Contract Formation and Pre-Contractual Liability

Introduction and Context

A contract is not created merely because parties negotiate, sign a document, or believe that they have reached a commercial understanding. Contract formation is a legal process through which the law determines whether communications and conduct have produced an enforceable agreement. The central questions are whether there was an offer, valid acceptance, consideration, an intention to create legal relations, sufficient certainty, and compliance with any required formalities.

This chapter uses general common-law principles, with particular reference to English contract law. Specific statutory rules may differ between jurisdictions. In practice, contract formation is also affected by consumer legislation, electronic communications statutes, procurement rules, sector regulation, and the terms of the parties’ own negotiations.

Pre-contractual liability is equally important. Parties may incur legal consequences before a final contract exists, especially where they make misrepresentations, misuse confidential information, negotiate in bad faith where a special duty exists, or induce reliance through a promise or representation. The general common-law position is that negotiations are ordinarily non-binding, but that principle has important qualifications.

Learning Objectives

By the end of this chapter, students should be able to:

1. Distinguish an offer from an invitation to treat and from preliminary negotiations.
2. Explain the rules governing acceptance, communication, revocation and electronic contracting.
3. Analyse consideration, intention to create legal relations and certainty of terms.
4. Explain the legal significance of deeds and reliance-based doctrines.
5. Evaluate letters of intent, term sheets, tenders and other pre-contractual documents.
6. Identify potential liability for misrepresentation, confidentiality breaches and negligent statements.
7. Apply these principles to commercial transactions and advise parties on risk management.

1. The Architecture of Contract Formation

A useful analytical sequence is:

Objective agreement → offer or other expression of commitment → acceptance → consideration or deed → intention → certainty → required formalities → enforceability.

The court applies an objective test. It asks what a reasonable person, possessing the relevant background knowledge, would understand from the parties’ words and conduct. A party’s undisclosed intention is normally irrelevant. This approach promotes commercial certainty because contractual liability cannot depend entirely on private thoughts.

In Smith v Hughes (1871), a buyer believed that he was purchasing old oats while the seller believed that the oats were new. The court held that the buyer was bound because the seller’s conduct objectively indicated the bargain that was made. The case illustrates that mistake about a party’s private intention does not necessarily prevent formation.

The objective approach does not mean that context is ignored. Courts consider the language used, commercial setting, prior dealings, industry practice, the subject matter, and the parties’ conduct. However, courts do not usually rescue a party from a bad bargain merely because the bargain later appears commercially unattractive.

2. Offers and Invitations to Treat

2.1 The offer

An offer is a clear expression of willingness to contract on specified terms, made with the intention that it will become binding as soon as it is accepted. It must be sufficiently definite to allow the court to identify the obligations of each party.

An offer may be made to an individual, a class of persons, or, in exceptional circumstances, the public generally. In Carlill v Carbolic Smoke Ball Co (1893), an advertisement promising payment to anyone who used the product as directed and nevertheless contracted influenza was held to be a unilateral offer. The company’s deposit of money in a bank supported the conclusion that the promise was serious rather than mere advertising language.

An offer may be express or implied from conduct. It may also be conditional. For example, a supplier’s statement that goods will be sold at a specified price “subject to credit approval” may not create an unconditional offer.

2.2 Invitation to treat

An invitation to treat is an invitation for others to make offers. It is not normally capable of immediate acceptance. The distinction protects sellers and other commercial actors from being bound to supply unlimited quantities or to contract with unsuitable persons.

Common examples include:

In a self-service shop, the customer usually makes the offer at the checkout, and the retailer accepts or rejects it. This enables the retailer to refuse a sale where, for example, the price is incorrectly displayed or the customer is legally disqualified from purchasing the product.

Advertisements can nevertheless be offers where their language demonstrates commitment and supplies an objective method of acceptance. The question is not whether the communication is labelled an “advertisement”, but whether it shows an intention to be bound without further negotiation.

