Intention to create legal relations

This is an important component involved in the formation of a contract, if the intention to create legal relations is not present then a valid contract is said to have not been formed. In other words an acceptance of an offer will only create a contract if the offeror and offeree appeared to intend to create a legally binding agreement. In deciding whether or not there was an intention to create legal relations the court takes into account the objective views of the parties intentions. The court does not ask what the parties actually intended, but looks at what they appeared to the reasonable person to intend. As far as intent to be legally bound is concerned, contracts can be divided into domestic and social agreements on one hand and commercial contracts on the other hand. Where contracts fall into the previous category there is a rebuttable presumption that the parties do not intend to be bound by it and therefore there is no intention to create legal relations. The reverse applies in commercial agreements, where it is presumed that the parties do intend such agreements to be legally binding. Again, this principal can be rebutted if there is evidence that the parties did not intend their agreement to be legally enforceable.

Social and domestic agreements

Social agreements are made between either commonly among husband and wife, parent and child or in general among friends. Parties in these cases need to provide evidence to prove that both parties intended to be bound by the contract. Balfour v Balfour in this case the courts held that the agreement between the husband and wife that the husband would provide the wife with an allowance was not held to be binding as there was no intention to create legal relations Merrit v Merrit this is the contrasting case where the courts held that the agreement between the husband and wife regarding the mortgage payment concerning the ownership of house was legally binding, as the husband signing the agreement made it more formal, and the keen bargaining of the parties without acting in honourable understanding indicates an intention to create legal relations. Jones v Padavatton in this case the agreement between the mother and daughter that the mother gave a house to her daughter for her to habit and rent it out for her expenditure in return that she became a barrister in UK, was held to be not legally binding as the parties happily trusted each other at the time the family arrangement was made, thus there was no intention to create legal relations.

Simpkins v Pays here the courts held that the agreement of sharing the prize money from the Sunday paper competition was legally binding, as all the parties had shared the cost of entry which indicated a clear intention to create legal relations. Peck v Lateau Similarly in this case it was held that there was an intention to create legal relations between two women who had agreed to share any money won by either of them at bingo.

Commercial agreements
If an agreement is made in a business or commercial context there is a presumption that the parties did not intend to make a contract. As this is only a presumption, it is not a cast iron rule but only a starting point. It will therefore be up to the party who is claiming that there was no intention to create legal relations to introduce evidence to rebut the presumption. Esso Petroleum Ltd. V Commissioners of Customs and Excise In this case coins showing footballers pictures were given with 4 gallons of petrol, the HOL held that there was an intention to create legal relations, as promises made in advertisements must be kept. Moreover Esso benefits from the promotion by earning higher sales revenue. J.Evans and Sons v Andrea Merzario Ltd. in this case the courts held that there was an intention to create legal relations as the company agreed to changing the mode of transportation to below deck. However, claims made in advertisements such as the best buy are held to be mere puffs and are not intended to be a definite binding promise. Weeks v Tybald here the defendant promised to pay 100 to anyone who married his daughter; this was held to be too vague and was not legally binding. Carlill v Carbolic here the defendant deposited 1000 into a bank account, thereby making their promise to compensate if a person caught the flu while using the smoke ball, legally binding. NOTE : The amount of money involved may be a significant factor in considering the intention to create legal relations, the greater the amount of money at stale the more likely is it that the parties intended their agreement to be legally enforceable. Further, how amicable the parties are and the degree of certainty / formality involved is factors to be considered.

Consideration
In English Law for an agreement to be binding there must be consideration. That is each party must get something in return for what is gained from the other party. Consideration is usually described as being something which represents either some benefit to the person making the promise (the promisor) or some detriment to the person to whom the promise is made or both. Consideration can be either a thing or service. A promise not supported by consideration is known as a gratuitous promise. A promise of a gift therefore is not enforceable unless it is made by deed. It must be noted that it unilateral contracts, one partys consideration would be a promise to do something. The other partys consideration consists of actually performing the act requested by the promisor. (E.g. Carlill v Carbolic Smoke Ball Co.)

