Contract 2 Consideration Privity and Agency

Question 1

Three element of a contract

Answer 1

Agreement (offer and acceptance)

Intention to create legal relations, and

Consideration

Question 2

Define consideration

Answer 2

The 3 P’s
An act or forbearance of one party, or the promise thereof, is the price you pay for another’s promise

Consideration in short, is reciprocity. For example, the defendant promises something to the claimant. This promise is not reciprocal unless the claimant has given or promised something in exchange for the defendant’s promise. That something is consideration, and without it a contract in unenforceable

Question 3

Considering rules on value for consideration

Answer 3

Consideration needs not be be adequate (reflecting actual value) but must be sufficient (have some value)

Consideration must have some economic value (Thomas v Thomas)

Question 4

Meaning of forbearance

is forbearance good consideration?

Answer 4

The action of refraining from exercising a legal right, especially enforcing the payment of a debt

General rule: no due to public policy (floodgates argument) (White v Bluett)

Possible exception: if it involves giving up one’s legal rights (Hamer v Sidway *US case)

Question 5

Is past consideration good consideration

Answer 5

General rule: no (Roscorla v Thomas)

But if the all the following conditions are satisfied:

The act was carried out at the promisor’s request (Lampleigh v Brathwait)

The parties understood from the beginning that the act was to rewarded in some way ( Re Casey’s Partents, Stewart v Casey) and

The payment, or conferment of other benefit, must have been legally enforceable had it been promised in advance. In other words, the usual requirements for a binding contract apply. If there is an issue here, it
will usually be with contractual intention

Question 6

Is A’s performance of his exisiting contractual duties good consideration in exchange for a promise from B to pay more?

Answer 6

No (Stilk v Myrick) (seamen wage)

Unless if A exceeds his duties in some way, or confers extra benefit on B (Hartley v Ponsonby). However, this is a question of 1) Fact and Degree 2) Public policy.

Question 7

Explain the Glidewell Principle ( from Williams v Roffey Bros and Nicholls (Contractors) Ltd) in relation to if performance of existing duties is good consideration

Answer 7

If all the following criteria are satisfied:

there is a contract for goods/services in return for payment

B doubts whether A will complete his obligations

B promises additional payment if A completes his obligations on time

as a result of the grant of the promise, B obtains a practical benefit or obviates a disbenefit

The promise to pay extra is not given as a result of economic duress or fraud on the part of the promisee

Question 8

Is A’s performance of his existing contractual duties to a third party good consideration?

Answer 8

A promise to do something can amount to consideration even if the promisor is already bound to perform this obligation for another party (Scotson v Pegg)

Question 9

Is the performance of one’s public/legal duties good consideration?

Answer 9

No (Collins v Godefroy)

Unless it is
not contrary to public policy (Williams v Williams) and
public duties is exceeded (Glasbrook Bros Ltd v Glamorgan County Council)

Question 10

Is the part payment of undisputed debts good consideration for a promise by the creditor to forgo the balance?

Answer 10

No (Foakes v Beer)

There are 3 exceptions

• EXCEPTION 1 : Pinnel’s Case : a debt can be part paid with either: (1) a different thing (“a hawk, a horse or a robe”); (2) in a different place ; or (3) earlier , any of which will count as good consideration.
• EXCEPTION 2 : Welby v Drake : part payment of a debt by a 3 rd party is good consideration.
• EXCEPTION 3 : Promissory Estoppel : this means that the claimant may be obliged to stand by what he said , even where he is not contrac tually bound to do so. The claimant cannot go back on his word when it would be unjust or inequitable for him to do so ( Denning ).

Question 11

Define promissory estoppel

Answer 11

where a promisor has, by words or conduct, made a promise to the other party to forgo a legal right. Once the promisee has acted on this promise he will have a good defence to any claim bought by the promisor which is inconsistent with the promise.

Question 12

Explain the PRIDE rule of promissory estoppel

Answer 12

Promissory estoppel will apply if the follwoing conditions are fulfilled:

Promise: there must be a promise to waive a legal right , which must be intended to be acted upon by the other party (Hughes v Metropolitan Railway Company)

Reliance: The promise must acted upon the promise, but he need not have acted to his detriment, only have altered his behaviour

Inequitable: it must be unjust for the promiser to go back on his promise and insist on his full legal rights

Defence - Promissory estoppel will not give rise to a cause of action - it’s a shield not a sword (Combe v Combe)

Effect - the effect is to extinguish or suspend legal rights

Question 13

Explain the effect of Promissory Estoppel

Effect on one-off debt

Answer 13

Usually operates to suspend promisor’s legal rights. In such cases the promisor may resume these rights by giving the promise reasonable notice

In cases where the promisee cannot resume his original position, promissory estoppel may operate to permanently extinguish the promisor’s legal rights.

Effect on one-off debt is uncertain. May possibly operate to waive payment (D&C Builiders v Rees (accept lesser payment or nothing)

Question 14

Can the rule in Williams v Roffey Bros (performance of existing obligation may be consideration) be extended to cases involving part payment of undisputed debts?

Answer 14

No. but it was challenged in MWB Business Exchange Centres Ltd v Rock Advertising Ltd, where creditors were argued to have received a practical benefit from not enforcing the debt. The leave to appeal at the final court was not granted since the case involved reexmination of Foakes v Beer (HoL) but such review could only be contemplated with a full panel at the supreme court in more than obiter dictum.

