Contract Formation
Part A
Contracts are an integral part of business and everyday life, and are fundamental to construction as the industry relies on the formation of contracts for business agreements. “Contracts are based on the idea of a bargain, where each side must put something into the bargain. A contract may be defined as 'an agreement which is binding on the parties’” (Galbraith, 1998, pg78). There are a number of key components which must be present in the formation of such contracts.
Firstly, there needs to be an initial offer made by one party for the formation to begin. “An offer exists when one party effectively declares his readiness to be bound by a set of terms without any further negotiation” (Galbraith, 1998, pg79). It is interesting to note also that there is generally no requirement that the offer be made in any particular form, it may be made orally, in writing or by conduct (McKendrick, 2007, pg33). The exception to this is with speciality contracts such as the sale of land or estates or when deeds are formed between parties giving them twelve years liability instead of the six on simple contracts, and are frequently used within construction (Owen, 1998, pg47).
However there is a fine line between what constitutes an offer, and an invitation to treat. “An invitation to treat is simply an expression of willingness to enter into negotiations which will lead to the conclusion of a contract at a later date” (McKendrick, 2007, pg33). There is much confusion between the two, as shown in the cases of Gibson v. Manchester City Council [1978] and Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953]. An example of an invitation to treat in construction is the tendering process, in which the employer will invite contractors to make an offer based on the project information, which the employer can then choose to accept to form a binding contract.
In terms of the enforcement of contract law, when cases are examined
Contracts are an integral part of business and everyday life, and are fundamental to construction as the industry relies on the formation of contracts for business agreements. “Contracts are based on the idea of a bargain, where each side must put something into the bargain. A contract may be defined as 'an agreement which is binding on the parties’” (Galbraith, 1998, pg78). There are a number of key components which must be present in the formation of such contracts.
Firstly, there needs to be an initial offer made by one party for the formation to begin. “An offer exists when one party effectively declares his readiness to be bound by a set of terms without any further negotiation” (Galbraith, 1998, pg79). It is interesting to note also that there is generally no requirement that the offer be made in any particular form, it may be made orally, in writing or by conduct (McKendrick, 2007, pg33). The exception to this is with speciality contracts such as the sale of land or estates or when deeds are formed between parties giving them twelve years liability instead of the six on simple contracts, and are frequently used within construction (Owen, 1998, pg47).
However there is a fine line between what constitutes an offer, and an invitation to treat. “An invitation to treat is simply an expression of willingness to enter into negotiations which will lead to the conclusion of a contract at a later date” (McKendrick, 2007, pg33). There is much confusion between the two, as shown in the cases of Gibson v. Manchester City Council [1978] and Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953]. An example of an invitation to treat in construction is the tendering process, in which the employer will invite contractors to make an offer based on the project information, which the employer can then choose to accept to form a binding contract.
In terms of the enforcement of contract law, when cases are examined
Bibliography: Davenport, A., Galbraith, A,. Stockdale, M., Wilson, S. (1998). Galbraith’s Building & Land Management Law For Students (4th ed.) Oxford : Butterworth-Heinemann 1998. McKendrick, E. (2007). Contract Law (7th ed.) Basingstoke : Palgrave Macmillan 2007. Office of Fair Trading. (2012). Relevant Legislation – The Office of Fair Trading. Retrieved 28 November 2012, from http://www.oft.gov.uk/about-the-oft/legal-powers/legal/#.ULY4v8UTDwM. Owen, S. (1998). Law For The Construction Industry (2nd ed.) Harlow : Longman 1998. British Steel Corporation v. Cleveland Bridge & Engineering Co. Ltd (1981).