In this case there is a sequence of events that have been taken place involving five characters or individuals.

First is the person called Leonato who lives alone after his spouse has died, then comes Beatrice and Charles who is a couple and Beatrice seems to be the niece to Leonato who offers to move in with Leonato and to look after him. There is also a third party that comes into play who is John who Charles owes a sum of money to. Last but not least is Pedro who is in position as a financial advisor for Leonato. In order to advise both parties we have to go deep into the facets of the law of Contract and dissect the sequence of event in a chronological manner. Primarily to begin with this case, it is of cardinal importance to adjudicate whether there is a valid contract between Leonato and Beatrice. Beatrice and Charles offers to look after him, therefore Leonato reassures them if she and Charles pay the mortgage instalments, they will own the house on his death. On the facts of this case we can construe that it was a bilateral offer when Leonato tells Charles and Beatrice if they pay the mortgage instalments, they will own the house, therefore there was an agreement where both parties exchange mutual promises. As for example, if your friend drives you to school on Tuesdays and Wednesdays in exchange for your promise to return the favour on Thursdays and Fridays then a bilateral contract would be formed binding both of you once you provided consideration by accepting to those terms. The genesis of making a valid contract can be extracted in the Indian Contract Act [1872]1 . It is laid down that a contract is an agreement, enforceable by law2

1 2

Indian Contract Act [1872] Available at http://theindiancontractact.blogspot.com/2012/07/the-indian-contract-act-1872.html accessed on 9 December 2013

A binding contract consists of a few prerequisites that have been acknowledged by Lord Wilberforce in the case of The Eurymedon[1975]3 namely an offer, acceptance, intention to create a legal relationship, consideration, privity and capacity. In this case however, the scenario makes it imperative to focus on the dispute of consideration. The orthodox interpretation of consideration is defined as badge of enforceability4 which plays a pivotal role in an agreement. The core defining consideration can be expressed in Currie v Misa [1875]5 where it states, a valuable consideration in the sense of 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 other6. It should not be denied that there was no consideration when Beatrice and Charles agreed to pay the mortgage in return of the favour Leonato agreed to pass on the house to them upon his death to make it a valid contract. Per contra the facts that the parties have reached agreement does not necessarily mean that they have concluded a legally enforceable contract even where the agreement is supported by consideration7. Before proceeding deeper in the dissecting the facts of this case, we have to contemplate the hallmark basis doctrine of the intention to create legal relations. The fact that Leonato could say that he did not intend that their agreement would have legal consequences can be illustrated in the case of Balfour v Balfour[1919]8 where the wife of a husband sought to administer a promise to pay her Thirty Pounds per month while the husband worked abroad. However

The Eurymedon [1975] AC 154 Ewan McKendrick, Contract Law ( 9th edn Palgrave Macmillan, New York 2011) 5 Currie v Misa [1875] 6 Jill poole, Casebook on Contract Law ( 11th edn OUP, Oxford 2012) 7 Ewan McKendrick, Contract Law ( 9th edn Palgrave Macmillan, New York 2011)109 8 Balfour v Balfour [1919]
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she failed because she did not provide any consideration for the promise of her husband and it was held that the parties did not intend their agreement to be attended by legal consequences. As Atkin LJ stated that, agreements such as these are outside the realm of contracts altogether as the common law does not recognise the form of agreements between spouses because the consideration for them is natural love and affection9 Therefore Leonato could say that he did not intend the magnitudes would lead to a legal matter because Beatrice is Leonatos niece which makes Beatrice blood related to him. In siding for Beatrice and Charles, they can assert that there was sufficient consideration because she agreed to take care of Leonato until his death, that means there would amount to some monetary worth. In the case of Chappell v Nestle[1960]10, the principle seems to indicate that consideration must have some economic value rather than just an emotional or a sentimental one11. Thus proving that the consideration is sufficient to form a valid binding contract. In light of the case of Parker v Clark [1960]12 it is heavily similar to the facts on this case. The defendants suggested their friends to move in with them, however the claimants told them that they would need to sell their house if they were to move in with them. The defendants then replied stating that they will leave the claimants a share of their house in their will. On this basis, the claimant moved in with the defendants. The parties soon to disagree with several matters, therefore the defendants asked the claimant to leave the house. The

