NANYANG TECHNOLOGICAL UNIVERSITY
NANYANG BUSINESS SCHOOL
AB1301 – Business Law
AUG 2018
Worksheet 3: Formation of Contract II – Intention to Create Legal Relations,
Consideration, Promissory Estoppel, Capacity to Contract
Discussion Questions
Question 1
Abel, the Captain and owner of a cargo vessel, contracts with Ben, a wholesaler, to charter the
entire ship to transport certain goods on a trip from Rio de Janeiro to Singapore for $100,000.
Advise the relevant parties on their legal positions in each of the following situations, paying
careful attention to the strengths and weaknesses of any possible claims, defences or
arguments that each may have against the other. (Each sub-part is to be considered separately
and independently of the others):
(a) Sparrow, the engine room’s maintenance engineer, is a generally disgruntled sort and
constantly complains about his work, his pay, his lot in life and anything else he can find
reason to complain. This is irritating the other crew members so much that Abel agrees
to pay Sparrow a further $500 (over and above his usual salary) at the end of the
journey if he promises to “be more cheerful and to stop being such a whiner”. Sparrow
wants to know if this promise of $500 is a promise that Abel is legally bound to honour.
Advise Sparrow.
(b) Ah Wok, the ship’s cook, is hired on the basis that he is to cook three meals a day for
the crew. After the first day at sea, the other crew members complain that they are not
being fed frequently enough. Abel tells Ah Wok to cook four meals per day for the crew
instead and Ah Wok agrees. At the end of the voyage, Ah Wok, the cook, tells Abel that
he should be given extra compensation for cooking the extra meal each day, whereupon
Abel duly agrees to pay him an additional $1,000. A few days later, when Ah Wok tries
to claim the extra $1,000, Abel refuses to pay.
Advise Ah Wok.
(c) Mid-way through the journey, Ben receives a report that the ship is severely behind
schedule. He is anxious for Abel to return to Singapore by the date earlier agreed, since
Abel is carrying an important consignment for a valuable client. Otherwise, Ben will be
liable to his client in liquidated damages (a contractually agreed sum) for late delivery of
the cargo. Concerned with this potential liability, Ben immediately contacts Abel and
promises to pay Abel an additional $20,000 to ensure the ship’s timely arrival as earlier
agreed, which in fact Abel does in fact eventually succeed in doing. Ben now says that
he is not legally obliged to pay more than what they had originally agreed on.
Advise Abel.
1
(d) Assume that the contract has been performed and Ben has to pay Abel the agreed
$100,000 (ignore the additional payment). However, Ben is facing liquidity problems and
tells Abel that he can only afford to pay him half. Abel needs the money desperately and,
reluctantly, agrees to accept the part payment ‘for now until (Ben) is financially more
stable’. A couple of years later, Abel discovers that Ben has just made it to ‘Singapore’s
40 Richest’. He now wants to claim the balance debt from Ben.
Advise Ben.
(e) The ship finally pulls into port but a fierce fire in the engine room threatens the safety of
the crew and traps Abel in the ship’s control tower. The SCDF arrive within minutes and
a fireman on the rescue ladder attempts to save Abel. Unfortunately, Abel suffers from
extreme vertigo and refuses to get on the ladder, requesting the fireman (with a promise
to pay him $500) to winch him to safety instead. The fireman accedes to Abel’s unusual
request and, with considerable effort, manages to bring Abel safely down. Abel refuses
to pay.
Advise the fireman.
© Associate Professor Dennis Ong (Jan, 2017)
Question 2
April bought 50 tins of pineapple tarts from her neighbour, Mei, who bakes homemade cookies
for sale during Chinese New Year and makes a lucrative profit every year. April is a small
business owner and she told Mei that she was going to give the tarts to her business associates
as Chinese New Year gifts. The tarts were promptly delivered but they turned mouldy before
April could give them as gifts.
Discuss whether there was intention to create legal relations in the transaction between April
and Mei.
Question 3
Discuss the issue of the minor’s capacity to contract in the following circumstances
(a) A Premier League football club signs a 2-year professional contract with David (a 16
year old footballer), which provided a monthly salary and bonus payments for goals
scored in League matches. The contract also provided for a forfeiture of these bonus
payments if the footballer did not complete the 2-year contract term.
(b) A store sells mobile phones to secondary school students, allowing payment to be made
in monthly instalments. If a student defaults on paying the instalments after taking
delivery of the mobile phone, is the contract unenforceable against him for lack of
capacity to contract?
© Associate Professor Erin Goh (Aug, 2018)
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MCQs
1. There is a presumption of intention to create legal relations
(a) In all oral agreements
(b) In all agreements between family members or friends
(c) In commercial or business agreements
(d) When there is offer and acceptance
2. Which of the following is not good consideration?
(a) Executory consideration
(b) Promisee’s forbearance to sue
(c) Practical benefit to the promisor within the principle in Williams v Roffey
(d) An unsolicited act done before the promise to pay
3. Promissory estoppel
(a) Can be used as a sword or a shield to commence legal action
(b) Can be used to prevent the promisor from reneging on his promise even though the
promise is not supported by consideration
(c) Requires the parties to have no prior legal relationship
(d) Requires the promisor to have altered his position in reliance on the promise (promise should
be altering not promisor. So d is wrong)
4. Which of the following statements is NOT true? Answer is A. B is also false but A is most
appropriate answer so for mcq put the most correct answer so it’s a. claires answer.
(a) A promise that comes after an agreement will be enforceable
(b) A promise to pay fair market price for an item is too vague to be good consideration
(c) A promise of a gift is enforceable if found in a deed made under seal (gift nothing given in
exchange so no consideration provided. Its execution under the deed hence no consideration
is needed
(d) An existing contractual duty can be consideration for a separate contract (d is a true
treatment)
5. A contract with a minor
(a) Is always unenforceable
(b) Is always enforceable
(c) for the minor’s employment is enforceable if it is for the minor’s benefit
(d) for non-necessaries is enforceable
