Module 2 - Elements 2 - Lecture Version.pptx

APPLIED CONTRACT LAW Module 2 Elements 2 CONTEXT What are the essential elements of a contract? (continued) Why is consideration so important? This Photo by Unknown Author is licensed under...

APPLIED CONTRACT LAW Module 2 Elements 2 CONTEXT What are the essential elements of a contract? (continued) Why is consideration so important? This Photo by Unknown Author is licensed under CC BY  01 CONSIDERATION Module 2 02 INTENTION LEARNING OUTCOMES 03 CONCLUSIONS & FURTHER READING READINGS AND KEY CASES Readings Chapter 3 3-050 to 3-180: Consideration 3-330 to 3-380: Intention Key Cases Chapple & Co v Nestle Co Ltd Thomas v Thomas Roscorla v Thomas Stilk v Myrick Hartley v Ponsonby Pinnel’s Case 1. CONSIDERATION 3-050 to 3- 180 What is Consideration? Definition of Consideration See quote from Currie v Misa (1875) LR 10 Exch 153 at 162 [3- 060] “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, undertaken by the other.” ‘something for something’ Can be doing or giving something, or giving up something you are entitled to have or to do A promise can only be enforced if you have provided consideration otherwise it’s a ‘gratuitous’ promise Promising the consideration is what makes the contract binding Not performing the consideration is called a breach of contract and This Photo by Unknown Author is licensed under CC B happens AFTER the contract is formed 01 02 03 04 1. CONSIDERATION 3-050 to 3- 180 Rule 1 Consideration need not be adequate but must be sufficient Chappell & Co Ltd v Nestle Co Ltd AC 87 [3-060] Thomas v Thomas (1842) 114 ER 330 [3-060] Dunton v Dunton (1892) 18 VLR 114 [3-080] Simply: Consideration does not have to match in monetary value It must have some ‘value’ This is not always ‘monetary value’ but merely that it was something that you did not have before (i.e. something new, ‘fresh consideration’) This Photo by Unknown Author is licensed under Note: However, if there is a huge difference between the consideration and CC BY-NC market value, this may raise ethical issues – see later Modules 8 and 9 01 02 03 04 3. CONSIDERATION 3-050 to 3- 180 Rule 2 Consideration can be executed, executory but not past Roscorla v Thomas (1842) 114 ER 496 [3-100 Simply: consideration can be something done in performing the contract (executed), something still to be done in performing the contract (executory) but cannot be something already done BEFORE the contract was agreed to or a pre-existing obligation or pre-existing duty (past) If a party can prove that a past conduct was intended to be covered by a later promise, this may be possible This Photo by Unknown Author is licensed under CC BY-SA-NC Lampleigh v Braithwait EWHC KB J 17 (not in 01text) 02 03 04 3. CONSIDERATION 3-050 to 3- 180 Pre-Existing Duties / Obligations Legal duties Glasbrook Bros Ltd v Glamorgan County Council AC 270 [3-110] ‘The Rule in Stilk v Myrick’ Stilk v Myrick (1809) 170 ER 1168 [3-120] But see Hartley v Ponsonby 26 LJ QB 322 (Not in text) Part payment of debt (‘The Rule in Pinnel’s Case’) Penny v Cole (1688) 72 ER 833 ‘Pinnel’s Case’ [3-130] Foakes v Beer (1884) 9 App Cas 605 [3-130] Pay earlier, give something in addition Ignore 3-140 ‘Practical Benefit Exception’ this is not widely 01 02 03 04 supported 3. CONSIDERATION KEY CONCEPTS KEY POINTS IN PLAIN ENGLISH To enforce a promise, you must pay for it. This is called ‘consideration’; Consideration is something for something; Can be goods, services, money etc; Can even be giving up something that you have a right to do; Consideration does not have to match in value but must have some value; This does not necessarily mean monetary value; As long as it is something that the other party was not entitled to beforehand, then it is ‘valuable consideration’; Consideration cannot be something we have already done before making a contract; It can also not be a pre-existing duty, obligation or debt; and If we want to change or end a contract, we may have to provide further consideration This Photo by Unknown Author is licensed under CC BY-NC IN REAL LIFE PRACTICAL IMPLICATIONS Pre-Existing Duty / Obligations It is common, in construction contracts particularly, but any contract for the parties to vary the work required for many reasons This is called a ‘variation’ and means that one party will do additional work in return for extra money E.g. you ask a builder to change the light fittings in your new house to more expensive ones or you ask the builder to change the position of a wall in the house they are building for you In many industries, competition is high and parties quote low prices to win work intending to make their profit from variations Therefore, variations are often expensive and contentious. One party (e.g. the builder) will try to claim anything extra as a variation so that they can charge for it whilst the client will try to reject variations. One of the main ways to reject paying for a variation is to argue that it was not really a variation but part of the pre-existing duty, e.g. that the work you asked for was already part of the promised work (the ‘scope of work’) and thus not ‘extra’. This argument is based on consideration and Stilk and a court would determine if there was something additional done compared to what was promised (a variation, see Hartley v Ponsonby) or not (a pre- CC BY-NC existing duty, see Stilk v Myrick) This Photo by Unknown Author is licensed under This is probably the most common dispute in construction contracts! 2. INTENTION 3-330 to 3- 380 Intention Social Presumption Balfour v Balfour 2 KB 571 [3-350] Commercial Presumption High Court Position Ermogenous v Greek Orthodox Community of SA Inc HCA 8 [3-340] Sometimes parties expressly do NOT want to be bound even in a commercial context Contract ‘binding in honour only’ Memorandum of Understanding (see later module) This Photo by Unknown Author is licensed under CC BY-NC-ND 01  4. CONCLUSIONS & FURTHER READING Contracts require essential elements Consideration – Definition, rules and in particularly value and pre-existing duties, obligations and debt Intention – social and domestic presumptions Further Reading None  THANKYOU You have now completed this lecture