1. Lecture 13:
Contract Law (2)
Foundation Law
2013/14

2. Recap-Lecture 12: Introduction to
Contract Law (1)
• In last week’s lecture we looked at………
• Definition of a contract
• The 7 key elements of a contract
• Offers and invitations to treat
• Acceptance of offers
• The Postal Rule on Acceptance of Offers

3. What is a Contract?
•A contract is:
“An agreement between two parties who promise to
give and receive something from each other, known as
consideration, and who intend the agreement to be
legally binding”.

4. 7 elements of a Contract
Offer
Acceptance
Consideration
Capacity
Intention to create legal relations
Legality
Agreement

5. OFFERS
• What is an offer?
• Oxford Dictionary of Law definition: “ an indication of willingness to do
or refrain from doing something that is capable of being converted by
acceptance into a legally binding contract”
• Offers therefore, generally refer to a willingness to do/not to do
something…..offers are usually made with respect to underlying
terms/conditions of an agreement. For example, offer of a price.
• “Offeror”- the person who is making an offer (For example, Sue is
offering to buy Jen’s car for £5000)
• “Offeree”- the person to whom the offer is made (in the example
above, this would be Jen)

6. Invitations to Treat

7. Invitations to Treat
• An offer is NOT the same thing as an invitation to treat!
• An invitation to treat is essentially an invitation to someone to
make an offer. It is not an offer. This “invitation” or “offer” can
either be accepted or rejected by the offeree.
• Pharmaceutical Society of Great Britain v Boots Cash Chemists
Ltd (1953): items displayed for sale are invitations to treat
• Fisher v Bell (1961): held that displaying a flick knife with a
price tag in the shop window, was an invitation to treat and not
an offer for sale
• Harris v Nickerson (1873): it was held that an advertisement
giving details of a forthcoming auction was not an offer but an
invitation to make an offer (upheld in Partridge v Crittenden
(1968))

8. Invitations to Treat
• Therefore, articles displayed for sale and
advertisements are invitations to treat and not offers
• However, reward posters are considered to be offers,
as outlined in Carlill v Carbolic Smoke Ball Co (1893)

9. Offers
• There are 5 key rules relating to offers:
1.An offer may be made to one or more parties
2.Offers need not to be made in writing
3.The offer must be communicated
4.Revocation of an offer
5.Other ways of terminating an offer

10. Acceptance of Offers
• Acceptance of an offer is final and once an offer is
accepted then the contract is in existence and can only be
revoked if the parties agree
• However, there are 5 key rules relating to the valid
acceptance of an offer:
1)The offer can only be accepted by the offeree
2)The acceptance must be absolute and unqualified
3)Acceptance must be communicated to the offeror
4)Acceptance must generally be in the form that the offeror
specifies
5)The offer must still be in existence when it is accepted

11. The Postal Rule
• This rule only applies where post is held to be the
most reasonable means of communicating offer and
acceptance, (OR if the offeror states that post is the
preferred method of communication):
 the offer is effective when it arrives
Postal acceptance also is only effective when it
arrives, rather than when it is placed in the letter
box. However, if the offeror intends that acceptance
is effective when placed in the letter box, then this
will be sufficient

12. Contract Law (2)
• This week’s lecture will focus on consideration and
intention to create legal relations………..

13. Learning Outcomes:
Be able to explain what is “consideration” and its importance in contract
law;
Show knowledge and understanding of unilateral and bilateral contracts;
Explain the doctrine of privity of contract;
Show awareness of intention to create legal relations;
Become familiar with contract law terminology;
Apply legal principles to given facts and demonstrate criticality & analysis
when answering fact based questions; and
Analyse case law and be able to apply case law in a persuasive manner to
hypothetical case studies

14. Types of Contracts
• There are generally two types of contract: bilateral and
unilateral contracts.
• Bilateral contracts: these are the standard type of
contracts whereby both the promisor and the promisee,
promise to do something and then carry out their part
of the promise. For example, buying a latte from the
coffee shop
• Unilateral contracts: these are the kind we find in cases
such as Carlill v Carbolic Smoke Ball Co. Here only one
party makes a promise. The other accepts the offer by
performing the condition (e.g. finding a lost dog)

