Chapter 2: Consideration

Question 1

Definition of Consideration

Answer 1

Consideration: Academic Frederick Pollock defines consideration as ‘an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable’.

Question 2

House of Lords in Dunlop v Selfridge [1915] AC 847

Answer 2

At the heart of Pollock’s definition of consideration is the concept of exchange – in order to be
able to enforce a promise made to you, you must be able to show that you agreed to provide
something in return for that promise. The ‘something in return’ is known as consideration.

You will now look at the following sections which relate to consideration:
(a) Consideration key principles
(b) Existing obligations – when will an existing obligation amount to good consideration?
(c) Promissory estoppel

Question 3

Executory consideration:

Answer 3

Where contracting parties make promises to each other to perform
something in the future after the contract has been formed.

Question 4

Example of Executory Consideration

Answer 4

The classic example is a contract for the sale of goods where the seller promises to deliver the
goods at some time in the future, and the buyer promises to pay for them either on delivery or by
some other credit arrangement. At the time of the agreement, neither side has done anything
towards the performance of the promises made but the agreement still has contractual force, and
a party who fails to carry out their promise can be sued. A bilateral contract usually involves
executory consideration.

Question 5

Executed consideration

Answer 5

Where, at the time of the formation of the contract, the consideration
has already been performed.

Question 6

Classic Example of executed consideration

Answer 6

The classic example is a unilateral contract where the promise of a reward is made and the ‘price
paid’ in exchange for that promise is performance of the act stipulated in the offer: Carlill v Carbolic Smoke Ball Co Ltd (1893) 1 QB 256. The required act is both the acceptance of the offer
(and thus the time when the contract is formed) and the executed consideration.

Question 7

2.2 Rules governing consideration

Answer 7

1) Must not be in the past
2) Must move from promisee
3) Need not be adequate
4) Must be sufficient

Question 8

2.2.1 Consideration must not be past

Answer 8

It is not generally possible to use as consideration some act or forbearance which has taken place
prior to the promise to pay. Consideration must be given in exchange for the promise of the other party. If the act/forbearance has taken place prior to the promise, then it cannot be in exchange
for that promise

Question 9

Eastwood v Kenyon (1840) 11 A & E 438 a

Answer 9

Father died leaving his daughter, Sarah, in the care of
a guardian, Eastwood. Eastwood borrowed £140 to help pay for Sarah’s upbringing. When she
came of age, Sarah married Kenyon, who then promised Eastwood that he would pay off the debt
to repay Eastwood for having brought up Sarah

However, Kenyon failed to honour his promise. It was held that the consideration provided by Eastwood (by bringing up Sarah) was not good
consideration to support Kenyon’s subsequent promise to discharge the debt because it was in the past. It was held that the moral obligation to fulfil such a promise was insufficient to create a legally binding contract.

Question 10

Exception to the past consideration rule (Some prior act of service)

Answer 10

An exception to the past consideration rule exists where some prior act or service was provided by
the promisee at the promisor’s request and it was always understood that payment would be
made for that act or service.

Question 11

Privy Council in Pao On v Lau Yiu Long [1980] AC 614 highlight three consideration for exceptions to apply

Answer 11

(a) Promisor’s Request: The act must have been done at the promisor’s request.
(b) Reward/Benefit: The parties must have understood that the act was to be rewarded either by a payment or
the conferment of some other benefit. These could be because it was expressly agreed that
there would be a reward/benefit, or because such an understanding can be implied. The
latter is more likely in a commercial context.
(c) Legal Enforcement Required: The payment, or conferment of other benefits, must have been legally enforceable had it
been promised in advance.

Question 12

2.2.2 Consideration must move from the promisee

Answer 12

The rule that consideration must move from the promisee effectively means that a party who has
not provided consideration may not bring an action to enforce a contract. This rule is related to,
but must be distinguished from, the doctrine of privity of contract which states that only a person
who is party to a contract may sue or be sued on that contract (the rules on privity are not
addressed in this chapter).

