Consideration and Intention to Create Legal Relations PDF

Consideration  and  Intention  to  Create  Legal  Relations       Definition   A  valuable  consideration  may  consist  either  in  some  right,  interest,  profit,  or  benefit   accruing  to  the...

Consideration  and  Intention  to  Create  Legal  Relations       Definition   A  valuable  consideration  may  consist  either  in  some  right,  interest,  profit,  or  benefit   accruing  to  the  one  party,  or  some  forbearance,  detriment,  loss  or  responsibility  given,   undertaken,  or  suffered  by  another.   Benefit  Vs  Detriment  Analysis   The  doctrine  of  consideration  is  based  on  reciprocity:  The  promisee  confers  either  a  benefit   on  the  promisor  in  exchange  for  the  promisor’s  promise  or  the  promisee  incurs  a  detriment   in  exchange  for  the  promisor’s  promise.   Executory  vs.  Executed  Consideration     Executory  consideration  refers  to  consideration,  which  is  yet  to  be  performed.     Carlill  v  Carbolic  Smoke  Ball  Company  (1893)     Executed  consideration  refers  to  consideration,  which  has  been  performed.  In  other   words,  executed  consideration  involves  an  act  or  forbearance,  which  has  been  fulfilled.     Past  Consideration     Past  Consideration  refers  to  an  act  performed  prior  to  and  to  that  extent  independent  of,   the  promises  being  exchanged.  Past  consideration  is  no  consideration.       Roscorla  v  Thomas  (1842)     The  court  held  that  the  promise  was  made  after  the  transaction  had  already  been   concluded  and  therefore  past  consideration.       Sim  Tony  v  Lim  Ah  Ghee  (1995)       Exception     Past  Consideration  becomes  Executed  Consideration  and  thus  Good  Consideration   - Act  done  at  promisor’s  request   - Clearly  understood  or  implied  between  parties  that  the  promise  would  be  rewarded   for  the  performance  of  the  act   - Actual  Promise  made,  if  made  before  the  promisee  provided  consideration,  must  be   capable  of  being  enforced     Pao  On  v  Lau  Yiu  Long  (1980)     “an  act  before  the  giving  of  a  promise  to  make  a  payment  or  to  confer  some  other   benefit  can  sometimes  be  consideration  for  the  promise.  The  act  must  have  been  done   at  the  promisor’s  request,  the  parties  must  have  understood  that  the  act  was  to  be   remunerated  further  by  a  payment  or  the  conferment  of  some  other  benefit,  and   payment,  or  the  conferment  of  a  benefit,  must  have  been  legally  enforceable  had  it   been  promised  in  advance.”           1  of  7   © Tham Zhi Yang. 2012  Consideration  and  Intention  to  Create  Legal  Relations     Two  Main  Rules  on  Consideration     Must  move  from  promisee  but  need  not  move  to  promisor.     A  person  can  only  enforce  a  promise  if  he  furnishes  the  consideration  for  the  promise     Tweedle  v  Atkinson  (1861)     The  court  held  that  Tweedle  could  not  enforce  the  contract  between  the  two  fathers   because  he  is  not  a  party,  and  secondly,  no  consideration  flowed  from  him.     Need  not  be  adequate  but  must  be  sufficient.     Sufficient  constitutes  legal  validity  whereas  adequacy  constitutes  the  act  of  having  a  value   comparable  to  the  value  of  a  promise     Chappell  &  Co  Ltd  v  Nestle  Co  Ltd  (1960)     The  House  of  Lords  held  that  the  consideration  included  the  wrappers  even  though   they  were  of  no  value  to  Nestle.  The  common  law  will  not  inquire  the  fairness  of  the   consideration,  as  long  as  the  parties  agree  to  it  willingly.     