Consideration

Question 1

An act followed by a promise is consideration. True or false?

Answer 1

False, this is past consideration

Question 2

Does consideration need to reflect the economic value of the goods or services for which it is being given?

Answer 2

No

Question 3

Promissory estoppel provides a defence to a party who has relied on an amendment to an agreement that lacks consideration. True or false?

Answer 3

True

Question 4

Does consideration need to be sufficient and adequate?

Answer 4

Sufficient yes, adequate no.

Question 5

What does sufficient mean in consideration?

Answer 5

Consideration is sufficient provided it is what the promisor requested in exchange for this promise

Question 6

Corinne sells her diamond ring to a pawnbroker in exchange for $5. The next day, Corinne changes her mind and asks the pawnbroker to return the diamond ring. Corinne explains that because the ring is worth much more than £5, the consideration that the pawnbroker paid does not count, and therefore the agreement is not
legally binding.

Can Corinne force the pawnbroker to return the ring on the grounds that her contract with the pawnbroker is not legally binding because it lacks consideration?

Answer 6

No

Question 7

What is past consideration and is it valid?

Answer 7

If an act is carried out before a promise is made, this is not consideration and does not make a promise binding.

Question 8

Daniel finds an escaped cow in the village and takes it to Lynn, who owns the local farm. Lynn is very happy that Daniel has returned his lost cow and tells Daniel that she’ll pay him £20 as a thank you. A few weeks pass and Lynn has still not paid Daniel his reward.

Is Daniel able to sue Lynn for the €20 on the grounds of a legally binding contract?

Answer 8

The answer is no. The English law position is that Daniel has not provided any act in exchange for Lynn’s promise. Daniel performed the act before Lynn made a promise to pay him €20. This lack of exchange between the parties means that the agreement is void for lack of consideration.

Question 9

What is the exception to past consideration?

Answer 9

Previous Request Device. Applies when there is an understanding between the parties that the actions of one party will be paid for at a later date.

Question 10

In 2018 Areeba asked John, who owned a marketing consultancy, to help her to market a vegan drink (Water Milk). John worked on marketing Water Milk for two years so that the brand became valuable. In 2020, Areeba signed an agreement with John in which she gave John 30% ownership of the Water Milk brand. Areeba
died shortly afterwards and Areeba’s husband failed to honour the agreement on the basis that John’s consideration was past consideration so the agreement was not legally binding.

Is John’s contract legally binding?

Answer 10

The answer is yes because the criteria for the previous request device are satisfied. John performed the act at Areeba’s request. In addition, John and Areeba were interacting in a commercial context where it is usual to be paid for such activity. These factors strongly suggest that both parties understood
that John would be paid for his work.

Question 11

If a person does what he is already bound to do by contract or law, does this amount to consideration?

Answer 11

No

Question 12

If a person does more than it is required to do by law or by contract, is this consideration?

Answer 12

Yes

Question 13

When a contract is amended, does new consideration need to be provided?

Answer 13

Yes

Question 14

Is a promise to pay more for the performance of an existing contractual duty owed to a promisor binding?

Answer 14

No, unless the promisee makes an additional promise, act or omission.

Question 15

Sinbad is a crew member on a sea voyage from Southampton to Jamaica. When the boat reaches Jamaica, two of the other crew members resign their positions, but the remaining crew is experienced and the work that the crew must carry out on the return journey to Southampton is the same as it was before the two crew
members resigned.

Sinbad tells the ship’s captain that he will only make the journey back to Southampton if the captain pays him a 50% bonus and the captain agrees. When they reach Southampton, Sinbad asks the captain to pay him the 50% bonus, but the captain refuses.

Can Sinbad sue the captain for his bonus on the basis that by working the return journey to Southampton, Sinbad provided consideration to make the captain’s promise binding?

Answer 15

The answer is no. Sinbad has only done what he was contractually obliged to do under the original contract. So English law considers that he has not provided any consideration to make the captain’s promise of a bonus binding.

Question 16

If a promisor agrees to pay more for perfomance of an existing contract only as a result of pressure or threats from the promisee that gives them no choice, is this binding?

Answer 16

this amounts to duress and the promise is not binding.

