Welcome to Contract Law: Essential Requirements
Welcome to your study notes for Paper 3 (Section A: Contract Law). In this topic, we will break down the essential building blocks needed to make a legally binding contract in English Law.
Don't worry if legal jargon sometimes feels overwhelming. At its heart, contract law is simply the set of rules that decides when a promise can be legally enforced. By the end of this guide, you will clearly understand the four essential elements needed to form a valid contract, plus the key rules on privity.
The 4 Core Elements of a Binding Contract:
1. Offer
2. Acceptance
3. Consideration
4. Intention to Create Legal Relations (ICLR)
Memory Trick: Remember the acronym O-A-C-I ("Only A Contract Is-binding"). If even one of these four pillars is missing, there is no legally enforceable contract!
---Element 1: Offer
What is an Offer?
An offer is defined (under the classic Treitel definition) as an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted.
The person making the offer is the offeror, and the person receiving it is the offeree.
Offer vs Invitation to Treat (ITT)
An Invitation to Treat (ITT) is NOT an offer. It is merely an invitation to negotiate or an indication that someone is open to receiving offers. Understanding the difference between an offer and an ITT is one of the most tested areas in AQA Law exams.
1. Shop Window Displays and Supermarket Shelves:
Goods displayed in a shop window or on a shop shelf are Invitations to Treat, not offers. The customer makes the offer at the cash register, which the shopkeeper can accept or refuse.
• Fisher v Bell [1961]: A flick-knife displayed in a shop window with a price tag was an ITT, not an illegal offer for sale.
• Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]: Medicines displayed on open shelves in a self-service chemist were ITTs. The contract was formed at the till when the pharmacist accepted the customer's offer to buy.
2. Advertisements:
Advertisements in newspapers, catalogues, or online are generally treated as Invitations to Treat.
• Partridge v Crittenden [1968]: An advert stating "Bramblefinch cocks, 25s each" was an ITT, not an offer for sale.
3. The Exception – Unilateral Advertisements:
If an advertisement contains a clear promise in exchange for a specific act (a "unilateral offer" made to the whole world), it is treated as a genuine offer.
• Carlill v Carbolic Smoke Ball Co [1893]: The company advertised a £100 reward to anyone who caught influenza after using their smoke ball as directed and deposited £1,000 in a bank to show sincerity. This was held to be a valid unilateral offer to the world, which Mrs Carlill accepted by performing the specified act.
How an Offer Comes to an End (Termination)
An offer does not last forever. It can be terminated before acceptance in three main ways:
1. Revocation (Withdrawal):
The offeror can withdraw the offer at any time before it is accepted, but the revocation must be communicated to the offeree.
• Byrne v Van Tienhoven [1880]: A revocation sent by post is only effective when it is actually received by the offeree, not when it is posted.
2. Rejection and Counter-Offer:
A counter-offer occurs when the offeree proposes new terms instead of accepting the original offer. A counter-offer "kills" (terminates) the original offer so it can no longer be accepted.
• Hyde v Wrench [1840]: The defendant offered to sell a farm for £1,000. The claimant offered £950 (counter-offer). When the defendant refused, the claimant tried to accept the £1,000 offer. Held: The counter-offer had terminated the original offer of £1,000.
• Distinction – Request for Information: A mere enquiry or request for more details is NOT a counter-offer and leaves the original offer open.
• Stevenson v McLean [1880]: Asking whether credit terms were possible was just a request for information, not a counter-offer.
3. Lapse of Time:
An offer terminates if a specified time limit expires, or if a "reasonable time" passes without acceptance.
• Ramsgate Victoria Hotel v Montefiore [1866]: An offer to buy shares made in June could not be accepted in November because an unreasonable length of time had passed for fluctuating share prices.
Key Takeaway for Offer: An offer shows a clear readiness to be bound. Displayed goods and adverts are usually ITTs (unless unilateral, like Carlill). A counter-offer destroys the original offer.
---Element 2: Acceptance
What is Acceptance?
Acceptance is a final and unqualified expression of assent to all the terms of an offer. Under the "Mirror Image Rule", the acceptance must match the offer exactly without changing any terms.
The Key Rules of Acceptance
1. Communication:
Acceptance must be communicated to the offeror. Mental intention or internal decision is not enough.
2. Silence Cannot Be Acceptance:
The offeror cannot impose a contract by stating that silence will be treated as consent.
