Seminar 3 - Intention to create , Consideration, Promissory Estoppel, Privity of contract

Question 1

Intention to create legal relations - Objective Test

Answer 1

The forth element in the formation of a contract is the intention to create…
If this intention is absent, the promise might not create any binding contract at all.

Objective Test: The court consider:
Whether reasonable person viewing all the circumstances considers the relevant party to have intended his promise to have legal consequences.

Question 2

2 groups of issue of Intention to create legal relations

Answer 2

Social & Domestic Contracts
PRESUMPTION:  NO intention to create legal relations.  But can be rebutted by showing intention.
 Balfour v Balfour (No), 
 De Cruz Andrea v Guangzhou…(No), 
 Merritt v Merritt (Yes) 

Commercial Agreements
PRESUMPTION: YES Intention to create legal relations exists. But can be rebutted by proof of “No such Intention”.

Question 3

Some factors for objective view in commercial context

Answer 3

1/ Honour Clause:
Rose v JR Crompton…mere pledge.
HSBC v Toshin… “in good faith endeavour to agree”= Intention.
2/ “Subject to contract” Clause
3/ Memo of understanding; Letters of comfort; Letters of intent: words + circumstances. Usually no Intent.
4/ Administrative Relation: No Intention.

Question 4

Consideration DEFINITION

Answer 4

Consideration is defined as Something of value in the eyes of the law given in exchange for another’s promise.

3 Significance of the definition
Benefit-Detriment/ Price of promise
Exchange
Valued in the eyes of law

Question 5

Types of consideration

Answer 5

(1) Executory Consideration (PROMISE)
(2) Executed Consideration (ACT)
(3) Past Consideration: Cannot be past
Act done before and Independent of Promise
Past Consideration is NO Consideration

Question 6

Exception: PAO ON LAW

Answer 6

Exception in Pao On v Lau Yiu Long (Followed in Rainforest v SBIS)
PAST Consideration = GOOD Consideration if all 3 conditions satisfied:
- Act was done at promisor’s request
- Parties understood that act will be compensated
- Such compensation would be enforceable if promised in advance of act.

Question 7

Rules on Consideration

Answer 7

Must flow from Promisee but need not flow to promisor
Must be sufficient but need not be adequate:
- This is LEGAL validity. Previous cases recognize this kind of Consideration as suitable. Amount is irrelevant.
- As long as parties are willing, Court does not care about FAIRNESS.

Question 8

Insufficient Consideration

Answer 8

• Moral Obligation
• Vague/Insubstantial. ( Not practically verifiable)
• Existing Public Duty imposed by Law (Collins v Godefroy)
• Existing Contractual Duty Owed to the SAME Party (Stilk v Myrick) .
• Part Payment of Debt: Part payment of a debt on the due date is not a good discharge of the debt even on the creditor’s assurance/promise that it is (absence of consideration)

Question 9

Existing Contractual Duty Owed to the SAME Party: Sufficient when?

Answer 9

• Existing Contractual Duty Owed to THIRD Party is sufficient Consideration: The Eurymedon ( Stevedores)
• Doing OVER and ABOVE existing contractual duty owed to Same Party: Hartley v Ponsonby- 17/36 crew deserted.
• Promisor obtains “Practical benefits” (eg.Promisor (Main-C) will not be sued by client) without Duress/Fraud, as in Williams v Roffey Bros)

Question 10

Pinnel’s Case - Exception of Part Payment of Debt:

Answer 10

Pinnel’s Case 1602
- unless supported by consideration. i.e. Debtor provided something different at creditor’s request: Earlier? Place? Extra?
( Both points must be fullfil:
-The part payment was made at the request of the creditor.
-The payment was made earlier, at a different place, or in conjunction with some other valuable consideration.)

Question 11

Promissory Estoppel

Answer 11

The usual Exception to look at here is the possible use of the equitable doctrine of Promissory Estoppel, where a promise to discharge the full debt is a valid defence to promisor’s claim even in the absence of consideration.

Promisee must prove all these 4 factors before Promisee can rely on Promissory Estoppel to enforce Promisor’s promise as a Defence:

• Existing Legal Relationship
• Promisor made a clear and unequivocal promise (by words or conduct)
• Reliance/Alteration of Position on the part of the Promisee
• It is inequitable for the Promisor to go back on his promise

Reliance need not be detrimental. In Lam Chi Kin David v Deutsche Bank AG [2011]1SLR800; [2010]SGCA42, C of A held that an advantage obtained by Promisor, due to reliance by Promisee, was enough.

Question 12

Privity of Contract

Answer 12

The doctrine of privity of contract provides that only parties to a contract can enjoy the benefits of that contract or suffer the burdens of it”

Question 13

Exception: Main Statutory Exception

Answer 13

Rights of Third Parties) Act, Section 2
When is a third party permitted to enforce a contract?
(1) Subject to the provisions of this Act, a person who is not a party to a contract (referred to in this Act as a third party) may, in his own right, enforce a term of the contract if —
(a) the contract expressly provides that he may; or
(b) the term purports to confer a benefit on him.
(2) Subsection (1)(b) shall not apply if, on a proper construction of the contract, it appears that the parties did not intend the term to be enforceable by the third party.
And
(3) The third party shall be expressly identified in the contract by name, as a member of a class or as answering a particular description