTER- 1

POWEL VS. LEE : AN INTRODUCTION

Powell v Lee (1908) 99 LT 284 was an English contract law case. The ruling established
that acceptance of an offer must be communicated to offeror by offeree himself or authorized agent.[1]

The plaintiff, Powell, applied for a job as headmaster and the school managers decided to appoint
him. One of them, acting without authority, told the plaintiff he had been accepted. Later the
managers decided to appoint someone else. The plaintiff brought an action alleging that by breach of a
contract to employ him he had suffered damages in loss of salary.2

2
https://www.lawteacher.net/cases/agreement-cases.php

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 CHAPTER- 2

FORMATION OF CONTRACT

The formation of the contract is where the contractual journey begins; if no contract is formed, neither
of the parties can be under any obligations. Therefore, it is very important to have an understanding of
each part of a contract’s formation.

In order for a legally binding agreement to be formed, there are four basic requirements to be met:

 Offer
 Acceptance
 Certainty & Intention to Create Legal Relations
 Consideration & Promissory Estoppel

These four sections operate together, but have distinct rules and you will need to understand each one
to be able to understand the formation of a contract.

The initial offer and acceptance will form an agreement. This is not legally binding unless there is
certainty, intention to create legal relations, and consideration. The sections following this
introduction will explore each of the core requirements in turn, ensuring you have a comprehensive
understanding of them and their relation to each other.3

• Contract: An agreement between two or more parties to perform or to refrain from some act now
or in the future. A legally enforceable agreement.

• Requisites for Contract Formation (Elements)

• Agreement: One party must offer to enter into an agreement, and the other party must accept the
terms of the offer

• Consideration: Something of value received or promised, to convince a party to agree to the deal;

• Contractual Capacity/ competent parties: Both parties must be competent to enter into the
agreement;

• Legality: The contract’s purpose must be to accomplish some goal that is legal and not against
public policy;

• Genuineness of Assent (Arguably part of agreement): The apparent consent of both parties must
be genuine; and

• Form: The agreement must be in whatever form (e.g., written, under seal, etc.) the law requires.

UNILATERAL AND BILATERAL CONTRACTS

3
https://www.lawteacher.net/modules/contract-law/formation/

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 • Every contract involves at least two parties -- the offeror/ offeror, who make the offer/promise to
perform, and the offeree/offeree, to whom the offer/promise is made.

• Unilateral Contract: A unilateral contract arises when an offer can be accepted only by
the offeree’s performance (e.g., X offers Y $15 to mow X’s yard).

• Bilateral Contract: A bilateral contract arises when a promise is given in exchange for a promise
in return (e.g., X promises to deliver a car to Y, and Y promises to pay X an agreed price).

• Express Contract: A contract in which the terms of the agreement are fully and explicitly stated
orally or in writing.

• Implied-in-Fact Contract: A contract formed in whole or in part by the conduct (as opposed to the
words) of the parties. In order to establish an implied-in-fact contract,

(1) The plaintiff must have furnished some service or property to the defendant,

(2) The plaintiff must have reasonably expected to be paid and the defendant knew or should have
known that a reasonable person in the plaintiff’s shoes would have expected to be paid for the service
or property rendered by the plaintiff, and

(3) The defendant must have had the opportunity to reject the services or property and failed to
do so.

• Quasi or Implied-in-Law Contract: A fictional contract imposed on parties by a court in the

interests of fairness and justice, typically to prevent the unjust enrichment of one party at the expense
of the other.

FORMAL AND INFORMAL CONTRACTS

• Formal Contract: A contract that requires a special form or method of formation (creation) in
order to be enforceable.

• Contract under Seal: A formalized writing with a special seal attached.

• Recognizance: An acknowledgment in court by a person that he or she will perform some

specified obligation or pay a certain sum if he or she fails to perform (e.g., personal recognizance
bond).

• Negotiable Instrument: A check, note, draft, or certificate of deposit -- each of which requires
certain formalities (to be discussed later).

• Letter of Credit: An agreement to pay that is contingent upon the receipt of documents (e.g.,
invoices and bills of lading) evidencing receipt of and title to goods shipped.

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 • Informal Contract: A contract that does not require a specified form or method of formation in
order to be valid.

