LAW OF CONTRACT, AGENCY
AND SALE OF GOODS
THE LAW OF CONTRACT:
consideration, intention and privity
INTRODUCTION TO LAW
Learning Objectives
2
When you have studied this chapter you should be able
to:
 Define consideration
 Recognize the circumstances when valid consideration
exists
 Describe the operation of the promissory estoppel
doctrine
 Appreciate the characteristics of agreements which
demonstrate intention to create legal relations.
What is a consideration?
3


In civil law jurisdictions, consideration is not
required for a contract to be binding.
In Bosnia, an ordinary contract is said to form
simply on the basis of a "meeting of the minds"
or a "concurrence of wills".
What is a consideration?
4



Consideration is an essential in a contract.
Contract is not enforceable unless each party to
the agreement gets something.
This “something” is called consideration –
something in return
What is a consideration?
5



a benefit to one party or a detriment to the other
Something of value given by both parties to a
contract that induces them to enter into the
agreement to exchange mutual performances.
"... some right, interest, profit or benefit accruing
to one party, or some forbearance, detriment,
loss or responsibility given, suffered or
undertaken by the other."
What is a consideration?
6

"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."
What is a consideration? Examples
7

P agrees to sell house to Q for $ 100,000.
What is a consideration? Examples
8


The first person's consideration would be the house,
which this person would be giving up to the other
person in accordance with the contract. The second
person's consideration would be the payment for
the house, which might be in the form of money,
traded services, or other goods.
Both parties have legal consideration and the contract
will be considered good if it is challenged in court.
What is a consideration? Examples
9


When you buy a DVD recorder from a shop, the
benefit you receive is the DVD recorder, and the
detriment is the money you pay the shop.
The shop clearly enjoys a corresponding benefit, and
suffers a corresponding detriment in taking your
money and parting with the DVD recorder.
TYPES OF CONSIDERATION
10


Executory consideration
Executed consideration
Executory consideration
11


Consideration is called "executory" where there is an
exchange of promises to perform acts in the future:
e.g. a bilateral contract for the supply of goods
whereby A promises to deliver goods to B at a future
date and B promises to pay on delivery. If A does
not deliver them, this is a breach of contract and B
can sue. If A delivers the goods his consideration then
becomes executed.
Executory consideration
12


M promised to sell his mobile phone to K for €100
and K promised to pay the price upon delivery by M.
Here, the promise to sell is in return to promise to buy.
The consideration in such a contract consists of the
mutual promises and is described as ‘executory’
because the promises have not yet been executed
(performed).
Executed consideration
13


This is where the offeror promises something
once the offeree does something
The promise only becomes enforceable once the
offeree has done the action
Executed consideration
14


If Jane loses her dog and offers to pay a reward to
the person who finds it, she does not have to pay until
someone finds her dog and returns it to her
e.g. in a unilateral contract where A offers £50
reward for the return of her lost handbag, if B finds
the bag and returns it, B's consideration is executed.
Executory v. Executed
15
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
Executory consideration consists of two promises
Executed consideration consists of one promise
followed by some action
Forbearance
16

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
People tend to think of consideration as some kind of
action which is done
However, not doing something (ie forbearance) can
also be consideration
For example, Tim has the right to sue Bob over some
matter.
Bob promises to pay Tim some money if Tim gives up
his right to sue
Forbearance (cont.)
17
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
This would create a valid contract because Tim
giving up his right to sue is consideration
His is not going to take action
Rules governing consideration
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Consideration must not be past
Consideration must muve from the promisee
Consideration must be sufficient
Consideration must not be past
19


If one party voluntarily performs an act, and the
other party then makes a promise, the
consideration for the promise is said to be in the
past.
The rule is that past consideration is no
consideration, so it is not valid and cannot be
used to sue on a contract.
Consideration must not be past
20
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