Jill poole, Casebook on Contract Law ( 11th edn OUP, Oxford 2012) Chappell v Nestle [1960] 11 Jill poole, Casebook on Contract Law ( 11th edn OUP, Oxford 2012) 12 Parker v Clark [1960]
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defendants argued that there was no contract between them because of lack of intention to create legal relation. Devlin J denied the submissions from the defendant because the intention to create legal relations were present because there the consideration was sufficient when both parties promised something for an exchange as consideration must be sufficient, but need not be adequate.13 Therefore Beatrice and Charles could charge Leonato for breach of contract as there was a valid contract moulded. Following this further, prima facie on the facts of this case when Beatrice spends to redesign Leonatos house at her own expenses. As for the actions of Beatrice, Leonato said he will pay her for her excellent work. This brings to a query on whether this statement which is a consideration is formed during when the contract was formed. In nimble of the principle of that past consideration is not good consideration is demarcated as, any act carried out before a promise is made cannot be sufficient consideration to support the promise because it is not carried out in exchange for the promise14. Therefore Leonatos promise cannot be enforced because it came after the act was done by Beatrice. To further affirm that it is a past consideration It can be portrayed in the case of Re McArdle[1951]15 where she carried out improvements and repairs on a bungalow which formed part of the estate of her husbands father. After the work had been carried out the brothers and sisters signed a document stating in consideration of you carrying out the repairs we agree that the executors pay you 480 from the proceeds of sale. However, the payment was never made. Therefore concludes that it is a past consideration which is not good consideration.

Ewan McKendrick, Contract Law ( 9th edn Palgrave Macmillan, New York 2011) 14 Jill poole, Casebook on Contract Law ( 11th edn OUP, Oxford 2012) 15 Re Mcardle [1951]
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On the contrary, from the perspective of the appellant of which argument she could arise with is the tool of prior request device16. This device enables the courts to avoid the precise nature of the past consideration rule and allow such promises to be enforced. However there must be a prior request to carry out the act, which carries with a promise to pay or benefit the performer of the act in some way. Thus merely fixes the reward. The subsequent event in the flow of the case is when Leonato decides to to pay twothousand pounds from the debt that Charles owes from John which was four-thousand pounds. This consequently brings us to the subtopic of part payment of debt under consideration. In this case it is clearly stated that the debt is not completely settled, therefore it is of part payment done by the debtor to the creditor. Payment of a smaller sum in satisfaction of a larger sum is no satisfaction of that larger sum17. This is the general rule that can be extracted from the case of Pinnel. Pinnels Case [1602]18 depicted that In such circumstances the debtor must provide consideration for the creditors promise to release him19. As aforesaid, John now demands the remaining balance which is two thousand pounds from Charles. It is mandatory to take gaze upon at the general rule for the part payment of debt before executing the scrutiny of the exceptions to this principle. Looking back at the old rule that lays that performance of an existing duty does not constitute as a consideration which is heavily applied to the relevant phenomena when accepting part payment of debt in discharge of the entire debt is definitely not supported by consideration. Therefore in

16 17

Jill poole, Casebook on Contract Law ( 11th edn OUP, Oxford 2012) Availabe at http://www.insitelawmagazine.com/ch5consideration.htm accessed on 9 December 2013 18 Pinnels Case [1602] 19 Jill poole, Casebook on Contract Law ( 11th edn OUP, Oxford 2012)

simple words, it construes that the debtor still is contractually obliged to pay the remaining balance of the debt because the debtor has done only what he was legally obliged to do anyway under the debt contract. This theory is fortified by the case of Foakes v Beer [1884]20 where Dr Foakes owed sum of money from Mrs beer from a previous judgement in an earlier case. Therefore Dr Foakes immediately paid some money and offered to pay the rest by instalments and Mrs beer agreed that no enforcement would be made against provided he kept up with the instalments. Faithful to the agreement, Dr Foakes completed the payment but then Mrs Beer brought up an action to the interest. Although the interest of the instalment was not in the agreement Dr Foakes was liable to pay the interest because generally judgement debts incurred interests. Therefore brings us to solidify the principle where the agreement reached amounted to part payment of a debt and under the rule in Pinnel's case this was not good consideration for a promise not to enforce the full amount due.

