Chapter 4

Question 1

Consideration is required for one type of contract. What types of contracts are there?

Answer 1

Simple contracts and contracts under seal / under deed.

Question 2

Unless made by deed, what does a contract need to be legally binding?

Answer 2

It must be supported by consideration. Each party must promise to give or do something for the other.

Question 3

Is an informal gratuitous promise made by one party enforceable as a contract?

Answer 3

No, unless it’s being made under seal or it is supported by consideration.

Question 4

What forms can consideration take?

Answer 4

Payment of Money, supply of goods, providing a service.

Question 5

What is deferred consideration?

Answer 5

Promise of a monetary payment or service or goods in the future.

Question 6

Tweddle v Atkinson (1861) 1 B&S 393 - how does the case relate to consideration?

Answer 6

Facts
The son and daughter of the parties involved in this dispute were getting married. As such, the father of the groom and father of the bride entered into an agreement that they would both pay sums of money to the couple. Unfortunately, the father of the bride died before he paid the money to the couple and the father of the son died before he could sue on the agreement between the parties. As a result of this, the groom brought a claim against the executor of the will for the payment that was previously agreed between the fathers.

Issue
The primary issue for the court was whether or not the son could, as a third party to the agreement, enforce the contract between the fathers, which was ultimately for the benefit of him and his wife. It was argued that the intention of the agreement between the fathers was for the couple to derive a benefit from the payment of the money. Moreover, it was argued that preventing the son from being able to enforce the contract would effectively ignore the intention of the fathers.

Outcome / Decision
The groom’s claim was rejected by the court. It was held that the groom was not a part of the agreement between the fathers and he did not provide any consideration for the promise made by the father of the bride. Also, as a stranger to the contract, the son could not enforce it. On this basis, the court found in favour for the executor of the will.

Question 7

How was Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915] AC 847 similar to Tweddle v Atkinson (1861) 1 B&S 393?

Answer 7

Topic: Ability of third parties to sue.

Facts
Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price (RRP). As part of the agreement, Dunlop also required their dealers to gain the same agreement with their retailers, who in this instance was Selfridge. The agreement held that if tires were sold below the RRP, they would be required to pay £5 per tire in damages to Dunlop. This was agreed between the dealer and Selfridges, which effectively made Dunlop a third-party to that agreement. Sometime after this, Selfridge sold the tires below the agreed price and Dunlop sued for damages and an injunction to prevent them from continuing this activity. At the initial trial, the decision was given to Dunlop. This was appealed by Selfridge and the decision was reversed. Dunlop appealed.

Issue
Selfridge argued that Dunlop could not enforce the contract as Dunlop was not part of the agreement between the dealer and Selfridges. On this basis, the question for the court was whether Dunlop had the right to access damages without a contractual relationship.

Decision/Outcome
The court held in a unanimous decision that Dunlop could not claim for damages in the circumstances. The court found that firstly, only a party to a contract can claim upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore there could be no binding contract between the parties. Lastly, Dunlop was not listed as an agent within the contract and could therefore not be included as a valid third-party who had rights to claim on the contract.

Question 8

Consideration must either afford (A) … or (B) …

Answer 8

A) Benefit to the promisee
B) Detriment to the promisor

Question 9

What are the roles of promisor and promisee in contract law?

Answer 9

In contract law, the terms “promisor” and “promisee” refer to the parties involved in a contractual agreement. Here’s a breakdown of their meanings:

Promisor: The promisor is the party who makes a promise or undertakes an obligation under the contract. They are the one who agrees to perform a certain action, provide a service, or fulfill a duty as specified in the contract. The promisor is also commonly referred to as the “obligor” because they are obligated to fulfill their promises.

Promisee: The promisee is the party to whom the promise is made. They are the one who receives the benefit of the promise and is entitled to enforce the terms of the contract. The promisee is the party who can legally demand performance or seek remedies if the promisor fails to fulfill their obligations.

It’s important to note that the roles of promisor and promisee can sometimes be interchangeable or may change depending on the context of the contractual relationship. For example, in a bilateral contract, where both parties make promises to each other, each party can be both a promisor and a promisee.

Question 10

What types of consideration exist?

Answer 10

Executory consideration
Executed consideration

Question 11

What is the difference between executory and executed consideration?

Answer 11

Executory Consideration: This is a promise to perform an action in return of a promise, at some future time.

Example: Omar promises to do some work in return for a promise of payment; shopkeeper’s promise to supply the goods and customer’s promise to accept the goods and pay. In the above examples, neither party has yet done any act but each party has given a promise in order to obtain the promise of the other person. It would be a breach of contract if either party withdraw from his/her promise without the consent of the other

Executed Consideration: This is an act in return for a promise.

Example: Richard loses his wallet and offers Bogdan a reward if he finds and returns the lost wallet. It is only when Bogdan finds the wallet and duly returns it to Richard that the reward becomes enforceable and the consideration becomes valid.

Question 12

The parties have shown good consideration even though neither party has actually fulfilled its promise. What type of consideration?

Answer 12

Executory consideration.

Question 13

With executory consideration, if one of the two parties fails to deliver fails to provide the promise, what would be the result?

