Contract Law - Large Group 3

Consideration and Intention to Create Legal Relations

Consideration

Definition:
- Benefit of Detriment - Currie v Misa
- Price for a Promise

Consideration must be sufficient; it need not be adequate.

Sufficiency of Consideration

- White v Bluett (1853)

- Hamer v Sidway (1891)

William E. Story I promised his nephew, William E. Story II, that if he would refrain from
drinking alcohol, smoking tobacco, swearing, and gambling until he was 21 years of age then
he, the said William E. Story I, would pay William E. Story II, the sum of $5,000 for such
refraining. William E. Story II agreed and “in all things fully performed his part of said
agreement.”

The claimant alleged that there was a contract between the parties. The defendant alleged
that the claimant had not provided any consideration for the promise to pay $5,000.

Decision

Do you think it would have made a difference to the decision if the nephew had never drank
alcohol, smoked, sworn, or gambled? Where would be the detriment to the nephew in
promising to refrain from something he did not do? What would he be giving in exchange
for the uncle’s promise?

How, if at all, can the decisions in White v Bluett and Hamer v Sidway be reconciled?

Adequacy of Consideration

Chappell v Nestle (1960)

The claimants owned the copyright in a piece of music, ‘Rockin’ Shoes’. Nestle arranged for
copies of this tune to be made into records and offered those records to the public for 1s 6d
plus three wrappers from their 6d chocolate bars. The issue before the court involved
copyright. The House of Lords had to decide whether the three wrappers were part of the
consideration given for the record.
Decision

The wrappers did form part of the consideration as the object was to increase sales and
therefore provided value. The fact that the wrappers were simply to be thrown away did not
detract from this. Therefore, Chappel were granted the injunction and Nestle could not sell
the records as they had not complied with the notice requirements under s.8.

Consideration may be executory (a promise) or executed (an act)

Activity 1

What type of contract involves both executory and executed consideration?

Unilateral Contract

Identify a case, or cases, which you could cite as authority for this type of contract.

Chappell v Nestle (1960)

Past Consideration is not good Consideration

Past act/promise will be consideration if:

• the act was done at the promisor’s request

• the parties understood that the act was to be remunerated either by payment or
conferment of a benefit…, and
• payment…must have been legally enforceable had it been promised in advance

NOTE: the later promise crystallises the promisee’s reasonable expectation. In the absence
of a later promise, a reasonable sum should be paid.

Roscorla v Thomas (1842)

Activity 2: Case analysis -

Watch the Roscorla v Thomas media clip, identifying:

The initial contract;

 The agreement to buy the horse for £30.

The later promise;

 The issue of the temperament of the horse.

What was claimed by Mrs Roscorla to be the consideration for the later promise;

 The temperament of the horse.

The decision of the case;

There was no consideration for the promise that the horse was sound. The only
consideration that had been alleged was the contract for the sale of the horse. This has
proceeded the defendants promise - it was not part of the bargain - not given in exchange
for the promise. Consequently, it was not good consideration.

Exception - a past act/ promise may be good consideration if three conditions are
satisfied:

Pao On v Lau Yiu Long (1980)

Re Casey's Patents, Stewart v Casey (1892)

‘We [Stewart and another] now have pleasure in stating that in consideration of your
[Casey’s][past] services as the practical manager in working both our patents…, we hereby
agree to give you one third share of the patents.’

Consideration must move from the promisee

Tweddle v Atkinson (1861)

A and B were father and father-in- law of C.

In return for A’s promise to pay C £200, B agreed to pay C £100.
A and B expressly agreed that C should be able to sue on the contract.
A failed to pay C £200 and C sued.

Decision
The claim failed: 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.\
Exception - Contracts (Rights of Third Parties) Act 1999

• A third party can acquire rights under a contract if:

- the contract expressly provides that he may acquire a benefit(s1(1)(a); or

- the term purports to confer a benefit on him(s1(1)(b).

• The third party must be expressly identified in the contract by name or as a member
of a class (e.g. ‘employees’) or answering a particular description.

The Act extends to the benefit of an exemption clause (s1(6)) which we will be looking at in
Unit 6.

‘Neither the Company nor its employees shall be liable to the Customer for loss or damage
to goods caused by negligence.’

Williams v Williams (1957)

Denning LJ said:

A promise to perform an existing duty is, I think, sufficient consideration to support a

promise, so long as there is nothing in the transaction which is contrary to public policy.

