Consideration & Intention Flashcards
Explain the concept of consideration and the basic rule
There is a requirement under English law of contract that, to be binding, a contract must be ‘supported by consideration’. It is not enough that an offer made by one party, made seriously and with the intention to create a contract, has been accepted by the other party—without the added magic ingredient of ‘consideration’ there is no binding, enforceable contract.
The basic rule: Every simple contract must be supported by consideration from each party. However, contracts made by deed (specialty contracts) do not require consideration unless the terms of the agreement require it.
Define consideration; specifically the Currie v Misa definition
‘Consideration is an act or forbearance (or the promise of it) on the part of one party to a contract as the price of the promise made to him by the other party to the contract’: Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd (1915).
Currie v Misa (1875).
‘Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’
State the 3 main types of consideration
Executed Consideration
Executory consideration
Past consideration:
Explain Executed Consideration
Executed Consideration: relates to payment for promise in the present time (e.g. buying groceries in a shop, paying for them straight away)
Explain Executory consideration
Executory consideration: is given where there is an exchange of promises to do something in the future. Executed consideration means that the consideration is in the form of an act carried out at the time the contract is made.
Explain Past consideration
Past consideration: Past consideration is something of value that was given or done before any promise or payment or reward was made. I.e. there was no mutual exchange of promises.
Therefore consideration has to be in every contract. If it is proved that there is no consideration then it is considered by the law that there is no contract between the parties.
Past consideration is insufficient and therefore is not valid. This is because its not valid, as two parties aren’t simultaneously agreeing to perform/do something the way they are in Executed or Executory consideration.
Explain what is meant by Sufficient Consideration
Sufficient consideration:
Consideration must be sufficient but need not be adequate.
Sufficient means that:
there must be some monetary value to the consideration
it must be capable in law of amounting to consideration.
The words ‘need not be adequate’ mean that there is no need for each party’s consideration to be equal in value. It does not have to adequately reflect the promise of which it was given.
State the 4 key overarching rules in contract law regarding consideration
The overarching rules:
- Consideration must move from the promisee
- Past consideration: invalid
- Consideration must be legal
- Consideration must be sufficient but does not need to be adequate
Explain the first key principle;
1) Consideration must move from the promisee;
In order to be valid, consideration must ‘move from the promisee’, though it need not necessarily ‘move to the promisor’.
The person who has provided consideration to the contract on offer can look to enforce the contract. A third party cannot enforce the contract, albeit they have an interest in the contract, as the agreement is between the promisee and promisor
Tweedle v Atkinson(1861) + McCoubray v Thomson(1868).
These cases developed the principles of Clark + Friel
Clark – ‘Prevents a contract from being enforceable against someone who is not a party to it.’
Friel – ‘Privity denies the right to a person who is not a party to a contract and therefore
cannot be said to have supplied consideration from enforcing the contact.
Explain the 3 exceptions to the principles of clark + Friel (that consideration must move from the promisee)
Equitable Trusts:
Equitable trusts are an obvious exception whereby a person who is not a party to an agreement may still benefit from that agreement – that is their purpose after all.
Agency:
An agent is a person who is authorised to act on behalf of another – ‘the principal.’
Recovery of Losses Suffered by Third Parties:
A contracting party may not be able to recover against the defendant in respect of a loss suffered by a third party where that third party has a direct cause of action against Defendant.
Explain the second key principle;
2) Past consideration: invalid
Past consideration:
Past consideration is something of value that was given or done before any promise or payment or reward was made. I.e. there was no mutual exchange of promises.
Past consideration is insufficient and therefore is not valid. This is because its not valid, as two parties aren’t simultaneously agreeing to perform/do something the way they are in Executed or Executory consideration.
The law cannot enforce such a promise McArdle(1951) Roscorla v Thomas(1842).
Explain the exemptions to the principle that Past consideration is invalid
Sometimes something can appear to be past consideration but it was actually not. It was not a purely gratuitous act at the time of performance.
Precedent: Pao On v Lau Yiu Long (1980)
A past promise/consideration will be considered if the following are satisfied:
- An act was done at the promisors request
- The parties understood that the act was to be remunerated either pay payment or conferment of a benefit and …
- Payment must have been legally enforceable had it been promised in advance.
NOTE: The later promise crystallises the promise’s reasonable expectation. In the absence of a later promise, a reasonable sum should be paid.
Explain principle number 3;
3) Consideration must be legal
Consideration must be legally sufficient. If an act was illegal and a person had full knowledge of this, costs cannot be recovered - Pearce v Brooks (1866)
‘An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case.’
As well as the Lampleigh v Braithwait principle, there are a number of other exceptions to the rule that past consideration is legally insufficient.
Explain the rules surrounding the Performance of an existing duty and wether it is ‘good consideration’
Performance of an existing duty
As a general rule, performance of an existing statutory duty is not sufficient consideration.
Pre-existing public duty:
If you are under a public duty to do something, in other words a duty that is enforceable by the general law irrespective of contract, then the performance of this duty (or a promise to perform it) will not count as good consideration to support another person’s promise
Similarly, performance of an existing contractual duty is not consideration.
Pre-existing contractual obligation owed to the other party:
The basic rule has traditionally been that it is not good consideration to do or promise to do what you are already contractually bound to the other contracting party to do. This is because doing what you are already bound to do is no legal detriment (you can already be sued to enforce the original promise) and equally it is of no legal benefit to the other party to receive performance that they are already entitled to receive.
Explain the 3 exemptions to the rule that Performance of an existing duty
is not good consideration
As a general rule, performance of an existing statutory duty is not sufficient consideration.
