Law - 7 Contract - Consideration and Intention PDF

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CONTRACT – CONSIDERATION AND INTENTIONConsideration (Pg 85)Consideration, as defined by Sir Frederick Pollock in Dunlop v Selfridge (1915) – an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is ...

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CONTRACT – CONSIDERATION AND INTENTION Consideration (Pg 85) Consideration, as defined by Sir Frederick Pollock in Dunlop v Selfridge (1915) – an act or forbearance of one party, 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. The state of mind of the parties, especially the one performing the act is critical. Simply means the price or compensation for the promise given by one party to the other party. It is rooted in the concept of reciprocity or bargain. (something given in exchange for another) Executory Consideration

Executory consideration refers to consideration, which is yet to be performed. Involves promised obligations which are intended to be performed in future

Executed Consideration

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 refers to an act performed prior to and to that extent independent of, the promises being exchanged. General Rule: Past consideration is no consideration. Roscorla v Thomas (1842) – The court held that the promise that the horse was sound sand free from vice was made after the transaction had already been concluded and therefore past consideration. Followed in Singapore Teo Song Kwang v Gnau Lye Chan and Another (2006)

Past Consideration

Exceptions for Past Consideration Perceived “past consideration” becomes an executed consideration based on a separate new contract - Act done at promisor’s request, not the promisee’s request - Both parties understood that act is to be remunerated - Contract must otherwise be enforceable in the first place had it been promised in advance (no dirty business involved to make it unenforceable) Above 3 is based on 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.” – The state of mind of person performing the act is critical. Followed in Singapore Sim Tony v Lim Ah Ghee (t/a Phil Real Estate & Building Services) (1995)

Two Main Rules on Consideration 1. Must move from promisee but need not move to promisor. 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 (he offered nothing in exchange). 2. Need not be adequate but must be sufficient. Chappell & Co Ltd v Nestle Co Ltd (1960) – The HOL held that the consideration included the wrappers even though they were of no value to Nestle. Considered adequate when both parties agree to the consideration willingly Considered sufficient when the law deems the consideration to be of some value. It can be determined by employing the subjective test. G&S, Money and Property

Sufficient

Obvious forms of consideration A promise to forbear from suing or enforcing a valid claim can constitute sufficient or valuable consideration. Alliance Bank Ltd v Broom (1864). K-Rex Finance Ltd v Cheng Chih Cheng (1993) – The court spoke the words of Cockburn CJ in Callisher v Bischoffsheim (1870).

Forbearance to sue

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 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) and Abdul Jalil bin Ahmad bin Talib and Others v A Formation Construction Pte Ltd (2006)

Performance of existing contractual duty to third party

The Eurymedon (1975) – The Privy Council held that even though the defendant was already contractually bound to a third party to unload goods from the ship, the defendant’s act of unloading the ship formed good consideration for the contract with the plaintiff. The contract with the plaintiff was considered to be separate from the contract with the third party even though the act was similar. This was also clarified in Pao On v Lau Yiu Long (1980) by the HOL. Rule applies to both executory and executed consideration. This was also accepted in the Singapore High Court in SSAB Oxelosund AB v Xendral Trading Pte Ltd (1992).

Moral obligation & motives

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 but the husband’s wishes were irrelevant; wishes and motives are not the same as consideration.

Vague or insubstantial consideration

White v Bluett (1853) – The court held that Bluett’s promise was nothing more than a promise “not to bore his father”. As such it was too vague and was insufficient consideration for the alleged discharge by his father.

Performance of existing public duty

Collins v Godefroy (1831) – the words of Lord Tenterden “if it be a duty imposed by law upon a party regularly subpoenaed to attend from time to time to give his evidence, then a promise to give him remuneration for loss of time incurred in such attendance is a promise without consideration.” UNLESS 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) Stilk v Myrick (1809) – It was held that there was no consideration for the captain’s promise because the remaining crew did what they were contractually required. Two sailors deserting the ship was within the usual emergencies found in such a voyage. However, if it is more than what is contractually required, that may constitute good consideration – Hartley and Ponsonby (1857) the ship was deserted until it was unseaworthy hence Hartley was required to do much more than what would have been expected of him originally.

Insufficient

Exception: Performance of existing contractual duty

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. – viewed as ‘limited exception’ in the Singapore Court of Appeal. (pg 96) Williams v Roffey Bros and Nicholls (Contractors) Ltd (1991) can only be applied when the practical benefit is the avoidance of liability, hence called as a limited exception. In view of role of consideration in modern contract law, VK Rajah KC: the marrow of contractual relationships should be the parties’ intention to create legal relationship.