Question 13

Tweddle v Atkinson (1861) 1 B & S 393`

Answer 13

illustrates the rule that consideration must move from the
promisee. The two fathers of a couple who were about to get married agreed that the father of
the bride was to pay £200 and the father of the groom £100, to the bridegroom, William Tweddle,
the claimant. The groom sought to enforce his father-in-law’s promise, but it was held that he
could not as he had provided no consideration for the promise – the consideration had been
provided by the fathers

Question 14

2.2.3 Consideration need not be adequate

Answer 14

According to the doctrine of freedom of contract, the courts will not interfere with a bargain freely
reached by the parties. It is not the court’s duty to assess the relative value of each party’s
contribution to the bargain. There is no reason, for example, why a party should not be bound by
a promise to sell a new Rolls Royce car for one penny. If the agreement is freely reached, the inadequacy of the price is immaterial.

Question 15

Chappell & Co v Nestle Co Ltd [1960] AC 87.

Answer 15

The Nestle company offered gramophone records
of a particular tune to the public for 1s 6d, together with three chocolate bar wrappers. The wrappers were thrown away on receipt by the company. In relation to a claim for royalties, the question arose as to whether the wrappers were part of the consideration given for each record. The House of Lords held that the wrappers were part of the consideration even though they were
of no further value once received by the company.

Question 16

Judgement by Lord Somervell

Answer 16

They (the chocolate wrappers) are, in my view, in law part of the consideration. It is said that
when received the wrappers are of no value to Nestle. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. As the whole object of selling the record was to increase the sales of
chocolate it seems to me wrong not to treat the stipulated evidence of such sales as part of the
consideration

Question 17

2.2.4 Consideration must be sufficient

Answer 17

Consideration must have some value ‘in the eyes of the law’. It matters not how small that value
is, so long as it is worth something. If a thing of value can be identified, then there will be
sufficiency of consideration and, as seen above, the court will not enquire as to its adequacy.

Question 18

Thomas v Thomas (1842) 2 QB 851 t

Answer 18

The executor of an estate agreed to transfer a house to the deceased’s widow in return for a payment from the widow of £1 per annum towards
the ground rent for the property and the widow’s agreement to keep the house in repair. The court made clear that it did not matter whether the widow’s obligations in any way matched the value of the property.

Question 19

2.3 Summary

Answer 19

• Consideration can be ‘executory’ or ‘executed’.
• Consideration must not be past – it cannot generally have taken place prior to the promise to
  pay.
• Consideration must move from the promisee – a party who has not provided consideration
  may not bring an action to enforce a contract.
• Consideration need not be adequate – the court will not assess the adequacy of the
  consideration.
• Consideration must be sufficient – it must have some value in the eyes of the law.

Question 20

3. Existing obligations: When will an existing obligation be good consideration?

Answer 20

Executory consideration amounts to a party taking on an obligation - promising to do (or not do)
something. Before entering into a contract, a party might already be under an obligation to do
the same thing, perhaps due to:
(a) An existing contract between the same parties;
(b) A public duty; or
(c) An existing contract with a third party (ie not one of the parties entering into the contract –
the existing obligation is owed to the third party).

Question 21

3.2 An obligation in an existing contract between the parties

Answer 21

If a party is already contractually bound to Party A to do something, then agreeing with Party A
again to do that thing is not generally good consideration for a new contract.

Question 22

Key case: Stilk v Myrick (1809) 2 Camp 317

Answer 22

The captain of a ship promised his crew that, if they shared between them the work of two seamen who had deserted, the wages of the deserters would be shared out between them. The court held that the promise was not binding because the seamen gave no consideration: they were already contractually bound to do any extra work to complete the voyage.

Question 23

Hartley v Ponsonby (1857) 7 E & B 872

Answer 23

The sailors were contractually obliged to take ‘all reasonable endeavours’ to get a ship home, but they went beyond these existing
obligations when they agreed to make the journey in dangerous conditions and when the ship
was seriously undermanned – this amounted to good consideration.

