consideration Flashcards
definition
consider- ation is the price for which the promise or action of the other is bought. Consideration can be either a positive or negative obligation.
3
EXECUTED OR EXECUTORY CONSIDERATION
- If the act or forbearance is promised in the future, it is called executory consideration.
- When the act or forbearance is per- formed, the consideration becomes executed.
- Sometimes, the same act can constitute both acceptance of the other party’s offer and performance of consideration. This happens most commonly in the case of unilateral contracts, that is, in cas- es in which the offeror promises something if the offeree completes a certain undertaking, such as finding a lost dog or watch. When the offeree completes performance of the re- quired activity (for example, finding the lost dog or watch), the act comprises both acceptance of the offer (as seen above) and performance of consideration by the offeree, as the two things happen simultaneously.
3
CONSIDERATION MUST MOVE FROM THE PROMISEE
- Consideration must be provided by the parties to the con- tract themselves, not by a third party.
- A party who has not provided consideration will usually be unable to enforce the contract unless it was entered into by way of a deed .
- However, the Contracts (Rights of Third Parties) Act1999 gives third parties a limited right to enforce the terms of a contract to which they are not a party if they are** named in the contract and the term to be enforced is for their benefit.**
EXAMPLES
1) The owner of a newly built hotel enters into a contract with a supplier to purchase 200 Russell Hobbs electric ket- tles to furnish the hotel’s guest rooms. Unless Russell Hobbs can prove that one of the parties specified the kettles were to be Russell Hobbs kettles because of a close relationship to the company, they would not be able to enforce the con- tract because they did not supply any consideration for the contract under the facts given.
2) A parent hires a quartet to play music at their child’s wedding. The contract specifies that the music is to be played at the child’s wedding for the benefit of the child and their partner. Although the child is a third party and did not provide consideration for the contract, the child does have some rights to enforce it under the Contracts (Rights 0 Third Parties) Act 1999.
CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE
For consideration to be sufficient in the eyes of the law, it must have some value, even if very small. Consideration is simply about ensuring that the parties have agreed on an exchange of promises. The courts will not be concerned as to whether that bargain represents a good deal for either or both of the parties
3
PERFORMANCE OF AN EXISTING DUTY
- As a general rule, performance of an existing obligation owed under a contract to the person making the promise(called the ‘promisor’) is not good consideration.
- In contrast,if the promise is given in return for work which goes beyond the original obligation, then the parties are effectively enter- ing into a new contract: extra work in consideration for extra money.
- exception: practical benefit
lf performance of an existing contractual duty confers a prac- tical benefit on the party offering additional consideration, for example, avoidance of a monetary sanction by virtue of a time penalty clause in a construction contract, then this may amount to good consideration. The situation might be differ- ent if the additional consideration is obtained under duress
Performance of an Existing Contractual Duty Owed to a Third Party
By contrast, a promise to perform or performance of an
existing contractual duty owed to a third party other than the promisor is sufficient consideration for a promise given by the promisor.
Performance of an Existing Statutory Duty
Performance of a duty required by statute will not amount to good consideration. For example, the police have a public duty to maintain law and order
3
past consideration
- Acts that were performed or promises that were made prior to the contract being formed will not be sufficient consideration.
- exception: implied understanding of payment
If the earlier act or promise is given at the promisor’s request, and there was an implied understanding that payment would follow, past consideration may be sufficient. The subsequent promise to pay is seen as merely fixing the amount previous- ly promised. This means that the promise to pay is enforce- able even though it was made in return for something done earlier. - There are three conditions required for this exception to apply:
* The act must have been done at the promisor’s request;
* The parties must have understood that the act was** to be remunerated** either by a payment or some other benefit; and
* The payment or other benefit must have been legally enforceable had the promise been made in advance.
PART PAYMENT OF A DEBT
English law does not recognise a promise to accept part pay- ment of a debt. Suppose Alfred owes Beatrice £500.In this relationship, Alfred is the debtor and Beatrice is the creditor. If Alfred offers £450 in full and final settlement, and Beatrice agrees, Beatrice can still then sue Alfred for the remaining
£50. The reason for this is that there is no fresh consideration from Alfred to support Beatrice’s promise, so it is not en-
forceable. Beatrice needed to have received some benefit to support her agreement to forgo the balance in order to make that agreement binding.
5
exceptions to part payment rule
- Where the debt is disputed in good faith. In this situa- tion, the debt is of uncertain value and so the debtor is providing consideration by agreeing to pay the creditor something;
2.** Unliquidated claims**, that is, where the amount owed is uncertain: - Payment at a different place, or earlier payment (for ex- ample, the creditor receives a lesser amount but benefits from being paid earlier);
4. A third party makes the payment (this prevents any claim being made by the creditor against the original debtor,on the basis that the third party made the payment on an agreement reached in good faith that the payment would discharge the debt); - Payment is made by different means at the request of the party accepting the lesser amount (for example, goods or services instead of money); and
- A composition with creditors (an agreement between a debtor in financial difficulties and all their creditors that the debtor will pay an agreed amount in satisfaction of all their debts).
- the debtor gave up his right to litigate againt the creditor.
promisory estoppel
1.Promissory estoppel is an equitable principle that gives legal effect to an agreement unsupported by consideration. It pre- vents a party going back on their promise to do something on the basis that they are ‘estopped’ from doing so.
2.Promissory estoppel can be used only as a shield, not a sword, that is, as a defence, not as the basis for a claim.
3.For promissory estoppel to apply:
* There must be a clear and unequivocal promise (ex- press or implied) by the promisor not to rely on existing legal rights; for example, by accepting payment of a lesser amount than the original contract price;
* The promisee must have altered their position in reli- ance on the promise; and
* It must be inequitable for the promisor to go back on their promise.
* Where it relates to continuing obligations, such as the pay- ment of rent, promissory estoppel can have only suspensory effect; in other words, the original rights are revived after the conditions that caused the estoppel in the first place no longer exist or after reasonable notice has been given.
illusory consideration
the court requires the consideration to have some value in the eye of the law and not to be wholly illusory .
Example: a promise to stop complaining
