Contract formation: offer, acceptance and consideration

Formation is a staple of FLK1 contract questions. The rules are settled; the challenge is applying them to short scenarios quickly.

Offer or invitation to treat?

An offer is an indication of willingness to be bound on stated terms, capable of acceptance. An invitation to treat invites offers. Shop displays, catalogues and most advertisements are invitations to treat: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401. The exception is a unilateral offer to the world, as in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, where performance of the stated conditions amounted to acceptance.

Ending an offer

An offer can be revoked before acceptance, but revocation must be communicated to the offeree, even indirectly through a reliable source. A counter-offer destroys the original offer: Hyde v Wrench (1840) 3 Beav 334. A request for information is different: it does not reject the offer.

Acceptance

Acceptance must be unqualified and communicated to the offeror, and silence is not acceptance: Felthouse v Bindley (1862) 11 CBNS 869. Two rules cause most of the exam problems.

• Postal rule. Where post is a reasonable means of acceptance, acceptance takes effect when the letter is posted, even if it is delayed or lost: Adams v Lindsell (1818) 1 B & Ald 681; Household Fire and Carriage Accident Insurance Co v Grant (1879) 4 Ex D 216. It does not apply where the offeror has stipulated another method or where its application would be absurd.
• Instantaneous communication. For telephone and similar instantaneous methods, acceptance takes effect on receipt: Entores Ltd v Miles Far East Corporation [1955] 2 QB 327.

Consideration

Consideration is something of value given in exchange for a promise; it must be sufficient but need not be adequate.

• Past consideration is not good consideration, subject to the limited exception where the act was done at the promisor's request and payment was understood.
• Existing duties. Performing or promising to perform an existing contractual duty owed to the promisor traditionally is not consideration: Stilk v Myrick (1809) 2 Camp 317. In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, a practical benefit to the promisor, without economic duress or fraud, can suffice where the promise is to pay more for performance of an existing duty.
• Part payment of a debt does not discharge the whole debt: Foakes v Beer (1884) 9 App Cas 605. Promissory estoppel, from Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130, can suspend rights where a clear promise was relied on, although it is generally a shield and not a sword.

Exam approach

When a scenario involves a negotiation, build a timeline of each communication. Mark which are offers, counter-offers, requests for information or acceptances, and when each took effect. Most formation questions are won or lost on that timeline.

General educational information only. It is not legal advice, it does not predict any exam result, and UK SQE Course is not affiliated with or endorsed by the Solicitors Regulation Authority. Check the SRA website for current exam information.