Question 24

Contrasting Hartley with Silk

Answer 24

However, there also appears to have been a concern in Stilk about
undue pressure being placed on the captain to pay more money. More recently, the court has
developed the doctrine of economic duress which provides that a promise to pay in such circumstances might be unenforceable on the basis that the captain’s consent to the contract was effectively obtained by (economic) force. Perhaps, if the same situation were to repeat itself
today, the court would decide Stilk on the basis of economic duress rather than consideration.

Question 25

Key case: Williams v Roffey Bros & Nichol (Contractors) Ltd [1991] 1 QB Fact

Answer 25

Before the work
was completed, Williams got into financial difficulty and it was clear that, without additional
money, he would be unable to finish and would, therefore, be in breach of contract. Had the work
not been finished on time, Roffey Bros would have been liable for substantial penalties to the main
contractors under their contract to build the flats. Consequently, they promised Williams an
additional £575 per completed flat. Roffey Bros did not stick to their promise and Williams sued
for the additional sum

Question 26

Consideration in the form of practical benefit

Answer 26

In order to enforce the promise of extra payment, Williams needed to show that they had provided
consideration in return. This was difficult for Williams as all they had done was complete the
carpentry work they were obligated to under their original contract with Roffey to the same
deadline. However, the court, did find consideration in the form of the ‘practical benefit’ that
Roffey had received. The practical benefit Roffey obtained in was the avoidance of the late
completion payment in the main contract, a more efficient working arrangement and avoiding the
need to find an alternative contractor to do the work.

Question 27

Factual Considerations v Legal Consideration

Answer 27

Note that the court called the consideration
in this case ‘factual’ consideration distinguishing it from legal consideration. The term ‘factual’
consideration acknowledges that nothing new is being promised but the party in receipt of the
promise is still getting something out of the reshaped deal.

Question 28

Conditions for Factual Consideration

Answer 28

(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in
return for payment by B; and
(ii) at some stage before A has completely performed his
obligations under the contract B has reason to doubt whether A will, or will be able to,
complete his side of the bargain; and (iii) B thereupon promises A an additional payment in
return for A’s promise to perform his contractual obligations on time; and (iv) as a result of
giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and
(v) B’s promise
is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is
capable of being consideration for B’s promise, so that the promise will be legally binding.

Question 29

3.3 Obligations under a public duty

Answer 29

The principle in these circumstances is that merely carrying out a
public duty imposed by the law will not amount to sufficient consideration. The issue of sufficiency of consideration has also arisen in respect of rewards claimed by police officers for giving information. Could it not be said that police officers, in giving information, are doing no more than their public duty?

Question 30

England v Davidson (1840) 11 A & E 856

Answer 30

The plaintiff, a police officer, gave the relevant information, but
the defendant refused to pay, alleging that the police officer, by supplying the information, was
doing no more than the public duty imposed on him by law. It was held that the duty of a police
officer is the prevention of crime and they are not under a duty to provide information to a private
individual. In doing so he went beyond his public duty and thus provided consideration for the
offer of reward

Question 31

3.4 Existing obligations to a third party. Pre-existing duty owed to Third Party constitutes sufficient consideration

Answer 31

What about the situation where Party A has an existing contractual obligation to Party B, and
wishes to rely on a promise to do the same thing as consideration for a contract with Party C. The
question to be considered here is whether it is possible to have given consideration by doing something one was already bound to do under a pre-existing contract with a third party. In contrast to the previous category, it is clear that the performance of the pre-existing duty owed to a third party will be regarded as sufficient consideration for a promise given by the promisor

Question 32

New Zealand Shipping Co v AM Satterthwaite & Co (The Eurymedon) [1975] AC 154

Answer 32

The claimant
made an offer to the defendant that, if the defendant would unload the claimant’s goods from a
ship, then the claimant would treat the defendant as exempt from any liability for damage to the
goods. In fact, the defendant was already bound to do this by a contract with a third party

Question 33

Lord Wilberforce

Answer 33

An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce.

