Formation VI: Consideration Statutory Revision And Conclusion (Part 3) Flashcards
(8 cards)
Module 7 – Consideration and statutory revision
If there is absence of intention to bound then there is no contract.
Essential terms
Have to be given in exchange for something of value
Complexities of Consideration
End of consideration → statutory law
Goals for this week
Privity
· Formalities and Deeds
· Consideration as a case study
In order to fix the issues of Consideration we have legislation
Contract does not have to be in writing and does not have to be signed
Can be oral
But some contracts (for example dispossession of land) have to be in writing
Deeds → are the one other way that people can bind themselves into the future
If you follow the formalities of Deed making → sign seal and deliver a deed → then you are bound into the future → even without a contract.
PRIVITY:
Great Britain Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties (HMSO 1996) 1, pp. 1-9.
· The traditional doctrine of privity
· The problem with the traditional approach: No enforcement of certain contractual obligations
o Efficiency?
o Equal liberty?
· The obstacle: A long line of problematic authorities.
Report written by Commission that set to revise the law → change the law on privity
What is privity law?
First part of Contract law → Contract law is about the creation of In Personam rights between people
I have a right against you, you have a duty against me
Different from IN REM rights → for ex: take umbrella, cannot break it, or take it, cannot treat it with negligence, because I have an In Rem right in the thing → nobody can interfere with that
SITUATION: two parties, there is an owner, and a carrier, the owner charters a boat
Contract with carrier of goods to India to England to China etc.
In this contract → the parties → the owner of the goods and the carrier → have a special clause called an EXCLUSION CLAUSE
Exclusion clause → when I make a contract, you are responsible for any loss occurred in breach of contract → for example I agree to sell you car → and price of car goes up and i dont sell it to you → I am liable
EXCLUSION → exclude some losses from the contract
In this case: damage caused to the goods during the voyage → will take goods from England to India → but am not responsible for damage to goods during this process.
These exclusion clauses apply not only to the carrier of goods → but contractors and third parties which these parties will deal with in relation to the goods.
For example: when unloading the goods from the ship (Stevedore) → covered under the exclusion clause
If Stevedore breaks something → still excluded
So Damage while unloading is covered in clause.
Stevedore takes the Goods and breaks them for example
Loss is with the owner → owner tries to find people who will take the loss from them → they will go for the Stevedore.
Doctrine of privity below.
REVISION:
Stevedore broke the thing → but they do not know the owner
Owner would stay → I have an IN REM right in the property → you don’t have to know me to be liable in negligence for the goods.
What will the Stevedore say? → i caused this damage to your goods ,–> but we have an exclusion clause which gives up liability
Owner → will say who are you → I have never met you
You are a stranger to the contract and this is about a stranger to a consideration
In order for a promise to be valid → something has to be given in return → they dont have a right
PRIVITY OF CONTRACT → contract is between the promisor and promisee
Owner of the goods and the carrier
When two parties agree between them → Owner → carrier → only has rights between them
TWO IMPORTANT POINTS:
People cannot create duties in others → if you and i make a contract → and impose a duty on a third party → cannot make a duty on a third party → between the party and themselves.
Strangers in the consideration cannot have a right between you and I → cannot create rights in you and I → doctrine of privity.
A CONTRACT CANNOT IMPOSE DUTIES ON THIRD PARTIES
STRANGERS TO THE CONSIDERATION CANNOT HAVE RIGHTS UNDER THE CONTRACT.
SECOND ASPECT:
Can we create rights in third parties?
Challenge:
Long line of authorities in 17th 18th century, and solidified in 19th century → which say parties cannot create rights in others
Challenging because → we have these clauses → exclusion clauses that are there and nobody can enforce them
Who is the third party beneficiary in this contract → Stevedore
Who will suffer a loss from this breach of contract → Stevedore
But if they go to a Court → The Court will say they can’t impose it because it is in breach of the doctrine of privity → You are a stranger to the contract, and stranger to the consideration → you have a loss but you don’t have a right → you will have to pay money. → you don’t have a right
Carrier → has a right.
Carrier → the exclusion clause should also exclude liability of Stevedores →
In Court we seek damages for a loss.
Carrier will say breach of contract here → but the Carrier will say I have not suffered any loss
Clause that is part of the contract → but the party that benefits from it cannot enforce it → the party cannot state that they got any loss → so not actionable in Court.
