Forming a Contract

A contract consists of an actionable promise or promises, with at least two parties and an outward expression of common intention. It will be necessary to ascertain at the outset whether or not an agreement has been concluded.

In order to determine whether or not an agreement has been actually  concluded, we must normally inquire whether in the negotiations which have taken place between the two parties, there has been a definite offer by one party and an equally definite offer by the other.  The process of ‘offer and acceptance’ may take place in any one of three ways.

1.       In the offer of an act for a promise: as when a person offers goods or services which when accepted bind the acceptor ti reward the offeror for them

2.       In the offer of a promise for an act: as when a person offers a reward for the doing of a certain thing, which being done that person is bound to make good the promise to the doer.

3.       In the offer of a promise for a promise: in which case, when the offer is accepted by the giving of the promise, the contract consists of an outstanding obligation on both sides

Conduct may take the place of written or spoken words, either in the offer or the acceptance.  An agreement may also be inferred from conduct alone. In Stevens v Bromley  he charterer of a ship agreed to load a cargo of steel billets at a certain rate of freight. Nearly half the cargo tendered by it and accepted for shipment by the shipowner consisted of general merchandise for which the current rate of freight ran much higher than that agreed under the charter. It was held that the proper inference from these facts was that the parties had made a fresh contract. Inactivity, on its own, without some overt act is almost always likely to be insufficient  to form a contract.

The test of determining whether or not a contract has in fact been offered or accepted is an objective one.  It has been stated that the judicial task is not to discover the actual intentions of each party; it is to decide what each party was reasonably entitled to conclude from the attitude of the other.

An offer is an imitation, by words or conduct, of a willingness to enter into a legally binding contract and which in its terms expressly or impliedly indicates that it is to become binding on the offeror as soon as it has been accepted by an act, forbearance or return promise on the part of the person to whom it was addressed.

It is sometimes difficult to distinguish statements of intention which cannot, and are not intended to, result in any binding obligation from offers which admit of acceptance, and so become binding promises. A statement or act of this nature, if it is not intended to be binding, is known as an invitation to treat.  Where the intention is unclear the Court will take account of the surrounding circumstances and consequences of holding an act or statement to be an offer as well as what is in fact said. Generally speaking, advertisements in newspapers are not offers. A display of goods marked at a certain price by a shopkeeper in a shop window does not bind the shopkeeper to sell at that price.

Where the display clearly states that the goods will be sold to a person who pays the required price it is, however, likely to be held to be an offer.  This was seen in Warwickshire C.C. v Johnson. An announcement inviting tenders is not normally an offer, nor is an auction. However, an auction which says that a sale will be without reserve has been held to be a valid offer.  An offer need not be made to an ascertained person but no contract can arise until it has been accepted by an ascertained person.

In some cases, such as the offer of a reward for information or the return of a lost possession, the offer is made to the public at large but is exhausted when once accepted.  In general, an offer is effective when and not until it is communicated to the offeree. Thus two identical cross offers do not ordinarily make a contract. The person who is offered the contract must be made aware of it and most importantly, have the opportunity to reject it.

Acceptance of an offer is the expression, by words or conduct of the terms of the offer in the manner prescribed or indicated by the offeror. The acceptance must be absolute and must correspond with the terms of the offer.  A counter-offer for example amounts to a rejection of the original offer. The acceptance must assent unequivocally and without qualification to the erms of the offer, it may not be too indefinite.

Acceptance in general, must be communicated, which must be more than mere mental assent.  Acceptance is not complete unless it is communicated to the offeror.  However, the offeror may expressly or impliedly waive the requirement of notification and agree that an uncommunicated acceptance will suffice. In Carlill v Carbolic Smokeball, Mrs Carlill had performed the condition without communicating to them the acceptance of the offer.

The acceptor must be aware of the offer before they can accept it. Thus a reward cannot be claimed by one who did not know t was offered.