Question 34

3.5 Part payment of a debt. Not good consideration as debtor remains liable

Answer 34

Where a debtor promises to pay part of their debt in return for a release from the remainder of
their liability, they are simply offering to do something which they are already obliged to do: they
are seeking to offer an existing obligation as consideration.

Question 35

Key case: Foakes v Beer (1884) 9 App Cas 605

Answer 35

In Foakes v Beer (1884) 9 App Cas 605, Mrs Beer had obtained a judgment against Dr Foakes for
£2,090. Dr Foakes requested time to pay and the parties agreed in writing that, if Dr Foakes paid £500 at once and the balance by instalments, Mrs Beer would not ‘take any proceedings
whatever on the judgment’.

Question 36

Key case: Foakes v Beer (1884) 9 App Cas 605

Answer 36

Dr Foakes ultimately paid the whole amount of the judgment debt itself and Mrs Beer then claimed the
accrued interest. Dr Foakes refused to pay on the basis of the written agreement whilst Mrs Beer
claimed that the agreement was unsupported by consideration. The House of Lords held that Mrs
Beer’s claim should succeed – the agreement was unsupported by consideration

Question 37

3.5.1 Circumstances in which Foakes v Beer does not apply

Answer 37

Introducing a new element into the payment: The rule in Foakes v Beer is only applicable if the promise of the creditor to accept a lesser sum is
unsupported by fresh consideration from the promisee. However, if, at the creditor’s request, some
new element is introduced, then this will amount to good consideration, and the court will not
enquire as to the value of the new element. Examples might be payment at a different place, or at
a different time or by providing a different thing in place of money (Pinnel’s case (1602) 5 Co Rep
117a)

Question 38

Payment of a lesser sum by a third party

Answer 38

Where a third party enters into an agreement with a creditor, by which the creditor accepts payment by the third party of a lesser sum than the debt in full satisfaction of the debtor’s obligation, the creditor cannot sue the debtor for the difference

Question 39

Re Selectmove [1995] 1 WLR.

Answer 39

The Court of Appeal took a restrictive
approach, concluding that Williams v Roffey and practical benefit had not applied to cases where a creditor agrees to accept a lesser sum in settlement of a debt. This case created a clear dividing line between promises to pay more for an existing contractual obligation, where practical benefit can be applied, and promises to accept less than your legal rights, where it cannot.
However, a different view was taken by the Court of Appeal in the next case we shall consider, MWB Business Exchange Centres Ltd v Rock Advertising [2016] EWCA Civ 553.

Question 40

Key case: MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 - Court of Appeal

Answer 40

In MWB Business Exchange Centres Ltd v Rock Advertising Ltd a landlord agreed orally to reschedule rental payments under a licence agreement to give a tenant longer to pay, thereby varying the licence. Their justification was that the landlord obtained a practical benefit by keeping the tenant in the property (compared to leaving the property vacant). This benefit went beyond the advantage of receiving prompt payment of a part of the arrears and a promise that it would be paid the
balance over the coming months.

Question 41

Presence of Practical Benefit & Lack of Economic Duress

Answer 41

The court also considered the fact that the landlord was not under economic duress from the
tenant. It can be seen that in reaching this decision, the court applied the terminology of ‘practical benefit’ and absence of duress from Williams v Roffey. This decision appeared to blur
the dividing line between a promise to accept less and a promise to pay more.

Question 42

Key case: Rock v MWB [2018] UKSC 24 – Supreme Court

Answer 42

On appeal, Rock Advertising Ltd v MWB Business Exchange Centres Ltd, the appeal was allowed
on the basis that the oral variation was invalid for reasons unconnected to consideration. Disappointingly, therefore, that made it unnecessary for the court to deal with the issue of
consideration. The question of whether providing a practical benefit in the absence of duress is
sufficient to make a promise to accept less binding went unanswered

Question 43

Doctrine of Promissory Estoppel

Answer 43

An equitable doctrine
that effectively allows a contract to be enforced despite not being supported by consideration. In
essence, promissory estoppel is about protecting a party’s reliance on a non-bargain promise.

