Formation of Contract

4 Elements of contract

There are three essential elements of contract

  1. Agreement
  2. Consideration
  3. Intention to enter into legal relations

Agreement is a definite promise between two parties that is binding under legal framework.

Agreement is usually made through offer and acceptance.

5 Offer

Offer is an expression to another of willingness to be bound by the stated terms.

e.g. Mr. A asks Mr. B either he is willing to purchase his car or not?

The person who makes the offer is called offeror and to whom offer is made is called offeree.

Offer can be made to one person, to a group of persons or to public at large.

Carllil Vs Carbolic smoke ball company

5.1 What is not an offer?

A vague offer is not an offer

A statement which is vague cannot be an offer. A vague statement contains ambiguity and some uncertainty.

e.g. Gunthing Vs Lynn

But apparently vague offer can be made certain by reference to previous dealing.

Hillas and Co Ltd Vs Arcoss Ltd

Offer should be distinguished from

  • Supply of information
  • Invitation to treat

Supply of information is simply a statement which only seeks out possible terms of the contract.

It is not more than a request for further information. So it cannot become an offer unless it is clearly indicated through certain terms and conditions.

Harvey Vs Facey 1893

5.2 Invitation to treat

An inclination that person is prepared to receive an offer.

It is simply a technique used by a party who induce/wishes another party to make an offer. It is also not capable of acceptance. For example display of goods at a shop. Other notable examples of invitation to treat are as follows:

  1. for Auction sales
  2. Advertisements
  3. Exhibition of goods for sale
  4. An invitation tenders

5.2.1 Auction sales

An auction is defined as a contract of sale of property under which offers are made by potential buyer/bidders stating their prices at which they are prepared to buy and acceptance takes place by the fall of auctioneer’s hammer.

So auction is considered an invitation to treat on the part of auctioneer. Bid itself is an offer so auctioneer is free to accept or reject the offer or he may cancel the auction altogether without incurring any liability from potential bidders. E.g. Harris Vs Nickerson

Case law: Payne Vs Cave 1789

5.2.2 Advertisements

Advertisements are also considered as invitation to treat because advertisements of goods for sale are usually an attempt to induce offers.

Advertisements can be made through commercials on TV, internet and news papers.

Through advertisements customers are attracted to make an offer.

A circulation of price list is also known as invitation to treat.

Case Law: partridge Vs Crittenden

In this case law it was decided, those advertisements are invitation to treat, which cannot be accepted.

5.2.3 Exhibition of goods for sale.

Exhibition of good or displaying of goods in a shop window, for sale is normally considered as invitation to treat that is not capable of acceptance.

As in case law: Fisher Vs Bell

It was decided in this case law that displaying of an article with a price on it in a shop window is merely an invitation to treat.

5.2.4 Invitation for tenders.

Tender is an estimate price list document submitted in response to a prior request. Advertisements for tenders will generally the same as an advertisement for an auction each tender will b considered as an offer, which cannot be accepted.

5.3 Statement of intention