2.3 Statements of price and preliminary negotiations

A statement such as “I would consider selling for £50,000” is generally not an offer. It may communicate willingness to negotiate. By contrast, “I offer to sell the vehicle to you for £50,000” is more likely to be an offer, assuming the other terms are sufficiently clear.

A request for information does not necessarily reject an offer. In Stevenson, Jacques & Co v McLean (1880), a message asking whether delivery terms could be altered was treated as an inquiry rather than a counter-offer. By contrast, a counter-offer normally rejects and replaces the original offer, as illustrated by Hyde v Wrench (1840).

3. Acceptance

Acceptance is the final and unqualified assent to the terms of an offer. It must correspond with the offer. A purported acceptance that introduces a new term is ordinarily a counter-offer, not acceptance. The traditional “mirror image” principle must, however, be applied realistically: a request for clarification or a request for better terms may not necessarily alter the legal analysis.

3.1 Communication of acceptance

The general rule is that acceptance must be communicated to the offeror. Silence is not normally acceptance. In Felthouse v Bindley (1862), an uncle’s statement that he would consider the horse his if he heard no more was ineffective because the nephew had not communicated acceptance.

Acceptance may be communicated by words, writing, electronic message, or conduct. In unilateral contracts, performance of the specified act may constitute acceptance without a separate notification, although the offer may require notice in some circumstances.

3.2 The postal rule

Where it applies, the postal rule provides that acceptance by post is effective when the letter is properly posted, rather than when it is received. The rule originated in Adams v Lindsell (1818). It is an exception to the normal communication rule and is justified historically by the risks created when an offeror chooses post as a means of communication.

The postal rule does not apply where:

• the offer requires actual receipt;
• the offer excludes the rule;
• the use of post is unreasonable in the circumstances;
• the acceptance is posted incorrectly; or
• the contract is one in which the rule would produce an unacceptable result.

The rule applies to acceptance, not generally to revocation. Revocation is effective only when communicated to the offeree. A posted revocation does not normally terminate an offer before receipt.

3.3 Electronic communications

Electronic communications are generally governed by ordinary principles, supplemented by applicable legislation. Email acceptance is normally effective when it is received in the offeror’s designated inbox during ordinary business circumstances, rather than when it is typed or sent. The exact result may depend on the offer’s wording, business practice, time of transmission, and whether the message was accessible.

Instant messaging, online platforms and automated contracting systems create additional evidential questions. Organisations should identify who has authority to contract, preserve transaction records, and specify when electronic communications are treated as received. An automated acknowledgment of receipt may not itself be acceptance; its legal effect depends on the system’s wording and the parties’ agreement.

3.4 Acceptance by conduct

A contract can arise through conduct where the conduct objectively demonstrates assent. In Brogden v Metropolitan Railway Co (1877), performance of an informal arrangement supported the existence of a contract. In commercial transactions, beginning performance, delivering goods, making payment, or using a service may provide powerful evidence, although conduct must still be sufficiently clear.

3.5 Revocation, lapse and termination

An offer may be revoked at any time before acceptance, unless supported by consideration or another binding mechanism that makes it irrevocable. Revocation must be communicated. It may be communicated by a reliable third party, as recognised in Dickinson v Dodds (1876), where the offeree learned that the property had been sold to another person.

An offer may also terminate by:

• rejection;
• counter-offer;
• expiry of a stated time;
• expiry of a reasonable time;
• death in circumstances where personal performance or knowledge of death matters; or
• failure of a condition attached to the offer.

A “firm offer” is not automatically irrevocable in English common law merely because the offeror promises to keep it open. Consideration, an option agreement, or a deed may be required to make that promise enforceable.

4. Consideration

Consideration is the price paid for a promise. It may consist of a benefit to the promisor or a detriment undertaken by the promisee. It must be legally sufficient, but it need not be economically adequate. Courts generally do not assess whether the exchange was a fair bargain.

4.1 Executory, executed and past consideration

Executory consideration consists of promises to be performed in the future. Executed consideration consists of an act performed in response to a promise. Past consideration is an act completed before the promise was made and is generally not valid consideration for that later promise.