• Felthouse v Bindley [1862]: An uncle wrote to his nephew: "If I hear no more about him, I consider the horse mine." The nephew did not reply. Held: Silence does not constitute acceptance.
3. The Postal Rule:
This is a famous exception to the communication rule for physical letters of acceptance.
• The Rule: Acceptance is effective the exact moment the letter is posted, provided it is properly stamped and addressed.
• Adams v Lindsell [1818]: The letter of acceptance was delayed in the post, but the contract was formed the moment the letter was put into the post box, before the seller sold the wool elsewhere.
• Crucial Limit: The postal rule only applies to acceptance by traditional post, not to revocations or modern electronic communications!
4. Modern / Electronic Communications:
For instantaneous communication (such as telex, phone, or email), acceptance takes effect when it is received or when it is reasonable to expect the message to be read (e.g., during normal business hours).
• Entores v Miles Far East Corp [1955]: Instantaneous communication is effective when and where it is received.
• The Brimnes [1975]: A message sent during normal office hours is effective upon arrival, even if the recipient neglects to read it immediately.
Key Takeaway for Acceptance: Acceptance must mirror the offer. Silence is not acceptance. The Postal Rule makes acceptance valid upon posting, while modern instant communications require receipt during business hours.
---Element 3: Consideration
What is Consideration?
English law does not enforce bare promises (gratuitous gifts). A contract must be a bargain where each party gives something to the other.
Key Definitions:
• Dunlop v Selfridge [1915]: "An act or forbearance... is the price for which the promise of the other is bought."
• Currie v Misa [1875]: Consideration consists of a benefit to one party or a detriment to the other.
The Fundamental Rules of Consideration
1. Consideration Must Be Sufficient, But Need Not Be Adequate:
• Adequate: Equal in market value. The courts do not care if you make a bad deal (e.g., selling a £10,000 car for £1).
• Sufficient: Having some recognizable, tangible value in the eyes of the law.
• Thomas v Thomas [1842]: A widow paying £1 per year rent was sufficient consideration to enforce a promise to let her live in a house.
• Chappell & Co v Nestle Co Ltd [1960]: Used chocolate wrappers sent in with money to claim a music record formed part of the consideration because the company required them, even though they were discarded after receipt.
2. Past Consideration is No Consideration:
If an act was already performed before the promise to pay was made, that act cannot be used as consideration for the new promise.
• Re McArdle [1951]: A family member carried out home improvements voluntarily. Afterwards, the other relatives signed a document promising to pay her £488. Held: Because the work was completed before the promise, it was past consideration and unenforceable.
• The Exception: If the act was done at the promisor's express request, with an implied understanding that payment would follow, it is valid consideration.
• Lampleigh v Braithwaite [1615]: Braithwaite asked Lampleigh to ride to the King to secure a pardon. After the pardon was obtained, Braithwaite promised to pay £100. Held: The prior request implied an agreement to pay, so the consideration was valid.
3. Performance of an Existing Duty:
Generally, doing something you are already legally or contractually bound to do is not fresh consideration.
• Stilk v Myrick [1809]: Two sailors deserted a ship. The captain promised to divide their wages among the remaining crew if they sailed the ship home. Held: The crew were already contractually bound to meet normal emergencies; they provided no extra consideration, so the promise failed.
• Exception A – Going Beyond the Duty: If a party does significantly more than their original duty, this counts as fresh consideration.
• Hartley v Ponsonby [1857]: When nearly half the crew deserted, making the rest of the voyage extremely dangerous, the remaining crew exceeded their original duty by continuing, providing valid consideration for extra wages.
• Exception B – Practical Benefit: If promising extra money allows the promisor to obtain a practical benefit or avoid a practical disbenefit (without economic duress), this can be good consideration.
• Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990]: A carpenter under-quoted for refurbishment work on flats. The main contractor promised extra payments to ensure work finished on time and avoid penalty clauses under the main contract. Held: Avoiding the penalty clause and maintaining smooth workflow was a "practical benefit," making the promise enforceable.
Key Takeaway for Consideration: Consideration must have economic value (sufficient), but does not need to be a fair price (adequate). Past acts do not count unless done at request. Existing duties only count if exceeded or if a practical benefit is provided.
