Enforceable Legal Contract Formation: Fern, Sarah & Jane

PART A
Introduction
The key issue is to determine if there is an enforceable legal contract that has been formed
between Fern and Sarah and Jane. In this regard, the various relevant pre-requisites for
contract formation would need to be considered such as the presence of a valid agreement,
mutual consideration and intention to form legal relations.
Acceptance
A key requirement of a valid contract is a valid agreement. This comprises of two elements
namely offer and acceptance1. In order to interpret the underlying case facts, the objective
approach would be considered which considers the given scenario from the perspective of a
reasonable bystander who would interpret the actions of both the parties. Usually, any request
that involved engaging into an act by the other party would be termed as offer. Acceptance is
to communicated to the offeror for the formation of a valid agreement2. However, the same
can also be communicated though performance of the underlying activity which has been
requested by the offeror. As indicated in Smith v Hughes3, creation of consensus ad idem is
imperative for the formation of a valid agreement.
In the given case, it would not be difficult for Sarah & Jane to establish that there was no
offer since they were asking for a favour and not for a service. Fern agreed to help but it is
imperative to consider the underlying motive for her. It is known that Fern does not have any
work and is wasting her time in the pub. As a result, she is excited about the opportunity that
has been presented with the key consideration being that valuable work experience would be
gained in the process. It is apparent that while agreeing to help Sarah & Jane, there is no
expectation for any payment on the part of Fern. This understanding seems to be true on part
of Sarah & Jane as well considering that they have taken Fern to a fancy dinner to thank her
for the report. She a gesture may not be required when the intention is to obtain paid services
especially when only a preliminary report is submitted which has limited utility.
Consideration
1 Andy Gibson, Douglas Fraser, Business Law (Pearson Publications., 8th e, 2014),87
2 Shayne Davenport, Business and Law in Australia (Thomson Reuters, 4th ed, 2014),74
3 (1871) LR 6 QB 597
1

Another key element for formation of an enforceable contract is presence of mutual
consideration. It is imperative that the consideration must be valuable for the underlying
party. This is especially the case in commercial contracts where it is pivotal to have
consideration which is valuable in monetary terms4. Non- existence of consideration for a
given party would not result in formation of enforceable contract. Besides, another
requirement for contract formation is that there ought to be objectively determinable intention
on the part of both contracting parties to initiate legal relationship. Only if all the above
conditions are met can a legally binding contract be formed5.
While there is presence of consideration for Sarah & Jane in the form of the report which has
commercial value, it is not the case with Fern who is engaging in the activity of making the
report so as to gain some experience. This experience is not valuable and at the present
cannot be expressed in monetary terms. If the given scenario is objectively interpreted, then it
would be expected that Fern would expect money and there would be discussion about the
compensation. But no such discussion has taken place which leads a person bystander to infer
that there was no intention on part of both parties to involve money as part of the transaction6.
Intention
Intention to create legal relationship is an imperative element of contract formation. This is
because if contracting parties do not have intention to create legal relations then no contract
would be enforceable and parties would not be bounded with any contractual obligations.
Intention to form legal relationship is essential to prove for the case when the contracting
parties have connected through domestic relationship. While, when the contracting parties are
not the family members then it is pre-assumed that parties have intention to form commercial
contracts as evident from the verdict of Rose and Frank & Co v Crompton7.
Considering the informal nature of exchanges and lack of any discussion of contractual terms
or a written agreement, it seems fair to conclude that neither of the parties in the given
scenario had intention to be legally bound. In similar transactions of commercial nature,
written contracts are signed which highlight the scope of service, terms and the mutually
4 Robert Bryan Vermeesch, Kevin Edmund Lindgren, Business Law of Australia (Butterworths, 12th ed. 2014),94
5 Pendleton, Wayne & Vickery, Roger,
Australian business law: principles and applications, (Pearson Publications, 5th ed.,
2015), 110
6 Ibid 2, 89
7 Rose and Frank & Co v Crompton [1923] 2KB 261
2