Question 15

Define agency relationship in law

Answer 15

Agency is the relationship that arises where the agent acts on behalf of the principal and has the power to alter the principal’s legal position with regard to a third party

Question 16

Explain two forms of agency following Freeman and Lockyer v Buckhurst Park Properties

3R

Answer 16

Actual authority - legal relationship between the principal and agent created by EXPRESS APPOINTMENT - consensual agreeement to which they alone are the parties

Apparent authority - legal relationship between the principal and thrid party created when-

R - a Representation (words or conduct） is made by the principal to the thrid party that agent had authority

R- the representation is Relied upon third party, believing that the agent has authority; and

R- in reliance of the representation, the third party altered(Revise) their position for example by entering the contract

Question 17

In what situation the agent drops out?

Answer 17

Where the agent has authority, whether actual or apparent, there is a valid contract between the principal and the third party. The agent drops out.

Question 18

If the agent has no authority:

can be princiapl be sued?
can the agent be sued?

Answer 18

The principal cannot be sued for action by the thrid party

the agent may be sued if
on tort of deceit, if the agent knew he had no authority; or

in breach of an implied warranty of authority

Question 19

What if the agent acts beyond the given authority？

Answer 19

If the agent exceeds his authority, there is no authority.

Question 20

Chappel v Nestle

Answer 20

Consideration needs not be adequate but must be sufficient

Nestle promised a record for a small sum + 3 wrappers from their chocolate bar. Questions on wrappers were consideration. held they were.

Question 21

White v Bluett (UK authority)

Hamer v Sidway (US)

Answer 21

forbearance is not consideration. US authority forbearance can be consideration）

Father not to enforce debt if son stops moaning about distribution of father’s property. held not consideration

Uncle $5000 to nephew if he withholds undesirable behavior until age of 21. held refraining from excercising legal rights is consideration

Question 22

Roscola v Thomas

Answer 22

Past consideration is not consideration

Roscola bought horse assured sound and free of vice turned to be untrue. sued but assurance was not good consideration so it is unenforceable.

Question 23

Lampleigh v Braithwait

Answer 23

Past consideration exception - 3 conditions

Question 24

Collins v Godefroy

Answer 24

promise to perform legal duty is not good consideration

Defendant offered claimant money for testifying; deemed not enforceable as it was already a legal duty

Question 25

Stilk v Myrick

Hartley v Ponsonby

Answer 25

Performance of an existing contracutual duty owed to other party will not be sufficient consideration, but could be according to facts and degree

Stilk v Myrick - 2 deserters and captain promised to split their wages with remaining sailors

Hartley v Ponsonby - most of the crew deserted so the voyage was much more perilous. held good consideration.

Question 26

Williams v Roffey Bros & Nicholls (Contractors) Ltd

Answer 26

Exception to Stilk v Myrick

In case where the defendant has received a practical or commercial benefit and where there is no evidence of duress or fraud, performance of existing contractual duties may amount to sufficient consideration.

Question 27

Foakes v Beer

Answer 27

Part payment is not good consideration to waive the remainder of the a debt (to forgo the balance due)

Question 28

Pinnel’s case

Answer 28

Part payment may be good consideration if something extra was offered to creditor satisfaction (e.gearly repayment)

Question 29

Central London Property Trust Ltd v High Trees House Ltd

Answer 29

Principle of promissory estoppel

Landlord accepted lower rent for war years then raised them again after the war. held it would not be fair to ask for prior rent but that the landlord had the right,with sufficient warning, to rasie the rent again after the war

Question 30

Hughes v Metropolitan Railway Company

waiver

Answer 30

negotiation of a sale might imply suspension of terms of contract. The promise to waive a legal right may be implied.

‘by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance’

Question 31

WJ Alan & Co v El Nasr

Answer 31

The reliance on a promise does not have to be detrimental to the promisee, all that requires is an alteration of action

Question 32

Emmanuel Ajayi v R T Briscoe (Privy Council)

Answer 32

The promise only becomes final and irrevocable if the promisor cannot resume his position; otherwise the promisor can resile from his promise on giving reasonable notice

Question 33

Combe v Combe

Answer 33

Promissory estoppel cannot be initiated as a cause of action - shield not sword.

Question 34

D&C Builders v Rees

Answer 34

it must be inequitable for the promisor to go back on his promise and insist his full legal rights

Defendant offers less money to settle debt and informed them that they either had to accept or receive nothing; accepted by Claimant’s later sued; held that claimants had acted under duress.

Question 35

Tool Metal Manufacturing Co v Tungsten Electric Co Ltd

Answer 35

Promissory estoppel will usually suspend legal rights, but equity will require some notice or intimation together with a reasonable period for re-adjustment before the grantor is allowed to enforce his rights.

Question 36

Suspensory rights and Extinctory rights under the doctrine of promissory estoppel

Answer 36

If the payments in arrears are paid in installment, then missed payments will be extinguished whilst the promisor can reinstate rights for future payment, that is to put an end to the suspension of rights.

But if the debt claim is for a single lump sum, then the Claimant can ask for the whole sum to be repaid

Question 37

Scotson v Pegg

Answer 37

Performance of an exisitng contractual duty owed to a third party to the contract may amount to a valid consideration for a new promise