7.1 Formation of Contract

SQE1 Functioning Legal Knowledge in Contract starts with a binary file question: is there a contract at all? Independent OpenExamPrep materials teach formation as a working checklist a newly qualified solicitor uses before advising on breach, termination, or damages. The Solicitors Regulation Authority's September 2026 FLK1 specification lists offer and acceptance, consideration, intention to create legal relations, certainty, and capacity. If any ingredient is missing, later analysis of terms and remedies is usually wasted. This chapter is independent study material produced by OpenExamPrep. It is not an SRA product and does not claim official approval, review, or partnership.

Practitioners still name the rules after the leading cases. You are not sitting a history paper, but you must apply Carlill, Fisher v Bell, Hyde v Wrench, Adams v Lindsell, Williams v Roffey, Foakes v Beer, Balfour v Balfour, and Scammell v Ouston as labels for live rules.

Offer and invitation to treat

An offer is an expression of willingness to contract on specified terms, made with the intention that it will become binding as soon as the offeree accepts. Compare Gibson v Manchester City Council, where a letter saying the council 'may be prepared to sell' was not an offer, with Storer v Manchester City Council, where the documents and process showed a willingness to be bound once the purchaser signed.

An invitation to treat invites others to make offers. Goods on a supermarket shelf or in a shop window with a price ticket are invitations to treat: Pharmaceutical Society of Great Britain v Boots Cash Chemists and Fisher v Bell. Ordinary advertisements of goods for sale are invitations to treat: Partridge v Crittenden. The textbook exception is a unilateral advertisement that promises a reward if a stated act is performed, backed by a sincerity device such as a bank deposit: Carlill v Carbolic Smoke Ball Co. Mrs Carlill used the smoke ball as directed and caught influenza; performing the stipulated act accepted the offer, and communication of acceptance was dispensed with because the company had asked for performance, not a reply.

Tenders are usually invitations to treat. A request to tender can, however, contain a separate unilateral offer to consider all conforming tenders (Blackpool and Fylde Aero Club v Blackpool Borough Council) or to accept the highest conforming bid (Harvela Investments v Royal Trust of Canada). At auction the bidder makes the offer and the auctioneer's hammer accepts it. An auction without reserve can generate a collateral unilateral offer to sell to the highest bona fide bidder (Barry v Davies).

Termination of offers and the mechanics of acceptance

An offer must be communicated to the offeree. It ends by:

• revocation, which must reach the offeree before acceptance (Byrne v Van Tienhoven); a reliable third party can carry the news (Dickinson v Dodds)
• rejection or a counter-offer, which destroys the original offer (Hyde v Wrench); a request for information does not (Stevenson, Jaques v McLean)
• lapse of time, either a stated deadline or a reasonable time (Ramsgate Victoria Hotel v Montefiore)
• failure of a condition on which the offer was based, and in some personal contracts death

Acceptance is a final and unqualified assent to the terms of the offer. The mirror-image approach is the safe FLK starting point: a reply that changes price, quantity, or another essential term is a counter-offer. In a battle of forms, each party fires its standard terms. The traditional analysis looks for the last shot that was accepted by conduct. Butler Machine Tool v Ex-Cell-O is the name of that problem; Lord Denning's more flexible synthesis is not the safe SQE starting point.

Acceptance must usually be communicated to the offeror. Silence is not acceptance: Felthouse v Bindley. Instantaneous methods — telephone, telex, and, by close analogy in many files, email and comparable electronic messaging — take effect when received, during ordinary business hours: Entores v Miles Far East Corporation; Brinkibon v Stahag Stahl. The postal rule in Adams v Lindsell makes a properly posted acceptance effective on posting where the parties contemplated post as a medium. The rule is displaced if the offer requires actual 'notice in writing' (Holwell Securities v Hughes), if the letter is badly addressed, or if the medium is instantaneous. Revocation of an offer never rides the postal rule: it is effective only on receipt.

