We form contracts in our day to day lives, even without our knowledge. It is, therefore, important to establish how a contract is formed.
Essentials of a valid contract
For a contract to be valid, some elements ought to exist as listed below:
- Offer and acceptance (agreement);
- Meeting of the minds (consensus ad idem);
- Intention to create a legal obligation;
- Free consent of parties;
- Capacity of parties to contract;
- Lawful object; and
- Legal formalities
One of the most important aspects of a contract is the existence of an agreement between the parties. The agreement can be formed in a very simple manner, especially in simple contracts where the formalities are not many. An agreement exists if there was a valid offer and acceptance in the prescribed manner.
An offer is to be distinguished from an invitation to treat. An offer leads to the formation of a legal relationship whereas an invitation to treat does not. An offer is defined as an expression of willingness to contract, which if accepted by the party to whom it is directed, a binding agreement would suffice. The offer is in terms which are certain, capable of being accepted. An invitation to treat, on the other hand, is an indication that a party is ready to receive offers. An offer need not be made to a specific person; it can be made to the whole wide world as seen in Carlill v Carbolic Smoke Ball Co.
Some of the common issues that arise in identifying an offer include displays in shops. The display of an item on the shop window does not amount to an offer as held in Fisher v Bell. An offer is also to be distinguished from a mere advertisement which cannot result in a binding agreement as seen in Partridge v Crittenden. A statement of price would also not amount to an offer as held in Harvey v Facey.
Acceptance is very technical. Specific rules must be followed. Otherwise, there would be no contract.
The first rule is that acceptance must be communicated. The rule applies even to oral contracts. If the other party does not hear your acceptance for the reason that there was noise disturbance, then a contract would not have been formed as held in Entores v Miles Far East Corporation.
It is important that the acceptance does not introduce or vary the terms of the offer. In short, the acceptance should be unconditional. Altering or introducing new terms does not amount to acceptance but rather, a counter offer.
Silence does not constitute acceptance. As stated earlier, the acceptance must be communicated. A case in point in relation to silence is Felthouse v Bindley.
If acceptance is by post, the acceptance is presumed to be communicated the moment the person accepting the offer properly addresses the letter of acceptance and leaves it at the post office. The case of Adams v Lindsell explains this concept properly.
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