The fundamental elements that must be present to show the formation and existence of a legally binding contract include: 1) an offer, 2) acceptance, 3) consideration, 4) mutuality of obligation, 5) capacity and competency, 6) lawful purpose (Koffman and MacDonald,2007). However, when a party files a lawsuit (dispute) claiming that there was a breach of the contract, for the judge to make a fair decision, he/she must answer the question of whether there was a contract between the parties. In this case, the plaintiff must prove at least four elements to demonstrate that a legally binding contract existed.

An offer

An offer is simply a proposal made by a party (an offeror) to enter and react upon the contract. In other words, an offer is normally a promise to do or fulfill certain obligations. However, a legally binding contract is formed by accepting an offer. The party receiving an offer is called the offeree. In this case, when a party intends to take/accept such offer and informs the offeror about the acceptance, then a legally binding contract is formed. For example, a carpenter’s offer to make a customer’s table for $80 is probably conditioned on the customer’s promise to pay for the completion of the work. And a customer’s offer to fully pay the carpenter the sum of $80 is probably conditioned upon the carpenter’s successful completion of his job. In other words, an offeree’s position of acceptance is made when the offeror communicates his/her intent to enter or sign a contract, and specific terms must be informed to the offeree.

Acceptance

According to Wilmot et al.,(2009),acceptance of an offer implies the expression of agreement to its terms and conditions. An acceptance must be made in a manner as clearly identified by the offer. If there is no sign of acceptance as indicated by the offer, the acceptance is said to be made under a reasonable circumstance. The acceptance must be valid, but if the party is accepting an offer that party must demonstrate an intention to accept and acceptance must be expressed as an unconditional and unequivocal assent.

Some offers specify the mode of acceptance, whether it isa written or oral offer, in person or by phone calls, by ceremony or handshake. In most cases, many offers provide an open mode of acceptance, giving the offeree a chance to accept in a reasonable manner. However, acceptance can be implied from someone’s conduct (Wilmot et al., 2009). For example, a customer makes an order of a smartphone with extra specifications and capacity for its camera and memory card and upon the payment the customer notices that the smartphone does not match the qualities. If the customer pays the full amount as stated on the invoice accompanying the smartphone without demonstrating his/her dissatisfaction, the customer has already consented to a legally binding acceptance of a non-conforming product.

Consideration

A contract is mainly based on the exchange and bargain. Each receivesvaluable items and gives valuable items. Therefore, consideration is a general name given to that valuable “value” provided by each (Simpson et al., 1985).Much issuecomprises a consideration: forbearance, act, modification, a promise, and destruction of the legal relation. Under a bilateral contract, each party must exchange the promise for the promise. For example, if the ministry of health hires a contractor to build hospitals, the contractor promises to construct/build hospitals and the ministry also promises to pay a specific amount of money. In this case, each promise is called a consideration for the other.

Mutuality of Obligation

Mutuality of obligation is closely related to the general notion of consideration. Under this concept, both parties are bound by the contract to perform an obligation. Furthermore, when an offeror and offeree agree and exchange a promise to perform an obligation, one party may be granted the power and right to terminate the contract. For example, a water supplier might legally be granted the right to cancel the supply of water if the right to terminate was conditioned upon rainy season; it is out of the supplier’s control. However, the courts of law would discover mutuality lacking only if the supplier were granted a right to cancel the service short of whole performance simply by providing a notice of his intention to terminate the contract.

Competency and Capacity

Any person who enters a legally binding contract should have a legal capacity to be held responsible for the duties he/she agrees to perform unless the person is under 18 or 21 years old depending on the constitution or jurisdiction. A legally binding contract made by a person under 18 or 21 years old is not valid at person’s behavior to avoid revealing private information or causing offense, meaning that a contract is announced valid until that person takes a specific affirmative act to deny the contract. Furthermore, when a person does not clearly understand the consequences and nature of the contract that he/she has entered, the court treats that person as lacking a mental capacityas well as competency to make a legally binding contract. In other words, legal competency is when a person has the ability to make a legally binding contract successfully (Koffman and MacDonald, 2007).

