Formation of contract

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The majority of contracts involve bilateral obligation, which means under a bilateral contract there are rights and obligations on both sides. A contract can only be configured if there is more than one person or parties involved (<I>A man cannot by any deed constitute a debt by himself to himself, with or without security, A so called contract is plainly inept and void as an operative instrument</I>); there are no limits as to the number of parties who can enter a contract.  The configuration of a contract consists of <B>AN OFFER AND AN ACCEPTANCE</B> once both of these have been fully agreed upon then there is a <I><B>Consensus in Idem</B></I>.  Once a contract has been configured it then becomes an agreement, which “can” be enforced by Law. </div> <bR> <div> <B>Example: </B> Thomas is selling his Harley Davidson Motor Cycle for £15,000 he offers it to Martin for this price.  Martin thinks about the offer and then decides that he really wants the bike at the price of £15,000. He then tell Thomas that he will take him up on his offer therefore, <I>consensus in idem</I> has now occurred and a contract has been formed and a bilateral obligation now consists.  <I>However</I> if Martin replies to Thomas's offer saying I would like to buy your bike but I will give you £13,500 for it (this then is classed as a counter offer) and the first offer is then cancelled out.</div> <bR> <div> <B><U>Offer</U></B> and Acceptance = A Contract</div> <bR> <div> <B>FEATURES OF AN OFFER</B></div> <div> An offer can be described as a declaration of the exact terms, which are projected to be the basis of a contract.  An offer and an acceptance are a communication that can be made in any form; it can either be <U>Express</U> or <U>Implied</U> </div> <bR> <div> <B>Express</B>:</div> <div> Orally by an express spoken statement  </div> <div> Made in writing and posted to the offeree.</div> <div> Implied:  People's actions in certain circumstances can be classed as an offer.</div> <bR> <bR> <div> An offer must be definite, capable of being accepted and the person making the offer must intend to be bound by the consequences of it being accepted.  Sometimes it can be difficult to identify whether a communication is an offer or something else, such as an indication of a willingness to consider offers or a statement given in response to a request for information </div> <bR> <div> Example: The case between 6Philp & Knoblauch 1907 SC 994K. and also Harvey v Facey [1893] AC 552.</div> <bR> <div> An offer can either be wide-ranging or explicit.  A wide-ranging offer can be one that is made to a wide range of parties i.e. the general public, where-as an explicit offer will be made to a specific party and only that party can accept the offer.</div> <div> An invitation to treat can sometimes be mistaken as an offer however it is important to make a clear distinction between them.  An invitation to treat cannot be accepted in the way an offer can be, leading to the formation of a contract.  An invitation to treat is merely a signal of readiness to trade or to enter into negotiations.  An invitation to treat is really saying, “make me an offer and I might consider your offer”.</div> <bR> <div>  Examples of Invitations to Treat:</div> <div> <IMG SRC="05c0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     Adverts of offers</div> <div> <IMG SRC="05d0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     Goods displayed in a shop window</div> <div> <IMG SRC="05d0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     Goods on shelves within stores </div> <bR> <div> You can revoke and offer.  This is done when the offer is withdrawn.  It can be revoked at any time before the offer has been accepted. An offer can also lapse without the need for communication.  This can happen when an offer is rejected, if there is a counter offer, and if the offer is not accepted within a certain time.</div> <bR> <div> <B>TENDER</B>:  If a person asks a tradesman in to give them an estimate or a tender before deciding to go ahead with a job they are not offering the job, it is merely an invitation for the tradesman's offer which the person might consider. </div> <div> Once an offer is accepted a binding contract is formed.  However an offer can be withdrawn at any time by the offeror up until the offer is accepted, this is known as <I>locus poenitentiae.  </I>The only exception being if the offeror has stated a time in which he/she cannot decline the offer.</div> <bR> <bR> <div> FEATURES OF AN ACCEPTANCE</div> <div> A contract cannot be configured unless an acceptance is made to an offer.  Once an acceptance has been communicated indicating the offeree wishes to be bound by the terms of the offer and an agreement to fulfil any obligations that may become binding upon them under the contract. The agreement may take any reasonable form unless it is stated by the offeror that it has to be accepted in a specific manor i.e. in writing.  In addition to the Requirement of Writing Act, other statutes state that certain types of agreement must also be in writing, e.g. under the Consumer Credit At 1974 a hire purchase agreement etc. The acceptance must not contradict the terms of the offer and it must not make any additions to the offer. Generally, an acceptance will take effect when it is communicated to the offeror however Law being Law there are exceptions to the rule for Contracts by post.</div> <bR> <div> <U>CONTRACTS BY POST </U></div> <div> <U>General Rule One</U> - A contract will be configured when the acceptance is actually posted and not when is arrives at the offeror.</div> <div> <U>General Rule Two</U> - Revocation must reach</div> <div> <IMG SRC="05f0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     A revocation of an offer:  This is only effective if it reaches the offeree before the acceptance is posted.</div> <div> <B><IMG SRC="05d0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">   </B><B>  </B>Revocation of an acceptance:  The only exception to <U>general rule one</U> is only if the revocation reaches the offeror before or at the same time as the original letter of acceptance reaches the offeror (Example Countess of Dunmore V Alexander [1830] 9S 190). <U>POSTAL</U> Jacobsen, Sons & Co v. Underwood and Sons Ltd (1894) 21 R 654 </div> <div> <B><U>REVOCATIONS OF OFFER</U></B></div> <div> <B>A revocation of an offer is effective only if it reaches the offeree </B><B>before </B><B>the acceptance is </B><B>posted.</B></div> <bR> <div> <B><U>REVOCATIONS OF ACCEPTANCE</U></B></div> <div> <B>The only exception to general rule 1, a revocation of an acceptance is effective only if it reaches the offeror before or at the same time as the original letter of acceptance reaches the offeror.  