Question (a) 10 marks
1) Using the four-step process, discuss the elements of intention and consideration required for the formation of a contract. In particular, consider whether these elements have been met in order for there to be an enforceable contract between Kate and the travel agency.
For a contract to exist parties to an agreement must intend to create legal relations. The existence of intention is ascertained objectively by having regard to the known circumstance, usually the presence for consideration provides for this.
Agreements in a commercial context are seen as a rebuttal intention to create a legally binding contract. Where the parties to a commercial agreement do not intend it to be binding, they have the onus to provide facts which indicate that the agreement is binding in honour only.
In the case of Esso Ltd v Commissioners of Customs and Excise (1976) 1 All ER 117, Esso Petroleum promised to give motorists a free collectors coin with every 4 gallons of Esso fuel purchased to promote their fuel sales. The issue was whether Esso intended to be legally bound to the offer to give the coins to motorists that purchased their fuel.
The decision by the court was that the terms of the promotion intended to be legally binding. Esso clearly anticipated that they would have value to their customer otherwise the promotion would not have been worthwhile.
The law however presumes domestic or social agreements are not intended to be legally binding. A party that wishes to enforce a domestic or social agreement will need to prove that the parties intend to create a legally binding agreement.
In the Cohen v Cohen (1929) 41 CLR 91 case, the issue was whether there was an intention to enter into legal relations and whether or not an agreement for a husband to give to his wife a dress allowance amounted to a legally enforceable contract.
It was inferred that legally enforceable relations were not intended due to the fact arrangements between intending husband and wife are only enforceable if at the time of the agreement is made, an intention by the parties that the agreement will give rise to legal relations.
Agreements documented under seals or deeds, do not require consideration for there to be a binding contract. If a promise is not contained in a deed it is known as an informal agreement and the courts will apply the ‘bargain theory’ of contract, giving rise to the requirement of consideration in informal contracts.
“Consideration can consist of giving a thing or doing something that is of some value to the other party with the intention of receiving a counter performance or that is burdensome or detrimental to the person under taking it” (Lambirisi 2012, 33).
In the case of Carlill v Carbolic Smoke Ball Co,  1 QB 256, Carbolic Smoke Ball Co manufactured and sold the carbolic smoke ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza and to prove the seriousness of their offer the company deposited 1000 pounds in a bank account to pay the rewards. After seeing the ad, Carlill purchased a ball and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract.
One of the issues raised is whether Carlill provided sufficient consideration in exchange for the company’s promise, to create a legally binding agreement. The decision of the court was that the act of buying the smoke ball and using it provided the necessary consideration for an enforceable promise to pay the reward.
In unilateral contracts, one party promises to do something provided the other party first performs a specified act. Even though the counter-promise is performed before the counter-promise becomes legally binding, the act is...