Agreement, Consideration and Intention

Question 1

In order for there to be a binding contract, what must be present?

Answer 1

(i) offer and acceptance;
(ii) intention to create legal relations; and
(iii) consideration.

Question 2

For an agreement to exist, what must be present?

Answer 2

(i) a clear and certain offer displaying an intention to be bound; as well as
(ii) the offeree’s unequivocal acceptance.

Question 3

If A says to B that they are “prepared to sell”, would this constitute a clear and certain offer and why?

Answer 3

No, it is not sufficiently clear and certain to constitute an offer. There would be no binding contract as a result.

Question 4

If A says to B: “if you will sign the agreement and return it to me I will send you the agreement signed on behalf of the corporation in exchange”, does this indicate an intention to be legally bound and why?

Answer 4

Yes, the wording would be deemed sufficient to show an intention to be bound. Accordingly, an offer could be made out.

Question 5

B approaches A to ascertain if they will sell a laptop and at the same time asks A what the lowest price would be. A replies with: “lowest price is £500”. B responded attempting to accept. Would this constitute an offer and why?

Answer 5

No, as A did not answer the first question regarding whether he would he sell the laptop. Accordingly, the lowest price stated would be deemed a mere response to a request for information. Consequently, B could not have accepted as there existed no offer.

Question 6

Mark and Melissa were out drinking in a pub, when the topic of Mark’s business came up. Mark said to Mellisa that if his shares in the business increased in value, he would be very wealthy, saying “how about £400,000”. Melissa responded by saying “let’s call it £500,000”. Could this be deemed a valid offer (and subsequent contract) and why?

Answer 6

No, as Mark and Mellisa did not show an intention to be bound - it was made in a jovial context where it could not have been considered reasonable for one to make an offer and the other subsequently accepting it. Furthermore, there existed no specific terms.

Question 7

What are the two types of contract?

Answer 7

Bilateral contracts - quid pro quo, one party makes a promise to do something in exchange for the other party’s payment (here, there’s mutual promises)

Unilateral contracts - where one party makes an offer / proposal in terms which call for an act to be performed by one or more parties.

Question 8

What is an invitation to treat and how is it different from an offer?

Answer 8

An invitation to treat is the first step in negotiations, while an offer is an undertaking to be contractually bound by its terms.

Question 9

Are advertisements regarded as invitations to treat? Why? Are there any exceptions?

Answer 9

The general rule is that advertisements are regarded as statements inviting further negotiations (or invitations to treat), because it would be commercially unworkable if all advertisements were considered legally binding offers.

The exception to this general rule is if the advertisement amounts to a unilateral offer. So, if ABC Ltd advertised that they would pay £100 to anyone who used their weight loss machine for 6 weeks and did not lose weight, this unilateral offer would likely constitute a valid offer.

Question 10

Are price-marked goods displayed in a shop window or on a website considered invitations to treat? Why?

Answer 10

Yes, they are considered invitations to treat because it would be commercially unworkable if every price-marked good amounted to an offer.

Question 11

When a company/public body wishes to purchase a major item or service, they often use tenders. Would a request for a tender be considered an invitation to treat? Why? Are there any exceptions?

Answer 11

Requests for tenders are generally deemed an invitation to treat because it would be commercially unworkable if every request formed an offer. The action of inviting parties to a tender means that the requestor can accept or reject any tender.

However, if the invitation to tender contains an undertaking to accept the highest or lowest bid (a form of unilateral contact), this would constitute an offer - the required act being to make the highest or lowest bid and when this is carried out the other party is bound.

Question 12

Is an auctioneer’s request for bids considered an invitation to treat? Why? Any exceptions?

Answer 12

General rule is that an auctioneer’s request for bids is an invitation to treat as the bider makes an offer which auctioneer is free to accept or reject. Acceptance is indicated by the fall of the hammer.

