CIMA BA4 · Chapter 10
Law of contract: formation MCQs with Answers
10 multiple-choice questions on Law of contract: formation for CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under English law, a shop displays goods on its shelves with price labels. What is the legal status of the display?
- A) An offer
- B) An acceptance
- C) An invitation to treat
- D) A binding contract
Show answer & explanation
Answer: C) An invitation to treat
Displays of goods in shops are invitations to treat, inviting customers to make offers (Pharmaceutical Society of Great Britain v Boots; Fisher v Bell). The customer makes the offer at the till, and the shop accepts or rejects it. This lets the shop refuse to sell, for example if a price is mislabelled.
Question 2
Under English law, which of the following terminates an offer?
- A) A counter-offer by the offeree
- B) A request for further information about the terms
- C) The offeror's private change of mind, not communicated
- D) The offeree's silence
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Answer: A) A counter-offer by the offeree
A counter-offer rejects the original offer and replaces it with a new one (Hyde v Wrench). A mere request for information does not destroy the offer (Stevenson v McLean). Revocation is only effective when communicated, and silence cannot amount to acceptance or rejection.
Question 3
Under English law, which of the following is presumed NOT to be intended to create legal relations?
- A) An agreement between two companies for the supply of goods
- B) A contract of employment
- C) An agreement between spouses living together about household expenses
- D) An agreement to buy a car from a dealer
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Answer: C) An agreement between spouses living together about household expenses
In domestic and social agreements there is a rebuttable presumption that the parties do not intend legal relations (Balfour v Balfour). In commercial agreements there is a strong presumption that they do. The presumption can be rebutted by evidence, for example where separated spouses make a formal agreement.
Question 4
On 1 March, Ann posts a letter accepting Ben's offer. On 2 March, Ben posts a letter revoking the offer. Ann's letter arrives on 3 March and Ben's arrives on 4 March. Under English law, assuming the postal rule applies, is there a contract?
- A) No, because Ben revoked the offer before Ann's acceptance arrived
- B) Yes, but only from 3 March when Ben received the acceptance
- C) No, because postal acceptances are never valid
- D) Yes, a contract was formed on 1 March when Ann posted her acceptance
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Answer: D) Yes, a contract was formed on 1 March when Ann posted her acceptance
Under the postal rule, acceptance is complete when a properly addressed and stamped letter is posted (Adams v Lindsell), so a contract arose on 1 March. Revocation is only effective when actually received by the offeree (Byrne v Van Tienhoven), and Ben's revocation arrived after the contract was formed, so it was too late.
Question 5
Under English law, which statement about consideration is correct?
- A) Consideration must be sufficient but need not be adequate
- B) Consideration must be equal in value to what is received
- C) Past consideration is always good consideration
- D) Consideration must move to the promisee from a third party
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Answer: A) Consideration must be sufficient but need not be adequate
The courts will not assess whether a bargain is a good one; consideration need only have some value in the eyes of the law (Chappell v Nestle, where chocolate wrappers were sufficient). Past consideration is generally not good consideration (Re McArdle), and consideration must move from the promisee.
Question 6
A company advertises: 'We will pay a reward to anyone who returns our lost laptop.' Under English law, what type of offer is this, and how is it accepted?
- A) An invitation to treat, accepted by contacting the company
- B) A unilateral offer, accepted by performing the requested act
- C) A bilateral offer, accepted by written notice before performance
- D) A counter-offer, accepted by the company paying the reward
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Answer: B) A unilateral offer, accepted by performing the requested act
A reward advertisement is a unilateral offer made to the world, which is accepted by performing the stated act, without the need to communicate acceptance in advance (Carlill v Carbolic Smoke Ball Co). It is not an invitation to treat because the terms are definite and the promisor intends to be bound.
Question 7
Dee painted Ed's house. A week after the job was finished, Ed promised to pay Dee an extra £300 as a thank you. Under English law, can Dee enforce Ed's promise?
- A) Yes, because painting a house is valuable consideration
- B) Yes, because any promise made in writing is enforceable
- C) No, because Dee's consideration is past
- D) No, because Dee lacks capacity to contract
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Answer: C) No, because Dee's consideration is past
Past consideration, meaning an act completed before the promise was made, is not good consideration (Re McArdle). The exception in Lampleigh v Braithwait requires the act to be done at the promisor's request with an understanding that payment would be made, which is not shown here as the promise is a gratuitous thank you.
Question 8
Under English law, which statement about the capacity of a minor (a person under 18) to contract is correct?
- A) A minor is bound to pay a reasonable price for necessaries actually supplied
- B) A minor can never be bound by any contract
- C) A minor is bound by all contracts in the same way as an adult
- D) A minor's contracts are binding only if the minor is over 16
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Answer: A) A minor is bound to pay a reasonable price for necessaries actually supplied
Contracts for necessaries, meaning goods and services suitable to the minor's condition in life and actual requirements, are binding, and the minor must pay a reasonable price. Beneficial contracts of service are also binding. Many other contracts are not enforceable against the minor.
Question 9
A builder agrees to complete work for a fixed price. Midway, the client, worried about delay penalties under its own contract, promises extra payment if the builder finishes on time. The builder does so. Under English law, which case most supports the builder enforcing the extra payment?
- A) Stilk v Myrick, because performing an existing contractual duty is always good consideration
- B) Williams v Roffey Bros, because the client obtained a practical benefit and there was no duress
- C) Foakes v Beer, because part payment of a debt discharges the whole debt
- D) Balfour v Balfour, because the agreement is commercial
Show answer & explanation
Answer: B) Williams v Roffey Bros, because the client obtained a practical benefit and there was no duress
Performing an existing contractual duty owed to the promisor is generally not good consideration (Stilk v Myrick). However, Williams v Roffey Bros held that where the promisor obtains a practical benefit, such as avoiding a penalty clause, and there is no economic duress or fraud, the promise of extra payment can be enforced. Foakes v Beer concerns part payment of debts.
Question 10
Under English law, a landlord agreed during a crisis to accept half rent from a tenant. When the crisis ended, the landlord claimed full rent for the future. Which doctrine applied, and with what effect?
- A) Postal rule; the original rent was reinstated from the date of posting
- B) Privity of contract; the tenant could not rely on the promise
- C) Past consideration; the landlord's promise was void from the beginning
- D) Promissory estoppel; the landlord could not recover the full rent for the crisis period but could revert to full rent on reasonable notice once the crisis ended
Show answer & explanation
Answer: D) Promissory estoppel; the landlord could not recover the full rent for the crisis period but could revert to full rent on reasonable notice once the crisis ended
In Central London Property Trust v High Trees House, promissory estoppel prevented the landlord from going back on a promise, relied on by the tenant, to accept reduced rent during the war. The doctrine is suspensory: once the conditions ended, full rent could be claimed for the future. It acts as a shield, not a sword.