Contract formation notes In order for a contract to be legally binding, three ingredients are needed: 1. Agreement: The parties must have mutually consented to the creation of the rights and obligations contemplated by the contract 2. Consideration: The parties must each have provided something in exchange for the other's promise 3. Intention to create legal relations: The parties must intend their contract to create legally enforceable rights and obligations as between themselves. Consideration Currie v Misa (1875): "[A] valuable consideration, in the sense of the law, may consist either in 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." Pau On v. Lao Yiu Long (1980), Lord Scarman set out the general principle involved in such cases in the form of a threefold test: "An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisor's request, the parties must have understood that the act was to be remunerated further by a payment or the conferment of some other benefit, and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance." · Exchange ff 'Exchange' as an element of consideration combines two principles ff Firstly, consideration must move from the promisee: ff The promisee must provide the thing that is said to constitute consideration. ff Things provided by third parties do not ground contracts. The promisee must buy the promise, not a third party. The arrangement will not constitute a contract, even if the parties reached agreement (through offer and acceptance) Crow v Rogers (1724) 1 Str. 592: ff John Hardy owed £70 to Crow. ff Roger and Hardy agreed that if Roger paid Crow, Hardy would give Roger title to a house. ff Roger failed to pay Crow, who sued. ff Held: Crow was a 'stranger to the consideration'. As a stranger to the consideration, he could not sue on the arrangement Price v Easton (1833) 4 Barn. & AD. 433: ff William Price owed £13 to John Price for a carriage. ff William agreed with Easton that: . William would work for Easton for a period of time . Easton would retain some of William's wages, and pay them to John
ff Easton failed to pay William's retained wages to John. ff John sought to sue. ff Held: The suit failed because it "does not shew any consideration proceeding immediately from the plaintiff to the defendant." ff Secondly, consideration must be in respect of the promise: ff The promise and the thing that constitutes consideration must be part of the same set of arrangements. ff Things provided independently of the promise do not ground contracts. ff Relates back to the idea of a contract as a 'bargain' Combe v Combe [1951] 2 KB 215: ff Mr. and Mrs. Combe separated