LAWS1204 Lecture Notes - Lecture 3: Ugl Rail, Forego, Estoppel
Lecture five
Lecture Five will examine the intention to create legal relations and capacity. For a contract
to exist the parties to that contract must have the intention that their agreement will be
legally binding. As Atkin LJ said in Rose & Frank v JR Crompton [1923] 2 KB 261, 293: “To
create a contract there must be a common intention of the parties to enter into legal
obligations, mutually communicated expressly or impliedly.” An objective approach is taken
to the issue of intention to create legal relations see Merritt v Merritt [1970] 1 WLR 1211.
Read Chapters Six and Seven of Thampapillai for this lecture.
1. Consideration
•There are four essential parts to consideration.
•First, the promisee must incur a detriment or confer a benefit on the
promisor. This is the benefit/detriment requirement. --- Currie v Misa
•Second, the benefit or detriment must be given in return for the promise.
This is the bargain requirement. --- Beaton v McDivitt
•Third, the consideration must move from the promisee. --- Coulls v Bagot
•Fourth, the consideration must be legally sufficient. --- Woolworths v Kelly
•The case-law in this area does not always express consideration in part of a four-part
test along these lines.
•However, there is almost always coverage given to whichever salient part of the test
happens to be in dispute.
•Consideration must move from the promisee.
•Yet, it need not move to the promisor.
•A can contract with B in exchange for B conferring a benefit on C.
•Some of the attempts at being joint promisees has caused some difficulties for the
doctrine of consideration
•See Coulls v Bagot Executors and Trustee Co Ltd (1967) 119 CLR 460.
•Mr Coulls contracted on behalf of his wife and himself.
•However, his wife was not a part of his business.
•Mrs Coulls was not strictly a party to the contracts but was clearly contemplated as a
beneficiary.
2. Past consideration
•Consideration may be executed, executory but not past. The promise is made and
then something is done (executed) or is still to be done (executory).
•Past consideration occurs where the act or forbearance pre-dates the promise.
•The one exception to the past consideration rule is where the acts were done with
the expectation of later payment.
•Roscorla v Thomas (1842) 3 QB 234.
•Eastwood v Kenyon (1840) 113 ER 482
•Lampleigh v Brathwait (1615) 80 ER 255
3. Compromise and forbearance
•Acts of compromise or forbearance can constitute good consideration.
•A bona fide agreement to settle a dispute can be consideration provided that the
intending litigant genuinely believes that they are giving up a claim. --- Miles v New
Zealand Alford Estate
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•Wigans v Edwards --- the respondents refrained from suing on the basis that the
builder would fix defects in his work. The defects were not fixed and the
respondents sued. The builder argued that they had given no consideration for the
promise to fix the defects. A majority of the High Court disagreed and held that
respondents had given consideration.
•See also McIntosh v Linke Nominees Pty Ltd [2008] QSC 79.
4. Public duty imposed by law
•Ordinarily, the performance of an existing duty is not considered good
consideration for a new promise.
•Collins v Godefroy (1831) 109 ER 1040 --- a lawyer promised to pay for the time of a
man under subpoena from a court. There was no consideration for the promise as
the law had already imposed a duty on the man.
•Glasbrook Bros v Glamorgan County Council [1925] AC 270 it was argued that the
acts of the police in guarding a colliery were simply acts of performing their public
duties. However, the court held that they had gone above their actual duties and
were entitled to enforce a promise of payment.
•Ward v Byham [1956] 1 WLR 496 – agreement to pay child support upheld, even
though the mother was obliged to care for the child by law.
5. Promises to third parties
•Ordinarily, the performance of an existing duty is not considered good
consideration for a new promise.
•See Ailakis v Olivero [No 2] [2014] WASCA, [106] :
•“.... it is clear that a promise to perform an existing contractual duty made
to a third party provides good consideration to the party to whom the
promise is given, who would otherwise have no means of enforcing the
performance of the contract.”