In Re McArdle (1951), improvements had been made before a promise to pay was given, so the consideration was past. An important exception arises where the act was performed at the promisor’s request in circumstances implying that payment would follow, as discussed in Lampleigh v Braithwaite (1615).

4.2 Sufficiency and adequacy

Consideration must have legal value. It need not be proportionate. A peppercorn can be sufficient consideration if it is genuinely bargained for, but a purely moral obligation is not normally enough.

Existing duties require careful analysis. Performing a pre-existing public duty is generally not consideration for a new promise, although going beyond the duty may qualify. Performing an existing contractual duty owed to the promisor traditionally did not constitute fresh consideration, but modern cases recognise that a practical benefit may sometimes support a promise to pay more. In Williams v Roffey Bros (1991), the practical benefit obtained by the promisor helped support an agreement to pay additional sums to a subcontractor, provided there was no duress or fraud.

The rule differs where a creditor promises to accept part-payment of an undisputed debt in full satisfaction. Foakes v Beer (1884) reflects the traditional principle that payment of a smaller sum is not consideration for discharge of the whole debt. Parties can avoid uncertainty by using a deed, a fresh bargain involving additional consideration, or an applicable statutory mechanism.

4.3 Promissory estoppel

Promissory estoppel may prevent a party from insisting on strict legal rights where:

1. a clear promise or representation is made;
2. the promisor intends or reasonably expects reliance;
3. the other party relies on it; and
4. it would be inequitable to allow the promisor to resile.

The doctrine is generally suspensory rather than a substitute for consideration in creating an entirely new cause of action. In Central London Property Trust v High Trees House (1947), a promise to accept reduced rent during wartime conditions was potentially binding in equity for the relevant period. In Combe v Combe (1951), the court stressed that promissory estoppel is a shield rather than a sword: it usually operates defensively, not as an independent basis for suing on a gratuitous promise.

Estoppel is flexible and fact-sensitive. Reliance need not always be financial, but the claimant must show an inequity in allowing the promisor to depart from the representation. The promisor may sometimes resume strict rights on reasonable notice, particularly where the promise was intended to be temporary.

5. Intention to Create Legal Relations

The parties must intend their agreement to have legal consequences. Courts apply rebuttable presumptions:

• domestic and social agreements are presumed not to be legally binding;
• commercial agreements are presumed to be legally binding.

The presumptions are not conclusive. In Balfour v Balfour (1919), a domestic promise was not enforceable in the circumstances. In Merritt v Merritt (1970), the separation of spouses, written terms and surrounding circumstances rebutted the domestic presumption. In commercial settings, wording such as “subject to contract” may rebut the usual presumption, although the entire document and subsequent conduct must be considered.

Social and commercial contexts may overlap. A promise made in a business setting may lack intention if it is plainly promotional or honour-based, while a domestic arrangement may be binding where the parties have formalised it and acted on it.

6. Certainty and Completeness

An agreement must be sufficiently certain and complete for the court to determine what the parties agreed and what remedies are available. Courts prefer to uphold bargains where possible, but they cannot invent essential terms or impose an agreement that the parties left unresolved.

Uncertainty may arise from:

• undefined subject matter;
• no ascertainable price or method for fixing it;
• unclear duration;
• unresolved conditions precedent;
• failure to identify the parties’ obligations; or
• an agreement to agree in the future without an objective mechanism.

In Scammell v Ouston (1941), an agreement referring to purchase on “hire-purchase terms” was too uncertain because the expression did not identify the essential terms. By contrast, in Hillas v Arcos (1932), the court used the commercial context and prior dealings to give meaning to apparently incomplete terms.

An agreement to negotiate is ordinarily unenforceable if it lacks objective standards. In Walford v Miles (1992), a lock-out promise was distinguished from a general agreement to negotiate; a duty to negotiate in good faith was considered too uncertain in the circumstances. A short, definite exclusivity promise may nevertheless be enforceable if supported by consideration and sufficiently clear.

