Contract 2: Consideration

Question 1

What is executed vs executory consideration?

Answer 1

executed
- already performed
- often in unilateral contracts

executory
- to be performed

Question 2

What are the rules of good consideration?

Answer 2

1. Must not be past
   - except unilateral contracts
2. Must move from promisee
3. Need not be adequate but must be sufficient
   - must have some value in the eyes of the law
   - but need not be a fair deal

Question 3

When can existing obligation be used as consideration?

Answer 3

Generally if a party already contractually bound they cannot form another agreement to do the same task for the same party.

Exceptions
- If agree to go beyond original obligation.
- If performance of original obligation confers practical benefit
- If existing obligation is to 3rd party (someone not privy to contract for original obligation).

Question 4

Can performance of a statutory obligation be used as consideration?

Answer 4

• If a task is already considered part of their public duty imposed by the law, they cannot use this as good consideration
• For example offering police man money to keep the peace whilst they are on duty

Exception
- There are times where party may be going beyond existing duty
- For example police policing football match or strike

Question 5

Can consideration be past?

Answer 5

No, generally must be in future.

Exception: implied understanding
- The act must have been done at promisors request
- The parties must have understood that the act was to be remunerated (by payment or other benefit)
- Payment or other benefit must have been legally enforceable had promise been made in advance

Question 6

What is the general rule of accepting part payment of debt as consideration?

Answer 6

Generally promise to accept part payment of debt is not legally enforceable. You could simply change your mind and demand full amount

Question 7

When can part payment of debt be used as consideration?

Answer 7

Disputed in Good Faith
- Where debt is of uncertain value
- Debtor is providing consideration by agreeing to pay something

Unliquidated Claims
- Where amount owed is uncertain

Payment at different place or earlier or by different means
- Creditor get lesser amount but benefits from being paid earlier or in different place or in other form

Third party makes payment

Composition with Creditor
- An agreement between debtor in financial difficulty and all their creditors that debtor will pay an agreed amount in satisfaction of all their debts

Question 8

What is promissory estoppel?

Answer 8

Is an equitable way for courts to give an equitable exception to rule that consideration is required before a party enters a contract. Core idea is that if one party made a promise that another relied on it would be inequitable to enforce.

Question 9

What are the factors in promissory estoppel?

Answer 9

Shield not a Sword
- only defence, not cause of action

Clear and unequivocal promise from promisor not to rely on existing legal right
- must be intended to affect legal relations

Inequitable to go back
- does party seeking to rely on it have clean hands

Question 10

How might promissory estoppel effect/end in cases of periodic/continuing obligations?

Answer 10

Continuing obligations such as rent can go back and resume when:
- once the period over which the promissory estoppel operates ceases (eg. WW2 ends); or
- promisor gives reasonable intention to do so.

Question 11

Who can enforce the terms of a contract?

Answer 11

Generally only those party to the contract

Exception
- 3rd parties under certain circumstances under Contract Rights of 3rd Parties Act 1999

Question 12

When can a 3rd party enforce a term of a contract under the Contract Rights of 3rd Parties Act 1999?

Answer 12

Third party may in his own right enforce a term of the contract if:
- The contract expressly provides that he may, or
- The agreement purported to confer a benefit on the 3rd party, and it appears the contract terms intended the term to be enforceable by the 3rd party’

AND
- 3rd party must be expressly named or be a member of a benefiting class of people described in the contract

Question 13

Does a 3rd party have to exist at the time contract is made to enforce terms under Contract Rights of 3rd Parties Act 1999?

Answer 13

No

Question 14

Does Contract Rights of 3rd Parties Act 1999 allow contract to place obligations on 3rd parties (who can enforce terms under the act)?

Answer 14

No - only benefit

Question 15

What are the limitations on the Contract Rights of 3rd Parties Act 1999?

Answer 15

Types of contracts excluded
- Employment contracts
- Articles of association
- If contract expressly excludes

Question 16

How can Contract Rights of 3rd Parties Act 1999 effect the variation or recession of contracts?

Answer 16

Parties cannot change the contract to the detriment of the third party if:
- 3rd party has communicated his agreement to the term benefiting him,
- 3rd party has relied on the term of the contract and the promisor is aware of the reliance, or
- The promisor can reasonably be expected to have foreseen that the 3rd party would rely on the term and 3rd party has in fact relied on it.

Question 17

What are the common law methods of circumventing doctrine of privity?

Answer 17

1. Agent contracts on behalf of principle
2. Assignment of benefit of contract by novation agreement
3. Collateral Contract between promisor and 3rd party
4. Trust (A makes promise to B for benefit of C)
5. Subrogation

Question 18

What is necessary to establish agency relationship?

Answer 18

• Principal should be named, and it should be clear that the agent is contracting on the principal’s behalf
• The agent should be authorised to act as agent. This is often limited by principal. The principal is only bound to the acts of the agent which are within the agent’s authority
• Consideration has moved from the principal

Question 19

When might an agent be liable for the contract entered into for principle?

Answer 19

1. If they act outside power given by principle (then liable for that)
2. Principle is undisclosed to other party

Question 20

When might the courts find a collateral contract that effects privity of contract?

Answer 20

• Supplier of goods who guarantees certain quality to A, A then makes B use this product for task (collateral contract between supplier and A)
• A can bring claim again supplier if good do not uphold