Consideration Flashcards
A client, a builder, was owed £500 by a customer. The client was in desperate financial difficulty and the customer knew this to be the case when the customer offered to pay the client £300 in full settlement. The customer said if their offer was not accepted the client would get nothing. The client had no practical choice but to accept and was paid £300 by the customer.
Is the client entitled to the extra £200?
A-Yes, because although the customer conferred a practical benefit on the client the client’s promise was made under duress.
B-Yes, because the customer had given no consideration for the client’s promise and would have no defence to the client’s action.
C-Yes, because the client’s promise to accept less was made under duress and is therefore void.
D-No, because it would be inequitable for the client to renege on their promise to accept £300 in full settlement.
E-No, because the customer could rely on promissory estoppel which would extinguish the client’s common law right to the extra £200.
Option B is correct. The customer would not be able to rely on promissory estoppel as a defence as they did not have ‘clean hands’ – D & C Builders v Rees. This also explains why options D and E are wrong.
Option A is wrong. Practical benefit consideration has not been extended to part payment of a debt- Re Selectmove.
Option C is wrong. The effect of duress is to make a variation voidable.
A client, a small manufacturer of goods, secured a very lucrative contract to supply goods to a national retail group. To distribute the goods to the retail stores it entered into a contract with a logistics company (the Company). After a couple of weeks the Company said it had underestimated the cost and was not prepared to honour the contract unless it was paid extra money. The client could not find another logistics firm to distribute the goods and could not afford to lose the retail deal and so reluctantly agreed to pay the extra. The Company continued to deliver the goods and invoiced the client for the original price plus the extra sum the client had agreed to pay. The client did not pay the extra sum and is now being sued by the Company.
Will the Company succeed?
A-No, because it was simply performing an existing duty owed to the client which is not consideration.
B-No, because the promise to pay more was made under economic duress.
C-No, because the client could raise promissory estoppel as a defence.
D-Yes, because the Company conferred a real practical benefit on the client which is consideration.
E-Yes, because the parties had agreed the variation and there was consideration and contractual intention.
Option B is correct. There was consideration as a practical benefit had been conferred (Williams v Roffey) but the Company made an illegitimate threat, which left the client with no practical choice and which was a significant reason for agreeing to pay more(Carillion).
Option A is wrong. There was consideration as a practical benefit had been conferred (Williams v Roffey).
Option C is wrong. Promissory estoppel applies to part payment of a debt.
Option D is wrong. Whilst there was consideration the promise to pay more would be voidable for economic duress and could be raised as a defence (Atlas Express v Kafco). The same reasoning explains why option E is wrong.
Which of the following is the best definition of consideration?
A-Consideration must be of benefit to one party to the contract and a detriment to the other.
B-Consideration is something of equivalent value given in exchange for the other party’s promise.
C-Consideration may be a benefit to one party to the contract or a detriment to the other.
D-Consideration takes the form of a monetary promise made by one party to the contract to the other.
E-Consideration is the reliance element undertaken by each party to the contract.
CORRECT ANSWER: C. Currie v Misa decided that consideration is a benefit to one party or a detriment to the other. It is often both, but does not have to be. This also explains why A is wrong.
B is wrong because there is no requirement that the consideration is worth the same as the one party’s promise: Chappell & Co v Nestle.
D is wrong because although often consideration will take the form of a monetary payment (or a promise to pay) it is not constrained to such matters.
E is wrong because consideration takes the place of a reliance element in English law which other legal systems enforce in place of consideration.
A lender lends a company £1 million for it to buy new premises. A few months’ later, the company lost one of its major customers, meaning that its income fell dramatically and it could not afford to repay the loan. The company discussed the matter with the lender and the lender offered the company a payment holiday from the loan, to help it through its present difficulties. This meant that the company would not make any repayments to the lender during the payment holiday. The payment holiday has been on-going for a year. Very recently the company has attracted new customers so that its income in fact exceeds that which it had when it entered into the loan with the lender. On discovering this news, the lender wishes to end the payment holiday for the company (and ensure the company resumes paying the originally agreed repayments) with immediate effect.
