Critically analysis the key elements requires for the formation of a valid contract
This assignment requires us to critically analysis the key elements that are required for the formation of a valid contract. The law of contract requires that for a contract to be valid there must exist offer, acceptance, consideration and intention to create legally binding relations. These four elements will now be critically discussed.
An offer is an expression by one person or group of persons, or by agents on his behalf, made to another, with the intention that if the offer is accepted, he will be bound by a contract. The person who makes the offer is known as the offeror and the person to whom the offer is made will be called the offeree. An offer will need to comply with three requirements in order to be deemed valid. The first of these is that it must be made to a definite person, class of people, or individual or to the world at large. An offer can be made expressly by words, or it may be implied from the conduct of the offeror. It is important to differentiate from an offer and a mere invitation to treat. An invitation to treat is a mere declaration of willingness to enter into negotiations; it is not an offer, and cannot be accepted so as to form a binding contract. An example of an invitation to treat would be an item for sale in a shop as explained by Lord Parker in Fisher v Bell  1 QB 394 in which he stated that: “the display of an article with a price on it in the shop window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which constitutes a contract.” Other examples of an invitation to treat are advertisements and this was the case in Partridge v Crittenden  2 ALL ER 421. Although in some circumstances advertisements will be considered to be offers this is if they are made unilaterally, .i.e. to the world at large, an example of this can be seen in the case of Carlill v Carbolic Smoke Ball Company  1 QB 256.
The second requirement is that the offer must be effectively communicated to the intended offeree before acceptance takes place and finally the offer will only be considered to have been accepted once it reaches the offeree; Adams v Lindsell (1818) 1 B & Ald. 681. The second element that is required in order for there to be a valid contract is acceptance. Acceptance will take place where the offer is accepted by the offeree without qualification and the acceptance must exactly match the terms of the offer. If there offeree makes any new requirements or alters the terms of the offer in any away this will not amount to acceptance but will be deemed to be a counter offer; Hyde v Wrench (1840) 3 Beav 334. Equally if the offeree places a condition on acceptance of the offer it will not be deemed to amount to acceptance.
In order for acceptance to be valid it must be communicated to the offeror and until such a time as the acceptance is communicated to the offeror there will be no valid contract; Entores v Miles Far East Corporation  2 ALL ER 493. The acceptance must also be communicated by the offeree and unless authorised to do so someone cannot accept the offer on his behalf. If the offer is accepted by a third party without the offeree’s knowledge or authority then there will not be a valid acceptance; Powell v Lee (1908) 99 LT 284.
There are some nuances to acceptance which must be considered and one of these is the postal rule. The postal rule states that where acceptance of post has been requested or in circumstances where it will be considered to be an appropriate and reasonable means of communication, acceptance will have deemed to have taken place the moment that the letter of acceptance has been posted. This will be the case regardless of whether or not the letter of acceptance ever reaches the offeror; Adams v Lindsell (1818) 1 B & ALD 681. This rule will apply provided that the letter has been properly addressed and posted and the offer does not expressly forbid acceptance by post.
Other methods of communication of acceptance may be used where the offer stipulates that such methods will be acceptable or if a method is stipulated, but not to the exclusion of others, and another equally advantageous method is used; Tinn v Hoffman (1873) 29 LT 271.
The third element which must be present in order to create a valid contract is consideration. Agreement as between the parties it is not sufficient to create a valid contract and both parties, in addition, must provide consideration. Essentially consideration is where both parties promise to do or give something to one another. A definition of consideration was provided by Lush J in the case of Currie v Misa (1875) LR 10 Exch 153 in which he stated that: “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other”
There are essentially two types of consideration, executory and executed consideration. Consideration will be considered to be executory were there is a promise to perform acts in the future such as were A promises to deliver goods to B in the future and B promises to pay on delivery. Executed consideration arises were A promises to deliver goods to B at a future date and B promises to pay on delivery.
Generally the rule is that consideration must not be past consideration. Therefore if one party performs an act voluntarily and then the other party makes a promise that consideration is said to be in the past. There are some exceptions to this rule such as previous requests. This situation will arise were the promisor has previously requested the other party to do something such as provide goods or services and that promise will be treated as binding; Lampleigh v Brathwait (1615) Hob 105
There are some other rules in relation to consideration such as that consideration must be sufficient but need not be adequate. This means that consideration must have some value but the courts will not be interested in ascertaining whether or not such consideration is adequate. Further consideration must move from the person who seeks to enforce the contract and it will not be sufficient for them to demonstrate that someone else provided the consideration. The consideration must move from them.
Finally there are two specific rules in relation to consideration namely that if someone agrees to do something which they are already bound to do under a contractual duty or that they are bound to do for a third party, this will not amount to valid consideration; Stilk v Myrick (1809) 2 Camp 317. In addition there are some very specific rules relating to part payment of debt and consideration, discussion of which is beyond the scope of this assignment.
The final requirement for the existence of a valid contract is that there must be an intention to create legal relations. This requires that both parties intend to create a legally binding agreement. In this regard the law makes several assumptions. The first of these assumptions is that social agreements are not intended to be legally binding. This encompasses agreements made between friends and families. In relation to business and commercial agreements the presumption is that the parties intended to create legal relations and to enter into a contract. In both circumstances the presumption can be rebutted by the parties providing evidence that the alternative intention was meant. There are some other areas of consideration that can cause difficulty and these include mere puffs, letters of comfort, letters of intent and collective agreements. These are specific agreements which have special rules relating to consideration which must be referred to when entering into such agreements. One final area in relation to consideration which may cause some difficulty is that of free gifts. The case of Esso Petroleum Co Ltd v Customs and Excise Commissioners 1976 dealt with this particular issue and the courts were asked to consider whether or not free coins issued to persons purchasing petroleum were the subject matter of a contract. The courts considered that these did not form the subject matter of the contract as there was no consideration from the party receiving the coins and thus the right to obtain these coins, when purchasing petroleum, could not be enforced.
In conclusion, for a contract to be a valid contract all of the above elements must be present, whilst they are generally non-controversial and tend to be straightforward, there are instances were particular difficulties can arise. Thus when entering into contracts parties must be clear that all the elements are present and that there is no doubt as to their inclusion. Consideration must be given to the type of contract that is being entered into and the particular rules that govern that contract.
Allan V & Riches S, (2009) “Keenan and Riches Business Law”, Pearson, 9th Edition
Adams v Lindsell (1818) 1 B & Ald. 681
Carlill v Carbolic Smoke Ball Company  1 QB 256
Currie v Misa (1875) LR 10 Exch 153
Entores v Miles Far East Corporation  2 ALL ER 493
Esso Petroleum Co Ltd v Customs and Excise Commissioners 1976
Fisher v Bell  1 QB 394
Hyde v Wrench (1840) 3 Beav 334
Lampleigh v Brathwait (1615) Hob 105
Partridge v Crittenden  2 ALL ER 421
Powell v Lee (1908) 99 LT 284
Stilk v Myrick (1809) 2 Camp 317
Tinn v Hoffman (1873) 29 LT 271