For example, A gives B a lift home in his car. On
arrival B promises to give A £5 towards the
petrol. A cannot enforce this promise as his
consideration, giving B a lift, is past.
Exception to this rule:
If something is done in a business context and it
is clearly understood by both sides that it will be
paid for, then past consideration will be valid.
See: Re Casey's Patents [1892] 1 Ch 104.
Consideration must be sufficient
21
Consideration must be of material value, capable
of assessment in financial terms. (Any legal right
has a financial value.)
Consideration may be sufficient without being
adequate.
 Example: Ali agrees to sell a car worth $2,000
for $200. Ali’s consent to the agreement was
freely given. The agreement is a contract not
withstanding the inadequacy of consideration.
Other rules for consideration
22

Performance must be legal
 Eg

our example of the hitman in an earlier class
Performance must be possible
A
promise to perform an impossible act cannot
create a contract
Intention to create legal relations
23
Intention to create legal relations
24

In must be shown that the parties to the agreement
intended to be legally bound by the agreement.
Intention to create legal relations
25
Intention to create legal relations
Intention to create legal
relations
Social and
domestic
agreements
Business or
commercial
agreements
(Presumption – parties do
not intend legal relations
(Presumption – parties do intend
to create legal relations
Domestic agreements
26

Courts will presume that agreements between friends
and/or family members are not intended to be legally
enforceable.
Domestic agreements
27
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

Examples:
No intention to create legal relations existed in an
agreement under which a husband working abroad
promised to pay maintenance to his wife in England.
Nick asks Kim to go to dinner at the Sunset Restaurant
at 7:00 PM on Saturday.
Domestic agreements
28

Example:




Mr B promised to pay his wife £30 per month.
Mr B had to return to Germany. Mrs B was to remain in
England for medical reasons.
The couple later separated.
Mrs B claimed £30 per month pursuant to Mr B’s promise.
Domestic agreements
29

Issue:
 Did this promise by a husband to his wife amount to a
contract?
Domestic agreements
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
Decision:



An agreement to pay £30 per month existed.
The parties had not intended it to be legally binding.
There is a presumption that domestic arrangements are
not intended to finish up in court.
Commercial agreements
31

Courts will presume that agreements arrived at in a
commercial context are intended to be legally
enforceable.
Privity of contract
32
Privity of contract
33



Privity is the term that describes the relationship
between parties to a contract
The rule of privity means that only parties to a
contract have rights under the contract
Contracts generally do not affect third parties or
strangers to the contract
Privity of contract
34
Tweddle v Atkinson (1861)
 William Tweddle was engaged to marry Miss
Johnson. The fathers of the happy couple
contracted that they would each put up a sum of
money when the marriage took place, but Mr
Johnson died before making payment.

Privity of contract
35


Tweddle v Atkinson (1861)
Held: William had no right to sue Mr Johnson’s estate
for the money since he had provided no consideration
for the promise and was merely a beneficiary of the
contract. As a mere beneficiary, William was not privy
to the contract : he was not truly a party to it because
he was not contributing to the consideration.
QUESTIONS
36
Summary
37
Consideration
 The bargain
element which distinguishes a
contract from any other sort of agreement,
legally binding or otherwise.
 material benefit gained/detriment arising from
performance of a contract.
 Price paid for the other party’s promise or act.
Benefit/detriment.
Summary (cont.)
38
The rules of consideration
 It must not be past: not precede the promise to
pay.
 It
must be sufficient: represent some
detriment/benefit though not necessarily an
adequate price.
 Generally,
only a party who provides
consideration may enforce the contract (see
Privity, below).
Summary (cont.)
39
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
Intention to create legal relations
The parties to a contract must intend it to be
legally binding or it will not be enforceable in
the courts.
An agreement between friends or family
members is presumed not to reflect that intention,
while business agreements are.
Summary (cont.)
40
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
Privity of contract
Generally, the doctrine of privity of contract
prevents anyone except a party who contributes
to the bargain from enforcing it.
Summary (cont.)
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Reading
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Chapter 5
 Page
82 : “THE LAW OF CONTRACT: consideration,
intention and privity”