Understand the essential elements of a valid and legally binding contract and
its role in a business context
Alvin runs a business selling expensive cars. Last Monday he mistakenly placed a
notice on one car indicating that it was for sale for £5,000 when in fact its real price
was £25,000. Bert later noticed the sign and, recognising what a bargain it was,
immediately indicated to Alvin that he accepted the offer and would take the car for
the indicated amount. Alvin, however, told Bert that there had been a mistake and
that the true price of the car was £25,000. Bert insisted that he was entitled to get the
car at the lower price, and when Alvin would not give it to him at that price Bert said
that he would sue Alvin.
After Bert had left, Alvin changed the price on the car to £25,000 and subsequently
Cat came in and said she would like to buy the car, but that she would have to
arrange finance. On Tuesday Del came by and offered Alvin the full £25,000 cash
there and then and Alvin sold it to him.
Explain the requirements for the formation of a valid contract. Apply the
rules on offer, acceptance and to advise Bert, Cat and Del as to whether
or not they have a claim against Alvin.
How does the law approach the issues of intention to create legal
relations and the capacity to contract. Use the above scenario to give
examples to illustrate your answer.
1a) In the core of business life, contracts are very important assets for example
employment contracts, contracts to buy and sell contracts to make something. A contract
can be defined as an agreement / a consensus ad item between 2 or more people that is
legally binded. It should be noted that even though all contracts ar e the result of
agreements but not all agreements are contracts. The key elements of for the formation
of a valid contract in the English Law are namely offer, acceptance, consideration,
capacity to contract and intention to create legal relations.
Offer can be defined as” a promise to be bound on particular terms” (1). An offer can be
made to the whole world or to specific parties. An example of an offer is when a person
puts an advertisement in the local newspapers “£10 reward will be given to anyone who
returns my lost cat Tom”. This example clearly demonstrates a valid offer to anyone who
finds Tom and duly returns him. If the offer does outline a promise by the offeror to do
or pay something in response for an act by the offeree, thus the presentation of the
required act is in itself a hint of acceptance of the offer. Acceptance can be defined as
“is a final and unqualified expression of assent to the terms of an offer” (2) It is very
crucial that acceptance must match with the terms of the offer menti oned in the
agreement in order to form a contract. A well known case to illustrate offer and
acceptance is Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256.The company
advertised that it wou