Answer 13

A breach of contract.

Question 14

If one party makes a promise in exchange for an act by another party, when is the consideration executed?

Answer 14

When the promisee has carried out the act.

Question 15

Under executed consideration: If A offers B £50 to clean his windows, once B cleans A’s windows, B’s consideration is executed. What happens if B does not clean the windows?

Answer 15

Then A is not contractually bound to pay anything to B.

Question 16

Bilateral contracts and unilateral contracts, how do they relate to executed and executory contracts?

Answer 16

Bilateral contracts are often with executory consideration.
Unilateral contracts are often with executed consideration.

Question 17

Meaning of forbearance (German)

Answer 17

Unterlassung

Question 18

“free from vice” Meaning

Answer 18

Frei von Fehlern

Question 19

What is past consideration?

Answer 19

For an act or forbearance already carried out.

Question 20

Roscorla v Thomas (1842) 3 QBR 234; 114 ER 496.

Answer 20

The claimant agreed to buy a horse from the defendant. The defendant later falsely promised that the horse as ‘free from vice’. The claimant sued the defendant for breach of his promise. The defendant argued that the promise was not a term of any contract because the claimant had not provided any consideration for it.

The Court held in favour of the defendant. The claimant had already agreed to buy the horse. He could not rely on his obligations under that contract as consideration for the defendant’s later promise. The promise was therefore unenforceable.

Existing or past obligations cannot be relied on as consideration for new promises.

Question 21

The rule of past consideration is not an absolute. What is the exception?

Answer 21

Where a promise is made following the performance of an act, it may nevertheless be enforceable as a common law exception, if:

(1) the act was requested by the promisor;
(2) both parties contemplated that payment would be made; and
(3) the features of a valid contract existed.

Question 22

Lampleigh v Braithwaite (1615) Hob 105 - exception when past consideration may be good consideration

Answer 22

Facts
The defendant, Braithwaite, killed a man. He asked the plaintiff, Lampleigh to secure him a pardon from the king. The plaintiff spent many days doing this, riding and journeying at his own cost across the country to where the King was and back again. The plaintiff succeeded. The defendant was released. Afterwards, the defendant promised to pay the plaintiff £100 in gratitude. He later failed to pay the money. The plaintiff sued.

Issues
The defendant argued that the plaintiff had acted before any promise to pay was given by the defendant. Therefore, he had only provided past consideration for a promise given in the future. The court considered whether this past consideration was sufficient to create a valid contract.

Decision/Outcome
The court found in favour of the plaintiff. The promise was indeed given after the plaintiff had acted. However, the plaintiff had acted upon a request made by the defendant. The court considered that the original request by the defendant contained an implied promise to pay the plaintiff for his efforts.

Consequently, the court held that if A does something for B at their request and afterward B promises to pay A for their trouble, then that promise is good consideration. The later promise was considered to be part of the same single transaction and was, therefore, enforceable.

Question 23

Consideration need not be adequate but must have some ‘value in the eye of the law’, however small. What does that mean?

Answer 23

In contract law, the principle that “consideration need not be adequate but must have some ‘value in the eye of the law’, however small” means that the courts generally do not concern themselves with whether the value exchanged between the parties is proportionate or equal. Adequate consideration refers to consideration that is reasonable, fair, or of equal value to the promise or benefit received. But courts do not concern themselves with that.

Question 24

When assessing consideration, courts concern themselves with (A) Adequacy or (B) Sufficiency?

Answer 24

Only B.

Question 25

The ridiculous case of Chappell v Nestlé [1960] AC 87; [1959] 2 All ER 701 regarding sufficiency of condiseration

Answer 25

In the case of Chappell v Nestlé [1960] AC 87; [1959] 2 All ER 701, the issue revolved around whether the exchange of discounted goods for “worthless” chocolate wrappers could constitute valid consideration. Nestlé, a chocolate company, conducted a promotional campaign where they offered a free pop single (i.e., music) to customers who sent in three wrappers from their chocolate bars along with 1s 6d (around 8 pence) for postage. Chappell, the publisher of the song, claimed a royalty from Nestlé based on the sale price of each record.

The House of Lords held that the consideration for the pop single included not just the 1s 6d, but also the value represented by the three chocolate wrappers. Although the wrappers themselves had no intrinsic value and were discarded by Nestlé, they constituted the specific value requested by Nestlé in exchange for the free pop single. Therefore, despite the seemingly “worthless” nature of the wrappers, they were considered valid consideration because they formed part of the overall exchange between the parties.

The case of Chappell v Nestlé illustrates the principle that consideration need not have monetary or intrinsic value but must have some value in the eyes of the law. The court recognized that the exchange of the chocolate wrappers had value to Nestlé, even if they were ultimately discarded, and that was sufficient to establish valid consideration for the contractual arrangement.

Question 26

Are moral obligation or natural love or affection considered sufficient for consideration?

Answer 26

No.

Question 27

Thomas v Thomas (1842) 2 QB 851; 114 ER 330 regarding sufficiency of consideration

Answer 27

Facts
Before he died, Mr Thomas said he wished for his wife to have the house they lived in for the rest of her life. However, this was not written into his will. After he died, his executors, ‘in consideration of such promise’, agreed with Mrs Thomas that she would pay a peppercorn rent of £1 per year in return for being allowed to live in the house. They later tied to dispossess her.

