• Elena Handtrack

Consideration & Intention to Create Legal Relations: Is Two Really Better?

English law’s current rule for the formation of a contract requires both consideration and an intention to create legal relations (ICLR). The necessity and desirability of the consideration requirement have been subject to debate. But although some argue that consideration’s purpose is separate from that of ICLR, the concept of ICLR can be interpreted expansively to cover the justification of a contract’s enforceability which is created through consideration. Consideration has already been practically diminished through exceptions to it being carved out one after another. But although the doctrine has been weakened and could be subsumed by an expansively interpreted concept of ICLR, it should persist due to its importance for the layman in signifying the entry into legal relations.

Purpose of Consideration

The giving of consideration signifies reciprocity as both parties give something in return for something else. Chen-Wishart argues this reciprocity is what later justifies contractual remedies according to the expectation measure if the contract is unperformed since the party has given something in order to be afforded the benefit of these remedies (Contract Formation and Parties, ch. 5). Atiyah agrees with this justificatory role of consideration, but he interprets the concept of consideration more broadly as a reason for enforcing the promise (Essays on Contract, Essay 8). He also includes in those reasons vitiating factors, which he sees as part of the general rule of consideration and not merely exceptions to it. Such a broad interpretation of the concept of consideration is undesirable as it obscures the fact that the questions whether there was consideration and whether there is a reason for not enforcing the promise despite the existence of consideration are two different questions (Treitel (1976) 50 A.L.J. 439). Consideration is therefore to be interpreted narrower but nonetheless as serving a justificatory role.

Purpose of ICLR

ICLR serves a much more diminishes role in the current law, even though it remains a requirement for the formation of a contract. It can often be inferred through the giving of consideration, but it becomes important in distinguishing domestic cases where no actual contract was formed from real contracts. Cases such as Balfour v Balfour are subject to the presumption that there is no intention to create legal relations through family arrangements. The concept of ICLR therefore ensures that the courts’ time is no wasted upon disputes are primarily familial and not legal disputes by asking whether a reasonable person would consider that there was an ICLR (Carlill v. Carbolic Smoke Ball Co).

Reduced Practical Effect of Consideration

In practice, the concept of consideration has also been diminished significantly. While its justificatory role as pointed out by Chen-Wishart would suggest that the consideration would have had to be something of value in order to serve its justifying effect, this is not the case. Anything, regardless of its (non-)value can serve as consideration (Chappell v. Nestle) as long as it is real in the eyes of the law (Arrale v Costain Civil Engineering Ltd). Subject to few exceptions such as past performance (Roscorla v Thomas) and a smaller sum in satisfaction of a larger debt (Pinnel’s Case) not constituting consideration, almost anything of little to no actual value can serve as consideration. Consideration’s own justificatory role is there a lot less justified since it is unclear as a matter of logic why the handing over of a worthless item should give you a contractual action but the intention to be bound and make the contract enforceable should not.


That the thing given as consideration may lack actual value has also been shown by the practical benefit analysis of Williams v. Roffey Bros & Nicholls for consideration for the variation of contracts. It is hard to see what the promisee gains from being promised the same thing again as he already has the right to enforce that promise. Chen-Wishart argues he gains the performance interest since that is not actually protected by the current law in practice (Contract Formation and Parties, ch. 5), but this argument becomes weak in light of the fact that there is nothing stopping the promisor from defaulting from the new agreement and then either requesting another modification or the promisee being left with damages instead of receiving the performance interest. He therefore does not really gain something new.


Consideration has been further weakened by it not being needed in all cases: Deeds do not require consideration and third parties who may enforce their benefit under a contract under s. 1 of the Contracts (Rights of Third Parties) Act 1999 are also not subject to the doctrine of consideration (though the original parties to the contract are). Another cases where the doctrine is essentially disregarded is promissory estoppel: If it would be unconscionable for the promisor to walk away from his promise after the promisee detrimentally relied on it, the promise may be enforced in the absence of consideration (Collier v Wright).

Should Consideration be Abolished?

In light of the doctrine’s considerable weakening, the question remains whether it is necessary or whether it could be subsumed by ICLR. Since consideration can be given in the form of something which has little to no actual value, its justificatory role for contracts’ enforceability is weak at best and ICLR could accomplish the same justification: when we intend to be bound, we intend for our promise to be enforceable (pacta sunt servanda). This would make consideration merely reflective of a broadly interpreted concept of ICLR, as was also suggested in the Singaporean case Gay Choon Ing v Loh Sze Ti Terence Peter.

Does this mean we should abandon the doctrine of consideration? While the above argument is easily understandable to legal professionals, it is an impractical solution for the layman. The layman does not concern himself with the justification of a contract’s enforceability - he just needs to know whether what he promises is something he could be sued for upon non-performance. Law is a social institution and the layman get much of his legal knowledge from the culture that surrounds him and which has been influenced by the laws he is subject to. Given the lack of formality required for the formation of a contract (for example regarding the formation of oral contracts as in Wells v Devani), the handing over of something is the necessary warning needed to inform the layman that he is entering into legal relations. Laymen hardly think to themselves ‘I will now enter into legal relations’ - the act of handing something over therefore serves to signify to them what they are entering and also helps the courts to see whether or not there was ICLR on the part of the parties.

The absence of the consideration requirement for deeds is justified as there, the formality requirements for deeds (s. 2, Law of Property (Miscellaneous Provisions) Act 1989) signify to the layman the he is entering into legal relations. The exceptions of promissory estoppel and exceptions under the 1999 Act can be justified since they make contract law more practical for everyday life. The Roffey exception, on the other hand, does not even serve to help the layman understand he is entering into legal relations as he is not given something new. It is therefore doubtful whether the exception should have been carved out of consideration.

So… Are Two Really Better?

The doctrine of consideration could be subsumed by an expansively interpreted concept of ICLR, but doing so is undesirable due to the social role considerations performs. Such an argument is, however, time-specific and the impact of exceptions to the doctrine of consideration, such as the 1999 Act and promissory estoppel, may be that the layman adopts and that this argument will no longer hold up in the future.

Cases

Balfour v. Balfour [1919] 2 KB 571

Carlill v. Carbolic Smoke Ball Co [1893] 1 QB 256

Chappell v. Nestle [1960] AC 87

Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd's Rep. 98

Roscorla v Thomas (1842) 3 QB 234

Pinnel’s Case [1602] 5 Co. Rep. 117a

Williams v. Roffey Bros & Nicholls [1991] 1 QB 1

Collier v. Wright (Holdings) Ltd [2008] 1 WLR 643

Gay Choon Ing v Loh Sze Ti Terence Peter [2009] SGCA 3

Wells v Devani [2019] UKSC 4; [2019] 2 WLR 617

Academic Writing

Chen-Wishart, “A Bird in the Hand: Consideration and Promissory Estoppel” in Burrows, et al. Contract Formation and Parties. 2010.

Treitel, “Consideration. A Critical Analysis of Professor Atiyah's. Fundamental Restatement” (1976) 50 A.L.J. 439

Atiyah, P. S. Essays on Contract. Clarendon, 1990. (Essay 8 – p. 179ff)

Legislation

Contracts (Rights of Third Parties) Act 1999

Law of Property (Miscellaneous Provisions) Act 1989

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