4. Consideration

Question 1

What is the most basic definition of consideration?

Answer 1

An act or forbearance of one party, or the promise of such

Question 2

What is the difference between executory and executed consideration?

Answer 2

Executory: act or forbearance to be performed in future
Executed: state of consideration when it is performed

Question 3

Must consideration be provided by parties to the contract, or can a third party provide it?

Answer 3

Only parties to the contract

Question 4

What is required for a third party to enforce the terms of a contract under the Contract (Rights of Third Parties) Act 1999?

Answer 4

1. The third party must not be a party
2. The third party must be named in the contract, expressly or as part of a described class
3. The term is to be enforced for the third party’s benefit

Question 5

Are the courts concerned with whether consideration is adequate?

Answer 5

No, consideration must be sufficient but not adequate.

Question 6

What is one situation in which the inadequacy of consideration may be taken into account?

Answer 6

When it is used as evidence of a vitiating factor concerning mistake or duress

Question 7

What is illusory consideration?

Answer 7

Consideration without some value in the eyes of the law

Question 8

Whilst performance of an existing obligation is generally not good consideration, what are three exceptions to this?

Answer 8

1. A promise going beyond the original obligation
2. Where performance conveys a practical benefit on the party offering additional consideration, e.g. avoidance a monetary fine
3. Performance of an obligation owed to a third party

Question 9

Why is a promise going beyond the original obligation good consideration?

Answer 9

Because it is effectively a new contract

Question 10

Is performance of an existing statutory duty good consideration?

Answer 10

No, unless performance goes above and beyond that duty

Question 11

What is an exception to the general rule that past acts or performance are not good consideration?

Answer 11

When the act or performance was done at the promisor’s request, and there was an implied understanding that payment would follow

Question 12

What are the three criteria for arguing the implied understanding of payment exception?

Answer 12

1. Act done at promisor’s request
2. Parties understood that the act was to be remunerated
3. The payment would be legally enforceable if it was made in advance of the act

Question 13

What is the rationale behind the general rule that part payment of a debt is not consideration for the having the debt discharged?

Answer 13

There is no fresh consideration to make the creditor’s promise to accept less legally binding

Question 14

What are some exceptions to the general rule that part payment of a debt is not consideration for the having the debt discharged

Answer 14

1. Debt of uncertain value, disputed in good faith: the promise to pay something is deemed consideration
2. Unliquidated claim generally (amount owed is uncertain)
3. Payment at a different place or earlier payment
4. Payment through a different means (if the creditor requests it)
5. A third party makes the payment (on the basis that an agreement reached in good faith would discharge the debt)
6. A composition between debtor and ALL creditors to accept less

Question 15

What is promissory estoppel?

Answer 15

An equitable principle which gives legal effect to an agreement unsupported by consideration

Question 16

Can promissory estoppel be used as grounds for a claim as well as a defence?

Answer 16

Promissory estoppel can be used only
as a shield, not a sword, that means that, promissory estoppel can only be used as a defence, but not as the basis for a claim.

Question 17

What are the three criteria for promissory estoppel to apply?

Answer 17

1. Clear and unequivocal promise (no express or implied) by the promisor that they won’t rely on existing legal rights
2. The promisee has altered their position in reliance on the promie
3. It must be inequitable for the promisor to go back on their promise