Issues
A valid contract must be supported by consideration. That is, the promisee must promise to do something in return for the promise of the other party. It was argued that there was no contract because Mrs Thomas, the promisee, provided inadequate consideration as the rent was nothing like a commercial rent for the property. Mrs Thomas argued that her promise to pay rent and keep the house in repair was good consideration.

Decision/Outcome
The executors statement did not create a contract as it only expressed their motive for entering into the agreement. However, the £1 rent was recognized as good consideration. Patteson J said (at 859):

Motive is not the same thing as consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff:

Without consideration the transaction was merely a voluntary gift. However, by agreeing to pay rent in return for being allowed to stay in the property, Mrs Thomas had provided consideration, even though it was not economically adequate or anything like a commercial rent for the building. Therefore, the contract was enforceable.

Question 28

Existing public duty for consideration, what does Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040 say?

Answer 28

Godefroy, the defendant, brought an action against an attorney for negligence and caused Collins, the plaintiff, to be subpoenaed to attend and give evidence. Godefroy was keen to ensure that Collins attended as this would help his case, so he promised to pay him one guinea per day he was at court as compensation for the loss of his time. Collins attended court for six days but was not called to give evidence. At the end of this Collins demanded payment of six guineas as per the agreement. When this was not paid, he brought an action against the defendant for the sum owing.

Issue
The question for the court was whether the agreement between the plaintiff and the defendant was supported by valuable consideration.

Decision / Outcome
The court held that the agreement that the plaintiff’s should attend court was not supported by consideration. This was because the plaintiff was under a public duty to attend court anyway having been subpoenaed. The law would not allow someone to recover expenses incurred in the performance of a duty that they were merely obliged to do anyway by law. Lord Tenterden said (at 956):

‘If it be a duty imposed by law upon a party regularly subpoenaed, to attend from time to time to give his evidence, then a promise to give him any remuneration for loss of time incurred in such attendance is a promise without consideration. We think that such a duty is imposed by law’.

Question 29

Glasbrook Bros v Glamorgan County Council [1925] AC 270 regarding public duty and consideration involves the police. What was the case about?

Answer 29

Facts
During a strike at a colliery the colliery manager asked for additional police protection for the colliery and insisted he required police officers to be stationed on the premises. The police superintendent provided mobile officers but refused to station more officers at the colliery unless the manager paid extra to cover the expense. The manager agreed to this but later refused to pay. The trial judge and the Court of Appeal both held that the police were entitled to do this. The colliery appealed to the House of Lords.

Issues
The appellant colliery argued that the police had provided no consideration in return for the promise to be paid. They argued it was the duty of the police to provide protection without payment and the agreement had been signed under duress.

Decision / Outcome
By a majority if 3:2 their Lordships held that the police were entitled to be paid. The police had a responsibility without being paid other than by way of ordinary public taxation to provide protection for life and property, keeping the peace and preventing crime. However, by providing officers stationed at the colliery the police had gone beyond their public duty. In doing so they provided good consideration. Therefore, the contract was enforceable and the police could recover the amount charged. Lord Carson and Lord Blanesburgh dissented, however, as they thought the police had done their public duty and nothing more given the particularly organized and threatening nature of the strike which targeted ‘safety men’ responsible for ensuring the colliery could still be safely operated.

Question 30

What are the key principles regarding consideration under Existing Contractual Duty based on the cases of Stilk v Myrick [1809] 2 Camp 317, Hartley v Ponsonby (1857) 119 ER 1471, and Williams v Roffey Bros & Nicholls (Contractors) Ltd. [1990] 1 All ER 512?

Answer 30

Stilk v Myrick: When a party promises to do something they are already obligated to do under an existing contract, it does not constitute valid consideration. The promisee performing or promising to perform an obligation already owed does not provide sufficient consideration.

Hartley v Ponsonby: If the performance of an existing contractual obligation becomes significantly more burdensome or dangerous due to unforeseen circumstances, a promise to provide additional benefits can be supported by good consideration. The original contract is discharged, and a new contract is formed.

Williams v Roffey Bros & Nicholls (Contractors) Ltd: When a party offers to pay more to the other party to undertake an existing contractual obligation and derives a practical benefit or avoids a disadvantage from the performance, this practical benefit constitutes valid consideration. The promisee providing an additional benefit beyond their existing obligations creates valid consideration.

It is debatable to what extent the Williams v Roffey Bros & Nicholls (Contractors) Ltd decision has changed or reformed the doctrine of consideration. However, it is fair to say that courts now have a wider scope in which to find good consideration when a party seems to promise a pre-existing contractual obligation.

Question 31

What are the key principles regarding consideration under Contractual Duty Owed to a Third Party based on the cases of Shadwell v Shadwell 9 CB (NS) 159; (1860) 142 ER 62, Scotson v Pegg (1861) 6 H and N 295, and New Zealand Shipping Company Ltd v Satterthwaite (The Eurymedon) [1975] AC 154; [1974] 1 All ER 1015?

