Contract 1 - Lecture notes 3 PDF

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Contract law...

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Contract Law OVERVIEW - Formation (Intention to Create Legal Relations)! The main distinction to apply is between social and domestic agreements as compared with commercial agreements.! Social, family and domestic agreements! - Husband and wife ! Balfour v Balfour! Merritt v Merritt! Pettitt v Pettitt! - Parent and child! Jones v Padavatton! - Lodgers/flat mates! Simpkins v Pays! Parker v Clark! -Friends! Wilson & Anor v Burnett! Commercial agreements! The opposite presumption applies – that prima facie the agreement is intended to be legally enforceable in the absence of evidence to the contrary ! Carlill v Carbolic Smoke Ball Company ! Rose and Frank v Compton! Edwards v Skyways! Kleinwort Benson v MMC ! ! Formation (Consideration)! Consideration must not be past! The Promisor’s request - Eastwood v Kenyon! Act to remunerated at some point in the future – Roscorla v Thomas! Re Casey’s Patents! Consideration must move from the promisee! Privity and the effect of the Contract (Rights of Third Parties) Act 1999.! Sufficiency of consideration! - Given that our definition stresses the concept of an act/forbearance/promise given for value, we must discover what the courts have recognised as ‘value’.! Thomas v Thomas and White v Bluett ! Chappell v Nestle.! The conditions are (Miles v New Zealand Alford Estate):! the claim must be reasonable, not vexatious/frivolous,! the claimant must have an honest belief in the action’s success, and! the claimant has disclosed all relevant facts to the other side.!

Public/statutory duty! Collins v Godefroy! Glasbrook v Glamorgan CC and Harris v Sheffield United FC! Ward v Byam! Contractual duty! Stilk v Myrick! Hartley v Ponsonby! At this point the law seems relatively settled and can be stated as follows:! ‘Strict performance of an existing duty of whatever kind will not be good consideration for a new agreement or the variation of an existing agreement. However, if the performance promised exceeds the scope of the existing duty, then that excess will be good consideration for a promise that creates a new contract or varies an existing one.’ ! Existing contractual duties to a third party! Scotson v Pegg! Shadwell v Shadwell! The Eurymedon! Promissory Estoppel! The scope of the doctrine;! Shield not a sword – Combe v Combe! Unequivocal promise – Woodhouse v NPM ! Duress defeats – D & C Builders v Rees! Suspended or extinguished? – Hughes, Tool Metal v Tungsten, Ajayi v Briscoe! Simple reliance or a detriment suffered? – High Trees, Alan v El Nasr, Ajayi v Briscoe! ! Consideration! The objective theory of contract states that a contract is a legally enforceable agreement as long as the elements of consideration, an intention to create legal relations and a capacity to contract are satisfied. The issue here is whether the variation or subsequent agreements between Lucan and either LPL or Netofit are supported by consideration. If they are not, the question of whether equity is able to sustain the promise is raised and the principles of Promissory Estoppel and its restrictions. ! The doctrine of executory or executed consideration can be seen to be based around reciprocity in which there is a benefit to the promisor or detriment to the promisee, it can also be seen as a party paying a ‘price’ in exchange for the other’s promise. To determine whether consideration is valid a number of factors need to be considered, for example consideration must not be past or it will be seen as gratuitous and therefore a promise made after performance by the other party is not generally enforceable as their detriment has occurred and cannot be used as a ‘price’ for a subsequent promise. However there are exceptions to this, Pao On also states that certain circumstances will warrant an exception such as if it is at the promisor’s request and it was understood that it would be reimbursed by a payment or benefit and that this would have been legally enforceable if it had been promised before the act. Also it must move from the promisee, but need not move to the promisor, which is linked with Privity of Contract meaning only those directly contributing to the contract may sue on the promise and enforce it, however the Contracts (Rights of Third Parties) Act 1999 provides rights to third parties under Section 1 if the

