Contract Formation Steps in Business Law

BUSINESS LAW
Contract Act
STUDENT ID:
[Pick the date]

PART A
a) The relevant discussion pertaining to different contract formation steps in relation to the
cafe transaction is indicated as follows.
Offer – A key requirement for contract formation is valid agreement. The agreement process
begins with the offer being given by the offeror. This offer may be termed as bilateral or
unilateral based on whether the underlying offer is addressed to a single offeree or multiple
offerees. Any offer which is not directed at a given individual but a group of individuals
would be termed as a unilateral offer1. This is in line with the verdict given in the R vs
Clarke2 case. Also, it is imperative to differentiate an offer from an invitation to treat. If the
objects are displayed with their price tag,the same would not be considered as an offer but
rather an invitation to treat. Only once the customer reads the advertisement and makes a
request to purchase a certain item at a specified cost would an offer arise3. This has been
highlighted in the Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
Ltd4.
For the given scenario, the advertisement of menu on the touch screen does not constitute as
an offer but is rather an invitation to treat, Only when a selection is made by the customer
would an offer be made as per which the consumer (i.e. Andrew) is willing to buy the
selected product at the specified price in the advertisement on the touchscreen.
Acceptance – Another key aspect which is imperative for valid agreement is that acceptance
by the offeree needs to be provided. The communication of this acceptance is an essential
element in bilateral offers as a valid agreement would be formed only when the offeree
receives the communication. However, there is waiver of communication in case of unilateral
contracts where the performance of the underlying activity only highlights acceptance5. This
has been highlighted in the landmark case of Carlill v Carbolic Smokeball Co6 case (Carter,
2016). Additionally, it is pivotal that the acceptance should not be conditional as it would be
referred to as counter-offer.
1Wayne Pendleton and RogerVickery, Australian business law: principles and applications, (Pearson
Publications, 2015, 8th edition) 103
2 R vs Clarke(1927) 40 CLR 227
3 Robert Bryan Vermeesch and Kevin Edmund Lindgren, Business Law of Australia (Butterworths, 2013,
12th edition) 121
4 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA Civ 6.
5 Athule Pathinayake, Commercial and Corporations Law, (Thomson-Reuters, 2014, 2nd edition) 98
6 Carlill v Carbolic Smokeball Co [1892] EWCA Civ 1

In the given case, there is a bilateral offer which Andrew has directed to the outlet where he
offers to buy hamburger and drink for $10. This was accepted by the cafe when a ticket was
issued which is essentially indicative of acceptance being given to the offer given by Andrew.
The given acceptance has been communicated to Andrew and is not conditional and therefore
would lead to formation of a valid agreement.
Consideration – It is imperative that there should be mutual consideration for both the parties
so that they have incentive to implement their promise. Consideration may be defined as
anything of value which may be exchanged between parties entering into contract and
thereby act as an incentive to ensure that the parties tend to participate in the underlying
transaction7. With regards to consideration, there are rules that need to be adhered to. One of
them is that past consideration is not a valid consideration as highlighted in the verdict of Re
McArdle8. Also,it is imperative that consideration ought to be sufficient and not necessarily
adequate9.
For the transaction under review, it is imperative that there is consideration for both the
parties namely Andrew and the cafe. The consideration for Andrew exists in the form of
hamburger and drink which he can eat and enjoy. On the other hand, valid consideration for
the cafe arises on account of the payment of $ 10 which it receives from Andrew. As a result,
there is mutual consideration involved in the given transaction.
Intention to enter into legal relation –It is essential that the contracting parties must have an
intention to bind each other in legal relations. But this is an issue only where the contracts are
between relatives and friends. As a result, the presence of this intention needs to be
established only for domestic or social agreements10. For commercial contracts, it is assumed
that there is intention to form legal relations by the concerned parties as highlighted in the
discussion of Balfour v Balfour11 case. The transaction wherein Andrew has bought a
hamburger and drink from the cafe is an example of commercial transaction as the parties are
unrelated. Hence, it is assumed that intention to bind each other legally exists for the given
transaction.
7 Andy Gibson and Douglas Fraser, Business Law (Pearson Publications,2014, 8th edition ) 149
8 Re McArdle (1951) Ch669
9 Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1
10 Shayne Davenport, Business and Law in Australia (Thomson Reuters, 2014, 5th edition) 112
11 Balfour v Balfour [1919] 2 KB 571