All entries for Tuesday 02 February 2010

February 02, 2010

Cause and Consideration ; Intention to create legal relations

All systems require agreements and intention in order to create a contract. Although PELC and German law do not have further requirements, English law and French law respectively require the contract to have a good consideration or a cause.

The French law has a dualist conception of the cause. Following the objective one, a counter-performance or an interest for each party must exist otherwise the contract would be null and void. The subjective cause is the individual intention which prompted the party to enter into the contract.

Similarly, consideration in English law consists of a requirement of a counterpart in exchange for a promise. Consideration is essentially an objective concept and does not include psychological aspects. There is consideration as soon as the parties have made an exchange even if there were not conscious of that. (Bere v Pearson).

German Law does recognise neither the doctrine of cause nor the one of consideration. It attaches importance to the act abstracted from its underlying cause or consideration. However the ‘cause’ could be found in

§ 812 BGB deals with matters that would be seen as a false cause; ‘a person who, through an act performed by another, or in any other manner, acquires something at the expense of the latter is bound to return it.” They must be a common assumption of the two parties. This might be seen as an objective approach of the doctrine of cause. The doctrine of unjust enrichment is applied in order to restore the balance between the two parties.

Recently the French courts have taken a more concrete approach to the cause (Chronopost case) and have strengthened its use and sanctions. It can be justified by the will to protect the interests of each party. The projects Catala ( Article 1125(2) ) and Terré seem to have consecrated the Chronopost solution.

The doctrine of consideration has been renewed as well. For example, Lord Russel stated in the case Williams v Roffey Bros that consideration should reflect the real intentions of the parties. The courts also use the doctrine of “promissory estoppel” to avoid the effects of consideration.

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