Contract 2 Consideration Privity and Agency Flashcards
Three element of a contract
Agreement (offer and acceptance)
Intention to create legal relations, and
Consideration
Define consideration
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
Considering rules on value for consideration
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)
Meaning of forbearance
is forbearance good consideration?
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)
Is past consideration good consideration
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
Is A’s performance of his exisiting contractual duties good consideration in exchange for a promise from B to pay more?
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.
Explain the Glidewell Principle ( from Williams v Roffey Bros and Nicholls (Contractors) Ltd) in relation to if performance of existing duties is good consideration
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
Is A’s performance of his existing contractual duties to a third party good consideration?
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)
Is the performance of one’s public/legal duties good consideration?
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)
Is the part payment of undisputed debts good consideration for a promise by the creditor to forgo the balance?
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 ).
Define promissory estoppel
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.
Explain the PRIDE rule of promissory estoppel
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
Explain the effect of Promissory Estoppel
Effect on one-off debt
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)
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?
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.
Define agency relationship in law
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
Explain two forms of agency following Freeman and Lockyer v Buckhurst Park Properties
3R
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
In what situation the agent drops out?
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.
If the agent has no authority:
can be princiapl be sued?
can the agent be sued?
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
What if the agent acts beyond the given authority？
If the agent exceeds his authority, there is no authority.
Chappel v Nestle
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.
White v Bluett (UK authority)
Hamer v Sidway (US)
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
Roscola v Thomas
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.
Lampleigh v Braithwait
Past consideration exception - 3 conditions
Collins v Godefroy
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
Stilk v Myrick
Hartley v Ponsonby
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.
Williams v Roffey Bros & Nicholls (Contractors) Ltd
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.
Foakes v Beer
Part payment is not good consideration to waive the remainder of the a debt (to forgo the balance due)
Pinnel’s case
Part payment may be good consideration if something extra was offered to creditor satisfaction (e.gearly repayment)
Central London Property Trust Ltd v High Trees House Ltd
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
Hughes v Metropolitan Railway Company
waiver
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’
WJ Alan & Co v El Nasr
The reliance on a promise does not have to be detrimental to the promisee, all that requires is an alteration of action
Emmanuel Ajayi v R T Briscoe (Privy Council)
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
Combe v Combe
Promissory estoppel cannot be initiated as a cause of action - shield not sword.
D&C Builders v Rees
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.
Tool Metal Manufacturing Co v Tungsten Electric Co Ltd
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.
Suspensory rights and Extinctory rights under the doctrine of promissory estoppel
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
Scotson v Pegg
Performance of an exisitng contractual duty owed to a third party to the contract may amount to a valid consideration for a new promise
