Definition of contract

A valid contract is a legally binding agreement, formed by the mutual consent of two
parties.
Factors affecting the modern contract

Generally parties to contract have freedom of contract. It means they are completely
free to enter into contract and decide the terms of contract.
Where the parties are of unequal bargaining strength, contractual terms may be
regulated by statute.

Intervention by statue
The standard form contract

The standard form contract is a document prepared by many large organisations setting out
the terms on which they contract with their customers. The individual must usually take it or
leave it.
Consumer protection

Consumer interests are now served by two main areas.

(a) Consumer protection agencies, which include organisations such as the Financial
Conduct Authority
(b) Legislation Public policy sometimes requires that the freedom of contract should be
modified. For example, the Unfair Contract Terms Act 1977 and the Consumer Rights Act
2015 both regulate the extent to which contracts can contain certain terms.
Battle of the forms

Statue may also intervene when each party is accustomed to doing business on its own
standard terms and argue that they apply to the contract, rather than the other party's
terms. GHSP Inc v A B Electronic Ltd 2010
The essentials of a contract

The three essential elements of a contract are

offer and acceptance,
consideration and
intention to enter into legal relations.
Other Validity factors

Capacity.
A. Minors cannot enter into contracts for goods other than necessities, nor do
they have the capacity to contract for loans.
B. Those who lack mental capacity or who were intoxicated can avoid contracts
if they can show they did not understand the nature of their actions and the

other party ought to have known about their disability. They still must pay a
reasonable price for the goods received.
Form. Some contracts must be made in a particular form. For example contract of
employment on a form designed by organisation.
Content. In general the parties may enter into a contract on whatever terms they
choose. Some terms which the parties do not express may be implied, and some
terms which the parties do express are overridden by statutory rules.
Genuine consent. A mistake or misrepresentation made by one party may affect the
validity of a contract. Parties may be induced to enter into a contract by undue
influence or duress.
Legality. The courts will not enforce a contract which is deemed to be illegal or
contrary to public policy.

Void, voidable or unenforceable

A contract which does not satisfy the relevant tests may be either void, voidable or
unenforceable.
A void contract is not a contract at all. The parties are not bound by it and if they
transfer property under it they can sometimes recover their goods even from a third
party. Any contract against public policy or law is void
A voidable contract is a contract which one party may set aside. Property transferred
before avoidance is usually irrecoverable from a third party.
1. Contracts entered into when one party was a minor. (The law often treats
minors as though they do not have the capacity to enter a contract. As a
result, a minor can walk away from a contract at any time.)
2. Contracts where one party was forced or tricked into entering it.
3. Contracts entered when one party was incapacitated (drunk, insane,
delusional).
An unenforceable contract is a valid contract and property transferred under it
cannot be recovered even from the other party to the contract. But if either party
refuses to perform or to complete their part of the performance of the contract, the
other party cannot compel them to do so. A contract is usually unenforceable when
the required evidence of its terms, for example, written evidence of a contract
relating to land, is not available.
Form of a contract

As a general rule, a contract may be made in any form i-e it may be written or oral.
However certain contracts must be in writing.
Contracts by deed

A contract by deed must be in writing and it must be signed. Delivery must take place.
Delivery means actual handling of document to other party. Delivery is conduct indicating
that the person executing (to make, to sign, to carry out according to its terms) the deed
intends to be bound by it.
These contracts must be by deed.
Leases for three years or more
A conveyance or transfer of a legal estate in land (including a mortgage)

 A promise not supported by consideration (such as a covenant, for example a

promise to pay a regular sum to a charity)
A contract by deed is sometimes referred to as a specialty contract. Any other type of
contract may be referred to as a simple contract.
Other Contracts which must be in writing

The following contracts must be in writing and signed by at least one of the parties.
A transfer of shares in a limited company
The sale or disposition of an interest in land
Bills of exchange and cheques
Consumer credit contracts
In the case of consumer credit transactions, the effect of failure to make the agreement in
the prescribed form is to make the agreement unenforceable against the debtor unless the
creditor obtains a court order.
Contracts which must be evidenced in writing

Certain contracts may be made orally, but are not enforceable in a court of law unless there
is written evidence of their terms. The most important contract of this type is the contract of
guarantee.
Agreement, offer and acceptance
Offer

