2 - Consideration & ICLR Flashcards
What is the intention to create legal relations (ICLR)?
The law assesses whether an agreement is meant to be legally binding based on the parties’ intention to create legal relations.
Rebuttable presumptions help the court decide whether an agreement was intended to be legally binding when there’s a dispute.
- Commercial agreements: There is a strong presumption that the parties intended the agreement to have legal consequences.
- Domestic agreements (e.g., agreements between family or friends): The presumption is that the parties did not intend to create legal relations.
Both presumptions are rebuttable, meaning they apply unless evidence suggests otherwise.
What is the presumption regarding intention to create legal relations in commercial agreements, and how can it be rebutted?
Commercial agreements include not just business-to-business transactions but also those between individuals and businesses (e.g., buying online or in a shop) and even between individuals not in business (e.g., buying a second-hand bicycle).
There is a strong presumption that the agreement is intended to be legally binding, regardless of the value of the transaction.
Rebuttal: The presumption can be rebutted only by a clear, express statement that the agreement is not intended to be legally binding, such as stating it is ‘binding in honour only’.
Example: In Esso Petroleum v Commissioners of Customs and Excise, Esso offered ‘free’ World Cup coins with fuel purchases. Despite their minimal intrinsic value, the court held the agreement was legally binding because the coins had significant value to collectors.
How does the law view domestic agreements regarding intention to create legal relations?
Domestic agreements involve family members, close friends, or similar relationships.
The presumption is that the agreement is not legally binding unless facts show otherwise.
Example: Agreements between parents and children about small sums (e.g., £10 weekly allowance) are presumed not to be legally binding, given the closeness of the relationship and the nominal amount.
Rebuttal: If facts demonstrate the intent to create legal relations (e.g., an agreement between siblings over the sale of a house, between a husband and wife to file for divorce, or between two friends to begin a business venture where a large amount of money is at stake), the presumption can be rebutted.
How does the law distinguish between commercial and domestic agreements regarding intention to create legal relations?
- Commercial agreements: Presumption of legal intent, rebutted only with clear words.
- Domestic agreements: Presumption of no legal intent, rebutted by facts showing otherwise (e.g., formal agreements or significant financial stakes).
What is consideration in a contractual agreement?
- The need for consideration is the idea that, in order to be able to hold the other party to a promise, you must have agreed to provide ‘something in return’ for that promise: it is this ‘something in return’ that lawyers call ‘consideration’.
- The ‘something in return’ may be a promise (called executory consideration) or an act (executed consideration). Bilateral contracts by their nature involve an exchange of promises;
whereas a unilateral contract comprises a promise in return for an act. - So in order to sue for breach of a promise, a party must be able to show they gave consideration for that promise.
What is the role of consideration in forming a binding contract?
Consideration is something given in return for a promise, allowing one party to hold the other accountable for their commitment.
It can be either:
- Executory consideration (a promise to do something in the future) or
- Executed consideration (an act already done in exchange for a promise).
Bilateral contracts involve an exchange of promises, while unilateral contracts involve a promise in return for an act.
Example: You agree to buy a laptop for £500. The consideration is your promise to pay £500 (a detriment to you and a benefit to the seller). In return, the seller agrees to hand over the laptop (a detriment to them but a benefit to you). This exchange of detriment and benefit establishes a binding contract.
What is the difference between adequacy and sufficiency of consideration?
Adequacy relates to the value of the consideration. It need not be of equal value to the promise being exchanged, but must have some value.
Example: £1 can be adequate consideration for an Aston Martin because it has nominal value, even though it is not equivalent to the car’s value.
Sufficiency concerns the type of consideration. It must be the sort of thing the law recognises as valid for a bargain, such as money, goods, or services.
Example: In Scammell v Ouston, a vague agreement to buy a car on ‘hire purchase terms’ was too unclear to be considered sufficient. However, a promise to refrain from smoking could be valid consideration because people have the right to smoke, making the promise of refraining a detriment.
Can past consideration be good consideration?
Past consideration refers to something done before a promise is made and is generally not valid for forming a binding contract.
Exception:
Past consideration can be enforceable if:
- It was done at the promisor’s request,
- There was an understanding that it would be compensated, and
- Had the promise been made in advance, it would have been legally enforceable.
When is performance of a public duty sufficient as consideration?
Performance of a public duty is generally not sufficient consideration because it’s something a party is already obligated to do.
Example: A defendant promises to pay £50 to a witness for testifying in a criminal trial. The witness cannot enforce the promise because they are already legally obliged to give evidence.
However, exceeding a public duty can constitute valid consideration.
What are the key takeaways regarding consideration in contract formation?
- Consideration must be something of value provided in exchange for a promise.
- It need not be adequate (equal in value) but must be sufficient (appropriate subject matter for a contract).
- Past consideration is generally invalid, but there are exceptions when done at the promisor’s request.
- Public duties do not constitute consideration unless the duty is exceeded.
Can performing an existing contractual duty be considered valid consideration for a promise to pay more?
General rule: Merely performing an existing contractual duty owed to the other party is not valid consideration for a promise of extra payment.
Exceeding a contractual obligation: If a party exceeds their contractual duty, it can constitute valid consideration as it creates a detriment for the promisee and a benefit for the promisor. Example: You are asked to work non-compulsory overtime, exceeding your regular contractual duty. The extra work would entitle you to additional pay as it confers a benefit to your employer and is a detriment to you.
Modification to the general rule:
Practical benefit principle:
- If performing an existing contractual duty confers a practical benefit on the other party, that may be sufficient consideration for an extra payment.
- Example: A business would not typically offer more money unless it perceived a benefit, such as avoiding extra costs or delays.
- Therefore, if performing an existing duty confers a practical benefit to the other party, it may count as valid consideration for the promise of extra payment.
How does duress affect promises to pay more?
If the promise to pay more was made under duress, the variation may be voidable.
Example: If a party is forced or pressured into agreeing to pay more under unfair circumstances, they may later have the ability to void the agreement due to duress.
What is the general rule for alteration promises to accept less?
General Rule (Pinnel’s Case): When a debtor offers part payment of an undisputed debt in full satisfaction of the total debt, this agreement is not binding on the creditor unless new consideration is provided.
Example: If you owe £1,000 and your creditor agrees to accept £500 in full settlement, this promise is not enforceable unless you provide some form of additional consideration, such as paying earlier than due or offering goods in exchange.
What are the exceptions to the rule in Pinnel’s Case at common law?
Common Law Exceptions: Consideration must be sufficient but need not be adequate. If the debtor provides something other than part payment (e.g., goods or services) in exchange for the creditor’s promise to accept less, this can be valid consideration.
Example from Pinnel’s Case: If part payment is made before the due date, or if something like a “horse, hawk, or robe” is offered, this is considered new consideration and could make the agreement binding.
What is the doctrine of promissory estoppel?
Under this doctrine, a creditor may be prevented (‘estopped’) from going back on a promise to accept part payment, even if the promise is not supported by consideration, if it would be unfair to do so.
Key elements:
- A party makes a promise not to enforce their legal rights.
- The other party relies on that promise, even without providing anything in return.
- If the party tries to enforce their legal rights, they will be estopped if it would be inequitable in all the circumstances.
Example:
Central London Property Trust v High Trees House [1947]: The landlord agreed to reduce rent during the war due to low occupancy. After the war ended, the landlord sought to claim full rent retrospectively. The court held that the landlord could not claim the reduced rent for the war period because the tenants relied on the promise.
