Consideration

Question 1

What is consideration?

Answer 1

Means a price for a promise

Must be sufficient, but does not have to be adequate

Question 2

Usually, past consideration is not good consideration. What is the exception to this?

Answer 2

Past promise might be good consideration if 3 conditions are met:

1) If the past act was done at the promisor’s request (person who makes the promise)

2) It was mutually understood that the person would be rewarded for what they had done/promised

3) If the promise had been made in advance, it would have been legally enforceable – this relies on whether there was an intention to create legal relations usually

Question 3

Give an overview of contractual variations

Answer 3

Two main types of variation:

1) An upward variation – where A wants more from B for performing an existing contractual obligation

2) A downward variation – A wants to pay less to B in full satisfaction of a debt owed to B (they want to make part payment)

Question 4

How does consideration work in an upward variation situation?

Answer 4

1) General rule is that performance of an existing contractual duty is not consideration for a promise to pay more money

• If you exceed the contractual duty, this will be consideration

2) Williams v Roffey modified the general rule to recognise practical benefit consideration

• Performance of an existing contractual duty owed to the other party will be consideration for a promise of extra payment if it confers a practical benefit
• If the promise to pay more was made under duress the promise may be set aside

Question 5

How does consideration work in a part payment of debt situation?

Answer 5

1) General rule is that this is not consideration for a promise to forego the balance (Foakes v Beer)

2) If in addition to part payment, the debtor gives something extra, this extra is consideration

• If part payment is made early or accompanied by a chattel, this would be consideration

Question 6

What is promissory estoppel and how does it work?

Answer 6

Can be used as a defence by a debtor when the creditor tries to enforce the promise to receive full payment

Conditions (with example):
* There must be a promise to forego a legal right by the creditor (promise to forego £50 of debt for example)

• Promisee must rely on that promise (paying the £50 would be an act of reliance on the promise)

i) Reliance doesn’t have to be to their detriment

• It must be inequitable to go back on the promise – it will be if the reason for the concession is still ongoing (lack of funds, so £50 debt wiped)

i) Once circumstances have changed, the promisor can resume their strict legal right if they give reasonable notice

Question 7

What is the effect of promissory estoppel, if successfully argued as a defence?

Answer 7

1) Effect in relation to on-going payments

• In relation to arrears, rights to those have been extinguished, but they can resume their strict legal rights to payments going forward if they give reasonable notice

2) Effect in relation to one-off debts

• The effect is likely to be that the creditor has suspended their strict legal right to enforce the promise – where the circumstances change and reasonable notice is given, the strict legal right can be resumed