See </B><B>Countess of Dunmore v. Alexander (1830) 9 S 190</B><B> </B></div> <bR> <div> <B><U>EXAMPLES OF CONTRACTS BY POST</U></B></div> <div> <B>General rule 1</B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A posts offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Monday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>B receives offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Tuesday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 46 WIDTH="269"><div> <B>B posts acceptance</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Wednesday              Contract is formed</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A receives acceptance</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Thursday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>Revocation of offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="25" ALIGN="bottom" WIDTH="295" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A posts offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Monday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>B receives offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Tuesday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A posts revocation</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Tuesday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 46 WIDTH="269"><div> <B>B posts acceptance</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Wednesday              Contract is formed </B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>B receives revocation</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Thursday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A receives acceptance</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Thursday</B></div> </tD> </tR> </TABLE></B></div> <bR> <div> <B>The revocation of A's offer did not reach B until after B's acceptance had been posted.  In event that A's revocation of offer had reached B on Wednesday morning before B had posted his acceptance, no contract would have been formed.</B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 ><NOBR><div> <B>Revocation of acceptance</B></div> </NOBR></tD> <tD VALIGN=TOP WIDTH="295"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="25" ALIGN="bottom" WIDTH="295" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A posts offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Monday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>B receives offer</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Tuesday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 50 WIDTH="269"><div> <B>B posts acceptance (2</B><B>nd</B><B> class mail)</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Tuesday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 50 WIDTH="269"><div> <B>B posts revocation (1</B><B>st</B><B> class mail)</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Wednesday              Contract is formed </B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 25 WIDTH="269"><div> <B>A receives revocation</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Thursday</B></div> </tD> </tR> </TABLE></B></div> <div> <B> <TABLE BORDER="2" CELLPADDING="1" CELLSPACING="1" WIDTH="579" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 46 WIDTH="269"><div> <B>A receives acceptance</B></div> </tD> <tD VALIGN=TOP WIDTH="295"><div> <B>Friday               No Contract is formed</B></div> </tD> </tR> </TABLE></B></div> <bR> <div> <B>The revocation of acceptance reached A before the original letter of acceptance reached A.  Had both reached A at the same time, there would have been no contract.  Had A received the acceptance on Thursday and the revocation of acceptance on Friday, a contract would have been formed.</B></div> <bR> <div> <B>  </B><FONT SIZE="4" COLOR="#000066" FACE="Abadi MT Condensed" ><B>Legal Capacity for contracts</B></FONT></div> <div> There are certain, standards that have to be met in order for any party to take part in a contract.  However there are a few situations that do not have contractual capacity:</div> <div> Children Under 16</div> <div> Young Persons aged 16-17 (guardians consent)</div> <div> The Insane</div> <div> <I>(Alien Enemies,) </I></div> <div> Intoxicated Persons</div> <div> Corporate Bodies (local authorities, Registered companies)</div> <bR> <bR> <div> Formalities</div> <div> Under Scots Law most contracts can be formed verbally or implied from the action of the parties, however, some contracts do require to be formed in writing in order for it to be valid and enforceable.  Example of where it is a good idea:</div> <div> Formalities cont.</div> <div> <IMG SRC="0610f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     Gratuitous Obligations (Unilateral contract)</div> <div> <IMG SRC="05d0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     Hire Purchase Agreement</div> <div> <IMG SRC="05d0f0f0.gif" border=0 width="15" height="15" ALIGN="BOTTOM" HSPACE="0" VSPACE="0">     Obligationes Literis (contract for the purchase of a house or land)</div> <bR> <div> Proof by Writ - Oath</div> <div> The importance of proof by writ or oath in establishing the existence of gratuitous obligations maybe shown by two cases:</div> <bR> <div> <I>Morton's trustees - v - Aged Christian Friend Society of Scotland 1899 2F82</I></div> <div> <I>Smith - v - Oliver 1911 SC 103</I></div> <bR> <div> <B><U>The Formalities of Formation</U></B></div> <div> The general rule of Scottish contract law is that a written document is not required to form a contract. Thus, a contract is formed at the moment that a contractual offer is accepted. Nevertheless, for evidential purposes, it is relatively common that the agreement will be recorded in writing.</div> <bR> <div> However, certain statutes contain exceptions to this general rule. The Requirements of Writing (Scotland) Act 1995 states that certain types of common contract require a written document for their formation. Broadly, these contracts can be described as those to do with land (for example a contract for the sale of a house), gratuitous unilateral obligations and certain forms of trusts. To have validity the written document must also be in a certain form. Generally, it will only be considered valid where all parties to the contract have signed it. Nevertheless, with relation to these types of contract, there are certain circumstances where writing is not necessary. A simplified example is where a party has relied upon the agreement, and will be adversely affected if the contract is deemed to be invalid.</div> <bR> <div> In addition to the Requirements of Writing Act, other statutes state that certain types of agreement must also be in writing. For example, under the Consumer Credit Act 1974 a hire-purchase agreement must be constituted by a written document.</div> <bR> </td> </tr></table></body>