A Contract Law Problem Question Answered Using the IRAC Method (Offer, Acceptance and Consideration)

This is a sample assignment written by an AHC subject expert in Law to a Distinction / first-class standard. It is provided for study and reference only. It is an academic exercise, not legal advice, and the parties and facts are entirely hypothetical. Do not submit this work as your own; use it to understand how the IRAC method is applied to a contract formation problem.

The Hypothetical Fact Scenario

The following scenario and all parties within it are invented for the purposes of this exercise.

Oakvale Joinery Ltd (“Oakvale”), a small furniture workshop, placed an advertisement in the trade magazine Hospitality Interiors which read: “Oakvale Joinery — handcrafted solid oak café tables, from £400 each. Enquiries welcome.” Brightwater Cafés Ltd (“Brightwater”), which was fitting out a new branch, wrote to Oakvale by letter dated 1 March offering to buy ten tables at £400 each. On 4 March, Oakvale replied by letter stating that it could supply the ten tables but only at £450 each. On 6 March, Brightwater posted a letter accepting Oakvale’s terms; the letter was correctly addressed and stamped but, owing to a sorting error, did not reach Oakvale until 12 March. In the meantime, on 8 March, Oakvale had emailed Brightwater to say that a larger buyer had appeared and that Oakvale now wished to withdraw. Brightwater insists a contract exists.

A further complication arose after work began. On 20 March, Oakvale told Brightwater that, because the price of oak had risen sharply, it would not be able to complete the ten tables on schedule unless Brightwater paid an additional £50 per table. Anxious to open its branch on time and to avoid the cost of sourcing a new supplier, Brightwater agreed to pay the extra sum. Once all ten tables were delivered, Brightwater refused to pay the additional £500, arguing that it had received nothing new in return for the promise.

Advise the parties on whether a binding contract was formed and whether Brightwater is bound by its promise to pay the additional sum.

Issue

The overarching issue is whether a legally enforceable contract exists between Oakvale and Brightwater and, if so, on what terms. This resolves into three sub-issues. First, in relation to offer, did Oakvale’s magazine advertisement constitute an offer capable of acceptance, and what was the legal effect of the exchange of letters that followed? Second, in relation to acceptance, was Brightwater’s postal acceptance of 6 March effective before Oakvale purported to withdraw on 8 March, given the delay in delivery? Third, in relation to consideration, was Brightwater’s later promise to pay an additional £50 per table supported by good consideration, or was it a bare promise to pay more for a pre-existing contractual duty?

Rule

Offer and invitation to treat

An offer is an expression of willingness to contract on stated terms, made with the intention that it will become binding as soon as it is accepted by the person to whom it is addressed. It must be distinguished from an invitation to treat, which is merely an invitation to others to make offers or to open negotiations. The general rule is that advertisements are invitations to treat rather than offers. In Partridge v Crittenden, an advertisement for the sale of birds was held to be an invitation to treat, so that the advertiser had not “offered for sale” the goods in question.[^1] A principal justification, noted in that case, is commercial: were an advertisement an offer, an advertiser with limited stock could face more binding acceptances than it could possibly satisfy.

The position is different where the advertisement is of a unilateral character, promising to pay in return for the performance of a specified act. In Carlill v Carbolic Smoke Ball Co, a newspaper advertisement promising £100 to any person who used the defendant’s smoke ball as directed and nonetheless caught influenza was held to be a binding unilateral offer, accepted by performance of the stipulated conditions.[^2] The apparent vagueness of the promise and the absence of communicated acceptance were both overcome because the language of the advertisement, and the statement that £1,000 had been deposited at a bank, showed an intention to be bound.