Question 17

Joanna runs a property refurbishment company and has won a contract to refurbish a block of flats owned by Nicola. The contract between Joanna and Nicola contains a damages clause stating that Joanna must pay damages to Nicola if the refurbishment runs behind schedule. Joanna engages Ruth as a sub-contractor to d
he carpentry part of the refurbishment. Ruth runs into difficulties that threaten to delay the completion of her part of the refurbishment, and Joanna is worried that this will delay her completion of the overall project. So Joanna offers to pay Ruth more to finish the job on time. Ruth accepts the offer and as a result of the promise of extra money she focuses on her carpentry job and finishes her work on time. This allows Joanna to complete the overall project on time and so she avoids having to pay damages to Nicola.

Is Joanna bound by her agreement to pay Ruth more?

Answer 17

The answer is yes. The fact that Joanna avoided paying the penalty to Nicola as a result of making the promise is a practical benefit for Joanna. English law regards this practical benefit as consideration in respect of promises to pay more. So Joanna’s promise to pay Ruth more than was agreed in the original contract is legally binding.

Question 18

Amir is an electrician and does some electrical work for Shakira at a cost of f100. Shakira is having cash flow problems and so she asks if Amir will accept £80 instead of f100. Amir agrees to accept £80 instead of £100, but then finds that he has cash flow problems too.
Can Amir go back on this promise and sue Shakira for the balance of £20?

Answer 18

The answer is yes. By paying less than she owes Amir, Shakira has not provided any consideration to make her agreement legally binding. This is true even if Amir (as promisor) obtains a practical benefit, such as not needing to sue Shakira for the money she owes him.

Question 19

What is promissory Estoppel?

Answer 19

Doctrine that provides a defence to a debtor to stop a creditor from going back on his promise to accept a smaller amount than is owed under the original agreement

Question 20

What is the criteria for promissory estoppel to apply?

Answer 20

1. There must be a clear and unambiguous promise from the promisor that they will not enforce their rights under the contract.
2. Promissory estoppel applies to amendments to contracts, not formation contracts.
3. The promisee must have relied on the promise.
4. It must be inequitable (unfair) for the promisor to go back on his promise.

Question 21

An artist agrees on Monday to sell a painting to a woman for a basket of apples, with delivery of the painting and payment in apples to be made on Friday. On Tuesday, the artist receives an offer of £200 for the same painting from a man. Later on Tuesday, the artist tells the women that he no longer wishes to sell the painting to her because he was mistaken about the value of the painting.
Which of the following best describes the artist’s situation?

A. The artist is bound by his agreement to sell the painting to the woman because sufficient consideration has been promised.
B. The artist is not bound by his agreement to sell the painting to the woman because the consideration is not adequate.
C. The artist is not bound by his agreement to sell the painting to the woman because she has not provided any consideration to make the agreement legally binding.
D. The artist is bound by his agreement to sell the painting to the woman on the basis of promissory estoppel.
E. The artist is not bound by his promise to sell the painting to the woman because the consideration is not effective until the apples have been delivered.

Answer 21

A. The artist is bound by his agreement to sell the painting to the woman because sufficient consideration has been promised.

Question 22

A woman offers to help a man with work in the garden centre. After the woman has worked all day in the garden centre, the man tells her that he will pay her £100 for her work. The man never pays the woman £100.

Which of the following best describes the legal position in this case?

A. The man is bound by his promise to the woman as she provided consideration by working in the garden centre.
B. The man is not bound by his promise to the woman because the woman’s work in the garden centre is past consideration.
C. The man is not bound by his promise to the woman because £100 for a day’s work in the garden centre is not adequate.
D. The man is bound by his promise to the woman, provided the woman can show that she relied on the man’s promise.
E. The man is bound by his promise to the woman because the practical benefit that he gained as a result of the woman’s work is consideration to make the promise binding.

