Formation Contract

1 formation

1.1 offer , acceptance

1.1.1 invitation treat


1.2 intention legally bound
1.3 consideration

formation

at common law, elements of contract offer, acceptance, intention create legal relations, , consideration.

not agreements contractual, parties must deemed have intention legally bound. so-called gentlemen s agreement 1 not intended legally enforceable, , binding in honour .

offer , acceptance

in order contract formed, parties must reach mutual assent (also called meeting of minds). typically reached through offer , acceptance not vary offer s terms, known mirror image rule . offer definite statement of offeror s willingness bound should conditions met. if purported acceptance vary terms of offer, not acceptance counteroffer and, therefore, simultaneously rejection of original offer. uniform commercial code disposes of mirror image rule in §2-207, although ucc governs transactions in goods in usa. court cannot read minds, intent of parties interpreted objectively perspective of reasonable person, determined in english case of smith v hughes [1871]. important note offer specifies particular mode of acceptance, acceptance communicated via method valid.

contracts may bilateral or unilateral. bilateral contract agreement in each of parties contract makes promise or set of promises each other. example, in contract sale of home, buyer promises pay seller $200,000 in exchange seller s promise deliver title property. these common contracts take place in daily flow of commerce transactions, , in cases sophisticated or expensive precedent requirements, requirements must met contract fulfilled.

less common unilateral contracts in 1 party makes promise, other side not promise anything. in these cases, accepting offer not required communicate acceptance offeror. in reward contract, example, person has lost dog promise reward if dog found, through publication or orally. payment additionally conditioned on dog being returned alive. learn of reward not required search dog, if finds dog , delivers it, promisor required pay. in similar case of advertisements of deals or bargains, general rule these not contractual offers merely invitation treat (or bargain), applicability of rule disputed , contains various exceptions. high court of australia stated term unilateral contract unscientific , misleading .

in circumstances, implied contract may created. contract implied in fact if circumstances imply parties have reached agreement though have not done expressly. example, john smith, former lawyer may implicitly enter contract visiting doctor , being examined; if patient refuses pay after being examined, patient has breached contract implied in fact. contract implied in law called quasi-contract, because not in fact contract; rather, means courts remedy situations in 1 party unjustly enriched or not required compensate other. quantum meruit claims example.

invitation treat

where advertised in newspaper or on poster, not constitute offer instead invitation treat, indication 1 or both parties prepared negotiate deal.

the carbolic smoke ball offer

an exception arises if advertisement makes unilateral promise, such offer of reward, in famous case of carlill v. carbolic smoke ball company, decided in nineteenth-century england. carbolic, medical firm, advertised smoke ball marketed wonder drug would, according instructions, protect users catching flu. if did not work, buyers receive £100 , company said had deposited £1,000 in bank show faith. when sued, carbolic argued advert not taken serious, legally binding offer; instead mere puff , or gimmick. court of appeal held appear reasonable man carbolic had made serious offer, , determined reward contractual promise.

although invitation treat cannot accepted, should not ignored, may nevertheless affect offer. instance, offer made in response invitation treat, offer may incorporate terms of invitation treat (unless offer expressly incorporates different terms). if, in boots case, offer made action without negotiations (such presenting goods cashier), offer presumed on terms of invitation treat.

auctions governed sale of goods act 1979 (as amended), 57(2) provides: “a sale auction complete when auctioneer announces completion fall of hammer, or in other customary manner. until announcement made bidder may retract bid”.

intention legally bound

in commercial agreements presumed parties intend legally bound unless parties expressly state opposite in heads of agreement document. example, in rose & frank co v jr crompton & bros ltd agreement between 2 business parties not enforced because honour clause in document stated not commercial or legal agreement, statement of intention of parties .

in contrast, domestic , social agreements such between children , parents typically unenforceable on basis of public policy. example, in english case balfour v. balfour husband agreed give wife £30 month while away home, court refused enforce agreement when husband stopped paying. in contrast, in merritt v merritt court enforced agreement between estranged couple because circumstances suggested agreement more domestic arrangement.

consideration

consideration concept devised english common law, , required simple contracts, not special contracts (contracts deed). case of currie v misa declared consideration “right, interest, profit, benefit, or forbearance, detriment, loss, responsibility”. thus, consideration promise of of value given promissor in exchange of value given promisee; , typically thing of value goods, money, or act. forbearance act, such adult promising refrain smoking, enforceable if 1 thereby surrendering legal right.

in dunlop v. selfridge lord dunedin adopted pollack s metaphor of purchase , sale explain consideration. called consideration price promise of other bought

in colonial times, concept of consideration exported many common law countries, unknown in scotland , in civil law jurisdictions. roman law-based systems neither require nor recognise consideration, , commentators have suggested consideration abandoned, , estoppel used replace basis contracts. however, legislation, rather judicial development, has been touted way remove entrenched common law doctrine. lord justice denning famously stated doctrine of consideration firmly fixed overthrown side-wind. in united states, emphasis has shifted process of bargaining exemplified hamer v. sidway (1891).

courts typically not weigh adequacy of consideration provided consideration determined sufficient , sufficiency defined meeting test of law, whereas adequacy subjective fairness or equivalence. instance, agreeing sell car penny may constitute binding contract (although if transaction attempt avoid tax, treated tax authority though market price had been paid). parties may tax purposes, attempting disguise gift transactions contracts. known peppercorn rule, in jurisdictions, penny may constitute legally insufficient nominal consideration. exception rule of adequacy money, whereby debt must paid in full accord , satisfaction .

however, consideration must given part of entering contract, not prior in past consideration. example, in english case of eastwood v. kenyon [1840], guardian of young girl took out loan educate her. after married, husband promised pay debt loan determined past consideration. insufficiency of past consideration related preexisting duty rule. in english case of stilk v. myrick [1809], captain promised divide wages of 2 deserters among remaining crew if agreed sail home short-handed; however, promise found unenforceable crew contracted sail ship. preexisting duty rule extends general legal duties; example, promise refrain committing tort or crime not sufficient.