Consideration and Intention

Consideration/Intention to
create legal relations

Lecture 3
03/28/2024 1
Consideration
03/28/2024 2
• Under contract law, the agreement between the parties
will not in itself create a legally binding contract.
• For there to be a valid contract- there needs to be some

degree of consideration.
What is
consideration???
03/28/2024 3
Consideration
• A contract is a bargain and the essence of that is the parties each give up something to get
something they want
• Sometimes defined as the ‘price paid for the promise’, you don’t get something for nothing so
Element of exchange
• Also described as ‘benefit’ and ‘detriment’  Currie v Misa (1875);
‘a valuable consideration, in the sense of the law, may consist either in some right, interest, profit or
benefit accruing to the one party or some forbearance, detriment, loss or responsibility, given,
suffered +or undertaken by the other’
• a ‘benefit’ to the person making the promise (the promisor), or a ‘detriment’ to the person to
whom the promise is made (the promisee). Either is sufficient to make the promise enforceable,
though in many cases both will be present.
• It can be almost anything...money, deposit, services, a promise to do or not to do something, a

thing (ball, horse, chocolate cookie etc).
03/28/2024 4
• Consideration is a necessary element of every contract...no consideration = no contract.
What can a party give as consideration?
• In business, the consideration exchanged between the parties usually amounts to

money on the one hand and goods or services on the other
• There may be a barter arrangement where one type of goods or services are exchanged
for another.
• Consideration is not limited to tangible exchanges. A mutual exchange of promises is an

equally valid exchange of consideration.
• Consideration – something of legal value given in exchange for a promise
• Consideration must be given before a contract can exist
Most common types of consideration:

• Tangible payment (e.g., money or property)
• Performance of an act (e.g., providing a service)
03/28/2024 5
The rules governing consideration
• Several rules have been developed to
determine the validity of consideration...
1. Consideration must move from the promisee;

2. Consideration must not be past;
3. Consideration need not be adequate; and
4. Consideration must be sufficient.
03/28/2024 6
Rules governing consideration
1. Consideration must always move from
the promisee to the promisor.
I promise student X that I will pay £10 to student Y.

• Who is the contract between?
• Can Y sue for the money if I refuse to pay?
This relationship is called the Privity of Contract - third parties cannot acquire rights under
the contract. Nor can the contract place a burden on third parties (subject to statutory
exceptions).
Dunlop v Selfridge (1915) HL
• Dunlop, a tyre manufacturing company, made a contract with Dew, a trade

purchaser, for tyres at a discounted price on condition that they would not resell
the tyres at less than the listed price and that any reseller who wanted to buy
them from Dew had to agree not to sell at the lower price either.
• Dew sold the tyres to Selfridge at the listed price and made Selfridge agree not
to sell at a lower price either and that they would pay £5 in damages if they
violated this agreement.
• Selfridge proceeded to sell the tires below the price he promised to sell them for.
• Dunlop brought action and was successful at trial but this was overturned by the
Court of Appeal and HL agreed with CA.
• There is a fundamental principle of law underpinning this decision:
the doctrine of privity, which states that only a party to a contract can sue in breach
of the contract
03/28/2024 8
Consideration must not be past
• Generally, if A promises to pay B for something that B has already done (without prior
agreement), this is not valid consideration and there is no obligation to pay.
• If A’s promises to pay B £50 in gratitude after B has saved him from drowning,
• A’s promise is made for past consideration and is therefore unenforceable.
• If B wanted to claim the money, he should have negotiated a price before he pulled A out of
the water.
• There is a major EXCEPTION to the past consideration rule under doctrine of implied
assumpsit
• At the request of the other performs a service of a kind that is normally paid for, the court will
usually assume that the service was meant to be paid for and will enforce a later promise to
pay
• For example a taxi or hair cut

03/28/2024 9
Consideration need not be adequate so long as
it is sufficient
• It doesn’t need to be economically adequate in the sense that it must be of
equal value to the thing given in exchange.
• Question:
• Would £1 for the sale of my house be adequate consideration?
• This is because judges believe that its important that parties can make any
contract that they want.
• Chappell & Co v Nestle Co Ltd (1960)  wrappers were deemed adequate

consideration, even though they were thrown away by the company that
received them, in part payment for a record that they were selling.
03/28/2024 10
• To be sufficient, the consideration also needs to be legal which, in this
context, means something that the law will approve of.
• It is not valid consideration, for example, to promise to murder

someone or share the spoils of a robbery.
• If the promisee is using something that he is already legally obliged to

do as consideration for a new contract...the general rule is that it is
NO consideration to do something you must do anyway
• The following are situations where consideration is NOT sufficient:
• Existing public duties (Collins v Godefroy – witness attending trial)