General rules concerning consideration

1. Consideration must not be past Consideration must be given in return for the promise or act of the other party. Something done, given or promised for another reason will not amount to a consideration. If one party has completed performance before the other offered consideration, then it is unlikely that the earlier performance was done in return for that consideration. Roscorla v Thomas in this case, the defendant sold a horse to the plaintiff after the sale was completed the defendant told the plaintiff that the horse was sound and free from vice, which turned out to be untrue. However, the courts held that the defendants promise was not enforceable as it was made after the sale. Re Mc Ardle case: here the claimant lived in a house which she did not own, and spent a considerable amount of money on having the house repaired. The owners did not ask her to do this. After the claimant had done this, the owners of the house signed an agreement to pay the claimant 488 in consideration of her having had the repairs done. The owners did not have to pay as when the promise to pay was made the claimant had already had the repairs done.

This past consideration is quite harsh as illustrated in the case of Eastwood v Kenyan { guardian couldnt recover money from the girls husband to pay off the loan on her education, as though there was a moral obligation there was no legal obligation}. Thus, the courts attempted to mitigate the harshness of the past consideration rule to some extent by the doctrine of implied assumpsit, where the act of the promise was performed at the request of the promisor past consideration becomes good consideration. To elaborate further on the doctrine, the narrow confines on which it operates are explained in the case of Pau on v Lau Yiu Long, according to which three conditions must be satisfied if one relies on the doctrine. 1. Promisee must have performed the original act at the request of the promisor 2. It must have been clearly understood / implied between the parties (promisee would be rewarded when act is performed) 3. Eventual promise of payment after the act was completed must be one that can be enforced. Lampleigh v Brathwait here the defendant was under the death sentence, and requested the plaintiff to write to Newark to obtain a pardon for him from King James the 1st, the claimant did so, and the defendant promised to pay 100, it was held that the claimant could enforce the contract as both conditions were satisfied, the promisor had asked the promisee to act, and both parties had contemplated that the claimant would be paid for his services. Re Caseys Patents here the defendants promised to pay the claimant one third of the interest on the patents owned in return for the services done, the courts held that though the promise of payment was in relation to work already done, the plaintiffs services were always expected to be paid for and the promise merely put this expectation into a form of a specified amount.

2. Consideration must be sufficient This means that what is being put forward must be something which the courts will recognise as legally capable of constituting to consideration. The fact that it need not be adequate indicates that courts are not interested in whether there is match in value between what is being offered by each party. Thomas v Thomas the promise to pay 1 per annum as rent was clearly sufficient to support the promise of a right to live in a house. The fact that 1 per annum was not commercial rent was irrelevant, because the issue is not on adequacy. The maxim that consideration must be sufficient but not adequate has resulted in very trivial acts to constitute to consideration as demonstrated in the foll. Cases. Chappell & Co. v Nestle Nestle offered for sale gramophone records in return for 1s 6d and 3 wrappers from their chocolate bars. The HOL held that though the wrappers themselves were of little trivial value, and regardless of the fact that Nestle threw them away, it amounted to a part of consideration. 3. Consideration must be of economic value The idea that consideration must be of economic value means that there must be some physical value rather than just an emotional or sentimental value. For instance in Thomas v Thomas though the consideration was only 1 it still has some economic value unlike in the case below. White v Bluett here a father promised to not ask the son to repay the money he had borrowed, so long as the son stopped boring him with complaints. However it was held that the sons promise was not sufficient consideration to make the fathers promise binding, as there was no economic value.