15. • Typically we find this kind of contact in “reward” cases
• In this type of contract, the requirement that
acceptance should be communicated is not applicable.
The offeree accepts by performing, so there is actually
no contract at all until it has been performed (by the
offeree)
• This contrasts with bilateral contracts in which the
contract exists before it is performed by either party

16. Consideration
• Consideration: something of value that is exchanged , which makes the
contract enforceable
• Dunlop v Selfridge Ltd (1915):
“An act or forbearance of one party, or the promise thereof, is the price for
which the promise of the other is bought, and the promise thus given for
value is enforceable”
• The “price” refers not only to money but something which has (monetary)
value. For example, the performance of a service. Furthermore, the
exchange of the consideration does not have to be equal in value…it simply
needs to have some economic value
• Both parties must provide consideration
• Where only one person gives another something but the recipient does not
give anything in exchange, this is a gift and a gift is not enforceable unless
contained in a special deed

17. Third Parties & the Doctrine of Privity
of Contract
• There is a general rule that only those people who
have provided consideration may sue for an
unperformed contract
• This is known as the “the doctrine of privity” - Dunlop
v Selfridge Ltd (1915)

18. • Tweddle v Atkinson :
X and Y promised each other to pay Z
Y died, so his executors were sued by Z
It was held that Z could not recover the money because he had
not provided consideration
The contract was only enforceable between X and Y under the
Doctrine of Privity of Contract
• Exception
• The Contract (Rights of Third Parties) Act 1999: allows third
parties to sue where it gives the third party a benefit and
where:
• the contract explicitly says that the third party may sue; or
• It gives the third party a right in some other way.

19. The Requirements of Consideration
• There are certain requirements and rules on valid
consideration
• Lets consider each one in turn……..

20. Consideration need not be adequate
• Chappell & Co v Nestle Co. Ltd (1960):
• Had consideration been provided?
• It was held that the wrappers were consideration
(adequate) because they had some economic value –
they persuaded people to buy the chocolate which
they might not otherwise have bought

21. Consideration must be of some economic
value
• The consideration exchanged must have some
economic value
• White v Bluett (1853): held that the promise not to
complain was not tangible and real and therefore,
could not be consideration

22. The promise must be for more than what
is already one’s duty
• Williams v Roffey:
• It was held that the only additional benefit that defendant was
receiving was (which was having the work done on time) seen as a
“practical benefit” rather than a “legal” one
• There was no legal benefit here because the contract already
provided that the work should be done

23. Debt payments
• For example, a promise to pay £50 when one already
owes £100 is not good consideration as it does not
satisfy the original debt

24. The promise must be do to something in
the future
• Re McArdle (1951):
• It was held that the daughter in law had not provided
consideration as all of the work had already been done
• This is known as “past consideration”
• There is however, an exception to the rule in relation to
past consideration. This is when one party asks the other
to act and payment is implied. When the other party later
promises payment, the courts will enforce that promise.
This exception came from the case of Lampleigh v
Braithwaite (1615)

25. Intention to create legal relations
• In business contexts, the general presumption taken
by the courts is that any agreements made are
intended to be legally enforceable, whereas in family
or social contracts, the opposite is presumed
• However, both presumptions can be rebutted
(reversed) if there is sufficient evidence

26. The presumption in a business context
• Parties can use “honour clauses” to exclude legal
effects
• Rose and Frank Co. v JR Crompton (1923): held that
the use of honour clauses prevented the contract from
forming

27. The presumption in social/domestic
arrangements
• The presumption is that parties do not intend to create legal relations
• Balfour v Balfour (1919): held that the wife could not sue for the
money as these kinds of arrangements were not intended to be
legally binding
• Compare with……..
• Merritt v Merritt (1970)
• Jones v Padavatton (1969)
• In all cases, the situation must be looked at objectively. Remember
that the question of intention is one of fact………

28. Preps. For Seminar 13:
• Hand-out:
• Reading List:
• Jacqueline Martin, “GCSE Law”, 5th
edition, Chapter
31-Consideration and Intention: contract law (pages
247-251 only)
• List of cases
• Preparatory Questions