CONSIDERATION & INTENTION TO CREATE LEGAL RELATIONS

Whether there is Consideration

Ü  The Third Element Needed for a Simple Contract- Consideration

Ü  What is consideration?

      ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’ Dunlop v Selfridge [1915] AC 847

      ‘A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given suffered or undertaken by the other.’Currie v Misa (1875) LR 10 Ex 153

Consideration

Ü  It involves the notion of exchanging one party’s promise or bundle of promises for another party’s promise or bundle of promises

Ü  It involves the notion that for promises to be enforced they must be bought. The court will not (normally) enforce something freely given

General Rule

Ü  All simple contracts must be supported by consideration, c.f. formal contracts (i.e. deeds)

Ü  Just because a contract is in writing does not make it a formal contract and obviate the need for consideration, Rann v Hughes (1778) 101 ER 1014

Terminology

Ü  Good consideration-that which the law considers to be consideration

Ü  Executory consideration-a promise to do something in the future. The promise has yet to be performed

Ü  Executed consideration-the promise has been performed

Ü  N.b it is possible to have both executed and executory consideration in the one contract

Ü  Promisor - person making the promise

Ü   Promisee - person to whom the promise has been made

i. Consideration Must Be Sufficient But Need Not Be Adequate

Ü  The court is not concerned with the value of the consideration. It is only concerned that the consideration is ‘good’ consideration in the eyes of the law

      Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87

      Thomas v Thomas (1842) 2 QB 851

ii. Consideration Must Not Be Illusory

Ü  Consideration must be real

      Example, White v Bluett (1853) 23 LJ Ex 36

      Compare with Dunton v Dunton (1892) 18 VLR 114

iii. Consideration Can Be Executory or Executed but Cannot Be Past

Ü  I.e consideration for a contract that has already been performed cannot constitute consideration for a new promise

      Example Roscarla v Thomas(1842) 3 QB 234

iv. Performance of an Existing Public Duty

Ü  To simply perform a public duty is not good consideration

                Glasbrook Bros v Glamorgan CC [1925] AC 270,

                Collins v Godefrey (1831) 109 ER 1040

v. Duty Already Imposed by Another Contract

Ü  Is performance of the old contract good consideration for the new contract?

      Compare Stilk v Myrick (1809) 170 ER 1168 with Hartley v Ponsonby (1857) 119 ER 1471

      Williams v Roffey Bros & Nicholls (Contractors) Ltd 1 All ER 512

Duty Already Imposed by a Contract With a Third Party

Ü  Issue-can this duty already owed to a third party constitute consideration for a new contract?

      Answer, yes

                Shadwell v Shadwell (1860) 142 ER 62

vi. Promises to Accept a Lesser Sum in Settlement of a Larger Debt

Ü  The rule in Pinnel’s Case (1602) 77 ER 237 – not good consideration

Ü  Foakes v Beer (1884) 9 App Cas 605

Ü  D & C Builders v Rees [1965] 3 All ER 837

Exceptions

Ü  1. Payment of a lesser sum by a third party

Ü  Welby v Drake (1825) 171 ER 1315

Ü  2. Composition With a Creditor

s187(1) Bankruptcy Act 1966 (Cth)

Ü  3. Equitable estoppel

       also known as promissory estoppel, estoppel in pais, proprietary estoppel

From Where Did the Concept Come?

Ü  Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130

Ü  Legione v Hateley (1983) 152 CLR 406

Waltons Stores (Interstate) Ltd v Maher  (1988) 164 CLR 387

Ü  This case established equitable estoppel in Australia

What Elements Have to Be Established for Equitable Estoppel?

Ü  1. The creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest be granted to the plaintiff by the defendant

Ü  2. Reliance on that by the plaintiff to their detriment

Ü  3. Circumstances where the departure from the assumption by the defendant would be unconscionable

Silovi v Barbaro (1988) 13 NSWLR 467

Ü  Remedy in estoppel is limited to eliminating the detriment. This may or may not be achieved by enforcing the ‘contract’

Ü  What is the minimum relief to do justice?

Ü  Test of ‘detriment’ is whether it appears unjust or inequitable that the representor should now be allowed to resile from the representation having regard to what the representee has done, or refrained from doing, in reliance on the representation – Cth v Verwayen (1990)

Intention to Create Legal Relations

Family, social or domestic relationships

Ü  It is clear that many arrangements otherwise having the attributes of contract are made in domestic and social contexts in which it would be absurd to suppose that the parties intended their relationship to be subject to the jurisdiction of the courts.

Objective Test

      Used to be decided on the basis of presumptions

      Now – It appears that the issue is determined objectively (Ermogenous v Greek Orthodox Community of South Australia Incorporated (2001) 209 CLR 95)

      Need to consider the relevant context, the relationship between the parties, and what inferences can be drawn from that by looking at what was said, written and/or done

Factors

Ü  The subject matter or topic of the agreement

Ü  The status of the parties

Ü  Their relationship to one another

Ü  Whether there is a consensus among the contracting parties

Ü  The extent to which it is expressed to be finally definitive of their concurrence

Ü  The way it came into existence

Ü  Any other surrounding circumstances

Express Intention

Ü  By the express terms of the agreement, e.g.

      Rose and Frank Co v Crompton Bros Ltd [1925] AC.445

      Jones v Vernon’s Pools Ltd [1938] 2 All ER 626

Implied Intention

Ü  In a domestic/social relationship the implied intention is that there was no intention to enter into legal relations

e.g. Balfour v Balfour [1919] 2 KB 571

Ü  In a business or commercial relationship the implied intention is that the parties intended to create legal relations

e.g. Edwards v Skyways Ltd [1964] 1 WLR 349, ex gratia payment