Contract Law: Formation Requirements
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Questions and Answers

Which of the following is a requirement for a contract to be formed?

  • Competence of all parties
  • Legality
  • Intention (correct)
  • Public notice

    • What is necessary for a promise to be enforceable if it is not in a deed?

  • Registry in a public office
  • Consideration (correct)
  • Witnessing by two parties
  • Legislative approval

    • Which statement correctly describes consideration in a contract?

  • One party must always provide more than the other.
  • It must be a monetary exchange.
  • It requires an element of exchange. (correct)
  • It must have a significant value.

    • What principle allows a contract to be enforceable without consideration if it is recorded in a deed?

    <p>Doctrine of consideration</p> Signup and view all the answers

    In the case of Thomas v Thomas, what was the nature of the consideration that Mrs. T provided?

    <p>A nominal lease payment of £1</p> Signup and view all the answers

    What does the peppercorn principle signify regarding consideration?

    <p>The specific value of consideration is unimportant.</p> Signup and view all the answers

    Which of the following best defines a deed in contract terms?

    <p>A formal instrument executed in a particular way.</p> Signup and view all the answers

    How can consideration be provided in a unilateral contract?

    <p>By one party performing an act.</p> Signup and view all the answers

    What constitutes valid consideration in a contract?

    <p>A promise must have some value, no matter how small.</p> Signup and view all the answers

    Why is past consideration not valid in contract law?

    <p>Because it refers to something already completed before the promise.</p> Signup and view all the answers

    In the example involving A and B regarding the 12-month warranty, what prevents A from enforcing B's promise?

    <p>A's previous promise to buy does not count as consideration for the warranty.</p> Signup and view all the answers

    What is the existing legal duty rule in contract law?

    <p>Performance of a legal duty cannot constitute good consideration.</p> Signup and view all the answers

    In the case of Stilk v Myrick, why did the sailors have no claim to deserters' pay?

    <p>The sailors were bound by their contracts to act in emergencies.</p> Signup and view all the answers

    When B commits to completing the work on time, why is this not valid consideration for additional payment from A?

    <p>B was already legally contracted to complete the work.</p> Signup and view all the answers

    What must happen for consideration to be deemed sufficient?

    <p>It must provide some value regardless of size.</p> Signup and view all the answers

    How does payment act as a barrier to consideration for a new promise?

    <p>It represents fulfillment of an obligation, not new consideration.</p> Signup and view all the answers

    What must E establish to claim entitlement to leave payments from the GOCoSA?

    <p>A contract of employment exists.</p> Signup and view all the answers

    In the context of modern intention determination, which factor is NOT considered?

    <p>The emotional relationship between the parties.</p> Signup and view all the answers

    What was the main issue in the case of Stilk v Myrick?

    <p>Whether the crew had given consideration for the captain's promise</p> Signup and view all the answers

    What did the court determine in Ermogenous v Greek Orthodox Community of SA regarding the agreement?

    <p>It was intended to be legally binding.</p> Signup and view all the answers

    What exception to the existing legal duty rule was established in Musumeci v Winadell?

    <p>Practical benefit exception</p> Signup and view all the answers

    What traditional presumption was made by the courts regarding commercial agreements?

    <p>They are typically assumed to be intended to be binding.</p> Signup and view all the answers

    In Stilk v Myrick, why did the court rule against the crew's claim for additional pay?

    <p>They merely fulfilled existing contractual obligations</p> Signup and view all the answers

    What was a contributing factor to W's promise of reduced rent in Musumeci v Winadell?

    <p>W's struggle to lease other stores</p> Signup and view all the answers

    In Esso Petroleum Ltd v Commissioners of Customs and Excise, what was the primary argument from CCE?

    <p>The coins were meant to create contractual relations despite being labeled a gift.</p> Signup and view all the answers

    Which of the following cases was NOT mentioned in the traditional approach to determining intention?

    <p>Ermogenous v Greek Orthodox Community of SA</p> Signup and view all the answers

    What is required for a contract to be formed according to the content provided?

    <p>Voluntary assumption of a legally enforceable duty</p> Signup and view all the answers

    Why did M believe they had provided consideration in the case of Musumeci v Winadell?

    <p>They would continue to occupy the commercial space</p> Signup and view all the answers

    Which principle is emphasized in the modern approach to determining intention?

    <p>Consideration of various factors is necessary for establishing intention.</p> Signup and view all the answers

    What ultimately allowed E to claim leave payments from GOCoSA?

    <p>The establishment of a valid contract of employment.</p> Signup and view all the answers

    How can parties infer their intention to form a contract based on the information provided?

    <p>By analyzing their conduct and the relationship characteristics</p> Signup and view all the answers

    What legal principle did the decision in Musumeci v Winadell illustrate regarding existing contractual duties?

    <p>They can provide practical benefits to one party</p> Signup and view all the answers

    What was the primary issue in the Esso Petroleum case?

    <p>Whether the agreement was legally binding</p> Signup and view all the answers

    How was intention inferred in the Esso Petroleum case?

    <p>From the commercial nature of the agreement</p> Signup and view all the answers

    What type of contract is illustrated by Carlill v Carbolic Smoke Ball Co?

    <p>Unilateral contract</p> Signup and view all the answers

    What did the Carbolic Smoke Ball Co advertise?

    <p>A £100 reward for preventing influenza</p> Signup and view all the answers

    What consideration did Ms C provide in the Carlill case?

    <p>Using the smoke ball as instructed</p> Signup and view all the answers

    What was the decision of the court regarding the advertisement in Carlill v Carbolic Smoke Ball Co?

    <p>It was deemed an offer capable of being accepted</p> Signup and view all the answers

    What factor does the court focus on post-Ermogenous regarding the intention of parties?