Can the lender bring the payment holiday to an end immediately?
A-Yes, because the company’s financial difficulties have come to an end and so the payment holiday has expired automatically.
B-No, because the lender entered into a variation of the contract with the company which has supplanted the original deal so there is nothing for the lender to return to.
C-No, because the lender is estopped from denying the payment holiday and the lender must therefore honour it for the remainder of the duration of the deal.
D-No, because there is no certainty in how long the payment holiday was to last so the lender must give reasonable notice to the company to resume the original agreement.
E-Yes, because there was no consideration for the payment holiday which means the lender can always enforce the original contract.
CORRECT ANSWER: D. For recurring payments, reasonable notice must be given to bring an estoppel to an end unless the promise to vary the original contract was made for a certain time period. Here the lender’s promise was made for quite a vague timeframe, and so the lender will have to give reasonable notice before it resumes its original contractual position and claims the full repayments from the company. This also explains why A is wrong.
B is wrong because there was no consideration in the lender’s promise to take a lower sum from the company, so the parties did not vary the original contract at common law.
C is wrong because although the lender may be estopped from denying the promise to take less, that promise does not last forever and comes to an end upon the lender giving reasonable notice to resume its original position.
E is wrong because it ignores the effect of promissory estoppel and only gives the answer at common law.
Quick Q:
A client was owed £1,000. The debtor contacted the client and explained that they were in financial difficulty and could only afford to repay £500. Mindful that it is generally better to get some money rather than risk getting none, the client agreed to accept £500 in full and final settlement of the debt provided it was paid before the due date. The debtor agreed and paid the client £500 early.
If the client sues the debtor for the extra £500 will the client succeed?
A-No, because the debtor gave consideration for the client’s promise to accept £500 in settlement of the debt.
Option A is correct. Part payment early is consideration- Pinnel’s case. This also explains why options D and E are wrong.
A farmer decides to convert his barn into a number of flats to let out to holiday makers. The farmer contacts a builder and they agree that the builder will carry out the conversion work for £500,000. They also agree that the work will be completed by 1 June, in time for the summer holiday season.
By the beginning of March it becomes clear to the farmer that the builder is falling behind schedule. The builder admits that he is finding it difficult to employ skilled labourers. He says he has under-estimated the costs and is not likely to finish the work on time. The farmer, having already taken holiday bookings for 1 June, offers the builder an extra £10,000 if he completes the work on time. The builder accepts the offer of an extra £10,000 and goes on to complete the work by 1 June. When the work is complete the farmer pays the builder £500,000 but not the extra £10,000.
Does the farmer have to pay the extra £10,000?
A-No, because the builder has only performed an existing contractual duty owed to the farmer.
B-Yes, because the farmer promised the extra £10,000 and the builder relied on that promise when he continued to carry out the building work, so it would now be unfair for the farmer not to pay the extra £10,000.
C-Yes, because the farmer promised more money to ensure the work was completed on time and he received a practical benefit as a result.
D-Yes, because in employing more skilled labourers the builder was exceeding his contractual duty owed to the farmer.
E-No, because the builder placed improper pressure on the farmer who had no practical alternative but to agree to pay the extra money.
Option C is correct.
The builder has performed an existing contractual duty. The general rule under Stilk v Myrick (1809) 2 Camp 317 is that this would not be good consideration for the promise to pay more. However, this rule is subject to exceptions.
In a contract for goods and services where the promisor believes the promisee may not complete the work on time and promises more money to secure timely completion and thereby achieves a practical benefit then, in the absence of duress, this practical benefit is capable of being good consideration for the promise to pay more (Williams v Roffey Bros and Nicholls (Contractors) Ltd [1991] 1 QB 1, CA). Here the practical benefit for the farmer was that he did not have to seek a new builder and was able to perform the contracts made with the holidaymakers. This is an exception to the rule in Stilk v Myrick and therefore the farmer does have to pay the builder the extra £10,000.
