ACCA F4 - Corp and Business Law (ENG)

56 4: Formation of contract II  Part B The law of obligations

Study guide

Intellectual level

B The law of obligations^

1 Formation of contract

(e) Explain the need for consideration 2

(f) Explain adequacy and sufficiency of consideration 2

(g) Analyse the doctrine of privity 2

(h) Distinguish the presumptions relating to intention to create legal relations 2

Exam guide

Questions may require you to identify whether a valid contract exists. They may also test your ability to

spot whether acceptable consideration has passed between the parties and whether they can be legally

held to have intended to be bound by the contract.

1 Consideration

Consideration is an essential part of most contracts. It is what each party brings to the contract.

Consideration has been defined as:

'A valuable consideration in the sense of the 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.' From Currie v Misa 1875

Using the language of purchase and sale, it could be said that one party must know that they have bought

the other party's promises either by performing some act of their own or by offering a promise of their

own.

Illustration^

(^)
An example of giving consideration by suffering detriment is in Carlill v Carbolic Smoke Ball Company

1883. Mrs Carlill gave consideration by using the smoke ball as she was instructed.

1.1 Valid consideration

Consideration may be executed (an act in return for a promise) or executory (a promise in return for a

promise). It may not be past, unless one of three recognised exceptions applies.

There are two broad types of valid consideration – executed and executory. If consideration is past then it

is not enforceable.

Executed consideration is an act in return for a promise. The consideration for the promise is a

performed, or executed, act.

Key term

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