Consideration, Variation, ICLR & Capacity

Question 1

What is the principle of consideration?

Answer 1

In order to be able to enforce a promise made to you, you must be able to show that you agreed to provide something in return.

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.

Question 3

What is executed consideration?

Answer 3

Where, at the time of the formation of the contract, consideration has already been performed

Question 4

Is a unilateral contract an example of executory or executed consideration?

Answer 4

Executed - the consideration takes place upon the completion of the required act

Question 5

What are the four rules governing consideration?

Answer 5

(1) Must not be past
(2) Must move from the promisee
(3) Need not be adequate
(4) must be sufficient

Question 6

Is it possible to use an act or forbearance which has taken place prior to the promise to pay as consideration?

Answer 6

No - GENERALLY consideration must be given in exchange for the promise of the other party. If it has taken place prior to the promise it cannot be in exchange for that promise

Question 7

If it was always understood that payment would be made for a prior act or service can this be considered consideration?

Answer 7

Yes

Question 8

What are the three necessary conditions for the exception to the past consideration rule?

Answer 8

(1) The act must have been done at the promisor’s request
(2) The parties must have understood that the act was to be rewarded either by payment or the conferment of some other benefit
(3) the payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance

Question 9

Provide an example of an exception to the past consideration rule

Answer 9

(1) taking a car to a garage for repairs and leaving the ultimate price to be decided after completion of the repairs
(2) seeking advice from a professional person and being presented with a bill on completion of the service in question.

Question 10

What does it mean that consideration must “move from the promisee”?

Answer 10

A party who has not provided consideration may not bring an action to enforce a contract

Question 11

In the following example, could the groom enforce the promise:
Two fathers of a couple engaged to be married agreed that the father of the bride will pay £200 towards the wedding and the father of the groom will pay £100 towards the wedding.
The father of the bride does not pay - can the groom enforce the promise?

Answer 11

No - he did not provide any consideration - the promise was between the two fathers

Question 12

Will the courts interfere if the consideration is not adequate?

Answer 12

No - according to the doctrine of freedom, the courts will not interfere with a bargain freely reached by the parties

Question 13

What does it mean that consideration must be sufficient?

Answer 13

It means that the consideration must have some value ‘in the eyes of the law’. It does not matter how small that value is.

Question 14

What is the difference between “privity of contract” and “consideration must move from the promisee”?

Answer 14

Privity of contract - only a person who is party to a contract may sue or be sued on that contract
Consideration must move from the promisee - a party who has not provided consideration may not bring an action to enforce the contract

Question 15

Can the following be considered good consideration for a new contract - Party B is already contractually bound to Party A to do something, Party B then agrees to do the same thing again?

Answer 15

No this is generally not considered good consideration

Question 16

What does the term ‘factual’ consideration mean?

Answer 16

It acknowledges that nothing new is being promised but the party in receipt of the promise is still getting something out of the reshaped deal

Question 17

Is there sufficient consideration if the party is merely carrying out a public duty imposed by the law?

Answer 17

`No.

Question 18

Is there consideration in the following scenario?
Party A has an existing contractual obligation to Party and wishes to rely on a promise to do the same thing as consideration for a contract with Party C?

Answer 18

Yes it can be considered consideration for the contract between Party A and Party C

Question 19

If a debtor promises to pay part of their debt in return for a release from the remainder of their liability and it is agreed, will this be considered sufficient consideration?

Answer 19

No - the debtor remains liable even where the creditor has agreed to release the from further liability (Foakes v Beer).

Question 20

What is the danger of using consideration for an existing obligation to a third party?

Answer 20

The party puts itself at risk of double liability.

Question 21

What happened if fresh consideration is introduced at the creditor’s request for part payment of a debt and is accepted?

Answer 21

Amounts to good consideration

Question 22

What are some examples of fresh consideration for part payment of a debt?

Answer 22

Payment at a different place, different time or providing something else instead of money.

Question 23

If a third party enters into an agreement with the creditor to pay a lesser sum of the debt for the debtor, can the creditor sue the debtor for the difference?

Answer 23

No - this is fresh consideration.

Question 24

In the following example, will the court hold that fresh consideration has been obtained?

A landlord agrees to orally reschedule rental payments under a licence agreement to give a tenant longer to pay, thereby varying the licence.

