Contract Formation in English Law

Introduction

The formation of a binding contract under English law requires the concurrence of four essential elements: offer, acceptance, consideration, and intention to create legal relations. Additional requirements — including capacity, formality, and legality of purpose — may apply depending on the nature of the contract. English law adopts an objective approach to contract formation, assessing whether the parties have manifested mutual assent by reference to what a reasonable person would understand from their words and conduct, rather than their subjective intentions.

Offer and Invitation to Treat

An offer is a definite expression of willingness to contract on specified terms, made with the intention that it becomes binding upon acceptance. The offer must be communicated to the offeree and must contain sufficiently certain terms to enable a contract to be formed by acceptance. An offer may be made to a specific person, to a class of persons, or to the world at large, as confirmed by Carlill v Carbolic Smoke Ball Co (1893), where the Court of Appeal held that an advertisement promising to pay £100 to anyone who contracted influenza after using the smoke ball constituted a unilateral offer accepted by performance.

A distinction is drawn between an offer and an invitation to treat, which is merely an invitation to negotiate or to make offers. Goods displayed on shelves are invitations to treat (Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1953)); advertisements of goods for sale are generally invitations to treat (Partridge v Crittenden (1968)); and a request for tenders is an invitation to treat, with each tender constituting an offer that may be accepted by the party requesting tenders.

An offer may be terminated by revocation, rejection, counter-offer, lapse of time, or death. Revocation must be communicated to the offeree and is effective only upon receipt. A counter-offer operates as a rejection of the original offer, as established in Hyde v Wrench (1840), where the defendant’s offer to sell a farm for £1,000 was met with a counter-offer of £950, which was rejected; the plaintiff could not later accept the original offer of £1,000.

Acceptance

Acceptance is a final and unqualified expression of assent to the terms of an offer. Acceptance must be communicated to the offeror, generally in the manner prescribed by the offer or, if no manner is prescribed, by any reasonable means. Silence cannot constitute acceptance (Felthouse v Bindley (1862)).

The postal rule, established in Adams v Lindsell (1818), provides that acceptance by post is effective when the letter of acceptance is posted, not when it is received. The rule applies where it is reasonable to use the post as a means of communication and where the offer contemplated acceptance by post. The rule does not apply to revocation of offers, which requires actual communication.

For instantaneous communications — including telephone, telex, and email — acceptance is effective when and where it is received. In Entores Ltd v Miles Far East Corporation (1955), the Court of Appeal held that a contract made by telex is formed when the acceptance is received by the offeror. This principle extends to email and other modern forms of communication, although the exact moment of receipt may depend on normal business hours and the recipient’s practices.

Consideration

Consideration is the price for which the promise of the other party is bought. Defined in Currie v Misa (1875) as “some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other,” consideration is the distinguishing feature that separates binding contracts from mere promises.

Consideration must be sufficient (having some value in the eyes of the law) but need not be adequate (the courts will not enquire into the equivalence of the exchange). A promise to perform an existing duty imposed by law is not sufficient consideration (Collins v Godefroy (1831)), but a promise to perform an existing contractual duty owed to a third party may constitute consideration (Pao On v Lau Yiu Long (1980)).

The rule that performance of an existing contractual duty owed to the same promisor is not good consideration was modified in Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991). The Court of Appeal held that a promise of additional payment for performance of an existing duty may be enforceable if the promisee obtains a practical benefit and the promise is not procured by economic duress.

Promissory Estoppel

Promissory estoppel provides an exception to the requirement of consideration, enabling a promise to be enforced where it would be inequitable for the promisor to go back on it. Developed in Central London Property Trust Ltd v High Trees House Ltd (1947), the doctrine requires that a promise be intended to be binding, intended to be acted upon, and actually acted upon by the promisee.

Promissory estoppel operates as a shield, not a sword — it may be used as a defence but does not create a cause of action (Combe v Combe (1951)). The doctrine is generally suspensory rather than extinctive: the promisor may resile from the promise on giving reasonable notice, provided the promisee can be restored substantially to their former position.

Intention to Create Legal Relations

The parties must intend their agreement to create legally enforceable obligations. English law applies presumptions: in commercial and business agreements, there is a presumption of intention to create legal relations; in domestic, social, and family arrangements, there is a presumption against legal intention.

In Balfour v Balfour (1919), the Court of Appeal held that a husband’s promise to pay his wife a monthly allowance while he was abroad was not intended to be legally binding. By contrast, in Merritt v Merritt (1970), the Court of Appeal held that a written agreement between a husband and wife who were separated was intended to be legally binding, distinguishing the case from Balfour on the basis that the parties were not living together in amity.

Conclusion

Contract formation in English law requires a structured analysis of offer, acceptance, consideration, and intention to create legal relations. The objective approach to agreement, the postal rule for acceptance, and the doctrines of consideration and promissory estoppel reflect the common law’s concern for certainty, fairness, and the reasonable expectations of contracting parties.