ACCA LW · Chapter 2
Formation of contract MCQs with Answers
12 multiple-choice questions on Formation of contract for ACCA LW Corporate and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A bookshop displays a novel in its window with a price label of 12. In law, what is the display?
- A) An offer to sell to anyone who tenders the price
- B) A unilateral offer
- C) An invitation to treat
- D) An acceptance of customers' offers
Show answer & explanation
Answer: C) An invitation to treat
Goods displayed in a shop window or on shelves are an invitation to treat, as in Fisher v Bell and Pharmaceutical Society of Great Britain v Boots Cash Chemists. The customer makes the offer when presenting the goods for purchase, and the shop may accept or reject it. The shop therefore cannot be forced to sell at the displayed price.
Question 2
In Carlill v Carbolic Smoke Ball Co, why was the advertisement held to be an offer rather than an invitation to treat?
- A) It was a unilateral offer to the world, made with clear intention to be bound, which could be accepted by performing the stated conditions
- B) It was addressed to a named individual who replied in writing
- C) Advertisements are always treated as offers in English law
- D) The company had received consideration before publishing it
Show answer & explanation
Answer: A) It was a unilateral offer to the world, made with clear intention to be bound, which could be accepted by performing the stated conditions
The advertisement promised a reward to anyone who used the smoke ball as directed and still caught influenza, and the deposit of money with the bank showed an intention to be bound. A unilateral offer can be made to the world at large and is accepted by performing the act; notification of acceptance is waived. Most advertisements are invitations to treat (Partridge v Crittenden), so the outcome depended on the wording.
Question 3
Ana offers to sell her car to Ben for 8,000. Ben replies 'I will pay 7,000'. Ana refuses. Ben then says he will pay 8,000 after all. What is the legal position?
- A) There is no contract because Ben's counter-offer destroyed Ana's original offer
- B) There is a contract at 8,000 because Ben has accepted the original offer
- C) There is a contract at 7,000 because Ben's reply was the last communication before agreement
- D) There is a contract at 8,000 only if Ana's offer was made in writing
Show answer & explanation
Answer: A) There is no contract because Ben's counter-offer destroyed Ana's original offer
A counter-offer rejects the original offer and brings it to an end, as in Hyde v Wrench. Ben's later attempt to accept 8,000 is therefore a fresh offer, which Ana is free to accept or reject. Writing is not required for a contract to sell a car.
Question 4
Chen posts a letter accepting an offer on Monday. The letter is properly addressed and stamped but is lost in the post and never arrives. The offer said nothing about how acceptance should be communicated, and use of the post was reasonable. When was a contract formed?
- A) Never, because the acceptance was not received
- B) On Monday, when the letter was posted
- C) When the offeror would normally have received the letter
- D) Only when Chen confirms the acceptance by another method
Show answer & explanation
Answer: B) On Monday, when the letter was posted
Under the postal rule in Adams v Lindsell, acceptance is complete when a properly addressed and stamped letter is posted, where post is a reasonable method of acceptance. Household Fire Insurance v Grant confirms that this applies even if the letter is lost. The offeror can exclude the rule by requiring actual communication, as in Holwell Securities v Hughes, but did not do so here.
Question 5
On 1 May Dev offers to sell land to Eve and promises to keep the offer open until 10 May. Eve gives nothing for this promise. On 5 May Eve learns from a reliable third party that Dev has sold the land to someone else. On 7 May Eve purports to accept. What is the legal position?
- A) There is a contract, because Dev promised to keep the offer open until 10 May
- B) There is a contract, because revocation must be communicated by the offeror personally
- C) There is a contract, because an offer to sell land cannot be revoked once made
- D) There is no contract, because the offer was effectively revoked when Eve learned of the sale from a reliable source
Show answer & explanation
Answer: D) There is no contract, because the offer was effectively revoked when Eve learned of the sale from a reliable source
A promise to keep an offer open is not binding unless supported by consideration (Routledge v Grant), so Dev could revoke before acceptance. Revocation must be communicated, but Dickinson v Dodds shows that communication via a reliable third party is sufficient. Eve's attempted acceptance came after the effective revocation.
Question 6
Which of the following statements about acceptance is correct?
- A) An acceptance by email is effective when it is sent
- B) An acceptance may add minor new terms without affecting its validity
- C) A person can accept an offer of a reward even if they were unaware of it when they acted
- D) Silence cannot normally amount to acceptance, even if the offeror states that it will
Show answer & explanation
Answer: D) Silence cannot normally amount to acceptance, even if the offeror states that it will
Felthouse v Bindley establishes that an offeror cannot impose a contract by stating that silence will be taken as acceptance. For instantaneous communication, acceptance is generally effective when received (Entores v Miles Far East). An acceptance must mirror the offer exactly, and a person must know of an offer in order to accept it.
Question 7
Which of the following best describes the rule that consideration 'must be sufficient but need not be adequate'?
