Lecture 3 - Intention, Capacity, Consideration PDF

Week 3 Jaime de Jesus Lima, LLM FORMALITIES, CAPACITY, INTENTION, CONSIDERATION. Contract Law: Lecture 3  Contract Formation Offer Acceptance Intention Formality...

Week 3 Jaime de Jesus Lima, LLM FORMALITIES, CAPACITY, INTENTION, CONSIDERATION. Contract Law: Lecture 3  Contract Formation Offer Acceptance Intention Formality Capacity CONTRACT Lack of vitiating factor 2 Intention - Consideration - Capacity  SECTION 1 FORMALITIES 3 Capacity, Formality, Interpretation  Must contracts have a certain format? PRINCIPLE OF INFORMALITY “If parties are legally bound because they intend to be bound, their intention is apparently sufficient and there is, as a matter of principle at least, no need to put the contract into writing….” (Jan Smits p.11)  General Rule: No Requirement as to Form France Germany England Art. 1114, 1358 Section 145 Principle of Informality A Contract Can Take Any Form and can be Proven by Any Means. 5 Offer and acceptenace  French Law – Civil Code Art. 1358. – Apart from cases for which legislation provides otherwise, proof [of a contract, obligation] may be established by any means. German Law – Civil Code Section 126 - Written form - (1) If written form is prescribed by statute, the document must be signed by the issuer with their name in their own hand, or by their notarially certified mark 6 Offer and acceptenace  Framed small napkin reads, ‘In Barcelona, on the 14th of December of 2000 and in the presence of Josep Minguella and Horacio (Gaggioli), Carles Rexach, F.C.B technical secretary, it commits under his responsibility and despite some views against it to sign the player Lionel Messi, as long we stick to the amounts agreed upon.’ 7 Capacity, Formality, Interpretation  Must SOME contracts be in a particular form? “Exceptions make life richer and the LAW more fun to learn” 8 Capacity, Formality, Interpretation  National law determines formal requirements ( i.e. EXCEPTIONS to the general rule) Types of Formalities o Contracts required to be made by notarial deed - Civil Law countries o Contracts required to be made in writing − Varies under different national laws o Contracts required to be evidenced in writing. - With an ‘eye to proof’ - for example, see still applicable sections of the Statute of Frauds o Contracts requiring pre-contractual information Duties - EU Directives that require seller to provide information to consumer. 9 Capacity, Formality, Interpretation  National law determines formal requirements ( i.e. exceptions to general rule) Examples of contracts required to be in writing o making or changing a prenuptial agreement or life partnership conditions; o making or changing a will; o transferring title to immovable property such as a house; o establishing rights in rem, such as a mortgage on immovable property; o Insurance o incorporating a private limited company; o transferring shares in a private limited company; o establishing a foundation. 10 Capacity, Formality, Interpretation  Why Form? Why does the LAW require form sometimes? Form is a prescribed ‘manner in which the conclusion of a contract must be marked or recorded.’ This has several functions: − WARNING FUNCTION Cautionary Effect; Makes parties think more carefully about what they are about to do; especially for important or financially dangerous transaction! − EVIDENTIARY FUNCTION Promotes Certainty; what did the agreement contain?; avoids disputes − INFORMATIVE FUNCTION: Explains and informs and advises; What is legal consequence? − PROTECTIVE FUNCTION: All of the above protects weaker party 11 Capacity, Formality, Interpretation NOTARIAL ACTS (special form) Notarial acts are documents in which agreements and declarations are legally recorded by a valid Notary. It is compulsory for some types of agreement to be included in a notarial act. Only then are they valid. The most notable examples are: Art. 931 (FR), § 518 (DE) - Promise to Gift (except small gifts handed out) Art. 2416 (FR), § 873 (DE) - Mortgages Art. 1394 (FR), § 1410 (DE) - Matrimonial Contracts Art. 1583 (FR), § 925 (DE) - Transfer of immovable property  French Law – Civil Code – Marriage (1) Art. 1394 - All matrimonial agreements shall be drawn up in an instrument before a notary, in the presence and with the simultaneous consent of all the persons who are parties thereto or of their agents. German Law – Civil Code - Testament (2) Section 2232 - Public will [testament] A will recorded by a notary is made by the testator declaring their last will to the notary or handing the notary a document with the statement that the document contains their last will. The testator can hand over the document either unsealed or sealed; it need not have been written by them. 13 These articles are not in the Law Collection. Don’t obsess,. Mr. Lima included them in this presentation so you see you already can make send of the Law systematically.  