• The vast majority of contracts are informal (without a seal).

EXECUTION AND VALIDITY OF CONTRACTS

• Executed Contract: A contract that has been completely performed by both (or all) parties. By
contrast,

• An executory contract is a contract that has not yet been fully performed by one or more parties.

• Valid Contract: A contract satisfying all of the requisites discussed earlier -- agreement,
consideration, capacity, legal purpose, assent, and form. By contrast,

• A void contract is a contract having no legal force or binding effect (e.g., a contract entered into
for an illegal purpose);

• A voidable contract is an otherwise valid contract that may be legally avoided, cancelled, or
annulled at the option of one of the parties (e.g., a contract entered into under duress or under false
pretenses); and,

• An unenforceable contract is an otherwise valid contract rendered unenforceable by some statute

or law (e.g., an oral contract that, due to the passage of time, must be in writing to be enforceable).4

4
https://www.shsu.edu/klett/CONTRACTS%20BASIC%20PRINCIPLES%20ch%2010%20new.htm

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 CHAPTER- 3

ACCEPTANCE

Acceptance of an offer is the expression of assent to its terms. Acceptance must generally be made in
the manner specified by the offer. If no manner of acceptance is specified by the offer, then
acceptance may be made in a manner that is reasonable under the circumstances. An acceptance is
only valid, however, if the offeree knows of the offer, the offeree manifests an intention to accept, and
the acceptance is expressed as an unequivocal and unconditional agreement to the terms of the offer.

Many offers specify the method of acceptance, whether it be oral or written, by phone or in person, by
handshake or by ceremony. Other offers leave open the method of acceptance, allowing the offeree to
accept in a reasonable manner. Most consumer transactions fall into this category, as when a shopper
“accepts” a merchant’s offer by taking possession of a particular good and paying for it at the cash
register. But what constitutes a “reasonable” acceptance will vary according to the contract.

Some offers may only be accepted by the performance or non-performance of a particular act. Once
formed, these types of agreements are called unilateral contracts, and they are discussed more fully
later in this essay. Other offers may only be accepted by a return promise of performance from the
offeree. Once formed, these agreements are called bilateral contracts, and they are also discussed
more fully later in this essay.

Problems can arise when it is not clear whether an offer anticipates the method of acceptance to come
in the form of performance or a return promise. Section 32 of the Restatement (Second) of Contracts
attempts to address this issue by providing that “in case of doubt an offer is interpreted as inviting the
offeree to accept either by promising to perform what the offer requests or by rendering performance,
as the offeree chooses.” A growing number of jurisdictions are adopting this approach.

Jurisdictions are split as to the time when an air-mailed acceptance becomes effective. Under the
majority approach, known as “the mailbox rule,” an acceptance is effective upon dispatch in a
properly addressed envelope with prepaid postage, even if the acceptance is lost or destroyed in
transit. Under the minority approach, acceptance is effective only upon actual receipt by the offeror,
no matter what precautions the offeree took to ensure that the acceptance was properly mailed.

In certain cases acceptance can be implied from a party’s conduct. Suppose a consumer orders a
personal computer (PC) with exact specifications for its central processing unit (CPU), hard drive, and
memory. Upon receipt, the consumer determines that the PC does not match the specs. If the

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consumer nonetheless pays the full amount on the invoice accompanying the PC without protest, the
consumer has effectively communicated a legally binding acceptance of the non-conforming good.

Acceptance cannot generally be inferred from a party’s silence or inaction. An exception to this rule
occurs when two parties have a prior course of dealings in which the offeree has led the offeror to
believe that the offeree will accept all goods shipped by the offeror unless the offeree sends notice to
the contrary. In such instances, the offeree’s silence or inaction constitutes a legally binding
acceptance upon which the offeror can rely.5

The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the
proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the proposal
when accepted becomes a promise.”

So as the definition states, when the offeree to whom the proposal is made, unconditionally accepts
the offer it will amount to acceptance. After such an offer is accepted the offer becomes a
promise. Say for example A offers to buy B’s car for rupees two lacs and B accepts such an offer.
Now, this has become a promise.

