Consideration, ICLR & capacity

Question 1

What is the definition of consideration?

Answer 1

It can be defined as ‘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’-Dunlop v Selfridge (1915).

Question 2

What is executory consideration?

Answer 2

Where contracting parties make promises to each other to perform something in the future after the contract has been formed e.g. a bilateral contract for the sale of goods.

Question 3

What is executed consideration?

Answer 3

Where, at the time of the formation of the contract, the consideration has already been performed eg a unilateral contract where the promise of a reward is made in exchange for performance of an act in the offer.

Question 4

What are the four important rules in relation to consideration?

Answer 4

1. Consideration must not be past
2. Consideration must move from the promisee
3. Consideration need not be adequate
4. Consideration must be sufficient

Question 5

What is the exception to the rule that consideration must not be past, refer to the case of Pao On v Lau Yiu Long (1980)?

Answer 5

An exception exists where some prior act or service was provided by the promisee at the promisor’s request and it was always understood that payment would be made for that act or service.

Pao On v Lau Yiu Long (1980): three conditions for this exception to apply:

a) The act must have been done at the promisor’s request

b) The parties must have understood that the act was to be rewarded either by a payment or some other benefit, because it was expressly agreed or because there was an implied understanding

c) The payment, or benefit, must have been legally enforceable had it been promised in advance

Question 6

In relation to the principle that consideration must move from the promisee, describe the case of Tweddle v Atkinson (1861).

Answer 6

This means that a party who has not provided consideration may not bring an action to enforce a contract.

Tweddle v Atkinson (1861): two fathers of a couple about to get married reach an agreement that the father of the bride was to pay £200 and the father of the groom £100, to the groom. The groom sought to enforce his father-in-law’s promises, but it was held that he could not as he had provided no consideration for the promise.

Question 7

In relation to the principle that consideration must be sufficient, describe the case of Thomas v Thomas (1842).

Answer 7

Consideration must have some “value in the eyes of the law”.

Thomas v Thomas (1842): consideration in the form of payment of £1 per annum was held to be sufficient consideration.

Question 8

For a variation of contract to be binding, what components are needed?

Answer 8

The same essential components needed to form a valid contract are required:
-agreement
-intention to create legal relations
-consideration

Question 9

Does performance of an existing contractual duty generally amount to good consideration, refer to the case of Stilk v Myrick (1809)?

Answer 9

No, in this case the captain of a ship promised his crew that, if they shared between them the work of two seamen who had deserted, the wages of the deserters would be shared out between them. The Court held that the promise was not binding because the seamen gave no consideration: they were already contractually bound to do any extra work to complete the voyage.

Question 10

If a party agrees to exceed their existing contractual obligations, will this amount to good consideration, refer to the case of Hartley v Ponsonby (1857)?

Answer 10

Yes, in this case the sailors were contractually obliged to take ‘all reasonable endeavours’ to get a ship home, but they went beyond these existing obligations when they agreed to make the journey in dangerous conditions and when the ship was seriously undermanned-this amounted to good consideration.

Question 11

What is factual consideration?

Answer 11

This is when Party A obtains a practical benefit thereby amounting to good consideration and enabling Party B to enforce a promise from Party A of extra payment.

Question 12

Describe the case of Williams v Roffey (1991) in relation to factual consideration.

Answer 12

FACTS: The appellants Roffey Bros, were builders who were contracted to refurbish 27 flats belonging to a housing corporation. The contract had a penalty clause for late completion. The appellants subcontracted some work to Williams, a carpenter. When Williams fell behind with his work the appellants offered him bonus payment to finish on time. Williams carried on working until the payments stopped. He sued the appellants for breach of contract.

HELD: The promise to make bonus payments to complete work on time was enforceable if the promisor obtained a practical benefit and the promise was not given under duress of by fraud. It was the appellants’ own idea to offer the extra payment. Therefore, there was no duress. The appellants also gained a practical benefit by avoiding the penalty clause.

Question 13

What is the general principle regarding obligations under a public duty, refer to the case of England v Davidson (1840)?

Answer 13

The general principle is that merely carrying out a public duty imposed by the law will not amount to sufficient consideration.

England v Davidson (1840): the D offered a reward for information leading to the conviction of a particular criminal and the C police officer gave the relevant information but the D refused to pay. It was held it was the C police officer duty was to prevent crime and they are not under a duty to provide information to a private individual therefore he went beyond his public duty and provided good consideration.

Question 14

Is it possible to have given consideration by doing something one was already bound to do under a pre-existing contract with a third party, refer to the case of The Eurymedon (1975)?

