What you'll learn

• How offer and acceptance create agreement, including revocation and communication rules.
• How courts decide whether parties had intention to create legal relations.
• The key rules on consideration, including past consideration, pre-existing duties and promissory estoppel.
• How privity of contract works, and how the Contract (Rights of Third Parties) Act 1999 changes the common law rule.

The basic idea of contract formation

A contract is not just any agreement. For a contract to be legally enforceable, the claimant normally needs to show:

1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations

The diagram gives you the overall sequence. In problem questions, use it like a checklist: if one stage fails, the contract may not have formed.

Offer and acceptance

Offer

An offer must be certain enough for the court to enforce it. In Gibson v Manchester City Council (1979), the phrase “may be prepared to sell” was too vague, so there was no offer. In Storer v Manchester City Council (1974), a much clearer “sign and return” document was an offer.

Invitation to treat

Common examples include goods on shelves, shop-window displays and many adverts:

• Pharmaceutical Society v Boots (1953): goods on shelves were invitations to treat; the customer made the offer at the till.
• Fisher v Bell (1961): a flick knife in a shop window was an invitation to treat.
• Partridge v Crittenden (1968): an advert for birds was an invitation to treat.

But an advert can be a unilateral offer if it is clear, serious and calls for performance. In Carlill v Carbolic Smoke Ball Co (1893), the advert promised £100 to anyone who used the smoke ball and still caught flu; depositing money in a bank showed seriousness.

Bilateral and unilateral offers

A bilateral offer is accepted by a promise. For example, “I will sell you my bike for £200” is accepted by “I agree to pay £200.”

A unilateral offer is accepted by complete performance. For example, “£100 reward for finding my lost dog” is accepted by actually finding the dog.

Acceptance and communication

Acceptance must usually be communicated to the offeror. Silence is not normally acceptance: Felthouse v Bindley (1862), where an uncle tried to say silence would count as acceptance of buying a horse, but the court rejected this.

A counter-offer rejects the original offer. In Hyde v Wrench (1840), a lower counter-offer destroyed the original offer, so the original offer could not later be accepted.

A request for information is different. In Stevenson Jacques & Co v McLean (1880), asking whether delivery terms could be changed did not reject the offer.

Postal rule and instantaneous communication

The postal rule means that, where post is a reasonable method of acceptance, acceptance is complete when the letter is posted: Adams v Lindsell (1818). This can apply even if the letter is delayed or lost: Household Fire Insurance v Grant (1879).

For instantaneous communications, such as telex, acceptance is generally effective when received: Entores v Miles Far East (1955). In Brinkibon v Stahag Stahl (1983), the House of Lords said modern communication problems depend on the circumstances.

Revocation

Revocation must be communicated before acceptance. In Byrne v Van Tienhoven (1880), a posted revocation was ineffective because the acceptance had already been sent before the revocation was received.

Revocation can be communicated by a reliable third party. In Dickinson v Dodds (1876), the buyer learned from someone else that the seller had sold the property, so the offer had effectively been revoked.

For unilateral offers, the offeror may be restricted once the offeree has started performance. In Errington v Errington (1952), a promise linked to mortgage payments could not be withdrawn once performance had begun.

Intention to create legal relations

Domestic and social agreements

The presumption in domestic or social agreements is that there is no intention to create legal relations.

In Balfour v Balfour (1919), a husband promised maintenance to his wife while they were together; this was treated as a domestic arrangement, not a contract.

This presumption can be rebutted where the facts show seriousness, separation, reliance or clear financial arrangements:

• Merritt v Merritt (1970): separated spouses signed a written agreement about the home; legal intention was found.
• Simpkins v Pays (1955): family members shared competition entries and winnings; mutual financial arrangement showed intention.
• Jones v Padavatton (1969): a mother’s promise to support her daughter while studying was not intended to be legally binding.

Commercial agreements

The presumption in commercial agreements is that there is intention to create legal relations.

In Edwards v Skyways (1964), an “ex gratia” payment to a pilot was still legally binding because the context was commercial.

This presumption can be rebutted by clear wording:

• Rose & Frank Co v JR Crompton (1925): an “honour clause” stated the agreement was not legally binding.
• Kleinwort Benson v Malaysian Mining Corp (1989): a comfort letter did not create a binding promise to repay debts.

