L4: Formation of a Contract 2

Question 1

Is every agreement legally binding?

Answer 1

No, the parties must have the intention to create legal relations for their agreement to be legally binding.

Question 2

The law view that parties intend to treat commercial/business agreements as bindings unless the words used make it clear that there is no such intention:

Answer 2

1. Subject to Contract
2. Memorandum of Understanding (MOU)
3. Letter of Comfort (LOC)

Question 3

What is consideration?

Answer 3

It means that a person will not be required by law to fulfill a promise he has made unless he has obtained (or has been promised) something in return.

Question 4

State the 5 RULES on Consideration

Answer 4

1. Must have some economic value
2. Must be sufficient but need not be adequate
3. Performance of an existing obligation is not consideration for a further promise
4. Making part payment of a debt is not consideration for a promise to forgo the balance
5. Consideration must not be past

Question 5

What is a deed and can a promise be enforced in the deed even if there is no consideration?

Answer 5

A deed is a formal legal document that is signed, sealed and delivered.

Yes, it can be enforced even if there is no consideration.

Question 6

Explain the Rule of “Privity of Contract”

Answer 6

It is that only contracting parties may sue each other as they have provided consideration.

A third party may who has not provided consideration and is not a party cannot sue unless:

Contract Acts states that a third party can enforce their rights if he is:

• Named in the agreement or
• Contract expressly benefits him

Question 7

What is formalities?

Answer 7

Formalities is the format that needs to be observed in an agreement, to make the contract valid.