Formation of a contract essay example PDF

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Roger Halson...

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Making appropriate reference to relevant case law and statutory provisions, describe the formation of a contract. A contract is a legally binding agreement which creates legal rights and obligations. There are two types of contract: bilateral and unilateral. A bilateral contract is more common and contains two promises. For example, the exchange of a laptop for £1,000. A unilateral contract only involves one party making a promise, whilst the other party offers performance. For example, a monetary reward for returning lost property. There are four legal requirements for a valid contract which this essay will explore in further detail. These include an offer, acceptance, consideration and the intention to create legal relations. The first of the four legal requirements of a valid contract is an offer, which is a proposal to enter into a contract. In order for an offer to be valid, it must include both an intention to create legal relations and sufficient key terms. It is crucial to distinguish between an offer and an invitation to treat, which is merely a statement indicating willingness to receive an offer. The difference between an offer and an invitation to treat depends on the intention of the party making it and have proven to be controversial in common law. For example, in the case of Harvey v Facey, the plaintiff sent a telegram to the defendant asking for the lowest price of ‘Bumper Hall Pen’, which the court held to be an enquiry. The defendant replied £900, which the court held to be an invitation to treat and the plaintiff’s agreement to the price was an offer. Therefore, with no acceptance, there was no contract. A similar issue arose in the case of Gibson v Manchester City Council, where the court held there was no valid contract due to there being no offer, only an invitation to treat. There are typical day-to-day examples of what constitutes an offer or invitation to treat. For example, an advertisement is generally an invitation to treat, unless there is a clear intention to be legally bound. This was demonstrated in Carlill v Carbolic Smoke Ball Co. The defendants offered money to anyone who caught the flu whilst taking their remedy and put money away to show their authenticity. The claimant sued as she caught the flu, however, the defendants argued their advert was only an invitation to treat. The court disagreed and held it to be an offer, as in putting away the money the defendants had shown an intention to be legally bound. Another example would include a display of goods, which is generally an invitation to treat. In Fisher v Bell, the defendant was charged under the Restriction of Offensive Weapons Act 1959 for having flick knives in his window as it was an offence to ‘offer them for sale’. The conviction was quashed, however, as a display of goods is not an offer but an invitation to treat. An offer may be terminated in four ways. A death of either party would amount to termination of an offer. Depending on the circumstances, an offer may also terminate after a reasonable lapse of time. In Ramsgate Victoria Hotel v Montefoire, an offer was no longer held to be valid after 6

months between the offer and acceptance. An offer may also be revoked any time before acceptance unless a deposit has been paid, as held in Dickinson v Dodds. Furthermore, where a counter-offer has been made, the original offer is destroyed. The doctrine of last shot holds that the terms of the contract will be the terms of the party who made the last counter-offer. Once a valid offer has been accepted, the contract has been legally formed. However, there are also rules governing acceptance: in order to be valid, the terms of acceptance must match the terms of the offer (also known as the mirror-image rule), the offeree must know of the offer, as held in Entorres v Miles Far East, and the agreement must be certain. The case of Felthouse v Bindley held that silence does not constitute acceptance and Brogden v Metropolitan Railway held that acceptance can occur through conduct. Where it agreed that parties will use post to communicate, the postal rule will apply. The case of Adams v Lindsell held that acceptance takes place when the letter is placed in the letterbox. However, Henthorn v Fraser held that the postal rule won’t apply if it was unreasonably to accept the offer by post. It also won’t apply if a misdirection was due to the fault of the offeree. The third requirement of a valid contract is that of consideration, which was defined by Lush J in Currie v Misa. Consideration refers to the benefit or detriment that is suffered by either party. There are three requirements of consideration. Firstly, the consideration must be sufficient, but need not be adequate. This requires that something of value must be given in return for a promise, but that something need not be an adequate return. In other words, the court are not concerned with how good or bad a bargain is. For example, the promise to pay £1 for a business will constitute sufficient consideration, as seen in Thomas v Thomas. Secondly, consideration must move from the promisee and not from a third party. The rule doesn’t require that consideration move to the promisor; it suffices as long as it moves from the promisee. Thirdly, past consideration is not good consideration. This rule was established in two cases in the nineteenth century, namely Eastwood v Kenyon and Roscorla v Thomas. Finally, an intention to create legal relations is required from both the parties in order for there to be a valid contract. Conclusively, if there has been a valid offer and acceptance, good consideration and an intention to create legal relations from both parties, then a valid contract has been formed and is thus legally enforceable....