    <p>The relationship and surrounding circumstances</p> Signup and view all the answers

    What action led Ms C to sue Carbolic Smoke Ball Company?

    <p>She contracted influenza despite using the smoke ball</p> Signup and view all the answers

    A promise must always be supported by consideration to be enforceable under contract law.

    <p>False</p> Signup and view all the answers

    In the context of contract law, the magnitude of the benefit provided is always relevant.

    <p>False</p> Signup and view all the answers

    A deed must be witnessed by a person who is a party to the agreement.

    <p>False</p> Signup and view all the answers

    One-sided promises are generally enforceable under contract law.

    <p>False</p> Signup and view all the answers

    The case of Thomas v Thomas established that sufficient consideration must show an identifiable benefit or detriment.

    <p>True</p> Signup and view all the answers

    Parties can provide consideration by agreeing to refrain from performing an act.

    <p>True</p> Signup and view all the answers

    An executory contract involves consideration provided by both parties.

    <p>True</p> Signup and view all the answers

    In the example given, Mrs. T's payment of £1 a year for the lease was insufficient consideration.

    <p>False</p> Signup and view all the answers

    The sailors in Stilk v Myrick were owed additional pay for performing their existing duties.

    <p>False</p> Signup and view all the answers

    The practical benefit exception applies when a party gains a practical benefit from another party's promise to perform an existing legal duty.

    <p>True</p> Signup and view all the answers

    In Musumeci v Winadell, the court ruled that reduced rent was not supported by sufficient consideration.

    <p>False</p> Signup and view all the answers

    Intention to create a contract can only be expressed explicitly and cannot be inferred from conduct.

    <p>False</p> Signup and view all the answers

    The existing legal duty rule allows parties to renegotiate existing agreements without any new considerations.

    <p>False</p> Signup and view all the answers

    W in Musumeci v Winadell experienced a practical benefit from agreeing to lower M's rent because he was struggling to lease stores.

    <p>True</p> Signup and view all the answers

    The crew in Stilk v Myrick were considered to have given valuable consideration for the captain's promise due to their emergency efforts.

    <p>False</p> Signup and view all the answers

    Parties to a contract are always required to indicate their intention in writing.

    <p>False</p> Signup and view all the answers

    Mrs T’s promise was considered valid because it had no equivalent value to the benefit she received.

    <p>False</p> Signup and view all the answers

    A cannot enforce the promise of the 12-month warranty because past consideration is not valid.

    <p>True</p> Signup and view all the answers

    Performance of an existing legal duty is considered good consideration in contract law.

    <p>False</p> Signup and view all the answers

    In Stilk v Myrick, the captain's promise to the sailors was enforceable because it was a new obligation.

    <p>False</p> Signup and view all the answers

    The courts traditionally presumed that married couples intended their agreements to be legally binding.

    <p>True</p> Signup and view all the answers

    A's promise to pay an additional amount to B for completing the fence on time was valid consideration.

    <p>True</p> Signup and view all the answers

    A's payment to B for the goods can be considered past consideration when discussing the warranty.

    <p>False</p> Signup and view all the answers

    In Ermogenous v Greek Orthodox Community of SA, the parties intended their agreement to be non-enforceable.

    <p>False</p> Signup and view all the answers

    Consideration does not need to hold significant value as long as it is sufficient.

    <p>True</p> Signup and view all the answers

    Esso Petroleum's marketing promotion involved giving customers a 'free' coin with each gallon of petrol.

    <p>True</p> Signup and view all the answers

    The modern approach to determining intention overlooks the relationship between the parties.

    <p>False</p> Signup and view all the answers

    The desertion of sailors did not create an emergency situation as defined by their contracts.

    <p>False</p> Signup and view all the answers

    The decision in Esso Petroleum Ltd v Commissioners of Customs and Excise confirmed that gifts do not create intent for contractual relations.

    <p>False</p> Signup and view all the answers

    Intention in commercial agreements has traditionally been assumed to be non-binding.

    <p>False</p> Signup and view all the answers

    In Ermogenous v Greek Orthodox Community of SA, the outcome was based on the subject-matter of the agreement.

    <p>True</p> Signup and view all the answers

    Presumptions about intention in traditional court cases were based solely on written contracts.

    <p>False</p> Signup and view all the answers

    The intention of Esso and its customers was to create a legally binding agreement.

    <p>True</p> Signup and view all the answers

    The Carbolic Smoke Ball Company promised a reward for anyone who used their product correctly and contracted influenza.

    <p>True</p> Signup and view all the answers

    Ms C did not provide consideration in her agreement with the Carbolic Smoke Ball Company.

    <p>False</p> Signup and view all the answers

    In the Esso Petroleum case, the coins were not subject to taxation.

    <p>False</p> Signup and view all the answers

    The nature of the agreement between Esso and its customers did not play a role in determining intention.

    <p>False</p> Signup and view all the answers

    The Carbolic Smoke Ball advertisement was deemed to be a unilateral offer.

    <p>True</p> Signup and view all the answers

    The court found that the deposit of £1,000 by CSB Co was an indication of their sincerity regarding the offer.

    <p>True</p> Signup and view all the answers

    Post-Ermogenous, the focus is on the historical context of the agreement rather than surrounding circumstances.

    <p>False</p> Signup and view all the answers

    What must be present for a promise to be enforceable under contract law if it is not recorded as a deed?

    <p>The promise must be supported by consideration.</p> Signup and view all the answers

    Explain the significance of the peppercorn principle in contract law.

    <p>The peppercorn principle signifies that consideration must be sufficient but does not need to be adequate in value.</p> Signup and view all the answers

    In the case of Thomas v Thomas, what was the key factor that allowed Mrs. T to enforce the agreement?

