Formation of a valid contract

Formation of a Valid Contract (Cambridge IGCSE/A‑Level 9084)

1. English Legal System (AS 1.1‑1.3)

1.1 Principles and Sources of English Law

Concept	Key Points (syllabus wording)
Legal systems	Civil, common, customary, religious and mixed systems. England uses a common‑law system where judges create precedent.
Adversarial vs. inquisitorial	England is adversarial – parties present their case and the judge acts as an impartial arbiter.
Rule of law	Law‑making (parliament), substantive law (rights & duties), and judicial review (ensuring legality of public bodies).
Civil vs. criminal law	Civil – disputes between private parties (e.g., contracts). Criminal – offences against the state, requiring proof of fault.
Law‑morality, justice, effectiveness, certainty	Law should reflect moral standards, deliver justice, be effective in practice and provide certainty to users.

1.2 Parliamentary Law‑making (AS 1.1.2)

Legislation follows a defined route:

1. Policy development – Green paper → White paper.
2. Drafting of a Bill (Government or Private Member).
3. First Reading – formal introduction, no debate.
4. Second Reading – principle debate.
5. Committee Stage – detailed line‑by‑line scrutiny.
6. Report Stage – further amendment.
7. Third Reading – final debate, vote.
8. House of Lords – same stages (often a “ping‑pong” of amendments).
9. Royal Assent – Bill becomes an Act of Parliament.

Parliamentary supremacy means Parliament can amend or repeal any law. Influences on law‑making include political pressure, media, pressure groups and the Law Commission.

Example: The Climate Change Act 2008 passed through the above stages and set a legally binding target to reduce greenhouse‑gas emissions.

1.3 Delegated Legislation (AS 1.1.3)

• Made under powers conferred by an Act (primary legislation).
• Forms: Orders in Council, Statutory Instruments (SI), By‑laws, Regulations.
• Control mechanisms:
  1. Pre‑drafting consultation (consultation with interested parties).
  2. Parliamentary scrutiny – Select Committee (ex‑ante) and affirmative/negative resolution procedures (ex‑post).
  3. Judicial review – procedural ultra‑vires (failure to follow the enabling Act) or substantive ultra‑vires (exceeds the scope of the power).
• Case illustration: R (Miller) v Secretary of State for Exiting the EU (2017) – the Supreme Court held that the government could not trigger Article 50 without an Act of Parliament, demonstrating judicial control of delegated power.

1.4 Statutory Interpretation (AS 1.1.4)

Four principal approaches, applied in the order shown unless the context forces a different route:

1. Literal rule – words are given their ordinary grammatical meaning.
2. Golden (golden‑silvers) rule – if literal meaning leads to absurdity, the court can modify the meaning to avoid the absurd result.
3. Mischief rule (purposive) – identify the “mischief” the Act intended to remedy and interpret accordingly.
4. Purposive approach (modern) – give effect to the overall purpose of the legislation, often using extrinsic aids (Hansard, law‑commission reports).

Interpretation aids:

• Intrinsic – definitions, headings, marginal notes.
• Extrinsic – legislative history, precedent, academic commentary.
• EU law & Human Rights Act 1998 – may influence the purposive approach.

Illustration: The Consumer Rights Act 2015 was interpreted using a purposive approach to give consumers a “right to repair” where the literal wording was ambiguous.

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2. Formation of a Valid Contract (Syllabus 3.1)

2.1 Nature of a Contract

• Agreement – meeting of the minds (consensus ad idem) between two or more parties.
• Contract – an agreement intended to be legally binding and which satisfies statutory and common‑law requirements.
• Unilateral contract – one party promises something in return for the other party’s performance.
  • Case: Carlill v Carbolic Smoke Ball Co (1893) – promise to pay £100 to anyone who used the smoke‑ball as directed and still contracted influenza.
• Bilateral contract – each party makes a reciprocal promise.
  • Typical example: Sale of goods – seller promises to deliver; buyer promises to pay.
• Collateral contract – a separate, ancillary promise that induces a party to enter the main contract.
  • Case: Shanklin Pier Ltd v Detel Products Ltd (1951) – a guarantee about the quality of paint formed a collateral contract.

2.2 Offer and Acceptance

2.2.1 Offer

• Clear, unequivocal expression of willingness to be bound on specified terms, made with the intention that it becomes a contract upon acceptance.
• Must be communicated to the offeree.
• Distinguish from an invitation to treat (e.g., shop displays, advertisements, price lists).
• Can be express (spoken or written) or implied by conduct.