Once an offer has been made, a counter-offer terminates the original offer. In Hyde v Wrench, an offer to sell a farm for £1,000 was met by a reply offering £950; when that lower figure was rejected, the offeree could not then accept the original £1,000 offer, because his counter-offer had destroyed it.[^3]

Acceptance and the postal rule

Acceptance is a final and unqualified assent to the terms of an offer. The general rule is that acceptance must be communicated to the offeror and is effective only when received. An established exception is the postal rule, under which a posted acceptance takes effect at the moment of posting rather than on receipt. In Adams v Lindsell, a contract was held to be formed when the letter of acceptance was posted, not when it arrived, so that the offeror was bound even though he had sold the goods elsewhere in the interim.[^4] The rule was affirmed, and its consequences accepted, in Household Fire and Carriage Accident Insurance Co Ltd v Grant, where an acceptance was held effective on posting even though the letter was lost in the post and never reached the offeror at all.[^5]

The postal rule does not apply to instantaneous forms of communication. In Entores Ltd v Miles Far East Corp, Denning LJ held that where acceptance is sent by an instantaneous method such as telex, the ordinary rule applies and the contract is formed where and when the acceptance is received.[^6] The reasoning has since been applied to modern instantaneous communications.

Consideration

Consideration is the element of exchange that distinguishes an enforceable bargain from a gratuitous promise. The classic definition appears in Currie v Misa, where Lush J described valuable consideration as “some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”.[^7] Consideration must be sufficient but need not be adequate: the courts will not weigh the comparative value of what each party gives. In Thomas v Thomas, a promise to let a widow occupy a house for a nominal ground rent of £1 per year was supported by good consideration, the court distinguishing consideration from mere motive.[^8] Similarly, in Chappell & Co Ltd v Nestlé Co Ltd, chocolate-bar wrappers of trivial intrinsic value formed part of the consideration for gramophone records, Lord Somervell observing that a contracting party may stipulate for whatever consideration it chooses.[^9]

A more difficult question arises where a party promises extra payment for the performance of an existing contractual duty. The traditional rule, from Stilk v Myrick, is that performance of a duty a party is already bound to perform is not good consideration for a fresh promise.[^10] This has been substantially qualified by Williams v Roffey Bros & Nicholls (Contractors) Ltd, where the Court of Appeal held that a promise of additional payment to a subcontractor already bound to complete the work was enforceable because the promisor obtained a practical benefit — namely avoiding a penalty clause and the trouble and expense of engaging a replacement — provided the promise was not procured by economic duress.[^11]

Application

Offer

Oakvale’s magazine advertisement was, applying Partridge v Crittenden, an invitation to treat rather than an offer.[^12] It named an indicative starting price (“from £400 each”) and invited enquiries, language that contemplates further negotiation rather than immediate binding acceptance. It was not a unilateral promise of the Carlill type, since it did not promise a defined reward in return for a specified act, nor did it evince the kind of clear intention to be bound that the deposited £1,000 supplied in that case.[^13] The advertisement therefore generated no offer.

The first genuine offer was Brightwater’s letter of 1 March, proposing ten tables at £400 each. Oakvale’s reply of 4 March did not accept that offer; by insisting on £450 per table, it introduced a new term and so operated as a counter-offer. On the authority of Hyde v Wrench, that counter-offer destroyed Brightwater’s original £400 offer, which could no longer be accepted.[^14] The live offer immediately before 6 March was accordingly Oakvale’s counter-offer to sell at £450 each.

Acceptance

The decisive question is whether Brightwater’s letter of 6 March effectively accepted Oakvale’s £450 counter-offer before Oakvale’s purported withdrawal on 8 March. Brightwater accepted by post. Where the postal rule applies, acceptance is complete on posting: Adams v Lindsell.[^15] On that basis the contract was formed on 6 March, two days before Oakvale’s email of 8 March, so that the attempted withdrawal came too late — an offer cannot be revoked once it has been accepted. The delay in delivery until 12 March is immaterial, because Household Fire Insurance v Grant establishes that a posted acceptance binds the offeror even where the letter is delayed or lost entirely.[^16]

Two conditions on the operation of the postal rule should be addressed. First, the rule applies only where post is a reasonable means of communicating acceptance; here the parties had themselves been conducting the negotiation by letter, so acceptance by post was plainly contemplated. Second, the rule does not govern instantaneous communications: had Brightwater purported to accept by email, Entores would apply and acceptance would take effect only on receipt.[^17] Oakvale’s own communication of 8 March was by email, but that was a withdrawal rather than an acceptance, and in any event it was ineffective because a binding contract already existed. The stronger analysis is therefore that a contract for ten tables at £450 each was concluded on 6 March.

