The Formation and Enforceability of Contract

The current English law, in assessing the formation and enforceability of contract, at first glance appears to take a rigidly technical and schematic approach. However, it is questionable whether this rigid approach reflects legal reality, and this view has been reflected by various commentators who have considered the approach of contract law largely practically motivated. In order to discern if the law of contract in fact adopts a practical approach, the governing law in this area and the decisions of the courts in the context of the rationale provided for the decisions, must be intimately examined. Moreover, if a pragmatic approach is in fact undertaken by the courts, it is essential to consider further the extent of this.

For a valid contract to form there needs to be an offer, acceptance, intention to create legal Relations (ICLR) and a consideration. A contract is an agreement in which an offeror (the person making the offer) makes an offer to an offeree (the person accepting the offer) to enter into the contract under certain circumstances. A contract is formed when the offeree accepts the offer made by the offeror under the mentioned terms and conditions; the offeree has to communicate with the offeror for the contract to bind entirely; silence does not constitute acceptance, unless stated otherwise, (for instance in Re Selectmove Ltd). An offer can be defined as “a manifestation by the offeror (whether orally, in writing, or by conduct) of a willingness to be bound by the terms proposed to the offeree (the addressee) as soon as the offeree signifies acceptance of the terms”. Moreover acceptance is defined as “an unequivocal expression of consent to the proposal contained in the offer and has the effect of immediately binding both parties to the contract”. For the parties to rely on a contract there needs to be consideration and an ICLR. Consideration can be defined as when one party must carry out a performance or must promise to take some action specified by the other party in order to pay the value of his/her undertaking. Moreover an ICLR is simply the intention of the parties to create a legally binding contract. Furthermore, this way of the classical approach to contract formation matched the nineteenth-century but it created some criticism in the twentieth-century which were some new developments in the law of misleading conduct, unjust enrichment, misrepresentation and estoppels; therefore the formation of contract is not just based on the offer and acceptance procedure. An analysis can be carried out to determine whether or not a contract is formed; firstly, is there an offer? Secondly, if there is an offer, is there an unequivocal acceptance from the offeree? Thirdly, has the offeree communicated his acceptance successfully? Fourthly, is the offer still available at the time of the acceptance? And finally, do the courts use the traditional rules of offer and acceptance (O&A) in all cases?

However, the theoretical rules within the law of contract are often considered less than pragmatic. This is because the courts often find that the contract law situation that they have to make judgement on does not fall within the strict categories of offer, acceptance, ICLR and consideration, or that applying the rules would lead to injustice either by preventing the formation of contract where one is equitable to exist, or conversely by allowing the existence and enforceability of contract where non should exist. In such situations, in light of all the considerations the courts may be left with no choice but to do justice by altering the theoretical rules of contract law. The court may do this in a number of ways: Firstly, they may widen the boundaries of these categories to accommodate the situation in question; secondly, they may interpret the rules of each category more restrictively so as to prevent the formation of contract where this may be considered the appropriate results; thirdly, the courts may apply the rules less strictly to allow formation of contract, where the court is satisfied in light of practical all rounded consideration of the fact that such should be the result; finally, in extreme situations the courts may entirely deviate from the theoretical rules of contract law to allow or disallow formation of contract as it considers appropriate in light of all the facts of the case.

Firstly, we will turn our attention to situations where the rules of O&A have proved impractical. The courts do not always follow the classical rule of O&A when looking at a contract; therefore one particular problem with the traditional rule of O&A, is that the courts may deviate from the rule, due to the increased number of cases where there needed to be modification of the rules in order for parties to enter a formal contractual arrangements, for example in Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council, and the decision of the Court of Appeal in Gibson v Manchester City Council reversed by the House of Lords. Secondly, it would be easier for the courts to distribute with the official procedure of O&A where a transaction has been carried out, for example in G Percy Trentham Ltd v Archital Luxfer Ltd. And finally, in cases of a unilateral contract, once the offer is promised to the offeree, in return of an action that was to be taken by the offeree, even if the potential offeree has not yet accepted the offer, the offeror is unable to withdraw his/her offer, for example in Carlill v Carbolic Smoke Ball Co. Ltd.

