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Other Requirements for Formation of a Valid Contract (Rules Governing…
Other Requirements for Formation of a Valid Contract
Consideration Defined
Essential element of any contract not made by deed
Defined in
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915]
Two types of valid consideration:
(1) executed consideration:
performance of the consideration (contractual obligation) at the time of making the agreement
(2) executory consideration
: a promised to do something in the future
Rules Governing Consideration
(3) Consideration need not be adequate
: to be valid, consideration does not need to be equal or market value to the thing given in exchange
(4) Consideration must be sufficient
Public Duty:
doing what you are already bound to do under public duty cannot amount to valid consideration. The exception to this rule is when something 'extra' is done in addition to the legal duty
Contractual Duty
: party is already bound in a contract with he same other party
(Still v Myrick [1809])
. Only in situations where the party does more than he was originally contractually bound to do in exchange for a new promise of extra consideration that he will be able to enforce that new promise
Such an agreement would be binding if the party agreeing to pay the bonus had:
(1)
obtained some new practical benefit or avoided a detriment
(2)
entered into the new agreement in the absence of any economic duress
Rule regarding existing duties is altered when then existing contractual duty is with a third party. Performance of the duty will amount to valid consideration for the new contract
Value
: Anything which is recognised by law as having something for value will be sufficient consideration- includes items of very little, if any, economic value.
Part Payment of the Debt
: cannot be valid consideration for any promise to accept that part payment in full satisfactory of the debt as the debtor is contractually bound to pay the whole debt
(Pinnel's Case [1602])
The part payment will be good consideration for a promise not to enforce the full debt if the person to whom the debt is repaid gains some additional benefit as a result.
Part payment is good consideration:
(1)
if a third party pays off the debt
(2)
the payment is made as part of a composition agreement with creditors
(3)
the actual amount owed is in dispute
(4)
the original claim is for n unliquidated amount
(2) Consideration must not be past
: if the act of consideration has already been completed prior to the agreement being entered into then it is past consideration and not legally enforceable.
*(Re McArdle [1951])
Doctrine of Implied Assumpsit
: exception to the rule. Where there has always been an implication that payment is expected, a later promise or agreement to that effect will be enforceable
(1) Consideration must move from the promisee
: an aspect of the rule on privity of contract and means that only one person who has provided consideration can sue on the contract
Intention to Create Legal Relations
Social and Domestic Agreements
- no intention to be legally bound
(Balfour v Balfour [1919])
One party has placed himself at a disadvantage as a result the agreement
Payment of money took place between the parties to the agreement
The relationship between the parties has already broken down
(Merritt v Merritt [1970])
Commercial or Business Agreements
- presumption the parties intended to be legally bound
(Edmonds v Lawson [2000])
Binding in Honour
- agreement has stated as being binding in honour only and contains an honour clause/honourable pledge clause
Letter of Comfort
- apparent agreement is just a letter of comfort
Mere Puff
- resumption rebutted when the promise amounts to a mere puff
Rebuttable Presumption
The courts use this to determine whether parties to an agreement have an intention to be legally bound, due o the practical difficulties in deterring a person's actual intention.
Rebuttable presumption is an initial assumption that can be overturned by evidence to the contrary