Contract Law: Consideration & Intention to create legal relations Flashcards
The formation of a Valid Contract
5 things leading to a contract
- An agreement = Offer + Acceptance
- Consideration
- Intention to Create Legal Relations
- Certainty
- Capacity
Defining ‘consideration’
Does NOT mean that the parties have to consider each ________‘_ _________
Essential element to show agreement should be ________ _________
Began to be defined in the 19th century in terms of ________ and __________
E.g. Thomas v Thomas (1842): ‘some detriment to the plaintiff or some benefit to the defendant’
Modern definitions more about ___________.
Does NOT mean that the parties have to consider each other’s feelings!!!
Essential element to show agreement should be legally binding
Began to be defined in the 19th century in terms of benefit and detriment
E.g. Thomas v Thomas (1842): ‘some detriment to the plaintiff or some benefit to the defendant’
Modern definitions more about exchange.
Example
If Amy promises to give her new phone to Bea and Bea promises to give nothing in return, then Amy’s promise is not enforceable because it is not supported by consideration. Bea has not given anything in exchange for the promise of Amy to give away her new phone. This mean that if Amy changes her mind, Bea has __ _____ ______ to _________ Amy’s promise. The promise made by Amy to Bea in the scenario is called a __________ promise and is not ________ _________.
Conversely, if Amy promises to give her new phone to Bea and Bea promises in return £20 or a book, then Amy’s promise is supported by the __________ of ____________. Each party has given something is return for each other’s promise. Therefore, if Amy changes her mind, Bea will be able to _________ that promise and _____ _______.
If Amy promises to give her new phone to Bea and Bea promises to give nothing in return, then Amy’s promise is not enforceable because it is not supported by consideration. Bea has not given anything in exchange for the promise of Amy to give away her new phone. This mean that if Amy changes her mind, Bea has no legal means to enforce Amy’s promise. The promise made by Amy to Bea in the scenario is called a gratuitous promise and is not legally binding.
Conversely, if Amy promises to give her new phone to Bea and Bea promises in return £20 or a book, then Amy’s promise is supported by the element of consideration. Each party has given something is return for each other’s promise. Therefore, if Amy changes her mind, Bea will be able to enforce that promise and vice versa.
Promisor & Promisee
In most contracts two promises will be exchanged, so each party is both a promisor and a promisee.
E.g. Ann contracts to paint Ben’s bathroom and Ben promises to pay Ann £200.
Ann is both the __________ to paint the bathroom and the __________ to be paid £200
Ben is both the ___________ to pay Ann £200 and the ___________ to have his bathroom paint.
In most contracts two promises will be exchanged, so each party is both a promisor and a promisee.
E.g. Ann contracts to paint Ben’s bathroom and Ben promises to pay Ann £200.
Ann is both the promisor to paint the bathroom and the promisee to be paid £200
Ben is both the promisor to pay Ann £200 and the promisee to have his bathroom paint.
‘Executory’ and ‘Executed’ consideration
What is executory consideration?
What is executed consideration?
Executory consideration: Both parties promise to do something in the future.
Executed consideration: One party promises to do something in return for the act of another
Rules governing consideration
A. Consideration must not be past:
Exceptions to this rule:
If the act was done at the promisor’s request and there was an understanding that the requested act was going to be remunerated.
B. Consideration must be sufficient but need not be adequate
Sufficient= must be real, tangible and have some recognisable value;
Adequate= must be of roughly equal value to the other parties’ consideration;
i.e. Consideration must be of some economic value, but not of the same value as that provided by the other party.
**C. Performing an existing public duty cannot amount to consideration **
BUT
If promisee is under public duty but does something which goes beyond what they are bound to under that duty, that extra act can amount to consideration.
D. Performing an existing contractual duty does not amount to consideration
…unless (1) the promisee takes duties beyond those in the original contract
unless (2) the promisor has received an extra practical benefit
E. Contractual duties to pay debts
Agreements to accept a lower sum is not binding unless supported by fresh consideration:
Where someone owes another money and cannot pay the full amount, they will sometimes offer to pay a smaller sum, on condition that the creditor promises to accept it as full settlement for the debt.
Even if such agreement is made, it is only binding if the debtor provides some consideration for it by adding some extra element.
The Pinnel’s Case (1602) rule:
Payment of a smaller sum will not discharge the duty to pay a higher sum
Exceptions to the Pinnel’s case rule
1. Exceptions to this rule under principle of accord and satisfaction:(3)
A. Agreeing to accept lesser sum paid earlier
B. Agreeing to accept something other than money
C. Agreeing to pay in a different way.
2. Promissory estoppel (when a promisee relies on a promise to his or her detriment)
In order to prevent a party from going back on a promise and promissory estoppel to apply:
- There must have been an obvious and unambiguous promise by the promisor that he will not enforce his full legal rights;
- The debtor must have relied on that promise;
- It would be inequitable and unconscionable to go back on what was promised.
Rules of Promissory Estoppel:
- It arises in an existing contractual agreement from a promise made by one party to the other party, where the other party has given no consideration
- It varies rights within a contract
- It cannot be used to create new rights but only to prevent the enforcement of rights
already held - It normally suspends rights for a period of time rather that extinguishing them altogether
- It is an equitable principle and therefore the courts will only allow a defendant to use it if it is just to do so in all the circumstances
- Agreement by deed
There is one other way in which a promise can be made binding without consideration: it can be put into a document called a deed.
Paying more or less than agreed and the element of consideration: A summary
Existing contractual duties and promises to pay more (4)
Existing contractual duties and promises to pay less (4)
Existing contractual duties and promises to pay more
- Merely performing an existing contractual duty does not amount to good consideration (Stilk v. Myrick)
- An exception to this rule is where something extra is given (Hartley v Ponsonby)
- In addition, when the promisor receives a practical benefit and the promisee has relied in his promise (Williams v Roffey)
- That practical benefit can amount to good consideration provided there is no economic duress (where a person is forced or coerced to act against his or her will by threats of harm, illegal imprisonment, or other means) (William v Roffey)
Existing contractual duties and promises to pay less
- The same applies for contracts regarding the part-payment of debts (Pinnel’s case; Foakes v Beer): payments of a smaller sum will not discharge the duty to pay the full amount if no consideration is given by the promisee.
- When an extra element is added, the part-payment of debt can amount to good consideration under the principles of accord and satisfaction
- The rule in Williams v Roffey does not apply to promises to pay less.
Hence, for instance, an agreement to pay a debt by instalments to accommodate the debtor does not amount to good consideration (Re Selectmove)… - …But the doctrine of promissory estoppel may operate to make promises to pay less enforceable provided that the promisee has relied on that promise and it would be inequitable to enforce strict legal rights.
Intention to Create Legal Relations
- For business agreements, there is a presumption of intention to create legal relations:
- For social, domestic and family arrangements there is a presumption that the parties did not intend to be legally bound by an agreement.
Rebutting the presumption that friends and family members did not intend to create legal relations.
