FORMATION OF CONTRACT

Dr Ihuoma Ilobinso
 Elements of a Valid Contract

INTENTIONS TO
OFFER ACCEPTANCE CONSIDERATION
CONTRACT
 Consensus ad idem.
The process of negotiation to reach an agreement is
expressed in the form of offer and, acceptance.

Therefore, to establish that there is an agreement between

the parties, the facts and circumstances surrounding the
agreement have to be examined. It must be shown that an
offer was made by one party (called the offeror) and
accepted by another party (called the offeree).
 OFFER
An offer is a proposal indicating one's willingness to enter into a
contract with the person to whom it is addressed.
An offer can be made to a specific person or to the general
public.
When it is made to a specific person or group of persons, it is
only capable of acceptance by the specific person or a member of
the group.
When it is made to the public, the offeror indicates willing to
contract with any member of the public who accepts it. E.g. a
reward offer- See Carlill v Carbolic Smoke Ball.

An offer can be made orally, in writing or by conduct

 Offer/Invitation to Treat
For a proposition/indication of interest to be considered an
offer, it must be
clear, complete and definite.

The offeror must intend to be bound without further

negotiation.

Once the court can detect or imply a lack of intention to be

bound without further negotiation, it will hold that the
indication of interest is not an offer but an invitation to treat
(invitation to make an offer).
 The use of the word ‘offer’ does not automatically mean
that the proposition was an offer. What is important is the
intentions of the party which must be outwardly shown.

Example: An estate agent writes a prospective client saying

‘I offer my services to you, to manage your property in
VGC for 15% of rent accrued’, the client replies, i accept
your offer, but for 10% of rent accrued. When was the
offer made and accepted?

Due to the difficulty in determining whether a proposition

is an offer or an invitation to treat, the following cases will
be used to aid the distinction.
Display of goods in shops

The display of goods on the shelf or in

shop windows with the price indicated, is a
mere invitation to treat, and not an offer.

The buyer makes an offer when he picks up

the goods and takes it to the seller.
Advertisements in Catalogues and Newspapers
Advertisement of goods for sale in catalogues, Newspapers,
etc. is regarded as a mere invitation to treat. Except it is
otherwise indicated.

However, there are times/circumstances when advertisements

are framed in such specific terms that they can be construed
as an offer.

Where the advert makes promises in return for an act. E.g

reward for buying a product or for finding a lost property.
Carlil v Carbolic Smokeball .
In these circumstances, no further act of acceptance is
contemplated
 Auction/bids
• An advertisement stating that an auction will hold is not
an offer, but an invitation to treat.

• The auctioneers invitation for bids is also not an offer.

• Each bid constitutes an offer which can be accepted or

rejected by the auctioneer. Acceptance occurs only when
the auctioneer's hammer falls. Before then, the bidder can
withdraw his bid/offer.
 Public transportation
On the question of when a contract is formed in
public transportation, whether at the time of issuing a
travel timetable or at the time of boarding. Standing
at the bus stop?

A transport timetable or itinerary does not constitute

an offer, but an invitation to treat the
Sale of Shares
An advertisement inviting the public to purchase
shares in a company is not an offer but an invitation
to treat, although it is usually called an offer of
shares.

A member of the public makes the offer when he

applies for the shares and the company may or may
not accept the offer.
 Tender
A request for tender (where a tenderer is invited to state the
lowest he can use to execute a contract) is not an offer, but
an invitation to treat.

However, if the invitation explicitly states that the lowest or

highest bid will be accepted, then the invitation constitutes
an offer.

SUPPLY OF INFORMATION
A mere supply of information, e.g price, does not constitute
an offer.
See Harvey v Facey (1893) AC 552- the plaintiff requested for
the price of some goods ‘bumper hall pen’, the defendant
replied 900 pounds, the plaintiff sent another telegraph
accepting to buy the it. They sued when the defendant refused
to sell it.
 Acceptance
Acceptance is the final and unqualified assent to the terms of an
offer.

In other words, the offeree must agree with all the terms of the offer.
He is not allowed to change the terms of the contract or to incorporate
new ones.

Any modification or addition to the terms of the offer will amount to a

counter offer and not an acceptance.

A counter offer constitutes an invalid acceptance but is a valid offer

which may be accepted by the other party. E.g...

It is important to ascertain when an offer was made and when it was

accepted because, once the offer is validly accepted, the contract
becomes binding on both parties.
They become obligated to perform their promises.
However, silence or inactivity does not amount to
acceptance.

A statement which merely acknowledges receipt of the offer

or which states the intentions of the offeree to accept the
offer does not amount to acceptance.

Request for further information does not invalidate an offer

or acceptance.

Conditional acceptance- An acceptance that is subject to the

performance of a condition, does not constitute a valid
acceptance until the condition is fulfilled. E.g
 Mode of acceptance
Where the offeror prescribes a particular mode by which
acceptance may be communicated,
(e.g must be in writing, via email) then the prescribed mode
must be followed else the acceptance is invalid. E.g Afolabi v.
Polymera Industries Ltd. The offeror specified that the offer
should be accepted by signing the attached agreement and
returning at the earliest possible time.

Where no particular method of acceptance is prescribed, the

general rule is that acceptance may be given by the same
mode of communication or by a method equally as fast as
the method used in making the offer.
Communication of acceptance
The general rule is that, acceptance becomes effective only when it
has been communicated/received by the offeror.

Until an acceptance is received by the offeror, the offer may be

revoked.