---Element 4: Intention to Create Legal Relations (ICLR)
Even if there is an offer, acceptance, and consideration, an agreement is not a binding contract unless both parties intend it to be legally enforceable in court. The law uses two primary legal presumptions:
1. Domestic and Social Agreements
The Presumption: Agreements made between family members, spouses, or friends are presumed NOT to have legal intention.
• Balfour v Balfour [1919]: A husband working in Ceylon promised to pay his wife a monthly maintenance allowance while she stayed in England. When they later drifted apart, she sued for the money. Held: Domestic arrangements between spouses living amicably are not intended to be legally binding.
Rebutting the Domestic Presumption (Overturning it):
The presumption can be overturned with clear evidence that legal relations were intended:
• Separating/Divorcing Couples: Merritt v Merritt [1970]: An estranged couple negotiating financial terms in writing while separated showed a clear intention to create legal relations.
• Financial Context / Competitions: Simpkins v Pays [1955]: A grandmother, granddaughter, and lodger jointly entered a newspaper competition using the grandmother's name, sharing costs. Held: The presence of money and a shared commercial interest rebutted the domestic presumption, entitling the lodger to her share of the prize.
2. Commercial and Business Agreements
The Presumption: Agreements made in a business or commercial context are presumed TO HAVE legal intention.
• Edwards v Skyways [1964]: An airline promised an "ex gratia" (goodwill) redundancy payment to a pilot. The company had to pay because the commercial presumption applied, and using the phrase "ex gratia" did not rebut it.
Rebutting the Commercial Presumption:
Parties can rebut this presumption only by using unambiguous "honour clauses" that explicitly deny legal intent.
• Jones v Vernons' Pools [1938]: A football pools coupon clearly stated the transaction was "binding in honour only." Held: The clause successfully rebutted legal intention; the entrant could not enforce the claim in court.
Key Takeaway for ICLR: Domestic agreements are presumed not binding (unless rebutted by separation or financial agreements). Commercial agreements are presumed binding (unless clearly rebutted by an honour clause).
---Privity of Contract
The General Common Law Rule
The doctrine of privity of contract states that only those who are parties to a contract can acquire rights or be subject to liabilities under it. A third party who stands to benefit from a contract cannot sue to enforce it if they provided no consideration.
• Tweddle v Atkinson [1861]: Two fathers agreed to pay money to a newlywed groom. When one father failed to pay, the groom sued his estate. Held: The groom could not enforce the agreement because he was not a party to the contract and had provided no consideration.
• Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915]: Reaffirmed that only a party to a contract can sue on it.
The Statutory Exception
Contracts (Rights of Third Parties) Act 1999:
To avoid unfairness, Parliament introduced this Act. Under Section 1, a third party can enforce a contract term if:
1. The contract expressly provides that they may, OR
2. The term purports to confer a benefit on that third party (unless the contract shows the parties did not intend it to be enforceable by them).
Note: The third party must be expressly identified in the contract by name, as a member of a class, or answering a particular description.
---Summary Checklist & Common Exam Pitfalls
Top 5 Pitfalls to Avoid in Paper 3:
1. Confusing an ITT with an Offer: Price tags, shelf items (Fisher, Boots), and general adverts (Partridge) are ITTs! Do not say "the shop made an offer on the shelf."
2. Over-applying the Postal Rule: It applies only to physical letters of acceptance (Adams v Lindsell). It does not apply to revocations or emails.
3. Forgetting Silence is Not Acceptance: An offeror cannot force an agreement by saying "if you don't reply, we have a deal" (Felthouse).
4. Overlooking Past Consideration: Check the timeline carefully. If the work was done before the promise to pay was spoken/written, it is past consideration (Re McArdle).
5. Stopping at the Presumption for ICLR: Always state the presumption first (Balfour or Edwards), then immediately evaluate whether the scenario facts rebut it (Merritt, Simpkins, or Jones).
Quick Review Summary Table:
• Offer: Definite promise to be bound (Treitel). ITT is just an invitation to negotiate.
• Acceptance: Unqualified agreement mirroring the offer. Postal rule applies upon posting.
• Consideration: Value exchanged (Currie v Misa). Must be sufficient, not adequate.
• ICLR: Domestic = Presumed NO; Commercial = Presumed YES.
• Privity: General rule = Only parties can sue. Exception = Contracts (Rights of Third Parties) Act 1999.