Sufficiency  of  Consideration     Moral   Generally  held  insufficient   Obligation  and     Motives   If  the  mere  existence  of  a  moral  obligation  were  sufficient  consideration,   (Insufficient)   then  every  promise  would,  without  more,  be  enforceable  as  the  mere   creation  of  the  promise  places  the  promisor  under  a  moral  obligation  to   fulfill  such  promise.  Such  a  proposition  would  abrogate  the  entire   doctrine  of  consideration.     Eastwood  v  Kenyon  (1840)     The  court  rejected  the  plaintiff’s  view  and  held  that  moral   obligation  is  insufficient  consideration  for  a  fresh  promise.     Thomas  v  Thomas  (1842)     The  court  held  that  the  nominal  rent  was  sufficient  consideration   by  t  the  husband’s  wishes  were  irrelevant;  motives  or  wishes  of   the  promise  cannot  be  enforced  because  it  lacks  sufficient   consideration.     Vague  or   White  v  Bluett  (1853)     Insubstantial    The  court  held  that  Bluett’s  promise  was  nothing  more  than  a   Consideration   promise  “not  to  bore  his  father”.  As  such  it  was  too  vague  and   (Insufficient)   was  insufficient  consideration  for  the  alleged  discharge  by  his   father.     Hamer  v  Sidway  (1892)      The  promise  was  held  enforeceable  because  the  court  found  that   the  nephew  had  suffered  a  detriment  and  such  detriment   constituted  good  consideration.  Pg  96  AP  –  Contrasts  the  previous   case.       2  of  7   © Tham Zhi Yang. 2012  Consideration  and  Intention  to  Create  Legal  Relations     Performance  of   Collins  v  Godefroy  (1831)     existing  public   Lord  Tenterden  “if  it  be  a  duty  imposed  by  law  upon  a  party   duty   regularly  subpoenaed  to  attend  from  time  to  time  to  give  his   (Insufficient)   evidence,  then  a  promise  to  give  him  remuneration  for  loss  of   time  incurred  in  such  attendance  is  a  promise  without   consideration.       Exception     If  the  court  finds  the  promisee  did  something  more  that  required  by  an   existing  public  duty,  then  it  may  be  sufficient.      Glassbrook  Bros  Ltd  v  Glamorgan  City  Council  (1925)   The  court  held  that  the  police  had  done  more  than  what  was   legally  required  of  them  to  provide  protection  by  providing  a   stationary  force  instead  of  a  mobile  force     Performance  of   Stilk  v  Myrick  (1809)  –  It  was  held  that  there  was  no   existing   consideration  for  the  captain’s  promise  because  the  remaining   contractual   crew  did  what  they  were  contractually  required.  Two  sailors   duty   deserting  was  within  the  usual  emergencies  found  in  such  a   (Insufficient)   voyage.     This  case  was  affirmed  in  Sea-­‐Land  Service  INc.  V  Cheong  Fook   CHee  Vincent  (1994)     Exception     If  the  promise  involved  the  promise  doing  something  more  than  what  he   was  already  required  under  the  contract,  then  this  may  be  sufficient   consideration     Hartley  v  Ponsonby  (1857)     The  promise  of  additional  wages  was  held  to  be  binding  because   under  the  circumstance  where  17  of  36  sailors  deserted,  the  crew   were  no  longer  bound  to  complete  the  voyage.     Practical  Benefits/Detriments  obtained     Williams  v  Roffey  Bros  and  Nicholls  (Contractors)  Ltd  (1991)     The  English  Court  of  Appeal  held  that  as  long  as  the  extra   payment  was  not  given  under  duress  or  fraud,  the  oral  promise   was  enforceable  because  the  defendant  obtained  “practical   benefits”  from  the  plaintiff’s  work.  The  benefit  was  that  they   would  not  be  liable  under  the  main  contract  for  late  completion.               