Question 44

Promissory Estoppel & part payment of a debt

Answer 44

In response to a promise by the creditor that they will not require the debt to be paid in full, although promissory estoppel is not limited to such circumstances. Promissory estoppel is not addressed in this section, but you should note that this equitable doctrine is relevant when
considering a scenario involving part payment of a debt.

Question 45

3.6 Summary

Answer 45

• Something which a party is already obliged to do under an existing contract between two parties cannot generally be good consideration for a new contract between the parties.
• Where the new contract constitutes a practical benefit, and certain other criteria are satisfied (see Williams v Roffey), an existing obligation can be good consideration for a new contract.
• Carrying out a public duty imposed by the law will not generally amount to sufficient consideration.
• A promise to do something which a party is obliged to do pursuant to an obligation owed to a
  third party will be good consideration.
• Agreement to pay part of a debt is not generally good consideration. There are various
  exceptions to this rule.

Question 46

4 Promissory estoppel

Answer 46

4.1 Introduction
In an earlier section we considered the rule in Foakes v Beer. This rule provides that part payment
of a debt will not be good consideration to discharge the whole debt. This is because consideration has not been exchanged between the parties. The creditor has received nothing in return for their promise to accept less than their full legal rights.

Question 47

Operate Harshly Against Creditors

Answer 47

The rule in Foakes v Beer has the
potential to operate harshly against the debtor. The debtor may rely on the creditor’s promise to
accept less and face difficulty if the creditor reneges on their promise and demands repayment of
the full amount. However, the potential harshness of this rule has been mitigated by the
development of promissory estoppel.

Question 48

Promissory estoppel legal effect

Answer 48

In essence, promissory estoppel aims to protect a party who has relied on such a promise. Equity prevents, or ‘estops’, the promisor from going back on their promise in situations where the promisee has relied on it. Many of the instances in which promissory estoppel is invoked involve part payment of a debt. In such a case, a debtor may seek to defend a debt action against them by arguing that they have relied on a promise by the creditor that they will not require the debt to be paid in full. However, promissory estoppel is not
limited to such circumstances

Question 49

Modern Doctrine: Hughes v Metropolitan Railway Co. (1877) 2 App Cas 439

Answer 49

r. In October, the landlord gave the tenant six months in order
to undertake some repairs, with which the tenant agreed. In November, negotiations began
between the landlord and tenant regarding the tenant’s purchase of the lease. The tenant stated
that, while negotiations were ongoing, he would not undertake the repairs. In December, the negotiations broke down. At the end of the six-month notice period the landlord, relying on the failure of the tenant to undertake the repairs, sought forfeiture of the lease. It was held, in a unanimous judgment of the House of Lords, that the landlord’s conduct was an implied promise to
the tenant that he would not enforce the forfeiture at the end of the notice period and, in not doing the repairs, the tenant had been relying on this promise.

Question 50

Key case: CLP Trust v High Trees [1947] KB 130

Answer 50

In 1937, the plaintiff landlord let a block of flats to the defendant tenant on a 99-year lease at a ground rent of £2,500 a year. When war commenced in 1939, only about one third of the flats had been let and the tenant was having difficulty paying the rent. Consequently, in 1940, the landlord
agreed in writing to reduce the ground rent to £1,250, while the difficulties in letting the flats
continued. The parties did not specify how long the reduced rent would operate for and there was
no consideration for the reduction.

Question 51

Conclusion from Denning J

Answer 51

Denning J concluded that had the landlord sought the full rent from 1940 to 1945 this action
would fail. In reaching this conclusion, Denning J relied on the doctrine of promissory estoppel.
Denning J stated that where a promise was made which was intended to create legal relations
and which, to the knowledge of the person making the promise, was going to be acted on by the
person to whom it was made and which was in fact so acted on, then the promise would be
binding. The tenant could rely on the defence of promissory estoppel to prevent the landlord from
going back on their promise to accept reduced rent during the war years when the flats were not
fully let.

