Formation of Contract

8 Unilateral contracts

These are the contracts where one party makes a promise and other party has to perform some act.

In these contracts consideration is executed and they are one sided contracts.

The best example for unilateral contracts is reward cases.

No revocation once offer has been made.

Case law carlill vs. carbolic smoke Ball co 1893

9 Collateral contracts

Collateral contract is second agreement that pertains to original agreement so the consideration of collateral contract is the promise to enter into original agreement.

These are three parties relationship agreement.

There is no clear offer and acceptance in these cases .

Case law shanklin pier Ltd vs. Detel products Ltd 1951.

10 Consideration

Consideration is second essential element of contract.

Simply it is stated that each party gives or agrees to give another party, usually payment or promise in return for another promise.

We can say that each party of agreement must receive something of value.

In more legal language it can be defined as

“a valuable consideration in the sense of law may consist either in some right ,interest ,profit or benefit accruing to one party or some forbearance ,detriment ,loss or responsibility given ,suffered or undertaken by the other”

10.1 Types of consideration

  1. Executed consideration
  2. Executory consideration
  3. Past consideration

10.1.1 Executed consideration

A performed or executed act in return for promise.

E.g. in a contract for the sale of goods, consideration is executed if the price is paid at the same time that goods are delivered.

Case law carlill vs. carbolic smoke ball co

In this case law claimant’s act in response to the smoke ball company’s promise of reward was executed consideration.

Executed consideration takes place at the present time.

10.1.2 Executory consideration

The consideration in support of each promise is the other promise, not a performed act.

e.g.  A promise to pay for goods which are to be delivered and paid for at a later date.

Executory consideration takes place at some future date.

10.2 Invalid consideration

10.2.1 Past consideration

Past consideration is something which has already done at the time when promise is made.

e.g where works had been carried out and later on promise is made to pay for them.

Case law Re McArdle 1951

10.2.2 Exception to past consideration

If there was an implied promise before the works were carried out that they would be paid for at a later date then it is considered as valid consideration.

In this situation works were requested by promiser and the parties must have understood and assumed that they would have to pay for them.

Case law Lampleigh vs. Braithwaite.

10.3 Adequacy and sufficiency of consideration

According to law every promise will not be enforceable under legal framework if it has no consideration.

So every promise must have some identifiable value to be paid/received in return.

There are two rules.

  1. Consideration need not be adequate.
  2. Consideration must be sufficient.

Adequacy    it means that it is not compulsory that it must have equal value to the consideration received in return. it can be higher or lower but ,there is no remedy at law for someone who simply makes a poor bargain.

Sufficiency   it means that consideration must have some identifiable value in order to be capable in law of being regarded as valid consideration.

10.3.1 Adequacy and sufficiency

It is presumed that each party is capable of serving his own interest and court will not seek to weigh up comparative value of promises or acts exchanged.

Case law Thomas vs. Thomas

It was decided in this case that nominal rent of £ 1 per anum was considered to be of sufficient consideration.

In order to be sufficient, consideration must contain some element that can be seen as the price of other party’s promise. Because law only requires an element of bargain not necessarily that it should be a good bargain.

Case law Chappell and co vs. Nestle co

It was decided in this case law that even used chocolate wrappers which had some commercial value are considered as sufficient consideration.

You should familiarize yourself with the following.

Performance of existing contractual duties.

Performance of existing contractual duty that was required or imposed by statute is not considered as sufficient consideration.

Example if someone agrees to pay a sum of money to another person for appearing in court, when that person has been subpoenaed/summoned to attend in any event then there is no consideration to support the promise to pay.

Performance of additional duty.

There is consideration when promisee is actually giving or doing something over and above the scope of contractual obligations. this case is carefully examined that what is actually over and above the existing contractual duty and also to ensure that the case is not actually one of duress.

Case law Williams v Roffey Bros and Nicholls Ltd 1990

Performance of existing statutory duty owed to third party.

If A promises to B  a reward that if B will perform his existing contract with C there is consideration for A’s promise and B assumes no obligations.

Case law   Shadwell vs. Shadwell

11 Intention to create legal relationship

Intention to create legal relation is a third essential element of the contract .

It can be defined as “An agreement will only become a legally binding contract when the parties entering in the contract intended to be bound on legal terms.

There are two general rebuttable assumptions that means the situation that is assumed in general way can be disproved in some specific situation.

11.1 Domestic arrangements.

It is presumed that social, domestic and family relations are generally not considered as binding unless there is clear evidence which points to the contrary.

11.2 Commercial arrangements.

It is presumed that arrangements related with business arrangements and commercial nature agreements are generally considered as legal agreements.

11.1 Domestic arrangements

Domestic arrangements has following three situations .

  1. Husband and wife
  2. Relatives
  3. Other domestic arrangements.

11.2 Husband and wife

If parties are husband and wife, it is assumed that their intention is away from entering in any legal contract in normal circumstances.

Case law Balfour Balfour.

But it does not mean that husband and wife cannot enter in any legal agreement .it is decided from the situation and the nature of relationship between the parties at the time of agreement .

The agreement will become binding if normal circumstances does not exist at the time of agreement.

Case law Merritt vs. Merritt

11.3 Relatives

These are the relationships between family members.

The agreements made between family members can also b considered as simple agreements or promises having no legal status in normal circumstances.

Case law Jones vs. padavatton

11.4 Other domestic arrangements

These are the relationships between the people who are not family members but they have close relationship. The nature of agreement resulted in legal relationship.

Case law Simpkins v pays

11.5 Commercial arrangements

The agreements that are related with business arrangements are normally considered as there is an intention to enter into legal relations unless circumstances indicate contrary.

Case law Rose and Frank v Crompton

It is not easy to rebut this presumption as in case law Edward v Skyways Ltd.

Care needs to be taken during the negotiation stage to determine the intention of contract.

As the words “Subject to contract” amounts to a strong presumption that no immediately binding contract is intended.