Consideration

Question 1

Which statement correctly describes executory consideration?

(a) 
Executory consideration is consideration that has already (b) 
Executory consideration is consideration that is adequate.

(c) 
Executory consideration is consideration that is clear and certain.

(d) 
Executory consideration is consideration that has been promised but not yet provided.

Answer 1

(d) 
Executory consideration is consideration that has been promised but not yet provided.

Question 2

Which of the following is a rule governing consideration?

(a) 
Consideration must move from the promisor.

(b) Consideration must be adequate.

(c) 
Consideration need not be sufficient.

(d) Consideration must move from the promisee.

Answer 2

(d) Consideration must move from the promisee.

Question 3

What does the rule that consideration must move from the promisee mean?

(a) 
Consideration must have some value in the eyes of the law.

(b) 
Consideration must move to the promisor.

(c) 
Only a person who is party to a contract may sue or be sued on that contract.

(d) 
A party who has not provided consideration may not bring an action to enforce the contract.

Answer 3

(d) 
A party who has not provided consideration may not bring an action to enforce the contract.

A person to whom a promise is made can only enforce the promise if they have provided consideration for the promise.

Question 4

A woman pays a cat sitter £70 to feed her cat while she and her flatmate are on holiday. Unknown to the woman, her flatmate had already paid the cat sitter £100 to feed the same cat. The woman is demanding that the cat sitter returns the £70 she paid him, but the cat sitter is refusing to return the money. Which of the following statements is most accurate?

(a) 
The cat sitter is not obliged to return the money to the woman as performance of an existing obligation owed to a third party is good consideration.

(b) 
The cat sitter is obliged to return the money to the woman as consideration must be sufficient.

(c) 
The cat sitter is obliged to return the money to the woman as performance of an existing contractual obligation is not good consideration.

(d) 
The cat sitter is not obliged to return the money to the woman as past consideration is not good consideration.

Answer 4

(a) 
The cat sitter is not obliged to return the money to the woman as performance of an existing obligation owed to a third party is good consideration.


Question 5

Which of the following is an example of good consideration?


(a) Part payment of a debt.

(b) 
Performance of an existing duty owed to a third party.

(c) 
Performance of an existing obligation in a contract between the parties.


Answer 5

(b) 
Performance of an existing duty owed to a third party.


Question 6

Which rule of consideration does promissory estoppel provide an exception to?

(a) 
Consideration must not be past.

(b) 
Consideration must be sufficient but need not be adequate

(c) 
Part payment of a debt without fresh consideration does not discharge the debt obligation.

(d) Consideration must move from the promisee

Answer 6

(c) 
Part payment of a debt without fresh consideration does not discharge the debt obligation.


Question 7

A tenant has lost his job and he is struggling to pay his rent. Keen to help, the landlord informs the tenant that she is willing to accept half the rent due each month until he finds a new job. The tenant pays half rent for two months and uses some of the money he saved to buy new shoes to wear at interviews. The landlord is now having second thoughts. Under what circumstances can the landlord demand full rent?

(a) 
The landlord cannot demand full rent before the tenant has found a new job.

(b) 
The landlord can demand that full rent is paid immediately.

(c) The landlord can demand full rent after the expiry of reasonable notice.

(d) 
The landlord cannot demand full rent as the tenant has accepted her offer therefore she is bound.

Answer 7

(c) The landlord can demand full rent after the expiry of reasonable notice.


Question 8

A restaurant owner owes a vegetable supplier £2500. The restaurant owner knows that the supplier is experiencing financial problems. The restaurant owner gives the supplier a cheque for £1000 in full and final satisfaction of the debt owed. The supplier accepts the cheque but later sues the restaurant owner for the balance of £1500. Which of the following statements is correct?

(a) 
The supplier cannot recover the balance of £1500 as their acceptance of the cheque for £1000 discharged the debt.

