FORMATION OF A CONTRACT (2)
Objectives:
1.
Consideration
2.
Capacity
3.
Intention to Create Legal Relations
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CONSIDERATION
1.
Consideration - Definition
i. Price paid for a promise / some
benefit to the promisor or detriment
to the promisee.
ii. Generally English law does not
enforce mere promises unless made
by deed.
iii. HL in Dunlop v Selfridge [1915].
2.
Consideration – Types
i. Executory – Promise to perform an
action at some future date.
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ii. Executed – Promise only becomes
enforceable when offeree actually
performed required act.
3.
Consideration – Rules
i. Past – Action performed before the
promise it is supposed to be
consideration for is made. NOT VALID
CONSIDERATION.
i. Re McArdle [1951].
ii. Performance must be legal - Promise
to pay for an illegal act not
enforceable.
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ii. Performance must be possible –
Promise to perform an impossible
act unenforceable.
iii. Consideration must move from the
promisee Only those party to the
contract can enforce it.
Tweddle v Atkinson [1861].
iv. Consideration must be sufficient but
need not be adequate – Courts will
not intervene to require equality in
consideration exchanged.
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i.
4.
Thomas v Thomas [1842] /
Chappell v Nestle [1959].
Performance of Existing Duties
i. Public duty – performance of existing
public duties cannot constitute valid
consideration for a new contract.
i.
ii.
Collins v Godefroy [1831]
But note where promisee does more
than his duty:
i. Glassbrook v Glamorgan CC [1925]
ii. Harris v Sheffield United FC [1987]
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ii. Contractual Duty - performance of existing
contractual promises cannot constitute valid
consideration for a new contract.
i.
ii.
Stilk v Myrick [1809]
But note where promisee does more than his
original promise:
i. Hartley v Ponsonby [1857]
ii. Williams v Roffey Bros [1990]
i.
Performance of a contractual duty owed to one
person can amount to valid consideration for
the promise made by another person: Shadwell
v Shadwell [1860].
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5.
Part-Payment of Existing Debts
i. Part payment does not extinguish whole debt
unless supported by additional consideration:
i. Pinnel’s Case [1602]
ii. Foakes v Beer [1884]
ii. But note exceptions (p 130 text book).
6.
Promissory Estoppel
i. English law will generally not enforce
gratuitous promises (promises not supported
by consideration).
ii. However in certain instances equitable doctrine
of promissory estoppel will prevent a promisor
from going back on his promise.
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iii. Central London Pty Trust v High Trees
House [1947] – Lord Denning.
i.
ii.
iii.
iv.
A promise
Which was intended to create legal
relations
Where the promisor knew that the
promise would be acted upon by the
promisee
And it was so acted upon by the
promisee
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But note the following qualifications:
•It arises from a promise made by a
party to an existing contractual
agreement
•Can only vary or discharge contractual
rights
•Usually only suspends certain rights,
rather than destroying them.
•The promise must have been voluntarily
given.
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7.
Privity of Contract
i. General rule, a contract can only impose
rights / obligations on parties to a
contract.
ii. Exceptions
i.
ii.
Beswick v Beswick [1967] – Sued as
administrator of partner’s estate.
Situation involves a collateral contract
Shanklin Pier v Detel Products [1951] A
promises B £500 if B enters into a
contract with C. B can insist that A
complies with original promise even
though contract is with C.
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iii. There
is a valid assignment of the
benefit of the contract.
iv. Where
it is foreseeable that
damage caused by breach will
make 3rd party incur loss.
 Linden Gardens Trust Ltd v Lenesta
Sludge Disposals Ltd [1994].
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v. One of the parties has entered the
contract as a trustee for a third
party.
Les Affreteurs Reunis SA v Leopold
Walford (London) Ltd [1919]
vi. Where an agent brings about
contractual relations between two
other parties.
vii.See also Contracts (Rights of Third
Parties) Act 1999 – Textbook p 135
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CAPACITY
1. A person’s ability to enter into a
contract.
2. Generally, all adults of sound mind
have full capacity. Capacity of
following individuals however is
limited:
i.
Minors.
ii.
Individuals of unsound mind or
under the influence of drink /
drugs.
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3.
Minors (Textbook for more detail)
i. Person under 18. Contracts with
minors subject to the Minors’
Contracts Act 1987.
ii. Contracts entered into by minors can
be classified as follows:
i.
ii.
iii.
Valid – Contracts for necessaries.
Voidable – Contracts for shares.
Void – Contracts for the repayment
of loans.
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4. Mental Incapacity and Intoxication
i. A contract made by a party who is of
unsound mind or under the influence of
drink /drugs is prima facie valid.
ii.
In order to avoid such a contract party
must show:
a. That their mind was so affected at
the time that they were incapable of
understanding the nature of their
actions; and
b. That the other party either knew or
ought to have known of their
disability.
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INTENTION TO CREATE LEGAL RELATIONS
1.
Domestic and Social Agreements
Presumption that parties do not intend
to create legal relations.
2.
Commercial Agreements
Presumption that parties do intend to
create a binding contract.
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