BUSN7052 Chap.5 Contract Formation: Agreement and Consideration
Contract Formation: Agreement and Consideration
A contract needs agreement, consideration, intention, capacity and certainty, and this chapter builds the first two. It separates offers from invitations to treat, explains unilateral contracts and the need to act in reliance on an offer, and works through counter-offers, revocation, lapse and acceptance, including acceptance by conduct, the postal rule and electronic communications.
It then explains consideration through Dunlop's three rules, the courts' refusal to judge adequacy, past consideration, existing duties and practical benefit.
What this chapter covers
- 01
Objective test of agreement
- 02
Invitations to treat and the Boots self-service case
- 03
Unilateral offers in Carlill and R v Clarke
- 04
Counter-offer, revocation, lapse and silence
- 05
Postal rule and electronic acceptance
- 06
Dunlop's three rules of consideration
Worked example · free
A posted acceptance and an emailed revocation
- +2Acceptance by post was invited, so the postal rule in Adams v Lindsell applies.
- +1The acceptance took effect when posted, at 10 am Tuesday.
- +1A revocation takes effect only when it reaches the offeree; the email arrived no earlier than 2 pm, still after the 10 am posting.
- +1A contract was formed at 10 am Tuesday, and the late revocation has no effect.
Key terms
- Counter-offer
- A reply proposing different terms, which rejects the original offer and replaces it.
- Postal acceptance rule
- The rule that a posted acceptance takes effect when posted where post was contemplated.
- Unilateral contract
- A contract in which a promise is exchanged for performance of an act.
- Past consideration
- An act completed before a promise was made, which cannot support that promise.
- Practical benefit
- A real advantage to the promisor that courts may accept as consideration for a variation.
Contract Formation: Agreement and Consideration FAQ
Is a product on a supermarket shelf an offer?
No. A display is an invitation to treat. In the Boots case the customer made the offer at the counter, where the pharmacist could accept or refuse, which also let the pharmacist supervise the sale. Most advertisements work the same way unless they promise something specific in return for an act.
When does an email acceptance take effect?
The postal rule does not apply to instantaneous communication, so acceptance generally takes effect when and where it reaches the offeror. Under the Electronic Transactions Act 1999 (Cth), an electronic message is treated as sent and received at the parties' places of business, which can decide which jurisdiction's law governs.
Can an offeror withdraw an offer promised to stay open until Friday?
Yes, unless the offeree paid for an option to keep it open. A promise to hold an offer open is not binding without consideration, and in Dickinson v Dodds the offeree's learning of the sale through a reliable third party was enough to revoke the offer before acceptance.
Why will courts not judge whether a bargain was fair?
In Woolworths v Kelly, Kirby P gave reasons: value is subjective, judges lack economic expertise, commercial certainty and consistency matter, parties should be free to contract, and equity already offers relief for unconscionable conduct, duress and undue influence. Consideration therefore needs only to be sufficient, not adequate.
Exam move
Formation answers are won by sequence. Take any negotiation, number the communications and label each one before you analyse it: offer, invitation, request for information, counter-offer, revocation or acceptance. Only then ask which offer, if any, was open when the acceptance arrived.
Practise with three short invented chains in which you move a single communication earlier or later, because timing questions turn on exactly that. For acceptance by post or email, draw a quick time line and mark where the contract forms under each rule; the slides add that the place of acceptance can decide whether ACT or New South Wales law applies, so note it.
For consideration, learn Dunlop's three rules as a checklist and attach one case to each exception you might need: Chappell for sufficiency, Roscorla for past consideration, Stilk and Hartley for existing duties, and Musumeci for practical benefit.
When consideration fails completely, note in a sentence that equitable estoppel may still help, then develop it with Chapter 6. Finally, revisit the IRAC notes' reward problem, because it combines unilateral offers and past consideration in a format that suits short exam parts.
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