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How the contract is formed

Above chart shown that how the contract is form. Not all agreement is contract but all contracts are agreement because an agreement is a form of cross reference between parties and parties and it can be written, oral or lies to fulfill the need with two or more parties rather than being enforcement. Although an agreement is not a contract but a contract is an agreement because there must understand between two or more parties then only the contract can be form. Before the parties sign the contract they should agree and hold on to the term and condition of an offer.

An “Offer + Acceptance" can become an agreement or contract but if in between of the contract without “Intention to create legal relation" and “consideration" then the contract or agreement will be void automatically. To form a contract is because to avoid the negotiation between two or more parties, sometimes it is referred as an adhesion contract or boilerplate contract as well.

What is offer, acceptance, intention to create legal relation and consideration?

Offer is to make a deal between owners to another party which mean the owner wanted to sell something to someone and they will tell the buyer for offer them something.

Invitation to treat is to invite people to offer make an offer from offeror to offeree such as shopper went into a shopping central and wanted to buy something then she or he pick up a good and walk to counter for make her or his payment so she or he is the one who making invitation to treat.

In the case of Grainger v Gough (1896) AC 325, HL said that the London agent for a France wine merchant had distributed catalogues and accepted the order and sent the order to X but X refused any order from London agent. In this situation, X whether wanted to pay for the tax the made by the agent that’s from London. The court said that the catalogues was only an invitation to treat to purchaser but not an acceptance from purchaser therefore the contract does not be form until X accepted the offer in France X.

Counter offer is an offeror make an offer to offeree for certain goods or products and suggest or hint without actually stating to refuse the original offer and the offeree try to negotiate for reduce the value or price of the goods or product but it was not success and the offeror try to increase the value of goods or products.

Counter offer is come with two types of offer which is “Unilateral offer" & “Bilateral offer".

Unilateral offer mean the offeror make an offer to open public or anyone. It does not come with a fix party to accept the offer.

Bilateral offer is the offeror make an offer to one offeree and it is come with a fix person to sell the goods to.

Acceptance is a final decision to the term of the offer because all acceptance whether oral or written must be communicated before the contract can be form such as when a person who willingness to accept the offer but before they accept for all term they must have communication because once they sign the contract then it is considered legal binding.

In the case of Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256, CA it show that the makers DD of health product advertised their product in newspaper and they promised to pay £ 100 for those customer who use the smoke ball by follow instruction but doesn’t get the effect. To show their sincerity they put £ 1000 into the bank. P had bought a smoke ball and uses it by follow the instruction but her problem still maintains and she complained to the company but the company does not do what they had promised to customers.

P sued the company then the court said P accepted the offer by buying smoke ball and use it by follow the given instruction. Since the advertisement is mention that the company will pay £ 100 for those customers that doesn’t get any effect therefore it doesn’t need P notify for the acceptance.

Intention to create legal relationship is one of the main purposes to bind the contract, this intention implied by the statement that can’t expressly deny. If expressly deny then the contract may not be enforcement.

In the case of Edward v Skyways (1964) All ER 494 Megaw J shows that airline DD had promised to give pilots extra income or overtime for the extra working hour. P sued the company that the company does not responsible for their promises but DD does not intended the term into the contract. So the court said since term is not binding to the contract therefore the promise is not effect in law.

Consideration is an action of thinking something before makes decision and it must be related to something valuable or something very important. A promise that does not come with consideration then it cannot be a binding contract such as an offeror make offer to an offeree, before the offeror pass the goods or products to offeree, offeree must consider for the price and goods before she or he can accept the offer that the offeror made.

In the case of Thomas v Thomas (1842) 114 ER 330, QB show that J had promised widow P that will collect £ 1 for selling her convey and ground-rent for the rest of her life and it is effective even when J is death. Executor is no doubt respect for J but the court said there was an enforcement contract. The £ 1 a year is a valuable consideration therefore it is considered a contract.

What are the remedies available for a breach of contract?

There are 5 ways to overcome the breach of contract which is Rescission of contract, Damages, Specific performance, Injunction and Restitution.

Rescission of contract is mean that a fair way to cancel the existing contract and relocate to their situation previous to enter into the contract. It also refer to the cancellation of a contract, if it is involve to money then the company should compensate for then lost.

In the case of Magee v Pennine Insurance (1969) 2 All ER 891, CA said that the motor insurance policy of P was invalid, P and his insurer DD knew it. DD were agreed to pay a claim to P but they when found out the invalidity and they reject to pay for the claim. The court said agreement to pay was binding to common law but ordered its rescission in equity.

Damages is an awarded to compensation to the injure party for any lost of the breach of contract.

In the case of C & P Haulage v Middleton (1983) 3 All ER 94, CA show that P hired a garage for 6 months and to provide with everything to meet his needs. D terminated the contract 10 weeks early therefore P sued D for the expenses that he provided but his claim was rejected. The court said that he is incurred for any expenses and the early termination doesn’t make any loss.

Specific performance is a reasonable way to remedy when the contract directly be perform according to it term by court.

In the case of Patel v Ali (1984) 1 All ER 978, CA show that D and her husband were co-owner of a house and they agreed to sell the house to P. D’s husband became bankrupt and herself having bone cancer and have to amputate her leg, she also coincided with the births of two children. D relies on the support of her friends and relatives. The court set aside an order for specific performance and awarded damages and saying that in all this situation as a decree would cause undue hardship even though this is not relate to the subject of contract.

Injunction is a legal order that telling a person that not allowed doing certain things of act and also to stop someone when he or her is doing something.

Restitution which mean a party who has totally or done for half part then the payor can simply get back money but when it is consist to other benefit for claim recompensation in respect of it.


I learned something that I never know before which is actually to make a contract should come with offer and acceptance, intention to create legal relationship, consideration but after I did this assignment, it make me clear about how the contract to be form. Besides that I also learned that how to remedy the breach of contract. There are five ways to remedy the breach of contract.

Business law really help us a lot in the future that if when we having a business, it can helps to reduce the risk for the company because if we know more about the law then we will trying to reduce the mistake and we will also know what is the right action to take when we facing problem.

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