There are many ways that the Court tries to avoid the Doctrine of Privity → but it is very difficult → they are artificial.
IS THE RULE EFFICIENT?
How do you know it is efficient? → because people of business do it
These parties are trying to maximise surplus
Want to get Stevedore’s for cheap → want to reduce the cost of carrying goods → exclude liability etc.
Rather keep the costs low for efficiency
Issue regarding Fairness?
Courts can’t enforce what the parties agreed upon → this was the choice of the parties → Exclusion clause → choose the exclusion clause
And the Carrier → if the owner excluded liability what did he get for it → he got a cheaper price → something was given
Both parties committed to this → and yet it is unenforceable.Due to not being able to bind third parties → DOCTRINE OF PRIVITY
Privity of contract → third parties cannot claim under it due to losses due to breach.
That rule is inefficient and unjust.
For example: Foakes v Beer → Lord Blackburn in minority → HOL does not listen → there is a bad decision here similar to this → sets down this rule.
Subsequently → there is a lot of Judicial Grumby.
IS THE RULE FAIR BETWEEN THE PARTIES?
Issue regarding Fairness?
Courts can’t enforce what the parties agreed upon → this was the choice of the parties → Exclusion clause → choose the exclusion clause
And the Carrier → if the owner excluded liability what did he get for it → he got a cheaper price → something was given
Both parties committed to this → and yet it is unenforceable.Due to not being able to bind third parties → DOCTRINE OF PRIVITY
Privity of contract → third parties cannot claim under it due to losses due to breach.
That rule is inefficient and unjust.
For example: Foakes v Beer → Lord Blackburn in minority → HOL does not listen → there is a bad decision here similar to this → sets down this rule.
Subsequently → there is a lot of Judicial Grumby.
Unlike part payment of debt in Foakes v Beer → Parliament changes this
Parliament changes law on Doctrine of Privity
NZ Law Commission Work
Retired judges, academics, lawyers.
These people come together and draft legislation that is passed through parliament.
In terms of Part Payment of Debt: MWB case → the reason to reexamine Foakes v Beer is because the Law Revision Committee sat and said Foakes v Beer should be repealed → It did not find time to → but did find time to deal with the Doctrine of Privity
LEGISLATION ON THE DOCTRINE OF PRIVITY:
Contract and Commercial Law Act 2017
· 12 Deed or contract for benefit of person who is not party to deed or contract
o (1) This section applies to a promise contained in a deed or contract that confers, or purports to confer, a benefit on a person, designated by name, description, or reference to a class, who is not a party to the deed or contract.
o (2) The promisor is under an obligation, enforceable by the beneficiary, to perform the promise.
o (3) This section applies whether or not the person referred to in subsection (1) is in existence when the deed or contract is made.
· 13 Section 12 does not apply if no intention to create obligation enforceable by beneficiary
o Section 12 does not apply to a promise that, on the proper construction of the deed or contract, is not intended to create, in respect of the benefit, an obligation enforceable by the beneficiary.
· 14 Variation or discharge of promise may require beneficiary’s consent
o (1) A promise to which section 12 applies and the obligation imposed by that section may not be varied or discharged without the consent of a beneficiary if—
§ (a) the position of the beneficiary has been materially altered by the reliance of the beneficiary or any other person on the promise; or
§ (b) the beneficiary has obtained against the promisor judgment on the promise; or
§ (c) the beneficiary has obtained against the promisor the award of an arbitral tribunal on a submission that relates to the promise.
· On variation, note also ss. 15-16.
· 17 Enforcement by beneficiary
o (1) The obligation imposed on a promisor by section 12 may be enforced by the beneficiary as if the beneficiary were a party to the deed or contract.
CONTRACT AND COMMERCIAL LAW ACT 2017:
In 1982 → Contracts (privity) Act 1982 → does not exist anymore because in 2017 Parliament enacted the CCLA 2017 → it first pulls together all sorts of legislation about contracting in general
It repeals the old legislation → and incorporated it into the 2017 statute.