An offer is a definite promise to be bound on specific terms and may be defined as follows.
'An express or implied statement of the terms, on which the maker is prepared to be
contractually bound, if it is accepted unconditionally.
The offer may be made to
one person,
to a class of persons or
to the world at large
Note: Offer must be unequivocal (clear). It should not be vague.
An invitation to treat is not an offer. It is an invitation for offer.
Only the person or one of the persons to whom it is made may accept it. If offer is made to
world at large anybody can accept it. Carlill v Carbolic Smoke Ball Co 1893
Vague offer

Gunthing v Lynn 1831

The facts: The offeror offered to pay a further sum for a horse if it was 'lucky'.
Decision: The offer was too vague and no contract could be formed.
A statement which is vague can only be made certain by reference to previous dealing or
customs.

For example A and B are regularly dealing with each other. A offers to sell
some goods to B. if offer is vague it can be ascertained through their past dealings.

Supply of information is not an offer

A statement which sets out possible terms of a contract is not an offer unless this is clearly
indicated. Harvey v Facey 1893
Clearly indicated term by seller is offer

If in the course of negotiations for a sale, the vendor states the price at which they will sell,
that statement may be an offer which can be accepted. Bigg v Boyd Gibbons 1971
Reference to a more detailed document will not necessarily prevent a statement from
being an offer

Where a consumer is directed to a booklet of terms and conditions, it does not mean that
original offer is terminated.
A statement of intention

Advertising that an event ( such as an auction)n will take place is not an offer to sell.
Potential buyers may not sue the auctioneer if the auction does not take place. This is an
example of a statement of intention which is not actionable.
An invitation to treat

Auction sales
Advertisements (for example, price lists or newspaper advertisements)
Exhibition of goods for sale
An invitation for tenders

Auction sales

An auction is defined as a contract for the sale of property.

Auctioneer makes an invitation to treat.
Offers are made by bidders stating the price at which they are prepared to
buy
Acceptance takes place by the fall of the auctioneer's hammer.
Exception
Where an auction is stated to be 'without reserve' the auctioneer is offering goods for
sale and the bid is the acceptance. A reserve is a specified minimum price.
Advertisements

Partridge v Crittenden 1968

An advertisement of goods for sale is usually an attempt to induce offers.
Note: The circulation of a price list is also an invitation to treat.
Exhibition of goods for sale

Displaying goods in a shop window, or on the open shelves of a self-service shop, or

advertising goods for sale, are normally invitations to treat.
Fisher v Bell 1961
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) 1952
Invitation for tenders

At first stage, a purchaser invites for tenders.

 A tender is an offer to supply specified goods or services at a stated cost or rate,

submitted in response to a prior invitation for tenders by the purchaser.
When a supplier tenders for a contract they are making an offer to the purchaser
who has advertised a contract as being available.
The effect of an invitation to tender depends on the wording used.
If the invitation states that the purchaser will require the successful supplier to
supply them, usually for a large 'one-off' supply, then acceptance of the tender by
the purchaser will form a binding contract.
If the invitation states that the purchaser may require the successful supplier to
supply him, then acceptance by the purchaser of the supplier's offer creates a
standing offer.
A standing offer means that the purchaser does not have to buy any goods from the
supplier, but may not purchase goods from another supplier.
Any purchase orders that the purchaser makes are separate acceptances that form
separate contracts, and delivery must be made within the time stated in the standing
offer.
Unless there is a binding obligation to keep it open for a certain period of time the
supplier may revoke a standing offer at any time, but must fulfil any orders placed,
since these created contractual obligations.
Termination of offer

An offer may only be accepted while it is still open. In the absence of an acceptance, an offer
may be terminated in any of the following ways.
Rejection
Revocation by the offeror
Counter-offer
Failure of a condition to which the offer was subject
Lapse of time
Death of one of the parties
Rejection

As noted earlier, outright rejection terminates an offer. A counter-offer, when the person to
whom the offer was made proposes new or amended terms, also terminates the original
offer. Hyde v Wrench 1840
FAST FORWARD
Counter-offer

