Formation of contract
BA Business management Yr 1
Introduction to Law module

Session objectives

At the end of this session, you will be able to:
• Define a contract
• Identify 5 elements which must all be in place for there to be a contract
• Identify a contract from a set of given facts
• Distinguish between an offer and an invitation to treat
• Distinguish between a bilateral and a unilateral contract

Activity 1
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Research and answer:
What is a contract?
What is an offer?
What is acceptance?
What distinguishes a contract from a Tort
(Civil Wrong)?
• Does a contract need to be in writing?

Introduction
• Rights and duties in civil law may arise as a result of:
• (i) a contract freely entered into by the parties or
• (ii) the establishment of a general duty – a tort (“civil wrong”) outside contract law – fixed by law (i.e. created by judges or legislation) Contract compared with tort
• Liability in contract derives from a legal binding agreement - it is self imposed
• Liability in tort (civil wrong) is imposed by law • Liability in tort is based on fault
• Liability in contract is imposed irrespective of fault – you can do your best and still be liable What is a contract?
• An agreement in which there is an offer and acceptance. It creates obligations which the parties have voluntarily assumed.
• Contracts do not generally have to be in writing – can usually be by conduct or orally. • So how do you decide whether there is a contract and if there is what has been agreed? How is this decided?
• The test is objective not subjective.
• That is, if my words or actions would suggest to a reasonable person that I was agreeing to a contract on particular terms then there is a contract on those terms.
• Why is the contract not subjective?
• It is considered unreasonable to be able to rely on your intention if it is not made clear to the other party

Smith-v-Hughes 1871
• The defendants wanted to buy “old” oats.
• The plaintiffs (“claimants”) knew this but sold them “new” oats.
• The plaintiffs did not pretend that the oats were “old”, the defendants just seemed to assume they were “old”.
• Was there a contract?

• Yes – conduct was clear

Carlill-v-Carbolic Smoke Ball Co
1893

Carlill-v-Carbolic Smoke Ball Co
1893
• An advert offered a reward of £100 if anyone bought the company’s smoke ball (which was claimed to cure a range of illnesses including ‘flu) and inhaled the smoke but then caught ‘flu.
• The advert stated that £1000 had been placed in a bank in Regent Street London to cover claims.
• Mrs Carlill bought and used the smoke ball and became ill with ‘flu. She claimed the £100 saying the money was due contractually.
• The Company said it was just an advertisement campaign (a puff), not looking to enter into contracts
• Did Mrs Carlill win her case?

• Yes

There are various elements which must all be in place for there to be a contract
1. An agreement between the parties – normally analysed as an offer and an acceptance
2. An intention to be legally bound by that agreement 3. Certainty as to what is in the contract
4. Consideration provided by both parties – that is there must be some kind of exchange (e.g. of promises (to buy and to sell))
5.The parties must also be legally capable

Other elements
• Sometimes contracts have to be in a particular form – e.g. contracts of guarantee have to be evidenced in writing to be enforceable • Parties must genuinely consent to the agreement – e.g. the contract must not be obtained by mistake, misrepresentation, duress or undue influence
• The contract must not be illegal

Effect of “vitiating factors” – e.g. mistake • The contract may be void – e.g. for mistake – no rights arise at all under it
• The contract may be voidable – i.e. it is valid until one party terminates it, e.g. for misrepresentation • The contract may be unenforceable – e.g. not in the right form, although it is valid

Two types of contract
• Bilateral. (Promise-v-Promise)
– Both parties