Create legal relations Analysis Paper Example

When a contract has arisen between two parties, there is an offer that has been accepted which is supported by consideration with the intention to create legal relations (providing they have the capacity to do so. ) Once these four categories have been fulfilled, they are bound to the terms within and are expected to perform their obligations. In our case it is clear that Transfix has contracted with both Mega ltd and Cad Co, to perform necessary work and has provided consideration with the intention to pay i??

6000 to Mega Ltd and i?? 600 to Cad Co therefore the problems that occur within the case do not involve the formation of the contract as they have satisfied criteria for formation. It is possible for either one of the parties to add or remove something from the originals terms, these are known as modifications, and modifications are similar to formation in that they need an offer which is accepted supported by sufficient consideration. The two main forms of modifications are positive and negative.

The first modification that occurred was between Transfix and Mega Ltd. Transfix originally agreed to pay i?? 6000 for the work contracted to Mega Ltd however under financial burden they were unable to pay this price and had requested to pay i?? 4000 (the offer). Whilst Mega Ltd had accepted the reduced price there may be a problem with the issue of consideration for the modification. For consideration to exist the rules followed must be complied with.

There must be a legal or practical benefit to the promisor or a detriment to the promise, it must be sufficient but need not de adequate, past consideration is not good consideration, consideration must move from the promisee and the performance of an existing obligation cannot be consideration for a fresh promise. The last rule within consideration was reformulated in the case of William's v Roffey Bros. & Nicholls (Contractors) Ltd [1991].

William's entered into a subcontract with Roffey Bros, who held the main building contract, to carry out carpentry work for an agreed price of i?? 20,000. Williams got into financial difficulty because the agreed price was too low for him. The main contract contained a time limit and the Roffey's, worried in case Williams did not complete the carpentry work on time, made an oral agreement to pay the them an additional sum of i?? 10,300 (a positive modification) on which the carpentry work had been completed.

Roffey had made only one further payment of 1,500 whereupon William's ceased work. Roffey then sued William's for the additional sum promised. The judge held that the agreement for payment of the additional sum was enforceable and did not fail for lack of consideration. The appeal was dismissed based on the grounds that, ' where a party to a contract promised to make an additional payment in return for the other party's promise to perform his existing contractual obligations and as a result secured a benefit or avoided a detriment.

1' In this case the benefit achieved by the promise to make the extra payment was capable of constituting consideration therefore, the Roffey's promise to pay William's the additional sum of i?? 10,300, in return for William's promise to perform his existing contractual obligations on time, resulted in a practical benefit for Roffey; this benefit that they accrued provided sufficient consideration to support the Roffey's promise to pay the additional sum; so the agreement for payment of the additional sum was enforceable.

Similar cases that were citied are Stilk v Myrick [1809] and Selectmove Ltd, Re [1995]. This suggests that the Mega Ltd's promise is not binding as they do not receive an advantage or benefit from Transfix as they will be paid less and so suffer a detriment. However in equity, the doctrine of Promissory Estoppel which is defined in Central London Property Trust Limited v High Trees House Limited. [1947] and Hughes v Metropolitan Railway Company [1877] may bind Mega Ltd's promise despite a lack of consideration.

Two questions arose from this case, they were: could the landlords put the rent back up to its original price for the future? And were they permitted to claim back any of the rent they agreed to forego during the wartime period? For the first issue Lord Denning said that yes they could with reasonable notice but for the second he said they could not, even though there was no consideration given for the promise to accept the lesser rent.

Denning said that the claimant (promisor) would not be able to go back on the promise he made (he would be 'estopped' from doing so) as equitable estoppel already existed and the principle was that if the promisor makes an unequivocal statement of fact to the promisee, which he intends the promisee to rely on, and which the promisee does in fact rely on, the promisor will later be prevented (estopped) from acting inconsistently with his statement.

This principle was distinguished in Jorden v Money [1854] but in High Tree's it was not a statement but a promise and so Denning created promissory estoppel where the estoppel is based on promises and intention. This principle was then re-clarified with the case of Combe v Combe [1951].

It now states that 'where X and Y have a pre-existing legal relationship, and X makes a promise not to insist on his full legal rights (by word or conduct) to Y with the intention tat it would be acted by Y and it was in fact acted upon by Y, X will be estopped from going back on that promise, despite a lack of consideration from Y'2, therefore estoppel cannot be used to create a contract or be used to enforce a positive modification. 'Promissory estoppel is a shield not a sword' this was upheld by Baird Textile Holdings v Marks and Spencer [2001].

The requirements for estoppel now are that there is a negative modification, the promise not to enforce rights must clear and unequivocal (which was seen in Seechurn v Ace Insurance SA-NV [2002), the promise must have acted in reliance on the promise and there must be a need for equitable intervention which was defined in D&C Builders v Rees [1966] where they were not bound by the agreement to accept less due to Pinnel's rule ( an agreement to accept part payment of a debt never satisfies the whole debt) and Lord Denning had identified that in any case this was extracted from them under pressure.

This suggests that Mega Ltd's promise is binding as it satisfies all requirements and so there is reliance to the detriment of transfix for the promise given by Mega Ltd despite lack of consideration under equity.