What links together these different contractual arrangements?

 One answer is that every contract effects an EXCHANGE

The exchange may take different forms:

- Service for money

- Goods for money
- Goods for goods

The exchange may take place at the time the contract is made, or it may be postponed to sometime
in the future.

Most contracts possess this element of exchange- Exchange, however, cannot be the whole answer
because in some contracts no such element is present.

 Another suggested link between the different types of contract is the concept of PROMISE

Defining contracts in terms of promise is useful because it emphasises the obligatory nature of the
transaction

Abiding by our promises enables us readily to accept that people who break their legal promises
must face the consequences
 Formation of Contract
When does a contract come into existence?

- By their conduct
- By means of the written or spoken word
- By a combination of these methods

The parties will make it plain that a binding contract exists between them.

Setting out contract terms in a written document and signing it is the clearest method of concluding
a contract.

Oral contracts may be struck involving much larger sums of money

The Basic Rule- Agreement

Contract is usually analysed in terms of AGREEMENT

Formation occurs when the parties reach agreement as to the essential features of their transaction

Essential Elements of a Contractual Formation:

1. Capacity- being able to make a contract

2. Intention to be Legally Bound- the will/wish to be bound
3. Agreement (Consensus in idem)- offer and acceptance
4. Formality- formal requirements: writing, signature etc
5. Legality/ Public Policy- will the law enforce/permit the purpose

Consensus in idem= a meeting of the minds

How do we create consensus in idem?

- All contracts are created when an offer is accepted

- Often but not always, the offer will be preceded by a preliminary step know as “INVITATION
TO TREAT”

E.g. Mary: “Anyone want to buy my car for £500” = Invitation to Treat

Key Point:

When an offer is accepted by an UNQUALIFIED ACCEPTANCE a binding

contract is created

The Contract Sum:

Offer + Acceptance = Agreement

The Offer/ Acceptance Analysis
If contract can be described in terms of agreement, it is essential to have a means of determining
when the necessary agreement has been reached.

Most contracts can be analysed in terms of OFFER and ACCEPTANCE

“An offer accepted is a contract”

Offeror= the person making the offer

Offeree= the person to whom the offer is made

If the offer is accepted the OFFEREE becomes the ACCEPTOR

A contract is formed when an offer is met with an UNQUALIFIED ACCEPTANCE: a straightforward

“yes”

If a person who has received an offer replies by saying that she agrees to the offer but wishes to add
conditions of her own, that reply is a QUALIFIED ACCEPTANCE.

A Qualified Acceptance does not conclude a contract- it amounts to a rejection of the offer

- It is also a “counter-offer” which, in turn, is open for acceptance

The Distinction Between Offers and Invitations to Treat

An offer may be expressed- “I offer you £50 for your old lawnmower”- or implied, for example,
handing over money for a theatre ticket.

The key feature of an offer is that it contemplates ACCEPTANCE.

- A contract is formed as soon as the offer is accepted

If a statement constitutes an offer, it is in the hands of the offeree to form the contract

If the statement is merely an invitation to treat, then the person making the statement will not be
bound by the other party’s simple assent.

If a statement is circulated widely- such as in a hoarding advertisement, newspaper or website- and

amounts to an offer rather than an invitation to treat, the person making the statement may find
themselves in contracts with many more people than they anticipated.

What is an Offer?

An offer is a definite promise to be bound on specific terms

In some cases, however, there is no intention to be bound by the other party’s purported
acceptance

- Rather the person is merely indicating his bargaining position

 - In effect, he is saying “these are the terms upon which I am willing to negotiate further”
- Statements of this second type are known as INVITATIONS TO TREAT
-

What is an Invitation to Treat?

An invitation to treat is only an indication that someone is prepared to receive offers with the view
of forming a binding contract.

 Advertising is not an offer, but rather an attempt to induce offers. Advertising is

therefore classed under contract law as an invitation to treat.

Only when the customer indicates that they will pay for the goods at the advertised
price has an offer been made.

 Similarly, the ‘exhibition of goods for sale’ can be confused as an offer when really it
is an invitation to treat. When goods are displayed in a store this constitutes an
invitation to customers to make offers to purchase the items.

This example indicates how important the distinction between offers and invitations to treat can be

Carlill v Carbolic Smokeball Co Ltd:

The Carbolic Smokeball place an advertisement in the Pall Mall Gazette in November 1891

It stated that the company would pay £100 to anyone who caught a few specified diseases after
using their smokeballs in the prescribed manner for 2 weeks.

- The company claimed to have deposited £1000 in the Alliance Bank to show its “sincerity in
the matter”

Mrs Carlill bought one of the balls and used it 3 times daily for 2 weeks

- She caught INFLUENZA (one of the specified diseases)

- She requested payment of the £100 sum

The company refused to pay- An action was raised by Mrs Carlill

Carbolic Smokeball Arguments:

o The advertisement was merely an invitation to treat – this argument was rejected

The wording of the advertisement went beyond an indication of the company’s bargaining position

As BOWEN LJ put it: “It is an offer to become liable to anyone who, before it is retracted, performs
the conditions.”

THE COURTS REWARDED MRS CARLILL HER £100 REWARD

If the person’s statements or actions disclose an intention to bound, it is an offer

The fact that the money had been deposited with the Alliance Bank was an objective indication of
the company’s intention to be bound.