- A) The consideration must be roughly equal in value to the other party's promise
- B) The consideration must be paid in money
- C) The consideration must have some value recognised by law, but the courts will not assess whether the bargain is a fair one
- D) The consideration must be provided before the contract is made
Show answer & explanation
Answer: C) The consideration must have some value recognised by law, but the courts will not assess whether the bargain is a fair one
The courts do not judge the adequacy of a bargain; they only require that the consideration has some legal value. In Chappell v Nestle chocolate wrappers were held to be part of the consideration even though they were of trivial value to the defendant. Consideration need not be money, and consideration provided before the promise is usually past consideration and invalid.
Question 8
A builder agrees to build flats for a fixed price. Part way through, the builder runs into financial difficulty and the client, fearing late completion penalties under its own contract, promises an extra payment per flat completed. No duress is involved. Following Williams v Roffey Bros, is the promise of extra payment enforceable?
- A) No, because performing an existing contractual duty can never be consideration
- B) No, because promises to pay more are only enforceable if made by deed
- C) Yes, but only if the builder also agreed to do additional work beyond the original contract
- D) Yes, because the client obtained a practical benefit from the continued performance
Show answer & explanation
Answer: D) Yes, because the client obtained a practical benefit from the continued performance
Stilk v Myrick held that performing an existing contractual duty owed to the promisor is not consideration. Williams v Roffey qualified this: where the promisor obtains a practical benefit or avoids a disbenefit, and there is no economic duress or fraud, the promise to pay more is enforceable. Additional work (as in Hartley v Ponsonby) is not necessary under the Williams v Roffey approach.
Question 9
Gina owes Hal 10,000, due on 30 June. On that date Hal agrees to accept 7,000 in full settlement and Gina pays it. Hal later sues for the balance. Applying Pinnel's Case and Foakes v Beer, what is the likely outcome?
- A) Hal can recover the remaining 3,000, because part payment of a debt on the due date is not consideration for a promise to forgo the balance
- B) Hal cannot recover anything further, because he agreed to accept 7,000
- C) Hal can recover the 3,000 only if he can show that Gina acted fraudulently
- D) Hal cannot recover because Gina obtained a practical benefit under Williams v Roffey
Show answer & explanation
Answer: A) Hal can recover the remaining 3,000, because part payment of a debt on the due date is not consideration for a promise to forgo the balance
The rule in Pinnel's Case, affirmed in Foakes v Beer, is that payment of a smaller sum on the due date is no consideration for a promise to forgo the balance, so the larger debt is not discharged. The position would differ if some new element were introduced at the creditor's request, such as earlier payment or payment in a different form. The practical benefit principle in Williams v Roffey does not apply to part payment of debts (Re Selectmove). Promissory estoppel can exceptionally bar recovery of the balance, but only where it would be inequitable for the creditor to go back on the promise (D & C Builders v Rees), and nothing in the facts suggests that.
Question 10
Which of the following best describes the doctrine of promissory estoppel as established in Central London Property Trust v High Trees House?
- A) It prevents a promisor going back on a promise not to enforce strict legal rights where the promisee has relied on it, but it can only be used as a defence
- B) It allows a promisee to sue on any gratuitous promise on which they have relied
- C) It permanently extinguishes all the promisor's rights in every case
- D) It applies only to promises made in writing and signed by the promisor
Show answer & explanation
Answer: A) It prevents a promisor going back on a promise not to enforce strict legal rights where the promisee has relied on it, but it can only be used as a defence
Promissory estoppel prevents a party from going back on a promise to waive or suspend rights where the other party has relied on it and it would be inequitable to allow resiling. Combe v Combe confirms that it is 'a shield, not a sword', so it cannot found a cause of action. It usually suspends rather than extinguishes rights, which can often be revived on reasonable notice.
Question 11
Which of the following agreements is presumed NOT to be intended to create legal relations?
- A) An arrangement between a husband and wife living together about household spending money
- B) An agreement between two companies to supply goods
- C) An agreement between an employer and an employee about a bonus
- D) An arrangement between a separated husband and wife about the transfer of the matrimonial home
Show answer & explanation
Answer: A) An arrangement between a husband and wife living together about household spending money
Domestic and social arrangements are presumed not to be legally binding (Balfour v Balfour). The presumption may be rebutted, for example where spouses have separated and record their agreement (Merritt v Merritt). Commercial agreements, including those between employer and employee, are presumed to be legally binding unless clearly stated otherwise.
Question 12
Under the Contracts (Rights of Third Parties) Act 1999, in which situation can a third party enforce a term of a contract?
- A) Whenever the third party would benefit financially from performance of the contract
- B) Only where the third party has provided consideration to one of the parties
- C) Only where the third party is a close family member of one of the parties
- D) Where the contract expressly provides that the third party may enforce it, or a term purports to confer a benefit on the third party who is identified in the contract
Show answer & explanation
Answer: D) Where the contract expressly provides that the third party may enforce it, or a term purports to confer a benefit on the third party who is identified in the contract
The common law rule of privity (Tweddle v Atkinson, Dunlop v Selfridge) prevents non-parties enforcing a contract. The 1999 Act allows a third party to enforce a term if the contract expressly says so or if the term purports to confer a benefit on them and they are identified by name, class or description, unless the parties did not intend it to be enforceable by them. Incidental benefit alone is not enough, and no consideration from the third party is required.