Contract Law - Contract Formation: Agreement and Contractual Intention
Bilateral contracts: one party makes a promise in return for a promise from the
other party (i.e. reciprocal obligation - both parties agree to an obligation)
Unilateral contracts: a promise in return for an act (only the offeror has an
obligation)
- E.g. a reward - Carlill; Williams v Carwardine
[STEP 1] Is there a contract?
X is alleging a contract with Y for Z.
For a binding contract to form, there must be:
- Agreement (offer and acceptance)
- Intention to create legal relations; and
- Consideration.
Consideration
Consideration is ‘some right, interest, profit or benefit accruing to the party or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’
(Currie v Misa). Here, there is consideration, as [INSERT CONSIDERATION].
[STEP 2] Intention to create legal relations
Intention to create legal relations
Assessment of parties’ intention in making an offer is objective, the courts deciding what
a reasonable person would have thought was going on from what was said and done
between the parties (Smith v Hughes).
[PICK RELEVANT PRESUMPTION AS A REBUTTABLE STARTING POINT]
- For commercial agreements, there is a very strong presumption of contractual
intention, i.e. that the parties intended the agreement to be legally binding
(Edwards v Skyways).
- This is a rebuttable where specific wording states that the agreement
was not formal or legal (Rose and Frank Co v Crompton Bros)
, - For domestic and social agreements, such as an agreement between spouses,
the presumption is that there is no intention to create legal relations (Balfour v
Balfour).
- This presumption can be rebutted where, due to the nature of their
relationship, the parties would not have been prepared to rely on
honourable undertakings and so would have intended to create legal
relations (Merritt v Merritt). (separated couple)
[STEP 3] Agreement - valid offer and acceptance
Agreement - valid offer and acceptance
[IF THERE IS CONSIDERATION AND INTENTION TO CREATE LEGAL RELATIONS]
This issue concerns agreement.
There is agreement if there is a valid offer and acceptance. There must be certainty in
offer and acceptance, or the court may not uphold the contract (Scammell v Ouston).
Is there an offer?
An offer is ‘an expression of willingness to contract on certain terms, made with the
intention that it shall become binding as soon as it is accepted by the person to whom it
is addressed’ (Treitel ‘Law of Contract’, confirmed in The Leonidas).
An offer is distinguished from an invitation to treat, which is a preliminary statement
made without intention to be bound by specific terms.
For example:
- Goods on display:
- Goods on display will normally be invitations to treat (Fisher v Bell - knife
in shop window was an invitation to treat),
- Goods on display in self-service shops will not normally be regarded as
offers but invitations to treat - Pharmaceutical Society of Great Britain v
Boots Cash Chemists
- The customer offers to buy the goods when they present them at
the payment point, and acceptance takes place when the shop
takes payment for the goods
- A display may amount to an offer in very limited circumstances where
there is a clear intention to be bound
- e.g. a display of goods in a special sale
Bilateral contracts: one party makes a promise in return for a promise from the
other party (i.e. reciprocal obligation - both parties agree to an obligation)
Unilateral contracts: a promise in return for an act (only the offeror has an
obligation)
- E.g. a reward - Carlill; Williams v Carwardine
[STEP 1] Is there a contract?
X is alleging a contract with Y for Z.
For a binding contract to form, there must be:
- Agreement (offer and acceptance)
- Intention to create legal relations; and
- Consideration.
Consideration
Consideration is ‘some right, interest, profit or benefit accruing to the party or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’
(Currie v Misa). Here, there is consideration, as [INSERT CONSIDERATION].
[STEP 2] Intention to create legal relations
Intention to create legal relations
Assessment of parties’ intention in making an offer is objective, the courts deciding what
a reasonable person would have thought was going on from what was said and done
between the parties (Smith v Hughes).
[PICK RELEVANT PRESUMPTION AS A REBUTTABLE STARTING POINT]
- For commercial agreements, there is a very strong presumption of contractual
intention, i.e. that the parties intended the agreement to be legally binding
(Edwards v Skyways).
- This is a rebuttable where specific wording states that the agreement
was not formal or legal (Rose and Frank Co v Crompton Bros)
, - For domestic and social agreements, such as an agreement between spouses,
the presumption is that there is no intention to create legal relations (Balfour v
Balfour).
- This presumption can be rebutted where, due to the nature of their
relationship, the parties would not have been prepared to rely on
honourable undertakings and so would have intended to create legal
relations (Merritt v Merritt). (separated couple)
[STEP 3] Agreement - valid offer and acceptance
Agreement - valid offer and acceptance
[IF THERE IS CONSIDERATION AND INTENTION TO CREATE LEGAL RELATIONS]
This issue concerns agreement.
There is agreement if there is a valid offer and acceptance. There must be certainty in
offer and acceptance, or the court may not uphold the contract (Scammell v Ouston).
Is there an offer?
An offer is ‘an expression of willingness to contract on certain terms, made with the
intention that it shall become binding as soon as it is accepted by the person to whom it
is addressed’ (Treitel ‘Law of Contract’, confirmed in The Leonidas).
An offer is distinguished from an invitation to treat, which is a preliminary statement
made without intention to be bound by specific terms.
For example:
- Goods on display:
- Goods on display will normally be invitations to treat (Fisher v Bell - knife
in shop window was an invitation to treat),
- Goods on display in self-service shops will not normally be regarded as
offers but invitations to treat - Pharmaceutical Society of Great Britain v
Boots Cash Chemists
- The customer offers to buy the goods when they present them at
the payment point, and acceptance takes place when the shop
takes payment for the goods
- A display may amount to an offer in very limited circumstances where
there is a clear intention to be bound
- e.g. a display of goods in a special sale