Acceptance must be unqualified agreement to the terms of the offer. A purported

(supposed) acceptance which introduces any new terms is a counter-offer, which has
the effect of terminating the original offer.
A counter-offer is a final rejection of the original offer. If a counter-offer is made, the original
offeror may accept it, but if they reject it, their original offer is no longer available for
acceptance.
A counter-offer may, of course, be accepted by the original offeror. Butler Machine
Tool Co v Ex-cell-O Corp (England) 1979
Request for information is not counter offer

It is possible to respond to an offer by making a request for information. Such a request may
be a request as to whether or not other terms would be acceptable it is not a counter-offer.
Stevenson v McLean 1880
Lapse of time

An offer may be expressed to last for a specified time. If, however, there is no express time
limit set, it expires after a reasonable time. Ramsgate Victoria Hotel Co v Montefiore 1866
Revocation of an offer

The offeror may revoke their offer at any time before acceptance. If they undertake that
their offer shall remain open for acceptance for a specified time they may still revoke it
within that time, unless by a separate contract they agreed to keep it open. This is known as
an option contract. Routledge v Grant 1828
Revocation may be an express statement or may be an act of the offeror. The offeror's
revocation does not take effect until the revocation is communicated to the offeree. This
raises two important points.
The first point is that posting a letter of revocation is not a sufficient act of
revocation. Byrne v Van Tienhoven 1880
The second point is that revocation of offer may be communicated by any third
party who is a sufficiently reliable informant. Dickinson v Dodds 1876
Note: However, this case should be treated with caution and it may be that only an agent
can revoke an offer.
Failure of a condition

An offer may be conditional in that it is dependent on some event occurring or there being a
change of circumstances. If the condition is not satisfied, the offer is not capable of
acceptance. Financings Ltd v Stimson 1962
Termination by death

The death of the offeree terminates the offer. The offeror's death terminates the offer,
unless the offeree accepts the offer in ignorance of the death, and the offer is not of a
personal nature. Bradbury v Morgan 1862
Acceptance

Acceptance may be defined as follows.

'A positive act by a person to whom an offer has been made which, if unconditional, brings a
binding contract into effect.'
Acceptance must be an unqualified agreement to all the terms of the offer.
Acceptance is generally not effective until communicated to the offeror, except
where the 'postal rule' applies, in which case acceptance is complete and effective as
soon as it is posted.
The contract comes into effect once the offeree has accepted the terms presented to
them. This is the point of no return; after acceptance.
The offeror cannot withdraw their offer and both parties will be bound by the terms
that they have agreed.
Acceptance may be by express words, by action or inferred from conduct.

Brogden v Metropolitan Railway Co 1877

ST F
Silence

There must be some act on the part of the offeree to indicate their acceptance. Felthouse v
Bindley 1862
Note: Goods which are sent or services which are rendered to a person who did not
request them are not 'accepted' merely because they are not returned to the sender:
Unsolicited Goods and Services Act 1971. The recipient may treat them as an
unsolicited gift.
Acceptance 'subject to contract'

Acceptance 'subject to contract' means that the offeree is agreeable to the terms of
the offer but proposes that the parties should negotiate a formal contract. Neither
party is bound until the formal contract is signed. Agreements for the sale of land in
England are usually made 'subject to contract'.
Acceptance 'subject to contract' must be distinguished from outright acceptance
made on the understanding that the parties wish to replace the preliminary contract
with another at a later stage. Even if the immediate contract is described as
'provisional', it takes effect at once.
Branca v Cobarro 1947
Letters of intent and acceptance

Letters of intent are an indication by one party to another that they may place a contract
with them. As it is just intention so it cannot be accepted as an offer.
Thus a building contractor tendering for a large construction contract may need to
subcontract certain (specialist) aspects of the work. The subcontractor will be asked to
provide an estimate so that the main contractor can finalise their own tender.
Usually, a letter of intent is worded so as not to create any legal obligation.
However, in some cases it may be phrased so that it includes an invitation to
commence preliminary work. In such circumstances, it creates an obligation to pay
for that work.
British Steel Corpn v Cleveland Bridge and Engineering Co Ltd 1984
Acceptance of a tender

As we saw earlier, an invitation for tenders is an invitation to treat. There are two distinct
types of tender.
A tender to perform one task, such as building a new hospital, is an offer which can
be accepted.
A tender to supply or perform a series of things, such as the supply of vegetables
daily to a restaurant, is not accepted until an order is placed. It is a standing offer.
Each order placed by the offeree is an individual act of acceptance creating a
separate contract. Until orders are placed there is no contract and the tenderer can
terminate their standing offer.
Great Northern Railways v Witham 1873