Courts may imply terms by law, fact, custom or statute, but implication is not a mechanism for rewriting an incomplete bargain. The term must be necessary for business efficacy or so obvious that it goes without saying, subject to the relevant legal test.

7. Formalities and Deeds

Most simple contracts may be made orally, in writing, or by conduct. Some transactions require statutory formalities. Land contracts, guarantees, consumer transactions and regulated financial arrangements may be subject to special rules.

A deed is a formal instrument that traditionally requires:

• clear wording indicating that it is intended to be a deed;
• valid execution by the individual or company;
• witnessing or other statutory formalities; and
• delivery, meaning an intention to be legally bound, not necessarily physical transfer.

A deed can be enforceable without consideration. This makes it useful for gratuitous promises, powers of attorney, releases and certain variations. Deeds often have a longer limitation period than simple contracts, depending on the applicable jurisdiction and claim.

A defective deed may sometimes operate as a simple contract if the requirements for a simple contract are independently satisfied, but parties should not assume that a court will cure formal defects. Corporate execution rules and electronic signing requirements must be checked carefully.

8. Letters of Intent and Term Sheets

A letter of intent records the parties’ current position while negotiations continue. Its legal effect depends on its language, structure and conduct, not its title. Four broad possibilities exist:

Courts may enforce clear provisions on confidentiality, exclusivity, costs, governing law, dispute resolution and access to information even when the main transaction is not binding. The phrase “subject to contract” is strong evidence that the parties do not yet intend to be bound by the main deal, but it is not an automatic answer in every case.

In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH (2010), the Supreme Court emphasised that the question is whether the parties intended to create legal relations and whether they agreed all terms that they regarded as essential. Conduct, including substantial performance, may demonstrate that a contract arose despite an incomplete formal signing process.

A carefully drafted letter of intent should state:

• which provisions are binding;
• which provisions are non-binding;
• whether either party must continue negotiating;
• conditions precedent;
• authority and approval requirements;
• confidentiality and intellectual property arrangements;
• allocation of preparatory costs; and
• the circumstances in which negotiations may end.

9. Tenders and Procurement

A request for tenders is ordinarily an invitation to submit offers. The submitted tender is the offer, which the procuring party may accept or reject. However, the invitation may contain a separate promise to consider all conforming tenders, or to award the contract to the lowest compliant bidder. If so, that promise may be binding.

In Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council (1990), a tender invitation was interpreted as containing a collateral obligation to consider a timely and conforming tender. The case demonstrates that procurement documents must be read as contractual instruments where their language and context justify that conclusion.

Public procurement adds duties of transparency, equal treatment and procedural fairness under applicable legislation. A disappointed bidder may have statutory remedies in addition to common-law claims. Organisations should therefore distinguish between the contract to be awarded and the procedural obligations created by the tender process.

10. Pre-Contractual Liability

10.1 The general rule

English common law does not generally impose a broad duty to negotiate in good faith. Parties are normally entitled to withdraw from negotiations, change their commercial position, or negotiate with others, provided they do not breach an independent legal duty.

Nevertheless, pre-contractual conduct may create liability through established doctrines.

10.2 Misrepresentation

A misrepresentation is a false statement of existing fact or law that induces another party to enter a contract. It may be fraudulent, negligent or innocent. Statements of opinion can become actionable where the speaker lacks the genuine basis that the statement implies, as illustrated by Smith v Land & House Property Corp (1884). A statement of future intention may be actionable if the speaker did not genuinely hold that intention when speaking.

The claimant must generally prove a false statement, reliance, inducement and loss. Remedies may include rescission and damages, subject to bars such as affirmation, lapse, impossibility of restoration and third-party rights. The Misrepresentation Act 1967 may provide statutory remedies, including damages for certain negligent misrepresentations.

Professionals must distinguish sales language from factual assurance. Describing a product as “the best in the market” may be opinion or puff; stating that it has obtained a particular certification is more likely to be a factual representation.

