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Formation of a contract

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FORMATION OF A CONTRACT INTRODUCTION A contract may be defined as an agreement between two or more parties that is intended to be legally binding. The first requisite of any contract is an agreement (consisting of an offer and acceptance). At least two parties are required; one of them, the offeror, makes an offer which the other, the offeree, accepts. OFFER An offer is an expression of willingness to contract made with the intention that it shall become binding on the offeror as soon as it is accepted by the offeree. A genuine offer is different from what is known as an "invitation to treat", ie where a party is merely inviting offers, which he is then free to accept or reject. The following are examples of invitations to treat: 1. AUCTIONS In an auction, the auctioneer's call for bids is an invitation to treat, a request for offers. The bids made by persons at the auction are offers, which the auctioneer can accept or reject as he chooses. Similarly, the bidder may retract his bid before it is accepted. See: Payne v Cave (1789) ...read more.


Until and unless the acceptance is so communicated, no contract comes into existence: Lord Denning in Entores v Miles Far East Corp. [1955] 2 All ER 493. The acceptance must be communicated by the offeree or someone authorised by the offeree. If someone accepts on behalf of the offeree, without authorisation, this will not be a valid acceptance: Powell v Lee (1908) 99 LT 284. The offeror cannot impose a contract on the offeree against his wishes by deeming that his silence should amount to an acceptance: Felthouse v Bindley (1862) 11 CBNS 869. Where an instantaneous method of communication is used, eg telex, it will take effect when and where it is received. See: Entores v Miles Far East Corp [1955] 2 QB 327 The Brimnes [1975] QB 929 Brinkibon v Stahag Stahl [1983] 2 AC 34. 5. EXCEPTIONS TO THE COMMUNICATION RULE a) In unilateral contracts the normal rule for communication of acceptance to the offeror does not apply. Carrying out the stipulated task is enough to constitute acceptance of the offer. b) The offeror may expressly or impliedly waive the need for communication of acceptance by the offeree, eg, where goods are dispatched in response to an offer to buy. ...read more.


See:Shuey v United States [1875] 92 US 73. Once the offeree has commenced performance of a unilateral offer, the offeror may not revoke the offer. See:Errington v Errington [1952] 1 All ER 149 Daulia v Four Millbank Nominees [1978] 2 All ER 557. 4. COUNTER OFFERSee above for Hyde v Wrench (1840). 5. LAPSE OF TIMEWhere an offer is stated to be open for a specific length of time, then the offer automatically terminates when that time limit expires. Where there is no express time limit, an offer is normally open only for a reasonable time. See: Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109. 6. FAILURE OF A CONDITIONAn offer may be made subject to conditions. Such a condition may be stated expressly by the offeror or implied by the courts from the circumstances. If the condition is not satisfied the offer is not capable of being accepted. See: Financings Ltd v Stimson [1962] 3 All ER 386. 7. DEATHThe offeree cannot accept an offer after notice of the offeror's death. However, if the offeree does not know of the offeror's death, and there is no personal element involved, then he may accept the offer. See: Bradbury v Morgan (1862) 1 H&C 249 ...read more.

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