It is worth noting the counter-argument. The postal rule is a pragmatic exception that can operate harshly against an offeror, as the dissent in Grant recognised, and a court will not apply it where doing so would produce “manifest inconvenience and absurdity”. On these facts, however, there is nothing exceptional to displace the rule, and the orthodox conclusion is that Brightwater’s acceptance was effective on posting.

Consideration

Turning to the promised additional £500, the question is whether Brightwater’s promise on 20 March to pay a further £50 per table is enforceable. Under the original contract, Oakvale was already bound to manufacture and deliver the ten tables at £450 each. Applying the rule in Stilk v Myrick, Oakvale’s continued performance of that existing duty would not, without more, be good consideration for Brightwater’s promise of extra payment.[^18]

However, the reasoning in Williams v Roffey Bros is directly in point.[^19] Brightwater’s promise appears to have secured a real practical benefit: it avoided the delay that would otherwise have jeopardised the opening of its new branch, and it avoided the trouble and expense of finding an alternative supplier at short notice. These are precisely the kinds of practical benefit that the Court of Appeal held sufficient in Roffey. The benefit need not be a fresh legal detriment to Oakvale; it is enough that Brightwater obtained something of practical value, and, consistently with Thomas v Thomas and Chappell v Nestlé, the court will not inquire into whether the price was a good bargain.[^20]

The availability of Roffey is subject to the important proviso that the promise must not have been extracted by economic duress. On the facts, Oakvale’s demand was prompted by a genuine and unforeseen rise in the cost of oak rather than by an opportunistic threat to breach, and Brightwater agreed freely rather than under illegitimate pressure. On that footing, the practical-benefit analysis holds and the promise is supported by consideration. Were there evidence that Oakvale had manufactured the difficulty in order to hold Brightwater to ransom, the promise would be vulnerable to being set aside for duress notwithstanding the presence of a practical benefit.

Conclusion

Applying the IRAC framework, the advice is as follows. Oakvale’s advertisement was an invitation to treat, not an offer (Partridge v Crittenden). Brightwater’s letter of 1 March was an offer; Oakvale’s reply of 4 March was a counter-offer that destroyed it (Hyde v Wrench); and Brightwater’s postal acceptance of 6 March concluded a binding contract for ten tables at £450 each on that date under the postal rule (Adams v Lindsell; Household Fire Insurance v Grant). Oakvale’s email of 8 March came too late to withdraw. As to the extra payment, Oakvale was performing an existing duty (Stilk v Myrick), but Brightwater obtained a practical benefit in return for its promise, which is therefore likely to be enforceable on the authority of Williams v Roffey Bros, absent economic duress. Brightwater is accordingly advised that it is bound to pay the additional £500.

Bibliography

Table of Cases

Adams v Lindsell (1818) 1 B & Ald 681, 106 ER 250

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA)

Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 (HL)

Currie v Misa (1875) LR 10 Ex 153

Entores Ltd v Miles Far East Corp [1955] 2 QB 327 (CA)

Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 (CA)

Hyde v Wrench (1840) 3 Beav 334, 49 ER 132

Partridge v Crittenden [1968] 1 WLR 1204 (DC)

Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168

Thomas v Thomas (1842) 2 QB 851

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA)

[^1]: Partridge v Crittenden [1968] 1 WLR 1204 (DC).

[^2]: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA).

[^3]: Hyde v Wrench (1840) 3 Beav 334, 49 ER 132.

[^4]: Adams v Lindsell (1818) 1 B & Ald 681, 106 ER 250.

[^5]: Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 (CA).

[^6]: Entores Ltd v Miles Far East Corp [1955] 2 QB 327 (CA).

[^7]: Currie v Misa (1875) LR 10 Ex 153, 162 (Lush J).

[^8]: Thomas v Thomas (1842) 2 QB 851.

[^9]: Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 (HL).

[^10]: Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168.

[^11]: Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA).

[^12]: Partridge (n 1).

[^13]: Carlill (n 2).

[^14]: Hyde v Wrench (n 3).

[^15]: Adams v Lindsell (n 4).

[^16]: Household Fire Insurance (n 5).

[^17]: Entores (n 6).

[^18]: Stilk v Myrick (n 10).

[^19]: Williams v Roffey (n 11).

[^20]: Thomas v Thomas (n 8); Chappell v Nestlé (n 9).