LAW OF CONTRACTS: Your Sword, Your Shield 2

Welcome back.

If you are just joining me, you can read my first post with respect to contracts.

I decided to write on the law of contracts so that musicians and other persons who intend to go into contract with other people for business purposes will have an idea of what to look out for.

My write ups do not mean that you should do away with the services of a lawyer especially a lawyer who is vast in that area of your business.

For example, a musician will do well to employ the services of an entertainment lawyer at the beginning and during his career.

In my last post, I mentioned six elements of binding and enforceable contracts:

1. Offer
2. Acceptance 
3. Intention to create a legal relationship 
4. Existence of a valuable consideration 
5. Legal capacity of the parties to enter into a contract 
6. The terms of the contract 

I discussed offer and acceptance in my last post. Today, I be talking about 3 and 4.

3. Intention to create a legal relationship

Some contracts are by nature, not meant to be legally binding or create a legal relationship e.g. a domestic agreement between husband and wife, parent and child or between friends regarding what one construes as a favour.

See the case of:

Balfour v Balfour  

                 

Facts

Mr Balfour was a civil engineer, and worked for the Government as the Director of Irrigation in Ceylon (now Sri Lanka). 

Mrs Balfour was living with him.

In 1915, they both came back to England during Mr Balfour's leave but Mrs Balfour had developed rheumatic arthritis. Her doctor advised her to stay in England, because a jungle climate would be detrimental to her health.

As Mr Balfour's boat was about to set sail, he promised her £30 a month until she came back to Ceylon. They drifted apart, and Mr Balfour wrote saying it was better that they remain apart.

In March 1918, Mrs Balfour sued him to keep up with the monthly £30 payments.

In July she got a decree nisi and in December she obtained an order for alimony.

At first instance, Sargant J held that Mr Balfour was under an obligation to support his wife.

Judgement

The Court of Appeal unanimously held that there was no enforceable agreement, although the depth of their reasoning differed. Warrington LJ delivered his opinion first, the core part being this passage.

"The matter really reduces itself to an absurdity when one considers it, because if we were to hold that there was a contract in this case we should have to hold that with regard to all the more or less trivial concerns of life where a wife, at the request of her husband, makes a promise to him, that is a promise which can be enforced in law.

All I can say is that there is no such contract here. These two people never intended to make a bargain which could be enforced in law. The husband expressed his intention to make this payment, and he promised to make it, and was bound in honour to continue it so long as he was in a position to do so. The wife on the other hand, so far as I can see, made no bargain at all. That is in my opinion sufficient to dispose of the case.”

4. Existence of a Valuable Consideration

In contract law, consideration is concerned with the bargain of the contract. 

A contract is based on an exchange of promises. Each party to a contract must be both a promisor and a promisee.

They must each receive a benefit and each suffer a detriment. This benefit or detriment is referred to as consideration.

Consideration must be something of value in the eyes of the law. See the case of:

Thomas V Thomas (1842). 

Facts

On the morning of his death John Thomas orally expressed a desire for his wife to have either the house used as their residence and its contents or 100 pounds, in addition to the other provisions made for her in his will. 

After his death, the executors of his estate entered into an agreement with P “in consideration of John’s desires” whereby P would take possession of the house and in return maintain the house and pay one pound per year for the “ground rent”.

P remained in the house for some time; however after the death of his co-executor, D refused to complete the conveyance. D claimed that consideration was lacking. 

The court entered judgment in favor of P on all counts and D appealed.

Issue
Will a court look into the adequacy of consideration or the reasons for the bargain if there is a real bargain between the parties?

Holding and Rule:
Denman: No. A court will not look into the adequacy of consideration or the reasons for the bargain if there is a real bargain between the parties.

In this case there is an express agreement, the terms of which show a sufficient legal consideration independent of the moral feeling which led the executors to enter into the agreement. 

The payment of the ground rent is but part of an express agreement and the moral aspect of this contract merely pertains to the reasons for entering into the contract. 

We cannot be concerned with the means or reasons that one enters into a bargain if there is valid consideration.

Disposition: Discharged – Judgment for P.

Consideration excludes promises of love and affection, gaming and betting etc. A one sided promise which is not supported by consideration is a gift. 

The law does not enforce gifts unless they are made by deed.

   

See the case of:

Tweddle v Atkinson [1861]

Facts
A couple were getting married. 

The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the son also died so was unable to sue on the agreement. The groom made a claim against the executor of the will.

Held
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.

Rules of consideration

There are various rules governing the law of consideration:

1. The consideration must not be past. 
2. The consideration must be sufficient but need not be adequate.
3. The consideration must move from the promisee. 
4. An existing public duty will not amount to valid consideration. 
5. An existing contractual duty will not amount to valid consideration. 
6. Part payment of a debt is not valid consideration for a promise to fore-go the balance.

In my next post, I will write about number 5 and 6 of the elements of a valid and enforceable contract.

You can tell me, in the comments below, your experience(s) with a contract you entered into relating to offer, acceptance, intention to create legal relationships and consideration.