Consideration Flashcards
Consideration
Consideration is what each party provides to the other, which proves the agreement’s existence. Consideration was developed in English law to distinguish between promises that are enforceable and those that are not. If there is valid consideration that makes the contract enforceable, then the contract is binding.
Defined in Dunlop v Selfridge and Currie v Misa
Executory consideration - a promise made in return for a promise, where both promises are still to be performed. A party can sue if the other does not carry out their promise, however, in unilateral contracts, the offeror is under no obligation to execute their promise until the other party performs their part of the agreement.
Rules of consideration
1) Consideration must be sufficient but not necessarily adequate
2) Past consideration is no consideration
3) Consideration must move from the promisee
4) Performing an existing duty is not consideration
5) Part payment cannot be consideration
Consideration must be sufficient but not necessarily adequate
The courts are more interested in freedom of contract, rather than protecting a party who has made a bad agreement without inducement - may seen unfair but is based on courts’ keenness to validate agreements
Therefore, in the absence of duress or undue influence/illegitimate pressure, where the consideration has been accepted by the courts as being ‘sufficient’, meaning it must be real and tangible and have some economic value, it need not necessarily be adequate (meaning of the same value/worth of the promise)
Professor J.C. Smith in The Law of Contract - ‘if I make a promise to you in return for three, quite useless, chocolate wrappers which I will instantly throw away, there is a perfectly good contract provided that the promise was seriously intended’
Past consideration is no consideration
When a performance is completed prior to consideration. If a voluntary agreement is formed and there is no mention of payment, then a later promise after performance to pay is unenforceable and has no value.
Exception to this rule is the rule in Lampleigh v Braithwaite
Consideration must move from the promisee
Consideration must be provided by any beneficiary under a contract. The privity of contract rule is that third parties cannot enforce rights or sue/be sued under a contract if they have provided no consideration. However, the Contracts (Rights of Third Parties) Act 1999 has provided exceptions to this rule.
Performing an existing duty is not consideration
Performance of something that you have already have an existing obligation to do cannot amount to good consideration.
Exception to this is the rule is Hartley v Ponsonby
Part payment cannot be consideration
Part payment of a sum the day a debt is due cannot be consideration for the whole debt
There are exceptions to this rule e.g. the method of payment is changed by promissor, under the doctrine of promissory estoppel
Promissory estoppel
An exception to the rule of consideration. It is the equitable doctrine that a promise is enforceable by law, even if made without formal consideration. It prevents the promissor from going back on a promise made to the promisee (who relies on that promise to their subsequent detriment) and helps the injured party to recover damages for economic loss caused by broken promises.
For periodic/part payment, promissory estoppel merely suspends the right of the promissor to a debt until a time it becomes equitable to claim the remainder.
Privity of contract
The privity of contract rule encompasses that only parties who are privy to a contract (only those who supplied consideration) can obtain rights and incur duties under the contract, and can only sue or enforce their rights. Therefore, third parties cannot sue/be sued or enforce rights under a contract, even if they have an interest in its performance.
Exceptions to the privity of contract rule
Statute e.g. application of s56 of the Law of Property Act 1925 in Beswick v Beswick
Collateral contracts
Restrictive covenants
The Contracts (Rights of Third Parties) Act 1999
The Contracts (Rights of Third Parties) Act 1999
The 1999 Act is a statutory exception to the privity rule, and tries to remedy unfairness by allowing third parties to enforce contractual terms in certain circumstances:
S1(1)(a) - the contract expressly provides that the third party is allowed to make a claim
S1(1)(b) - the contract purports to confer a benefit upon them (e.g. compensation for food poisoning), unless the parties did not intend it to be enforceable
Issues with 1999 Act
The 1999 Act cannot impose liabilities on a third party, as it is unfair to impose contractual obligations on persons who are not party to a contract and haven’t given consent.
The Act can leave parties without justice, and some exceptions have been developed eg restrictive covenants
Third Party Rights clauses in contracts can exclude the rights ranged by the 1999 Act, and agency clauses can make it expressly clear that third parties do not have authority to make contracts on behalf of another person
Dunlop v Selfridge
Definition/privity
Definition - ‘an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable’
Privity of contract - no party can sue/be sued under a contract unless they are a party to it
Currie v Misa
Definition
Definition - ‘some right, interest or benefit accruing to one party, or some forbearance or detriment undertaken by the other’
White v Bluett
Sufficiency not adequacy
The agreement was not enforceable as it was not supported by sufficient consideration
Ward v Byham
Sufficiency not adequacy
Consideration must be sufficient
Thomas v Thomas
Sufficiency not adequacy
Although consideration was inadequate and did not match the value of the promise, it was sufficient consideration
Chappell v Nestle Co Ltd
Sufficiency not adequacy
Consideration must be sufficient, real and tangible, but not necessarily adequate
Atlas Express v Kafco
Economic duress
If a contract is entered under illegitimate pressure or economic duress, consideration may be invalid
Re McArdle
Past consideration
Past consideration is not good consideration as it allows a party to break a promise with impunity
Roscorla v Thomas
Past consideration
Past conduct is not sufficient consideration to support a later promise
Lampleigh v Braithwaite
Exception to the past consideration rule
Where an act requested by the promissor has a reasonable implication that a payment would be made, even though such has not been stated in the agreement and performance occurred prior to the late promise for payment/consideration, it may be enforceable.