Question 52

Promissory estoppel parameters

Answer 52

1) Acts as a shield and not a sword
2) A clear and unequivocal promise that strict legal rights will not be enforced
3) A change of position on the reliance of the promise
4) Inequitable to allow the promisor to go back on their promise.

Question 53

4.2 It acts as a shield and not a sword.

Answer 53

Promissory estoppel can only act as a defence (a ‘shield’) to an action; it cannot be used as a cause of action (a ‘sword’). In other words, promissory estoppel does not give a party the right to sue upon a promise. In order to sue upon a promise given to you, it must be shown that you have
provided consideration in return for it. This was made clear by the judgments of the Court of
Appeal in Combe v Combe [1951] 2 KB 215.

Question 54

Court of
Appeal in Combe v Combe [1951] 2 KB 215.

Answer 54

Following a divorce Mrs Combe’s husband indicated that he was prepared to make an allowance
of £100 a year to Mrs Combe. However, he did not make any of the agreed payments. In 1950, the
wife brought an action, claiming arrears of payment under the husband’s promise. The wife
attempted to use promissory estoppel as a cause of action, based on the fact that the husband
had made a promise which she had relied upon.

Question 55

Court of
Appeal in Combe v Combe [1951] 2 KB 215. cont.

Answer 55

However, the Court of Appeal held that since the wife had given no consideration for the
husband’s promise, the promise was not binding and she could not succeed in an action on it. She
could not use promissory to enforce her husband’s promise to pay. It is only possible to use
promissory estoppel to stop the promisor going back on their promise that they would not enforce
their strict legal rights. In the language of counsel for the husband in Combe v Combe, the
doctrine of promissory estoppel is ‘a shield and not a sword’.

Question 56

4.3 A clear and unequivocal promise that strict legal rights will not be fully
enforced

Answer 56

There must be a clear and unequivocal promise or representation that existing legal rights will not be fully enforced: Woodhouse A.C. Israel Cocoa Ltd. S.A. and Another v Nigerian Produce
Marketing Co. Ltd [1972] AC 741. The promise must be intended to affect legal relations and not simply amount to a gratuitous privilege given to the promisee. A promise can be express or implied (for example by conduct)

Question 57

4.4 A change of position in reliance on the promise

Answer 57

It is an essential element of the doctrine of promissory estoppel that the promisee (usually a debtor) should have relied upon the promise or representation, ie it must have influenced the conduct of the party to whom it was made (High Trees). It follows that, an act which takes place
before the promise, cannot be in reliance on the promise.

Question 58

Common case of a part-payment

Answer 58

Considering the common case of a part-payment of a debt, there is some debate about whether
the part-payment itself can be the act of reliance, or whether there must be some other act of
reliance. It may be that it can, provided that the promise influenced the part-payment.

Question 59

Reliance on the detriment of promise (not required)

Answer 59

In other words, the reliance on the promise is such that, if the promisor
were go back on their promise, the promisee would be in a worse position than if the promise had
never been made. However, Denning made it plain in High Trees (and in a number of his judgements that followed) that detrimental reliance is not required for promissory estoppel.

Question 60

4.5 Inequitable to allow the promisor to go back on their promise

Answer 60

Promissory estoppel, as an equitable doctrine, is based on principles of fairness and is discretionary. The courts, in exercising their discretion, undertake a balancing exercise to
determine whether it would be inequitable to allow the promisor to go back on their promise. If it
would be inequitable, then the defence will apply, and the promisor will be estopped from going
back on their promise

Question 61

D & C Builders v Rees [1966] 2
QB 617

Answer 61

In exercising their discretion, the courts will look to the conduct of both parties to determine
whether or not to grant the defence. This point is well illustrated by D & C Builders v Rees [1966] 2
QB 617. The plaintiff builders had completed a project for defendants. The defendants, knowing
that the builders were under considerable financial difficulties, offered a cheque for the sum of
£300 in full and final settlement of a debt of £482.