• Existing contractual duties Stilk v Myrick (1809) HC
• Existing duties to repay a debt (Pinnel’s Case (1602))
03/28/2024 11
Stilk v Myrick (1809) HC
• The claimant was a seaman on a voyage from London to the Baltic and back. He
was to be paid £5 per month. During the voyage two of the 12 crew deserted.
• The captain promised the remaining crew members that if they worked the ship
undermanned as it was back to London he would divide the wages due to the
deserters between them. The claimant agreed.
• The captain never made the extra payment promised.
Held:
The claimant was under an existing duty to work the ship back to London and
undertook to submit to all the emergencies that entailed. Therefore he had not
provided any consideration for the promise for extra money. Consequently he
was entitled to nothing.
03/28/2024 12
Intention to create legal relations
• Even when two parties have reached an agreement, there may be no
contract if they did not intend their arrangement to be legally binding.
• So An agreement to meet to watch a movie, a walk or meal is unenforceable
• As it is very difficult to establish a person’s intention, the courts have

developed 2 rebuttable presumptions:
1. family and social agreements, and

2. business agreements.
• A rebuttable presumption is one that can be overturned by evidence to the

contrary.
03/28/2024 13
Task 1
• Do you think that it would make sense for
people to be tied to every agreement or
promise they make?
• Can you think of a time when you have agreed

to something and then not done it?
• Do you think there should be legal

consequences in these instances?
03/28/2024 14
Family agreements
• In general these aren’t intended to be contracts. Why?
• Agreements between husbands and wives are

generally presumed NOT to create a legal relationship.
• Balfour v Balfour (1919)  The husband and wife

were happily married but living apart due to him
working abroad. His promise to pay her £30 a month
while they were living apart. Held it was not an
enforceable promise because of the domestic context.
03/28/2024 15
Separated spouses
• Once a couple has separated any agreement
between them is likely to be treated as legally
binding.
• Merritt v Merritt (1970)  a husband promised

his wife, from whom he was separated, that she
could keep the house if she paid off the mortgage.
• Held: that this was a business arrangement
amounting to a contract.
03/28/2024 16
• In Beswick v Beswick [1967] an uncle's agreement to sell
a coal delivery business to his nephew was enforceable.
• Why was the above case decided that way??
• In Errington v Errington [1952] a father's promise to his

son and daughter-in-law that they could live in (and
ultimately own) a house if they paid off the balance of
the mortgage, was enforceable
03/28/2024 17
Rebutting the presumption
• Just because there is a presumption that agreements
between family or friends in a social context do not constitute
legally binding contracts does not mean that they never do.
• The circumstances may be such that a valid contract can be

inferred.
• The courts will start from the presumption that the parties
didn’t mean for their agreement to be legally binding and
then look at the behaviour of the parties to make sure that
that is in fact the case.
03/28/2024 18
McPhail v Bourne (2008)
• Two former members of the pop group Busted, who left it before it became
famous, failed in their claim to obtain a share in the goodwill of the name and
the copyright of certain songs.
• The judge found that the relationship between the band members had been
informal and social in nature.
However in business context the presumption can be rebutted quite easily
Snelling v John G. Snelling Ltd [1973] 1 QB 87,

• In a family business, 3 brothers loaned money to their business, on the
agreement between themselves that if any of them resigned as a director, they
would forfeit their loaned money
• One brother resigned and attempted to recover the money he was owed
• Held: A family agreement can have legal implications, the agreement could be
relied upon
03/28/2024 19
In review... What you need for a binding
contract...
• Offer
• Acceptance
• Consideration
• Intention to be legally bound
03/28/2024 20

Consideration and Intention

Uploaded by

Copyright:

Available Formats

Consideration and Intention

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Consideration and Intention

Uploaded by

Copyright:

Available Formats

Consideration/Intention to

create legal relations

• For there to be a valid contract- there needs to be some

• Also described as ‘benefit’ and ‘detriment’  Currie v Misa (1875);

• It can be almost anything...money, deposit, services, a promise to do or not to do something, a

• In business, the consideration exchanged between the parties usually amounts to

• Consideration is not limited to tangible exchanges. A mutual exchange of promises is an

• Consideration – something of legal value given in exchange for a promise

• Consideration must be given before a contract can exist

Most common types of consideration:

1. Consideration must move from the promisee;

I promise student X that I will pay £10 to student Y.

• Can Y sue for the money if I refuse to pay?

• Dunlop, a tyre manufacturing company, made a contract with Dew, a trade

• There is a fundamental principle of law underpinning this decision:

• For example a taxi or hair cut

• Would £1 for the sale of my house be adequate consideration?

• Chappell & Co v Nestle Co Ltd (1960)  wrappers were deemed adequate

• It is not valid consideration, for example, to promise to murder

• If the promisee is using something that he is already legally obliged to

• The following are situations where consideration is NOT sufficient:

• Existing public duties (Collins v Godefroy – witness attending trial)

• The captain never made the extra payment promised.

• So An agreement to meet to watch a movie, a walk or meal is unenforceable

• As it is very difficult to establish a person’s intention, the courts have

1. family and social agreements, and

• A rebuttable presumption is one that can be overturned by evidence to the

• Can you think of a time when you have agreed

• Do you think there should be legal

• Agreements between husbands and wives are

• Balfour v Balfour (1919)  The husband and wife

• Merritt v Merritt (1970)  a husband promised

• In Errington v Errington [1952] a father's promise to his

• The circumstances may be such that a valid contract can be

However in business context the presumption can be rebutted quite easily

Snelling v John G. Snelling Ltd [1973] 1 QB 87,

You might also like