Contract Law Revision Document
1. Offer and acceptance, consideration (general principles of
consideration only, not promises to pay more or accept less),
intention to create legal relations and capacity.
Offer and acceptance = agreement
Bilateral or unilateral?
o Unilateral = not mutual; e.g. notice with a reward for lost pet. “If you do X, I will do
Y”.
o Bilateral = mutual. “You will do X, and I will do Y”.
Determining whether it is a bilateral contract:
1. Offer or invitation to treat (ITT)?
o Offer = clear and certain (“may” v “shall/must”); display an intention to
be bound
o ITT = cannot be accepted as a firm contract (i.e., binding). E.g. displays of
goods/advertisement/invitations to tender/auctions.
2. Counteroffer or request for more information?
o Request for further information- seeking clarification of the extent and
terms of the offer/seeing whether the offeror would consent to
changing certain ancillary aspects of the offer.
3. Is the acceptance in response to the offer?
o Only the person/people to whom the offer is made (offerees) can accept
the offer
4. Mirror image (unqualified)?
o Acceptance must be unqualified and correspond exactly with the terms
of the offer.
5. Acceptance through valid mode?
o Acceptance may be communicated in any manner, except where the
offeror prescribes the mode of acceptance.
o If the prescribed mode has not been made mandatory, the offer shall be
accepted if through a mode that is no less advantageous to the offeror.
6. Has acceptance been communicated?
o Silence does not amount to acceptance
o Can be accepted by a third party if authority given by offeree.
o Instantaneous means: accepted when received. If it is not received, by
no fault of the offeror, no contract is formed. Does not apply where
there is poor phone reception and offeror does not ask offeree to repeat
what they said.
o Email acceptance = accepted when received (during business hours).
o Tinn v Hoffman
Cross offer
, 7. At the point of acceptance, is the offer still open?
Termination of an offer:
o Rejection e.g. counteroffer.
Effective once actually communicated.
If a counteroffer is accepted, those terms are valid (not the original offer).
The last set of general terms to be accepted by the other side are the valid
terms. If each side continues to assert their own terms, no contract will be
formed.
o Lapse
By passage of time
Within period prescribed
Within reasonable time (depends on circumstances of case)
Death of one of the parties
Offeror: if the offeree knows that the offeror has died.
Offeree: offeree’s representatives cannot accept instead.
o Revocation
Postal rule does not apply to revocation of an offer.
Needs to be actual communication of revocation, i.e., revocation is effective
once received by post, not when posted.
Any time before acceptance. Cannot be revoked after acceptance.
Can be communicated by third party if offeror has shown clear intention to
revoke their offer and notice has reached the offeree.
Unilateral offer:
Can revoke any time before completion of required act.
Exception: part performance of act + willing and able to
complete. Implied obligation not to revoke once performance
has commenced. Offeree’s acceptance and consideration for
implied promise is starting to perform required act.
o No requirement that those embarking on performance
of required act should communicate their intention e.g.
“whole world” offers.
o Where revocation is nearly impossible, it is likely that
revocation will be effective if the offeror has taken
reasonable steps to bring the revocation to the
attention of all those who may have read the offer.
Option contract: where party A agrees to keep the offer (main contract) open for
party B for a certain period for extra consideration.
o If party A sells the subject item of the main contract, party A would be in
breach of the option contract, but NOT the main contract as party B did not
accept the offer for the main contract.
Postal rule:
o Takes effect from the moment it is posted
o Applies even if delayed or lost UNLESS it has wrong address.
o Does not apply if communication by post is not permitted/contemplated/disapplied.
o Does not apply to revocation of an offer.
,Invitation to Treat (ITT):
Advertisements
o General rule: ITT/ statements inviting further negotiations.
Reason: advertisers may have limited supplies of the goods in question,
therefore cannot be accepted by many people or they would be in breach of
contract.
o Exception: General rule does not apply where it is a unilateral offer.
Display of goods for sale:
o General rule: ITT- offers in shop windows, at self-service stores and on websites.
Reason: Would otherwise mean that trader would be obliged to sell goods
to anyone who accepted the offer, even underage. Q
Invitations to tender:
o General rule: action of inviting parties to tender = ITT.
o Exception: where the invitation to tender expressly contains an undertaking to
accept the highest/lowest bid.
o Exception: invitation to tender could give rise to binding contractual obligation
where (1) the tenders had been solicited from specified parties who were known to
the requesting party; (2) there was an absolute deadline for submission; (3) the
party requesting tenders had laid down absolute and non-negotiable conditions for
submission.
Auctions:
o General rule: auctioneer’s request for bids is an ITT. Auctioneer can accept/request
offers from bidder. Usually, there is a “reserve” price- if bids are not above this price,
seller keeps the goods. Bidder may revoke offer any time before the hammer falls.