Make evidence (proof) in writing: France Germany England Art. 1359 et al. Section 766 Surviving Section (debts and money (consumer law) 4 of Statute of owed) Frauds The law may require certain contracts to have written evidence in order to facilitate proving it 14 Offer and acceptenace  The English Statute of Frauds 1677 Statute of Frauds was repealed in England in 1954. Section IV survived and its content created systemic legacy in (newer) English statutory law Classes of Contracts that must be in writing − Contracts by the executor of a will to pay a debt of the estate with his own money. − Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or other obligation. − Contracts in consideration of marriage. − Contracts for the transfer of an interest in land. − Contracts which cannot be performed within one year. − Contracts for the sale of goods above certain amount 15 Capacity, Formality, Interpretation  Some Examples of Contracts that Must be ‘Evidenced’ In Writing in United Kingdom Contracts of Guarantee - S.4 UK Law of Property (Miscellaneous Provisions Act 1989 Consumer Credit Agreements – UK Consumer Credit Act 1974 - Must be in writing to be valid Contracts for sale or Interest in Land – UK Sale or disposition of interest in Land S.2(1) Law of Property (Miscellaneous Provisions) Act 1989 16 Capacity, Formality, Interpretation  What about Online E-Contracts? EU Directive on electronic commerce 2000/31 Article 9 - Treatment of contracts 1. Member States shall ensure that their legal system allows contracts to be concluded by electronic means. Member States shall in particular ensure that the legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor result in such contracts being deprived of legal effectiveness and validity on account of their having been made by electronic means. 17 Capacity, Formality, Interpretation Effect of “No Writing” when required? Contract unenforceable unless there is a ‘writing’ that evidences the document. Unenforceable = you can’t ask the State to force the other party to perform the contract.  SECTION 2 CAPACITY 19 Intention - Consideration - Capacity  What do these persons have in Common? 15-year-old shop assistant 51-year-old person with Alzheimer's 32-year-old under guardianship. 18-year-old drug addict 48-year-old person with severe Schizophrenia. 20 Intention - Consideration - Capacity  Legal Capacity = Control and ability to assess NATURAL PERSONS ARTIFICIAL/LEGAL PERSONS HAVE CAPACITY EXCEPT HAVE CAPACITY EXCEPT Minors Corporation that Intoxicated Is acting “ultra vires” Mentally (beyond its Impaired powers) 21 Intention - Consideration - Capacity  Minors & Legally Incapacitated Adults France Germany England Art 1145-1146 Section 104 &107 Nash v. Inman minors Incapacitated Adults Contracts Voidable at the instance of the minor / legally incapacitated. 22 Offer and acceptenace  Effect of Lack of Capacity? The OTHER Party cannot claim enforcement = VOIDABLE at the instance of the person with lack of capacity. Categories of natural persons lacking capacity can be : − Intoxicated − Mentally challenged − Underage (Minors) 23 Intention - Consideration - Capacity  Contractual Capacity – Minors Common Law General Rule – Infants / Minors No capacity to Contract. Exceptions Contracts for necessaries are enforceable. Examples:- contracts for clothing, training, employment, apprenticeship. Necessaries = things necessary to life, e,g. clothes, medicines, food, shelter etc. Not luxuries. 24 Intention - Consideration - Capacity  Contractual Capacity - Minors Common law Nash v. Inman (1908) 2 KB 1, CA A tailor sued a minor to whom he had supplied clothes, including 11 fancy waistcoats. − …an infant may contract for the supply of articles reasonably necessary for his support in his station in life if he has not already a sufficient supply. … two conditions must be satisfied, namely, 1. the contract must be for goods reasonably necessary for his support in his station in life, 2. he must not have already a sufficient supply of these necessaries. 25 Intention - Consideration - Capacity  SECTION 3 INTENTION 26 Intention - Consideration - Capacity  Disagreement about what the parties ‘intended’ and what they ‘said’….. Intent to be bound – meeting of minds, consensus ad idem. Disagreement (dissensus) between the Intention of parties and their Declarations can occur at different stages − Diverging intention and declaration in formation of the contract. − Diverging intention and declaration as to the quality or value of the subject matter of the contract (Mistake – vitiating factors) − Diverging intention and declaration as to the actual terms of the contract (Interpretation). 