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Formation of a valid contract - Coggle Diagram
Formation of a valid contract
Intent to create legal relations
Business and commercial agreements
Presumed that it is an intention to create legal relations. This can be rebutted.
Edward v Skyways (1964)
Esso Petroleum Co. Ltd v Commissioners of Customs and Excise (1976)
Rose and Frank Co. v J.R. Crompton v Bros Ltd (1924 and 1925)
Social and domestic agreemtents
Presumed to be no intention to create legal relations.
Three main areas these relations tend to arise:
Husband and wife
Children and parents
Other social agreements
Husband and wife
This was rebutted in:
These agreements are not usually binding.
Balfour v Balfour (1919) – the couple were happily married
Merritt v Merritt (1970) – there was an agreement signed. The couple had split
Children and parents
It is possible for families to make contracts which appear to be formal contracts.
Jones v Padavatton (1969)
Other social agreements
The presumption is that there is generally not an intention to create a legally binding relationship.
If money has changed hands it can be presumed to be legally binding.
Simpkins v Pays (1955)
It will not always be rebutted.
Wilson v Burnett (2007)
Offer and Acceptance
Acceptance
Rules of Acceptance
'Mirror image rule' - the acceptance must correspond exactly with the offer. If it does not there is no contract formed.
Also, if the acceptance differs from the offer, this could be taken as a counter-offer, which destroys the original offer.
Acceptance or counter offer
If the offeree adds new terms, or accepts the offer but changes the terms, it is a counter offer.
A counter offer destroys the original offer.
Hyde v Wrench (1840)
This links with the mirror image rule.
Acceptance or request for further informaton
A request for information or enquiry about part of the contract is not an offer, and does not destroy an offer.
Not everything said during negotiations will amount to a counter offer though it may seem contrary to the offer.
The offeror is not entitled to treat the offer as ended and make a deal elsewhere.
Stevenson v McLean (1880)
Communication of acceptance
Acceptance is communicated when it is brought to the attention of the offeror.
Only the genuine offeree can communicate acceptance to the offer - communication by any other person is not acceptance unless they are an authorised agent of the offeree.
Unless the offeror indicated a particular method of acceptance, there are no specific rules how it is communicated.
Acceptance can be implied by actions.
Silence in communication
Fenthouse v Bindley (1863)
An offeror can waive the need for the offeree to communicate their acceptance, putting themselves at risk of being contractually committed through silence, but they cannot impose the risk on others.
These waivers can be expressed or implied, and usually happen in unilateral offers (example case: Carlill v Carbolic Smokeball Co.)
Silence cannot be deemed acceptance (reinforced by the Consumer Protection (Distance Selling) Regulations 2000).
Postal rule
This applies when acceptance is communicated through the post.
Acceptance by post is effected when the acceptance is posted, not when it reaches the offeror.
Adams v Lindsell
This rule only applies where postal acceptance is specified by the offeror or when it is reasonable to use post under the circumstances.
The postal rule can be excluded if the offeror specifically states that acceptance comes into effect on receipt of communication.
Instantaneous forms of communication
When using instantaneous forms of communication, the postal rule does not apply, and acceptance is communicated when received by the offeror. e.g. leaving a message on voicemail.
Entores Ltd v Miles Far East Corporation
Brinkibon Ltd. V Stahag Stahl
The postal rule is also inapplicable to email communications – Thomas and Another v BPE Solicitors
Battle of the forms
When there is a conflict between two standard form contracts, when two companies are trading with each other.
"Last shot wins" - the last form contract to be accepted is followed as it acts as a counter-offer destroying the original offer (the first contract).
British Road Service v Arthur V Crutchley
Offer
Types of offer
An offer can be made orally, in writing or by conduct.
An offer can be made to a specific individual, group of people or the world at large.
To be an offer it must be:
Clear
Concise
Capable of acceptance as it stands
An offer is a question requiring an answer of acceptance or rejection.
Harvey v Facey (1893)
Difference between offer and invitation to treat
We see invitations to treat everyday. Items on a shelf, or items in a shop window.
Invitation to treat is inviting someone to buy something, and the person wanting to buy it is the offeror. Whereas an offer is binding once it has been accepted.
Advertisements
Partridge v Crittenden (1968) - An invitation to treat
Carlill v The Carbolic Smoke Ball Company Co. Ltd (1893) - An offer
An advertisement is usually an invitation to treat but in the case of Carlill it is not.
Display of goods for sale
Invitation to treat as it is the purchasers decision to buy an item on display.
Fisher v Bell (1961)
Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953)
Shopkeeper has the right to refuse to sell the goods.
A mere statement of price
A seller stating the price of a product does not make it an offer unless the purchaser agrees that he will pay the stated price.
Clifton v Palumbo (1944)
Auction sales
Each item is an invitation to treat. When you place a bid it becomes an offer. When the auctioneer bangs their hammer down is the acceptance.