Answer 22

B. The man is not bound by his promise to the woman because the woman’s work in the garden centre is past consideration.

Question 23

A woman commissions a man to refit the bathrooms in a hotel that she is refurbishing under a contract that pays the man £2,000 per bathroom refit. The woman is responsible for all other aspects of the refurbishment, but she will be liable to pay damages to the owner of the hotel if any aspect of the refurbishment (including the refit
of the bathrooms) is not complete before the deadline. The man who is refitting the bathrooms is running behind schedule because he is concerned about his financial situation. As a result, the woman offers the man an additional £500 per bathroom refit. The man is able to focus on this work, refits the bathrooms on time, and the
woman finishes her refurbishment of the hotel on time and avoids paying damages to the hotel owner.

Which of the following best describes the woman’s position with regard to her promise to pay the man an additional £500 per bathroom refit?

A. The woman is not bound by her promise to pay the additional amount because the man’s performance of his existing contractual duty is not consideration to make the amendment to the original contract binding.
B. The woman is not bound by her promise to pay the additional amount to the man because she only offered to pay the man an additional amount under duress, and duress renders the contract voidable.
C. The woman is bound by her promise to pay the additional amount to the man because she received a practical benefit as a result of the additional payment because the man finished his work on time, meaning the woman avoided paying damages to the hotel owner for the late completion of the hotel refurbishment.
D. The woman is bound by her promise to pay the additional amount on the basis of promissory estoppel.
E. The woman is bound by her promise to pay the additional amount because the man’s performance of his existing contractual duty amounts to the performance of an existing contractual duty owed to a third party and English law treats this as consideration.

Answer 23

C. The woman is bound by her promise to pay the additional amount to the man because she received a practical benefit as a result of the additional payment because the man finished his work on time, meaning the woman avoided paying damages to the hotel owner for the late completion of the hotel refurbishment.

Question 24

A man owes a woman £10,000 and it is due for payment. The man tells the woman that it will be difficult for him to repay £10,000 and he asks the woman to accept £8,000 in full and final settlement of the £10,000 that he owes her. The woman tells the man that she agrees to accept £8,000 in full and final settlement of the £10,000
that the man owes her. The man pays the woman £8,000. The woman later regrets her decision and is considering suing the man for the deficit of €2,000.

Is the woman able to sue the man for the €2,000 deficit?

A. No, the woman has agreed to accept £8,000 in full and final settlement of the claim and the man’s payment of £8,000 is consideration to make the woman’s promise binding.
B. No, the woman has received a practical benefit as a result of the man voluntarily paying her the £8,000. Practical benefit is consideration and makes a promise binding.
C. Yes, the woman can sue the man for the £2,000 on the grounds that the man provided no consideration for the woman’s agreement to accept less than the full amount.
D. Yes, the woman can sue the man for the £2,000 on the grounds that the man put the woman under duress to accept the lesser amount.
E. No, the woman cannot sue the man for the £2,000 on the grounds that she agreed to accept £8,000, and consideration does not need to be adequate, provided it is sufficient.

Answer 24

C. Yes, the woman can sue the man for the £2,000 on the grounds that the man provided no consideration for the woman’s agreement to accept less than the full amount.

Question 25

A woman takes out a lease on a small hotel for £100,000 per year. But within two years, the woman faces financial difficulties because she has no guests as a result of lockdowns related to a global outbreak of bubonic plague. The owner of the hotel and the woman agree that she can reduce her annual rent for the hotel to
£50,000. The woman continues to rent the hotel. Six months after the hotel owner and the woman agree on the reduced rent, the hotel owner is short of cash and wonders if he is bound by his agreement with the woman.

Which of the following best describes the options available to the hotel owner?

A. The hotel owner can sue the woman for the full amount of rent because the woman did not provide any consideration for the reduction in rent.
B. The hotel owner cannot sue the woman for the full amount of rent because the agreement is binding on the basis of the practical benefit that the hotel owner received as a result of the woman continuing to rent the hotel.
C. The hotel owner can sue the woman for the full amount of rent because a rental payment of £50,000 in place of £100,000 is not adequate.
D. The hotel owner cannot sue the woman for the full amount of rent because of the doctrine of promissory estoppel.
E. The hotel owner cannot sue the woman for the full amount of rent because the woman has provided consideration that is sufficient.

Answer 25

D. The hotel owner cannot sue the woman for the full amount of rent because of the doctrine of promissory estoppel.