This act has another part which deals with Commercial Contracts
SECTION 12:
Only one part of doctrine of privity is being tinkered
No duties of third party remain
But when that duty is linked to A BENEFIT
When person benefitting references by Name, description or reference to class
The promisor is under obligation to enforce the contract
Stranger can enforce the benefit that is conferred upon him
Enforce the benefit conferred on them → this person has to be designated, by name, description or reference to class → For example: Cookie business, and I promise that I will open a store for flour next to store → did I benefit you? → Yes → this is not what we are talking about → We are talking about someone who is designated in the Contract as a beneficiary.
The person is not referred to in the contract.
BUT SECTION 13:
Section 12 does not apply to a promise that
Is not intended to create an obligation an obligation enforceable by the beneficiary → objective intention of the parties to the contract.
SECTION 14:
VARIATION OR DISCHARGE OF PROMISE MAY REQUIRE BENEFICIARY’S CONSENT:
A promise to which section 12 applies and the obligation imposed may not be varied or discharged with consent of beneficiary
If beneficiary relied on the promise and changed the circumstances based on it
For example: Me and you have a contract to pay a third party $500 → and third party relying on the right → goes and buys something and changes his circumstances → We cannot change the contract anymore → we cannot undermine the expectation given to third party →
Once we have created a benefit in a third party under the contract → somebody that was designated by name or class in the contract → and this person relied on this promise and changed their circumstances based on it → We cannot change this promise without their consent.
SECTION 15-16 → MORE ON VARIATION:
SECTION 17: ENFORCEMENT BY BENEFICIARY:
Obligation imposed on promisor in section 12 may be enforced by the beneficiary as if the beneficiary were a party to the deed or contract.
Inroad into consideration.
Can enforce contract through legislation and not common law precedent.
Laidlaw v Parsonage [2009] NZCA 291, [2010] 1 NZLR 286
FACTS:
The Laidlaws are a couple in Whangaparaoa → want to sell residential property
They want to use an instrument called → A Trust
In NZ you can be your own trustee to your own benefit etc.
When they sell the property → they sell it to Parsonage
And the people who will get the title is whoever they will nominate
And end up nominating the trustees → Parsonage, and another person
This contract includes a warranty → opposite of a exclusion clause → if there is something wrong with this property I will protect against it → IT IS A LEAKY BUILDING.
People who got the title in the property are nominees
The loss → leaky building
Current owners → trustees → want to go back → and say you sold this house with a warranty → come and fix the damage
SELLERS → Say no → the nominees were not named as immediate beneficiaries
Claim of landlord → trustees are not named, described or referenced in the trust → section 12 → has to be mentioned by name etc.
Not enough that they got something → has to be a benefit that is conferred by the contract
It was conferred when they were nominated as owners
CAN THE NOMINEE ENFORCE THE WARRANTY?
ARE THEY “DESIGNATED” IN THE CONTRACT
The beneficiaries can say you owe us this → Third party is trustees
They are not designated by name
There is no description
There isn’t a class of people
So they cannot benefit.
Parsonage is owner as a trustee.-> Parsonage together with other trustee.
Trustee is saying → we never met → we never met → we are strangers to the consideration → Parsonage made the contract not the trust
But that does not matter because we have Section 12 → we want to enforce the warranty under that.
Laidlaw says no → you were not mentioned by name, description, or reference to class.
Title is in the trust → not the person who gave party to the contract.
JUDGEMENT JUSTICE ELLEN FRANCE:
Court:
A remedial statute → Statutory interpretation → Here we have a defect in the common law → and remedial statute will remedy the common law → in particular the common law →
Ellen france → Remedial statute should be given a fair, large and liberal interpretation
Courts will not read down statutes → it will give it a liberal large interpretation pursuant to the statute
Tipping J rejected the view that nominee not mentioned and only received the benefit through nomination → and not third parties to contract → but that is not giving the statute the fair large and liberal interpretation.
The reason why we have name, description, class → is so we know the beneficiary → someone can exercise discretion on who can benefit from it.
It was good enough.
They could have said you have to be designated by name → Read down approach
Trustees of the family by description
But to interpret Remedial statutes you have to give them a fair, large and liberal interpretation.
FORMALITIES AND DEEDS:
Very old legislation
Replaced by modern legislation
Vincent v Premo Enterprises → Old common law that has been around a long time
Modern legislation gives it statutory form
Codifies it → deeds legislation
S 24 Property Law Act 2007 (Contracts for disposition of land not enforceable unless in writing)
· (1) “A contract for the disposition of land is not enforceable by action unless the contract is in writing or its terms are recorded in writing; and the contract or written record is signed by the party against whom the contract is sought to be enforced.”