3  of  7   © Tham Zhi Yang. 2012  Consideration  and  Intention  to  Create  Legal  Relations     Partial  Payment   Pinnel’s  Case  (1602)     of  Debt   The  part  payment  of  a  debt  does  not  discharge  the  entire  debt   (Insufficient,   unless  the  part  payment  was  made  at  the  request  of  the  creditor   Unless….)   and  the  payment  was  made  earlier,  at  a  different  place,  or  in   conjunction  with  some  other  valuable  consideration.       Foakes  v  Beer  (1884)    affirmed  Pinnel’s  Case  –  the  HOL  held  that  Beer’s  promise  not  to   take  further  action  was  not  supported  by  consideration.  She   could  claim  the  money.     Forbearance  to   A  promise  to  forbear  from  suing  or  enforcing  a  valid  claim  can  constitute   Sue  (Sufficient)   sufficient  or  valuable  consideration.       Alliance  Bank  Ltd  v  Broom  (1864).  K-­‐Rex  Finance  Ltd  v  Cheng   Chih  Cheng  (1993)       The  same  applies  to  a  compromise  of  a  legal  action.  The  req.  is  that  the   legal  action  must  be  reasonable  and  not  frivolous,  that  the  claimant  has   an  honest  belief  that  in  the  chance  of  success  of  the  claim  and  that  the   claimant  has  not  concealed  from  the  other  party  any  fact  which,  to  the   claimant’s  knowledge,  might  affect  its  validity.  Miles  v  New  Zealand   Alford  Estate  Co  (1886)     Performance  of   The  performance  of  an  existing  contractual  duty  to  a  third  party  may   existing   constitute  valuable  consideration.   contractual     duty  to  third   The  Eurymedon  (1975)     party   The  Privy  Council  held  that  even  though  the  defendant  was   already  contractually  bound  to  a  third  party  to  do  so,  the   defendant’s  act  of  unloading  the  ship  formed  good  consideration   for  the  contract  with  the  plaintiff       This  was  also  clarified  in  Pao  On  v  Lau  Yiu  Long  (1980)  by  the  HOL.     This  was  also  accepted  in  the  Singapore  High  Court  in  SSAB  Oxelosund  AB   v  Xendral  Trading  Pte  Ltd  (1992).     Composite   For  instance,  a  situation  where  a  debtor  has  a  lot  of  creditors  and   Agreements   creditors  collectively  agree  to  set  a  smaller  sum  as  full  settlement  of  debt.   (Sufficient)     This  constitutes  sufficient  consideration  as  the  creditors  are  giving  up  the   contractual  right  for  full  repayment  of  debt                     4  of  7   © Tham Zhi Yang. 2012  Consideration  and  Intention  to  Create  Legal  Relations     Promissory  Estoppel  (For  No  Consideration)     Promissory  Estoppel  is  an  equitable  doctrine  whose  origin  may  be  traced  to  Lord  Cairns  in   Hughes  v  Metropolitan  Railway  Co  (1877).  When  promissory  estoppel  is  established,  the   court  may  enforce  a  promise  despite  the  fact  that  there  was  no  consideration.       Promissory  estoppel  prevents  a  person  from  going  back  on  his  word  when  it  would  be   inequitable  to  do  so.  Where  the  doctrine  applies,  the  result  is  that  the  promise  is  enforced   even  where  such  promise  is  not  supported  by  consideration.     4  Elements  of  Promissory  Estoppel   (Central  London  Property  Trust  v  High  Trees  House  Ltd  (1947),    +  D&C  Builders  v  Rees   (1966))   Court  held  that  claims  for  the  past  rent  failed  because  it  was  estopped  by  the  defendant’s   reliance  on  plaintiff’s  promise  not  to  enforce  full  legal  rights,  even  though  promise  lacked   consideration.  The  courts  held  that  the  claims  for  current  rent  is  entitled  to  the  plaintiffs   because  the  adverse  conditions  had  passed,  so  the  reduced  rent  would  no  longer  apply.     - Parties  must  have  existing  legal  relationship   - Clear  and  unequivocal  promise  which  affects  the  legal  relationship   - Promisee  relied  upon  promise  and  altered  his  position   - Inequitable  for  the  promisor  to  go  back  on  his  promise.     