BSB250 · Business Citizenship
Contract Formation: Do I Have a Deal?
This chapter answers the core BSB250 question "do I actually have a deal?" by breaking a contract into its three essential elements: agreement (a valid offer plus a valid acceptance), intention to create legal relations, and consideration — with capacity as a further validity check. Every Week 5 problem question in the open-book final is answered on the ILAC rail, run element-by-element with a case authority cited for each rule, so missing or mis-ordering an element is where students lose the easy marks.
What this chapter covers
- 01Offer vs invitation to treat (Boots, Harvey v Facey; ad-as-offer Carlill)
- 02How an offer dies: rejection, counter-offer (Hyde v Wrench), revocation, lapse
- 03The three requirements of valid acceptance + silence is not acceptance (Felthouse)
- 04Postal rule vs instantaneous communication (Adams v Lindsell)
- 05Intention: the two rebuttable presumptions + objective test (Ermogenous)
- 06Consideration: moves from the promisee, sufficient not adequate (Thomas v Thomas)
- 07Capacity and the other validity checks
- 08Running the elements in order under ILAC
Offer, acceptance and the silence-vs-conduct trap
- +1Issue. Is there a binding contract between Riverside and Hana for the $540 pastry order — specifically, was there a valid offer and a valid acceptance?
- +1Law — offer. An offer is a clear expression of willingness to be bound on stated terms; it is distinct from an invitation to treat (Pharmaceutical Society of GB v Boots; Harvey v Facey). A fresh price for specified goods can be a valid offer.
- +1Law — acceptance. Acceptance must be (i) communicated, and silence is NOT acceptance — an offeror cannot impose a deal by 'treat it as yes if I hear nothing' (Felthouse v Bindley); (ii) unqualified / mirror-image (Hyde v Wrench); (iii) in reliance on the offer (R v Clarke). Acceptance may be by conduct where a party acts unambiguously on the offer.
- +1Application. The $540 same-day proposal is a valid offer. The manager's 'treat it as a yes' tries to make Riverside's silence the acceptance — ineffective under Felthouse, so no contract arose from the phone call alone. But by receiving and selling the pastries Riverside acted unambiguously on the offer, giving acceptance by conduct.
- +1Application — remaining elements. Intention is presumed in a commercial dealing (Edwards v Skyways; objective test Ermogenous), and the pastries for $540 are good consideration — sufficient, and the court will not weigh adequacy (Thomas v Thomas). All three elements are met.
- +1Conclusion. No contract formed on the silence theory, but a binding contract did form by conduct when Riverside took and sold the goods; Riverside must pay the $540. (Whether the manager had authority to bind the company is a separate agency issue.)
Key terms
- Contract
- A legally enforceable agreement. It exists only where all three essential elements are present: agreement (offer + acceptance), intention to create legal relations, and consideration.
- Offer
- A clear expression of willingness to be bound on stated terms, made to another party. It is distinct from an invitation to treat (Pharmaceutical Society of GB v Boots).
- Invitation to treat
- A mere invitation for others to make offers, not an offer itself — e.g. goods displayed on a shelf, advertisements, catalogues and price lists. The customer makes the offer; the seller accepts or rejects it.
- Acceptance
- Final, unqualified assent to the offer. It must be communicated (silence is not acceptance, Felthouse v Bindley), mirror the offer exactly (Hyde v Wrench), and be made in reliance on the offer (R v Clarke).
- Consideration
- The price paid for a promise — something of value exchanged. It must move from the promisee and be sufficient, though it need not be adequate (Thomas v Thomas); a pure gift promise is generally unenforceable.
- Intention to create legal relations
- The parties' objective intention that their agreement have legal consequences. Commercial dealings are presumed binding; social/domestic ones are presumed not, both presumptions being rebuttable (Ermogenous; Balfour v Balfour).
Contract Formation: Do I Have a Deal? FAQ
Is a price tag or shop display an offer?
No — goods on a shelf or a price list are an invitation to treat, not an offer (Pharmaceutical Society of GB v Boots). The customer makes the offer at the till, and the seller is free to accept or reject it. An advertisement is usually an invitation to treat too, unless it is a definite unilateral promise like Carlill v Carbolic Smoke Ball.
Can silence ever count as acceptance?
No. An offeror cannot say 'if I hear nothing, I'll treat it as a yes' and bind the other side (Felthouse v Bindley). Acceptance must be communicated. But where the offeree acts unambiguously on the offer — takes delivery, uses the goods, starts work — the court can find acceptance by conduct.
Does the price have to be fair for there to be consideration?
No. Consideration must be sufficient (something the law recognises as having value) but need not be adequate — the courts will not weigh whether the price was fair (Thomas v Thomas). Even a nominal sum can be good consideration. Only argue there is no consideration where nothing of value was given, or it did not move from the promisee.
What is the difference between a counter-offer and a request for information?
A counter-offer changes a term (a lower price, a new date) and destroys the original offer, which cannot then be accepted later (Hyde v Wrench). A mere request for information ('could you deliver by Friday?') does not change the terms and leaves the original offer alive to be accepted.
Are agreements between family or friends legally binding?
Usually not by default. Social and domestic agreements are presumed NOT intended to create legal relations (Balfour v Balfour), while commercial ones are presumed binding. Both presumptions are rebuttable on the objective test — courts look at the language, the relationship and the conduct (Ermogenous).
Exam move
Treat every "do I have a deal?" problem as a fixed checklist run in ILAC. First state the issue, then march through the three elements in order — agreement, intention, consideration — and stop the moment one genuinely fails. For agreement, trace the offer's life: is it an offer or an invitation to treat (Boots), and is it still alive (a counter-offer kills it, Hyde v Wrench)? Then test the acceptance against all three requirements, and reach for acceptance-by-conduct whenever you see the "silence = yes" trap (Felthouse). For intention, name the presumption then apply Ermogenous; for consideration, confirm it moves from the promisee and is sufficient, and never argue adequacy (Thomas v Thomas). The marks live in the Law and Application steps, so cite one authority for every rule and finish with a defensible conclusion rather than sitting on the fence. In this open-book paper exam, walking in with this element-by-element rail already memorised is worth more than any notes you can flip to.