(b) The supplier can recover the balance of £1500 as it is not inequitable for them to go back on their promise.
(c) 
The supplier cannot recover the balance of £1500 because their acceptance of the cheque for £1000 is binding.

(d) The supplier cannot recover the balance of £1500 as it would be inequitable for them to go back on their word.


Answer 8

(b) The supplier can recover the balance of £1500 as it is not inequitable for them to go back on their promise.

The supplier’s promise to accept less was obtained as a result of pressure on the supplier, therefore the restaurant owner is unlikely to successfully rely on the equitable doctrine of promissory estoppel as it is unlikely that it would be considered inequitable for the supplier to go back on his promise.


Question 9

What is the definition of consideration?

Answer 9

= act or forbearance of one party, or promise thereof, is price for which promise of other is bought, and promise thus given for value is enforceable

Price one party pays to make promise enforceable

Question 10

What are the four main consideration rules?

Answer 10

1. Consideration must not be past
2. Consideration must move from promisee
3. Consideration need not be adequate
4. Consideration must be sufficient

Question 11

Is A’s promise to pay B extra to perform existing obligation enforceable?

Answer 11

A’s promise to pay B extra to perform existing obligation under contract is unenforceable

If all they are doing is performing original obligation then there’s no consideration to enforce extra payment as B has provided nothing of value in return for it

Harley v Ponsonby exception: if B has done smth new, or extra, then this would be smth of value to enforce extra payment - there is good consideration for additional payment

Question 12

What is the Williams v Roffey exception to the rule that variation to pay more in unenforceable?

Answer 12

In order to consider this case, you have reached conclusion that no fresh legal consideration has been provided

Established factual consideration ie that paying party may get practical benefit out of reshaped deal, even if all other contractual party is doing, is performing existing contractual obligations

Conditions for factual consideration:
1. If A has entered into into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and
2. 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
3. B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and
4. As a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and
5. B’s promise is not given as a result of economic duress or fraud on the part of A; then
6. The benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

Question 13

What is executory and executed consideration?

Answer 13

Executory consideration: where contracting parties make promises to each other to perform smth in future after contract has been formed
Example: 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.

Executed consideration: Where, at time of formation of contract, consideration has already been performed
Example: 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 [18931 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 14

What does consideration must not be past mean and are there any exceptions to this rule?

Answer 14

Not generally possible to use as consideration some act or forbearance which has taken place prior to promise to pay - consideration must be given in exchange for promise of other party

If act/forbearance has taken place prior to promise, it cannot be in exchange for that promise

Exception exists where some prior act or service was provided by promisee at promisor’s request and it was always understood that payment would be made for that act or service

Three necessary conditions for exception to apply:
1. Act must have been done at promisor’s request
2. Parties must have understood that act was to be rewarded either by payment or conferment of other benefit - these could be bc it was expressly agreed that there would be reward/benefit, or bc such understanding can be implied (especially in commercial context)
3. Payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance

Question 15

What does rule that consideration must move from promisee mean?

Answer 15

Effectively means that party who has not provided consideration may not bring action to enforce contract

Related to, but must be distinguished from, doctrine of privity of contract

Question 16

What does rule that consideration need not be adequate mean?

Answer 16

According to doctrine of freedom of contract, courts will not interfere with bargain freely reached by parties - it is not court’s duty to assess relative value of each party’s contribution to bargain

There is no reason eg why party should not be bound to promise to sell Rolls Royce for one penny

If agreement is freely reached, inadequacy of price is immaterial

Question 17

What does the rule that consideration must be sufficient mean?

Answer 17

Consideration must have some value ‘in eyes of law’ - it matters not how small that value is, as long it is worth smth

If thing of value can be identified, then there will be sufficiency of consideration as court will not enquire as to its adequacy

Question 18

When will an existing obligation be good consideration?

Answer 18

1. Existing contract between same parties
2. Public duties
3. Existing contract with TP

Question 19

When will an existing contactual obligation between same parties be good consideration?