When the proposal is accepted and it becomes a proposal it also becomes irrevocable. An offer does
not create any legal obligations, but after the offer is accepted it becomes a promise. And a promise is
irrevocable because it creates legal obligations between parties. An offer can be revoked before it is
accepted. But once acceptance is communicated it cannot be revoked or withdrawn.

Rules regarding Valid Acceptance

1] Acceptance can only be given to whom the offer was made

In case of a specific proposal or offer, it can only be accepted by the person it was made to. No third
person without the knowledge of the offeree can accept the offer.

2] It has to be absolute and unqualified

Acceptance must be unconditional and absolute. There cannot be conditional acceptance, that would
amount to a counter offer which nullifies the original offer. Let us see an example. A offers to sell his
cycle to B for 2000/-. B says he accepts if A will sell it for 1500/-. This does not amount to the offer
being accepted, it will count as a counteroffer.

5
https://contracts.uslegal.com/elements-of-a-contract/acceptance/

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Also, it must be expressed in the prescribed manner. If no such prescribed manner is described then it
must be expressed in the normal and reasonable manner, i.e. as it would be in the normal course of
business. Implied acceptance can also be given through some conduct, act etc.

However, the law does not allow silence to be a form of acceptance. So the offeror cannot say if no
answer is received the offer will be deemed as accepted.

3] Acceptance must be communicated

For a proposal to become a contract, the acceptance of such a proposal must be communicated to the
offeror. The communication must occur in the prescribed form, or any such form in the normal course
of business if no specific form has been prescribed. Further, when the offeree accepts the proposal, he
must have known that an offer was made. He cannot communicate acceptance without knowledge of
the offer.

So when A offers to supply B with goods, and B is agreeable to all the terms. He writes a letter to
accept the offer but forgets to post the letter. So since the acceptance is not communicated, it is not
valid.

4] It must be in the prescribed mode

Acceptance of the offer must be in the prescribed manner that is demanded by the offeror. If no such
manner is prescribed, it must be in a reasonable manner that would be employed in the normal course
of business. But if the offeror does not insist on the manner after the offer has been accepted in
another manner, it will be presumed he has consented to such an acceptance.

So A offers to sell his farm to B for ten lakhs. He asks B to communicate his answer via post. B e-
mails A accepting his offer. Now A can ask B to send the answer through the prescribed manner. But
if A fails to do so, it means he has accepted the acceptance of B and a promise is made.

5] Implied Acceptance

Section 8 of the Indian Contract Act 1872, provides that acceptance by conduct or actions of the
promise is acceptable. So if a person performs certain actions that communicates that he has accepted
the offer, such implied acceptance is permissible. So if A agrees to buy from B 100 bales of hay for
1000/- and B sends over the goods, his actions will imply he has accepted the offer.6

6
https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/acceptance/

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 CHAPTER- 4

INTENTION AND CORRESPONDING EXPECTATION

Fried argues that it is necessary to enforce promises because “respect for others as free and rational
requires taking seriously their capacity to determine their own values.” If offerors are permitted to go
back on their promises without being held accountable, their choice to invoke the social convention of
promising is not taken seriously. As autonomous individuals, we should be entitled to undertake
binding obligations if we desire. This is a variation on the will theory, which holds that contracts are
inherently worthy of respect because they are an expression of human will or intention. There are
several problems with this theory. First, it still fails to explain why only some promises are legally
binding. If promises were enforced simply because they reflect the free and rational choices of
autonomous individuals, then all promises made free of duress or undue influence would be
enforceable. What distinguishes contractual obligations from mere promises is that the parties intend
not only that the promise be performed, but that if it is not, the offeree can obtain legal redress. Thus,
to form a contract, the offeror must intend to undertake a legal obligation. It would generally be unfair
to force a offeror to perform or compensate the offeree for a casual promise which was never intended
or understood to be legally binding. However, a theory which justifies contractual obligation solely on
the basis that it reflects the intention of the offeror to enter into a legal obligation is also inadequate,
as it entails a subjective theory of intent. The result would be an entirely one-sided theory of
individual autonomy. The offeror could outwardly manifest an intention to be legally bound; thereby
inducing the offeree to reasonably expect performance or a legal remedy, but the offeror would not be
bound if that was not his subjective intention. The offeree would have no way of knowing whether he
had a right to performance or not. This is why intention to be legally bound must be ascertained
objectively from conduct of the parties. whether a offeror subjectively intended to be bound is not
pertinent, just as it is irrelevant whether the offeree subjectively expected the offeror to perform.