10.3 Negligent statements

A party may incur liability for a careless statement where a special relationship or assumption of responsibility exists. Hedley Byrne v Heller (1964) established the possibility of liability for economic loss caused by negligent misstatement, although an effective disclaimer may affect the outcome. A disclaimer must itself satisfy applicable statutory controls, particularly in consumer and financial contexts.

10.4 Confidentiality and information misuse

Confidentiality obligations may arise expressly through a non-disclosure agreement, impliedly from circumstances, or through equitable protection of confidential information. A party receiving commercially sensitive information should use it only for the stated purpose, restrict access, preserve security, and return or destroy it when required.

A non-disclosure agreement should identify confidential information, permitted use, exclusions, duration, disclosures required by law, security measures and remedies. Trade secrets and personal data may trigger additional statutory obligations.

10.5 Reliance, restitution and proprietary estoppel

Reliance-based doctrines can protect a party who changes position because of an assurance. Promissory estoppel concerns promises about existing legal rights. Proprietary estoppel concerns assurances relating to rights in property and requires assurance, reliance and detriment, assessed in the context of unconscionability.

Restitution may be available where one party has received an unjust enrichment, although it does not automatically compensate every failed negotiation. If work is performed at the request of another party, the parties may face questions about payment on a restitutionary or quantum meruit basis, depending on the facts and whether a contractual framework exists.

11. Applied Case: The Unfinished Technology Acquisition

This is an illustrative fictional case.

Background

Orion Systems Ltd wishes to acquire Nova Analytics Ltd. The parties sign a document titled “Term Sheet”. It states that the proposed purchase price is £8 million, the transaction is “subject to contract”, and neither party is obliged to complete the acquisition. It also contains clauses headed “Confidentiality”, “Exclusivity for 60 days” and “Costs”. Orion begins technical integration work after Nova’s directors encourage it to proceed. Nova simultaneously provides customer data and detailed source-code information. After five weeks, a competitor offers Nova a higher price, and Nova ends discussions.

Problem

Orion claims that a binding acquisition contract exists. Alternatively, it claims damages for wasted expenditure, breach of exclusivity, misuse of confidential information, and reliance on Nova’s assurances.

Analysis

The acquisition clause is likely non-binding because the document expressly states “subject to contract” and says that neither party is obliged to complete. The price alone does not establish a completed sale. The court would examine whether essential terms, such as assets, liabilities, warranties, conditions and completion mechanics, remained unresolved.

The exclusivity clause may be binding if it is clear about its duration and prohibits negotiation with competitors. Nova’s withdrawal is not necessarily a breach, but entering negotiations with a competitor during the 60-day period could be.

The confidentiality clause is separately enforceable if its language identifies the protected information and permitted use. Orion’s receipt of source code does not give it ownership or a licence beyond the agreed purpose.

Orion’s integration expenditure does not automatically create a contract. It may support an argument based on reliance, estoppel or restitution only if Nova made a sufficiently clear assurance, expected Orion to rely on it, and it would be inequitable to permit Nova to deny the relevant obligation. A court will also ask whether Orion’s expenditure was authorised, reasonable and within the scope of the parties’ communications.

Approach and outcome

The parties should have separated binding and non-binding provisions expressly. Orion should have obtained written authority before undertaking integration work and should have used a capped, reimbursable diligence budget. Nova should have controlled access to source code through a purpose-limited confidentiality agreement and should have complied with the exclusivity clause.

The likely outcome is that no acquisition contract exists, but Orion may have a claim for breach of binding exclusivity or confidentiality provisions. A reliance claim is uncertain and fact-sensitive.

Learning points

1. A document’s title is less important than its language and conduct.
2. “Subject to contract” is significant but does not make every clause non-binding.
3. Interim obligations should be drafted separately from the proposed main transaction.
4. Commercial reliance should be authorised, documented and financially controlled.
5. Confidential information requires contractual and operational safeguards.

12. Professional Practice and Governance

Contract formation is not only a legal question; it is a governance process. Organisations should establish approval thresholds, delegated signing authority, procurement controls and document-retention procedures. Employees should understand that emails, purchase orders, platform clicks and oral assurances may have legal significance.