The exception to this rule is auctions ‘without reserve’. Auctions typically have a ‘reserve’ price so that if no bid above the this price is made the seller keeps the goods. In an auction without reserve, the seller promises to sell to the highest bidder.

Question 13

When does an offer become incapable of acceptance?

Answer 13

An offer can come to end by (i) rejection; (ii) lapse of time; or (iii) revocation

Question 14

When an offer is rejected, and a counter-offer is made, can the original offer be accepted?

Answer 14

No, the original offer is deemed to have been rejected and cannot be subsequently accepted.

Question 15

Aliyah offered to sell Leo 5 tons of coal at £4000 by email, noting that offer was open until Monday. Leo responded asking whether Aliyah would accept £3900. Aliyah never replied and Leo tried to accept the original offer. Has a contract been formed by Leo’s acceptance and why?

Answer 15

Yes, because Leo’s response was not a counter-offer but an enquiry which did not serve to reject the offer. A binding contract was thus made when Leo sent the email accepting the offer.

Question 16

When will an offer lapse and become incapable of acceptance?

Answer 16

By (i) passage of time; or (ii) the death of one of the parties.

Question 17

If Paul knows that Priyanka (who had made an offer) has died, will the offer lapse? Would the answer be the same if the Paul was not aware? What if Priyanka lives and Paul has died?

Answer 17

If the offeree (Paul) is aware that the offeror (Priyanka) has passed away, the offer will lapse.

However, if Paul is not aware that the offeror has passed, will probably not lapse.

And if the offeree dies, then the offer lapses as it is incapable of being accepted by the offeree’s representatives.

Question 18

When can an offer be revoked?

Answer 18

Anytime BEFORE acceptance.

Question 19

When does revocation communicated by post take effect?

Answer 19

The moment it is received by the offeree, not from time of posting.

Question 20

Will revocation be effective if communicated by a third party?

Answer 20

Yes, provided the information from the third party is reliable.

Question 21

Selmin entered into a unilateral contract with her father Nick, where Selmin was obligated to pay off the mortgage in order to be given the house. Selmin started off paying the mortgage when Nick decided to revoke the offer. Could the promise be revoked and why?

Answer 21

No, because if the offeree (Selmin) partly performs the obligations and is willing and able to complete, the offeror is under an implied obligation not to revoke the offer once performance has commenced.

Question 22

What are the four rules in relation to acceptance?

Answer 22

(i) Acceptance must be in response to the offer;
(ii) Acceptance must be unqualified;
(iii) It may be necessary to follow a prescribed mode of acceptance; and
(iv) Acceptance must be communicated.

Question 23

What does the first rule of acceptance (i.e. acceptance must be in response to the offer) mean?

Answer 23

Only the person / people whom an offer is made can accept the offer. It would not be possible to accept an offer that one had overheard.

Question 24

When an offer is made generally to the world at large (like unilateral adverts for e.g.), how does the position of acceptance change?

Answer 24

Everyone with notice of the offer would be deemed an ‘offeree’ and valid acceptance may be made by any person with notice of the offer (e.g. Carlill v Carbolic Smoke Ball).

Question 25

What does the second rule of acceptance (i.e. acceptance must be unqualified) mean?

Answer 25

It is known as the 'mirror image rule' - acceptance must correspond exactly with the terms of the offer. An acceptance which is qualified in any way does not take effect as an acceptance and one must consider whether it constitutes a counter-offer or a request for information.

Question 26

If the offeror prescribes a mode of acceptance, but does not mandate it, can the offeree use an alternative mode?

Answer 26

Yes, provided it is no less advantageous to the offeror.

Question 27

What does the third rule of acceptance (regarding prescribed mode of acceptance) mean?

Answer 27

Acceptance may be communicated in any manner whatsoever. However, the offeror may decide for themselves the manner of acceptance but it must be very clearly stated that it is mandatory.

Question 28

What is the fourth rule of acceptance (i.e. acceptance must be communicated) mean?