· (2) In this section, disposition does not include—
o (a) a short-term lease; or
o (b) a sale of land by order of a court or through the Registrar.
Can have ownership that is full ownership
But we can have lesser proprietary rights in land
Don’t become the owner of it → but it becomes a lease
You can have a mortgage in real estate →
Go to bank and ask for mortgage → you get an IN REM right in my property
It means that if i default on my loan → you have the right in the land to take it sell it and recover from the proceeds.
There are many kinds of interests in land
Can there be an oral contract → YES. → only if the terms are recorded
It can be an agreement in oral writing but there has to be a record in writing of it.
Has to be recorded in writing.
Does not have to be signed by the two parties → but if you want to enforce it → the party that wanted to enforce it against has to have signed it.
Origins of Statute of Frauds 1677 → all sort of contracts have to be enforced in writing
Value is about certain sum of money
Statute that has been enforced in multiple jurisdictions for 350 years → This means that it is good law.
Why is this a good thing? → why are these specific contracts needed in writing?
Over the last 350 years → for most middle-class people → in their lifetime they only have one asset of real substantial value → and that is usually their home → you do not want to find out that someone owns your property
Oral contract between us → there is a lot at stake so it is important that it is recorded
The Law increases the cost of contracting.
WHY? – Public interest in who owns what in terms of land, registrar of land
Each address in Auckland → You can look up who owns it.
IMPORTANT TRANSACTION FOR THE PARTIES.
S 9 Property Law Act 2007 (Deed must be in writing, executed, and delivered)
· (1) A deed must be—
o (a) in writing; and
o (b) executed in accordance with this section; and
o (c) delivered in accordance with this section.
· (2) An individual executes a deed if—
o (a) he or she signs the deed; and
o (b) his or her signature is witnessed in accordance with subsection (7).
· (3)-(6) [how a body corporate and the Crown execute a deed]
· (7) A witness—
o (a) must not be a party to the deed; and
o (b) must sign the deed; and
o (c) if signing in New Zealand, must add—
§ (i) the name of the city, town, or locality where he or she ordinarily resides; and
§ (ii) his or her occupation or description.
· (8) No particular form of words is required for the purposes of subsection (7)(c).
· (9) A deed is binding when—
o (a) delivered by—
§ (i) the person to be bound by it; or
§ (ii) another person having express or implied authority to deliver it on behalf of the person intended to be bound by it; and
o (b) either—
§ (i) it is apparent from the circumstances that the person to be bound by the deed intended to be bound by it; or
§ (ii) if the binding force of the deed is subject to the fulfilment of 1 or more conditions, when each condition is fulfilled.
Need to know common law on deeds before reading the legislation
Has to be in writing,
Executed in accordance with section
Delivered in accordance with section → delivery is what the common law means by delivery
Execute → sign it, and it has to be witnessed, it cannot be the maker of the deed, or beneficiary of the deed, if they are in NZ should add information above.
When is a deed binding? → delivered by the person,
Explains what delivery is? Avincing an intention to be bound.
Different kinds of legislative intervention.
DEEDS:
Deeds are not a contract
Apart from a contract to make binding promises into the future
The rules on deeds are very old and very good and lively
Found in Vincent v Premo → Lord Denning.
Vincent v Premo Enterprises (Voucher Sales) Ltd [1969] 2 All ER 941 (CA)
· Lord Denning MR
o 944: “The law as to ‘delivery’ of a deed is of ancient date. But it is reasonably clear. A deed is very different from a contract. On a contract for the sale of land, the contract is not binding on the parties until they have exchanged their parts. But with a deed it is different. A deed is binding on the maker of it, even though the parts have not been exchanged, as long as it has been signed sealed and delivered. ‘Delivery’ in this connection does not mean ‘handed over’ to the other side. It means delivered in the old legal sense, namely, an act done so as to evince an intention to be bound. Even though the deed remains in the possession of the maker, or of his solicitor, he is bound by it if he has done some act evincing an intention to be bound, as by saying: ‘I deliver this my act and deed.’ He may, however, make the ‘delivery’ conditional: in which case the deed is called an ‘escrow’ which becomes binding when the condition is fulfilled.”