2.2.2 Special Situations

• Counter‑offer – a rejection of the original offer and a new offer; terminates the original.
  • Case: Hyde v Wrench (1840).
• Request for information – does not terminate the offer (e.g., “Will you accept delivery on Friday?”).
• Termination of offers – by revocation (must be communicated), lapse of time, failure of a condition, death or insanity of the offeror/offeree, or by the offeror’s death where the offer is personal.
• Standard‑form contracts – the printed terms are the offer; signing or using the service is deemed acceptance.
  • Case: Thornton v Shoe Lane Parking Ltd (1971).
• Auction sales – invitation to treat; each bid is an offer; fall of the hammer is acceptance.
  • Case: Payne v Cave (1789).
• Contracts by tender – invitation to submit tenders is an invitation to treat; each tender is an offer; acceptance of a tender creates the contract.

2.2.3 Acceptance

• Unconditional assent to the exact terms of the offer (mirror‑image rule).
• Must be communicated unless the offer dispenses with communication (e.g., “accept by performance”).
• Must be made in the manner prescribed by the offer (mail, email, performance, etc.).
• Silence is not acceptance, except where the offeree has a duty to speak or the offer expressly provides that silence will amount to acceptance.
• Electronic communications – acceptance is effective when received (the “receipt rule”).
  • Case: Entores Ltd v Miles Far East Corp (1955).

2.3 Intention to Create Legal Relations

• Parties must intend that the agreement be legally enforceable.
• Reason for the requirement – the law does not wish to interfere with purely social or domestic arrangements.
• Presumptions
  • Commercial agreements – presumed to have legal intent.
  • Social/domestic agreements – presumed *not* to have legal intent.
• Rebutting the presumption
  • Clear evidence (written or oral) that the parties intended legal enforceability.
  • Case: Balfour v Balfour (1919) – domestic arrangement, no intent.
  • Case: Merritt v Merritt (1970) – written agreement between estranged spouses, intent present.

2.4 Consideration

• Nature and function – the “price” paid for a promise; provides the bargain element that distinguishes a contract from a gratuitous promise.
• Must be a legal detriment to the promisee or a benefit to the promisor; adequacy is not required, only sufficiency.
• Past consideration – generally invalid.
  • Case: Roscorla v Whitworth (1842).
• Existing contractual duty – usually not fresh consideration, unless a practical benefit or a new detriment is obtained.
  • Case: Stilk v Myrick (1809) – no fresh consideration.
  • Case: Williams v Roffey Bros & Nicholls (1990) – practical benefit suffices.
• Part payment of debt – not good consideration unless fresh consideration or statutory protection exists.
  • Case: Foakes v Beer (1884).
• Nominal consideration – a token amount (e.g., £1) is sufficient if it is genuine.
  • Case: Chappell & Co Ltd v Nestlé (1960) – chocolate bar as consideration.
• Promissory estoppel – an equitable doctrine that can enforce a promise without consideration where the promisee has relied to their detriment.
  • Case: Central London Property Trust Ltd v High Trees House Ltd (1947).

2.5 Capacity

2.5.1 Minors (under 18)

• Contracts are generally voidable at the minor’s option, but three categories are enforceable:
  1. Necessaries – goods or services suitable to the minor’s condition in life; enforceable on a “reasonable price” basis.
     • Case: Hughes v Metropolitan Railway Co (1877).
  2. Beneficial contracts of service – apprenticeships or employment that benefit the minor.
     • Illustrative case: Hart v O’Connor (1985) (mental capacity, but shows the principle of benefit).
  3. Statutory exceptions – Minors’ Contracts Act 1987 ss 2‑3 set out when a minor may be bound and the limits on recovery.
• All other contracts are voidable; the minor may affirm or disaffirm upon reaching majority.
• Effect of disaffirmance – the minor must return any benefit received, unless the contract falls within the categories above.
• Partial performance – a minor who has already received a benefit (e.g., rent for a room occupied) may be required to pay for that portion.
• Equity may intervene to prevent a minor from fraudulently repudiating a contract that has been performed to the other party’s detriment.

2.5.2 Mental Capacity (Adults)

• Adults must have the mental capacity to understand the nature and effect of the transaction.
• If a party lacks capacity, the contract is voidable at their option (unless it is for necessaries or a beneficial contract of service).
• Case: Royal Bank of Scotland v Etridge (No 2) (2001) – highlights the need for independent legal advice where undue influence or lack of capacity is alleged.