•In Pao On v Lau Yiu Long [1980] AC 614, parties to a contract with a company
refused to carry out their obligations unless the shareholders of the company
provided them with a guarantee against potential loss arising out of the contract.
•The consideration for the guarantee was a promise to perform the existing
contractual obligation owed to the company.
•The majority held that this was good consideration:
•“Their Lordships do not doubt that a promise to perform, or the performance of, a
pre-existing contractual obligation to a third party can be valid consideration.”
6. Existing legal duty
•Wigan v Edwards (1973) 1 ALR 497
•per Mason J at 512:
•“The general rule is that a promise to perform an existing duty is no
consideration, at least when the promise is made by a party to a pre-
existing contract, when it is made to the promisee under that contract, and
it is no more than the promisor is bound to do under the contract.”
•Stilk – performance not in excess of existing duty.
•Hartley – performance was in excess of existing duty.
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•There is no doubt that the promise to perform an existing legal duty is not to be
regarded as good consideration --- Joanne E Young v Josephine A Smith [2015]
NSWSC 400
•Ordinarily, the performance of an existing duty is not considered good
consideration for a new promise.
•Stilk v Myrick (1809) 170 ER 1168 --- two crew members deserted a ship. The captain
promised to pay Stilk more, but later recanted. The Court held that Stilk was simply
performing his duty.
•Hartley v Ponsonby (1857) 119 ER 1471 --- 17 crewmen deserted during a voyage.
The remaining 19 sailors did the work of 36 crewmen. The captain promised to pay
them extra money. The Court held that the sailors had gone beyond their contractual
duties and were entitled to payment.
7. Practical benefits
•Is Stilk still good law in Australia?
•Two decisions cast doubt on Stilk – Williams v Roffey Bros & Nicholls [1990] 1 All ER
512 and Antons Trawling Co v Smith [2003] 2 NZLR 23
•Williams v Roffey:
•R subcontracted carpentry work to Williams. During the work W experienced
financial difficulties and R formed the view that he might not perform. R
increased the amount payable to W. The work was done and then R refused
to pay.
•The English Court of Appeal found for Williams.
•The consideration was the potential benefit of the work being done on time,
thereby relieving R of liability for liquidated damages. Note that this was
sufficient consideration despite the fact that it was never ever explicitly part
of the variation agreement.
•Australia has also recognised that there are exceptions to the existing legal
duty rule.
•Musumeci v Winadell (1994) 34 NSWLR 723
•The lessee of premises in a shopping centre claimed to be unable to remain
viable and continue paying the full rent due to the introduction of a much
larger, competing tenant.
•There was a practical benefit to the lessor of retaining the lessee as a viable
tenant and keeping the centre occupied with both competitors.
•The Court held that this might serve as consideration for the lessor's promise
to reduce the rent.
•See also Tinyow v Lee [2006] NSWCA 80
8. Pinnel’s case
•The rule in Pinnel’s Case (1602) 5 Co Rep 117a postulates that part payment of a
debt cannot serve as consideration for an agreement to discharge the whole of the
debt.
•A promise to pay less is not legally binding; cannot serve as consideration
•In effect, part payment and a subsequent agreement to accept it in lieu of the whole
amount does not prevent the creditor from later suing for the whole amount.
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Document Summary
Lecture five will examine the intention to create legal relations and capacity. For a contract to exist the parties to that contract must have the intention that their agreement will be legally binding. Read chapters six and seven of thampapillai for this lecture: consideration. First, the promisee must incur a detriment or confer a benefit on the promisor. Second, the benefit or detriment must be given in return for the promise. Third, the consideration must move from the promisee. The case-law in this area does not always express consideration in part of a four-part test along these lines: however, there is almost always coverage given to whichever salient part of the test happens to be in dispute. Yet, it need not move to the promisor: a can contract with b in exchange for b conferring a benefit on c. Some of the attempts at being joint promisees has caused some difficulties for the doctrine of consideration.