Performance of a public duty

Performance of an existing public duty is not good consideration

Collins v Godefroy (1831)

Exceeding an existing public duty is good consideration

Glasbrook v Glamorgan C.C. (1925)

The owners of a mine, during a coal strike, sought assistance from the police in protecting
those workers who had continuing responsibility to maintain the mine. The police
reasonably suggested a mobile force, but the owners insisted that officers must be billeted
at the premises, and agreed to pay the council for this service. Later, however, the owners
denied any legal obligation to pay, on the basis that the police had merely been carrying out
their legal obligation to keep the peace.

Decision

In providing additional officers to that required, the police had gone beyond their existing
duty. They were therefore entitled to payment.
Ward v Byham (1956)

The father of an illegitimate child promised to pay the mother an allowance if the child was
‘well looked after and happy’. The mother had a duty imposed by law to support the child.
The Court of Appeal had to decide if the mother had given any consideration in exchange for
the father’s promise.

Decision

By promising to ensure the child was well looked after and happy she had gone beyond her
existing legal duty and therefore had provided consideration. She was entitled to the
payment.

Performance of an existing duty owed to a third party

Shadwell v Shadwell (1860)

• After his engagement P received a letter from his uncle saying, ‘I am glad to hear of
your intended marriage with Ellen…and as I promised to assist you at starting, I am
happy to tell you that I will pay you £150 yearly…and until your annual income
derived from your profession of a …barrister shall amount to 600 guineas.’
• P married Ellen and never earned as much as 600 guineas a year
• The instalments promised by the uncle were not all paid, and P brought an action for
what was owed.
• What consideration had P given for the uncle’s promise?

Activity 3

What, if any consideration, had the nephew given for his uncle’s promise? What was the
detriment to the nephew or benefit to the uncle? He was already contractually bound to
marry Ellen.

Was the uncle’s promise legally binding because the nephew had given consideration
for it or was it a conditional gift?

A. Legally Binding
B. Conditional Gift

Intention to Create Legal Relations

Rebuttable Presumptions

In commercial contracts, there is a rebuttable presumption that there is legal intent. It is for
the party claiming there is no legally binding contract to prove this. Where there is a
dispute, the court will look at the objective conduct of the parties together with the relevant
circumstances.
Commercial Agreements

• Commercial - Contractual intention

Edwards v Skyways (1964)

An airline pilot was made redundant and as part of his redundancy package was
offered and accepted a certain ‘ex gratia’ payment. The employer then refused to make the
payment on the basis that there was no intention to be legally bound.

Decision

The agreement had been made in a business context which raised a strong presumption
that the agreement is legally binding. The claimant could therefore enforce the agreement
and was entitled to the money.

Esso Petroleum v Commissioners of Customs and Excise (1976)

‘binding in honour only’

Rose and Frank v Crompton Bros. (1925)

The agreement between the two companies included an ‘Honourable Pledge Clause’. The
clause specifically stated that it was not entered into as a ‘formal or legal agreement’ but
was only a definite expression and record of the intention of the parties. The parties
‘honourably pledged’ themselves to the agreement in the confidence ‘that it will be carried
through by each of the ... parties with mutual loyalty and friendly co-operation’.

Social/Domestic Agreements

• Domestic - No contractual intention

Activity 4

Set out in the table below are some social/domestic agreements. Look at the relevant
facts in each case and try and work out which ones tend to rebut the presumption that
there is no intention to create legal relations.

INTENTION TO CREATE
PARTIES RELEVANT FACT
LEGAL RELATIONS?
Solicitors are settling the Yes
Husband and wife financial terms of their
divorce
Reach agreement on how Yes
Two friends they will contribute to a
joint business venture
 Expressly agree that their Yes
A brother and sister agreement will be legally
binding
One sells his/her house to Yes
Two cousins
the other
They agree what the child No
must do in order to get
Parent and child
his/her weekly
financial allowance of £10

Balfour v Balfour (1919)

A husband worked overseas and agreed to send maintenance payments to his wife. At the
time of the agreement the couple were happily married. The relationship later soured and
the husband stopped making the payments. The wife sought to enforce the agreement.

Decision

The agreement was a purely social and domestic agreement and therefore it was presumed
that the parties did not intend to be legally bound.

Merritt v Merritt (1970)

The husband had left the wife and was living with another woman. He signed a written
agreement to the effect that he would pay his wife £40 a month, and in consideration of her
repaying the mortgage on the jointly owned matrimonial home, he would transfer it to her
sole ownership.

Decision

The agreement was binding. The Court of Appeal distinguished the case of Balfour v
Balfour on the grounds that the parties were separated. Where spouses have separated it is
generally considered that they do intend to be bound by their agreements. The written
agreement signed was further evidence of an intention to be bound.