CHAPTER 2

CHAPTER 2
LAW OF
CONTRACT
FORMATION OF CONTRACT
What is a Contract?
Car Park
Bus Travelling
Cinema Restaurant
Elements of Contract
A contract exists/is valid when the following elements are present:

• Offer
• Acceptance
• Consideration
• Intention to create legal relations
• Capacity to contract
offeror is the person who makes an offer

offeree is a person to whom an offer is made
Offer :
Offers can be divided into two types: Unilateral offer and Bilateral offer.
offeree not
identify
Unilateral
offer Acceptance is by
performance
Offer
Offeree identified
Bilateral
offer Acceptance is by
communication
Unilateral offer
Bilateral offer
OFFER DISTINGUISHED FROM AN INVITATION TO TREAT
Invitation to treat” and “offer” are terms used in contract law to distinguish between
preliminary negotiations and a definite willingness to enter into a legally
binding agreement.
Invitation to Treat (ITT)
An invitation to treat is not an offer but an invitation for others to make an offer.
Examples of invitations to treat include advertisements, displays of goods for

sale, price lists, and auction announcements.
Fisher v Bell
The defendant displayed a flick knife which is offence under Restriction of
Offensive Weapons Act 1959.
Court held there was no offence because there was no "offer for sale".
Offer → Acceptance = contract
ITT → Offer → Acceptance = contract
Eg:
Placing the goods on the cashier’s contract you offer to buy the goods/ this
makes you the offeror
The cashier takes the goods and scans the barcode, and then the shop
accepts your offer. The shop is the offeree.
When paying for the goods, a contract is formed.
ADVERTISEMENT CAN BE TREATED AS UNILATERAL OFFER
• Carlill v Carbolic Smoke

Ball Company [1892]
Facts:
£100 reward will be paid by the Carbolic Smoke Ball Company to any
person who contracts the increasing epidemic influenza colds or any
disease caused by taking a cold after having used the ball three times
daily for two weeks, according to the printed directions supplied with
each ball £1000 is deposited with the Alliance Bank, Regent Street,
showing our sincerity in the matter.
Decision:
The advertisement was a unilateral offer made to the world at large. The
advertisement could not be said to be an invitation to treat in light of the
defendant’s commitment, evidenced by the deposit of £1000.
Revocation of Offer
A withdrawal of an offer is called the revocation of an offer.
However, an offeror can only revoke an offer provided that the

offeree has not accepted it.
Acceptance
Acceptance Distinguished from counter-offer
Acceptance occurs when the party answering the offer agrees to the offer
by way of a statement or an act.
Contract
Offer Acceptance
formed
Counter Original
Offer offer
offer
destroyed
Hyde v Wrench (1840)
Facts:
The defendant, Mr Wrench, offered to sell the farm he owned to the complainant,
Mr Hyde. He offered to sell the property for £1,200, but this was declined by Mr
Hyde. The defendant decided to write to the complainant with another offer; this
time to sell the farm to him for £1,000. He made it clear that this would be his final
offer regarding the property. In response, Mr Hyde offered £950 for the farm in his
letter. This was refused by Mr Wrench, and he confirmed this with the
complainant. Mr Hyde then agreed to buy the farm for £1,000, which was the sum
that had previously been offered. However, Mr Wrench refused to sell his farm.
Decision:
The court dismissed the claims and held that there was no binding contract for
the farm between Mr Hyde and Mr Wrench. It was stated that when a counter
offer is made, this supersedes and destroys the original offer. This original offer is
no longer available or on the table. In this case, when Mr Hyde offered £950, he
cancelled the £1,000 offer and could not backtrack and accept.
• Acceptance must be communicated,
with two exceptions:
• A unilateral offer is accepted by way

of performance.
Communication of
Acceptance and the
Postal Acceptance
Rule
• the postal acceptance rule is
accepted at the moment of posting.
Ignatius v Bell (1932)
The letter of acceptance was not delivered by the
postman but remained in the post office. The
court held that acceptance was complete upon
posting.
• Silence is not acceptance.

Instantaneous communication
As time progressed, the courts had to decide whether the scope of the postal rule
could be extended to modern developments in communication, namely
instantaneous communication (phone, fax or email).
Entores Ltd v Miles Far East Corporation [1955] Denning LJ found that the regular
postal rule did not apply to instantaneous means of communication such as a telex.
Revocation of Acceptance
An offeree can change his mind and withdraw his

acceptance – this is called the revocation of acceptance.
An offeree needs to communicate his/her revocation to the

other offeror before the acceptance.
Once the communication of acceptance reaches the

offeror, the offeree is not allowed to revoke his acceptance.
Consideration:
Balfour v Balfour
Intention The husband brought his wife
to England from Sri Lanka. The
to create husband had to return, but the
legal wife stayed for
reasons. He promised to pay
medical
relations her £30/month until his return.

When he failed to pay, the wife
Merritt v Merritt
Mr and Mrs Merritt married in
sued the husband. The wife’s 1941. They held their matrimonial
action failed because no home in joint names. In 1966 Mr
consideration was moved from Merritt left the family home to live
her, and there was no intention with another woman. The
to create a legally binding husband agreed to transfer the
agreement. The court stated house to his wife, provided that
that in husband and wife cases, she would pay the mortgage
the burden of proof is on the instalments. The wife paid and e
plaintiff to prove the intention to refused to transfer. The court
create a legally binding stated the agreement was
agreement. binding on the husband.
Legal capacity
Not all people are

completely free to
enter into a valid
contract.
• people who have
a mental
impairment;
• young people
(minors);
• bankrupts; and
• prisoners.

CHAPTER 2 - Part 1 - Student

Uploaded by

Copyright:

Available Formats

CHAPTER 2 - Part 1 - Student

Uploaded by

Document Information

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

CHAPTER 2 - Part 1 - Student

Uploaded by

Copyright:

Available Formats

A contract exists/is valid when the following elements are present:

offeror is the person who makes an offer

Invitation to Treat (ITT)

Examples of invitations to treat include advertisements, displays of goods for

• Carlill v Carbolic Smoke

A withdrawal of an offer is called the revocation of an offer.

However, an offeror can only revoke an offer provided that the

• A unilateral offer is accepted by way

• Silence is not acceptance.

An offeree can change his mind and withdraw his

An offeree needs to communicate his/her revocation to the

Once the communication of acceptance reaches the

relations her £30/month until his return.

Not all people are

You might also like