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Formation of a contract. A contract is an agreement that is enforceable at law. Characteristics of a Contract. 1. There will be a promise or promises. 2. They will be made by “parties to the contract”. 3. They will create an obligation. 4. That obligation will be enforceable at law.

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characteristics of a contract
Characteristics of a Contract

1. There will be a promise or promises.

2. They will be made by “parties to the contract”.

3. They will create an obligation.

4. That obligation will be enforceable at law.

5. Often found in negotiations, rather than a formal document.

offer acceptance analysis







carlill v carbolic smoke ball 1893 1 qb 256
Carlill v Carbolic Smoke Ball[1893] 1 QB 256
  • Unilateral contract
  • Offer can be made to world at large
  • Distinguish offer from invitation to treat by looking at intention of offeror
  • Unilateral contract – offer made at large, but only accepted by those who actually perform
  • Unilateral contract – communication of acceptance not required
  • Consideration can equal detriment/effort

“the indication by one person to another of his or her willingness to enter into a contract with that person on certain terms”

Carter and Harland, “Contract Law in Australia” 4th edn p28

essential features of an offer
Essential features of an offer:
  • The offeror must intend to be bound by the offer
  • The offer must be communicatedto the offeree
  • The offer may be made to one person, a class ofpersons, or the whole world
  • The offer must contain enough information (certainty) to allow a binding contract to come into existence
an offer is not

An offer is not:

A request for the supply of information

Harvey v Facey [1893] AC 552

An invitation to treat

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1QB 401.

Gibson v Manchester City Council [1979] 1AllER 972

examples of invitations to treat
Examples of Invitations to Treat
  • advertisements/circulars
  • price lists
  • displays of goods in shops
  • calls for bids at auctions, and
  • calls for tenders.
termination of offers
Termination of Offers
  • Acceptance
  • Revocation
  • Rejection
  • Condition in offer not fulfilled
  • Lapse of time
  • Death of a party
  • Must be communicated
  • Prior to acceptance – Byrne v Van Tienhoven
  • Communication can be by third party or conduct– Dickinson v Dodds
  • Not bound by statement to keep offer open for a specified time – Dickinson v Dodds
  • Unless option– Goldsborough Mort v Quinn
revocation of unilateral contract
Revocation of unilateral contract
  • Communication?
    • Same as offer Shuey v United States
  • Acceptance commenced but not complete?
    • Old view – implied promise not to revoke until reasonable time for performance had elapsed
    • Errington v Errington; Veivers v Cordingly
    • New view – offeror may revoke once acceptance has commenced
        • Damages may lie (breach of ancillary/implied promise)
        • Mobil Oil Australia Ltd v Welcome International Pty Ltd
  • Rejection terminates an offer
  • Counter offer is a rejection
    • Hyde v Wrench
  • Response is not always counter offer/rejection
  • May be clarification or request for information
    • Stevenson v McLean

A FINAL and UNQUALIFIED assent to the terms of an offer made in the manner specified or indicated by the offeror

The “yes” which ends negotiations

  • May be oral
  • In writing
  • Or by conduct
acceptance must respond to the offer
Acceptance must respond to the offer

So, only those persons:

-to whom the offer was made; and

-who have the offer in mind at the point of “acceptance”

may accept

R v Clarke: must rely on offer at time of acceptance

what can be accepted
What Can Be Accepted?
  • Only what was offered (without any additions, deletions or conditions)
  • Must end negotiations
  • Must be unqualified
  • Battle of the forms (cf counter offer)
        • Butler Machine Tool Co Ltd v Ex-cell-O Corp (England) Ltd
acceptance must be communicated
Acceptance must be communicated
  • Silence is not sufficient
    • Felthouse v Bindley
  • Conduct may communicate acceptance
    • Brogden v Metropolitan Railways
    • Empirnall Holdings v Machon Paul
exceptions to communication
Exceptions to communication
  • Waiver
  • Unilateral contract
    • Carlill v Carbolic Smoke Ball
  • Postal Acceptance Rule
    • Acceptance complete on posting (constructive vs actual communication)
    • Within the reasonable contemplation of the parties
    • Adams v Lindsell
    • May be excluded by request for notice (actual communication) Bressan v Squires
conditional acceptance
Conditional acceptance

Can you accept ‘with strings attached’?

- “subject to” some reservation.

NO - BECAUSE there is no “final and unqualified assent to the terms of the offer.”

Whether an acceptance is truly “conditional” depends on whether the parties INTENDED TO BE BOUND by what they agreed.

the three possibilities from masters v cameron
The Three Possibilities fromMasters v Cameron

1. The parties had reached FINALITY, intended to be bound immediately, but wanted the terms set out in a MORE PRECISE but NOT MATERIALLY DIFFERENT form.

2. The parties had reached finality, intended NO DEPARTURE from the terms of the agreement but made PERFORMANCE of one or more of the terms conditional on execution of a formal document.

3. The parties did not intend to make a CONCLUDEDBARGAIN unless or until a formal contract was drawn up.

Uncertain and incomplete agreements

not enforceable BECAUSE the courts cannot be sure what was agreed.


“Agreement to agree” not enforceable as final agreement not reached“Agreement to negotiate in good faith” may be enforceable (Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd)Agreement with missing terms may be completed (and enforceable) if terms can be objectively determined (eg arbitration clause.) (Booker Industries v Wilson Parking)

intention to create legal relations

“To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly”

Atkin LJ in Rose & Frank Co v JR Crompton & Bros Ltd [1923] 2 KB 261 at 293

rebuttable presumptions
Rebuttable presumptions
  • In social and domestic agreements there is a presumption against legal obligations
    • Balfour v Balfour
    • Cohen v Cohen
    • Jones v Padavatton
  • The presumption is rebuttable
    • Merritt v Merritt
    • Todd v Nicoll
    • Wakeling v Ripley
rebuttable presumptions28
Rebuttable presumptions
  • In business or commercial agreements, there is a rebuttable presumption that the parties did intend to create legal obligations
    • Carlill v Carbolic Smoke Ball
    • Rose & Frank Co v Crompton & Bros Ltd
    • Honour clause