Answer 28

The general rule is that acceptance must be communicated to the offeror. Therefore, where the offeree merely intended to accept but did not communicate that intention, there is no contract - mental assent is not sufficient.

Question 29

Angus and Jan were negotiating the price of a horse. Jan made a counter offer and stated that if he does not hear from Angus in three days, he will assume that he accepts. Does this constitute valid acceptance?

Answer 29

No, it is not possible to accept by silence.

Question 30

Sabine had some extra cash after selling her house and wanted to invest the money in Abbey Life property bonds. She filled in an application for the investment and wrote a cheque for the investment amount which she then sent to Abbey Life. Sabine received the investment policy documents but failed to sign and return. Several months later and unhappy with her investment, she tried to argue that she had never signed and agreed to the policy. Did her conduct amount to valid acceptance?

Answer 30

Yes, although amounting to silence, her previous conduct (i.e. the fact that she was invested for seven months) indicated acceptance.

Question 31

ABC Ltd informally supplied steel to XYZ Ltd, when the pair later decided to enter into a formal agreement. XYZ Ltd sent an agreement to ABC Ltd, but the agreement was left in a draw and unsigned. ABC Ltd continued to supply the steel. Did ABC's conduct amount to valid acceptance?

Answer 31

Yes, although amounting to silence, the fact the parties sent and received the steel would be indicative of valid acceptance of the contract. Furthermore, the parties were known to each other.

Question 32

If a third party communicates authority, will that be valid?

Answer 32

Yes, provided the third party has the authority of the offeree.

Question 33

What is the postal rule?

Answer 33

Acceptance will take effect from the moment the letter is sent, not from the moment it is received by the offeror.

Question 34

Does the postal rule apply if the post is delayed or lost in the post?

Answer 34

Yes, unless the offeror excludes the postal rule from applying or where it would lead to 'manifest inconvenience or absurdity'.

Question 35

David gave Charlie the option to purchase a house for £250,000, stating in the contract that the notice must be made in writing before 3 months. Charlie posted five days later, but it was lost in the post and did not reach David before the 3 month period. Does the postal rule apply?

Answer 35

No, the wording of the contract would exclude the postal rule from applying - David has set aside the postal rule. Therefore, an offer that states 'notice in writing' implies acceptance has to be received.

Question 36

Does the postal rule apply to letters revoking an offer?

Answer 36

No, the postal rule only applies to letters of acceptance - letters revoking an offer are deemed to be effective when it is received by the offeror.

Question 37

David gave Charlie the option to purchase a house for £250,000, stating in the contract that the notice must be made in writing before 3 months. Charlie posted five days later, but incorrectly addressed the letter. Does the postal rule apply?

Answer 37

Unlikely the postal rule would apply because the letter was incorrectly addressed.

Question 38

What is the receipt rule?

Answer 38

In instantaneous forms of communication (e.g. email, telex, etc.) occurs at the point where the offeror receives it. When an acceptance email is sent , for example, it is effective when received and not from the moment it was sent.

Question 39

Having concluded negotiations on the purchase of office supplies, Alex sent an email to Josh accepting the counter-offer on Friday at 4:30pm. Josh did not read the email until Monday morning. When did acceptance occur?

Answer 39

Given Alex's email could have been read on Friday (as it was sent during business hours), acceptance would be deemed effective as of Friday and not Monday when Josh had actually read the email.

Question 40

Having concluded negotiations on the purchase of office supplies, Alex sent an email to Josh accepting the counter-offer on Friday at 11:15pm. Josh did not read the email until Monday morning. When did acceptance occur?

Answer 40

Given Alex's email was sent outside of normal business hours, acceptance would be deemed effect on Monday morning.

Question 41

Would an agreement on 'hire-purchase terms' be considered enforceable and why?

Answer 41

No, as it is too uncertain - there are so many different kinds of hire-purchase agreements based on a variety of different terms. The agreement would be considered too vague. Would it be weekly or monthly instalments, how much would the instalments be - there are too many unanswered variables.

