Conor Cunningham P1 P2 P3 M1
Aspects of Contract and Business Law
a) Identify the legal criteria for offer and acceptance in order for a valid contract to
come into existence.
You need to address type of contract e.g. verbal, written or standard form, offers –
distinguishing from invitations to treat; counter-offers; communication of offers;
acceptance, battle of the forms, consideration and Contracts (Rights of Third Parties)
Act 1999. (P1)
b) Explain the law in relation to the formation of a contract in the above situation
between James and Rebecca. You must also clearly explain when a contract would
come into existence. (P2)
c) Describe the law, through the use of examples, with respect to misrepresentation in
the above situation. (P3)
d) Analyse the impact of the requirements (identified in parts b & c) for a valid contract
in the above situation. Your analysis requires application of the law to a contract and
consideration of the formation of a contract i.e. the typical offer and acceptance
problem. The principles of consideration should also be applied here. (M1)
This provides evidence for P1, P2, P3 & M1
P1
What is a contract?
A contract is an agreement with specific terms between two or more parties in which there
is a promise to do something in return. It is a legal binding agreement. Contracts are formed
when two or more parties sign an agreement to a set of terms or rules. Criteria needed to
ensure the agreement is formed is legally recognised.
There are different types of contracts which are formed in different ways. These which
include;
verbal - the terms of have been agreed by spoken communication (Put in examples)
written – a document outlining an agreement between two parties. The parties can
be individuals, businesses, or organisations. (Examples)
and standard form – this is typically a general contract with fixed terms and
conditions. For example, a bank loan agreement or an insurance policy. It is almost
always offered on a “take it or leave it” basis.
Often when two companies deal with each other in the course of business, they will use
standard form contracts. Often these standard forms contain terms which conflict (e.g. both
parties include a liability claim in their favour). The 'battle of the forms' refers to the
resulting legal dispute arising where both parties accept that a legally binding contract
exists, but disagree about whose standard terms apply.
,Conor Cunningham P1 P2 P3 M1
Contracts may be bilateral or unilateral which depends on who forms the contract. A
bilateral contract is an agreement in which each of the parties to the contract make a
promise or promises to the other party. For example, between an employer and an
employee.
In a unilateral contract, only one party to the contract makes a promise. An example is the
reward contract. Conor promises to pay a reward to Jack if Jack finds Conors dog. Jack is not
obliged to find Conors dog, but Conor is obliged to pay the reward to Jack if he finds the
dog. A typical unilateral contract is an advertisement in the paper for a job post (which sets
out it intentions to create a legally binding offer as in the Carbolic Smoke Ball Advert.)
There are elements which make up a contract. No contract can come into being unless all of
these elements are in place;
Offer
Acceptance
Consideration
Privity of a contract
Capacity
Offer
An offer is a statement of the terms which the offeror is prepared to be contractually bound
to. The offer must be clearly communicated, specific and able to be accepted. It must
include the basic terms of the agreement with the intention that no further negotiations are
to take place.
An offer may be confused with an invitation to treat. An invitation to treat is different to an
offer as it only invites the party to make an offer and it is not intended to be legally binding.
An invitation to treat is when the offeror invites offerees to make him or her an offer. For
example, when a client advertises a job on internet or newspaper, it is usually an invitation
to treat rather than an offer – the offer only occurs when the applicant has been offered the
actual job after all criteria has been met. Other examples of invitations to treat include
auctions, displays and quotations.
, Conor Cunningham P1 P2 P3 M1
An offer on the other hand is when the client offers the job to one offeree without
advertising the job or having different offerees to submit in the tender. Making an invitation
to treat rather than an offer protects the offeror from finding themselves self-agreed into a
contract they simply cannot commit too or fulfill.
When a counter offer is made, the original offer is terminated. This was the case with Hyde
v Wrench (1840) 49 ER 132 Chancery Division (Decided by Lord Langdale MR) (Appendix 1).
When the offeree rejects the original offer and makes a new offer, the original offer is then
terminated and the offeror does not have to accept the original offer as it is seen as void.
An offer can also be cancelled due to lapse of time whereby the offeree takes too long to
come back to the offeror and so the offer is cancelled; as in the Ramsgate Victoria Hotel Co
v Montefiore case.
There was a case brought where a lapse of time became the focus of a law suit;
Adams v Lindsell (1818) 106 ER 250 (Appendix 2). It was found that the acceptance took
place when the offeree sent the offeror a letter of acceptance and the case was dropped.
(This is a case that is relevant to the Element of Acceptance.)
Revocation: Withdrawal of the offer is acceptable if the withdrawal occurs before
acceptance has taken place. For example, if a car has been advertised for sale and a
customer is interested in buying it, if the offeror decides he no longer is prepared to sell
then he has the right to withdraw his offer as long as it occurs before the customer
communicates acceptance.
An offer can also be cancelled as a result of death or severe illness by one of the parties.
Acceptance
A fully binding contract is only formed if an offer is accepted. Acceptance is the final
acceptance of all the terms of the offer. The offer must be accepted without any new terms
being introduced. Acceptance does not take place until communicated to the individual
making the offer. Communication of acceptance is the moment when the contract is formed
and the acceptance must be in the form as requested by the offeror. Acceptance can be
communicated verbally or in written form to the offeror. Acceptance can also be implied by
the conduct of the offeree.
In Taylor v Laird (1856) the captain of a ship resigned during a voyage. The former captain
provided navigation services for the remainder of the voyage even though this had not been
requested by the owner of the ship. The former captain later claimed in the courts for
proper compensation for his services from the owner. The captain had not communicated
his offer to provide such services. As such the owner did not have the opportunity to refuse
or accept the offer as he had no knowledge of its existence. There was no binding contract.
Acceptance of an offer must match the exact terms stated at the time of the offer by the
offeror.