Answer 24

Yes - the landlord obtained the PRACTICAL BENEFIT of keeping the tenant in the property. This benefit goes beyond the advantage of receiving prompt payment of a part of the arrears

Question 25

A woman pays a cat sitter £70 to feed her cat while she and her flatmate are on holiday. Unknown to the woman, her flatmate had already paid the cat sitter £100 to feed the same cat. The woman is demanding that the cat sitter returns the £70 she paid him, but the cat sitter is refusing to return the money.
Is the cat sitter obliged to return the money and what principle of consideration does this relate to?

Answer 25

The cat sitter is not obliged to return the money to the woman as performance of an existing obligation owed to a third party is good consideration.

Question 26

Define promissory estoppel

Answer 26

This is an equitable doctrine which allows a promise to be enforced despite not being supported by consideration.

Question 27

What are the four parameters of promissory estoppel

Answer 27

(1) Shield and not a sword
(2) A clear and unequivocal promise that strict legal rights will not be full enforced
(3) A change of position in reliance on the promise
(4) Inequitable to allow the promisor to go back on their promise

Question 28

What does it mean that promissory estoppel can only act as a shield and not a sword?

Answer 28

It can only act as a defence to an action not a cause

Question 29

In order to sue upon a promise given to you what do you have to show?

Answer 29

That you provided consideration in return for it (Combe v Combe)

Question 30

What does it mean that there must be a clear an unequivocal promise or representation that existing legal rights will not be fully enforced? (Woodhouse A.C. Israel Cocoa Ltd. S.A. and another v Nigerian Produce Marketing Co. Ltd)

Answer 30

The promise must be intended to affect legal relation and not simply amount to a gratuitous privilege given to the promisee.

Question 31

What does it mean that there must be a change of position in reliance on the promise in relation to promissory estoppel?

Answer 31

The must have influenced the conduct of the party to whom the promise was made.

Question 32

Can the promisee rely on an act which takes place before the promise under promissory estoppel?

Answer 32

No - the promise must have had an influence on the conduct of the promisee

Question 33

What does it mean for the court that promissory estoppel is an equitable doctrine?

Answer 33

It is based on principles of fairness and discretionary - the courts undertake a balancing exercise to determine whether it would be inequitable to allow the promisor to go back on their promise

Question 34

Does promissory estoppel suspend or extinguish legal rights in the case of periodic payments?

Answer 34

The right to periodic payments may resume once the period over which the promissory estoppel operates ceases (High Trees)

Question 35

If the promisor gives notice of their intention to resume their full legal rights, can promissory estoppel apply?

Answer 35

Yes but it must be reasonable notice

Question 36

When can promissory estoppel extinguish legal rights?

Answer 36

Exceptionally - where it has become impossible for the other party of meet the obligation concerned or it would be clearly inequitable to require them to do so.

Question 37

A restaurant owner owes a vegetable supplier £2500. The restaurant owner knows that the supplier is experiencing financial problems. The restaurant owner gives the supplier a cheque for £1000 in full and final satisfaction of the debt owed. The supplier accepts the cheque but later sues the restaurant owner for the balance of £1500. Can the supplier recover the balance and why?

Answer 37

The supplier can recover the balance of £1500 as it is not inequitable for them to go back on their promise.

The supplier’s promise to accept less was obtained as a result of pressure on the supplier, therefore the restaurant owner is unlikely to successfully rely on the equitable doctrine of promissory estoppel as it is unlikely that it would be considered inequitable for the supplier to go back on his promise.

Question 38

A tenant has lost his job and he is struggling to pay his rent. Keen to help, the landlord informs the tenant that she is willing to accept half the rent due each month until he finds a new job. The tenant pays half rent for two months and uses some of the money he saved to buy new shoes to wear at interviews. The landlord is now having second thoughts. Under what circumstances can the landlord demand full rent?

Answer 38

The landlord can demand full rent after the expiry of reasonable notice.

Question 39

Define intention to create legal relations

Answer 39

An intention to enter into an agreement that has legal ramifications

Question 40

Is the test for intention to create legal relations objective or subjective?

Answer 40

Objective

Question 41

What is the test for intention to create legal relations?

Answer 41

It is determined by what the actions of the parties in the particular circumstances

Question 42

In which agreements - commercial or social is it presumed that there is an intention to create legal relations?

Answer 42

Commercial

Question 43

What kinds of agreements do commercial agreements cover?

Answer 43

Business to business Individuals to business
Individual to individuals

Question 44

Which party is the onus on to rebut the presumption that legal relations were not intended in a commercial agreement?