4. Consideration can be a promise not to sue A promise not to enforce a valid claim is a good consideration for a promise given in return. Alliance Bank Ltd. V Broom Here Mr Broom had an overdraft of 22000 with the bank, for which he was asked to provide security. Mr Broom promised to do so but failed to; as a result he was sued by the bank. The courts held that the consideration for Mr Brooms promise to provide security was the banks implied promise to not sue for a while. Combe v Combe here the wifes claim that the promise of an allowance should be upheld as she provided consideration by not suing for a maintenance order was rejected by the courts as the husband had not asked her to apply to the courts, therefore no promise not to sue. Miles v New Zealand Alford Estate- here the courts held that there was no promise not to sue with regard to payments being made for defective land, as there was no evidence that the buyers ever really intended to bring proceedings to rescind.

Performing an existing duty

Where a promisee already owes the promisor a legal duty then performing that duty is not in itself consideration, if the promisee does nothing more than they are obliged to do, they are suffering no detriment and the promisor is only getting a benefit to which he/she was already entitled. Although this point is clear, in recent years the courts have discovered consideration in the performance of an existing duty can cause serious problems. Existing duty is of three types; 1. Public duties 2. Contractual duties to the promisor 3. Contractual duties to a 3rd party

1. Performance of an existing duty arising under general law Where a person is merely carrying out duties they are legally obliged to perform then it does not amount to consideration as in the foll. Case. Collins v Godefroy Collins was subpoenaed to appear as a witness at a trial on behalf of Godefroy. Godefroy promised to pay him for his trouble. However, it was held that there was no consideration as Collins was under public duty to attend and give evidence. However if the promisee does more than he is legally obliged to do, this can be adequate consideration to support a promise.

Glasbrook Brothers Ltd. V Glamorgan County Council here the police

performed their public duty of protecting the coal mine during the strike as at the request of the manager they provided a stronger guard than they believed necessary for an agreed price. The courts held that they were liable to pay the price as it was good consideration for the promise to provide extra protection public authority was entitled to payment for the police officers being stationed inside the ground during matches.

Harris v Sheffield United Football Club Ltd. - here it was held that the Ward v Byham this case involves an agreement where the mother in

return for a maintenance payment would have to ensure that the child was happy and well looked after, and would be given the choice of which parent to live with when old enough to understand. When the mother sued for breach of contract as the father stopped paying maintenance when she remarried, the courts upheld her claim that she had exceeded her statutory duty by bringing up her child in a particular way in accordance with the wishes of the father, this was therefore sufficient consideration.

2. Performance of an existing duty imposed by contract with the promisor In the past the performance of an existing contractual duty owed to the promisor was not consideration as he is merely performing an obligation which he was already bound by the contract to perform. Stilk v Myrick here, two seamen deserted a ship and a result the ship captain agreed to split the wages of these two workers among the rest of the crew if they agreed to continue the voyage and ensured that the ship would reach London safely. The ship captain then refused to uphold his promise upon reaching London, and the courts held that there was no consideration for the promise to pay as the remaining crew were under a legal obligation to do all they could under emergency situations of the voyage. However performance of a contractual duty could indeed be good consideration if the other party has a special need to have the contract performed in a specific manner, i.e. an additional practical benefit on the other party was conferred which would make it sufficient consideration to make a promise given in return binding. Hartley v Ponosby- here the ship became so shorthanded as a result of the no. of people who deserted the ship, therefore it became dangerous to continue the voyage. As a result, the Captain discharged the remaining crew of their present contracts and offered them new contracts at higher wages if they continued with their voyage. It was held that the consideration for the promise of higher wages was good, and they said in agreeing to carry on the plaintiff was taking on duties beyond those originally in the contract and therefore promised to provide consideration. Williams v Roffey Brothers Nicholls in this case Williams, a carpenter had contracted to do work for Roffey to the value of 20000 to be completed by a specific date. It later became apparent that there was little prospect of this happening, therefore Roffey on their own initiative offered to pay extra if the work was completed by the agreed date. It was held that the promise constituted to good consideration, Williams could as a result claim the extra payment. The court seems to have thought so since Roffey would lose badly if William defaulted, therefore Roffey had gained an advantage by having the work completed on time.

