Contract Formation Elements: Offer, Acceptance, Consideration And Intention

  • Words 730
  • Pages 2
Download PDF

The formation of a contract requires that a clear and unequivocal offer is met by a clear and unequivocal acceptance. (Mckendrick, 2009) A contract therefore is then an agreement between two parties by which are both bound in law and can therefore be enforced in a court or other equivalent forum. For a contract to be valid, it must consist of; an offer and acceptance, consideration (something having legal value) and an intention to create legal relations.

An offer is a statement by the offeror (the person making the offer), identifying terms of a statement by which s(he) is prepared to be bound if accepted by the offeree (the person whom the offer is being made) (Turner, 2011).

Click to get a unique essay

Our writers can write you a new plagiarism-free essay on any topic

An invitation to treat on the other hand can be defined as passive conduct expressing willingness to enter into negotiations which hopefully will lead to the creation of a contract (Mckendrick, 2009).

The classic case discussing the two terms is Carlill v. Carbolic Smoke Ball Company (1893). The Carbolic Smoke Ball Company placed an advertisement in newspapers stating that £100 would be awarded to anyone who uses the product in the specified manner but still caught influenza. Mrs Carlill acted upon the offer by buying and using the product in the prescribed manner but still caught influenza. Firstly, it was held by the courts that the advertisement made by Carbolic Smoke Ball Company constituted a binding unilateral offer and that a contract was formed with those who performed the condition as per the advertisement.

By definition, a unilateral offer is the completion of a specified act in return for a promise (Adams, 2018). Consequently, Mrs. Carlill taking the smoke ball in the prescribed manner, the unilateral offer was made valid. On the contrary, a bilateral offer consists of a promise made in return for another promise. This was not the case, as Mrs Carlill did not offer the company anything at the time that she purchased the item. The company made an offer by promising £100 to anyone who got influenza if they used the smoke ball. They took a step further stated that they had deposited £1000 with the Alliance Bank on Regent Street, “showing our sincerity in the matter”. It was on this basis that Mrs. Carlill purchased and used the smoke ball, that she accepted to the offer. This was not classified as a mere invitation to treat, for the reason being, that there was an acceptance made.

According to (Chen-Wishart, 2015), acceptance is an undisputable act of consent that immediately binds both parties to a contract. It is mandatory for this event to take place through written, oral or conduct in order for the contract to be made. However, in this case communication of acceptance is not necessary as the condition in the offer which constituted that once Mrs. Carlill purchased and used the smoke and prescribed, shows that there was consideration and acceptance. There was no need for the acceptance to be communicated.

The distinction between an offer and an invitation to treat is described as one of intention. In other words, did the maker of the statement in question intend to be bound by the other party’s acceptance of the terms or did they intend that their statement constitute part of the negotiations (Mckendrick, 2009). In practicality, it is often not easy to determine when negotiations have ended and a final offer has been made. The court has to examine the correspondence and sequence of events to settle on what the intention was and therefore when the contract was made, if at all.

In the case of Balfour v Balfour (1919), Hedley argues that ‘intention to create legal relations’ is primarily designed to ‘keep the contract in its place’. This means that when the Carbolic Smoke Ball Company indicated that they deposited £1000 in the Alliance Bank, it showed its intention to create legal relations and be bound by a contract.

Finally, there was a suggestion that the offer was too vague to form a binding agreement, because it did not have a time limit. The court rejected this as the smoke ball was intended for use during the two weeks of prescription. Unlike in the case Guthing v Lynn (1831), where the terms of the payment of an extra £5 is made ‘if the horse is lucky for me’. This was said to be vague and had little to do with contractual terms.


We use cookies to give you the best experience possible. By continuing we’ll assume you board with our cookie policy.