    <p>Mrs. T provided sufficient consideration by agreeing to pay £1 a year for the lease.</p> Signup and view all the answers

    What legal requirement must a deed fulfill to be enforceable?

    <p>A deed must be signed, sealed, and delivered, and witnessed by someone not party to the agreement.</p> Signup and view all the answers

    Define bilateral and unilateral contracts in the context of consideration.

    <p>A bilateral contract involves consideration provided by both parties, while a unilateral contract has consideration from only one party.</p> Signup and view all the answers

    Why is past consideration generally not valid in contract law?

    <p>Past consideration is not considered valid because it cannot be a basis for a current enforceable promise.</p> Signup and view all the answers

    What is meant by 'sufficient but not adequate' consideration?

    <p>It means that the consideration must have some measurable value but the specific amount or value does not have to be equal.</p> Signup and view all the answers

    In what scenario can a one-sided promise be enforced under contract law?

    <p>A one-sided promise can be enforced if it is made in a deed.</p> Signup and view all the answers

    What is required for a promise to be considered valid consideration in contract law?

    <p>The promise must hold some value, however small, and cannot rely on past consideration.</p> Signup and view all the answers

    Explain why A cannot enforce B's promise of the 12-month warranty in the goods transaction example.

    <p>A cannot enforce B's warranty because the consideration was past, stemming from A's earlier promise to buy the goods.</p> Signup and view all the answers

    In the context of Stilk v Myrick, why were the sailors not entitled to the deserters' pay?

    <p>The sailors were not entitled to the pay because their promise to work harder was part of their existing legal duty under their employment contract.</p> Signup and view all the answers

    Describe the significance of the existing legal duty rule in contract law.

    <p>The existing legal duty rule signifies that performing or promising to perform a pre-existing obligation cannot be considered valid consideration.</p> Signup and view all the answers

    What principle is illustrated by the example where B completes the fence on time for A?

    <p>The principle illustrated is that B's promise to complete the fence on time was not valid consideration since he was already legally bound to do so.</p> Signup and view all the answers

    Why is it important that consideration must be sufficient but not necessarily adequate?

    <p>It's important because the law does not require consideration to reflect a fair exchange in value, only that it represents some value.</p> Signup and view all the answers

    What does the case of Stilk v Myrick demonstrate about contractual obligations in emergencies?

    <p>It demonstrates that existing contractual obligations are still applicable even in emergencies, and additional promises cannot be enforced without new consideration.</p> Signup and view all the answers

    How does past consideration impact the enforceability of a new promise?

    <p>Past consideration renders a new promise unenforceable because it must be a current exchange of value to constitute valid consideration.</p> Signup and view all the answers

    What was the key factor that led to the court's decision in Stilk v Myrick regarding the crew's claim for additional pay?

    <p>The crew had not provided consideration because they were merely fulfilling their existing legal duty as per their contracts of employment.</p> Signup and view all the answers

    In the Musumeci v Winadell case, what practical benefit did W derive from M's agreement to pay reduced rent?

    <p>W benefited from keeping M as a tenant, which helped mitigate the difficulty of leasing stores in the shopping center.</p> Signup and view all the answers

    How does the practical benefit exception modify the existing legal duty rule in contract law?

    <p>The practical benefit exception allows for the possibility of consideration to exist even if one party is performing an existing legal duty, as long as the other party gains a benefit.</p> Signup and view all the answers

    What is implied about the intention to create a legally enforceable contract according to the provided context?

    <p>Intention can be inferred from the conduct and relationship of the parties, as well as the subject matter of the agreement.</p> Signup and view all the answers

    What was the relationship between the consideration and the decision made in Musumeci v Winadell regarding the reduction of rent?

    <p>The court recognized that M's agreement to pay less rent, despite it being a performance of an existing duty, provided sufficient consideration due to the practical benefit it afforded W.</p> Signup and view all the answers

    Explain how the existing legal duty rule may affect sailors claiming additional pay in situations of emergency.

    <p>Sailors typically won't have a claim for additional pay under the existing legal duty rule, as performing duties in emergencies is usually already obligated by their contracts.</p> Signup and view all the answers

    What determination did the court make about the nature of M's promise in Musumeci v Winadell?

    <p>The court decided that M's promise to pay less rent constituted sufficient consideration due to the practical benefit gained by W.</p> Signup and view all the answers

    What method did the modern approach to determining intention emphasize in the case of Ermogenous v Greek Orthodox Community of SA?

    <p>The method emphasized considering the subject-matter of the agreement, the nature of the relationship between the parties, and other surrounding circumstances.</p> Signup and view all the answers

    In the context of contract law, what must parties often rely on to establish their intention to enter into a contract?

    <p>Parties often need to rely on inferences drawn from their conduct, previous relations, and the specific agreement subject matter.</p> Signup and view all the answers

    In the context of modern contract law, how are commercial agreements typically viewed regarding intention?

    <p>Commercial agreements are generally assumed to be intended as binding.</p> Signup and view all the answers

    What was one key factor in determining whether E was entitled to leave payments in Ermogenous v Greek Orthodox Community of SA?

    <p>E needed to establish that there was an intention for their agreement to be a legally binding contract.</p> Signup and view all the answers

    What role did the description of coins as a 'gift' play in Esso Petroleum Ltd v Commissioners of Customs and Excise?

    <p>The description raised questions of whether there was an intention to create contractual relations despite the language suggesting a gift.</p> Signup and view all the answers

    How did the decision in Ermogenous v Greek Orthodox Community of SA differ from the traditional approach to intention in contracts?