Unilateral offers are accepted by performing the stipulated act. Once the offeree has started performance in reliance, the offeror may be barred from revoking (Errington v Errington and Woods; Daulia v Four Millbank Nominees), though the exact cut-off is fact-sensitive.

Consideration

English law does not enforce a bare promise unless it is made by deed. Consideration is the price of the promise: a benefit to the promisor or a detriment to the promisee (Currie v Misa). It must move from the promisee (Tweddle v Atkinson) but need not move to the promisor. It need not be adequate but must be sufficient: chocolate wrappers or a peppercorn will do (Chappell and Co v Nestle; Thomas v Thomas).

Past consideration is generally not good consideration (Re McArdle). The exception is a past act performed at the promisor's request where the parties understood it would be remunerated, and the promise would have been enforceable if made in advance (Lampleigh v Braithwait; Pao On v Lau Yiu Long).

Doing what one is already bound to do is usually not consideration. Performing an existing public duty is not enough unless the promisee goes beyond that duty (Glasbrook Brothers v Glamorgan County Council; Ward v Byham). Performing an existing contractual duty owed to the same promisor was classically not consideration (Stilk v Myrick). Williams v Roffey Bros and Nicholls (Contractors) Ltd treats a practical benefit (or the avoidance of a disbenefit) to the promisor as good consideration for a promise to pay more for the same work, provided there is no duress. That practical-benefit analysis does not let a debtor discharge a debt by paying less. Pinnel's Case and Foakes v Beer still govern part payment: unless the creditor receives something different (earlier payment, a chattel, payment in a different place) or the bargain is in a deed, the balance remains due. Re Selectmove refused to extend Roffey to part-payment of a debt. Promissory estoppel (Central London Property Trust v High Trees House; Hughes v Metropolitan Railway) may stop a creditor from going back on a promise not to enforce full rights where there is a clear promise, reliance, and inequity in resiling. It is generally a shield not a sword (Combe v Combe) and usually suspends rather than extinguishes rights, unless it would be inequitable to revive them (Collier v P and MJ Wright (Holdings)).

Intention, certainty, and capacity

In commercial agreements the presumption is that the parties intend to create legal relations; the party who denies intention carries the burden (Edwards v Skyways; Esso Petroleum v Commissioners of Customs and Excise). A genuine honour clause can rebut the presumption (Rose and Frank Co v JR Crompton). In social and domestic settings the presumption runs the other way (Balfour v Balfour). It is rebutted where the parties have separated or have structured their affairs like a bargain (Merritt v Merritt). Jones v Padavatton shows how fact-sensitive the domestic cases are.

Terms must be sufficiently certain. If the court cannot tell what was agreed, there is no contract (Scammell and Nephew v Ouston). Courts try to uphold commercial bargains where there is a workable standard or machinery (Hillas and Co v Arcos; Sudbrook Trading Estate v Eggleton). A mere agreement to agree, or a lock-out that is really an agreement to negotiate in good faith with no end-point, is typically too uncertain (May and Butcher v R; Walford v Miles).

Capacity still appears on FLK files. Minors (under 18) are bound by contracts for necessaries suitable to their station, sold and delivered (Nash v Inman; Sale of Goods Act 1979 s.3) and by beneficial contracts of employment or training. Other minors' contracts are generally voidable. The Minors' Contracts Act 1987 allows ratification after majority and gives the court a restitutionary power over property acquired. Mental incapacity does not automatically destroy a contract; the other party must have known of the incapacity (Imperial Loan Co v Stone), alongside the protective regime of the Mental Capacity Act 2005. Companies contracting with a person in good faith are not limited by their objects (Companies Act 2006 ss.39–40). Ultra vires is no longer the formation trap it once was.

On a typical SQE1 item, work the checklist in order. Identify the communication that might be an offer rather than an invitation to treat. Ask whether a matching acceptance was communicated by a method the law treats as effective. Then test consideration, including the Roffey/Foakes split, intention, certainty, and capacity. The diagram in this section is that sequence.