Question 42

Two parties regularly deal with one another, and an agreement to purchase 'timber of fair specification' was made. Would this be considered enforceable?

Answer 42

Yes, because the words could be given a reasonable meaning in light of the parties previous dealings.

Question 43

What is the difference between executory and executed consideration?

Answer 43

Executory consideration is what we commonly think of consideration, where parties make promises to each other to perform something in the future after the contract has been formed. For e.g. seller promises to deliver goods at some time in the future and the buyer promises to pay for them. Executed consideration, on the other hand, is consideration that has already been performed at the time the contract is formed. This is typically in unilateral contracts where promise of a reward is made and the price aid in exchange for that promise is performance of the act stipulated in the offer.

Question 44

What are the three rules in relation to consideration?

Answer 44

Consideration: (i) must not be past; (ii) must move from the promisee but not necessarily to the promisor; and (iii) need not be adequate but sufficient.

Question 45

What does the first rule of consideration (i.e. consideration must not be past) mean?

Answer 45

Consideration must be given in exchange for the promise of the other party - so that if an act or forbearance has taken place prior to the promise, it cannot be used in exchange for that promise.

Question 46

A father passed away leaving his daughter in the care of a guardian. The guardian borrowed £250 to help pay for the daughter's upbringing. The daughter later married and her husband promised the guardian that he would pay off the debt to repay the guardian for having brought up the daughter. However, the husband failed to honour his promise. Could the guardian's consideration (i.e. bringing up the daughter) be good consideration to support the husband's promise to discharge the debt?

Answer 46

No, it could not be because the consideration was completed in the past.

Question 47

What is the exception to the rule that consideration must always be past, and any examples?

Answer 47

In unexpressed bargains, as the law allows for commercial realities. Think, for example, when a barber only takes payment after cutting hair, or when you go to the garage for car repairs and price is decided afterwards. However, the parties must have understood that the act was to be paid for.

Question 48

Abigail owned some patents and got a manager to manage her patents. She then promised her manager, in return for his good service managing the patents, that he could have a 1/3 share of the rights of the patents. Abigail later argued that the promise was unenforceable as it was past and for want of consideration. Is the promise enforceable?

Answer 48

Yes, because it is clear from the facts that the parties always understood payment was going to be made for services rendered. Abigial's later promise, whilst 'past', had merely verbalised this unexpressed understanding. In commercial settings, past considerations can be enforceable by the law.

Question 49

What does the second rule of consideration (i.e. must move from promisee but not necessarily to the promisor) mean?

Answer 49

As the promisee enforces the promise, they must be the ones that provide consideration. However, consideration does not have to be given to the promisor provided at their request they authorise it being given to a third party.

Question 50

Two fathers of a couple who were about to get married agreed that the father of the bride was to pay £200 and the father of the groom £100 to the bridegroom. The bridegroom tries to enforce his father-in-law's promise, can he?

Answer 50

No, as he provided no consideration for the promise. The consideration had been provided by the fathers.

Question 51

What does the third rule of consideration (i.e. need not be adequate but sufficient) mean?

Answer 51

It is not the court's duty to assess the relative value of each party's contribution to the bargain so the inadequacy of price when a bargain is freely reached is immaterial. However, the consideration must have some value in the eyes of the law - so this could even be curtailing one's freedoms or showing forbearance (to refrain or show self-control).

Question 52

In return for a father releasing the son of his debt, the son promised his father to stop complaining. Would the son's promise amount to good consideration?

Answer 52

No, it would not be as there is no detriment to the son to stop complaining - he also has the right to complain.

Question 53

An uncle promised to pay his nephew £5,000 in return for the nephew to stop drinking, smoking and gambling. Would the nephew's promise be good consideration which would make a contract legally binding?