    <p>The decision focused on a comprehensive assessment of intentions rather than presumptions based on the relationship.</p> Signup and view all the answers

    What is a significant implication of the modern approach illustrated by Ermogenous v Greek Orthodox Community of SA?

    <p>It implies that parties must clearly demonstrate their intentions for agreements to be enforceable.</p> Signup and view all the answers

    What underlying issue was raised by the CCE's argument in Esso Petroleum Ltd v Commissioners of Customs and Excise?

    <p>The issue was whether the promotional language implied any intention to create enforceable contractual obligations.</p> Signup and view all the answers

    In the modern context, what three aspects should be considered when determining a party's intention in a contract?

    <p>The subject-matter of the agreement, the nature of the relationship, and surrounding circumstances should all be considered.</p> Signup and view all the answers

    What was the main issue regarding the intention in the Esso Petroleum case?

    <p>The main issue was whether Esso and its customers intended the promotional agreement to be contractually binding.</p> Signup and view all the answers

    How can parties demonstrate their intention to form a contract according to the content provided?

    <p>Intention can be demonstrated through the nature of the agreement, the relationship between the parties, and the surrounding circumstances.</p> Signup and view all the answers

    In the Carlill case, what specific action did Ms. C take that contributed to her claim?

    <p>Ms. C purchased the Carbolic Smoke Ball and used it as directed for the specified duration.</p> Signup and view all the answers

    What distinguishes a unilateral contract as illustrated by the Carlill case?

    <p>A unilateral contract is characterized by one party making a promise in exchange for the performance of an act by another party.</p> Signup and view all the answers

    What did the advertisement from the Carbolic Smoke Ball Co include to show sincerity in its offer?

    <p>The advertisement included a statement that £1,000 was deposited to demonstrate sincerity regarding the reward.</p> Signup and view all the answers

    What was the outcome of Ms. C's lawsuit against the Carbolic Smoke Ball Company?

    <p>The court ruled in favor of Ms. C, determining that the advertisement constituted a binding offer.</p> Signup and view all the answers

    What role does the relationship between parties play in the determination of intention, especially in commercial agreements?

    <p>The relationship can provide context that helps infer the parties' intention to be bound by a contract.</p> Signup and view all the answers

    What can be inferred about the nature of the agreement in Esso Petroleum from the court's decision?

    <p>The court inferred that the promotion was intended to be commercial and binding, subjecting it to taxation.</p> Signup and view all the answers

    A contract is formed when the following formation requirements are met: Agreement, Certainty, ______, and Intention.

    <p>Consideration/deed</p> Signup and view all the answers

    Unless the promise is included in an agreement that is recorded as a ______, a promise must be supported by consideration.

    <p>deed</p> Signup and view all the answers

    Consideration must be sufficient but need not be ______.

    <p>adequate</p> Signup and view all the answers

    The doctrine of consideration requires some element of ______ between the parties.

    <p>exchange</p> Signup and view all the answers

    Deeds must be witnessed by a person who is not a party to the ______.

    <p>agreement</p> Signup and view all the answers

    Mrs T's payment of £1 a year for the lease was considered sufficient consideration in the case of ______ v Thomas.

    <p>Thomas</p> Signup and view all the answers

    A party may provide consideration by promising to do an act, or ______ from doing an act.

    <p>refrain</p> Signup and view all the answers

    The principle often referred to as the ______ principle relates to the adequacy of consideration.

    <p>peppercorn</p> Signup and view all the answers

    Past consideration is _____ consideration.

    <p>not good</p> Signup and view all the answers

    In the case of Stilk v Myrick, the sailors were promised to share the deserters' _____ if they worked extra hard.

    <p>pay</p> Signup and view all the answers

    A's promise to buy the goods cannot be used as _____ in the case of the 12-month warranty.

    <p>consideration</p> Signup and view all the answers

    Performance of an existing legal duty is _____ consideration in contract law.

    <p>not good</p> Signup and view all the answers

    In the example provided, B already had a legal duty to complete the _____ for A.

    <p>fence</p> Signup and view all the answers

    Mrs. T’s promise was not equivalent in _____ to the benefit she received.

    <p>value</p> Signup and view all the answers

    A cannot enforce the promise of the 12-month _____ made by B.

    <p>warranty</p> Signup and view all the answers

    Desertion by crew members was considered an _____ requiring extra work from the remaining crew.

    <p>emergency</p> Signup and view all the answers

    Traditionally, the courts made presumptions about intention based on the ______ between the parties.

    <p>relationship</p> Signup and view all the answers

    The case of ______ v Greek Orthodox Community of SA is an example of the modern approach to determining intention.

    <p>Ermogenous</p> Signup and view all the answers

    In Ermogenous v GOCoSA, E needed to establish that he was employed under a ______ of employment.

    <p>contract</p> Signup and view all the answers

    The agreement in Ermogenous was found to be intended to be ______.

    <p>legally binding</p> Signup and view all the answers

    Traditionally, courts assumed that agreements in a business context were intended to be ______.

    <p>binding</p> Signup and view all the answers

    In the Esso Petroleum case, E promised customers a 'free' coin with every gallon of ______ purchased.

    <p>petrol</p> Signup and view all the answers

    The GOCoSA resisted making payments to E, claiming there was no contract for ______ entitlements.

    <p>leave</p> Signup and view all the answers

    The modern approach considers factors such as the subject-matter of the agreement and the ______ of the relationship.

    <p>nature</p> Signup and view all the answers

    In the case of Stilk v Myrick, the crew's existing legal duty meant they had given nothing of value in exchange for the captain's promise of additional ______.

    <p>pay</p> Signup and view all the answers

    The practical benefit exception indicates that the existing legal duty rule does not apply when a person making a fresh promise obtains a practical ______ from the other party’s promise.