2.5.3 Other Capacity Issues

• Companies – must act within their objects (see “ultra‑vires” doctrine, now largely abolished by the Companies Act 2006).
• Undue influence, duress and misrepresentation – affect the *validity* of consent, not capacity per se, but are examined in later syllabus sections.

2.6 Certainty of Terms (Supplementary)

• Essential terms (price, quantity, subject matter, parties) must be sufficiently certain for a contract to be enforceable.
• Vague or incomplete agreements (e.g., “sell me a reasonable amount of wheat”) are generally unenforceable.
• Case: Scammell (G) and Nephew Ltd v Ouston (1941) – agreement to sell “on terms to be agreed” was void for uncertainty.

2.7 Legality (Supplementary)

• The purpose of the contract must be lawful and not contrary to public policy.
• Illegal contracts are void; contracts that are merely against public policy (e.g., unreasonable restraints of trade) are voidable.
• Case: Allied Maples Group Ltd v Simmons & Simmons (1995) – unreasonable restraint of trade deemed void.

2.8 Formalities (Supplementary)

• Certain contracts must satisfy statutory formalities:
  • Sale of land – written contract, signed, and witnessed (Law of Property Act 1925 s 2).
  • Consumer credit agreements – written, signed, and must contain prescribed information (Consumer Credit Act 1974).
  • Guarantees – must be in writing and signed (Statute of Frauds, now largely codified).
• Failure to comply with required formalities renders the contract unenforceable (though it may be valid as a deed or may be ratified).

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3. Summary Table – Elements of a Valid Contract (Syllabus 3.1)

Element	Requirement (exam‑level)	Typical Exceptions / Key Cases
Nature of contract	Agreement intended to be legally binding; may be unilateral, bilateral or collateral.	Distinguish from social arrangements – Balfour v Balfour.
Offer	Clear, communicated, intended to be binding on acceptance.	Invitation to treat – shop display; counter‑offer terminates – Hyde v Wrench.
Acceptance	Unconditional, communicated (or performed), mirrors the offer.	Silence not acceptance; electronic receipt rule – Entores.
Intention to create legal relations	Parties must intend enforceability.	Presumed in commercial deals; rebutted – Merritt v Merritt.
Consideration	Legal detriment or benefit; must be sufficient.	Past consideration invalid – Roscorla; practical benefit – Williams v Roffey Bros; promissory estoppel – High Trees.
Capacity	Legal ability to contract.	Minors – necessaries enforceable; voidable otherwise – Hughes v Metropolitan Railway. Mental incapacity – voidable.
Certainty of terms (supp.)	Essential terms must be clear.	Uncertain “on terms to be agreed” – Scammell v Ouston.
Legality (supp.)	Purpose must be lawful.	Illegal contracts void; unreasonable restraint – Allied Maples.
Formalities (supp.)	Statutory requirements (written, signed, witnessed, registration).	Land sale – LPA 1925; consumer credit – CCA 1974.

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4. Key Case Law (Illustrative)

• Carlill v Carbolic Smoke Ball Co (1893) – unilateral offer, acceptance by performance.
• Hyde v Wrench (1840) – counter‑offer ends original offer.
• Entores Ltd v Miles Far East Corp (1955) – receipt rule for electronic acceptance.
• Thornton v Shoe Lane Parking Ltd (1971) – terms printed on ticket constitute offer.
• Payne v Cave (1789) – auction: invitation to treat, bid is offer.
• Chappell & Co Ltd v Nestlé (1960) – nominal consideration is sufficient.
• Williams v Roffey Bros & Nicholls (1990) – practical benefit as fresh consideration.
• Central London Property Trust Ltd v High Trees House Ltd (1947) – promissory estoppel.
• Balfour v Balfour (1919) – domestic agreements lack legal intent.
• Merritt v Merritt (1970) – written agreement between estranged spouses shows intent.
• Foakes v Beer (1884) – part payment of debt not good consideration.
• Hughes v Metropolitan Railway Co (1877) – contracts for necessaries enforceable.
• Scammell (G) and Nephew Ltd v Ouston (1941) – agreement too uncertain to be enforceable.
• Allied Maples Group Ltd v Simmons & Simmons (1995) – unreasonable restraint of trade void.
• R (Miller) v Secretary of State for Exiting the EU (2017) – judicial control of delegated legislation.