Answer 31

Shadwell v Shadwell: The performance of an existing contractual duty owed to a third party can be sufficient consideration. In this case, the uncle promised to pay his nephew an annuity in recognition of his intended marriage, and the court held that there was consideration for the promise since it induced the nephew to commit to the marriage. (The uncle had died; the third party, in this case, was his estate).

Scotson v Pegg: The delivery of goods by a party who is already contractually bound to a third party to make such delivery can constitute sufficient consideration. In this case, the claimant’s delivery of coal to the defendant was considered valid consideration, despite the claimant’s pre-existing contractual obligation to another party.

New Zealand Shipping Company Ltd v Satterthwaite (The Eurymedon): Performance of an obligation by parties A and B can support a promise made to parties C and D. This case confirmed that sufficiency of consideration can be based on performance by one party that benefits another party who is not directly involved in the original contract.

Question 32

Shadwell v Shadwell 9 CB (NS) 159; (1860) 142 ER 62 would no longer be enforceable today, why?

Answer 32

Shadwell v Shadwell: The performance of an existing contractual duty owed to a third party can be sufficient consideration. In this case, the uncle promised to pay his nephew an annuity in recognition of his intended marriage, and the court held that there was consideration for the promise since it induced the nephew to commit to the marriage. (The uncle had died; the third party, in this case, was his estate).

It should be noted that a promise to marry is no longer an enforceable contract after the introduction of the Law Reform (Miscellaneous Provisions) Act 1970, s. 1.

Question 33

Under the common law, parties to a written agreement can change its provisions by subsequent mutual agreement, whether such mutual agreement is oral or written. For such
variation to take effect, two conditions must be meet. Which?

Answer 33

Under the common law, parties to a written agreement have the ability to modify its provisions through subsequent mutual agreement, regardless of whether the agreement is oral or written. However, for such a variation to be legally enforceable, two conditions must be met.

Firstly, there must be a valid agreement between the parties, meaning that mere notification by one party will not be sufficient. Both parties must mutually agree to the proposed variation. S

Secondly, there must be some form of consideration to support the variation agreement. This means that if one party promises to fulfill their contractual obligations in a different manner or agrees to allow the other party to do so, the party seeking to enforce the variation must provide consideration. Consideration can be in the form of a benefit to the promisee or a detriment to the promisor. It ensures that both parties are receiving something of value in exchange for the modification of the original agreement.

Question 34

Where, however, one party has waived his rights to consideration, the other party may enforce such waiver, even in the absence of any consideration. What case demostrates that?

Answer 34

Hartley v Hymans [1920] 3 KB 475, where a buyer of cotton agreed to allow the seller to make late delivery, and it was held that he was liable in damages for refusing to take delivery after the contract period had expired).

Question 35

In certain situations, a party may waive their right to consideration, allowing the other party to enforce the waiver even without any additional consideration. In the case of Hartley v Hymans [1920] 3 KB 475, the buyer of cotton agreed to allow the seller to make a late delivery. When the buyer later refused to take delivery after the contract period had expired, the court held that the buyer was liable for damages. This decision illustrates that a party’s waiver of their rights can be binding and enforceable, even if there is no additional consideration involved. Can such waivers be withdrawn? (case example)

Answer 35

In cases where a party waives their rights, the waiver may not necessarily be permanent. The party that made the waiver can revoke it by giving reasonable notice. The case of Charles Rickards Ltd v Oppenheim [1950] 1 KB 616; [1950] 1 All ER 420 illustrates this principle. It establishes that a waiver of rights can be withdrawn if reasonable notice is given. Therefore, if the delivery is outside the terms of the contract, a promise to accept late delivery may be unsupported by consideration. It’s important to note that a waiver is not always permanent, and the party waiving their rights may choose to revive the original right by giving notice.

Question 36

Charles Rickards Ltd v Oppenheim [1950] 1 KB 616; [1950] 1 All ER 420 regarding waiving right to consideration

Answer 36

Facts: There was a contract for some bodywork to be done on a car. The supplier promised to do the work within “6, or at most, 7 months”. The date the work was to be done was later fixed, but the supplier did not manage to meet this date. The buyer did not sue, but kept waiting for the supply. By waiting, this was seen as the buyer waiving his right to the supply to be done at the fixed date. In the end the supply was received many months later by which time the buyer was not willing to accept it.

Held: The supplier sued for non-acceptance, but the court held that the buyer’s waiver was not permanent, so the supplier was no successful in their claim.

⇒ Denning: “It would be most unreasonable if, having been lenient and having waived the initial expressed time, [the buyer] should thereby have prevented himself from ever thereafter insisting on reasonable quick delivery. In my judgement, he was entitled to give a reasonable notice making time of the essence of the matter”

Question 37

Where one party promises to release the other party from his contractual obligations - the discharge will only be valid in which case?

Answer 37

The discharge will only be valid if the promisee has provided consideration.

Question 38

Who has to provide consideration? The promiser or the promisee?

Answer 38

Promiser.

Question 39

Consideration does not necessarily need to be monetary. What other forms can it have?
If consideration is absent, how can a contract be altered?

