Contract Formation Flashcards
What are the 6 components of forming a contract?
Offer, acceptance, consideration, intention, capacity, and purpose.
What are the two distinct types of offers?
A traditional offer is where communication of acceptance is needed to create a valid contract. A unilateral offer where no formal communication of acceptance is required and the offer is accepted by carrying out the conditions of the offer.
Carlill V Carbolic Smoke Ball Co
The advert was made to the whole world whereby the use of the smoke ball should stop colds and flus and if not a reward was to be given. Mrs Carlill tried this smoke ball and still got sick leading her to claim the rewards to which she was refused. This was under the basis that she had not accepted the contract but as this had been a unilateral contract she accepted by carrying out the terms. This case shows how an offer may be made to one individual, a group or the whole world.
Bloom v American Swiss Watch Co
The claimant gave information to the police which led to the arrest of some jewellery thieves. He later discovered that a reward had been advertised for the arrest of the thieves and tried to claim it. This case shows how the offer must be communicated to the offeree. As it he hadn’t known of it before the offer was not valid.
Routledge V Grant
An offer was made for the purchase of a lease and the offer was stated to be open for 6 weeks for the offeree to accept. He later wrote that he found another lease and that no contract was made. This case shows that an offer can be revoked before it is accepted.
Dickinson V Dodds
An offer to sell a house was made to the claimant. A trusted third party was sent to inform the claimant that the house had been sold to someone else and the claimant sued for breach of contract. This case shows that if the offer has not been accepted a reliable third party can withdraw the offer on their behalf.
Ramsgate Victoria hotel co ltd v Montefiore
The offeror offered to buy shares in the offeree’s company but the letter from the offeree accepting never arrived. The offeror thought his offer had been rejected so refused to take them up. This case shows how an offer may be terminated by a reasonable lapse of time.
What is a counteroffer?
This is when the offeree changes the terms of the original offer and in doing so wipes the original offer.
What is a revised offer?
If the offeror makes an offer which they subsequently revise before it is accepted it will terminate the first offer.
Pharmaceutical Society of GB V Boots
It was a criminal offense to sell drugs without the presence of a pharmacist and so when the customer picked up the product it was seen that the sales was made. This case shows that an offer must be distinguished from an invitation to treat and in this case the sales were not made until the purchase at the counter.
What is an invitation to treat?
This is where the goods are displayed and the offer is made by the customer when they go to purchase the item.
What counts as invitations to treat?
1) Selling goods in shops.
2) Selling goods at auctions.
3) Selling goods privately by advertisements in newspapers, magazines, and websites.
Hyde V Wrench
The defendant writes to the claimant offering to sell his farm to him for £1,000 and the claimant makes a counter-offer which is refused. They now want to accept the original offer but the defendant no longer wants to sell the farm. This case shows how acceptance must be a mirror image of the offer and how a counteroffer wipes the original offer.
Pickfords Ltd V Celestica Ltd
The defendants wished to move their IT business and the claimants were the removal firm. They made an original offer which was revised after further calculation. The defendant wanted to cap the cost but was still referring to the first offer. Work was carried out but the defendant refused to pay the second offer. As the defendant made a counter offer it was accepted by conduct. This case shows a counteroffer.
What are the two exceptions to “acceptance must be communicated to the offeror”?
1) A unilateral offer.
2) The postal rule.
What is the postal rule?
Acceptance by post takes place as soon as the letter is posted. This can only hold when the letter is pre-paid, properly addressed, and properly posted. An offer that is revoked by post, however, is not valid until it is received by the offeree and communicated to them.
Household Fire Insurance Co V Grant
The defendant applied for 500 shares in the claimant’s company to which the claimant accepted and replied. However, the letter never arrived and so the defendant thought his offer had been rejected. Later when the business was liquidated they wanted the defendant to pay for his shares. The court held that a contract was formed and the defendant must pay for his shares. This case shows the postal rule in effect.
When does the postal rule not hold?
It does not apply to instantaneous communication such as telephone or fax. It also does not hold if the offeror excludes the post as a means of acceptance.
How do courts deal with modern methods of communicating acceptance?
Messages delivered to the business during normal office hours are deemed to be communicated. However, no universal rule can cover all cases.
Felthouse V Bindley
The black stallion which was saved for his uncle was sold. This case shows that no answer is not a valid acceptance.
Balfour v Balfour
A husband promised to pay an allowance to his wife while she stayed in Sri Lanka but later stopped. She sued claiming a contract was made however, as this is a domestic setting there is no intention to create a legally binding contract. This case shows that in domestic relationships it is assumed that there is no intention to create legal relations.
How would rebutting the presumptions to create legal relations occur?
If there is clear evidence of a legal commitment then the presumption that a social/domestic agreement is not legally binding can be rebutted.
What are letters of comfort?
These are exchanged in a business setting and include promises that are extra to the contractual agreement where the legal status is not clear. This assumes moral responsibility not legal liability.
Who does not have the capacity to enter a legally binding contract?
Any person who is drunk, suffering from a mental disorder, or under the age of 18.
What is a contract for necessaries?
This is where a minor can enter a contract that will benefit them at a later date or are “goods suitable to the condition in life of the minor”.
Proform Sports Management v Proactive Sports Management
Wayne Rooney entered a contract with a management company when he was 15. He later wanted to change management despite the contract. It was held that this was possible as he had been a minor when signing this contract. This case shows that contracts can be made void if signed by a minor.
What is consideration?
This is defined as the price (not always monetary) which induces a party to enter into a contract.
Thomas v Thomas
A man died leaving his house to be inherited by his two brothers. They let his wife live there for an annual rent of £1 for the rest of her life as long as she kept the house in good shape. After the other brother died he tried to take back the house. This case shows us that consideration must be sufficient.