Answer 53

Yes, as the nephew is effectively offering to curtail his freedom i.e. he is offering to give up something that he has the right to do.

Question 54

When will an existing obligation be good consideration?

Answer 54

Due to: (i) an existing contract between the same parties; (ii) a public duty; or (iii) an existing contract with a third party (where the existing obligation is owed to the third party).

Question 55

If Sam is already contractually bound to Becky to do something, will agreeing with Becky again amount to good consideration?

Answer 55

No, if they were already under a contractual duty to do something. However, if they Sam went 'above and beyond' or if Becky received a 'practical benefit', this may amount to sufficient consideration.

Question 56

Two sailors deserted a ship mid-voyage and the captain offered to divide the wages of the deserting sailors if the rest of the sailors sail the ship back home safely. Could this be enforceable? Is there an example where the answer could be different?

Answer 56

No, because the sailors were already under a contractual duty to sail the ship back safely. Had they gone above and beyond, the position may be different. For instance, had they been contractually bound to use all 'reasonable endeavours' to sail the ship back safely and did so in unforeseen dangerous conditions, this could amount to good consideration.

Question 57

ABC Ltd had been contracted to build a block of flats and they subcontracted this work to XYZ Ltd. Before the work was completed, XYZ Ltd got into financial difficulties and it was clear that, without additional money, it would be unable to finish and therefore be in breach of contract. If the work did not finish on time, ABC Ltd would be subject to major penalties to the main contractor so agreed to pay XYZ Ltd an additional £50,000. ABC Ltd did not stick to this subsequent arrangement, noting that XYZ Ltd was contractually bound to do the same work. What is the correct position?

Answer 57

Given that ABC Ltd received a 'practical benefit' through the avoidance of a late completion fee in the main contract, it is likely a court would consider it good consideration and therefore this arrangement would be enforceable.

Question 58

Can a promise to pay public officials amount to good consideration and why?

Answer 58

No, because the public official is already under an existing public duty that they must perform. However, if they go above and beyond this duty then it may amount to sufficient consideration.

Question 59

If an owner of a mine promised to pay police if they provided security during a miner's strike, would this amount to sufficient consideration?

Answer 59

Yes, whilst accepted that the police's existing duties do not form good consideration, by going above and beyond to provide extra protection it may amount to good consideration.

Question 60

A witness, who was already under a public duty to provide evidence, was promised payment to perform her duty. Would this promise of payment amount to sufficient consideration and why?

Answer 60

No, because they have not done anything above what they were already obliged to do and therefore did not receive a legal benefit nor suffered a detriment in return for a promise to pay.

Question 61

Shipping Co made an offer to Unloaders Ltd that if they unloaded Shipping Co's goods from a ship, it would treat Unloaders Ltd as exempt from any liability for damage to goods. Unloaders Ltd was already bound to this by a contract with a third party. Would this amount to valid consideration?

Answer 61

Yes, it is enforceable as per case law.

Question 62

Is part-payment of debt valid consideration and why? Any exceptions?

Answer 62

No, because the debtor offers to do something they are already obliged to do. However, if the creditor requests some new element to be introduced to support the lesser sum (e.g. payment at a different place or an earlier time or by providing a different thing like property in lieu of money), then this may amount to valid consideration.

Question 63

TWF were owners of a commercial office block and AC Advertising was in contact with TWF to use one of the office suites, paying a fee. AC Advertising suffered some financial troubles and could not pay the fee in full. Both parties subsequently agreed that AC Advertising could pay less. However, TWF reneged on the agreement. Could the promise here to pay less be enforceable and why?

Answer 63

Yes, because keeping AC Advertising on as a paying tenant conferred a commercial advantage to TWF by ensuring that the offices were not standing empty. Accordingly, there would likely be sufficient consideration.

Question 64

What is promissory estoppel and its four parameters?