Pinnel’s Case (1602) – The part payment of a debt does not discharge the entire debt Conditions to fulfill to override the general rule in Pinnel’s Case 1. Part payment was made at the request of the creditor/receiver of the money 2. Part payment was made earlier than the due date, or at a different place (benefitting the creditor)

3. Part payment was made in conjunction with some other valuable consideration Foakes v Beer (1884) affirmed Pinnel’s Case – the House of Lords held that Beer’s promise not to take further action was not supported by a valid consideration from Foakes. Foakes merely promised to pay in instalments, but Beer did not receive any additional benefits from his promise. Rule in Pinnel’s Case applies: Beer could then take further action and claim the accumulated interest. Followed in Singapore in Euro-Asia Realty Pte Ltd v Mayfair Investment Pte Ltd (2001) where the District Court endorsed the rule in beers and held in favour of creditor. However, the debtor may employ Promissory Estoppel as defense only if the 4 specific elements are met. Take note on: 1. Existing legal relationship (not applicable for one time job and payment. Cannot say that the agreement still exists when you are trying to prove that the agreement was already fulfilled to estop the rights of creditor to claim the payment) 2. Clearly stated suspensive effect on the debt or an absence of it 3. Whether the debtor relied on the promise and in anyway affected by the promise 4. Whether it is inequitable to the debtor if the creditor goes back on his promise to forebear and that partial payment serves as the full payment Promissory Estoppel is an equitable (fair) doctrine whose origin may be traced to Lord Cairns in Hughes v Metropolitan Railway Co (1877). When p.e. is established, the court may enforce a promise despite the fact that there was no consideration.

Promissory Estoppel (For no consideration)

4 Specific Elements (Central London Property Trust v High Trees House Ltd (1947), + D&C Builders v Rees (1966)) 1. Parties must have existing legal relationship 2. Clear and unequivocal promise which affects the legal relationship such as duration of suspensive effect on promise 3. Promisee relied and acted upon promise, hence altered his legal position (not necessary suffering a detriment) 4. Inequitable for the promisor to go back on his promise Suspensive or Extinctive 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. Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1995) However, the promise could become ‘final and irrevocable if the promisee cannot resume his position.” Ajayi v R T Briscoe (Nigeria) Ltd (1964) Shield not sword This means that it can only be raised as a shield and not a sword, i.e. a defense against a claim and not to commence a suit. Combe v Combe (1951) (people sue you then can use) Assoland Construction Pte Ltd v Malayan Credit Properties Pte Ltd (1993)

Privity of Contract (Pg 105) The general rule is that no one, other than a person who is a party to the contract may be entitled to enforce or be bound by the terms of the contract. – Price v Easton (1833) – court held that Price could not succeed, as he was not a party to the contract between the debtor and the Easton. Exceptions (Thai Kenaf Co Ltd v Keck Seng (S) Pte Ltd (1993) 1. Agency relationship 2. Assignment of choses in action 3. Letter of Credit

Stilk&v&Myrick

Williams&v&Roffey

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Old$common$law$rule Ship$voyage$–$captain$reneged$on$his$ promise$to$remunerate$remaining$ crew Harsh$and$(sometimes)$inequitable

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New$law Practical,$sensible,$equitable So$long$as$no$extortion Analysis$of$benefit$to$promisor$rather$ than$detriment$to$promisee Singapore$courts’$qualified$ endorsement$of$principle$–$“limited$

Intention to Create Legal Relations (Pg 101) Both parties need to have legal intentions for the promise to be enforced.

1. The third party or judge applies the objective test (not pure objective test) and listens to both parties and figure out what the parties where thinking at the time of formation of contract. The questions of “Am I liable to be sued by the other party if I break the contract?” & “Am I ready to sue the other party if he breaks the contract?” should be addressed, if not, unconsciously addressed by the parties, for there to be legal intentions. 2. If only one party has clear legal intentions, the performance of an agreement by the other party as if there is a contract, will constitute necessary intention. – Merritt v Merritt (1970) TEXTBOOK – The test to ascertain the intention is through a reasonable person viewing all the circumstances of the case, and whether he would consider that the promisor intended his promise to have legal consequences. There is a general presumption that such agreements lack the necessary intention to form a contract. (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. In 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: Social and Domestic Agreements

Merritt v Merritt (1970) – In this case, it was no longer a social and domestic agreement as the nature of the agreement was in contradiction of a marriage, hence the general presumption cannot apply. It was also thought that only the wife has legal intentions, and the promise could not be enforced. However, there was performance of the agreement by the husband as if there is a contract, and a contract cannot be brought down if the conduct proves otherwise. The agreement written on paper is just an evidence of what the both parties were thinking, and does not necessary mean that the promise was enforceable. The English Court of Appeal found the necessary intention and held that the wife succeeded in her claim for breach of contract. There is a general presumption that there is necessary intention to create legal relations. Edwards v Skyway Ltd (1964) – The court held that Skyways was legally bound to make payment to Edwards.

Commercial Agreements

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)) Letter of Comfort, Letter of Intent and Memoranda of Understanding 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 not legal obligation....