Consideration

Question 1

define consideration

Answer 1

• the price (although not necessarily a monetary one) which induces a party to enter into a contract.

○ Once again, the courts have developed a number of rules to determine whether there is valid consideration in a contract.

Question 2

Types of Consideration

Answer 2

EXECUTED CONSIDERATION

EXECUTORY CONSIDERATION

Question 3

define EXECUTED CONSIDERATION

Answer 3

Consideration that is exchanged at the time of the agreement

example
○ X AGREES TO SELL HER CAR TO Y FOR £2,000 –
○ THE EXCHANGE TAKES PLACE IMMEDIATELY

Question 4

define EXECUTORY CONSIDERATION:

Answer 4

a promise to give consideration in the future

Example
○ X AGREES TO SELL HER CAR TO Y FOR £2,000 -
○ THE EXCHANGE IS TO TAKE PLACE NEXT WEEK

Question 5

Rules of Consideration

Answer 5

A) The consideration must be of some value

B) The consideration must not be past

C) According to the common law there must be privity of contract between the parties in litigation

D) The consideration must be real or sufficient

E) E) Part payment of a debt is not sufficient consideration to discharge the whole debt.

Question 6

A) The consideration must be of some value

Answer 6

○ the consideration that each party provides must have some value
- the law will not look at the quality of the bargain but merely whether each party received what was promised.

§ Providing that both parties are happy with the agreement at the time that it is made (and neither party is drunk/mentally incapacitated) it is a binding contract and the seller cannot later complain that he/she is getting a bad deal.

• Court does not care if it is a ‘good’ deal or a ‘bad’ deal
  e. g. E.g. Thomas v Thomas

Question 7

B) The consideration must not be past

Answer 7

○ The promise must be to do something now or in the future if it is to amount to consideration.

○ Therefore a promise to pay money or do some work is consideration whereas money that has already been paid or work that has already been done before the agreement is made is not.

E.g. Re McArdle

Question 8

C) According to the common law there must be privity of contract between the parties in litigation

Answer 8

so only the promisee can sue on the contract.

At Common Law

§ Only the person who GAVE CONSIDERATION can sue on a contract

§ A third party who benefits from the contract has no right to bring a claim

Question 9

Example for Common Law Rules

Answer 9

§ Tom and Dick agree to give £5000 each to Harry who is setting up his own consultancy business.

§ Tom and Dick tell Harry of their arrangement

§ Harry sets up the consultancy business and Tom pays him £5000 but Dick fails to do so

§ Under Common Law Rules Harry CANNOT sue Dick for the payment as he gave no consideration to the deal – he is not PRIVY to the contract between Tom and Dick

§ Tom could sue Dick but Harry cannot

Question 10

What is the Contract (Rights of Third Parties ) Act 1999

Answer 10

• the present law prejudiced parties who may rely on contracts which they could not enforce,

§ The bill became law in 1999 and gives rights to third parties to enforce any contract which expressly permits them to do so or where the purpose of the contract is intended to benefit them.

§ The third party must be identified and not merely someone who benefits indirectly and it must be evident from the construction of the contract that the contractual parties would intend the third party to have a right to sue.

§ The Act also further protects third parties by preventing cancellation of the contract without their consent unless the contract allows for this.

Question 11

D) The consideration must be real or sufficient

Answer 11

○ If one party promises to do something that he/she is already bound to do then that party is not providing consideration.

e.g. Stilk v Myrick and Hartley v Ponsonby

Question 12

E) Part payment of a debt is not sufficient consideration to discharge the whole debt.

Answer 12

○ Where a debtor offers to pay less than he/she owes, in full settlement of the debt, and the creditor accepts this, then the creditor is still entitled to sue the debtor at a later stage to recover the rest of the debt because the common law takes the view that the debtor gave no consideration for the deal so it is not legally binding.

§ This is known as the Rule in Pinnels Case

Question 13

Example of Rule in Pinnels Case

Answer 13

Payment of Debts

§ Although X and Y reach an agreement it is not legally binding as X gives no consideration

§ Y’s consideration is a promise NOT to pursue the remainder of the debt BUT

§ X gives no consideration in return for that promise – X already owes £100 and is just paying part of that debt

§ So Y can sue for the remainder
This is the Common Law approach and is known as THE RULE IN PINNEL’S CASE

E.g. D & C Builders v Rees 1966

Question 14

What are the Exception to the Rule in Pinnel’s Case

Answer 14

• Exception 1: Accord and Satisfaction = Common law exception
• Exception 2: Promissory Estoppel = Equitable exception

Question 15

What is Accord and Satisfaction

Answer 15

A Common Law exception

§ an agreement to pay less than the full debt can be enforced if there is an agreement to accept something different as repayment for the debt.

• this results in additional consideration making the agreement legally binding

Question 16

What are provisions of additional consideration for alternate repayment of debt?

Answer 16

• A lesser sum at an earlier date at the request of the creditor
• Goods or some other material benefit in addition to or instead of the part- payment
• Part-payment by a third party in return for an agreement by the creditor not to pursue the original debtor for the remainder of the debt

Question 17

Example of a lesser sum at an earlier date at the request of the creditor

Answer 17

◊ E.g. X owes Y £10,000

						- £10,000 due to Y on 1 March. £8,000 paid by X on 14 February 
						- X’s consideration is giving up his right to the £8,000 for an additional 2 weeks 
						- Y’s consideration is giving up £2,000

Question 18

Example of Goods or some other material benefit

Answer 18

E.g. X owes Y £10,000
- £10,000 due to Y on 1 March. £5,000 plus a
car paid by X on 1 March
- Y’s consideration is agreeing to accept alternatives to the £10,000 (cash and car)
- X’s consideration is providing alternative benefits to the cash due (cash and car) – it is irrelevant what the value of the car is, as long as the parties agree to this deal

Question 19

Example of Part-payment by a third p

Answer 19

E.g. X owes Y £10,000
– £10,000 due to Y on 1 March. £8,000 paid
by a third party Z on 1 March
– This is a new agreement between Y and Z
– Y gives up the right to £2,000
– Z gives £8,000
– So both provide consideration for this new agreement

Question 20

What is Equity (fairness)

Answer 20

• The Common Law had various defects and did not always provide an appropriate remedy

• Where the Common Law was unhelpful, people began to seek a legal remedy by petitioning the Chancellor (the highest ranking clergyman) to ask him to intercede.

Question 21

What is Promissory Estoppel

Answer 21

= Equitable exception

• provides a further exception to the rule that an agreement to pay less than the full debt is not binding.
• developed to protect debtors who relied on creditors’ promises not to pursue a debt, which according to the rules of equity appeared unfair.

E.g. Central London Property Trust v High Trees House 1947

E.g. Coombe v Coombe

Question 22

What are the essential elements of promissory estoppel?

Answer 22

○ There must be an existing contractual relationship between the Claimant and
Defendant

○ The Claimant has promised to give up(waive)some of his/her rights under that contract (i.e. the right to the remainder of the debt)

○ The Claimant knows that the Defendant is likely to rely on this promise

○ The Defendant has in fact relied on the Claimant’s promise to give up some of the debt

○ Estoppel can only be used as a Defence to protect against an unfair claim i.e. where the Claimant tries to go back on this promise and sue