Tweddle v Atkinson
Existing duty
Because the person was a third party who had provided no consideration, he could not enforce rights under the contract
Stilk v Myrick
Existing duty
The claimant was simply doing what he was contractually obligated to do and had provided no further consideration for the new promise
Williams v Roffey Bros
Existing duty
Glidewell LJ said a promise to perform an existing contractual duty is good consideration for a promise of additional payment if the promissor obtains some “practical benefit” or obviates a benefit - bonus payments to complete work on time is enforceable
Hartley v Ponsonby
Existing duty
By agreeing to continue sailing in dangerous circumstances (that wasn’t said in the contract), the remaining crew had provided further consideration to the new agreement which was enforceable
Foakes v Beer
Part payment/ existing duty
Promissory estoppel was not considered in this case, as the House of Lords held that the promise was not binding as a late payment of a lesser amount of a debt cannot equal satisfaction of the whole amount
Pinnel’s case
Part payment
Part payment of a debt could not be satisfaction of the whole debt
Central London Property Trust Ltd v High Trees House Ltd
Promissory estoppel
Lord Denning held that ‘a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply’
D & C Builders v Rees
Promissory estoppel/ under duress
Promissory estoppel cannot be founded on a promise induced by promisee’s inequitable conduct, such as under economic duress
Beswick v Beswick
Privity
The application of the statute S56 of Law of Property Act 1925 entitled the respondent to sue in her personal capacity to recover the benefit provided for her in the agreement, even though she was not a party to the contract.
Shanklin Pier v Detel
Privity
Established the doctrine of collateral contracts.
A third party to a contract can be sued under a collateral contract where there is a warranty given by a third party.
Tulk v Moxhay
Restrictive covenants
The court held that the restrictive covenant was enforceable in equity, as an injunction was sought by the claimant rather than damages
Avraamides v Colwill
Privity - 1999 Act
S1(1)(a) Contracts (Rights of Third Parties) Act 1999 - the CoA held that the third party did not qualify under the 1999 Act as he was not expressly identified under the contract as allowed to buy assets
Nisshin Shipping Co Ltd v Cleaves & Co Ltd
Privity - 1999 Act
S1(1)(b) Contracts (Rights of Third Parties) Act 1999 - if applicable (contract purports to confer a benefit upon the third party and parties intended for it to be enforceable), the rebuttable presumption of enforceability by third parties is created
Consideration plan
Issue - Is there valid consideration to make the contract enforceable? Does privity prevent a third party from enforcing the contract?
Define consideration - Dunlop v Selfridge, Currie v Misa
- Executory consideration
Rules of consideration: sufficiency not adequacy, past consideration is no consideration, must move from promisee, existing duty is no consideration, part payment cannot be consideration
Consideration must be sufficient but not necessarily adequate - Professor J.C. Smith in The Law of Contract, White v Bluett, Ward v Byham, Thomas v Thomas, Chappell v Nestle Co Ltd
Past consideration is no consideration - Re McArdle, Roscorla v Thomas
- Exception is rule in Lampleigh v Braithwaite
Consideration must move from the promisee
- Privity of contract - Beswick v Beswick, Shanklin Pier v Detel
- Exceptions:
- Statute e.g. application of s56 of the Law of Property Act 1925 in Beswick v Beswick
- Collateral contracts
- Restrictive covenants - Tulk v Moxhay
- The Contracts (Rights of Third Parties) Act 1999
- s1(1)(a) - Avraamides v Colwill
- s1(1)(b) - Nisshin Shipping Co Ltd v Cleaves & Co Ltd
- Issues with 1999 Act: unfairness, injustice…
Performing an existing duty is not consideration - Tweddle v Atkinson, Stilk v Myrick, Williams v Roffey Bros, Hartley v Ponsonby
- Exception is the rule in Hartley v Ponsonby
Part payment cannot be consideration - Foakes v Beer, Pinnel’s case
- Exceptions include the doctrine under promissory estoppel - Central London Property Trust Ltd v High Trees House Ltd, D & C Builders v Rees
Apply…
If contract entered is under illegitimate pressure or economic duress, consideration may be invalid - Atlas Expressv Kafco
Conclusion - If there is valid consideration, the contract is binding.