Answer 14

Yes, as the promisee obtains the benefit of a direct obligation which he can enforce.

The Eurymedon (1975): the C made an offer to the D that if the D would unload the C’s goods from a ship, then the C would treat the D as exempt from any liability for damage to goods. However, the D was already to bound to do this by a contract with a third party. It was held that this amounted to valid consideration as the D obtained the benefit of a direct obligation which he can enforce.

Question 15

Does part payment of a debt generally amount to good consideration?

Answer 15

No, this principle was established in the case of Foakes v Beer (1884).

Question 16

Does the rule in Foakes v Beer (1884) apply if the creditor’s request some new element is introduced?

Answer 16

No, the introduction of a new element to the arrangement will amount to good consideration e.g. payment at a different place or time: Pinnel’s case (1602).

Question 17

Will a creditor be able to sue the debtor when they accept payment from a third party of a lesser sum than the debt in full satisfaction of the debtor’s obligation?

Answer 17

No, the creditor cannot sue the debtor for the difference.

Question 18

What is promissory estoppel?

Answer 18

Promissory estoppel is an equitable doctrine that effectively allows a promise to be enforced despite not being supported by consideration. In essence, it aims to protect a party who has relied on such a promise.

It provides an exception to the rule that part payment of a debt without fresh consideration does not discharge the debt obligation.

Question 19

Describe the case of CLP Trust v High Trees (1947) in relation to promissory estoppel.

Answer 19

FACTS: In 1937, the C leased a block of flats to the D at £2,500 per year for 99 years. Due to the impact of World War II, there was a drastic under-occupancy of the flats in 1940. The D agreed to reduce the rent to £1,250. This halved rent was paid until the end of 1945. By then, London had largely recovered from the war and the flats were again fully occupied. The D then claimed for the full rent for the last 2 quarters of 1945.

HELD: The C could not go back on its promise to accept reduced rent for the period when the flats were not fully occupied. This was held as a clear case of the C making a promissory representation that they intended the D to rely on and thus were estopped from reneging. However, it was also held that once conditions went back to normal, the original agreement could be enforced and therefore the claim for full rent for the last quarters of 1945 was successful.

Question 20

What are the parameters of promissory estoppel?

Answer 20

-Acts as a shield not a sword, it can only be used as a defence

-Clear and unequivocal promise that strict legal rights will not be fully enforced

-Promisee must have relied on the promise and influenced their conduct

-Must be inequitable to allow the promisor to go back on their promise, equitable maxims apply

Question 21

What is an intention to create legal relations and what is the test of intention?

Answer 21

Intention to create legal relations is an intention to enter into an agreement that has legal ramifications and is one of the necessary requirements of a binding contract.

The test of intention is objective-would reasonable people regard the agreement as intended to be binding?-Merritt v Merritt (1970).

Question 22

What is the ordinary presumption regarding commercial agreements in respect of an ICLR?

Answer 22

The ordinary presumption is that in a commercial agreement, the parties intend that it should be legally binding and the Courts will readily imply this.

If a party to a commercial agreement wishes to assert that legal relations were not intended, the onus is on them to rebut the presumption.

Question 23

What is the usual presumption regarding social and domestic agreements in respect of an ICLR?

Answer 23

The usual presumption is that there is no intention to create legal relations, even if the parties reach an agreement before any breakdown in the relationship occurs.

However, the presumption can be rebutted and the question will be resolved by examining the circumstances of each case and the language used by the parties.

Question 24

Will agreements made between spouses rebut the usual presumption that there is no ICLR?

Answer 24

Agreements made between spouses who were in the process of separating or are separated when the agreement was reached can rebut the usual presumption-Merritt v Merritt (1970).

Question 25

What is the general rule regarding contracts involving minors?

Answer 25

Generally, a person is not bound by a contract entered into under the age of 18 even if the other party contracting does not know of this/the minor as lied about their age.

Question 26

What are the two exceptions to the general rule regarding contracts involving minors?

Answer 26

-Necessaries, a minor will be bound by a contract to supply necessaries to them if the contract is for their benefit e.g. supply of food, medicine, accommodation & clothing. The minor must pay a reasonable price.

-Contracts of employment, apprenticeship & education will bind a minor but only if it is for their benefit

Question 27

When does a person lack capacity under S2 Mental Capacity Act 2005?

Answer 27

If he is unable to make a decision for himself in relation to the matter at the time the contract is made, whether the impairment is permanent or temporary.