Best practices include:

• mark negotiation documents clearly as binding, non-binding or partly binding;
• identify all essential terms and unresolved matters;
• use conditional language consistently;
• define when and how acceptance is effective;
• control who may make representations;
• record changes through version-controlled documents;
• use non-disclosure agreements before sharing sensitive information;
• obtain legal review before substantial pre-contract expenditure;
• preserve email, messaging and platform records; and
• check statutory, regulatory and procurement requirements.

Artificial intelligence tools can assist with clause comparison, issue spotting and document classification, but they should not determine whether a contract exists without human legal judgment. AI-generated summaries may omit context, and confidential information uploaded to external systems may create security and privilege risks. Human approval, audit trails and access controls remain essential.

Challenges and Limitations of the Doctrines

The boundaries between negotiation and agreement are not always predictable. Commercial parties may act as though a deal exists while leaving important terms unresolved. Courts must balance freedom of contract with protection against opportunistic conduct. Excessive formalism can defeat reasonable commercial expectations, while excessive flexibility can undermine certainty.

Electronic communications create further difficulties concerning automated messages, time zones, system failures, unauthorised users and authentication. Cross-border transactions add questions about governing law, jurisdiction, language and international instruments. Parties should therefore address formation expressly in their contracts rather than relying entirely on default rules.

Chapter Summary

Contract formation is assessed objectively and requires more than a shared commercial hope. An offer is a clear commitment capable of acceptance, whereas an invitation to treat merely invites offers. Acceptance must generally be final, unqualified and communicated, subject to special rules such as the postal rule and acceptance by conduct. Offers may end through revocation, rejection, counter-offer, lapse or failure of conditions.

Consideration is the price of a promise and must be sufficient, though not adequate. Past consideration, existing duties and part-payment of debt create important qualifications. Promissory estoppel may restrain reliance on strict rights where a clear promise has induced reliance and enforcement would be inequitable, but it is generally not a substitute for consideration in creating a new cause of action.

Commercial agreements are presumed to carry legal intention, while domestic arrangements are approached differently. Certainty requires sufficiently definite obligations, and courts will not normally enforce an agreement to agree without objective standards. Deeds can be binding without consideration but require formal execution.

Letters of intent, term sheets and tenders may contain a mixture of binding and non-binding provisions. “Subject to contract” is important but must be read with the entire document and the parties’ conduct. Although there is no general duty to negotiate in good faith, pre-contractual liability may arise through misrepresentation, negligent statements, confidentiality obligations, estoppel, restitution and statutory procurement duties.

Key Terms

Offer: A clear expression of willingness to contract on specified terms.

Invitation to treat: A communication inviting others to make offers.

Acceptance: Final and unqualified assent to the terms of an offer.

Counter-offer: A response that changes the terms of the original offer.

Revocation: Withdrawal of an offer before valid acceptance.

Postal rule: The rule that acceptance by post may be effective when properly posted.

Consideration: The legally recognised value exchanged for a promise.

Executory consideration: Promises to be performed in the future.

Past consideration: An act completed before the promise for which it is said to be consideration.

Promissory estoppel: A reliance-based doctrine that may prevent insistence on strict rights.

Intention to create legal relations: The intention that an arrangement should have legal consequences.

Certainty: Sufficient clarity to identify and enforce contractual obligations.

Deed: A formal instrument enforceable without consideration if properly executed and delivered.

Letter of intent: A document recording proposed terms and sometimes binding interim obligations.

Term sheet: A preliminary summary of proposed transaction terms.

Misrepresentation: A false statement inducing entry into a contract.

Negligent misstatement: A careless statement causing loss where a duty of care exists.

Confidential information: Information protected from unauthorised use or disclosure.

Tender: A formal offer submitted in response to an invitation to bid.

Reliance: Change of position or action based on a promise, representation or assurance.

