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Introduction

Treitel (2003:6) defines contract as a voluntary agreement that is legally enforceable.

Contracts are meant to establish the rights and duties of each party relative to the rights and

duties of their counterparts and in accordance with the agreement. Contracts are an essential

feature of any business arrangement today therefore it critical to have an understanding of

contract law. This paper will examine the very basic elements of a valid contract. In particular

the discussion will discuss focus on offer, acceptance, consideration and intention.

Offer

Offer is the expression of willingness to enter an agreement on specific terms that

become binding as soon as the offeree, (the person whom it is addressed to), accepts the offer

(Treitel, 2008:8). Expression referred to in the definition may take various forms, such as fax,

newspaper or a letter. The expression referred to in the definition must communicate the basis

of the contract and may take different forms, such as a letter, newspaper, fax, email and even

conduct (Peel and Treitel, 2011; Adams, 2008; Willimoit et al, 2005; Charman, 2007). When

making an offer it is important to specify the person or group of persons to whom the offer is

addressed (an offer can also be addressed to the world at large).

The Offer and Acceptance approach in contract analysis became popular in the 19th

century and it the moment of contract formation when the parties are of one mind. Offer has

to be included in the key terms of the contract; otherwise it is not binding. For instance, the

minimum requirements for a valid offer in sales are description of the products on offer, terms of

payment, price and delivery date. These requirements must be met; otherwise an offer of sale

would be classified as an advertisement. In the UK law the objective test is used to determine
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whether a valid Offer was made where the leading case of Smith v. Hughes is often cited

(Lawnix.com, 2016). The case emphasizes the importance of analyzing cases rationally by

considering how a reasonable third party person would view the situation.

According to Treitel (2003) a legally binding contract must include an objective manifestation of

intent by the offeror. This means that an offeror will be bound by a contract as long as their

conduct or words are such as to induce a third party observer to believe that the intention is to be

bound by the terms. A legally binding offer is also different from an invitation to treat (i.e.

where the offerer is merely inviting offers that they can either accept or reject). Unlike an offer

invitation to treat is considered as prerequisite for negotiation and therefore not legally binding

(Elliot and Queen, 2007). Examples of invitation to treat are advertisements and goods displayed

in shops. In the latter case a customer makes an offer which the seller may accept or reject.

An Offer is usually terminated due to lapse of time but factors such as death of the

offeror, or a counter offer may also lead to termination of a contract. Ideally, the offeror must

specify the duration of the offer, if not the offer remains open after a reasonable time has passed.

The exact length of reasonable depends on the means of communication and the benefits on

offer. For example; an offer to buy perishable products will lapse quickly than offers for the

purchase of a car. Concerning counter offers Elliot and Queen (2007:21) state that a counter

offer is an offer made by the offeree in response to the original offer. Usually a counter offer

will have different terms thus making the original offer irrelevant.It is important to note that a

contract may be considered as being invalid and unenforceable under certain Acts of parliament.

An example is the Post office Act 1969 where under section 29 stipulates that acceptance of

parcels and letters does not amount to a contract between the sender and the post office. Also the

Trade Union and Labour Relations Act 1992.Under section 179, stipulates that conditions that
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agreed upon between the trade union and employers are only legally enforceable if they are

expressed in writing. The offeror may also revoke an offer before it has been accepted, although

there must they communicate with the offeree beforehand. However, it is illegal to revoke an

offer that is encapsulated in an option.

Acceptance

According to Treitel (2003: 16) acceptance is the promise by the offeree expressing their

willingness to be bound by the terms and conditions included in the offer. Essentially,

acceptance is the final but unqualified expression of assent to the terms of an offer . An offeree is

bound by a contract if can be shown that his actions or words implied they agreed to the terms

and conditions in the offer. When entering into an agreement, the parties may show their assent

by either signing or if the offeror performs certain acts which they would not otherwise perform

(Duxbury, 2008). In the latter situation the fulfillment of a requested act is an objective

indication of the partys consent to the offer. An important note is that silence does not amount to

acceptance. For example in the Felthouse V.Bindley 142 1037 (1862) the parties were

negotiating the price for a horse. The claimant wrote an offer but the defendant did not reply and

later the horse was sold to another party. The court held that there was no contract between the

two parties since the defendant had not communicated or in any way implied his intention to

accept the offer (Lawnix.com, 2016).

In the court of law the essential requirement is the evidence of an objective perspective

by the parties manifested in their consent. This manifestation of an objective assent is contrary to

the classical approaches that sometimes required that there be a meeting of minds on the part

of the parties (Duxbury, 2008). Typically this means that one party could claim that they did not

breach a contract by proving that despite the implication that they agreed to an offer with full
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assent, the intention was not to be bound by the terms and conditions. Of course such a concept

is unsatisfactory especially due to the fact that other parties cannot truly tell their counterparts

undisclosed intentions. One can only act upon what is objectively revealed. In this regard it is not

necessary to have an actual meeting of the minds. The requirement for an objective perspective

in acceptance is also relevant in cases where the offeree takes advantage of the other partys

performance to claim that an offer was not accepted (Elliot and Queen, 2008; Tuner, 2004). In

this regard the judge will try to determine what a reasonable third party would perceive the

acceptance.