Consideration

Adequacy and sufficiency

Consideration need not be adequate, meaning it does not need to be economically equal. In Thomas v Thomas (1842), £1 rent was valid consideration even though it was not equal to the value of living in the house.

But consideration must be sufficient, meaning it must have some legal value. In Chappell v Nestlé (1960), chocolate wrappers were part of the consideration because they were requested as part of the bargain.

Past consideration

Past consideration is not usually valid. If the act was completed before the promise was made, it was not given in exchange for that promise.

In Re McArdle (1951), family members promised payment after work had already been done on a house; the promise was unenforceable.

There is an exception where the act was done at the promisor’s request, both parties understood payment would be made, and payment would have been enforceable if promised in advance. This comes from Lampleigh v Braithwait (1615) and was confirmed in Pao On v Lau Yiu Long (1980).

Pre-existing duties

Doing something you are already legally required to do is not usually good consideration.

Public duties:

• Collins v Godefroy (1831): attending court under subpoena was not good consideration.
• Glasbrook Bros v Glamorgan CC (1925): police provided extra protection beyond their public duty, so there was consideration.

Contractual duties:

• Stilk v Myrick (1809): sailors promised extra pay for doing their existing duties gave no fresh consideration.
• Hartley v Ponsonby (1857): sailing became much more dangerous after many crew deserted, so extra work was beyond the original duty.
• Williams v Roffey Bros (1990): performing an existing duty can be good consideration if the promisor gains a practical benefit and there is no fraud or economic duress.

Part-payment of a debt is different. Under Pinnel’s Case (1602) and Foakes v Beer (1884), paying less than the full debt is not usually good consideration for a promise to cancel the rest.

Promissory estoppel

The key case is Central London Property Trust v High Trees House (1947). A landlord agreed to accept reduced rent during wartime; the court held the landlord could not claim the full rent for that period.

Limits:

• It is usually a “shield, not a sword”: Combe v Combe (1951).
• The claimant must act fairly: in D & C Builders v Rees (1966), pressure to accept less meant it was not inequitable for builders to claim the balance.
• It usually suspends rights rather than permanently destroys them.

Privity of contract

The traditional rule is strict:

• Tweddle v Atkinson (1861): a groom could not enforce a promise between the fathers to pay money to the couple.
• Dunlop Pneumatic Tyre v Selfridge (1915): Dunlop could not enforce a resale-price promise against Selfridge because Selfridge was not a party to Dunlop’s contract.
• Beswick v Beswick (1968): a widow could not enforce personally as a third party, but could enforce as administratrix of the estate.

The diagram shows the basic rule and the main routes around it.

Common law exceptions

Common law exceptions include:

• Agency: an agent contracts on behalf of a principal, who can enforce the contract.
• Trust of a promise: a promise may be held on trust for a beneficiary.
• Collateral contract: a separate contract may exist between the third party and one contracting party, as in Shanklin Pier v Detel Products (1951), where paint assurances formed a collateral contract.
• Assignment: contractual rights may be transferred to another person.
• Restrictive covenants relating to land: in Tulk v Moxhay (1848), a covenant restricting land use could bind later owners in equity.

Contract (Rights of Third Parties) Act 1999

The key statutory exception is s1 Contract (Rights of Third Parties) Act 1999.

A third party may enforce a term if:

1. The contract expressly says they may: s1(1)(a).
2. The term purports to confer a benefit on them: s1(1)(b), unless it appears the parties did not intend enforcement.
3. The third party is expressly identified by name, class or description: s1(3).

AO3: evaluating formation concepts

Formation rules bring structure and predictability. The objective approach to offer, acceptance and intention helps courts avoid relying too heavily on hidden thoughts. This is useful in commercial life because parties can plan around clear rules.

However, some rules can be artificial. The domestic presumption may feel outdated where families make serious financial arrangements. Consideration is also heavily criticised because it can be technical: a promise may be morally serious but unenforceable if no recognised consideration exists.

Promissory estoppel improves fairness, especially in debt and rent-reduction cases, but its limits are uncertain. Because it is usually only a defence, not a cause of action, it does not fully replace consideration.

Privity has been significantly reformed by the Contract (Rights of Third Parties) Act 1999. This makes the law fairer for intended beneficiaries, while still respecting contracting parties’ autonomy because they can exclude third-party enforcement.