Offer and Acceptance

A contract is a binding agreement between at least two parties.

In order to form a contract, the essential elements are:

• Intention to create legal relations
• Offer and acceptance
• Consideration
• Capacity

Intention to create legal relations

The parties must clearly have intended their agreement to be legally binding. For example, a mere social arrangement – such as an agreement with a friend to meet for a meal – will not normally be treated as a contract. [Parker v. Clark (1960) 1 W.L.R. 286.]

Offer and Acceptance

An offer is a promise to do or not to do something in sufficiently clear terms that may be accepted by another. An offer should be distinguished from an invitation to treat and a mere expression of intention to do or not to do some act. Offers do not necessarily need to be made to one person – that may be made to the world at large or to specific groups of people. The significance of an offer is that when it is accepted, the contract is formed. In addition to being accepted, an offer may be rejected, a counter-offer may be made, the offer may lapse or the offeror may withdraw the offer, such that it is no longer available to be accepted.

The acceptance of the offeror’s terms must be unconditional. In many cases this may constitute a ‘yes’ or ‘no’ reply to an offer made. There are situations where such a simple exercise may not be possible and it requires the courts to give direction as to how acceptance may be established. An offer may be accepted by conduct; silence, however, can never constitute acceptance.[Smith v Hughes 1871]

Consideration

Consideration is a promise, an act, or a promise not to act and represents the value in the contract. For example, in a services contract for services, one person will promise to perform services (the consideration of one party), and the other will promise to pay money in exchange for the service (the other party’s consideration). Consideration in a contract may be executory, executed or past. Executory consideration is a promise that will be performed in the future, executed consideration is a promise that has been performed thus giving rise to the obligation on the offeror to perform their promise, and past consideration is where a promise is performed before the formation of the contract and as such cannot be used to bind the other party to the contract: importantly, past consideration is not sufficient to form a binding contract. Consideration must move from the promisee, as the English common law system does not enforce gratuities as the civil law system does. Also, consideration need not be adequate, but must be sufficient. That is to say that there is no requirement in law that the value of the consideration between the parties must be equal or near equal provided there has been no vitiating factors.[Beswick V Beswick (1968) AC 58, (1967) 2 All ER 1197, HL]

Capacity

As a general rule, everyone is capable of entering into contracts. There are, however, some exceptions. Most importantly, some artificially created bodies such as local authorities are only entitled to do the things for which they were created or which have been specially authorised. Anything else is ultra vires (outside of its powers) and therefore void. Another example of lack of capacity is that infants (those under 18) may not be bound by some of their contracts.