However, there are three exceptions:
- If the existing contractual or statutory duty is exceeded, there is sufficient consideration.
- The performance of an existing contractual duty may be sufficient if it confers some benefit of a practical nature on the other party.
- The performance of an existing contractual obligation is sufficient consideration to support a promise from a third party.
Explain The Part payment problem - part payment of a debt
The part-payment problem
General rule “ the rule in Pinnel’s case (1602) states that payment of a smaller sum does not discharge a debt of a greater amount.
This has been affirmed in Foakes v Beer (1884).
Exceptions
The exceptions to the rule in Pinnel’s case:
- Accord and Satisfaction:
If the parties enter into a new agreement (accord) and the new agreement is satisfied, this can discharge the original debt.. This includes where the creditor has accepted something other than money in the place of a final sum or if they have made the payment of a lesser sum earlier than it was due.
For instance, in Pinnells case, it was held that part payment of a debt cannot be considered satisfaction for the whole sum, “but the gift of a horse, hawk or robe…” can be. Therefore part payment of a debt will only be binding if the debtor also provides something else which may be more beneficial to the creditor, for example early repayment or a material item.
- If a third party offers to pay the debt, and the creditor accepts this as full settlement, the original debt can be discharged. The third party’s payment is considered to be a new consideration.
Explain the case of Foakes v Beer (1884) and wether it is still binding precedent
The respondent, Beer, loaned the appellant, Dr Foakes, £2090 19s. When he was unable to repay this loan she received a judgment in her favour to recover this amount. The pair then entered an agreement whereby ‘in consideration’ of an initial payment of £500 and ‘on condition’ of six-monthly payments of £250 until the whole amount was repaid, she would not enforce her judgment against him. Foakes made these regular payments until the entire amount was repaid. However, he had not paid any interest on the judgement debt, which Beer was entitled to under statute.
The House of Lords held that there was no consideration for Mrs Beer’s promise not to sue for the interest, since Dr Foakes was doing no more than he was already obliged to do in repaying the debt.
It is a leading case from the House of Lords on the legal concept of consideration. The doctrine that payment by the debtor of a less sum than the whole amount of the debt will not extinguish the debt, although the creditor expressly agree to receive it in full and give a receipt or writing to that effect, is well established by abundant authority.
the Court of Appeal’s reasoning in MWB on Foakes v Beer, Roffey, and practical benefit remains binding for the future, until the opportunity next arises for the Supreme Court to consider it.
Explain the fourth key principle;
4) Consideration must be sufficient but does is not required to be adequate
There is no need for the ‘price of the promise’ to be the economic equivalent of the promise or even anywhere near it, as long as the law regards the consideration as something of value. But it will be insufficient if it is of no legal value
The law does not insist that the consideration should be the ‘full’ or ‘equivalent’ economic value of what is being received in exchange.
This is because the law of contract is not concerned with whether the parties are getting a good deal.
Under this rule if two parties negotiate a deal and are in agreement to the value, but others may deem the valuation not adequate, due consideration was given and can be proved to be sufficient.
Explain what is meant by Estoppel
Estoppel: a principle, originating in the courts of equity, that is difficult to define but essentially embodies the general idea that if you say or do something and another person takes you at your word or at face value, and relies on what you have said or done, you cannot later change your mind or resile from your position—this would be unconscionable so you will be prevented or ‘estopped’ from doing so
Explain what is meant by Proprietary estoppel
Proprietary estoppel: allows the court to give a remedy in the relatively common situation where a landowner encourages a claimant to believe that he has or will be given an interest of some kind in the landowner’s land, either actively by making an assurance to that effect or passively by acquiescing in the claimant’s mistaken belief.
If the claimant acts to his detriment in reliance on this state of affairs, such that it would be unconscionable for the landowner to act inconsistently with it, the court will give effect to the estoppel and give the claimant an appropriate remedy
Explain what is meant by Estoppel by convention
Estoppel by convention: unlike proprietary estoppel, which involves one party inducing a belief in the other, estoppel by convention arises where the parties to a transaction have both, for whatever reason, proceeded on a common but mistaken assumption that a given state of facts is true. Having proceeded on that basis, they will be estopped from later challenging the assumed state of facts if it would be unconscionable to do so
Explain the doctrine of Promissory estoppel and its origins
Promissory estoppel
The doctrine of promissory estoppel is based on the principles of fairness and justice. It prevents a person going back on his promise to accept a lesser amount.
The principle was established in Central London Property Trust v High Trees House (1947).
The principle is subject to the following conditions:
- There must be an existing contract between the parties.
- The claimants must voluntarily waive their rights under the contract.
- There must be an intention that the defendants should rely on the waiver
- The defendants must alter their legal position because of the waiver.
Explain what the doctrine of ‘Privity’ and privity of contract means
Privity of contract
A common law doctrine which prevents a person who is not a party to a contract from enforcing a term of that contract, even where the contract was made for the purpose of conferring a benefit on the third party. The UK Contracts (Rights of Third Parties) Act 1999 reformed the privity of contract rule and gives a person who is not a party to a contract a right to enforce a term of that contract in specified circumstances.
The general rule: Only the parties to a contract:
- acquire rights and obligations under it
- can sue and be sued on it.
What are the exemptions to the doctrine of Privity of a contract
Exceptions
There are a number of exceptions to the general rule regarding privity of contract:
The Contracts (Rights of Third Parties) Act 1999 allows a person who is not a party to a contract to enforce it so long as the contract was for his benefit and he was expressly identified, by name or description.
Under the rules of land law, restrictive covenants run with the land to which they relate i.e. that a future owner will be subject to restrictions made in previous contracts.
