Contract Law Assessment: Contractual Liabilities and Agreements

This assignment solution addresses two key legal issues in contract law. The first part examines whether a valid contract was formed between Fern and Jane & Sarah, considering the elements of offer, acceptance, consideration, and intention to create legal relations. It concludes that no contract was enacted due to the absence of these essential elements, particularly the lack of monetary consideration and intention for a commercial agreement. The second part analyzes the enforceability of an amended contract, focusing on whether the revised agreement between Fern and Sarah & Jane, involving increased payment for timely project completion, is legally binding. It explores the principles of consideration in amended contracts, referencing cases like Stilk v Myrick and Williams v Roffey Bros, and concludes that the amended contract is enforceable due to the practical benefit derived by Sarah & Jane from the timely completion of the project, which outweighed the potential remedy for breach of the original contract.

PRINCIPLES OF CONTRACT LAW
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Question 1
Issue
The main issue is to find whether there is an enforceable contract enacted between Fern and
Jane & Sarah. The required elements for contract enactment would also be taken into account
in order to comment on contractual liabilities of the parties.
Rule
The presence of following elements in any scenario would imply that a valid contract would
be formed and both the parties have to satisfy the contractual obligation.
Offer & Acceptance: Valid agreement is an essential element of a contract. Valid agreement
would be formed between the parties when there is valid offer and acceptance. The actions of
both the parties would be equally imperative to form a legal agreement. Any request of one
party to bring the other party to engage into some work would be categorised as offer and the
party who extends the offer would be termed as offeror1. It is essential that acceptance must
be communicate to the offeror in order to form a valid agreement. However, acceptance
would also be conveyed to the offeror by performing the required action stated by the
offeror2. The verdict announced in Smith v Hughes3 case is the evidence of this fact where
creation of the ad idem was essential element to form a valid agreement between parties.
Consideration: It is a key essential for contract enactment. It is imperative that consideration
must be mutually agreed by the parties and both the parties must have valuable consideration.
It is not essential that consideration should be adequate but should be sufficient and valuable
for the underlying party as highlighted in Chappell & Co Ltd v Nestle Co Ltd4. Further, if no
consideration is present for either of the party then contract would not be enforceable5.
Intention: When the parties do not have intention to form legal contractual relationship, then
no contract would be formed. Hence, it is essential that both the parties must show their
1 Carter John, Contract Act in Australia, (LexisNexis Publications, 2014, 3rd edition) 77
2 Peel Edwin,The Law of Contract, (Thompson, 2017, 6th edition) 67
3Smith v Hughes (1871) LR 6 QB 597
4 Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1
5 Latimer Paul, Australian Business Law CC, (LexisNexis Study Guide, 2014, 4th edition) 89
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intention to create legal relationship which is especially pivotal when the commercial nature
of the transaction cannot be established6.
Application
It can be seen that Sarah & Jane has asked for a favour to provide some help to reduce the
noise pollution and has not directed an offer to avail the services from her. Further, Fern has
agreed to help Sarah & Jane by considering that she would get some valuable experience to
minimize the noise pollution emitted from the pub. It is also evident from the case facts that
Fern has not expected any kind of payment for the given help. This underlying aspect is true
with the fact that Sarah & Jane also do not expect that Fern would ask for any payment for
the work. Sarah & Jane have taken Fern for a fancy dinner to thank Fern for her help. It is
noticeable that if the parties have intention to form legal contract to avail paid services then
they would not have taken her for dinner to thank her especially when only partial work has
been done by her.
Further, Sarah & Jane have received a report from Fern which has some commercial worth.
However, Fern’s act of providing report to Sarah & Jane does not imply any commercial
agreement as she was not working anywhere and hence, just wanted to gain some experience.
At the time of discussion both the parties do not have any intention to involve money for the
work. Also, parties do not include any contractual terms or written agreement which would
show that they want a legal contract for the transaction. However, if Fern wanted to take
charges for her help then she should show his intention to form commercial agreement by
stating mutually accepted compensation for the work along with the terms and scope of
service. It would be fair to conclude that the essential elements required for contract
formation is not present and thus, no contract would be enacted between them. Fern cannot
ask for the money from Sarah & Jane for her help.
