There are in total three elements of a simple binding contract in common law countries. They are:

  • Agreement (offer and acceptance)
  • Intention to crate legal relations; and
  • Consideration

A valid agreement is based on offer and acceptance which can exist between two or more parties. Nevertheless, it may be necessary to look at the whole of the relationship, including the communication between the parties, together with their conduct, to determine whether there has been a valid agreement.[1]

Offer:

Offer here is considered as an expression of their willingness to be legally bound by the stated terms.[2] In the case of Australian Woollen Mills Pty. Ltd. v. The Commonwealth[3], is considered as a leading case regarding to what constitutes as a legally binding offer. There are three elements for an offer to be legally binding. Include:

1. Statement made to another person that it must be made to another legal entity.

2. Offeror indicates that a preparedness to be legally binding to where offeror must be prepared to be legally bound if the offer is accepted by the offeree.

3. Such statement made by the offeror must contain in stated terms, including any kinds of formal document, verbal statements, emails and any other means of communication.

However there are some circumstances where such offer won’t constitute as a legally binding offer. This is especially the case where some features akin to a valid offer, however in reality, it is something less.

Mere puff for example, to where the claims are made for advertising purposes won’t be considered as a legally binding offer. Such offer would ‘mean nothing’ in the eyes of law. There are a few reasons behind this. Such offer may be offered to public at large that the offer is not made to any person in particular.[4] Also offers made through internet is another offer made to the public at large.[5] Mere supplying of information is another example that won’t be considered as a valid offer either. Usually enquiries are made to other parties for such information to be exchanged. Therefore it is difficult to determine whether the response is just a response or an actual agreement to formulate a contract. Invitation to treat wont’ also be considered as a valid offer. Invitation to treat is often considered as a technique used by a person who wants another person(s) to make an offer. Usually this is in the circumstances that both parties are still negotiating the terms of the contract. Therefore it falls short of a valid offer.

Acceptance:

Acceptance must occur in reliance upon the offer.[6] Therefore if an offeree performs an act that corresponds to the terms of the offer without knowing the offer, won’t be considered as a valid acceptance for the purpose of a valid agreement.

Such agreement is only effective if the offer effectively reached and being communicated to the offeree.[7] In addition, such communication must be made by the offeror or someone being authorized by the offeror.[8] The reason behind this is because until such offer is made by the offeror (or to his/her agent or attorneys), such issue may arise especially when they may change their mind and by allowing an unauthorized person to negotiate and to communicate the offer.

Termination of an offer made:

Such offer may be terminated for which is no longer capable of acceptance by an offeree. Such offer can be terminated at any time before it has been accepted. However, please keep in mind that once an offer has been accepted, such offer would be irrevocable.[9]

 

[1] Empirnall Holdings v Machon Paul Partners per Kirby P.

[2] Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424.

[3] Ibid.

[4] Carlill v Carbolic Smoke Ball Company [1892] Q.B. 256.

[5] Ibid.

[6] R v Clarke (1927) 40 CLR 227.

[7] Taylor v Laird (1856) 1 H & N 266.

[8] Cole v Cottingham 8 C. & P. 386.

[9] Great Northern Railway Company v Witham (1873) Court of Common Pleas L.R. 9 C.P. 16.

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