THE FORMATION OF A CONTRACT

INTRODUCTION

As has been seen, not every agreement, let alone every promise, will be enforced by the law. But what distinguishes the enforceable promise from the unenforceable one? The essential elements of a binding agreement, and the constituent elements of the classical model of contract, are:

• offer;

• acceptance;

• consideration;

• capacity;

• intention to create legal relations; and

• there must be no vitiating factors present.

The first five of these elements must be present, and the sixth one absent, for there to be a legally enforceable contractual relationship. This chapter will consider the first five elements in turn. Vitiating factors will be considered separately,

OFFER

An offer is a promise to be bound on particular terms, and it must be capable of acceptance. The person who makes the offer is the offeror; the person who receives the offer is the offeree. The offer sets out the terms upon which the offeror is willing to enter into contractual relations with the offeree. In order to be capable of acceptance, the offer must not be too vague; if the offeree accepts, each party should know what their rights and obligations are.

In Scammel v Ouston Ouston ordered a van from Scammel on theunderstanding that the balance of the purchase price could be paid on hire purchase terms over two years. Scammel used a number of different hire purchase terms and the specific terms of his agreement with Ouston were never actually fixed. When Scammel failed to deliver the van, Ouston sued for breach of contract. It was held that the action failed on the basis that no contract could be established, due to the uncertainty of the terms; no specific hire purchase terms had been identified. Offers to particular people An offer may be made to a particular person, or to a group of people, or to the world at large. If the offer is restricted, then only the people to whom it is addressed may acceptit; if the offer is made to the public at large, however, it can be accepted by anyone.

In Boulton v Jones the defendant sent an order to a shop, not knowing that the shop had been sold to the plaintiff. The plaintiff supplied the goods, the defendant consumed them but did not pay, as he had a right to offset the debt against money the former owner owed him. The plaintiff sued for the price of the goods. The defendant argued that there was no contract obliging him to pay because his offer was an offer only to the former owner  so only the former owner could accept, not the plaintiff. The court agreed with the defendant’s argument; there was no contract, and so there was no contractual obligation to pay. In Carlill v Carbolic Smoke Ball Co  the company advertised that it would pay £100 to anyone who caught influenza after using their smoke ball as directed. Mrs Carlill used the smoke ball but still caught influenza and sued the company for the promised £100. Amongst the many defences argued for the company, it was suggested that the advertisement could not have been an offer, as it was not addressed to Mrs Carlill. It was held that the advertisement was an offer to the whole world, which  Mrs Carlill had accepted by her conduct. There was, therefore, a valid contract between her and the company