Once hammer falls, offer has been accepted.
o Exception: auctions “without reserve”- seller promised to sell to the highest bidder
whatever that bid turns out to be. Auctioneer could be sued for breach of contract if
they refuse to sell to the highest bona fide bidder. Bidder is not entitled to goods as
there is no bilateral contract.
, Consideration (excluding promises to pay more/accept less)
Definition of consideration = in order to enforce a promise made to you, you must be able to
show that you agreed to provide something in return for that promise.
General rule: both parties must provide consideration.
o Exception: no consideration needed if it is a deed.
Executory consideration = promise to perform in future after contract has been formed. E.g.
sale of goods- future delivery and payment on delivery.
Executed consideration = Consideration has already been performed prior to formation of
contract. E.g. unilateral contract- Carlill v Carbolic Smoke Ball Co Ltd
CONSIDERATION CANNOT BE PAST
o Exception: Prior act/service has been provided by promisee at promisor’s request
and it was always understood that payment would be made for that act or service
(must have been legally enforceable).
CONSIDERATION MUST MOVE FROM THE PROMISEE
o Exception: Contract (Rights of Third Parties) Act 1999. Can be enforced by a third
party with no consideration.
CONSIDERATION NEED NOT BE ADEQUATE
CONSIDERATION MUST BE SUFFICIENT
o If a thing of value can be identified, then there will be sufficiency of consideration
and court will not enquire as to its adequacy.
Existing obligation:
o Stilk v Myrick- existing obligation = NOT good consideration
o Existing obligation = good consideration if they exceed their existing obligations
o Williams v Roffey Bros- existing obligation = good consideration if there is a practical
benefit. Factual consideration rather than legal consideration.
Existing obligation to a third party:
o Performance of the pre-existing duty owed to a third party = sufficient consideration
for a promise given by the promisor
Intention to create legal relations
Objective test: would reasonable people regard the agreement as intended to be binding?
Presumption is that commercial agreements have the intent of being legally binding
o If not, onus is on party to explicitly state that it is not meant to be in clear wording,
cannot be ambiguous.
Esso Petroleum Co v Commissioners of Customs and Excise- trivial nature of transaction and
unwillingness to litigate are not relevant tests in establishing an intention to create legal
relations.
‘Subject to contract’ suggests that parties DO NOT want to be bound, therefore not binding.
In social/family/other domestic agreements, presumption is that there is no intent to create
legal relations.
o Court may show willingness to rebut this presumption during divorce proceedings.
1. Offer and acceptance, consideration (general principles of
consideration only, not promises to pay more or accept less),
intention to create legal relations and capacity.
Offer and acceptance = agreement
Bilateral or unilateral?
o Unilateral = not mutual; e.g. notice with a reward for lost pet. “If you do X, I will do
Y”.
o Bilateral = mutual. “You will do X, and I will do Y”.
Determining whether it is a bilateral contract:
1. Offer or invitation to treat (ITT)?
o Offer = clear and certain (“may” v “shall/must”); display an intention to
be bound
o ITT = cannot be accepted as a firm contract (i.e., binding). E.g. displays of
goods/advertisement/invitations to tender/auctions.
2. Counteroffer or request for more information?
o Request for further information- seeking clarification of the extent and
terms of the offer/seeing whether the offeror would consent to
changing certain ancillary aspects of the offer.
3. Is the acceptance in response to the offer?
o Only the person/people to whom the offer is made (offerees) can accept
the offer
4. Mirror image (unqualified)?
o Acceptance must be unqualified and correspond exactly with the terms
of the offer.
5. Acceptance through valid mode?
o Acceptance may be communicated in any manner, except where the
offeror prescribes the mode of acceptance.
o If the prescribed mode has not been made mandatory, the offer shall be
accepted if through a mode that is no less advantageous to the offeror.
6. Has acceptance been communicated?
o Silence does not amount to acceptance
o Can be accepted by a third party if authority given by offeree.
o Instantaneous means: accepted when received. If it is not received, by
no fault of the offeror, no contract is formed. Does not apply where
there is poor phone reception and offeror does not ask offeree to repeat
what they said.
o Email acceptance = accepted when received (during business hours).
o Tinn v Hoffman
Cross offer
, 7. At the point of acceptance, is the offer still open?
Termination of an offer:
o Rejection e.g. counteroffer.
Effective once actually communicated.
If a counteroffer is accepted, those terms are valid (not the original offer).
The last set of general terms to be accepted by the other side are the valid
terms. If each side continues to assert their own terms, no contract will be
formed.
o Lapse
By passage of time
Within period prescribed
Within reasonable time (depends on circumstances of case)
Death of one of the parties
Offeror: if the offeree knows that the offeror has died.
Offeree: offeree’s representatives cannot accept instead.
o Revocation
Postal rule does not apply to revocation of an offer.
Needs to be actual communication of revocation, i.e., revocation is effective
once received by post, not when posted.