Answer 19

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

If sailors had agreed to exceed their existing obligations, there would have been good consideration - in Hartley they provided fresh consideration and exceeded contractual obligation

Williams v Roffey exception: Conditions for factual consideration:
1. If A has entered into into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and
2. 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
3. B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and
4. As a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and
5. B’s promise is not given as a result of economic duress or fraud on the part of A; then
6. The benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.

Question 20

When will obligation under public duty be good consideration?

Answer 20

Question as to whether party claiming to have given consideration has done any more than they were already obliged to do under public law

Principle is that merely carrying out public duty imposed by law will not amount to sufficient consideration

Issue of sufficiency of consideration has also arisen in respect of rewards claimed by police officers for giving info

England v Davidson: where the defendant offered a reward for information leading to the conviction of a particular criminal. 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 21

When will existing obligations to third party be good consideration?

Answer 21

Question: whether possible to have given consideration by doing smth one was already bound to do under pre-existing contract with TP

Clear that performance of pre-existing duty owed to TP will be regarded as sufficient consideration for promise given by promisor

Lord Wilberforce: 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 promise obtains the benefit of a direct obligation which he can enforce.
Party offering this sort of consideration is offering to put itself at risk of double liability - if it fails to meet obligations, it will face action from two parties

Question 22

Is part payment of debt good consideration?

Answer 22

Where debtor promises to pay part of their debt in return for release from remainder of liability, they are simply offering to do smth which they are obliged to do - they are seeking to offer existing obligation as consideration

This is not good consideration - debtor remains liable even where creditor has agreed to release them from further liability - simply paying smaller sum than that owed will not be sufficient consideration (Foakes v Beer rule)

Rule in Foakes provides that part payment of debt will not be good consideration to discharge whole debt bc consideration has not been exchanged between parties

When does rule not apply?
1. Rule in Foakes is only applicable if promise of creditor to accept lesser sum is unsupported by fresh consideration from promisee - If at creditor’s request, new element is introduced, then this will amount to good consideration and court will not enquire as to value of new element
2. Where TP enters into agreement with creditor, by which creditor accepts payment by TP of lesser sum than debt in full satisfaction of debtor’s obligation, creditor cannot sure debtor for difference

Question 23

What is promissory estoppel and what are main principles?

Answer 23

Promissory estoppel = equitable doctrine that effectively allows promise to be enforced despite not being supported by consideration - it aims to protect party who has relied on such promise

Equity estops promisor from going back on promise in situation where promisee has relied on it

Following parameters:
1. Acts as shield not sword: Can only act as defence to action and cannot be used as cause of action - it does not give party right to use upon promise
2. Clear and unequivocal promise that strict legal rights will not be fully enforced: Must be clear and unequivocal promise/representation that existing legal rights will not be fully enforced
3. Change of position in reliance on promise: Usually to prove estoppel, must be shown that promisee has relied to their detriment on promise - reliance on promise is such that, if promisor were to go back on promise, promisee would be in worse position that if promise had never been made. However, Denning made clear that detrimental reliance is NOT required for promissory estoppel.
4. Inequitable to allow promisor to go back on their promise: Courts, in exercising discretion, undertake balancing exercise to determine whether it would be inequitable to allow promisor to go back on their promise. If it would be inequitable, then defence will apply and promisor will be estopped from going back on promise.

Question 24

Does promissory estoppel suspend/extinguish legal rights?

Answer 24

Seems that promisor’s right to resume strict legal rights may arise in one of two ways
1. Right to periodic payments may resume once period over which promissory estoppel operates ceases or
2. Promisor may resume full legal rights after giving reasonable notice of their intention to do so

Reflects effect that promissory estoppel is generally to suspend rights concerned, but not to extinguish them - key principle is that court will order outcome which is just and equitable, and in some cases, might mean past right is extinguished

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.