Answer 64

Promissory estoppel was introduced as a doctrine which could effectively 'estop' a party going back on a promise if it is inequitable to for that person to go back on the promise. The four parameters to promissory estoppel are: (i) it acts as a shield and not a sword; (ii) a clear and unequivocal promise that strict legal rights will not be fully enforced; (iii) a change of position in reliance on the promise; and (iv) it would be inequitable to allow the promisor to go back on their promise.

Question 65

What does the first parameter of promissory estoppel (i.e. shield not sword) mean?

Answer 65

Estoppel can only be employed as a defence.

Question 66

Following a divorce, Mr Jones said he was prepared to make an allowance of £500/month to Mrs Jones. However, he did not make any of the agreed payments and Mrs Jones subsequently brought an action claiming arrears of payment under Mr Jones' promise, attempting to use promissory estoppel. Could she rely on this doctrine?

Answer 66

No, because Mrs Jones did not give any consideration for Mr Jones' promise. It is only possible to use estoppel as a defence not a sword.

Question 67

What does the second parameter of promissory estoppel (i.e. clear and unequivocal promise that strict legal rights will not be fully enforced) mean?

Answer 67

There must be a clear and unequivocal promise or representation that existing legal rights (such as a debt, arrears, money owed) will not be fully enforced.

Question 68

What does the third parameter of promissory estoppel (i.e. change of position in reliance on promise) mean?

Answer 68

In contract law, unlike equity, the party relying on estoppel needs only show a change of position in reliance on the promise so that it would be inequitable to allow promisor to go back on their promise.

Question 69

What does the fourth parameter of promissory estoppel (i.e. inequitable to allow promisor to go back on their promise) mean?

Answer 69

Courts will use their discretion to determine whether it is inequitable to allow a promisor to go back on their promise. Although detrimental reliance is not required to be able to rely on promissory estoppel, if present this would be a factor making it more likely to be inequitable for the promisor to go back on their promise.

Question 70

D&C Builders completed a project for Mr Smith. Mr Smith, aware that D&C were under considerable financial difficulties, offered a cheque for the sum of £300 in full and final settlement of a debt of £482. D&C reluctantly accepted but later brought an action for the full balance. In response, Mr Smith sought to rely on promissory estoppel. Would he succeed?

Answer 70

Because the promise to accept less had been extracted by intimidation on the part of Mr Smith, they will not be able to rely on the doctrine of promissory estoppel - those who seek equity must do equity.

Question 71

What does an intention to create legal relations mean?

Answer 71

An intention to enter into an agreement with legal ramifications (i.e. a contract).

Question 72

What is the ordinary presumption for commercial agreements compared to social / domestic agreements?

Answer 72

In commercial agreements, there is a presumption that the parties intended to create legal relations. In social / domestic agreements, there is no presumption that the parties intended to create legal relations. However, such presumptions can be rebutted

Question 73

Is a commercial agreement in contract law restricted to business-to-business agreements?

Answer 73

No, it also applies to agreements between businesses and individuals - for e.g. the purchase of car from a dealer.

Question 74

When will the presumption relating to commercial agreements be rebutted?

Answer 74

Where an agreement is 'subject to contract' this creates a strong inference that the parties do not intend to be bound until the formal execution of the contract. It is to express tentative preliminary agreement.

Question 75

Mr Scott (who worked overseas) agreed to pay Mrs Scott a maintenance allowance of £250/week. However, their relationship subsequently broke down and Mr Scott stopped with the maintenance payments. Would this be an enforceable contract?

Answer 75

No, because the parties reached the agreement in a social context and before any breakdown in their relationship occurred - a court would show an unwillingness to find an intention to create legal relations here.

Question 76

When will the courts show a willingness to rebut the presumption with respect to an intention to create legal relations in domestic agreements?

Answer 76

One situation is where spouses are in the process of separating or are separated when the agreement was reached (i.e. when they are not in an amicable relationship). Their position when they have separated is more akin to businessmen approaching the negotiating table than partners sorting out their domestic affairs.