The Importance Of Consideration Required For The Formation Of A Legally Enforceable Contract

The Importance Of Consideration Required For The Formation Of A Legally Enforceable Contract

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Question 1: Using the four-step process, discuss whether the element of consideration required for the formation of a legally enforceable contract is present in the above scenario.

Step 1: Identify the principles or issue of law.
The principle or issue of law is that for a valid contract to be formed there must be consideration to be legally bound by both parties.

Step 2: Explain the rule(s) of law relevant to the principle/area/issue of law identified in step one with reference to authority.
Consideration must move from the promisee. The party who alleges that the contract was breached must demonstrate that the promise breached was purchased or bargained for. In spite of the fact that consideration must flow from the promisee, it need not move to the promisor. This was seen in the case of Official Trustee in Bankruptcy v Arcadiou. Mrs Arcadiou mortgaged her property as part of a round of transactions for her son and daughter-in-law. In turn, her son mortgaged his property to a bank to help his father’s business. The trustee tried to remove the home mortgage from her land to make it accessible for her creditors at the point when Mrs Arcadiou was proclaimed bankrupt and argued that there was no real consideration from the son to validate the mortgage. The court held that it usually allowed consideration for the mortgage in the commercial context and it was decided that the mother did receive some financial advantage, making the consideration valid. The important part was that consideration moved from the son and daughter-in-law.

Consideration does not need to be adequate. However, it must be sufficient. Even if the consideration between two parties was not of equal value, the court will allow the contract to be enforced. In th...


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... after working hours.

Secondly, acceptance can also be communicated via post. If the postal method is used, the contract will come into existence at the moment when the acceptance is posted. Once the offeror receives the post and is aware of the acceptance, the offeree then becomes bound by the contract’s terms. This is also known as the postal rule which first came about in the case of Adams v Lindsell. Lindsell offered to sell wool to Adams and asked for a reply via post. The letter from Lindsell was delayed and when received, Adams posted a letter of acceptance on the same day. However, due to the delay Lindsell sold it to somebody else. Adams sought a breach of contract. The court held that a valid contract came into existence the moment the letter of acceptance was posted.

Step 3: Apply the law to the facts of the question in a detailed and logical manner.

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