Suspensive  or  Extinctive     Tool  Metal  Manufacturing  Co  Ltd  v  Tungsten  Electric  Co  Ltd  (1995)     When  the  promisor  gives  reasonable  notice  of  his  intention  to  revert  to  the  original  legal   relationship,  the  original  relationship  is  restored.  The  effect  of  P.E.  is  to  suspend  promisor’s   rights  temporarily.       Ajayi  v  R  T  Briscoe  (Nigeria)  Ltd  (1964)     However,  the  promise  could  become  ‘final  and  irrevocable  if  the  promisee  cannot  resume   his  position.”  (Extinctive)     Shield  not  sword   Combe  v  Combe  (1951)     Assoland  Construction  Pte  Ltd  v  Malayan  Credit  Properties  Pte  Ltd  (1993)                               5  of  7   © Tham Zhi Yang. 2012  Consideration  and  Intention  to  Create  Legal  Relations     Intention  to  Create  Legal  Relations     The  test  is  whether  a  reasonable  person  viewing  all  the  circumstances  of  the  case  would   consider  that  the  promisor  intended  his  promise  to  have  legal  consequences.     Social  and   There  is  a  general  presumption  that  such  agreements  lack  the  necessary   Domestic   intention  to  form  a  contract.   Agreements      Balfour  v  Balfour  (1919)   The  English  Court  of  Appeal  held  that  the  claim  failed  because  the   parties  did  not  intend  the  promise  to  be  legally  binding.  I     Choo  Tiong  Hin  v  Choo  Hock  Swee  (1959)     The  plaintiff’s  promises  were  not  enforceable  because  the  lack  of   intention  to  create  legal  relations.     Exception     However,  if  the  terms  of  agreement  are  certain  and  there  is  actual  reliance  on   this  agreement,  such  agreements  may  be  enforceable.       -­‐  Certainty  of  the  terms  of  the  agreement   The  more  certain  the  terms,  the  more  likely  it  is  that  parties  have  given  careful   consideration  to  the  content  and  effects  of  the  agreement.  Conversely,  where   the  terms  are  vague  and  imprecise,  the  court  will  be  more  inclined  to  construe   them  as  evidence  of  the  parties’  lack  of  contractual  intent.     -­‐  Actual  reliance  the  second  party  placed  on  the  agreement.   Evidence  of  such  reliance  will  tend  to  suggest  that  the  parties  intended  the   agreement  to  be  binding.     Merritt  v  Merritt  (1970)     The  English  Court  of  Appeal  found  the  necessary  intention  and  held   that  the  wife  succeeded  in  her  claim  for  breach  of  contract.     Commercial   There  is  a  general  presumption  that  there  is  necessary  intention  to  create   Agreements   legal  relations.       Edwards  v  Skyway  Ltd  (1964)     The  court  held  that  Skyways  was  legally  bound.     Exceptions     Honour  Clauses   when  parties  have  expressly  stated  that  their  agreement  is  not  to  be  legally   binding     Rose  &  Frank  Co  v  J  R  Cromption  &  Bros  Ltd  (1925)           6  of  7   © Tham Zhi Yang. 2012  Consideration  and  Intention  to  Create  Legal  Relations     Letter  of  Comfort,  intent  and  MOUs  are  all  not  legally  binding.   (Hong  Kong  and  Shanghai  Banking  Corp  Ltd  v  Jurong  Engineering  &   Others  (2000)  –  Letter  of  awareness  held  not  binding     Kleinwort  Benson  Ltd  v  Malaysian  Mining  Corporation  Berhad   (1989)  –  Court  only  found  a  moral,  and  not  legal  obligation.     Administrative  Relationships   Management  corporation  Strata  Title  No  473  v  De  Beers  Jewellery   Pte  Ltd  (2001)   The  situation  is  analogous  to  that  which  exists  when  someone  applies   to  a  governmental  or  statutory  body  for  an  approval,  for  example,  a   license  to  operate  a  restaurant  or  a  radio  or  even  a  permit  to   construct  a  building.     7  of  7   © Tham Zhi Yang. 2012