Now we have to ponder at a few focal queries that is whether there is an exception to the general rule in this case. It is irrefutably true that there is an exception because in every general rule there is an exception, in this case however is the exception of payment of a smaller sum by a third party. In light of this case, John demands the remaining 2000 pounds from Charles which we can arise that he wants to bring a lawsuit to Charles. By applying the exception rule, where a third party makes the smaller payment in satisfaction of the larger sum, the creditor may not sue the original debtor for to allow the creditor to

20

Foakes v Beer [1884]

do so would be a fraud on the third party21. In the course of resolving this conundrum, the case of Hirachand Punamchand v Temple [1911]22 has to be taken into account. The claimants were money lenders in India that lent money to the defendant Lieutenant Temple who was an army officer serving in India. The claimants sought return of the money from the claimant but instead of looking for him they contacted his father. The claimants asked how much would he be prepared to pay to settle the son's accounts. An amount was agreed which was a substantial, amount although not the full amount due. The claimant promised to send the promissory note relating to the son's debt to the father once they received payment. The father paid, but the claimant retained the promissory note and sued the son to enforce the balance. Vaughan Williams LJ depicted that the payment was sufficient to discharge the full balance of the debt because making or settling the payment in return for discharging the debt owed by another would amount to good consideration as the existing duty to make payment was not owed by them but a third party. This aggregates to say that John is unable to sue Charles for the remaining of the debt as it is against the exception to the general rule of part payment of debt. Per contra another to further affirm this scenario when a third party gets down to pay a creditor what is due to him, a valid contract between the John and Leonato which would fend off John from suing Charles for the balance of the money under the Contracts (Rights of Third Parties) Act 199923 Another query that has to be resolved is that when Leonato asked Charles to construct a new garden wall for 5000 pounds. Instead of completing the work given where Charles agreed to do so, he realised that the payment made by Leonato wouldnt be

21

Available at http://www.insitelawmagazine.com/ch5consideration.htm accessed on 9 December 2013 22 Hirachand Punamchand v Temple [1911] 23 Contracts (Rights of Third Parties) Act 1999

sufficient because Charles as an experienced contractor wants to use special bricks that would cost another 1000 pounds therefore the payment made by Leonato as he agreed again in total would amount to 6000 pounds. At this juncture it is apparent that the theory of practical benefit comes in to play. The case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991]24 has to be taken into our stride in determining whether practical benefit exists. This case apparently is heavily similar to this but to distinguish the facts is when the courts held that consideration was provided by the claimant conferring a benefit on the defendant by helping them to avoid the penalty clause. On the contrary when Charles asked for an extra 1000 pounds from Leonato for the use of special bricks is considered practical benefit to the defendant who is Leonato and also a sufficient consideration .Therefore Leonato was liable to make the extra payments as promised. This paves the path to the last but not least issue of the case, on the facts where Leonato was told by Pedro his financial advisor that Beatrice and Charles were taking advantage on his generosity. Therefore blindly asking Beatrice and Charles to leave the house as they will also not be getting any sum of money from him. This statement contradicts with the previous issue on practical benefit. It clearly proves that Leonato has to give Charles the remaining balance because there was sufficient consideration which is a dominant pillar to make it a valid contract between them. As aforementioned, we have to gaze back upon to the first issue on whether there was a valid contract present because Leonato wants Beatrice and Charles to leave the house. In accordance with Leonato, he may argue on the facts that Beatrice and Charles had an ulterior motive in the agreement made. This now begs the quandary whether this can be construed as an illusory promise. Nolos plain English Law dictionary defines illusory promise as,
24

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991]

A promise that pledges nothing, because it is vague or because the promisor can choose whether or not to honor it. Such promises do not create contracts and are not legally binding25. To stich the facts together is when Leonato promises to give the house to them upon his death, this however is in his own discretion because the promise made was vague and may be not enforceable. This renders to when the promise was made, it can be said that Beatrice and Charles had a hidden interest or meaning to the contract made which falls into the good faith in a contract. An implied term of having a good faith is needed in the crux of a contract made and therefore the parties should not deliberately hinder the completion of the contract. Good faith typically means, honesty in fact in the conduct or transaction involved26.

Therefore Leonato may be able to rescind the contract by saying that the contract made was not in good faith. This statement can be fortified by using a persuasive case In 1933, in the case of Kirke La Shelle Company v. The Paul Armstrong Company [1933]27, the New York Court of Appeals said:

In every contract there is an implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing.