Lawful Purpose

The right to contract is open to anyone willing to enter into a contractual business. It must be in a way thatdoes not contradict with the public order, and fair restrictions may be enforced when needed for the public interest. For instance, the minimum wage legislations restrict individual’s right and freedom to enter a contract for a lower wage. In general terms, a contract that seems to violate the law is void and unlawful and will not be implemented(Wilmot et al.,2009). A law can precisely declare that a particular type of contract is not possible, and such kind of contract is not legally binding.

Case Citation

Mrs. Carlill v Carbolic Smoke Ball Co:  The Court of Appeal [1893] 1 QB 256; [7 December 1892] EWCA Civ 1

Summary

The Carbolic Smoke Ball Co. manufactured a product called Smoke Ball. The company placed the ads in many newspapers offering a reward of £100 to anyone who used the smoke ball three times per day as prescribed and contracted colds, influenza, or any other illness. Furthermore, £1000 was deposited with the Alliance Bank showing the company’s seriousness to be legally bound.  When Mrs. Carlill saw the advert, she purchased a smoke ball and used it as instructed. Mrs. Carlill contracted influenza and claimed for the reward. The company refused and Mrs. Carlill sued for damages as a result of the breach of contract. The Company, represented by Asquith, lost its claim at the Queen’s Bench. The Carbolic Smoke Ball Company appealed straight away.

Analysis of the case

Mrs. Carlill vs. the Carbolic Smoke Ball Co:  The Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1 is a contract law judgment made by the Court of Appeal that held an ad entailing specific conditions to receive a reward constituted a legally binding unilateral offer that might be accepted by any person who fulfilled its terms. Mrs. Carlill vs. the Carbolic Smoke Ball Co is often considered as a vital introductory contract case.

The producer placed ads that anyone who discovers that it did not work would get a reward of £100, a considerable sum of money by that time.  The Carbolic Smoke Ball Company was found legally bound by its ad, which is interpreted as an offer, and anyone who used the Smoke Ball accepted the offer. Furthermore, the Court of Appeal explained that the fundamental elements of the contract were all present, including an offer, acceptance, consideration, and an intention to enter legal relations(Simpson et al.,1985).

In my opinion, the judges were right in dismissing the suit because of the following: First, by making a unilateral offer for the sale of its products Carbolic Smoke Ball Co. they had implicitlywaived the requirement of notice of acceptance. Second, there was a satisfaction of the conditions of using the smoke ball that amounted to acceptance and, thus, validating the court’s decision. Thirdly, consideration being the price paid for the promise, in my view, Mrs. Carlill’s purchasing and using the smoke ball fulfilled this particular element of the contract as it acted as a benefit to the company. Lastly, the depositing of £1000 with the Alliance Bank was a serious action that would bound the company as it did. Therefore, I agree with the court’s decision.

 

Business name: Mineral Water and Bottling Company Ltd.

I would like to start up a mineral water and bottling company that will be confined to producing and supplying of water to potential customers. I understand that in every business setting, there are certain issues that occur in the process of business operation ranging from internal and external barriers such as government interferences and customer complaints. Therefore, I hope to enter into a contract with my customers. However, there are certain contractual concerns related to this particular business, and they need to be considered.           According to the contract law, at least two to four elements of a contract must be present including an offer, acceptance, consideration, and an intention to enter a legal contract (Simpson et al., 1985). As mentioned above, the offer will be my proposal (or promise) upon the contract. However, the contract will be made after the customer’s acceptance of the offer as well as the products. The customer’s entering into a contract with mineral water and bottling company Ltd will serve to fulfill the specific elements of the contract and act as a benefit to the company. Furthermore, consideration is also another contractual factor that will amount to the price paid for the offer as well as a promise (Koffman and MacDonald, 2007; Wilmot et al., 2009).

References

Mrs. Carlill v Carbolic Smoke Ball Co:  The Court of Appeal [1893] 1 QB 256; [7 December 1892] EWCA Civ 1

Simpson, A. W. B. (1985). “Quackery and Contract Law: The Case of the Carbolic Smoke Ball”. Journal of Legal Studies 14 (2): 345–389.

Koffman L, MacDonald E. (2007). The Law of Contract. Oxford University Press. Pp. 13 (45): 553-65.

Wilmot et al.(2009). Contract Law, Third Edition: Oxford University Press.Pp. 34-37.