Business Contract Law


Bill advertised a printing press in a specialist trade journal for £100,000. Cathy wrote to Bill offering to buy it for £80,000. Bill replied by return of post saying he would accept £90,000. When he heard nothing from Cathy, 
Bill wrote again saying he would accept £80,000.
Bill wrote specifically to Liza offering for sale an office computer for £550. The morning that she received the letter Liza wrote to Bill agreeing to buy for the asking price, she posted the letter later that day.
After she had posted the letter, but before it was delivered, Liza changed her mind and sent Bill a fax asking him to ignore the letter when it arrived.


Question 1

What are the essential elements required for the formation of a contract in the UK and explain their importance. Include an explanation of what is meant by ‘an invitation to treat’ with reference to the scenario above.

1. Agreement 2. Contractual Intention 3. Consideration  4. Capacity and 5. Certainty 

  1. Agreement: a valid agreement requires offer and acceptance, a valid consideration and intention to create a contract. Offer and Acceptance-an offer is an expression to show the willingness of the person to create a legal relation. Acceptance on the other hand, is an expression of assent to the offer that leads to the formation of an agreement. In this regard, an offer must be distinguished from the invitation to treat to the extent that the person communicating is not making an offer but is invites the person to do so. Such is the case with advertisements as explained in Scenario no 1. Here, Bill by placing an Advertisement makes an invitation to treat, inviting people to make an offer.  On the other hand, Bill by communicating to Liza specifically the sale of the office computer for £ 550 is making a concrete offer for sale. 

  2. Consideration: The common law principle of quid pro quo explains the consideration, where something of value has to be made for the fructification of contract. 

  3. Intention to create a contract: The parties to the contract have to have an intention to create legal consequences. Both the parties to the contract should have a clear conscious intention to make a valid contract with the other party to the contract. (P. S. Atiyah 2005)

  4. Capacity to the contract: Persons entering contract have to be legally capable to create a legal relationship. They have to act without duress or coercion, and give free consent to create a contract.

  5. Certainty: The terms of agreement have to be certain and not based on vague terms which can invalidate the agreement.

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Question 2

In the report, identify and discuss the main types of contracts that may be entered into in the UK by individuals and businesses and discuss their impact.

  • Unilateral Contract-Where one party makes a promise to perform without any reciprocation from the other party.

  • Bilateral Contract-When the offerors makes a promise in return for the promise by the offeree.

  • Express Contract- where the contract terms and conditions are written and clearly emphasized. Such contracts include signatures to avoid any complications. 

  • Implied Contracts-where the responsibilities and the terms and conditions arising from an agreement are not expressed in writing as the person making it, but by the intention of the person making it.

  • Standard Contract-where the terms are well documented, represented by parties or their representatives, sealed and signed

  • Void and voidable contract- A void contract cannot be enforced by either party. In other words, it is void ab initio as the law treats it to have never been formed.

  • A voidable contract- is a valid contract which cannot be enforced as usually only one party is bound by the terms of the contract. 

Question 3

Discuss the above scenarios in detail and apply various elements of a contract.  In other words are the contracts between ‘Bill and Cathy’, and ‘Bill and Liza’ valid? 

In the above case of Bill and Cathy, the advertisement amounts to invitation to treat, thereby make an offer to the general public to make an offer. Cathy by making a counter offer to buy the printing press for £80,000 has made an offer subject to the acceptance of Bill. Bill by agreeing to the earlier amount stated by Liza has shown his acceptance to the offer made.  
In the case of Bill and Liza, there is no valid contract that exists. In the first instance when Liza posted a letter to Bill, it showed her willingness to accept the offer made. Going by the “postal rule”, the acceptance is deemed to have been communicated the moment she has posted the letter. In between the gap between the day of posting and the letter being received by the proposer, was used by Liza to withdraw the acceptance made by speedier mode of communication. Hence, the revocation notice has been received by Bill before he received the letter of acceptance. 

Doctrine of Promissory Estoppel

The doctrine of Promissory estoppel’ is based on the common law of equity which prevents a person from going back on the promise made or forgo strict contractual rights. (David Kelly 2014)Hence, where one party promises to perform and the other party relying on such a promise suffered significant detriment, he can claim for relief by way of making the promissor fulfil the promise.  

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