Week 3 - Formation of Contract

Question 1

What is a contract?

Answer 1

An agreement that the law will enforce.

Question 2

What are the three main ingredients needed to form a binding and enforceable contract?

Answer 2

• Agreement by offer and acceptance
• Intention to create legal relations
• Consideration

Question 3

Define an ‘offer’.

Answer 3

An offer is a proposal made, by the offerer, together with a promise to be bound by that proposal if the offeree accepts it unconditionally.

Question 4

What are the main rules governing an offer?

Answer 4

• Rule 1: If the offer is made to one person, only they can accept it. If the offer is made to a group of persons, any member may accept the offer. If the offer is made to the world at large, it can be accepted by anyone.
• Rule 2: An offer can be made expressly, either in writing or by word of mouth. Alternatively, an offer can be made impliedly, by the conduct of the offerer.
• Rule 3: The offer must have been communicated to the offeree, in order to be effective.
• Rule 4: An offer must be definite and should not be vague.
• Rule 5: An offer must not be confused with an answer to a question or supply of information.
• Rule 6: An offer must be carefully distinguished from an invitation to treat (invitation to make an offer).

Question 5

What is the difference between an offer and an invitation to treat?

Answer 5

The main difference between the two is that an offer can be converted into a contract by acceptance whereas an invitation to treat cannot be accepted and converted into an agreement.

Question 6

What are examples for invitation to treat?

Answer 6

• Advertisements
• Prospectus
• Display of Goods
• Inviting Tenders
• Auctions

Question 7

What are the ways in which an offer can be terminated?

Answer 7

• By Lapse of Time
• By Revocation
• By Rejection
• Death
• Change of Circumstances

Question 8

What is an acceptance?

Answer 8

An acceptance is an unconditional and unqualified assent to all the terms of the offer, by the offeree.

Question 9

What are the three reasons for the importance of acceptance?

Answer 9

• It produces something which cannot be undone.
• Time of contract is determined by the time of acceptance.
• Place of acceptance determines the place of the contract and thereby the laws of which country governs the contract.

Question 10

What are the main rules governing acceptance?

Answer 10

• Rule 1: Acceptance too can be made in expressly or impliedly by conduct of the offeree.
• Rule 2: Acceptance must be absolute and unconditional. Conditional acceptance has the effect of rejecting the offer.
• Rule 3: Acceptance must be positive. There must be active acceptance. A mere passive intention to accept is not effective.
• Rule 4: Acceptance must be communicated. As a general rule, acceptance is not effective unless and until it is communicated to the offerer.
• Rule 5: Acceptance can be communicated either by offeree or by another person with the authority of the offeree.

Question 11

What are the two exceptions to Rule 4?

Answer 11

• Unilateral Contracts - There are contracts where communication is waived.
• Postal Rule/Expedition Theory - When the parties agree to make acceptance by post, acceptance is completed and a binding contract is created when the letter is posted, even if the letter is lost in the post and never received by the offerer.

Question 12

How are family/social/domestic arrangements treated under the intention to create legal relations?

Answer 12

They do not usually amount to binding and enforceable contracts because it’s presumed that such arrangements aren’t intended to be legally binding due to the absence of legal intention.