    <p>benefit</p> Signup and view all the answers

    In Musumeci v Winadell, M's business decreased, prompting W to agree to reduce the ______ payable by M.

    <p>rent</p> Signup and view all the answers

    Under their contracts, the crew in Stilk v Myrick were obliged to do whatever was necessary in times of an ______.

    <p>emergency</p> Signup and view all the answers

    The essence of a contract is a voluntary assumption of a legally enforceable ______.

    <p>duty</p> Signup and view all the answers

    In Musumeci v Winadell, W resiled from the promise to reduce the rent after M decided not to renew the ______.

    <p>lease</p> Signup and view all the answers

    The crew in Stilk v Myrick were already bound to step up their efforts to safely return the ______.

    <p>ship</p> Signup and view all the answers

    The court found in Musumeci v Winadell that M provided sufficient consideration due to the practical benefit obtained by W in keeping M as a ______.

    <p>tenant</p> Signup and view all the answers

    Esso and its customers intended the agreement to be __________.

    <p>contractually binding</p> Signup and view all the answers

    The coins were therefore subject to __________.

    <p>taxation</p> Signup and view all the answers

    CSB Co promised to pay a £100 reward to anyone who contracted influenza after using the _________.

    <p>Carbolic Smoke Ball</p> Signup and view all the answers

    In the case of Carlill v Carbolic Smoke Ball Co, Ms C sued for __________ due to a breach of contract.

    <p>£100</p> Signup and view all the answers

    In a unilateral contract, an offer is accepted by the party providing __________.

    <p>consideration</p> Signup and view all the answers

    The courts now focus on the nature of the __________, the relationship between parties, and surrounding circumstances.

    <p>agreement</p> Signup and view all the answers

    The promise to pay the reward in the advertisement demonstrated an intention to be __________.

    <p>contractually bound</p> Signup and view all the answers

    The case of Carlill v Carbolic Smoke Ball Co illustrates an example of a __________ contract.

    <p>unilateral</p> Signup and view all the answers

    Study Notes

    Formation Requirements: Agreement, Certainty, Consideration/Deed, Intention

    • A contract is formed when the following elements are present: agreement, certainty, consideration/deed, and intention.
    • Consideration is crucial for enforcing a promise; it requires some form of exchange between parties.
    • Deeds are legally binding documents that don't necessarily need consideration. However, deeds must be properly signed, sealed, and delivered.

    Consideration

    • Individuals provide consideration by:
      • Promising to act or refrain from acting.
      • Actually performing an action or refraining from an action.
    • Adequacy of consideration is not crucial, but it must be sufficient, meaning there needs to be a benefit or detriment, even if it's insignificant, as demonstrated in the Thomas v Thomas case.
    • Past consideration is not valid. An action already completed cannot be used as consideration for a future promise. For example, a seller cannot offer a warranty on goods delivered after the sale is complete.
    • Existing legal duty does not constitute valid consideration. This means promising to perform an obligation already imposed by law or contract is insufficient. Stilk v Myrick exemplifies this.
    • Practical benefit exception: If one party gains a practical benefit from the other's promise to perform an existing legal duty, then consideration may be deemed sufficient, as seen in the Musumeci v Winadell case.

    Intention

    • Intention to create legal relations is a fundamental aspect of contracts.
    • While parties can explicitly state their intention, it's often determined by analyzing their actions, relationship, and the subject matter of the agreement.
    • Historically, courts relied on presumptions based on the nature of the relationship:
      • Commercial agreements were generally presumed to be intended to be legally binding.
      • Domestic or social agreements between family members were presumed not to be intended to be legally binding.
    • However, Ermogenous v Greek Orthodox Community of SA changed the approach, emphasizing assessment based on the specific circumstances.
    • Esso Petroleum Ltd v Commissioners of Customs and Excise highlights the importance of determining intention even in commercial contexts, as it involves the potential for tax liability.

    Carlill v. Carbolic Smoke Ball Co.

    • This case illustrates a unilateral contract:

      • CSB Co. made an offer to pay a reward.
      • Ms. Carlill accepted the offer by using the smoke ball as instructed.

    • Key questions considered:

      • Was the advertisement offering a legally binding promise?
      • Did it demonstrate intention to be contractually bound?

    Formation Requirements Overview

    • A contract is formed when the following requirements are met:
      • Agreement
      • Certainty
      • Consideration/deed
      • Intention

    Consideration/Deed

    • Unless a promise is in an agreement recorded as a deed, it must be supported by consideration to be enforceable under contract law.
    • Consideration is an element of exchange between the parties.
    • One-sided promises are generally unenforceable.

    Deed

    • A deed is an agreement recorded in an instrument signed, sealed and delivered.
    • Deeds must be witnessed by someone not involved in the agreement.
    • Agreements recorded in a deed are enforceable regardless of whether both parties provided considerations.

    Providing Consideration

    • Consideration can be provided by:
      • Promising or refraining from doing an act
        • Both parties in an executory/bilateral contract
        • One party in unilateral contract
      • Doing or refraining from doing an act
        • One party in a unilateral contract

    Adequacy of Consideration

    • Consideration must be sufficient but does not need to be adequate, meaning, it must have some identifiable benefit or detriment, but the magnitude is not important.
    • This applies to the 'peppercorn principle', where a small benefit is considered sufficient consideration.
    • This is illustrated in the case of Thomas v Thomas.

    Thomas v Thomas

    • Mr. T expressed a desire that his wife could stay in their family home until her death.
    • The executors of Mr. T's estate agreed to a lease agreement with Mrs. T, where she promised to pay £1 a year and keep the house in good repair.
    • The court ruled that Mrs. T had provided sufficient consideration, even though it was not equivalent in value to the benefit she received.
    • This case highlights that the promise only needs to be of some value, no matter how small.