FACTS:
Dealing with a lease,
They are owners of the property → there are several lessees.
The lease is transferred from one lessee to another
Now time comes to create a deed of leese → to make promises to each other
Each party gets a copy of the lease → And execute the lease (sign it)
And hand it over to their lawyers
Lawyers do not exchange each their parts to each other.
Concorde v Anthony → parties agree and type it up → but the other party does not sign it.
The Court says no agreement here.
ARGUMENTS:
The defendants signed and sealed and delivered it in the presence of a witness
Sign, seal and deliver it
Done in the common form
Sign seal and delivery
And then return document
Each part of the lease was in the hands of solicitor
Each solicitor had gotten signature but did not return it.
LORD DENNING:
The law as to the delivery of deed is of ancient date but is clear
Deed is different from contract
Contract is not binding until exchange their parts → offer and acceptance
With deed → it is binding even though parts not exchanged → does not have to be based on offer and acceptance or consideration
JUST NEEDS TO BE SIGNED SEALED AND DELIVERED
The way the respondents thought → since they have not exchanged parts they haven’t delivered the deeds → but delivery does not mean handed over → An act done as to avince → DOING SOMETHING WHICH SHOWS AN INTENTION TO BE BOUND
Bound if he has done some act avincing intention to be bound → I delivered this act and deed → how do you make a deed? You sign it and seal it, it has to be witnessed and has to be delivered.
Showing something that you intend to be bound. →
At times you can make a deed and add a condition.
One set of circumstances → you set and seal → and say you are not sure yet → have not avinced yet
Or you can add a condition → An escrow →
Escrow → is a deed with a condition attached to it. Sometimes lawyers hold a sum of money in Escrow → Hold money in escrow with a deed in Escrow that will become binding when a deed is set → then it becomes valid and money is paid.
What was the condition attached to the Deed? → the parties says that they make the deed, and make it binding but add a condition that it will come into effect at a certain time → and what to do with rent payable before that date.
This is fulfilled before Court → escrow is met → and the deed is valid and binding.
Consideration as a case study (summation questions)
The doctrines
o Contractual variation
o Promissory estoppel
o Privity
· In light of the rationales
· The big tensions
· General lessons for formation?
In all of these cases → you have to know the common law in Contracts in order to understand the statutes.
Or have to understand what common law is being codified.
Principle of Contract law → equal choice of the parties → usually all of the rules go back to that
Reasons in Justice, and efficiency to make these rules
Contract → when the parties choose to be bound
Promissory Estoppel etc. → strong reason to choose, but there is no consideration → law is unhappy because rule in practices is outside of the principles of the field
PADLET QUESTIONS:
Is Cookes Global Approach about reading the facts as a whole?
It is another tool in our arsenal → not the rule in understanding offer and acceptance, it is a holistic approach that looks at the entire agreement and is there real agreement on both parties looking at it
It is not the authoritative rule → as many judges believe you have to go through Offer and Acceptance in a mechanical way. → the formalities of the contract.
Is an Invitation to treat an invitation for others to make a price?
The price is on of the terms of a contract → there are many terms (price being one) (usually an important term)
Offer includes all the essential terms including the price → if there is negotiation on price does it become a counter-offer.
Constitute a rejection of the initial offer and a new offer.
Revocation → offer is master. Is that the same for termination?
How the offer is accepted and termination → goes to the objective interpretation of the choice of the offeror → their expression of their willingness to be bound
Why is it necessary to have absurdity exception to postal rule?
Postal rule applies whenever there is an expectation that it will occur via post (acceptance)
Unless it is clear that it would be absurd to apply the postal rule → absurdity is not an exception it is a measure on the unreasonableness that we are required to see.
In cases where the postal rule does not apply.
It has to be unreasonable in the sense of leading to an absurdity.
For example: I need to sell it at the end of the business day, and post it at 5pm → that would be absurd. For example; something of value needed to give away today, i have to know by end of the day, post it at 4pm → that is absurd in the circumstances → I told you I needed to know at 5pm → posting at 4pm is outside of the objective intention
Battle of forms, how do we know what rules to be applied?
