BUSI1001 Chap.4 Contract Formation
Contract Formation
A contract-formation problem is a communication timeline. Identify each statement or act, classify it, and determine when legal commitment arose. The usual sequence is offer, acceptance, consideration, intention, capacity and legality. The facts may eliminate an element, terminate an offer or create an alternative route such as promissory estoppel.
Avoid announcing that a contract exists before completing each relevant step.
An offer objectively displays willingness to be bound on stated terms upon acceptance. Distinguish it from an invitation to treat, an inquiry, negotiation or puffery. Bilateral agreements exchange promises, while a unilateral offer promises something in return for performance.
Rejection can terminate an offer, and revocation ordinarily must be communicated. Ask whether terms were sufficiently definite and whether a reasonable recipient would understand immediate acceptance as completing the bargain.
Acceptance must correspond with the offer and ordinarily be communicated. A counter-offer is not acceptance, while a request for information may leave the offer intact.
Conduct can communicate assent. The postal rule may treat acceptance as effective on posting where use of post was contemplated, but instantaneous communications call for attention to receipt. Performance can accept a unilateral offer without separate advance notification where the offer invites that mode.
Consideration is the legally recognised price for the promise.
It may be money, goods, services, an act or a promise, and it need not be economically adequate, but it must have legal value. Past consideration and simple performance of an existing contractual duty are generally problematic, subject to carefully analysed qualifications. Identify who gives value for which promise rather than saying vaguely that both sides benefit.
Intention to create legal relations is objective.
The subject matter, context, words, writing and later conduct can all matter. Social, domestic and commercial presumptions are aids rather than conclusions and may be rebutted.
Capacity and legality are separate controls: minors have limited capacity subject to recognised categories, mental incapacity or intoxication can make a transaction voidable in stated circumstances, and an agreement cannot require unlawful conduct or offend applicable public policy.
Promissory estoppel can matter where a clear promise is relied upon without conventional consideration.
The course pathway asks about the relationship, a clear and unambiguous promise intended to induce reliance, actual change of position, material disadvantage and unconscionability in departure. Use it only after explaining why ordinary formation or variation analysis is incomplete. Its function is not to erase every failed element of contract formation.
What this chapter covers
- 01
Offer versus invitation
- 02
Acceptance and communication
- 03
Consideration
- 04
Legal intention
- 05
Capacity and legality
- 06
Promissory estoppel
Worked example · free
Crossed messages about a vintage desk
- 1Classify the seller's definite proposal as an offer and identify its permitted communication method.
- 1Confirm that the buyer's response is unqualified acceptance rather than a counter-offer.
- 2Explain the possible postal-rule effect because post was contemplated.
- 2Place posting and receipt of the revocation on a timeline and analyse whether revocation was effective first.
- 1State a qualified conclusion and identify any fact that could displace the postal rule.
Key terms
- Offer
- An objective expression of willingness to be bound on sufficiently definite terms once properly accepted.
- Invitation to Treat
- An invitation for others to make offers, rather than an immediate proposal capable of acceptance.
- Acceptance
- Final and unqualified assent to the offer, communicated through an authorised or legally recognised method.
- Consideration
- Legally recognised value provided in exchange for a promise, which need not be economically equivalent.
- Legal Intention
- The objective intention that an arrangement create legal consequences, inferred from words and context.
- Promissory Estoppel
- An equitable response to detrimental reliance on a clear promise where departure would be unconscionable.
Contract Formation FAQ
How is an offer different from an advertisement?
Ask whether a reasonable recipient would understand the communication as a definite commitment capable of immediate acceptance. Many displays and advertisements invite offers because stock, selection or further approval remains open. Wording, specificity, quantity and the surrounding transaction can support a different classification, especially for a clear unilateral promise.
Does silence amount to acceptance?
Ordinarily an offeror cannot impose acceptance by silence. Assent may nevertheless be communicated by conduct when the conduct objectively responds to the offer. Analyse what the offeree did, what the parties understood and whether the offer authorised that mode. Do not infer acceptance merely because the recipient failed to reject.
Why does timing matter for revocation?
An offer must remain available when acceptance becomes effective. Revocation ordinarily depends on communication, while postal acceptance may operate when posted if its conditions are met. A simple timeline reveals whether the offer ended first. Also check lapse, rejection, counter-offer and any required mode of acceptance.
Is commercial benefit always consideration?
No. Consideration requires legally recognised value given for the promise. It need not be economically adequate, but past acts and performance of an existing duty raise specific problems. Identify the exchange at the time the promise was made and avoid substituting general fairness or later benefit for that analysis.
Exam move
Convert every formation scenario into a table with columns for time, speaker, exact communication, legal classification and consequence. This prevents an offer, inquiry and counter-offer from collapsing into a vague conversation. Retrieve the rules for offer, termination, acceptance, consideration, intention, capacity and legality without notes, then use only the rules activated by the facts.
For a postal or electronic communication problem, mark both dispatch and receipt. For consideration, draw arrows showing which promise or act supports the counter-promise. Change one message from unconditional assent to a qualified response and re-run the timeline. Finally, write a conclusion that states when formation probably occurred and names the unresolved assumption.
This is faster and more accurate than beginning with a long definition of contract.
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