contract “a) expressly provides that he may, or b) subject to subsection (2), the term purports to confer a benefit on him”. Consideration must be sufficient meaning there must be something of economic value or purpose, that is not purely intangible, given for the promise. However, this is not measured in adequacy by comparing the value of the promises, furthermore the court will not judge whether it is ‘fair’.! The initial agreement between LPL and Lucan made in February 2012 has no issues of consideration and is seen as a valid legally enforceable contract as LPL received the benefit of £72,000 per year and Lucan leased a factory both providing executory consideration which was not past but moved from the promisee and was sufficient as there is economic value or purpose in the money and factory. However in April 2014, Lucan attempted to vary the contract reducing his obligation by paying less rent due to financial issues occurring from February 2014. As LPL had some vacant properties they agreed, although this could be seen in commercial reality as being a practical benefit to LPL and therefore good consideration for the agreement, the law here does not uphold this. Pinnel’s Case provides the rule stating that part payment of a debt, such as a reduced amount being paid in relation to a set lease sum such as in this case, is not good consideration unless the creditor requests the payment at an earlier date, different place or a different thing is asked for therefore meaning that if the other party also promises to do something that was not originally agreed, or if it is written in a signed deed or there is a promissory note. This was upheld by the House of Lords in Foakes which stated that although Beer had agreed to not charge interest on the debt owed by Foakes, she was entitled to it and could enforce it, the doctrine of practical benefit cannot be applied here. Therefore this means there is no consideration for LPL to accept less than the full £72,000 per year as Lucan is already bound and so suffers no detriment by paying less and LPL gains no benefit in receiving less. This means, using this doctrine, LPL could demand the arrears in rental payments from April 2014 and charge the original rental price as they were never legally bound to charge less due to insufficient consideration. ! However, the law also imposes limitations which allows such a promise that reduces one party’s obligations to be legally binding. This is the doctrine of Promissory Estoppel in which equity intervenes when there is no common law consideration to pay more or accept less to alleviate the strictness and harshness of common law as equitable remedies are at the discretion of the court unlike common law. This could stop LPL from retracting on the promise if all the elements are proved. Denning first adopted this in the High Trees case in which a landlord agreed to reduce the annual rent for his tenants as long as war-time difficulties with sub-letting continued, it was held that the landlord was bound by his promise, despite the lack of consideration, under promissory estoppel. The doctrine states that a party may be bound to a promise if it is inequitable to not be bound as there was already a contract in place but then an unequivocal agreed contract variation took place which the other party relied on and so altered their position. The scope of the doctrine is cases for which it is being used as a shield not a sword as it is not intended to create a cause of action. Also an unequivocal promise must have been made either by words or conduct and as it’s nature is equitable the party wishing to use it must have ‘clean hands’ meaning they must have been complying with general equitable principles and not have used duress to gain the promise, it must also be inequitable to go back on the promise. Under the doctrine no new rights can be created, unlike with the doctrine of consideration, but there is a question of whether there is a suspension or termination of rights of the promisor. In Ajayi it was stated that if the other party had altered their position, the promisor may still resile from his promise on giving reasonable notice, but the promise becomes final if the promisee “cannot resume his position”. Finally, the promisee must have relied on the promise, there is a question of whether this needs to be detrimental or simple reliance, however the party must have acted in reliance so that they could not be restored to their original position before they acted.! Lucan may attempt to use Promissory Estoppel in defence against LPL as he relied on the clear agreed variation of the contract borrowing money and employing Netofit. However, reintroducing full rental figures is fore-ward looking and can be seen as equitable as the doctrine only suspends LPL’s rights and does not extinguish them, therefore he would have to start paying that regardless especially as his business had been picking up and he won the hotel contract and LPL have given a month which is a reasonable amount of notice. However, LPL requesting arrears is past-looking and its equitability depends on the timing of when things improved as this shows if Lucan has ‘clean hands’ and been complying with equitable principles. It states that his business was

picking up and he won a contract in March, however he did not tell LPL therefore it could be argued that he has not been equitable himself and therefore cannot use Promissory Estoppel meaning LPL could claim the full arrears as Lucan does not have the support of consideration or Promissory Estoppel. However it could be argued that as this behaviour falls short of economic duress, Promissory Estoppel should not be denied due to disapproving behaviour as this could result in making ‘law uncertain’. ! Lucan was already in a contract supported by executory consideration with Netofit in which he payed £10,000 for them to organise and install new machinery. However Netofit stated they needed another £4,000 to complete the work. This raises the question of whether performance of a legal duty constitutes as consideration, generally if it is a public statutory duty it is not sufficient as it is past consideration unless the party is going above what the are already bound to do resulting in a benefit to the promisor, such as in Ward v Byam in which Lord Denning introduced the idea that an action creating a benefit for the other party, even if it is strict performance of an existing duty, should be regarded as good consideration. Also where a claimant is bound by an existing contractual duty, consideration is not normally seen to be sufficient again due to past consideration unless their duties exceed the scope of the existing agreement such as in Hartley v Ponsonby [1857] 7 El & Bl 872 in which half of the ship crew members deserted and conditions were so dangerous that it was held the crew were discharged from their original agreement and the new agreement of more money could be enforced. However the exception of the practical benefit doctrine was introduced by Denning in Ward and expanded in Williams v Williams, in Williams v Roffey it was stated that if in an existing contract that has yet to be performed there are doubts about whether the perforce would be completed on time and the promisor acquires a practical benefit or avoids a disbenefit such as avoiding a breach by continuing work, avoiding a penalty, or the expense and trouble of finding a new contractor, then the promise will be binding and consideration sufficient as long as there is no duress or fraud. These variations of contract are different to a contract that has been rescinded and a new agreement has been made. ! Netofit are already bound to perform the duty therefore suffer no detriment in the new agreement of £4000, which could be argued is not sufficient consideration. However they may find it more economically convenient if they release themselves from the duty and pay damages, as they had underestimated the amount of work involved, unless there is the benefit of an additional promise. Furthermore Lucan would be benefitting from the original duty as the damages he may recover may not fully compensate him for the loss, for example it would be a practical benefit to have them work as he would avoid having to go to the expense and trouble of finding a new firm to streamline his factory. Furthermore, it is a practical benefit to him for his factory to be producing at full capacity as he would be able to sell more products. Therefore here there is good consideration of the extra payment and Netofit would be able to enforce the claim against him.! In conclusion, LPL would be able to introduce full rental charges from the next month onwards, however whether they can receive the arrears would depend on if the court allowed Lucan to use Promissory Estoppel despite not telling LPL business had picked up and continuing to pay the lower rate which can be seen as not equitable. Netofit would be able to claim the extra £4000 as the practical benefit of completing the work constitutes as consideration on Lucan’s part meaning it is legally enforceable. !...