Communication of offers
Once it has been confirmed that a proposition is an offer not an invitation to treat then communication must be proven.
The offeree must be aware of the offer to accept or reject it.
Certainty
There must be no doubt as to the terms on which the parties are contracting.
Exception where parties have already started performing the contract.
Foley v Classique Coaches Ltd (1934)
Counter offer
A counter offer can amount to a rejection.
If offeree accepts but adds new terns or changes the terms it becomes a counter offer.
Hyde v Wrench (1840)
Even if main terms are agreed there can still be a rejection through a counter offer which is not agreed.
Request for information
A mere enquiry about a part of the contract will not amount to a counter offer therefore not a rejection or acceptation.
The offeror cannot make the deal elsewhere until acceptation.
Stevenson v McLean (1880)
Terminating an offer
Revocation of an offer is when you withdraw from a contract before a given time or before it has been accepted.
Routledge v Grant (1828)
Revocation must be communicated to the offeree
The revocation must be communicated to the offeree before acceptance for there to be a valid revocation.
Just a change of mind is insufficient
Bryne v Van Tienhoven (1880)
Communication can be made by a reliable third party
The third party must be a reliable source and one that both parties can rely on for the communication to be valid.
Dickinson v Dobbs (1876)
A unilateral offer cannot be withdrawn while the offeree is performing
The offeror can revoke at any time until the offeree has fulfilled the stated conditions.
Difficult to state at what stage the offeree has gone too far to prevent revocation.
Errington v Errington and Woods (1952)
Acceptance of the offer by the offeree
The offer ends and a contract is formed if the offer is accepted unconditionally.
Rejection of the offer by the offeree - counter offer
Rejection of an offer can come from either an outright refusal, or a counter offer.
The counter offer must be a genuine offer not a request for more information.
Lapse of time
It is not always possible to accept an offer after a period of time.
Sometimes there is an express time limit on the duration of an offer.
An offer can only expire when there is a term that is only reasonable for a period of time.
Ramsgate Victoria Hotel Co. Ltd v Montefiore (1866)
Death of one of the parties
The offer automatically ceases in the case of the death of the offeree.
If the offeree knows of the death of the offeror then the offer ceases, if he is unaware then the acceptance will be on the deceased's executors.
Failure of a condition precedent
Subject to specific conditions to be met by the offeror, an offer is made.
Offer cannot be accepted if the condition fails.
When buying goods, the specific conditions are than it must be in the same state of condition from offer to acceptance.
Consideration
Definition
Both parties provide consideration along with the agreement for there to be a contract.
Each side must promise to give or do something for the other.
Executed and executory consideration
Executed consideration
When one of the parties has sone all that is required of them.
Leaves the outstanding liability on the other party.
E.g. I have offered a reward to find my missing watch. You find it and return it, my payment is still outstanding.
Consideration has been completed
Executory consideration
A promise for a promise.
E.g. I will give you the watch, you will give me £200.
Consideration is waiting to be completed
Sufficiency and adequacy
Adequacy
There has to be economic value
Sufficiency
What is being supplied as consideration, such as money, a service or an object.
Must be of the type that is regarded in law as capable of supporting the contract.
Must be real, tangible and have some actual value.
The consideration must be sufficient but need not be adequate.
Chappell v Nestle Co.
Past consideration
The consideration must not be past
For there to be a contract the consideration cannot come before the agreement, it must follow it.
Re McArdle (1951).
Courts can enforce consideration, but there must be an earlier request to carry out the act.
Lampleigh v Braithwait (1615)
Consideration must move from the promisee
Someone cannot sue on a contract which they are not a party.
Tweddle v Atkinson (1861)
Exception is a collateral contract and the Contracts (Rights of Third Parties) Act 1999.
Performance of existing duties
Existing Public duties
Existing public duties will not amount to valid consideration.
Collins v Godefroy (1831)
This can be changed if it can be shown they have gone beyond their duty.
Glasbrook Bros v Glamorgan County Council (1925)
Existing contractual duty
The performance of existing contractual duties will not amount to valid consideration.
Stilk v Myrick (1809)
This is different if the claimant does something in excess of existing duties.
Hartley v Ponsonby (1857)
Promise of existing duty to a third party
A promise to perform an existing duty that is made to a third party can be valid consideration for a new contract.
Pao On v Lau You Long (1980)
Williams v Roffey Bros and Nicholls Contractors Ltd (1990)
Part payment of a debt
Part payment of a debt is not valid consideration for a promise to forego the balance.
Pinnel’s Case (1602)
Foakes v Beer (1884)
D and C Builders Ltd v Rees (1965)
Accord and satisfaction
Where a contract is discharged in return for a different consideration from the original obligation.
British Russian Gazette v Associated Newspapers (1933)
Promissory estoppel
Stops the claimant from going back on their promise to agree to a part payment.
Central London Property Trust Ltd v High Trees House Ltd (1947)
Capacity