    Past Consideration

    • Past consideration is not sufficient and is not good consideration.
    • This often applies when one party makes an additional promise after a contract has been formed.

    Past Consideration Example

    • A buyer (A) and a seller (B) agree to buy and sell certain goods.
    • The seller delivers the goods and informs the buyer they come with a 12-month warranty.
    • The buyer cannot enforce the warranty promise.
    • The buyer's promise to buy the goods does not constitute valid consideration for the warranty, as this promise was exchanged for the seller's promise to supply the goods (past consideration).
    • The buyer's payment to the seller does not count either, as this is a performance of the pre-existing legal duty.
    • Performing an existing legal duty or promising to perform an existing legal duty is not good consideration.
    • This is illustrated in the case of Stilk v Myrick.

    Stilk v Myrick

    • Sailors were contracted to complete a voyage but two deserted.
    • The captain promised the remaining crew that they would share the deserters' pay if they completed the voyage.
    • The employment contracts between the sailors and the captain required them to do whatever was necessary in emergencies, such as the desertion of crew members.
    • The court held that the crew had merely performed an existing legal duty, meaning they had provided no value in exchange for the captain's promise.
    • This exception states that the existing legal duty rule does not apply in cases where the person making the fresh promise obtains a practical benefit from the other party’s promise to perform an existing legal duty.
    • This exception is demonstrated in the case of Musumeci v Winadell.

    Musumeci v Winadell

    • M had leased a shop from W.
    • W leased another shop to a competitor chain.
    • As a result, M's business decreased, causing W to agree to reduce M's rent.
    • Later, when M decided not to renew the lease, W insisted on the full rent, arguing M had not provided sufficient consideration to support their promise.
    • The court ruled that M had provided consideration because W received a practical benefit from keeping M as a tenant, as W was struggling to lease the stores in the mall.

    Formation Requirement: Intention

    • Parties are free to expressly indicate their intent for their agreement to be legally binding.
    • This can be inferred from their conduct, their relationship, and the subject matter of the agreement.

    Determining Intention: Traditional Approach

    Traditionally, courts used presumptions to determine intention based on the parties' relationship.

    • In the case of Balfour v Balfour, the agreement between the parties was presumed to not be contractual based on their marital relationship.
    • In the case of Cohen v Cohen, the agreement was presumed to not be contractual based on the parties' marital relationship.
    • Commercial agreements were traditionally presumed to be intended to create legal relations.
    • This is the case of Esso Petroleum Ltd v Commissioners of Customs and Excise.

    Determining Intention: Modern Approach

    • Currently, the focus is on the nature of the agreement, the relationship between the parties, and other surrounding circumstances.
    • This follows from the case of Ermogenous v Greek Orthodox Community of SA.

    Ermogenous v Greek Orthodox Community of SA

    • E was recruited from the US to be the Archbishop of the Greek Orthodox Church in Australia.
    • The GOCoSA paid E a salary.
    • E resigned and claimed leave entitlements, arguing he was an employee.
    • The question was whether the agreement between E and the GOCoSA was a contract.
    • The court ruled that the agreement was intended to be legally binding, as E was entitled to the leave payments.
    • The court considered the nature of the agreement, the relationship between the parties, and the surrounding circumstances.

    Intention: Commercial Agreements

    • Traditional courts assumed that agreements in a business or commercial context were intended to be binding.
    • This is demonstrated in the case of Esso Petroleum v Commissioners of Customs and Excise.

    Esso Petroleum v Commissioners of Customs and Excise

    • Esso (E) ran a marketing campaign, promising a 'free' coin for every gallon of Esso petrol bought.
    • CCE argued that E intended contractual relations with its customers, not just a gift, which should be subject to taxation.
    • The court ruled that the promotion was intended to be contractually binding, meaning the coins were subject to taxation.

    Formation Revision: Carlill v Carbolic Smoke Ball Co.

    • This case consolidates understanding of contract formation requirements and illustrates the concept of a unilateral contract.

    Carlill v Carbolic Smoke Ball Co.

    • CSB Co advertised a device called a Carbolic Smoke Ball, promising a reward to anyone who used it as instructed and contracted influenza.
    • C purchased a smoke ball and used it as instructed but contracted influenza.
    • CSB Co refused to pay the reward, so C sued for breach of contract.
    • This was a unilateral contract because CSBCo made a promise (offer) in exchange for C’s performance by using the smoke ball (acceptance and consideration).
    • The court ruled that the advertisement was an offer with the intention to be bound.
    • This satisfies the formation requirements for a contract.

    Formation Requirements Overview

    • A contract is formed when the following requirements are met: agreement, certainty, consideration/deed and intention.

    Consideration/Deed

    • All promises, unless they are included in a deed, must be supported by consideration to be enforceable.
    • Consideration requires an element of exchange between the parties.
    • One-sided promises are unenforceable.
    • A deed is a document signed, sealed and delivered in a specific way.
    • Deeds must be witnessed by an individual who is not a party to the agreement.

    Providing Consideration

    • A party provides consideration by promising to do an act or refrain from doing an act.
    • This applies to both executory and bilateral contracts.
    • It also applies to one party in a unilateral contract.
    • A party can also provide consideration by doing an act or refraining from doing an act.
    • This is the situation for one party in a unilateral contract.

    Adequacy of Consideration

    • Consideration must be sufficient but need not be adequate.
    • It must contain a benefit or detriment, but the size does not matter.
    • This is known as the ‘peppercorn’ principle.

    Thomas v Thomas (1842)

    • This case involves the deceased’s wishes for his wife to live in the family home after his death.
    • The wife promised to pay £1 per year for the lease and keep the house in good repair.
    • Even though the ‘value’ of the promise was not equivalent to the benefit she received, it was still seen as sufficient consideration.