27 Intention - Consideration - Capacity  French Law – Civil Code Art. 1100-1. – Juridical acts are manifestations of will intended to produce legal effects. They may be based on agreement or unilateral. Art. 1128. – The following are necessary for the validity of a contract: 1. the consent of the parties; (…) German Law – Civil Code Title 2 Declaration of intent Section 116 (…) A declaration of intent is not void by virtue of the fact that the declaring person has made a mental reservation [secret, personal understanding] that they do not want what they are declaring to be realised. The declaration is void if it is to be made to another person and that person knows of the reservation 28 Offer and acceptenace  Look for hints about whether or not there was intention? Mere puffery? – Drink Gogo Juice and you will pass your Contract Law Exam! Family / social / domestic arrangements? – Husbands, wives, children, family members make agreements all the time and they do not intend that these be enforceable in a court of law. No commercial intent? – Parties are in a transport arrangement with payments being made without any intention that it is legally enforceable Negotiations that are ’subject to contract’ Gentlemen’s agreements? – Parties agree that they have an agreement but that it will not be enforceable in a court of law Comfort Letters? – Company refuses to commit to legal obligations but agrees to be supportive 29 Intention - Consideration - Capacity  How does Court conclude whether there was Intention? Objective approach – the reasonable person’s viewpoint (the court cannot look INTO a person's mind). Statements and Conduct of the Parties - Factors to Consider, − How easy it is for the addressee to investigate whether the declaration was really intended to mean what it says. − Whether the transaction would be beneficial for one party − What is customary in a certain business or location − The meaning of disputed term in everyday speck − The place of contracting − The expertise and experience of the parties. Presumptions of Law (Common Law) 30 Intention - Consideration - Capacity  Presumptions of Intention in Common Law Presumptions − a rule of law which permits a court to assume a fact is true until such time as there is a preponderance (greater weight) of evidence which disproves or outweighs (rebuts) the presumption − Presumptions shift the burden of proof – The case is brought by the claimant who normally has to prove his/her case. Presumption means that instead the defendant must prove that he/she did not intend to be bound. − Presumptions can be rebutted. 31 Intention - Consideration - Capacity Presumptions of Intention or lack thereof … 1. Commercial 2. Gratuitous 3. Social 4. Domestic Agreements Agreements Agreements Agreements Parties assumed to Intention to be Intention to be Intention to be bound have the intention bound not of being legally assumed bound not not assumed bound unless assumed Balfour v.Balfour Mere gifts unless However, compare ‘subject to contract’ by deed with Merrit v. Merrit Gentlemans’ Pre-nuptial agreements (I give you agreements my word…) Intention - Consideration - Capacity 32  Intention to be legally bound – English Law Mere puffery? – The term originated from the Carlill v. Carbolic Smoke Case where the defence argued that the advert was a mere puff. The Court rejected this argument. Family / social / domestic arrangements? - Balfour v. Balfour / Merrit v. Merrit No commercial intent? – Edwards v. Skyways Gentlemen’s agreements? – Rose & Frank Co. V. JR Crompton Bros Comfort Letters? - Kleinwort Benson Ltd v. Malaysia Mining Corporation 33 Intention - Consideration - Capacity  Intention -Agreements of A Social or Domestic nature Balfour v. Balfour 2 KB 571 Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The plaintiff remained in England for medical treatment and the defendant agreed to send her a specific amount of money each month until she could return. Mrs Balfour petitioned for divorce and sued for the allowance. Agreements between husband and wife over matters that affect their daily lives are not subject to contractual interpretation, even when consideration is present. Spouses normally intend that the terms of their agreements can be varied as situations develop. The court held that it was presumed that the parties made the agreement as husband and wife and did not intend that it could be sued upon. The court held that as a matter of public policy it could not resolve disputes between spouses. 34 Intention - Consideration - Capacity  Intention -Agreements of A Social or Domestic nature Merrit v. Merrit 1 WLR 1211 Mr. Merritt and his wife jointly owned a house. Mr. Merritt left to live with another woman. They made an agreement (signed) that Mr. Merritt would pay Mrs. Merritt a £40 monthly sum, and eventually transfer the house to her, if Mrs. Merritt kept up the monthly mortgage payments. When the mortgage was paid Mr. Merritt refused to transfer the house. Lord Denning held : ‘When … husband and wife, at arm’s length, decide to separate and the husband promises to pay a sum as maintenance to the wife during the separation, the court does not as a rule, impute to them an intention to create legal relations.’ However, in the circumstances of this case this presumption was rebutted, and the wife’s action was successful. NB.: arm’s length – reaching an agreement as if it were in fair market terms 35 Intention - Consideration - Capacity  Intention -Agreements of Commercial Nature Edwards v Skyways Ltd 1 WLR 349 Mr. Edwards, a pilot, was made redundant by Skyways. As part of the redundancy arrangements, he was offered the opportunity to withdraw his contribution to the company pension scheme, or to allow it to mature and claim at 50. It was in the interests of the company that he withdraw, and they offered an ``ex-gratia payment to do so. In the end, however, the company refused to honour the arrangement. In its defence Skyway claimed that the use of the term ``ex-gratia implied that it was not intended to create legal relations. However, the court decided that this was not a strong enough argument to overturn the assumption that commercial dealings are contractual. The assumption will always be that commercial dealings (including employer-employee) will be intended to create legal relations. 36 Intention - Consideration - Capacity  SECTION 4 CONSIDERATION 37 Intention - Consideration - Capacity  WHAT IS REQUIRED FOR A CONTRACT TO COME INTO BEING? CIVIL LAW COMMON LAW Intention Intention Sufficient Sufficient Agreement Agreement and and NOTHING MORE CONSIDERATION 38 Intention - Consideration - Capacity  CONSIDERATION Doctrine of Consideration is unique to the common law. Causa vanishing from Civil Law canons. It refers to the principle that there should be a ‘cost’ for a promise / quid pro quo Doctrine is based on the idea of reciprocity: ‘something of value in the eye of the law must be given for a promise in order to make it enforceable as a contract.’ − Treitel: The Law of Contract 12th Edition p.74 39 Intention - Consideration - Capacity  What is Consideration? Common Law Defined in terms of Benefit and Detriment ‘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) 1 App Case 554 Defined in terms of Sale and Purchase ‘an act of forbearance 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 AC 847 40 Intention - Consideration - Capacity  Example - Sale Contract Promise From promisor Consideration From promisee Money for Book 41 Intention - Consideration - Capacity  Example - Service Contract Promise From Promisor Consideration from Promisee Money for Fixing Bike 42 Intention - Consideration - Capacity  Basic rules of Consideration 1. Consideration must not be Past 2. Consideration must move from the promisee [the one who received the promise] 3. Consideration need not be adequate but must be Sufficient 4. Fulfilling an existing legal obligation is not consideration 43 Intention - Consideration - Capacity Re McArdle (1951) A mother and her three grown-up children lived together in a house. The wife of one of the children did some decorating. Later, after all done, the children promised to pay her £488 and they signed a document to this effect. “promise was not made in return for anything, but was subsequent and independent of” (Smit, p.81) the work done. Tweedle v Atkinson (1861) The son and daughter of the parties involved in this dispute were getting married. As such, the father of the groom and father of the bride entered into a legal agreement. They would both pay sums of money to the couple. The bride’s father died before he paid the money to the couple. The groom’s father died before he could sue on the agreement. Court held that the groom was not a part of the agreement between the fathers. In addition, he did not provide any consideration for the promise made by the father of the bride. Chapple v Nestle (1959) Nestle was running a special offer. Members of the public could obtain a music record by sending off three wrappers from Nestle's chocolate bars. The copyright to the records was owned by Chapple, who claimed that there had been breaches of their copyright. The case turned round whether the three wrappers were part of the consideration as they had no commercial/financial value. It was held that they were, even though they were then thrown away when received. Consideration must be sufficient [something of any value] not adequate [reasonable economic value]. “ A peppercorn worth less than a penny is just as good a consideration as £ 1 million” (Smit, page 80) See Thomas v Thomas (1842) 2 QB 851; 114 ER 330 Glasbrook v. Glamorgan CC (1925) Miners strike and the strikers asked the police for extra protection. The police said that the patrols were sufficient. The strikers offered to pay £2,200. The police accepted and provided the extra protection. The strikers refused to pay. Court ruled that the police had indeed an existing public duty to provide security. However, the “extra” service provided went beyond that duty. Such “extra” constituted consideration.  Mr Lima’s Happy Summary of Consideration Something of value exchanged between the parties to a contract. Identify what the consideration element could be. Thentest to see whether it is valid according to the basic rules: 1. Must not be past consideration Re McArdle 2. Move from promisee, but not always to promisor (privity) Tweedle v. Atkinson 3. Must be sufficient, not necessarily adequate Chapple v. Nestle 4. Cannot be for performance of existing duty Glassbrook v. Glasgow THANK YOU!