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

Key rules on consideration

Answer 4

1) must not be past - cannot use an act previously done
2) must move from promisee - cannot enforce contract if you have yet to provide consideration (ie. payment/performance).
3) need not be adequate - not look at whether price is fair

Question 5

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

Answer 5

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

Question 6

What is illusory consideration?

Answer 6

Consideration without some value in the eyes of the law

Question 7

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

Answer 7

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 8

Is performance of an existing statutory duty good consideration?

Answer 8

No, unless performance goes above and beyond that duty

Question 9

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

Answer 9

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

Question 10

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

Answer 10

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 11

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

Answer 11

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

Question 12

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

Answer 12

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. An agreement between debtor and ALL creditors to accept less

Question 13

What is promissory estoppel?

Answer 13

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

• helps circumvent rule that party payment of debt is not good consideration.

Question 14

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

Answer 14

No, only as a defence
- acts as a shield, not a sword.

Question 15

CLP Trust v High Trees House (Promissory estoppel)

Answer 15

Landlord agreed to reduce for an unspecified period of time during war. Once war ended, and all flats were once again fully let out, request full rent be paid.

• Estopped from recovering full rent (ie. unpaid share not paid due to L’s agreed reduction).
• L could only start claiming full amount from the point notice was given that full amount would once again be due.

Question 16

What are the three criteria for promissory estoppel to apply?

Answer 16

1. Clear and unequivocal promise (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 promise
3. It must be inequitable for the promisor to go back on their promise

Question 17

What is one important rule to remember about applicability of promissory estopell?

Answer 17

applies only to the amendment, and not the formation of contracts.
- premise of doctirne is to prevent party from going back on some intial promise.

Question 18

When can the part payment of a debt amount to good consideration?

Answer 18

1) Where a new element is introduced to discharge payment
- ie. payment before debt is due or providing something in place of money. (Pinnel’s Case)

2) Payment of lesser sum by 3rd party
- ie. creditor pays promisor to satisfy promisee’s debt. Cannot sue promisee even if lesser sum is provided.

Question 19

Does the carrying out a public duty amount to good consideration?

Answer 19

No - but important to distinguish between substance of public duty and act party is undertaking as its consideration.

ie. England v Davidson
- P.O could still claim reward from ‘wanted poster.’
- Duty of prevention of crime but not public duty to provide information to private individual.

Question 20

Is part payment of a debt good consideration?

Answer 20

No - not bound to accept less than your legal rights. No practical benefit derived from promise to pay less.
- but consider whether promissory estoppel applies.

Question 21

What is factual consideration?

Answer 21

Where nothing new is being promised but the party in receipt of the promise is still getting something out of the reshaped deal.

Practical benefit (or obviates a disbenefit)

(Williams v Roffey [1991])

Question 22

Can the performance of an existing obligation amount to valid consideration?

Answer 22

No - must do something new that exceeds existing contractual duty.
- Factual consideration suffices

Question 23

When is past consideration sufficient to form a contract? What are the three conditions that must be present?

Answer 23

where promisee had already performed an act for the promisor.
- always under mutual understanding that renumeration would be paid.

Three conditions:
1) Act is done at promisor’s request.
2) Clear Understanding that acts would be rewarded (impliedly or expressly)
3) Legally binding agreement would have arisen if payment had been promised in advance.

Question 24

What is a practical benefit, and when is it relevant for the purpose of consideration?

Answer 24

Describes a factual benefit that a promisor receives by agreeing to pay promisee more under an amendment agreement than was agreed under the original agreement.

• assists in rendering a contract enforceable, even if no new consideration is prima facie provided.
• only applies where there is no duress.

Question 25

If a promisor has accepted the payment of a lesser sum (ie. rent), can he reclaim his full legal rights under the original contract?

Answer 25

yes, but after reasonable notice has been given to the promisee.

Question 26

What is past consideration?

Answer 26

An act carried out before a promise is made.

Question 27

Why is consideration important in the formation of a contract?

Answer 27

It is what makes the contract binding
- provides rationale as to why consideration cannot be past.

Question 28

What is the exception to the past consideration rule?

Answer 28

Where person performs an act at the request of another person, on a common understanding between the parties that perfomance would be provided in exchange for renumeration.
- esp. indicative in commercial context.
- cf. not consideration if it is already something you were bound to do anyways.

Question 29

Can the perfomance of a duty imposed by law be good consideration?

Answer 29

No - requires the act, promise, or omission to exceed the legal requirement.
- ie. police officers providing additional security to business owner than legal required could be good consideration to his promise to pay them.

Question 30

Can the perfomance of an existing contracual duty owed to a third-party be good consideration?

Answer 30

Yes!

ie. Bank B making you a loan subject to the repayment your loan from Bank A is good consideration.

Question 31

Does the ‘factual’ benefit rule apply to a promise to pay less under an existing contract?

Answer 31

No, as a general rule, promises to pay less than an existing contractual duty is not consideration, even if a creditor obtains a practical benefit (ie. by being paid something).

• creditor would still be able to reclaim any outstanding shortfall from you, despite accepting less at the start.

Question 32

What are three exceptions where the part payment of debt will amount to good consideration?

Answer 32

1) Payment is made before the debt is due or in a different place from what was originally agreed, provided request is made by the creditor.

2) Agreement with all creditors to pay a percentage of the debt owed to them (ie. 80% of each debt);

3) Payment to creditor is made by a third-party.

Question 33

When is consideration not required?

Answer 33

deeds

Question 34

What is meant by the saying that promissory estopell acts as a ‘shield and not a sword’?

Answer 34

promisor must have attempted to go back on a promise in someway.