Option A is wrong. Whilst this correctly states the general rule, the exception from Williams v Roffey Bros would apply (as above).
Option B is wrong. Any argument that the builder relied on a promise to pay more would be based on the doctrine of promissory estoppel. Promissory estoppel can only be used as a defence; the builder would not be able to use the doctrine to bring an action for the extra £10,000.
Option D is wrong. Whilst it is the case that if the builder had exceeded his contractual duty then this would be good consideration for the promise of more money (Hartley v Ponsonby (1857) 7 E1 & B11 872), here the builder has not done anything more than carrying out his original promise to convert the barn by 1 June. This exception does not apply.
Option E is wrong. There are no facts to suggest improper pressure or the lack of practical alternatives so there is no evidence of duress.
A builder agrees to re-paint the cupboards in a kitchen. The builder agrees to undertake the work for £6,000 and anticipates that it will take three weeks to complete the work. The builder begins the work and requests payment in full. Unfortunately, the homeowner is made redundant and can no longer afford to pay £6,000. The homeowner offers to give the builder (a) £4,000 immediately to complete the work and (b) a marble table which the builder had removed for the homeowner and the homeowner intended to sell. The builder agrees.
Is the agreement binding?
A-Yes, because there was offer and acceptance.
B-Yes, because the homeowner offered part payment in advance and the marble table in return for the builder’s promise to forgo the balance of the debt.
C-No, because part payment of a debt is not consideration for a promise to accept less.
D-No, because the builder cannot agree a variation to pay less; the original contract is binding.
E-No, because the builder is entitled to change their mind and insist on performance of the original agreement.
Option B is correct. Provided a debtor gives the creditor something (other than just part payment) in return for the creditor’s promise to forgo the balance of the debt then that something different will be consideration. In Pinnel’s Case, for example, the creditor agreed to accept part payment because it was paid in advance of the due date which was a benefit to the creditor. The court in Pinnel’s Case also spoke in terms of a ‘horse, hawk or robe’ being consideration for a creditor’s promise to accept part payment – the equivalent in this case is the marble table.
Option A is wrong. The answer is incomplete. Not all subsequent agreements may be binding.
Option C is wrong. Please see the feedback to option B. In this scenario the homeowner has offered to pay in advance and also offered the marble table, either of which amounts to good consideration.
Option D is wrong. Please see above.
Option E is wrong. Having agreed to accept a lesser payment in return for receiving payment early and the marble table, the builder is bound to the new agreement and cannot insist on performance of the original contract.
Two football fans with season tickets regularly meet at matches where they sit next to each other. The female fan drives to the matches in around 45 minutes and the male fan travels by public transport which can take up to two hours. After getting to know each other they realise that they live within two miles of each other. The woman offers to drive the man to and from the home matches to save him travelling on public transport. This arrangement continues until the end of the football season at which point the man says he will pay the woman £100 the next time he sees her for driving him to and from the matches. When they see each other again at the beginning of the next season the man denies owing the payment to the woman.
Must the man pay the sum of £100?
A-No, because past consideration is not good consideration and the act of driving the man to football matches was not done at his request.
B-Yes, because adequate consideration has been promised and the man should honour this promise.
C-Yes, because although past consideration is not good consideration the act of driving the man to football matches was offered by the woman and she should be rewarded.
D-Yes, because sufficient consideration has been promised and the man should honour this promise.
E-No, because if the promise to pay had been made in advance it would not have been legally enforceable as there is never the requisite intent to create legal relations between friends.
