Lecture notes: Formulation of a valid contract (CML1004S)

Formation of a Valid Contract
In order for a contract to be valid and binding in law, certain requirements must be met. All
requirements must be met, if one is missing then there will normally not be a valid contract and the
courts will refuse to enforce it.
1. The parties must have a serious intention to contract; Referred to as ‘offer and
2. The parties must communicate their intentions to each other; acceptance’
3. The parties must have contractual capacity;
4. The parties must be of the same mind;
5. The agreement must be lawful;
6. Performance of the contractual obligations must be possible;
7. The agreement must comply with any formalities;
8. The agreement must be certain in its terms.

Offer and Acceptance
Valid offer + Valid acceptance = Valid contract

Requirements for a valid offer
Offer: An offer is a proposal made by one party to another, containing terms and conditions which, if
accepted by the other person, bind them contractually.
Requirements
 Made with the serious intention of creating a binding and legal contract.
o Depends upon the facts:
 Must determine from the context and situation. Must look to:
 The circumstances;
 The wording; and
 How a reasonable person would interpret it.
o Key Exclusions:
 Offers’ ‘made in jest’
 Social arrangements (“gentleman’s agreement” in some cases or
textbooks)
 Adverts

,Adverts:
Common Law (defined by case law):
- Crawley v Rex 1909 TS 1105
- Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953] ALL ER 482 (CA)
- Carlill v Carbolic Smoke Ball Co (1892) 2 QBD 484 (HL)
“£100 reward will be paid by the Carbolic Smoke Ball Co. to any person who contracts influenza after having
used the smoke ball according to the printed directions (3 x / day for 2weeks). £100 is deposited in the Bank,
showing our sincerity in the matter.”
Consumer Protection Act (CPA)
Section 30(1): Bait Marketing
If a supplier advertises goods or services at a certain price then they must ensure that there are sufficient goods
or services available at that price for consumers who respond to the advert.
Unless advert worded like “While Stocks Last”
Major Issue: Negative option marketing



 Complete and clear
o The offer must contain at least the essential terms of the contract so that an
unconditional acceptance can bring about a binding contract.
o Cliff v Electronic Media Network (M Net) (GJ) 2016
 In existence at the time that it is accepted.
o Revocation
 Withdrawal of the offer by the offeror (person making the offer).
 The offer can be revoked at any time prior to acceptance.
 Any attempt to revoke after a valid acceptance will constitute a breach
of contract.
o Lapse of offer
 The offer ‘expires’. Can occur in a range of ways:
 Not been accepted within a reasonable time
 Not been accepted within the time specified for acceptance if
such a time has been specified.
 Death of the offeror or offeree (person to whom the offer is
made), provided that acceptance has not yet taken place.
 Where the offer is valid at the time it is made, and then later
before it is accepted, it conflicts with one essential requirements
for a valid contract.
o Rejection
 occur in two ways:
 Express rejection, or by
 Making a counteroffer
 An acceptance subject to conditions (“yes, but…”) is not an acceptance
at all. Rather it is a rejection and a counter-offer which cause the

, original offer to end. The counteroffer can be accepted or rejected, but
the original offer is no longer on the table (no longer valid).



Requirements for a Valid Acceptance
Made by the particular person(s) to whom the offer was addressed.
 In most cases an offer is addressed/made to a particular person(s). (i.e. as opposed to offers
to reward the general republic, as in Carlill’s case).
 Where the offer is to a particular person(s) only that (those) person can validly accept it.
Made “knowingly”.
 Critical point: communication
 The offeree (person to whom the offer is made) must know about the offer. In other words,
it must have been communicated to him.
 Case law: Bloom vs American Swiss Watch Co 1915 AD 100.
Clear and unconditional.
 A conditional acceptance (“yes but”) is not acceptance but rather a rejection and
counteroffer.
 Rejection coupled together with a stipulation.

Would you like to buy my phone?
-Yes
Valid contract explanation.
Sure I will pay R3000 today, and R2000 tomorrow?
Not valid.
- No, offer was R5000. No instalments given, thus it is an addition.
Condition given
- Added something to transaction. Defining how payment is made,
Thus, not a valid contract. even though no stipulation was made.

Communicated to the offeror in the prescribed manner.
 If the offeror (person making the offer) expressly sets out the manner for acceptance, then
acceptance must take place in that prescribed manner in order to be valid.
 Where and when?
o Draw a time line
o Identify offeror or offeree
 Relevance
o Jurisdiction (i.e. where?)
 Legality;
 Compliance (local/regional)
o Time (when?)
 Compare with the validity of the offer.
 Time zone


 Different Theories
o Information theory
Look at the facts.
Draw a picture and a timeline.