 Atlas Express Ltd. V Kaf. Co. Ltd. In this contrasting case, a small co. entered into an agreement with a national firm of carriers. The carriers subsequently purported to impose higher charges than previously agreed. Because this company was unable to find an alternative carrier and heavily dependent on the contract, it reluctantly agreed to the new terms and then refused to pay. The courts refused to enforce the new contract for higher charges as it lacked any fresh consideration from the purchasers Atlas. 3. Performance of a contractual duty owed to a third party Performance of duty owed to a third party amounts to good consideration to support the promise as the duty is not owed to the promisor / state, the promisor can benefit by the due performance of the duty but he or she has no rights to enforce that duty. Shadwell v Shadwell here the courts held that the nephews performance of marriage was good consideration for the promise to pay an annuity because the marriage was beneficial to the uncle as being an object of interest to a near a relative. Scotson v Pegg here it was held that Scotsons delivery of coal (the performance of an existing contractual duty to a third party X) was a benefit to Pegg and was valid consideration. It could also be seen as a detriment to Scotson, as they could have broken their contract with X and paid damages.

Contractual duties to pay debts

Where someone owes 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 of the debt, i.e. agrees not to sue later; such agreements are only binding if the debtor provides some consideration for it by adding some extra element. Pinnel case in this landmark case, Pinnel sued Cole for 8 10s, which Cole owed Pinnel on a bond. However, Cole had paid 5 2s 6d on 1st October for the debt due on 11th November, which Cole had asked Pinnel to accept as full payment of the debt owed. The courts held that Pinnel only won the case on a technicality if not for that, the payment of a lesser sum on a date earlier than the due date amounted to Cole providing fresh consideration for the promise that Pinnel wont sue for the full amount. A lesser sum of money cant be consideration for a greater sum of money owed. However a change in time / mode of payment / giving something else in addition to the part payment can amount to fresh consideration, i.e. if the debtor pays early or in a more convenient place, or gives something else as well as the part payment, the creditor is receiving some benefit and the debtor some detriment and this can amount to fresh consideration for the creditors new promise to accept the part payment and not insist on getting the whole amount. Foakes v Beer here Mrs. Beer was owed money by Dr. Foakes on a judgement debt for which she agreed to accept part payment of 500 immediately and the rest in instalments. Mrs. Beer however brought action for the interest owed, and it was held by the HOL that Dr. Foakes was liable to pay the interest that generally accrues on judgement debts, as part payment of the debt did not itself constitute to consideration for Mrs. Beers promise to forgo the balance. Re Selectmove Ltd here the Inland Revenue tried to wind up Selectmove for non-payment of debts, although it had agreed to accept payments by instalments, the Revenue claimed that it could not be held to that agreement because Selectmove had offered no consideration. The Court of Appeal supported the Revenue that is they applied the ruling in Foakes v Beer. The court went on to say that practical benefit being provided does not apply to cases regarding the part payment of debt.

Exceptions to the rule in the Pinnels case: 1. If the creditor agrees to take anything else instead of, or as well as, a lesser sum of money then the debt is extinguished. 2. If the creditor asks for a lesser sum to be paid before the debt is actually due then the debtors paying the lesser sum early can amount to good consideration. 3. If the creditor requests that a lesser sum be paid in a different place, perhaps a different country, and then the debtors agreeing to this could possibly amount to good consideration. 4. If there is a dispute as to the amount owed, and the creditor agrees to settle for less than he thinks he is owed, this agreement will be binding (Cooper v Parker) 5. Payment by a third party Hirachand Punamchand v Temple 6. Composition agreements 7. Unliquidated claims (reasonable remuneration) 8. Promissory estoppel.