    Past Consideration

    • Past consideration is not good consideration.
    • This often occurs when one party in a contract makes an additional promise which the other party tries to enforce.
    • For example, a supplier agrees to deliver goods with a 12-month warranty after supplying those goods. The buyer cannot enforce the warranty because they did not provide further consideration for the promise of the warranty.
    • Performance of an existing legal duty or a promise to perform an existing legal duty is not good consideration.
    • For example, if a builder falls behind on building a fence, the homeowner cannot promise them additional payment if they agree to complete the work on time.
    • This is because the builder is already legally obligated to complete the fence.

    Stilk v Myrick (1809)

    • This case concerns two sailors who deserted a ship, leaving the captain to promise the remaining crew additional pay if they completed the voyage.
    • The crew’s employment contracts already obligated them to do whatever was necessary in times of emergency.
    • So, they were already bound to complete the voyage, making their agreement to work harder not sufficient consideration for the additional pay.
    • The existing legal duty rule doesn’t apply when the party making the promise gets a practical benefit from the other party’s promise to perform an existing legal duty.

    Musumeci v Winadell Pty Ltd(1994)

    • This case involves a fruit and vegetable shop lease.
    • The landlord leased a shop in the same centre to a chain store, resulting in a decrease in business for the existing tenant.
    • The landlord agreed to reduce the rent.
    • Even though the tenant was only promising to pay less rent than the contract stated, this was seen as sufficient consideration because it gave the practical benefit of keeping the tenant in the shop (helping the landlords lease other shops in the centre).
    • To form a contract, the parties must intend for their agreement to have legal force.
    • Parties can expressly state their intentions.
    • If they don’t, it must be determined by the court based on their conduct, relationship, and the subject matter of the agreement.

    Traditional Approach to Determining Intention

    • The courts traditionally assumed that agreements in a commercial context were intended to be binding.
    • The courts also made presumptions about intention based on the parties’ relationship (e.g. married couples).

    Ermogenous v Greek Orthodox Community of SA (2002)

    • This case involved the appointment of an Archbishop for the Greek Orthodox Church in Australia.
    • The Archbishop was paid, and he claimed he was entitled to leave entitlements, making the court determine if the agreement was a contract.
    • This introduced a modern approach, saying that the issue of intention should be determined by considering the nature of the agreement, the relationship between the parties, and other relevant circumstances.

    Intention: Commercial Agreements

    • Traditionally it was assumed that agreements in a commercial context were intended to be binding.
    • The courts now use the Ermogenous approach to determine intention in all situations, considering the facts of the matter.

    Esso Petroleum Ltd v Commissioners of Customs and Excise (1976)

    • Esso ran a promotion, offering customers a free coin with every gallon of petrol purchased.
    • The case centred on whether the coins were subject to taxation.
    • The court held that the promotional offer was intended to be legally binding, making the coins subject to taxation.

    Carlill v Carbolic Smoke Ball Co (1893)

    • This case involves a unilateral contract, where one party makes an offer to the world, which can be accepted by doing a specified act.
    • The Carbolic Smoke Ball Company advertised a £100 reward for anyone who contracted influenza after using their product for 2 weeks.
    • The court held that the advertisement was an offer intended to be legally binding and that the advertisement contained terms which were sufficiently clear.
    • Mrs. Carlill accepted the offer and provided consideration by using the smoke ball and contracting influenza.
    • The court found for Mrs. Carlill.

    Formation Requirements Overview

    • A contract is formed when all of the following requirements are met:
      • Agreement
      • Certainty
      • Consideration (or deed)
      • Intention

    Formation Requirement: Consideration/Deed

    • A promise must be supported by consideration in order to be legally enforceable, unless it is a deed
    • Consideration requires some element of exchange between parties
    • One-sided promises are generally unenforceable

    Deeds

    • If an agreement is recorded in a deed, it will be enforceable whether or not both parties have provided consideration
    • A deed must be signed, sealed, and delivered (executed in a particular way)
    • Deeds must be witnessed by a person not party to the agreement

    How to Provide Consideration

    • A party can provide consideration by:
      • Promising to do an act, or refraining from doing an act
        • Both parties to an executory/bilateral contract
        • One party in a unilateral contract
      • Doing an act, or refraining from doing an act (one party in a unilateral contract)

    Adequacy of Consideration

    • Consideration must be sufficient, but need not be adequate
    • There must be an identifiable benefit or detriment to a party, but its magnitude is not important
    • This is often referred to as the peppercorn principle
    • The peppercorn principle was established in the case Thomas v Thomas (1842)

    Thomas v Thomas: (1842)

    • Facts: Mr. T expressed a desire that his wife be allowed to stay in their family home until her death upon his death. After his passing, the executors of his estate entered into a lease agreement with Mrs. T where she promised to pay only 1 pound per year for the lease and keep the house in good repair.
    • Issue: Had Mrs. T provided sufficient consideration to make the agreement between the executors and Mrs. T binding?
    • Decision: Mrs. T had provided consideration and was entitled to enforce the agreement.
    • Reason: Although the promise was not in any way equivalent in value to the benefit she received, the promise was of some value, however small.

    Past Consideration

    • Past consideration is not good consideration
    • This rule is most often invoked when one party makes an additional promise after a contract has come into existence, and the other party seeks to enforce it.