Answer 39

Can be a mutual acceptance of new rights or obligations or new benefits given to one party to the other.
Only by deed.

Question 40

In practice, how are variations to the contract managed?

Answer 40

In practice, it is very common to include a variation clause in contracts under which any changes made to the contract must be made in writing and signed by the parties, otherwise such change has no effect (this is known as ‘a no oral modification’ clause). The inclusion of a variation clause can prevent uncertainty and unwanted situations, such as unilateral, informal or inadvertent oral variations to the contract.

Question 41

Can the terms of a contract be varied by an oral agreement or by conduct, even if the contract includes a “no variation” clause?

Answer 41

In certain circumstances, the terms of a contract can be varied by an oral agreement or by the parties’ conduct, even if the contract includes a “no variation” clause. This was established in the Court of Appeal case Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd & Anor [2016] EWCA Civ 396. However, a subsequent Supreme Court decision in Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 clarified that a variation to a contract may only be valid if it is agreed in writing, regardless of the presence of a “no oral modification” clause. Therefore, the law gives effect to a contractual provision requiring specified formalities for a variation to be observed.

Question 42

When a debtor agrees to pay part of the debt owed to a creditor in full settlement of the outstanding amount, is the partial repayment of a debt good consideration for a primise to forego the balance?

Answer 42

No, this does not represent good consideration. Pinnel’s Case [1602] 5 Co. Rep. 117a This debt is unenforceable due to lack of consideration.

Question 43

The rule in Pinnel’s Case was strictly obiter, but was approved by the House of Lords in
Foakes v Beer (1884) 9 App Cas 605., What does obiter mean?

Answer 43

In legal terminology, the term “obiter” refers to statements or remarks made by a judge in a court judgment that are not directly relevant or necessary for the decision in the case. These statements are considered incidental or peripheral to the main issue under consideration and are therefore not binding as legal precedent.

Question 44

Foakes v Beer (1884) 9 App Cas 605., what was the case about?

Answer 44

It is a leading case from the House of Lords on the legal concept of consideration. It established the rule that prevents parties from discharging an obligation by part performance, affirming Pinnel’s Case (1602) 5 Co Rep 117a, which was strictly obiter until that point.

Beer agreed to forego suing Foakes if he kept up instalment payments on a judgment debt. Foakes paid off the amount he owed in full but Beer subsequently sued him for the accumulated interest resulting from the delayed repayment. The House of Lords affirmed the award of interest in favour of Beer since Foakes had provided no consideration for Beer’s promise.

Question 45

There exist five exceptions to the Pinnel’s Case. Which?

Answer 45

1) The creditor agrees to accept a lower amount at an earlier date than the due date, or on the day, but at a different location, or in a different currency.

2) The creditor agrees to accept goods or services rather than money. It is stated that the payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction for the whole debt. However, if the creditor accepts a gift of a horse, hawk, robe, etc., it is considered valid satisfaction because it can be presumed that such goods may be more beneficial to the creditor than the money owed (reference: (1602) 5 Co Rep 117a; 77 ER 237).

3) A third party makes a partial payment, which the creditor accepts as full satisfaction of the debtor’s obligation. In this case, the creditor is not entitled to sue the debtor for the balance because doing so would be considered a fraud upon the third party. Furthermore, the court will not assist the creditor in breaking their contract with the third party, which prohibits suing the debtor (reference: Hirachand Punamchand v Temple [1911] 2 KB 330).

4) A composition among creditors allows a debtor to pay a percentage of their debts, such as 30 pence in the £1, in full settlement. In this situation, both the creditors and the debtor provide consideration by reaching an agreement to forego all of their rights. The doctrine of promissory estoppel may apply in this case, but further details are provided below.

5) The Doctrine of Promissory Estoppel.

Exceptions to the rule established in Pinnel’s Case provide situations where the entire debt may be considered discharged, despite the general principle that a lesser sum of money cannot satisfy the full debt. These exceptions create circumstances where the creditor is not entitled to pursue the debtor for the remaining balance.

Question 46

What is the pinnel’s case?

Answer 46

The rule established in Pinnel’s Case is commonly known as the rule of “Pinnel’s Case.” It states that the payment of a lesser sum of money by the debtor, before the due date, in satisfaction of the full amount owed, does not discharge the entire debt. In other words, if a creditor agrees to accept a partial payment or a lesser sum as full satisfaction of the debt, the creditor can still pursue the debtor for the remaining balance.

Question 47

What is Promissory estoppel?

Answer 47

Promissory estoppel, also known as equitable estoppel, is a legal principle that helps enforce a promise even if there was no formal agreement or exchange of something valuable (consideration) between the parties. In simple terms, it prevents someone from going back on their word or breaking a promise for future actions.

For example, let’s say someone promises to give you a gift but later changes their mind and refuses to fulfill that promise. In normal circumstances, without consideration, you might not have a legal basis to enforce that promise. However, the principle of promissory estoppel can come into play. It allows you to hold the person accountable for their promise and seek legal remedies if you relied on that promise to your detriment.

Promissory estoppel ensures that people are held to their word and that promises, even without formal agreements, are treated as binding in certain situations. It promotes fairness and consistency by preventing one party from unfairly going back on their promises when the other party has reasonably relied on those promises.