Counter-offers and requests for information is not acceptance

A counter-offer does not constitute acceptance; it is the making of a new offer which may,
in turn, be accepted or rejected. Nor is a request for further information an acceptance. In
Neale v Merrett 1930 an offer to sell land at 280 was accepted, but payment consisted of
80 and an undertaking to pay the balance by instalments. 'Acceptance' amounted to a
counter-offer since it varied the method of payment.
Communication of acceptance

The general rule is that acceptance must be communicated to the offeror and that it is not
effective (and hence there is no contract) until this has been done. However, this rule does
not apply in all cases.
Waiver of communication

The offeror may dispense with the need for communication of acceptance. Such a waiver
may be express or may be inferred from the circumstances. In Carlill v Carbolic Smoke Ball Co
1893, it was held that it was sufficient for the claimant to act on the offer without notifying
her acceptance of it. This was an example of a unilateral contract, where the offer takes the
form of a promise to pay money in return for an act.
Prescribed mode of communication

The offeror may call for communication of acceptance by specified means.

Communication of acceptance by some other means equally expeditious (quick)
generally constitutes a valid acceptance unless specified otherwise.
This would probably apply also to acceptance by fax machine or email.
The offeror would have to use very precise wording if a specified means of
communication is to be treated as mandatory.
Yates Building Co v R J Pulleyn & Sons (York) 1975
RWARD
No mode of communication prescribed

The offeree can use any method but must ensure that their acceptance is understood if they
choose an instantaneous method of communication.
Entores v Miles Far Eastern Corporation 1955
The postal rule

The offeror may expressly or by implication indicate that they expect acceptance by means
of a letter sent through the post.
The postal rule states that, where the use of the post is within the contemplation (thought)
of both the parties, the acceptance is complete and effective as soon as a letter is posted,
even though it may be delayed or even lost altogether in the post.
Adams v Lindsell 1818
The intention to use the post for communication of acceptance may be deduced from
the circumstances. Household Fire and Carriage Accident Insurance Co v Grant 1879
Under the postal rule, the offeror may be unaware that a contract has been made. If
that possibility is clearly inconsistent with the nature of the transaction the letter of

acceptance takes effect only when received. In particular, if the offer stipulates a
particular mode of communication, the postal rule may not apply. Holwell Securities
v Hughes 1974
Acceptance of an offer may only be made by a person authorised to do so. This will
usually be the offeree or their authorised agents. Powell v Lee 1908
Cross-offers. If two offers, identical in terms, cross in the post, there is no contract.
For example, if A offers to sell their car to B for 1,000 and B offers to buy A's car for
1,000, there is no contract, because there is no acceptance.
Unilateral contracts and acceptance

Unilateral contracts involve an action undertaken by one person or group alone. In contract
law, unilateral contracts allow only one person to make a promise or agreement.
The question arises as to whether contractual obligations arise if a party, in ignorance of an
offer, performs an act which fulfils the terms of the offer.
If A offers a reward to anyone who finds and returns their lost property and
B, in ignorance of the offer, does in fact return it,
Is B entitled to the promised reward? There is agreement by conduct, but B is not
accepting A's offer since they are unaware of it.
Acceptance without knowledge R v Clarke 1927
However, acceptance may still be valid even if the offer was not the sole reason for
the action. Williams v Carwardine 1833
The case of Carlill v Carbolic Smoke Ball Company 1893 includes one example of a
unilateral contract.
An ordinary offer can be revoked at any time before complete acceptance and, once
revoked, can no longer be accepted.
However, in the case of a unilateral contract, the courts have held that an offer
cannot be revoked once the offeree has begun to perform whatever act is
necessary.
Collateral contracts

In certain circumstances, the courts may infer (suppose) the existence of a contract without
the formalities of offer and acceptance. This type of contract is a collateral contract.
A collateral contract is a contract where consideration is provided by the making of another
contract. For example, if there are two separate contracts, one between A and B and one
between A and C, on terms which involve some concerted action between B and C, there may
be a contract between B and C.
There is a contract between B and C despite the absence of direct communication between
them Shanklin Pier Ltd v Detel Products Ltd 1951