The main rationale for this rule is that it could cause hardship to the
offeror if he is to be bound without knowing that his offer has been
accepted.

Exceptions to this general rule-

• Acceptance by Post- where acceptance is to be communicated to the
offeror via the postal system or telegram, then acceptance becomes
effective when posted, rather than when it is received the offeror.
•
Adams v Lindsay – offer for the sale of wool was received on sept. 5,
acceptance posted same day but received on sept. 9, defendant sold the
wool to someone else on the sept. 8. it was held that the contract came
into existence on sept. 5.
 Termination of Offer
An offer may be terminated before acceptance by any of these following ways:

• Revocation/withdrawal- The offeror can revoke or withdraw his offer before

acceptance. Acceptance makes the offer irrevocable.
The postal rule does not apply to communication of revocation.

• Rejection- Where the offeree rejects the offer e.g. counter-offer

• Lapse of time- where the offeror imposes a time limit and the offeree did not
accept the offer within the time specified.

• Failure of a condition- where the offer is conditional and the condition was not
met

• Death of the offeree or offeror- the person to whom the offer is made is the only
one capable of accepting the offer.

• Death of the offeror- where the offeree has notice of the offerors death before acceptance,
the offer is automatically revoked. However, if the offer was accepted before knowledge of
the offerors death, termination of the offer will be dependent on the nature of the contract.
If the contract is one that can still be performed
 Consideration
For a simple contract to be enforceable, there must be
consideration. In other words, each party must do or promise to do
something in exchange for what is gained from the other party

Consideration is a promise by the promissor to give something of

value to the promisee in exchange for a thing of value.

Currie v Misa- Consideration – right , interest, profit, benefit, or

forbearance, detriment, loss, responsibility’

A promise not supported by consideration is a gratuitous promise.

Not enforceable. Awoof is not a contract, unless it is under seal.

So if you seek to enforce someone else’s promise to you, you must

prove that you gave something in return for that promise.
Each party must receive a benefit and suffer a
detriment/loss. This benefit and detriment is referred to
as consideration.

Consideration can be a thing or a service. It does not

have to be money.

Most contracts involves 2 promises, each is both a

promissor and a promisee.
E.g. For instance, where A simply promises to sweep
the class- it is not enforceable unless it is under seal
Where A promises to sweep the class in exchange for a
loaf of bread- contract
Rules Governing Consideration
1. Consideration must have some value but need not
be adequate.

The consideration must have a real or economic value, but need

not be adequate.

It should not just be an emotional or sentimental value. E.g. A

promise by a son to his father to be more responsible in exchange
for a new car.

The court will not usually interfere with the bargains of the
contracting parties. Parties are allowed to make whatever bargains
that they want. The court is not concerned with whether the
considerations are of fair or unfair value, it should just be
something that a value can be placed on.
e.g. a plate of food in exchange for an iphone.
2. Consideration must move from the promisee

Most contracts involves 2 promises, each is both a

promissor and a promisee.

Any one who does not furnish consideration cannot bring an

action to enforce the contract. E.g. in a contract made by A
and B for the benefit of C, C cannot bring an action to
enforce the contract because he did not furnish
consideration.
3. Consideration may be Executory or executed, but not past.
Consideration is Executory where both parties exchange promises to
perform an act in the future e.g. a promise to supply a bag of rice in
exchange for payment.- bilateral contracts.

Consideration is executed where a party promises to do something in

return for the performance of an act, rather than for the mere promise of
the future performance of an act.

Consideration to perform an existing obligation is past consideration,

therefore not valid. where a party performs the act before the other party
makes a promise.

Exceptions to the rule that past consideration is no consideration is where

a service is rendered at the request of the promissor with the understanding
that the act will be paid for. Example, where you ask a taxi driver to take
you to your hostel. Request for uber.
4. Consideration must not be illegal
The courts will not allow Illegal or immoral considerations to succeed.

5. A promise to fulfil an existing obligation is not consideration

Where a person performs or promises to perform an act which he is already
obliged to perform, he is not contributing anything to the bargain.

But if he does more than he is bound to do, that is consideration.

For instance, consideration is not sufficient, where there is a:
A public duty – hiring a LASMA officer to direct traffic
A duty imposed by contract with the promisor- where the promisee is
bound to perform the duty by an earlier contract. Stilk v Myrick-
ship/sailors
A duty imposed by contract with third party- where the promisee
performs an act which he is already bound to perform by another
contract.
 Intention to Create legal relations
In addition to offer, acceptance and consideration , there is a
4th element- intention to contract.

For the contract to be valid, the parties must have the

intention to create legal relations.

However, to determine whether the parties intended to create

legal relations or not, the court will not usually ask the parties
whether or not they intended to contract.

Rather, it will employ an objective test. It will consider

whether an onlooker/officious bystander /reasonable man will
assume, from the facts of the case, whether or not the parties
intended to contract.
In other to determine whether intention to contract exists or
not, the courts classify agreements into social or domestic
agreements and Commercial agreements.

where the agreement is of a Social and Domestic nature, the

court generally presumes that the parties did not have the
intention to be bound e.g. agreement btw husbands/wives,
parents/child, friends.
However, the courts presumption can be rebutted/changed if
their is evidence that the parties intended to be bound.

Commercial Agreements- it is generally presumed that

parties in commercial agreements intend to enter into a legally
binding contract. It is therefore not necessary to prove further
intentions.

This presumption can be rebutted/changed if there is evidence

that the parties did not intend to be bound.