Consideration

In contract law consideration refers to something of value that the parties exchange or

promise to deliver if during the duration of the contract. However, promises of emotional

rewards such as love and one sided promises are excluded from the concept of

consideration(Elliot and Queen, 2007). The Currie v Misa (1875),(which is one of the leading

cases under the law of consideration) asserts that that consideration is subject to detriment,

interest, forbearance, profit or benefit(Lawnix.com, 2016). Essentially, consideration is

concerned with the bargain of the agreement (i.e. a contract is typically based on the exchange of

promises).Under classical contract law each party is both a promisor and a promisee since they

each suffer a detriment or receive a benefit from the contract.

Consideration can either be executory or executed (Peel and Treitel, 2011).The latter

refers to consideration is fulfilled as soon as the contract has been signed so that the contract can

be binding. On the other hand executory considerations are fulfilled during the duration of the

contract.
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In the English legal system there are three primary reasons for the requirement of

consideration (Fafinski and Finch, 2012).The first is for cautionary purposes (i.e. Parties are

more likely to make informed decisions when there is a bargain than when an impromptu

promise is made). Secondly, consideration is important for evidentiary purposes since parties are

more likely to remember the terms of a contract if there is a bargain. Lastly is the channeling

requirement which translates to the idea that parties will coherently stipulate individual desires if

there is a bargaining process. The three rationales limit errors in contract formation and ensure

that only serious individuals engage in legally binding contracts.

Lawyers often speak of the term sufficient when dealing with consideration. This means

that the consideration is equal in or meets a legally sufficient value for a thing or act for which it

is given (Treitel, 2008). Also, a legal obligation does not qualify as consideration in contractual

law. For instance, a police officer cannot promise to arrest a criminal in for a reward since he has

an obligation to ensure security. Typically the consideration must be an act that the promisee

does not ordinarily do. Other aspects of a valid consideration are (E-lawresources.co.uk, 2016);

1. The consideration must not be past.

2. The consideration must move from the promisee.

3. An existing public duty will not amount to valid consideration.

4. An existing contractual duty will not amount to valid consideration.

5. Part payment of a debt is not valid consideration for a promise to forego the balance.

Intention

Intention in contract law refers to the parties intent to enter into a legally binding

agreement (Peel and Treitel, 2011: 45). The fact that both parties are involved in an agreement is
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insufficient and there must be the intention to engage in a legally binding relation. Essentially,

the concept of intention to create legal relations is meant to avoid unfair rulings in cases that are

not appropriate for court action. The leading case is the Carlill v Carbolic Smoke Ball Company

[1893] 2 QB 256(Lawnix.com, 2016). In the case a medical firm sent out an advert that their new

drug, a carbolic smoke ball, would cure flu and that anyone who was not cured would receive

100. The defendant argued that the offer was a mere gimmick but the court held that the advert

was a binding contract because there was intention to create a legal relation. Moreover the

medical company had deposited 1,000 in their bank as a show of sincerity

Contract law draws a distinction between commercial agreements and those that are made

in a domestic or social context (Lawteacher.net, 2016). Agreements in the commercial context

are presumed to have legal relations unless the contract includes a clause that states otherwise. In

the UK if a contract explicitly states that there is no intention to create legally binding relations

then the courts will not try to create one. In the Edwards v Skyways Ltd case the court ruled that

a promise for a bonus payment to employees described, 'ex gratia' was legally binding because

the claimant was induced by the promise to accept a redundancy (Lawnix.com, 2016). Moreover,

the employer could not prove that the promise was not meant to be a contractual term. However,

the court can rebut the presumption of a legal intent if a contract includes a honorable pledge

clause as illustrated in the Rose and Frank v Crompton (1925) case and later in the case

involving Kleinwort Benson v Malaysia Mining Corporation (1989).In the latter case the court

ruled that the agreement between the parties was not legally binding obligation but only moral.

Domestic agreements, such as that between a wife and husband, may have all the

necessary perquisites of a valid contract including offer, acceptance and consideration but if

there may is no legally binding terms, the contract is not legally enforceable. In the Balfour v
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Balfour (1919) case a wife sued her husband for money owed. The judge ruled that the dispute

between husband and wife should be settled outside court because there was no legal intention

when making the agreement to live together.

Conclusion

In the modern business, contractual law is very important. Since contracts are legally

binding agreements and even an ignorant mistake can result in serious problems, it is essential

that the parties have a clear understanding of their contractual obligations and the essential

elements of a valid contract. This paper has shown that in contract formation, intention,

consideration, offer and acceptance are critical elements of the contract. Typically, to prevent

intentional or unintentional breach of contract the parties entering the contract must ensure that a

valid offer and has been made and whether there is a satisfactory acceptance. The parties must

also acknowledge the need for consideration and the intention to create a legal relation. In the

UK most contracts only require the four essential elements to be legally binding. A contract that

lacks any of these elements is invalid and cannot be enforced under the law.
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References

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