The preceding discussion has shown that contract cannot be justified solely on the basis of the
offeror’s exercise of will, nor solely on basis of the offeree’s reasonable expectations. It is submitted
that the interaction of the intention of the offeror and the expectation of the offeree converts a promise
into a contractual obligation. Both must relate to the legal enforceability of the promise as opposed to
its moral force. The offeror must conduct himself in a manner that would lead a reasonable person in
the offeree’s position to believe that he intended to be legally bound. The promise will then have
contractual force because it would induce a reasonable offeree to expect performance or equivalent
compensation. In such circumstances, it would be unfair to permit the offeror to renege. So, while the
central objective of contract law is to protect the reasonable undertake a legal obligation, and only the
offeree will have a reasonable expectation of performance. Those promises which are currently
enforced as unilateral contracts would also fall within this category. This theory explains why only

16
promises intended to be legally binding are enforced, while also accounting for the fact that intention
must be objectively assessed. It achieves the optimum balance between the interests of the parties, by
ensuring that offeree’s are not deprived of reasonably expected benefits, while also protecting offerors
from liability to compensate for illegitimate expectations.

The offeree’s expectations will only be ‘reasonable’ if the offeror has induced the offeree to believe
that he is undertaking a legal obligation. The offeror’s objectively manifested intention corresponds
with the offeree’s reasonable expectation. In an executory bilateral contract, each party will both
intend to undertake a legal obligation and reasonably expect that the other party will perform his
obligation. But this theory of contractual obligations is equally applicable to unilateral and gratuitous
promises. In such cases only the offeror will have an intention to undertake a legal obligation, and
only the offeree will have a reasonable expectation of performance. Those promises which are
currently enforced as unilateral contracts would also fall within this category. This theory explains
why only promises intended to be legally binding are enforced, while also accounting for the fact that
intention must be objectively assessed. It achieves the optimum balance between the interests of the
parties, by ensuring that offeree is not deprived of reasonably expected benefits, while also protecting
offeror from liability to compensate for illegitimate expectations.7

7
https://www.otago.ac.nz/law/research/journals/otago036314.pdf

17
 CHAPTER-5

JUDGEMENT OF POWEL VS LEE

The county court judge held that there was no contract as there had not been any authorised
communication of intention to contract on the part of the body, that is, the managers, alleged to be a
party to the contract. This decision was upheld by the King's Bench Division. This is due to the fact
that an offer or agreement is said to be made only by conscious knowledge of both the parties
involved. Moreover, acceptance is effective only when it is communicated to the offeror by the
offeree or an authorised party. Therefore, it is very necessary for both the parties to confirm the terms
of acceptance or offer and mention them specifically in a contract.

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 CONCLUSION

A contract is an agreement giving rise to obligations which are enforced or recognised by law. 2. In
common law, there are 3 basic essentials to the creation of a contract: (i) agreement; (ii) contractual
intention; and (iii) consideration. The first requisite of a contract is that the parties should have
reached agreement. Generally speaking, an agreement is reached when one party makes an offer,
which is accepted by another party. The means of communication of the offer should done clearly by
an authorised party. In deciding whether the parties have reached agreement, the courts will apply an
objective test. In the discussed case, since both the parties failed to accomplish even the first requisite,
i.e. agreement of both parties, hence the contract was null and void.

The whole idea of the analysis in terms of offer and acceptance is to emphasise the reciprocal nature
of the relationship. This is not a problem with regard to bilateral contracts where one party makes an
offer to which the other responds with an acceptance, thus identifying the existence of a contract and
its terms. In the case of a unilateral contract, i.e. an act in reliance upon a promise, it is necessary to
show that a link exists between the act and the request that it should be performed. Thus a party can
hardly accept an offer of which he / she did not know or had forgotten. Similarly, an offer cannot be
considered viable if it is not made by offeror or an authorised party, as in the case of Powell vs Lee.

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 BIBLIOGRAPHY

BOOKS:

 Contract-1 By Dr R.K Bangia

 Contract-1 By Avatar Singh

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