Question 48

In which case was the principle of promissory estoppel established?

Answer 48

Central London Property Trust Ltd. v High Trees House Ltd. [1947] KB 130, often referred to as the “High Trees Case,” is a significant legal case that established the doctrine of promissory estoppel in English contract law. The case involved a dispute over the payment of rent during World War II.

During the war, High Trees House Ltd., the tenant, leased a block of flats from Central London Property Trust Ltd., the landlord. Due to the impact of the war, many of the flats remained unoccupied, and the tenant faced difficulties in paying the full rent. The landlord agreed to accept a reduced rent amounting to half the original rent.

However, after the war ended and the flats became fully occupied, the landlord sought to claim the full rent retroactively from the time the block was fully occupied. The tenant argued that the landlord was estopped, or prevented, from claiming the full rent based on their earlier agreement.

The court, in this case, held that the tenant’s argument was valid and applied the doctrine of promissory estoppel. Denning J., one of the judges, stated that any attempt by the landlord to claim the balance of rent between the years when the reduced rent was agreed upon would be prevented by promissory estoppel. The court concluded that the tenant had relied on the promise of reduced rent, and it would be inequitable for the landlord to go back on that promise.

The High Trees Case established the principle of promissory estoppel, which prevents a party from reneging on a promise if the other party has relied on that promise to their detriment. It serves as a shield to protect the promisee’s expectations and provides an equitable remedy even if there is no consideration supporting the promise.

Question 49

What is the accord and satisfaction principle? Which case is the source? How does it relate to consideration?

Answer 49

Foakes v Beer (1884) 9 App Cas 605 and Pinnel’s Case are the sources.

Accord and satisfaction is a way for people to settle a debt and end their contract. It involves making an agreement to release the person from the debt, and providing something valuable as part of that agreement. The important thing is that the valuable thing given should be different from what was originally required.

If someone is sued for a debt, they can defend themselves by showing that they reached an accord and satisfaction. This means they have to prove that they made an agreement to settle the debt and followed through with it. If the other person breaks the agreement, the debtor can use the accord and satisfaction as a defense to stop any legal action against them.

In the context of accord and satisfaction, the consideration provided as part of the accord is crucial. The debtor (party owing the debt) offers something of value to the creditor (party owed the debt) as part of the agreement to settle the debt. This consideration could be a payment of a reduced amount, goods, services, or any other agreed-upon form of valuable exchange.

For the accord to be valid, the consideration provided must be separate from the original obligation. In other words, the debtor cannot simply offer to perform the same obligation that was initially owed. The consideration must be something new and different that both parties agree upon.

By providing this new consideration as part of the accord, the debtor and creditor are essentially creating a new contract that replaces the original one. Once the accord is performed, the original debt is discharged, and the new agreement takes its place.

Question 50

Why is Hirachand Punamchand v Temple [1911] 2 KB 330 important?

Answer 50

It is often cited as an one of the five exceptions to Pinnel’s Case and one of the exceptions to the accord and satisfaction rule laid out in Foakes v Beer.

The defendant, Lieutenant Temple had gotten indebted to money lenders (plaintiffs) issuing them a promissory note; after no money was forthcoming from Lieutenant Temple, the plaintiffs approached his father, Sir Richard Carnac Temple, 2nd Baronet, and asked him to pay the debt for him. Sir Richard in reply, got his solicitors to send the moneylender a cheque for 1,500 rupees, which was less than the full amount owed, with a letter attached that this was tendered as a “full settlement of his son’s account”.

The money lenders cashed the cheque but then proceeded to sue the debtor (Lieutenant Temple) for the outstanding balance. In this case, the creditor is not entitled to sue the debtor for the balance because doing so would be considered a fraud upon the third party. Furthermore, the court will not assist the creditor in breaking their contract with the third party, which prohibits suing the debtor.

Question 51

What are the five requirements for the Doctrine of Promissory Estoppel? (the textbook calls them “limitations”)

Answer 51

1) There must be an existing legal relationship
2) There must be a clear and unequivocal promise
3) Reliance: change of position
4) Inequitable to break the promise
5) Suspensory or extinctive

Question 52

Durham Fancy Goods v Michael Jackson (Fancy Goods) [1968] 2 QB 839 is cited as a relevant case for the requirement that there must be an existing legal relationship. The main issue of the case, however, does not relate to that requirement. What was the main issue of the case and how does the case relate to the requirement?

Answer 52

Durham Fancy Goods sent a bill to M Jackson (Fancy Goods) instead of the real name of the company. Mr Jackson, director of the company, signed the bill without flagging the error. The bill was dishonored (i.e., not paid).

Durham Fancy Good could not enforce the contract due to promissory estoppel. The written word of the claimant amounted to a promise that “acceptance in that form would be, or would be accepted by Mr Jackson as a regular acceptance of the bill”.

In this case, Durham Fancy Goods was unable to enforce the contract against Mr. Jackson personally due to the principle of promissory estoppel. The claimants’ written words, which accepted the bill with the incorrect name, effectively promised that such acceptance would be treated as a regular acceptance of the bill by Mr. Jackson.