Question 62

Those who seek equity must do equity

Answer 62

The builders reluctantly accepted but then later sued for the balance. In response to the builders claim for the balance, the defendants sought to rely on the defence of promissory estoppel. Lord Denning MR said that because this promise to accept less had been extracted from the plaintiffs by intimidation on the part of the defendants, they could not rely on the doctrine of promissory estoppel, since those who seek
equity must do equity.

Question 63

Does promissory estoppel suspend or extinguish legal rights?

Resuming Legal Rights happens in two ways:

Answer 63

Firstly, the right to periodic payments may resume once the period over which the promissory
estoppel operates ceases, as Denning envisaged in High Trees. Alternatively, the promisor may
resume their full legal rights after giving reasonable notice of their intention to do so (Tool Metal v
Tungsten [1955] 1 WLR 761).

Question 64

Does promissory estoppel suspend or extinguish legal rights?

Resuming Legal Rights happens in two ways:

Answer 64

Secondly, the key principle is that the court will order an outcome which is just and equitable, and in some cases, this might mean a past right is extinguished. For example, in
High Trees itself, the landlord could recover the rent for the last two quarters of 1945 and going forward, but Denning J stated (obiter) that if the landlord had sought to recover the full rent from 1940 to 1945, he would have been estopped from doing so – the right to the rent for that period would have been extinguished

Question 65

Resuming Legal Rights happens in two ways:

Answer 65

Exceptionally, rights might also be extinguished where it has become impossible for the other to party to meet the obligation concerned or it would be clearly inequitable to require them to do so.

Question 66

4.6 Summary

Answer 66

• Most commonly, promissory estoppel is relied on to create an exception to the rule that part
  payment of a debt without fresh consideration does not discharge the debt obligation.
• Promissory estoppel can only act as a defence to an action: it cannot be used as a cause of
  action.
• In order for it to operate, there must be a clear and unequivocal promise or representation that
  existing legal rights will not be fully enforced.
• In addition, the promisee must have relied upon that promise/representation.
• The doctrine only applies when it would be inequitable for the promisor to go back on their
  promise.

Question 67

The owner of a holiday park agrees to pay a contractor £20,000 to cover the ground and trees in the holiday village with fake snow. When the contractor is half way through laying the snow, he realises he has made an error in his calculations and he will need double the amount of snow than he allowed for under the terms of the fixed price contract. The holiday park owner agrees to pay the £10,000 extra requested by the contractor as he has promised hundreds of guests a ‘snow covered magical village’. The contractor also recognises that the original contract had been under-priced. Which one of the following statements best explains the legal position?

Answer 67

A. The contractor will not be entitled to the extra £10,000 as he has simply performed his existing contractual obligations.

B. The contractor will be entitled to the extra £10,000 if the holiday park owner’s ability to honour his promise to his guests amounts to factual consideration.

C. The contractor is entitled to the extra £10,000 as it has provided consideration by going over and above its existing contractual obligations by laying the additional snow.

D. The contractor will be able to rely on promissory estoppel as a defence if the holiday park owner sues him for the additional £10,000.

E. The contractor will not be entitled to the extra £10,000 as the £20,000 in the original contract is adequate consideration.

Correct Answer: B This is the likely result of applying the case of Williams v Roffey Bros & Nicholls Contractors Ltd [1989] EWCA Civ 5 to this situation.

Question 68

A 16-year-old girl agrees to hire some gardening equipment, with a view to providing gardening services to local residents over the summer holidays. She later refuses to pay for the equipment, despite having started to use it. Can the supplier of the equipment enforce the contract against the girl?

Answer 68

A. Yes, because the contract is for her benefit.

B. Yes, the contract is enforceable against the girl as the gardening equipment can be regarded as a ‘necessary’.

C. No, the contract is not enforceable because contracts are never enforceable against minors.

D. No, the contract is not enforceable against the girl as it is in her best interests not to be bound by the agreement.

E. No, the contract is not enforceable against the girl as she is a minor and none of the exceptions to the general rule apply.