    Example of Past Consideration:

    • A promises to buy goods and B promises to supply the goods
    • When B delivers the goods, he tells A the goods come with a 12–month warranty
    • A cannot enforce the promise of the 12-month warranty because A did not provide consideration in exchange for the promise
    • Performance of an existing legal duty, or a promise to perform an existing legal duty, is not good consideration
    • Example: B agrees to build a fence for A, however, B falls behind and A promises B an additional payment if B promises to complete the fence on time. A has provided consideration by promising to make a payment she was not bound to provide, but B has not provided consideration as he is already bound by the contract to complete the fence on time.
    • Facts: Two sailors deserted a voyage. The captain of the ship promised the remaining crew they would share the deserters’ pay if they worked extra hard to get the ship safely back home. The employment contracts between the captain and the sailors required the sailors to do all that was necessary in times of emergency, including when crew members deserted.
    • Issue: Had the crew given consideration for the captain’s promise of additional pay?
    • Decision: The crew had merely performed an existing legal duty, they had given nothing of value in exchange for the captain’s promise.
    • Reason: The crew was already bound by contract to do whatever was necessary during an emergency.
    • The existing legal duty rule does not apply when the person making the fresh promise obtains a practical benefit from the other party’s promise to perform an existing legal duty.

    Practical Benefit Exception: Musumeci v Winadell Pty Ltd (1994)

    • Facts: M leased a fruit and vegetable shop from W. At a later point in time, W leased a shop in the same shopping centre to a competing chain fruit and vegetable store, impacting M’s business. W agreed to reduce the rent payable by M. Later when M decided not to renew the lease, W resiled from the promise to reduce the rent, claiming full amount from M.
    • Issue: Had M provided sufficient consideration to support W’s promise to accept less rent?
    • Decision: M promised to do no more than perform its existing contractual duties, agreeing to pay less rent than the lease provided for. However, there was consideration provided because there was a practical benefit to W associated with keeping M as a tenant since W was struggling to lease stores in the mall.

    Formation Requirement: Intention

    • Intention to create legal relations is a key requirement for a contract to be considered legally binding.
    • Parties are free to expressly indicate whether they intend their agreement to have contractual force. However, where intentions are unclear, courts infer intentions from the parties’ conduct, their relationship to one another, and the subject matter of the agreement.

    Traditional Approach to Determining Intention

    • Courts traditionally made presumptions about intention based on the relationship between the parties.
    • In cases involving married couples, courts generally presumed there was no intention to create legal relations (Balfour v Balfour, Cohen v Cohen).
    • Courts also used presumptions to resolve disputes about enforceability of commercial contracts (Esso Petroleum Ltd v Commissioners of Customs and Excise).
    • Note: Balfour v Balfour and Cohen v Cohen cases were examples of agreements between married couples where courts ruled that there was no intention to create legal relations.
    • Esso Petroleum Ltd v Commissioners of Customs and Excise case involved a commercial agreement where courts presumed intention to create legal relations

    Modern Approach to Determining Intention

    • The case Ermogenous v Greek Orthodox Community of SA (2002) established the modern approach to determining intention.

    Ermogenous v Greek Orthodox Community of SA (2002)

    • Facts: E was recruited by the GOCoSA from the US to serve as the Archbishop of the Greek Orthodox Church in Australia. GOCoSA paid E what appeared to be a salary. After E resigned, he claimed to be entitled to various leave entitlements as an employee. GOCoSA resisted making the payments. To establish he was entitled to the leave payments, E needed to establish he was employed under a contract of employment.
    • Issue: Was the preliminary question whether the agreement between E and GOCoSA was a contract? Did the parties intend their agreement to be an enforceable contract?
    • Decision: The agreement was intended to be legally binding and E was entitled to the leave payments.
    • Reason: Whether parties intended their agreement to be binding should be determined by considering the subject-matter of the agreement; the nature of the relationship between the parties; and other surrounding circumstances.

    Intention: Commercial Agreements

    • Traditionally, courts assumed that agreements reached in a business or commercial context were intended to be legally binding.

    Intention: Commercial Agreements: Esso Petroleum Ltd v Commissioners of Customs and Excise (1976)

    • Facts: Esso ran a marketing promotion where they promised to give customers a ‘free’ coin with every gallon of Esso petrol purchased.
    • CCE’s Argument: The CCE argued that even though the coins were described as a ‘gift’ (a transaction that typically would not involve an intention to create contractual relations), Esso intended contractual relations with its customers.
    • Issue: Did Esso and its customers intend the agreement to be contractually binding?
    • Decision: The terms of the promotion were intended to be contractually binding and the coins were therefore subject to taxation.
    • Reason: The court inferred intention from the commercial nature of the agreement.

    Formation Revision: Carlill V Carbolic Smoke Ball Co (1893)

    • Facts: CSB Co manufactured a device called a ‘Carbolic Smoke Ball’, which was claimed to prevent colds and influenza . CSB Co placed an advertisement in newspapers that states “£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. £1,000 is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the matter”. C purchased a smoke ball from a chemist on the faith of the advertisement and used it in accordance with the CSB Co’s directions from 20 Nov 1891 until 17 Jan 1892, when she contracted influenza. When CSB Co refused to pay her £100, C sued for breach of contract.
    • Nature of claim: Unilateral contract
      • CSBC promised to pay the reward (offer)
      • Ms C accepted the offer and provided consideration by using the ball as instructed
    • Issues:
      • Was the promise to pay the reward contained in the advertisement an offer?
      • Did it demonstrate an intention to be contractually bound?
    • Decision: Ms. C was entitled to the reward
    • Reason: The court found that the advertisement was an offer, that there was acceptance by Ms. C when she acted on the terms of the offer, there was consideration, and there was an intention to create legal relations.

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    Description

    This quiz explores the essential elements required for contract formation, including agreement, certainty, consideration, and intention. Test your understanding of key concepts such as consideration and deeds, and learn about their implications in contract law through case examples.

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