Promissory estoppel is a legal principle that prevents a party from going back on a promise made to another party if the promisee has relied on that promise to their detriment. In this situation, the claimants’ acceptance of the bill, despite the error in the payee’s name, created a reasonable expectation that they would not seek to enforce the bill against Mr. Jackson personally. The claimants’ own words and actions formed the basis for the application of promissory estoppel in this case.

As a result, Durham Fancy Goods was precluded from enforcing the contract against Mr. Jackson personally, as it would be deemed inequitable or unfair to do so based on their promise in accepting the bill with the incorrect name.

In Durham Fancy Goods V. Michael Jackson (1969) 2 QB 839 where Donaldson J. held that contractual relationship is irrelevant provided that there is “a pre-existing legal relationship which could, in certain circumstances, give rise to liabilities and penalties”, although that was not the main issue of the case.

Question 53

According to the Corporate Finance Institute website, what are the four requirements for promissory estoppel?

Answer 53

The following elements must be present for the doctrine of promissory estoppel to be enforceable:

1. Promisor made a significant promise to cause the promisee to act on it

The first element of promissory estoppel is that the promise made to the promisee was significant enough and that a reasonable person would ordinarily rely on it.

2. Promisee relied on the promise

The second element is that the promisee must have acted on the promise made by the promisor, even though it was not supported by consideration.

3. Promisee suffered significant damage by relying on the promise

The third element is that the party relying on the promise suffered an actual detriment in the form of an economic loss. The loss results from the promisor failing to deliver on the promise made at the start of the relationship. In simple terms, the promisee is in a worse position for having acted on and relied on the promise.

4. Fulfillment of the promise is the only way the promisee can be compensated

The fourth element is that the promise becomes enforceable if the court determines that the only way the injustice committed to the promisee can be avoided is by enforcing the promise. However, the court has discretion in choosing what to do in such a case. Ideally, it will take an action that relieves the promisee of the detriment suffered.

Question 54

Baird Textile Holdings Ltd v Marks and Spencer plc [2001] EWCA Civ 274 is often cited for the requirement for a “There must be a clear and unequivocal promise” for the promissory estoppel requirement. How is it applicable?

Answer 54

The court held that for the doctrine of promissory estoppel to apply, there must be an explicit or apparent promise. In this case, where no long-term agreement existed between the parties, the court concluded that there was no contract, and therefore, promissory estoppel could not be invoked. In other words, the court found that no contract could be implied.

Baird Textile Holdings Ltd had supplied clothes to Marks & Spencer plc. for thirty years. All of a sudden, M&S said they were cancelling their order. Baird sued M&S on the grounds that they should have been given reasonable notice. The problem was, there was no express contract under which such a term could be said to have arisen. Baird argued that a contract should be implied through their course of dealings. The judge found there was no such contract, and Baird appealed to the Court of Appeal.

Question 55

One of the requirements of promissory estoppel is reliance. What does it mean?

Answer 55

The promisee must have relied on the promise or representation. Generally, there must be some form of detriment to the promisee, meaning that the promisee is placed in a worse position than before the promise was made. However, a detriment may arise simply where the promisee has been led to act differently from what he otherwise would have done, or merely acted on the belief induced by the other party (WJ Alan Co. Ltd. v El Nasr Export & Import Co. [1972] 2 All ER 127).

Question 56

One requirement for promissory estoppel is that it would be inequitable to break the promise. Can such a promise be enforced?

Answer 56

It must be inequitable for the promisor to go back on his promise. In other words, a
promise will not be enforced where it would be inequitable to do so.

Question 57

D & C Builders v Rees [1966] 2 WLR 28 is cited for the requirement that it would be inequitable to break the promise. What was this case about?

Answer 57

Facts
The builders sought payment from Rees for building work done and materials supplied in respect of alterations and repairs completed on Rees’ shop. Rees did not pay, but the work continued and a second bill was issued. Builders started to have financial difficulties so requested the funds again. Rees offered Builders a reduced lump sum in payment of the debt and stated that if it was not accepted, they would get nothing. A cheque was issued after Builders feared they would receive no payment at all and Rees provided a receipt stating the funds were in full payment of the account. Builders brought action for the balance and Rees filed a defence stating that the work was defective and that Builders had entered into a binding agreement.

Issue
Whether the agreement was a binding contract.

Decision/Outcome
The appeal by Rees was dismissed. The agreement was invalid as there was no consideration in favour of Builders for reducing the value of the amount owing by Rees. The case of Foakes v Beer (1884) 9 App Cas 605 was applied in the fact that the payment was by cheque made no difference to the principle that late payment of a lesser amount did not equal satisfaction of the total amount owing. Builders had been under duress to accept a reduced amount due to their financial position which Rees was aware of and took advantage of. An acceptance arising from a threat does not amount to a settlement.

Question 58

It must be inequitable to break the promise. A case cited was Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329. What is the case about?

Answer 58

In the case of Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329, the Court of Appeal examined the application of promissory estoppel in the context of a debtor-creditor relationship.

