Formation Of A Contract

Submitted By pattyp1903
Words: 8428
Pages: 34

Formation of a contract

Contracts are agreements that are legally binding. They can be simple contracts or formal contracts. Formal contracts don’t normally involve any consideration whereas simple contracts can be written or oral and unilateral or bilateral.
Any contract has a few essential elements: * Intention * Agreement (offer and acceptance) * Consideration.
For a contract to be valid it must * Be made with parties that have legal capacity * Be made with genuine consent * Be legal * And satisfy all formal and procedural requirements.


Offer: expression of will to enter into a contract on certain terms. * Issue: Proposal only amounts to offer if offeror shows that acceptance is invited * Objective test: Whether is would appear to reasonable person (offeree) that an offer was intended and that a binding agreement would be made upon acceptance. * Does not matter whether offeror intended to make offer.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 * Advertised ‘Carbolic Smoke Ball’. ₤100 reward paid to any person who contracted a cold/influenza after using device three times daily for two weeks. ₤1000 deposited with the Alliance Bank, Regent Street. * Defendants argued: * No promise was intended – mere joke * No offer was made to any particular person * There was no notice of acceptance of offer * Agreement was uncertain (does not stipulate period within which disease must be contracted). * Did not supply consideration for the defendant’s promise. * English Court of Appeal rejected: * Statement relating to bank deposit shows promise was intended. Construed the ad as an ordinary person reading the doc would think was intended. * Offer can be made to the whole world. * An offer that calls for performance of certain conditions may be accepted by performance of those conditions. UNILATERAL CONRACT. * Reasonable construction made on ad. * Use of smoke ball constituted benefit to defendant and detriment to plaintiff – hence consideration.

Unilateral Contracts: * Offer accepted by performing an act and performance of act is all that the contract requires of referee. * Obligation of offeree is performed at time of contract formation.
Bilateral Contracts: * Exchange of promises. * Obligations of both parties not performed yet at time of contract formation.

Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 * C subsidised purchases of wool by manufacturers of woollen products to enable those manufacturers to supply products at low price. Subsidy ended but each manufacturer would have certain amount of subsidised wool in stock on 30 June 1948.AWM’s stockpile exceeded this amount and AWM repay subsidy paid on that excess. No contract. * Unilateral contract different from conditional gift: * Offeror must impliedly/expressly REQUEST the doing of the act by the offeree * Offeror states price which offeree must pay for promise * Offer was made in order to induce doing of act.

Offer distinguished from mere supply of information: * Eg. a price list is not an offer * Harvey v Facey 1893
Offer distinguished from mere puff (joke): * Is it simply a joke? * Leonard v Pepsico Suppl 2d 1999 – pepsi points, jet
Invitation to treat: * Invitation to others to make offers or enter into negotiations eg. price listing
It is offer, not invitation to treat if: * Limit of acceptors: merchant limits no. of acceptors * Limit on offer: one per customer
Shop sales (distinguish offer to the world at large from invitations to treat): * Display of goods for sale is not an offer * Pharmaceutical Society Of Great Britain v Boots Cash Chemists (Southern) Ltd 1953 * Walkthrough chemist, prosecuted for selling over the counter drugs not over the counter * Acceptance is communicated only at