ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  3: Formation of contract I 41

In the case of consumer credit transactions, the effect of failure to make the agreement in the prescribed

form is to make the agreement unenforceable against the debtor unless the creditor obtains a court order.

4.3 Contracts which must be evidenced in writing

Certain contracts may be made orally, but are not enforceable in a court of law unless there is written

evidence of their terms. The most important contract of this type is the contract of guarantee.

5 Offer

The first essential element in the formation of a binding contract is agreement. This is usually evidenced

by offer and acceptance. An offer is a definite promise to be bound on specific terms, and must be

distinguished from the mere supply of information and from an invitation to treat.

An offer is a definite promise to be bound on specific terms and may be defined as follows.

'An express or implied statement of the terms on which the maker is prepared to be contractually bound if

it is accepted unconditionally. The offer may be made to one person, to a class of persons or to the world

at large, and only the person or one of the persons to whom it is made may accept it.'

A definite offer does not have to be made to a particular person. It may be made to a class of persons or

to the world at large. However, it must be distinguished from a statement which supplies of information,

from a statement of intention and from an invitation to treat.

Carlill v Carbolic Smoke Ball Co 1893

The facts: The manufacturers of a patent medicine published an advertisement by which they undertook to

pay '£100 reward .... to any person who contracts .... influenza .... after having used the smoke ball three

times daily for two weeks'. The advertisement added that £1,000 had been deposited at a bank 'showing

our sincerity in this matter'. The claimant read the advertisement, purchased the smoke ball and used it as

directed. She contracted influenza and claimed her £100 reward. In their defence the manufacturers

argued against this.

(a) The offer was so vague that it could not form the basis of a contract, as no time limit was specified.

(b) It was not an offer which could be accepted since it was offered to the whole world.

Decision: The court disagreed.

(a) The smoke ball must protect the user during the period of use – the offer was not vague.

(b) Such an offer was possible, as it could be compared to reward cases.

You should note that Carlill is an unusual case in that advertisements are not usually regarded as offers.

A statement which is vague cannot be an offer but an apparently vague offer can be made certain by

reference to previous dealing or customs.

Gunthing v Lynn 1831

The facts: The offeror offered to pay a further sum for a horse if it was 'lucky'.

Decision: The offer was too vague and no contract could be formed.

5.1 Supply of information

Only an offer in the proper sense may be accepted so as to form a binding contract. A statement which

sets out possible terms of a contract is not an offer unless this is clearly indicated.

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