Answer 44

The part who wishes to rebut

Question 45

Can parties include wording within the agreement which indicated that the parties do not intend to create legal relations?

Answer 45

Yes but clear words will need to be used.

Question 46

What effect of the words ‘subject to contract’ have on a contract?

Answer 46

They create a strong inference that the parties do not intend to be bound until executive

Question 47

What presumption of intention to create legal relations is give to social, family or other domestic agreements?

Answer 47

The presumption is that there is no intention to create legal relations

Question 48

Are the courts likely to find intention to create legal relations between agreements made between spouses before a breakdown?

Answer 48

No - if the parties reach the agreement before any breakdown in the relationship (Balfour v Balfour)

Question 49

Can the presumption that parties do not intend to create legal relations in social, family or domestic agreements be rebutted?

Answer 49

Yes - it will depend on the circumstances of each case and the language used by parties

Question 50

Who has full contractual capacity?

Answer 50

Persons over the age of 18 if they are of sound mind and not suffering from a factor ruling out capacity

Question 51

Can a person under the age of 18 be bound by a contract?

Answer 51

Generally no

Question 52

If a person under the age of 18 lies about their age can they be bound by a contract?

Answer 52

Generally no

Question 53

Can a minor be bound by a contract to supply necessaries if the contract is for their benefit?

Answer 53

Yes - the minor must pay a ‘reasonable price’ for these rather than the actual cost

Question 54

What must a minor pay in respect of necessaries supplied for their benefit?

Answer 54

A reasonable price

Question 55

What does ‘necessaries’ mean? (Sale of Goods Act 1979 s3(3))

Answer 55

Good suitable to condition in life of the minor or other person concerned and to their actual requirements at the time of the sale and delivery

Question 56

A minor is supplied with 11 waistcoats whilst an undergraduate at Cambridge University - this was suitable according to the minor’s station in life but he already had sufficient clothing - will this contract be enforceable? (Nash v Inman)

Answer 56

No - the minor had sufficient clothing so this were not considered necessaries

Question 57

When entering into a contract with a minor where none of the exceptions apply - which party can enforce the contract?

Answer 57

The minor can enforce the contract

Question 58

What is the effect of a minor ratifying a contract once they reach the age of 18?

Answer 58

The contract will be binding on them

Question 59

If the contract with the minor is for employment, apprenticeship or education of their benefit will the minor be bound?

Answer 59

Yes

Question 60

How is it defined that a person lacks capacity under s2 of The Mental Capacity Act 2005?

Answer 60

If ‘he is unable to make a decision for himself in relation to the matter’

Question 60

When must a person have capacity?

Answer 60

At the time the contract is made?

Question 61

Does it matter if the impairment is permanent or temporary if the person lacks capacity at the time the contract is made?

Answer 61

No

Question 62

Is capacity considered in relation to all purposes or just a particular decision?

Answer 62

A particular decision

Question 63

What are the four elements which define “impairment” under s3(1) of the Mental Capacity Act 2005

Answer 63

(1) Unable to understand the relevant information
(2) Unable to retain the relevant information
(3) Unable to use the relevant information
(4) Unable to communicate a decision

Question 64

What is considered to be ‘relevant information’?

Answer 64

The reasonably foreseeable consequences of:
(a) Deciding one way or another other; or
(b) Failing to make a decision

Question 64

Is a person without capacity liable to pay a reasonable price for ‘necessaries’?

Answer 64

Yes - for goods or services ‘suitable to a person’s condition of life and to his actual requirements at the time when the goods or services are supplied.

Question 65

What are the two factors that a person claiming incapacity must show to rebut that a contract is binding (Imperial Loan Co v Stone)?

Answer 65

(1) That they did not understand what they were doing; and
(2) That the other party knew that to be the case

Question 66

How do the rules of capacity relate to drunken persons in relation to:
(1) necessaries
(2) any other contract?
(Matthews v Baxter)

Answer 66

(1) They must pay a reasonable price
(2) They will not be bound

Question 67

A 16 year old boy cycles to and from school every day. He no longer likes his bicycle as he thinks it is old. He tells his neighbour he is 19 years old and agrees to buy the neighbour’s motorbike for £199. After taking delivery of the motorbike, the boy refuses to pay for it. Can the neighbour enforce the contract and why?

Answer 67

No - The neighbour cannot enforce the contract against the boy as he is a minor.