#19786 - What Is A Contract? - Contract Law

What is a contract?

A contract is an agreement that is binding between two or more parties while giving rise to obligations on all parties involved.

The establishment of a contract must include:

1. Offer

2. Acceptance

3. Intention to create legal relations

4. Consideration

5. Capacity to contract

6. It must be for lawful and legal purpose

If any of the above properties are missing or compromised, a lawful contract may not be in existence.

What is an offer?

An offer is an expression of willingness to contract on specified terms with the intention to be bound if it is accepted.

One party is the offeror, who presents the offer, and one party is the offeree, who is the potential acceptor of the offer.

Refer to:

-Storer v Manchester City Council [1971] 1 WLR 1403

-Harvey v Facey [1893] AC 552

There is no consideration of the intentions of the offeror or their state of mind. Even if the offeror did not intend his conduct to amount to an offer at all, the courts may still find contractual intent amounting to an offer based on this test.

An offer may be made by the expression of words or by the conduct of parties.- Wilkie v London Passenger Board [1947] 1 ER 258

An offer may be made to an individual or the world at large.- Carlill v Carbolic Smokeball Company [1893] 1 QB 256

How can one cancel an offer made to the entire world? This is called a Unilateral Offer. It cannot be cancelled if the offer has been acted upon.

The offer must be communicated to the offeree.- Taylor v Taird (1856 25 LJ Ex 329)

When an offer is made it must be certain and definite.

Invitation to treat

An offer and invitation to treat is not the same. An invitation to treat can be defined as an indication that a party is open to negotiation- or an invitation to make an offer.

Refer to Gibson v Manchester City Council [1979] WLR 294 where the statement "May be prepared to sell the house to you" can be considered an invitation to treat. There was clearly no display of contractual intent due to the words "may be prepared", which suggests that the council were open to negotiation, and therefore the statement was construed as an invitation to treat, rather than an offer.

Presumptions

There has been various disputes over the distinction between an offer and an invitation to treat. Therefore, in order to provide consistency, there are a number of presumptions which are applied to certain types of conduct.

-Display of goods: According to the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401, a display of goods is considered to be an invitation to treat.

-Display of Goods in a Shop Window: The case of Fisher v Bell [1961] QB 394 is the legal precedent that confirms the display of goods in a shop window is an invitation to treat. In this case, the defendant had a knife in the window of their shop with a price tag attached, which was held to be an invitation to treat.

-Advertisements: as a general rule, the case of Partridge v Crittenden [1968] 2 All ER 421 rules that an advertisement is an invitation to treat. The reason for this is the "multi acceptance" principle.

The multi-acceptance principle: If an advertisement is considered an offer, theoretically, an unlimited amount of people could accept that offer, which causes obvious problems when the advertisements for a limited amount of goods, as the seller would be in breach of contract to each individual whom they could not provide goods for.

Exceptions to advertisements as invitations to treat:

A theoretical argument suggests that an advertisement from a manufacturer may be construed as an offer, as the manufacturer would be able to make more of the item in question in response to all of the acceptances. This is not a rule but may be a factor in a court's decision.

Advertisements which negate the multi acceptance problem as seen in Lefkowitz v Great Minneapolis Surplus Stores Inc [1957] 86 NW 2d 689 who did this by stating "3 coats for sale, first come first served", making it clear only the first 3 individuals would be sold the coat.

A unilateral contract is formed where the offeror makes a promise in exchange for an act by any offeree. An example of this would be where an individual puts a poster up offering money to anybody who finds their lost dog- Similarly as seen in Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256.

Tenders: A tender is where you seek a specific good or service and it's advertised for you to utilize that service. This is considered an invitation to treat and any response to the tender will be an offer.

Automated Vending Machines: This is considered an offer as the machine cannot negotiate a price- if an individual inserts the correct amount of coins, the contract will be formed. Acceptance is considered to take place when the offeror inserts the coins and chooses an option (Thornton v Shoe Lane Parking [1971] 2 QB 163).

Auctions: Where an auction is "without reserve" each bid is an offer, and when the auctioneer ends the bidding, this is acceptance. Therefore, each bidder may revoke their offer at any time before the end of the bidding.

The auctioneer could, in theory, refuse to accept the offer, however, in the case...