Contract Law Problem

This essay will advise Rebecca as to whether or not she is contractually obliged to pay the disputed sums of money to each of the respective parties involved. Both intent to create legal relations and consideration will be evaluated in order provide reliable advice.

In most cases, domestic agreements lack contractual intention. In Balfour v Balfour1, a husband stationed abroad failed to pay an agreed sum of maintenance to his wife who was too sick to travel. It was held that the law does not regulate spousal agreements as they lack contractual force due to their domestic nature. However, some domestic agreements can be enforced if the parties are on unfriendly terms; the clear authority for this is Merritt v Merritt2, a separated husband and wife whose agreement was ruled enforceable as the judge felt that any agreements between separated partners contained bargaining and a desire by each party to receive as much benefit as possible from the agreement . The fact that Steve and Rebecca are still currently a couple suggests that this is a domestic agreement and cannot be enforced by law.

Furthermore, Rebecca’s promise of £300 occurs two months later, after Steve has already created the report. Generally, past consideration is no consideration for a new promise: Eastwood v Kenyon3. Steve’s actions could therefore be viewed as gratuitous as his actions were not given in exchange for Rebecca’s promise. However, a past act may be considered as good consideration for a subsequent promise if three particular conditions are met. In the Pao On v Lau Yin Long decision, Lord Scarman explained:

“The act must have been done at the promisor’s request…the parties must have understood that the act was to be remunerated…payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance”.4

Rebecca does not mention any remuneration when asking Steve to conduct the research, therefore the act fails to comply with the three conditions described by Lord Scarman. Nevertheless, in Lampleigh v Braithwait5, a promise of a reward was made after the act had occurred and the court held that the reward should be paid as, due to the nature of their dealings, a reward could be expected. It is unlikely, however, that a promise such as this would be implied when the two parties are involved in a domestic relationship; and the court is therefore likely to follow the Pao On decision.

The second issue to address is Rebecca’s position in relation to George. Despite the revelation that George feels he has undercharged for his services, he seems contractually obliged to deliver his service at the price stated. It is accepted that consideration must be sufficient but does not need to be adequate. It would therefore seem that Rebecca would not be responsible for George’s failure to correctly price his service. Rebecca then goes on to offer a further £10,000 in fear of losing future business with the retailer. The liability of Rebecca to pay this extra money depends on whether or not George was merely performing his pre-existing duty. The general pre-existing duty rule says that one party’s performance of his existing duty under an initial contract is no consideration for a new promise made by the other party. The clear authority for this is the case of Stilk v Myrick6; though this may not be the most appropriate authority by which to base the decision.

An important point to consider is the fact that having all ten vans working on the delivery is arguably of as much benefit to Rebecca as it is to George. The offer of the extra £10.000 by Rebecca seems to be influenced by the practical benefits she will receive if the delivery is finished on time i.e. she will not lose out on further business with the retailer. The situation could therefore be compared to Williams v Roffey Bros & Nicholls Ltd.7 This case involved a building contractor (Williams) who sub-let the carpentry work of a new housing development to the plaintiff. For fear of not finishing in time, and thus, getting fined, he offered extra money so that the carpentry was finished on time and the court ruled that he must pay it. It would seem that the important factors of this decision were the fact that the defendant received practical benefits from making the offer and also that there was no evidence of economic duress.

Looking at the case of Rebecca and George it would seem that the more fitting authority would be the Williams case. Rebecca acknowledges the fact that the work may have been underpriced and proceeds to personally initiates renegotiations of the price, under no influence or duress from George. Moreover, consideration was received in the form of the practical benefits she obtained from the work being completed for her deadline. It would be likely that the court would follow the Williams authority rather than the Stilk decision, despite the two cases being slightly conflicting. The rule in Stilk has been “refined and limited” by the Williams case8 as the practical benefits received were taken into account.

In conclusion, it is likely that a contract was not formed between Steve and Rebecca as it is accepted that past consideration is not good consideration for a future promise. The case also fails to meet the three conditions to be satisfied when past consideration can be good. In relation to George and Rebecca, it is could be argued that the promise of the extra money is enforceable as the pre-existing duty rule is overrule by the fact that Rebecca received practical benefits, was under no economic duress and indeed initiated renegotiations herself.