Correct Answer : E

Question 69

A gardener has carried out gardening works in return for payment for a client over a period of five years. The client asks the gardener to cut his hedge when she is carrying out other works in the local area. The gardener and client do not discuss payment before the work is carried out. When the hedge is cut the client refuses to pay the gardener’s invoice for £40. Which of the following statements best explains the gardener’s legal position?

Answer 69

A. The gardener is not entitled to payment. The court will not determine the adequacy of consideration, and so cannot decide the amount to be paid in return for services if it was not agreed by the parties in advance of the service being carried out.

B. The gardener is entitled to payment. The gardener has exceeded previous obligations owed to the client and so has provided fresh consideration to support payment.

C. The gardener is entitled to payment. The client requested the work was carried out, the client and gardener must have understood that the act was to be rewarded and the payment would be legally enforceable if promised in advance.

D. The gardener is entitled to payment. Consideration must be sufficient. As the gardener has carried out a commercial service, the client must pay sufficient consideration.

E. The gardener is not entitled to payment as payment was not discussed prior to the service being carried and so the act of cutting the hedge is past consideration.

Correct Answer: C

Correct. The exception to the past consideration under Pao On v Lau Yiu Long [1979] UKPC 17 is particularly relevant to this scenario.

Question 70

A tenant rents a warehouse from which to operate its business. The rent is £12,000 per month. The tenant is struggling financially. It is considering (lawfully) terminating the lease. It asks the landlord to accept £7,500 per month instead. The landlord agrees. This allows the tenant to carry on trading and to not terminate the lease. After 6 months, the tenant recovers from its financial difficulties. The landlord indicates that in 3 months’ time he will put the rent back up to £12,000. After the 3 months’ notice expires (so after 9 months of reduced rent), the tenant continues to pay only £7,500 per month. Which one of the following statements best describes the legal position?

Answer 70

A. The landlord is likely to be entitled to £12,000 going forward, and to recover £4,500 for each of the 9 months when the tenant only paid £7,500.

B. The landlord is likely to be entitled to £12,000 going forward, and to recover £4,500 for each of the 9 months when the tenant only paid £7,500, and to recover interest on each instalment of £4,500.

C. The landlord is now bound to accept £7,500 per month for as long as the lease continues, and cannot recover £4,500 for each of the 9 months when the tenant only paid £7,500.

D. The landlord is now bound to accept £7,500 per month for as long as the lease continues, but he can recover £4,500 for each of the 9 months when the tenant only paid £7,500.

E. The landlord is likely to be entitled to £12,000 going forward, but not to recover £4,500 for each of the 9 months when the tenant only paid £7,500.

Correct Answer: E

Correct. This is the likely result of applying the principles of promissory estoppel to this situation. Promissory estoppel suspends the right to full payment (of £12,000), but that right is brought back to life by reasonable notice in this scenario.

Question 71

On Monday, A man emails his friend and says, ‘Are you still interested in buying my car? I will sell it to you for £5,000. Let me know by end of day Friday.’ On Friday morning the friend emails the man and says, ‘I will buy your car for £5,000.’ The man responds, ‘Sorry, I sold it to a garage yesterday.’ The man and the friend are no longer friends. Which one of the following statements best describes the legal position?

Answer 71

A. As the friend accepted the man’s offer when they were friends this will not be legally binding as there is no intention to create legal relations.

B. As the man and the friend are no longer friends this will be treated as a commercial transaction and will be legally binding as the presumption that the parties intended to create legal relations would be applied.

C. The friend’s acceptance of the man’s offer was not legally binding as the car has been sold to a third party.

D. As the friend accepted the man’s offer when they were friends there is a presumption that the parties did not intend to create legal relations. However, this presumption is rebutted by the parties’ conduct.

E. As the man and the friend are no longer friends this will rebut the presumption usually applied to social agreements and this promise will be binding as there is an intention to create legal relations.

Correct Answer: D