Promissory Estoppel This is an exception to the rule in the Pinnel case, this doctrine has developed from equity to reduce the harshness of the Pinnel rule, therefore also often referred to as equitable estoppel. Hughes v Metropolitan Railway Co. in this case the lease negotiations taking place was an implied promise that the lease would not be forfeited of repairs were not done. Central London Trust Ltd. V High Trees House Ltd. here the Land Lords right to rent was suspended for the World War Period, but once the war was over or the flats were full whatever first happened, the landlord could assume his rights to future rent, but he cannot claim for the amount in arrears. As established in the High Trees case, a contracting party who promises not to enforce a contractual right will not be able to enforce that right later, if it would be inequitable to do so, and the promise has been relied upon by the other party.

Conditions to be fulfilled to apply promissory estoppel: 1. A pre-existing contractual relationship between the claimant and defendant 2. The claimant must have made an unambiguous promise not to insist on his strict legal rights China Pacific SA v Food Corp India here, it was held that there was no unambiguous promise therefore the claim was rejected. 3. The defendant must have acted in reliance on the promise (i.e. conduct was influenced) Tool Metal Manufacturing case High Trees case here the tenant didnt sell the leasehold interest acting on reliance of the landlords promise Hughes case relying on the landlords promise to not enforce the forfeiture 4. It would be inequitable for the claimant to go back on what he has promised, and insist on his strict legal rights. D&C Builders v Rees here there was no promissory estoppel as the def. had misled about their true financial position and exploited the claimants financial position. Re Selectmove Ltd. here the payments were not made to the Inland Revenue even by contract therefore there was no estoppel Further points on promissory estoppel Promissory estoppel can only be used to prevent rights from being exercised for a period of time, it cannot destroy them forever. Tool Metal Manufacturing Co Ltd. v Tungsten Electric Co Ltd. in this case patent owners could revive their legal entitlement to receive compensation payments after that period on giving reasonable notice to the other party. Promissory estoppel cannot be used to create entirely new rights or extend the scope of existing ones, only to prevent the enforcement of rights already held; it has been described as a shield and not a sword. Combe v Combe here there was no contract as Mrs. Combe couldnt enforce the payments her husband promised, though she acted in reliance.

Privity of Contract
The doctrine of Privity holds that a contract is private between the parties who made it. Anyone who did not make the contract cannot sue on the contract or be sued. The Contracts Right of Third Parties Act 1999 has created an exception to the privity rule. Privity can be applied in the foll. Case according to which a third party has no rights under a contract even if the contract was made for his benefit. Tweddle v Atkinson Here, a couple was getting married. The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the son also died so was unable to sue on the agreement. The groom made a claim against the executor of the will. The claim failed as the groom was not party to the agreement and the consideration did not move from him. Therefore he was not entitled to enforce the contract. However this privity rule has changed when the the Contracts Right of Third Parties Act 1999 came into force. Now the claimant can sue on a contract he did not make if: The contract expressly provides the claimant may do so the contract purports to confer a benefit on the claimant (unless A&B can show that they did not intend to that to be enforceable by the claimant)

Capacity
There are some categories of people whose power to make contracts is limited by law, known as incapacity. The main categories are minors, and people considered incapable of contracting due to mental disorders or drunkenness.

Minors
Adults have full contractual capacity, but special rules apply to minors (persons under the age of 18), contracts made by minors may either be valid, voidable or void, depending on the type of contract made. Valid valid and binding on minors Voidable binding on minor until he decides to reject it Void minors are not bound by contracts to buy unnecessary goods and services, contracts to borrow money.

