Aspects of Contract and Negligence for Business

Aspects of Contract and Negligence for Business 2
Task 1
1.1.
The formation of contract is not an easy task and there is a need for the contract to hold the basic
elements in order for the same to have legal validity. The basic or the essential elements of
contract formation includes offer, acceptance, consideration, intention, clarity and capacity
(Mau, 2010).
The first requirement for contract formation is for an offer to be made by one party, to the other
party, which contains clear terms on what is being offered. There is a need to attain clarity on the
difference between an offer and an invitation to treat. An invitation to treat comes before the
offer, which is not necessary to be present in every case and shows the intent of the party to
negotiate on something. On the other hand, an offer shows the intention of creating legal
relations between the parties (Clarke and Clarke, 2016). For instance, the goods which are
displayed on the shop shelf are deemed as an invitation to treat as per the case of Pharmaceutical
Society of Great Britain v Boots [1953] 1 QB 401. The offer is made when the customer picks up
a particular item from the shelf and brings it to the cashier counter (Ayres and Klass, 2012).
Once an offer has been made, it is important that this particular offer is accepted by the party to
which the offer was made. So, the offer cannot be accepted by someone to whom the same was
not made. The offer has to be accepted in such a way that the exact terms made under the offer
are accepted and no changes or modifications are made (Andrews, 2015). Where any
amendments are made in the offer, while communicating the acceptance, it becomes counter

Aspects of Contract and Negligence for Business 3
offer based on Hyde v. Wrench (1840) 3 Beav 334. And this case states that when such happens,
the original offer comes to an end and cannot be accepted later on (Marson and Ferris, 2015). A
key point related to acceptance is the date of acceptance. In general, this date is taken to be the
date on which the offering party attains the acceptance of the accepting party. However, when it
comes to the postal rules, they are deemed as an exception to this general parlance. In such case
where the acceptance is given through post, the date of acceptance becomes the date on which
the letter of acceptance is posted by the accepting party. This is due to the status of implied agent
being given to the postal office on the basis of case of Byrne v Van Tienhoven (1880) LR 5 CPD
344. And in such cases, the date of actual receipt of acceptance by the offering party remains
irrelevant (Mulcahy, 2008).
The third element required for the formation of contract is the consideration. Consideration is the
sum paid for undertaking the task promised under the contract. The basic rules surrounding
consideration include that the same cannot be past; it has to move from promisee; it has to be
sufficient not adequate; and it cannot be an existing public or contractual duty (Blum, 2007). The
amount of consideration can be mutually decided between the parties and is deemed as valid. For
this however, there is a need for the consideration to have economic value. In Chappell and Co
Ltd v Nestle Co Ltd [1960] AC 87, the court allowed three wrappers as valid condition due to the
condition precedent (Stone and Devenney, 2017).
The next crucial element in contract formation is the intent to create legal relations. The parties
need to have the intention of being bounded legally where they would not only have legal rights
but legal liabilities as well (Abbott, Pendlebury and Wardman, 2007). In Balfour v Balfour
[1919] 2 KB 571, the court held that the agreement was purely social and domestic, which meant

Aspects of Contract and Negligence for Business 4
that there was an absence of intention to be bound legally (Poole, 2016). The fifth element in
contract formation is clarity and this denotes the clarity regarding the terms of the contract. The
parties to the contract need to be clear on the terms of the contract and the same should not be
ambiguous. The last requirement for contract formation is for the parties to hold capacity to enter
into contract in terms of being of sane mind and legal age (Elliot, 2011).
1.2.
Contracts can be both unilateral and bilateral, and both of these have legality in terms of law. A
bilateral contract is formed when a person offers another person something and the other person
accepts this “something” to form a contract. In other words, both parties carry out something, for
instance, the restaurant owner serves food and in turn the consumer pays money. The basic
contracts are formed in this manner only (Lambiris and Griffin, 2016). The unilateral contracts
however are different and involve the action to be undertaken by a single person only. A lead
example of unilateral contract can be found in the case of Carlill v Carbolic Smoke Ball
Company [1892] EWCA Civ 1. In this case, a newspaper advertisement had been given in which
it was stated that any person who contracted influenza after using their smoke ball in the
prescribed manner, would be awarded £100. Carlill did as was told and caught influenza, and
ultimately claimed the promised sum. The court held that in this case, a unilateral contract had
been formed and the same was binding (Poole, 2016).
1.3.
Exclusion clauses are such terms in the contract, through the use of which, the liabilities arising
for a party can be restricted or limited. As a result of these clauses, a party to the contract is not