Any time before acceptance. Cannot be revoked after acceptance.
Can be communicated by third party if offeror has shown clear intention to
revoke their offer and notice has reached the offeree.
Unilateral offer:
Can revoke any time before completion of required act.
Exception: part performance of act + willing and able to
complete. Implied obligation not to revoke once performance
has commenced. Offeree’s acceptance and consideration for
implied promise is starting to perform required act.
o No requirement that those embarking on performance
of required act should communicate their intention e.g.
“whole world” offers.
o Where revocation is nearly impossible, it is likely that
revocation will be effective if the offeror has taken
reasonable steps to bring the revocation to the
attention of all those who may have read the offer.
Option contract: where party A agrees to keep the offer (main contract) open for
party B for a certain period for extra consideration.
o If party A sells the subject item of the main contract, party A would be in
breach of the option contract, but NOT the main contract as party B did not
accept the offer for the main contract.
Postal rule:
o Takes effect from the moment it is posted
o Applies even if delayed or lost UNLESS it has wrong address.
o Does not apply if communication by post is not permitted/contemplated/disapplied.
o Does not apply to revocation of an offer.
,Invitation to Treat (ITT):
Advertisements
o General rule: ITT/ statements inviting further negotiations.
Reason: advertisers may have limited supplies of the goods in question,
therefore cannot be accepted by many people or they would be in breach of
contract.
o Exception: General rule does not apply where it is a unilateral offer.
Display of goods for sale:
o General rule: ITT- offers in shop windows, at self-service stores and on websites.
Reason: Would otherwise mean that trader would be obliged to sell goods
to anyone who accepted the offer, even underage. Q
Invitations to tender:
o General rule: action of inviting parties to tender = ITT.
o Exception: where the invitation to tender expressly contains an undertaking to
accept the highest/lowest bid.
o Exception: invitation to tender could give rise to binding contractual obligation
where (1) the tenders had been solicited from specified parties who were known to
the requesting party; (2) there was an absolute deadline for submission; (3) the
party requesting tenders had laid down absolute and non-negotiable conditions for
submission.
Auctions:
o General rule: auctioneer’s request for bids is an ITT. Auctioneer can accept/request
offers from bidder. Usually, there is a “reserve” price- if bids are not above this price,
seller keeps the goods. Bidder may revoke offer any time before the hammer falls.
Once hammer falls, offer has been accepted.
o Exception: auctions “without reserve”- seller promised to sell to the highest bidder
whatever that bid turns out to be. Auctioneer could be sued for breach of contract if
they refuse to sell to the highest bona fide bidder. Bidder is not entitled to goods as
there is no bilateral contract.
, Consideration (excluding promises to pay more/accept less)
Definition of consideration = in order to enforce a promise made to you, you must be able to
show that you agreed to provide something in return for that promise.
General rule: both parties must provide consideration.
o Exception: no consideration needed if it is a deed.
Executory consideration = promise to perform in future after contract has been formed. E.g.
sale of goods- future delivery and payment on delivery.
Executed consideration = Consideration has already been performed prior to formation of
contract. E.g. unilateral contract- Carlill v Carbolic Smoke Ball Co Ltd
CONSIDERATION CANNOT BE PAST
o Exception: Prior act/service has been provided by promisee at promisor’s request
and it was always understood that payment would be made for that act or service
(must have been legally enforceable).
CONSIDERATION MUST MOVE FROM THE PROMISEE
o Exception: Contract (Rights of Third Parties) Act 1999. Can be enforced by a third
party with no consideration.
CONSIDERATION NEED NOT BE ADEQUATE
CONSIDERATION MUST BE SUFFICIENT
o If a thing of value can be identified, then there will be sufficiency of consideration
and court will not enquire as to its adequacy.
Existing obligation:
o Stilk v Myrick- existing obligation = NOT good consideration
o Existing obligation = good consideration if they exceed their existing obligations
o Williams v Roffey Bros- existing obligation = good consideration if there is a practical
benefit. Factual consideration rather than legal consideration.
Existing obligation to a third party:
o Performance of the pre-existing duty owed to a third party = sufficient consideration
for a promise given by the promisor
Intention to create legal relations
Objective test: would reasonable people regard the agreement as intended to be binding?
Presumption is that commercial agreements have the intent of being legally binding
o If not, onus is on party to explicitly state that it is not meant to be in clear wording,
cannot be ambiguous.
Esso Petroleum Co v Commissioners of Customs and Excise- trivial nature of transaction and
unwillingness to litigate are not relevant tests in establishing an intention to create legal
relations.
‘Subject to contract’ suggests that parties DO NOT want to be bound, therefore not binding.
In social/family/other domestic agreements, presumption is that there is no intent to create
legal relations.
o Court may show willingness to rebut this presumption during divorce proceedings.