Conclusion
It can be concluded from above discussion that Fern does not have a valid contract with Sarah
& Jane. It is because parties do not have valid consideration in terms of monetary payment
and also both the parties do not have any intention to create legal relations. Therefore, no
contract would be enacted between the parties.
6 Edlin Douglas,Common law theory,(University Press Cambridge, 2015, 5th edition) 132
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Question 2
Issue
The primary legal issue based on the scenario presented is to outline if the amended contract
enacted between Sarah & Jane and Fern is enforceable or not. Of particular interest is that
consideration may not be available for Sarah & Jane to amend the original contract.
Rule
With regards to enactment of a legally binding contract, a key requirement is presence of
mutual consideration. This is not limited for enactment of original contract but extends to all
amended contracts enacted between the same parties. A relevant case is Stilk v Myrick7
where it was highlighted that performance of existing contractual duties or obligations would
not be treated as a legally valid consideration for enactment of an amended contract. The
courts in these cases would declare the new contract void on account of mutual consideration
being absent8.
A different viewpoint has been presented in another case law namely Williams v Roffey Bros
& Nicholls (Contractors) Ltd9. It was highlighted in this case that scenarios where amended
contracts are enacted dealing with fulfilment of pre-existing duty ought to be viewed under
the economic duress principle. It is imperative to consider the practical benefit realised by the
party on account of services being timely offered which would be significant and hence may
serve as valid consideration. During this case, it is was indicated that understanding
developed in the Stilk v Myrick case was applicable in the Napoleonic era with limited
validity in the modern world10.
In context of broad principle identified in Williams v Roffey case, a typical sequence of events
were highlighted which would allow the principle to come into force. A and B have an
enforceable contract in place for providing services for a pre-determined consideration
amount. However, before B could complete the obligations, A believes that there would be
failure on part of B to discharge contractual obligations on time. A is concerned by this and
thereby makes an offer to B to pay a higher amount. Despite making a higher payment, A
7 Stilk v Myrick [1809] EWHC KB J58
8 Andy Gibson and Douglas Fraser, Business Law, (Pearson Publications,2014, 8th edition) 132
9 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5
10 Athule Pathinayake, Commercial and Corporations Law, (Thomson-Reuters, 2014, 2nd edition) 123
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obtains a significant practical benefit owing to the completion of contractual obligations on
time11.
In the context of practical benefit, there is an additional requirement indicated in the
Musumeci v Winadell Pty Ltd12 case. It was pointed by Santow J that the practical benefit
from enacting an amended contract ought to be higher than the potential remedy that
beneficiary can bring against the defaulting party in case of breach of original contract.
Application
The facts pertaining to the given situation highlight that a legally binding contract has been
enacted by Fern with Sarah & Jane. As per this, Fern needs to build the pod in a time bound
manner. But, Sarah has attracted new clients and is not able to give enough time. She informs
Sarah & Jane that she would have to breach the contract if there is no increase in the contract
amount. Sarah & Jane hiked the payment by 15% in order to ensure timely completion of
pod.
For the enforceability of the amended contract, the valid consideration presence needs to be
determined for Sarah & Jane. Also, it cannot be denied that Sarah & Jane by increasing the
pay given to Fern would derive a significant practical benefit as timely completion is assured.
The timely completion of the pod is imperative considering the line up for the grand event.
Also, if Sarah & Jane had not agreed to revise the contract, then they could have sued Fern
for breach of contract. However, this remedy would have given them significant lesser gains
than provided by the amended contract which ensured timely completion of project. In the
event of Fern backing out, Sarah & Jane would have faced a near impossible task of finishing
the project on time. Failure for timely completion of the pod would have resulted in high
losses which the remedy against Fern would not have compensated.
Conclusion
From the above discussion, it is evident that there is presence of consideration for both parties
(i.e. Fern along with Sarah & Jane) for modifying the original contract. Additionally, the
practical benefit that Sarah & Jane would be able to extract from timely completion of pod
would be significantly higher than the remedy for breach of contract or the incremental cost
11 Shayne Davenport, Business and Law in Australia, (Thomson Reuters, 2014, 5th edition) 98
12 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723
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