Secondly, we will look at the impractical rules of ICLR; The courts, although not being able to make a contact for the parties, strive to uphold a bargain wherever possible. Moreover, not all the situations fall within the categories that we have discussed earlier in this paper, and it is for this reason that the courts sometimes have to widen the boundaries of their categories. It is not easy for the court to decide whether there was an ICLR or not, because they cannot work out exactly what is in the minds of the parties; therefore the law decided to divide the agreements into two groups; social and domestic agreements, and business agreements; where social and domestic agreements cover the agreements made between a family, for instance between a parent and a child or a husband and his wife, it can also be agreements between workmates or friends; for instance agreements to go for a walk, or to go for a movie, or to promise to help a workmate with their work; these agreements are unenforceable. Examples of these agreements can be seen in a number of cases such as Lens v Devonshire Club (1914), where it involved participation in a golf club competition, or the case Coward v Motor Insurer’s Bureau (1963), in which there was an agreement to share the costs of the petrol in the journey. Another example of unenforceability of an agreement in family and social agreements can be seen in the Balfour v Balfour, where the agreement was formed while the spouses were living ‘in amity’. However, if the husband and wife are not living as one household, then the situation is to the contrary of the case stated for example in Merritt v Merritt (1970), where the partners do not live together in harmony at the time of the agreement. Furthermore, in business agreements, it is said that the parties do intend to create legal relations and form a contract. The courts should look at the intentions of the parties to decide whether or not the parties have in fact created legal relations. The contract can be voided only if the courts know that there is any doubt of intention, or that the intention is unilateral; otherwise the court will declare an agreement not binding in Law, only if both parties clearly state that they wish the court to do so.

In addition, when looking at unions and companies and the agreements between them, another question is brought about, involving whether or not they actually have the intention to create a legally binding contract. Furthermore, in general, collective agreements are not intended to be legally binding; however, we can make some explicit provisions of collective agreements legally binding by integrating them into individual contracts of employment.

Moreover consideration can simply be defined as a test of enforceability which carries out the same function as intent. Although consideration is an important factor of the formation of a contract, abolishing it would be more practical because consideration has many problems and is vague, which leads to inappropriate results, additionally, as can be seen from the judgements of the courts, it is often the intention that is considered the most important and overriding requirement for making the contract enforceable. There are various cases which demonstrate the insufficiency of consideration as an element which determines a contact is enforceable, one such case is Stilk v Myrick, and another example is Hartley v Ponsonby.

We know that not all agreements are treated as enforceable contracts. There are certain rules (which purposes are called ‘badge of enforceability’) to identify the certain agreements that are to be treated as enforceable contracts; these rules are consideration and form. Furthermore, the creation of a legally binding contract cannot occur just based on the agreement supported by consideration; however the parties must also have the ICLR which is a necessity of contract Law in the UK, and the existence of it is dependent upon the contracting parties and the form and nature of that contract. Moreover, although we know that if consideration is present then that must mean that there is the ICLR, but there are situations where it can be determined that there is no legal liability and contract if the assumption of the intention can be proven to be incorrect.

Nevertheless, despite the fact that the courts did not follow the rules and relied just on consideration in some cases, but on the whole it appears that they do follow the rules and that maybe those cases were exceptions. And it can be decided that perhaps it would be best to change the rules of the law to fit the new situations so that the courts do not have to bend the law; furthermore, it would be less problematic if the rules only consist of the ICLR as oppose to the common law which requires both consideration and the intention of both parties.

Bibliography:

Articles:

Adam Kramer, ‘Common sense principles of contract interpretation (and how we’ve been using them all along)’, 2003, 23(2), Oxford Journal of Legal Studies

Books:

Chen-Wishart Mindy, ‘Contract Law’, (2nd edn, OUP, 2008)

Collins Hugh, ‘The Law Of Contract’, (4th edn, lexisnexis butterworths, 2003)

Elliott Catherine & Quinn Frances, ‘Contract Law’, (6th edn, pearson education Limited, 2007)

Fafinski S & Finch E, ‘Contract Law’, (2nd edn, pearson education ltd, 2009)

Frey Martin A. & Frey Phyllis Hurley, ‘Essentials of Contract Law’, (West Thomson Learning, 2001)

Martin Jacqueline & Turner Chris, ‘The Facts at your fingertips… Contract Law’, (2nd edn, Hodder Arnold, 2001)

Mckendrick Ewan, ‘Contract Law’, (8th edn, Palgrave Macmillan, 2009)

Oughton David & Davis Martin, ‘Sourcebook on Contract Law’ (2nd edn, Cavendish Publishing Limited, 2000)

Stone Richard, ‘The Modern Law of Contract’, (6th edn, Cavendish Publishing Limited, 2005)

Cases:

Balfour v Balfour [1919] 2 KB 571

Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195

Carlill v Carbolic Smoke Ball Co. Ltd [1892] EWCA Civ 1

Coward v Motor Insurer’s Bureau (1963) 1 QB 359

Gibson v Manchester City Council [1978] 1 WLR 520

G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25

Hartley v Ponsonby (1857) 7 E & B 872

Lens v Devonshire Club (1914)

Merritt v Merritt (1970) [1970] 2 All ER 760

Stilk v Myrick (1809) 2 camp 317