Denning → sometimes it is person who first first shot, and sometimes person who fires the last shot
It is the one that infers the best objective choice of the parties in the end
Specific context: Battle of the forms applies to commercial situations (usually) where parties exchange multiple forms with terms and conditions, and question is whose terms and conditions govern the contract?
We go back to the objective intention of the parties
ExCellO Corp → Denning looks at the interaction and states you are bound when you sign the words → that is an objective expression of your choice → and that shows your objective expression → you cannot say otherwise (based on subjective intention).
Termination of offer? What is the difference between agreement to sell and offer to sell?
An offer is something one person makes →
An agreement is what we have when someone accepts that offer.
If we make an agreement by following rules of formation → at the end we have a binding contract.
When the Court is looking at whether parties intended to be bound, can they look at the adequacy of consideration?
In order to be good consideration → the exchange does not have to be adequate
On rules of consideration we look at only at the sufficiency of the consideration
When evaluating a situation → we look at the weight and actual value of the thing given → Although there is no clear rule of law that says this → Jones v Padavatton → Daughter failing law school case.
Jones → part of reason to believe a contractual obligation is of the weight of the sacrifice that the daughter made. → that goes to the weight of the consideration
Promissory Estoppel? Given that most disputes involve some unfairness → how do we determine what constitutes unconscionable conduct → threshold?
The conduct has to be unconscionable to go back on word
Going back on word is already unfair
Rule of law → whatever it is → it has to be more than just going back on your word → that cannot be the inequity
Rules of when promissory estoppel happens: Inducement to rely on the promise, and actual reliance on promise to the promisee (To the detriment of the promisee) → going back on the word has to be unconscionable.
Going back on promise → is not enough → has to be additional
Wilson Parking → standing by, and waiting for them to sell → then snatching the greater value of the land → that is taking advantage → not just going back on word. → there is something extra.
Walton Stores → Seeing him demolish the structure → and telling the lawyers to go slow. → this is unconscionable. → We do not want people to behave like that → that is unconscionable.
Would commercial parties who likely have access to legal advice be relevant to unconscionability?
The law does not make this distinction
Elsewhere in the law → equitable doctrine
Wilson Parking were advised by lawyers
Walton → were advised by lawyers.
Opportunity for corporations to act differently from natural persons is far greater → but still has to be something beyond → for it to be unconscionable.
CONSIDERATION:
Adequacy does not matter
Promissory Estoppel:
Economic duress caused if consideration would confer that it has to be practical benefit?
Potentially.
Variation of contract without consideration → Sailors negotiating fees at see, carpenters renegotiating during work
If there is no duress we will allow it
In this rule: Parties need power to vary the contract without consideration
Part payment of debt → Rofey Bros, Stilk v Myrick → If Captain at sea were unable to vary the contract benefiting the sailors, the sailors would have deserted.
Denying them that power is also a cost.
Foakes v Beer. If Foakes were to change it would be by Parliament. But Sumption L in obiter in MWB states that only the SC can overturn it?
Doctrine of precedent in the common law.
Decisions of higher courts bind lower courts
Decisions of Courts on same level can overturn same level → but judges should be reluctant to do so.
Stilk v Myrick past consideration cannot constitute consideration → what is an example of new consideration?
When parties make a promise something must be given in return
It can be doing something → Unilateral in Carlil →
Promise is good consideration
New things that the promisor does not have yet
Promisor does not have these things yet.
For example: make promise after giving me $500 to make you a mailbox → Not good consideration → that is in the past
When i make the promise I am not getting anything in return as I already have the $500.
If you promise something that you are already supposed to do → that is not good consideration → Godfrey.
Stilk → obligation to perform duty → have not given anything new for the variation.
Rofey → additional sum to the carpenter for something he promised to do before.
Roffey Bros → there was a promise to pay more for each apartment. What consideration was given?
The answer cannot be what I already am bound to do → Rofey already has that
Court → there is a practical benefit (which is consideration)
UCC → says dont worry about consideration
Promissory estoppel:
Law is not in High Trees
Law in promissory estoppel is from Walton Stores and Anton Trawling
Shield
High Trees is not the rule on Promissory Estoppel.
Section 24 of Property law Act:
Applies only to property → only to the dispossession of interest in land
DOES NOT APPLY TO CONCORDE v ANTHONY.