Review Questions

Short Answer Questions

1. What is the difference between an offer and an invitation to treat?
2. When does the postal rule apply?
3. Why is consideration required for most simple contracts?
4. What is meant by “subject to contract”?
5. Identify two forms of pre-contractual liability.

Long Answer Questions

1. Explain the objective test for contract formation and evaluate its importance in commercial transactions.
2. Discuss the rules governing acceptance, including communication, revocation and acceptance by conduct.
3. Explain the relationship between consideration and promissory estoppel.
4. Analyse how courts determine whether a letter of intent creates binding obligations.
5. Explain the legal risks associated with preliminary negotiations and term sheets.

Analytical / Application Questions

1. A company emails a supplier: “We can probably pay £100,000 for the equipment, subject to board approval.” The supplier immediately begins manufacture. Advise whether a contract has been formed.
2. A tender invitation promises to consider all bids received by 4:00 p.m. A compliant bid is placed in the designated mailbox at 3:55 p.m., but staff fail to retrieve it until the next day. Analyse the bidder’s possible rights.
3. During acquisition negotiations, a seller assures the buyer that regulatory approval is “certain” and encourages the buyer to incur substantial due-diligence costs. Approval is later refused and no final contract is signed. Advise the buyer on possible claims and evidential difficulties.

Multiple Choice Questions with Answers

Question 1

Which statement best describes an invitation to treat?

A. A final promise that becomes binding immediately upon acceptance

B. An invitation for others to submit offers

C. A deed made without consideration

D. A binding promise to keep an offer open

Correct Answer: B. An invitation for others to submit offers

Question 2

Under the general rule, acceptance of an offer is effective when it is communicated to the offeror. Which is an exception?

A. A request for information

B. A counter-offer

C. The postal rule where it properly applies

D. A private intention to accept

Correct Answer: C. The postal rule where it properly applies

Question 3

What is the usual effect of a counter-offer?

A. It confirms the original offer without alteration

B. It rejects and replaces the original offer

C. It automatically creates a deed

D. It extends the original offer indefinitely

Correct Answer: B. It rejects and replaces the original offer

Question 4

Which statement about consideration is correct?

A. It must always be economically adequate

B. It must have legal sufficiency but need not be adequate

C. It is unnecessary for every simple contract

D. Moral obligation is always sufficient consideration

Correct Answer: B. It must have legal sufficiency but need not be adequate

Question 5

Promissory estoppel generally requires which combination?

A. A clear promise, reliance and inequity in allowing withdrawal

B. A written deed and no reliance

C. A counter-offer and immediate rejection

D. An invitation to treat and a tender

Correct Answer: A. A clear promise, reliance and inequity in allowing withdrawal

Question 6

What is the usual legal effect of a clear statement that negotiations are “subject to contract”?

A. It always creates a completed contract

B. It is strong evidence that the main transaction is not yet binding

C. It eliminates confidentiality obligations in every case

D. It makes all preliminary promises enforceable

Correct Answer: B. It is strong evidence that the main transaction is not yet binding

Question 7

Which document can generally be enforceable without consideration if properly executed?

A. An invitation to treat

B. A casual advertisement

C. A deed

D. A request for information

Correct Answer: C. A deed

Question 8

Which case is associated with acceptance by posting?

A. Adams v Lindsell

B. Balfour v Balfour

C. Foakes v Beer

D. Hedley Byrne v Heller

Correct Answer: A. Adams v Lindsell

Question 9

Which is most likely to constitute pre-contractual liability?

A. Simply deciding not to continue ordinary negotiations

B. Making a false factual statement that induces a contract

C. Rejecting an invitation to treat

D. Requesting further information about price

Correct Answer: B. Making a false factual statement that induces a contract

Question 10

A tender invitation expressly promises to consider every timely and conforming tender. What may arise?

A. A collateral obligation to consider such tenders

B. An automatic duty to accept the lowest tender

C. A completed sale before any tender is submitted

D. No possible legal obligation of any kind

Correct Answer: A. A collateral obligation to consider such tenders