25 26

Nolos Plain, English Law Dictionary, (1 Edn 2009)

st

Available at http://www.legalmatch.com/law-library/article/contract-good-faith-and-fairdealing.html accessed on 9 December 2013 27 Kirke La Shelle Company v. The Paul Armstrong Company [1933]

However it is extremely crucial to be in accordance on the appellants position. Contravening to my first issue on whether there was a valid contract formed, it is affirmative to say that there was present of a contract because according to the case of Dunlop v Selfridge[1915]28 consideration is defined as the price for which the promise of another is bought. Thus affirming that each party in this case has given something in return for anything that is gained from the other party. Therefore by Leonato asking them to move out from the house is equivalent to breach of a contract. Subsequently, Beatrice and Charles may be able to seek for remedies or damages in the sense of owning the house after Leonato has passed on because the contract was made enforceable. The underlying doctrine that fortifies the defence is the defence of promissory estoppel. It is defined as,

consideration substitute in contract law that renders certain promises otherwise lacking in consideration binding and enforceable. In such cases, the promisees reliance is treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promisor from denying the existence of a contract for lack of consideration.29

The maxims of this doctrine can be branched out into seven stems. Firstly there must be a pre-existing contractual relationship between the parties. On the facts where offer and acceptance has been established, intention and consideration is present, it is affirmative to say that there us a pre-existing contractual relationship between the parties. This theory is fortified by the case of Michael Jackson v Durham Fancy Goods[1969].30 Secondly is that there must be a clear and unequivocal promise not to enforce a persons full legal rights. The
28

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL Available at http://www.lawnix.com/cases/promissory-estoppel.html accessed on 9 December 2013 30 Michael Jackson v Durham Fancy Goods [1969]
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message was crystal clear that Leonato would give the house to Beatrice if she and Charles paid the mortgage of the house and took care of him, therefore there was no ambiguous promise was made. This can be extracted from the case of China-Pacific SA v Food Corp of India[1982].31 Subsequently the promise must have acted in reliance on the promise and it must have influenced their conduct, on the grounds it was Leonato who influenced Beatrice and Charles to move in by saying that they can own the house after he has passed on although there were exceptions. It can be portrayed in the case of Alan v El Nasr[1972].32 Next is future rights must not be destroyed as promissory estoppel is only used to prevent rights being exercised for a period of time, not to destroy the rights forever. The case of Tool Metal Manufacturing v Tungsten Electric[1955]33 has to be taken into account .Fifth is the most imperative principle where new rights must not be created, as promissory estoppel is a shield, not a sword. Essence of this principle can be seen in the case of Combe v Combe[1951]34. Next is promissory estoppel must not be prohibited by legislation, as ruled in the case of Evans v Amicus Healthcare ltd[2003]35. Finally is whoever relies on promissory estoppel must come with clean hands. It can be mined from the case of D&C Builders v Rees[1965]36. So in order for a party to use the defence of promissory estoppel, all these criteria have to be encountered. It can be submitted most probably both parties have met the benchmarks

Conclusively it may be plausible to say that there was a contract formed between Leonato and Mr and Mrs Charles. Therefore Leonato may have a contractual obligation to

31 32

China-Pacific SA v Food Corp of India [1982] Alan v El Nasr [1972] 33 Tool Metal Manufacturing v Tungsten Electric [1955] 34 Combe v Combe [1951] 35 Evans v Amicus Healthcare ltd [2003] 36 D&C Builders ltd v Rees [1965]

give the house to them upon his death. Per contra there might be no contract legally formed between them thus saying that Beatrice and Charles might not get the house after Leonato had passed on.

TABLE OF STATUTES AND CASES

PERSUASIVE STATUTE Indian Contract Act [1872]

UNITED KINGDOM STATUTE Contracts (Rights of Third Parties) Act 1999

TABLE OF CASES -

The Eurymedon [1975] AC 154 Currie v Misa [1875] Balfour v Balfour [1919] Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 Parker v Clark [1960] 1 WLR 286 Re McArdle (1951) Ch 669 Pinnels Case [1602] Foakes v Beer [1884] UKHL 1 Hirachand Punamchand -v- Temple [1911] 2 KB 330 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] Kirke La Shelle Company v. The Paul Armstrong Company [1933] Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL Michael Jackson v Durham Fancy Goods [1969] China-Pacific SA v Food Corp of India [1982] Alan v El Nasr [1972] Tool Metal Manufacturing v Tungsten Electric [1955] Combe v Combe [1951] Evans v Amicus Healthcare Ltd [2003] D & C Builders Ltd v Rees [1965]

BIBLIOGRAPHY

BOOKS McKendrick E, Contract law ( 9th edn Palgrave Macmillan, New York 2011) Poole J, Casebook on Contract law ( 11th edn OUP, Oxford 2012)

Plain N, English Law Dictionary, (1st Edn 2009)

ELECTRONIC SOURCES http://theindiancontractact.blogspot.com/2012/07/the-indian-contract-act-1872.html http://www.insitelawmagazine.com/ch5consideration.htm http://www.legalmatch.com/law-library/article/contract-good-faith-and-fair-dealing.html http://www.lawnix.com/cases/promissory-estoppel.html