Formation of a Contract

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  • Topic: Contract, Invitation to treat, Offer and acceptance
  • Pages : 5 (1497 words )
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  • Published : May 25, 2013
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BUS103 Assignment

Ellyn Hurst

Florentina Benga

Wednesay 4.00 – 5.00

Word count: 1418
A contract is an agreement containing promises made between two or more parties with the intention of creating legal rights and obligations enforceable in a court of law. There are three essential elements that must be proven to establish a contract. The first element that must be established is whether or not there was an agreement between the parties. There must be an offer proposed by on party, and acceptance by the other. The second element is whether or not there was the intention to create legal relations. Each party must intend to create legally enforceable obligations in the form of a contract between one another. The third element, which needs to be proven, is that there was consideration. There must be something of value passing from one party to another in return for a promise to do something. Once all these three elements have been proven, a contract can then be formed.

Agreement - Sarah
The first part in determining an agreement is the offer. An offer is a statement or conduct showing intention to be bound, without further discussion or negotiation, on the acceptance of terms stated by the offeror, who is the person making the offer. An offer differs from an invitation to treat, as unlike an offer, it cannot be accepted, it is only a willingness to start the offer and acceptance process. This was established in the case of Partridge v Crittenden (1968) 2 AII ER 421. An offer can be made to one person, or the world at large as found in the case of Carlill v Carbolic Smoke Ball Co. (1983) 1 QB 256. An offer can also be terminated, although this must occur before the acceptance. An offer can be terminated by revocation, lapse in time or rejection. A counter offer can also terminate an agreement. A counter offer is defined as an express or implied rejection of the offeror’s original offer by the offeree. In the case of Sarah and Rebecca, an offer was made as Rebecca sent a letter to Sarah on the 5th of January offering her the bag for $120. This is in fact an offer, not an invitation to treat as there can be acceptance. The offer was made to an individual, not the world at large. Sarah received the offer from Rebecca on the 9th of January and replied with a counter offer, asking if Rebecca is able to get the bag to her included in the price of the offer. Sarah received this letter on the 11th of January. The counter-offer was then rejected, but the offer stayed open until the 26th of January for further thoughts by Sarah whether or not she should accept the original offer.

Acceptance is defined as a statement or conduct, depending on the terms of the offer, showing an intention to accept and offer without further negotiation or discussion. An acceptance has to be both absolute and unqualified, which means to comply with all terms and conditions the offer imposes. The acceptance must be reliant on the offer, this was found in the case of R v Clarke (1927) 40 CLR 227. The method of acceptance must be in the same form of that of the offer. This can be postal acceptance, instantaneous acceptance, written acceptance or verbal acceptance. The postal acceptance is when the partied contemplate the use of post as a medium of exchange of promises, which must then abide by the time of acceptance change rule which states that an offer by letter is not affective until received by the offeree, and acceptance is affective as soon as it is posted. This rule was found by the case of Adams v Lindsell (1818) 106 ER 250. In the case of Sarah and Rebecca, the offer was accepted on the 24th of January when Sarah sent a text message replying ‘OK you win. I’ll give you $120 for it’. Rebecca did not open this message until the 28th of January. Because the acceptance was made as an instantaneous communication, the contract is formed when the acceptance is received. Rebecca did not receive the expectance until 2 days after the time...
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