The facts of the case involved Collier, who was jointly liable with two former partners to pay off a debt. Collier consistently made his instalment payments, while his ex-partners defaulted on their share. Collier and the creditor reached an agreement that the debt would be considered satisfied after Collier paid off one-third of it. However, once Collier fulfilled the agreed-upon amount, the creditor demanded the outstanding balance.

The Court of Appeal found that there was a triable issue based on promissory estoppel. They determined that it would be inequitable for the creditor to go back on its promise to consider the debt satisfied after the one-third payment. The court endorsed the principle set out by Mr Justice Denning in the High Trees Case (which dealt with promissory estoppel in a different context) and stated that if a debtor offers to pay part of the amount owed, the creditor voluntarily accepts that offer, and the debtor pays that part in full in reliance on the creditor’s acceptance, then the doctrine of promissory estoppel applies. In such circumstances, the creditor will be bound to accept the paid amount as full and final satisfaction of the entire debt, and it would be inequitable for the creditor to resile (go back) on their promise. The effect of promissory estoppel in these circumstances is that the creditor’s right to the balance of the debt is extinguished.

Therefore, the Collier case highlights the application of promissory estoppel in the context of a debtor-creditor relationship, where a promise to accept a partial payment can be binding and enforceable, preventing the creditor from seeking the remaining balance of the debt.

Question 59

How did Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 weaken the case Foakes v Beer [1884] UKHL 1?

Answer 59

Arden LJ’s judgment in Collier v P & MJ Wright (Holdings) Ltd does indeed have significant implications and appears to endorse a position that aligns with the court’s approach in D & C Builders Ltd v Rees. The judgment can be seen as weakening the precedent set by Foakes v Beer, similar to how Williams v Roffey Brothers weakened the precedent set by Stilk v Myrick.

The key aspect highlighted by Arden LJ’s judgment is that a debt can be discharged when partial payment is made in accordance with an agreement between the creditor and the debtor. In other words, if the creditor voluntarily accepts a partial payment and the debtor fulfills their obligation based on that agreement, promissory estoppel may come into play. Under promissory estoppel, it would be inequitable for the creditor to go back on their promise to accept the partial payment and seek the remaining balance of the debt.

This development suggests that the traditional rule established in Foakes v Beer, which held that part payment of a debt is not sufficient consideration for discharging the entire debt, may be weakened. The judgment in Collier supports the idea that in certain circumstances, where there is an agreement between the parties and reliance on that agreement, the doctrine of promissory estoppel can operate to discharge the remaining balance of the debt.

It’s important to note that the extent to which Foakes v Beer has been weakened or modified by subsequent cases may still be subject to interpretation and further judicial consideration. However, Arden LJ’s judgment in Collier is significant as it reflects a departure from the strict application of the Foakes v Beer principle and demonstrates a recognition of the potential impact of promissory estoppel in debt payment scenarios.

Question 60

Does the doctrine of promissory estoppel extinguish or suspend legal rights?

Answer 60

The principle of promissory estoppel typically suspends, rather than extinguishes, legal rights. This means that the promisor’s original rights are temporarily put on hold while the doctrine is in effect. The promisor can still assert their original rights after giving reasonable notice.

The case of Tungsten Electric Co. Ltd v Tool Metal Manufacturing Co. Ltd. supports this general rule. However, it’s important to consider the intention of the promise and the specific circumstances of each case. The doctrine of promissory estoppel can suspend the promisor’s legal rights as long as the circumstances that gave rise to the estoppel continue.

In the famous High Trees Case, the court held that the promise made during the war to accept reduced rent during a specific period could not be enforced retrospectively once the circumstances changed. The doctrine suspended the landlord’s legal rights to claim the full rent during the agreed period, but it did not extinguish those rights entirely.

However, in certain situations where the promisee is unable to return to their original position, promissory estoppel may result in the partial or complete extinguishment of the promisor’s existing rights. This means that the claimant, who relied on the promise, may not be allowed to claim arrears or enforce the original rights of the promisor for the period during which the estoppel was in effect.

It’s important to note that the specific application and extent of suspensory or extinctive effects of promissory estoppel can vary depending on the circumstances and the intention of the parties involved. Each case needs to be examined on its own merits.

Question 61

A promisor may need to provide a reasonable notice period to the promisee before he terminates a promise that is backed by promissory estoppel. In which case was this established?

Answer 61

The rule that a promisor may need to provide a reasonable notice period to the promisee before terminating a promise backed by promissory estoppel was established in the case of Tool Metal Manufacturing v Tungsten Electric Co Ltd [1955] 2 All ER 657. In this case, the House of Lords held that when a period of suspension of rights depends on the will of the promisor, equity requires the promisor to give reasonable notice to the promisee before enforcing their strict legal rights.

Lord Tucker, in his judgment, explained that in cases where the end of the suspension period is not fixed by a specific event but is dependent on the will of the promisor, it is necessary for the promisor to provide some notice with a reasonable period for readjustment. This ensures that the promisee has an opportunity to prepare for the resumption of the promisor’s strict rights and make necessary arrangements in reliance on the promise.

While the specific facts and circumstances of the case determined the length of the notice period in Tool Metal Manufacturing, the case established the principle that reasonable notice is required when terminating a promise supported by promissory estoppel.