Business Law 100

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Question (a)

Identify the principle of law

The principles of law relevant to this question are the doctrines of intention and consideration.

Explain the rules of law

The doctrine of intention is an undertaking by both sides of an agreement to be legally bound either by an informal agreement such as verbal intention to purchase or act, or a written document stating intention to purchase or act, which could be in the form of a letter or a written statement as compared to a formal agreement where a deed is prepared stating the intention of the contract which is signed and witnessed by independent third parties and, although not necessary, sealed with a company or personal seal. In a commercial agreement the intention to be legally bound is generally accepted, and it is the responsibility of any party in disagreement to prove otherwise. This can be seen in the case Esso petroleum Co. Ltd. V Commissioner of Customs and Excise(1976) 1 ALL ER 117.where Esso made a promise to give motorists a “free” coin with every four gallons of Esso petrol purchased. The Commissioner of Customs and Excise argued that the coins were produced in large enough quantities for general sales and and were therefore the subject of a purchase tax. The ratio decidendi, or the reason for the decision, in this case is the intent to be legally bound, as Esso made a promise in a commercial context for the purpose of profit, which was binding according to quantities of petrol sold. When this case was argued in the House of Lords, it was found by a majority decision to be a legally binding promise and therefore the intent to be legally bound was real. The ratio decidendi of this case, where both parties where acting in a commercial context in their independance does not extend to all cases, such as in domestic agreements where a promise or inferred promise can be made without any intent to be legally bound, as in the case Cohen V Cohen(1929) 42 CLR 91, where Mr Cohen promised to give Mrs Cohen a dress allowance, which was paid initially and then ceased. The decision by Dixon J was that “it could not be inferred that legally enforceable relations where intended” and in obiter dicta ( wider discussion) Dixon J went on to discuss the intent of legal relationships and their consequences, (Balfour V Balfour(1919) 2 KB ; Rose & Frank Co. V J R Compton & Bros. PTY. LTD. (1923) 2 KB 261 ),which, was not intended, rather the agreement was made in general discussion to suit the circumstances of their marriage. The doctrine of consideration is one of the three building blocks of a contract, the other two being intent and agreement. To have consideration there must be an agreement to exchange anything of value which both parties are in agreement to exchange. These agreements usually take the form of payment for services or items rendered, however the payment does not have to be in proportion to value of the service or item exchanged, as in the cases of peppercorn fees paid, where the consideration may be the family home or

other property to be exchanged for a small amount to be termed a peppercorn amount which, also to fulfill the legalities of consideration for a contract, may include a token amount of money , which maybe a few dollars. This is done because things like love and affection do not count as consideration, and an exchange of value must take place to have a contract. This is explained in the case Currie V Misa (1875 ) LR10Ex 153 where in obiter dicta Lush J said (at 162 ) “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other. “ or in the case of Thomas v Thomas (1842) 2 QB 851 whereby Mrs Thomas successfully argued that she should be able to occupy her dead husbands house for life without payment, as opposed to the executors agreement to...
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