Valid contracts
The only contracts usually binding on a minor are contracts for the supply of necessaries. Necessaries does not only include the supply of necessary goods and services but also contracts of service for the minors benefit. Contracts for necessary goods and services Under the Sale of Goods Act, s. 3(2), necessaries means goods suitable to the condition in life of the minor or other person concerned and to his actual requirements at the time of sale and delivery. However necessaries for a rich person may not really be for a poor person (for example an iPhone maybe a necessity for some but not others who cannot afford them), thus the courts will consider the social status and the background and status of the individual. Nash v Inman here an undergraduate at Cambridge had ordered 11 waistcoats, the COA held that the goods were suitable to his condition in life but were not suitable to his actual requirements as his father gave uncontradicted evidence that he had a sufficient wardrobe. Chappell v Cooper in this case, a minor widow had to pay for the funeral services of her husband which were considered a necessity, as the funeral was for her private benefit and she had an obvious obligation to bury her dead husband.

The proper cultivation of the mind is as expedient as the support of the body Baron Alderson in Chappell v Cooper (necessary does not mean a necessity apple laptop) Fawcett v Smethurst in this case a minor was not bound by a contract for a car hire as though it was a necessary service, the contract included the term, making him liable to the damage to the car, in any event, which was an exceptionally onerous term which will make the contract unenforceable. Contracts of service for the minors benefit Minors are also bound by contracts of service providing these are on the whole beneficial to them. This also includes contracts of employment like an apprenticeship. Clements v London & Northern Railway Co. in this case a young railway porter agreed to join an insurance scheme and to forgo any claims he might have under the Employers Liability Act. He had forfeited his rights under the Act, the contract as a whole being for his benefit. It was held that the contract was for the minors benefit and that he should be able to obtain employment which would be difficult if he could not make a binding contract. De Francesco v Barnum in this case a 14 year old minor entered into a dancing apprenticeship for 7 years, the contract was not held to be binding as it was not beneficial to the minor, since she could not marry for those 7 years, she could accept no professional engagements without DeFs approval, the payment was very low, DeF had no obligation to employ her and could terminate the contract whenever he wished. Doyle v White City Stadium Ltd. in this case, a minor entered into a contract with British Boxing Board and was held to be bound by the contract as it was beneficial to the minor, and even the clause in the contract the minor objected to that the minor would lose his purse if he was disqualified was designed to encourage clean fighting, and proficiency in boxing to benefit the minor. NOTE: where there is a binding contract for necessaries, the minor is only bound to pay a reasonable price for them, which may not be the contract price.

Voidable contracts
Apart from contracts for necessaries which bind the minor, the general rule at common law is that a minors contracts are voidable, i.e. these contracts do not bind the minor but bind the other party and can be terminated by the minor at any time before they turn 18 or a reasonable period of time afterwards. This is usually concerned with contracts which impose a continuing liability on a minor, which are voidable by the minor. E.G. Contracts for the lease of property Purchase of shares Business partnership

With regard to voidable contracts a minor would be released from any future liabilities under the contract, but would still be bound by liabilities already incurred. Corpe v Overton in this case the minor could get a refund of the 100 he paid to enter into the partnership agreement as there was a total failure of consideration. Steinberg v Scala Ltd in this case a minor, the plaintiff purchased shares in a co. and paid up the full amount of the cost though it was not called up, the court rejected her wish to get the 250 back as there had been a consideration of the shares.

Void contracts
Trading contracts are not binding even if beneficial to the minor. Cowern v Nield here the courts held that the minor was not liable to pay the price of the consignment that he failed to deliver

Mental incapacity
This category covers people suffering from mental disability which can be a mental illness or handicap and those who are drunk when the contract is made. In general, contracts made with someone in either state will be valid unless at the time when the contract is made the person is incapable of understanding the nature of the transaction and the other party knows this. Then the contract would be voidable, and the party suffering from mental disability or drunkenness can choose whether or not to terminate the contract. Where one party is unaware of the incapacity, the courts will ignore the incapacity. Hart v Connor here the land sale was valid as the buyer didnt realise that the seller had a mental incapacity Further, poor understanding of the language in which the contract was made or illiteracy does not render someone incapable of contracting. Barclays Bank v Schwartz here the Romanian signed contracts making him liable for the 500000 debts, which he was held liable for, as poor understanding of the language doesnt mean incapable of making a contract.