Option A is correct. The general principle is that past consideration is not good consideration. There is an exception to this if three conditions are satisfied, the first of which is that the act/promise must be done at the promisor’s request. On these facts, the promisee (the woman) offered to drive the promisor (the man). The act of driving was not done at his request, and so this first condition is not satisfied. This means there can be no consideration and therefore no contract. The man therefore is not obliged to pay the £100.
Options B, C and D are wrong. These do not set out any of the three conditions which form part of the exception to the general principle that past consideration is not good consideration. (In addition, as a general principle, consideration must be sufficient, but need not be adequate. The reference to ‘adequate consideration’ in option B therefore is irrelevant.)
Option E is not the best answer. If the promise to pay had been made in advance it is questionable whether it would have been enforceable, as it is possible that there would have been no intent to create legal relations (the agreement to pay £100 was made in a social context). However, it is not right to say that there is never any intent to create legal relations in agreements between friends – this is a rebuttable presumption, and the woman may be able to put forward evidence in order to rebut that presumption.
A builder and a home-owner agree that the builder will paint the home-owner’s garden fence for £100. The home-owner now wants to vary the contract to include the painting of her two garden gates, in addition to the fence.
Which of the following best describes the most effective step the home-owner can take to make sure the variation is binding?
A-She should make sure that the variation is in writing and signed.
B-She should offer to pay the builder more than the initial £100.
C-She should check that the builder intends to create legal relations.
D-She should make sure that the initial contract is destroyed.
E-She should make it clear that she is making a new formal offer and ensure that the builder gives a formal acceptance to that offer.
Option B is correct. Although all elements of contract formation (offer, acceptance, intention and consideration) are required for a valid variation, the key issue on any variation where one party is asking the other party to do more by way of performance is to show that consideration is being provided in exchange for that extra performance. Therefore, paying more money is the most effective step she can take.
Option A is wrong. There is no requirement for a valid contract to be in writing and signed and this will not impact on the validity of the variation.
Option C is wrong. Although intention is an important element of contract formation and variation, in reality intention is not in issue here (the relationship is a consumer one, where such intent will be presumed and there is nothing on the facts to rebut that presumption). Therefore, this is not the most effective step she can take.
Option D is wrong. There is no requirement to destroy the initial contract to ensure there is a binding variation.
Option E is wrong. Although offer and acceptance is crucial for a valid variation, there is no need for her to take steps to highlight the offer and acceptance in a formal way, as these will be implied from the discussions between the parties. Therefore this is not the most effective step she can take.
A client employed a firm to supply and fit a new kitchen at the client’s café. The café had to close while the work was being done. Half-way through the work the firm said that it had underestimated the cost and demanded an extra £1,000 if it was to complete the job on time. Unable to find another contractor to finish the work the client reluctantly agreed. The work was completed on schedule and the client paid the firm the original contract price but not the extra £1,000.
Which of the following best explains the legal position?
A-The firm is not entitled to the extra money as it was simply performing an existing contractual duty.
B-If the client is sued for the extra money the client could raise economic duress as a defence.
C-The firm is entitled to the extra money as it conferred a real practical benefit by completing the work on time.
D-The firm gave no consideration for the promise of the extra money and so the variation would not be binding.
E-The promise to pay the extra money would be void as it was made under economic duress.
B is the correct option. There was an illegitimate threat which left the client with no practical choice but to concede.
The variation would be voidable because of economic duress: this explains why B and E are wrong.
Performance of an existing duty owed to the other party will be consideration if it confers a real practical benefit: hence options A and C are wrong.
What is promissory estoppel?
For the principle to be enforced, there must be no ambiguity on the part of the party making the promise (which can be express or implied). They must be clear that they do not intend to enforce their legal rights, and the person(s) to whom the promise is made must have acted on that promise either to their detriment or have altered their course of action as a direct result of relying on that promise.
The principle of estoppel rests on equity rather than law; in other words, it would be inequitable not to uphold a promise made to someone who had acted to their detriment because of the promise.
