Contract 3 - Consideration

Question 1

What is consideration?

Answer 1

An exchange between the 2 parties

Can be positive or negative

Question 2

What are the two types of consideration?

Answer 2

1. Executory: parties make promises to each other to perform something in the future
2. Executed: at start of contract, consideration has already been performed

Question 3

What are the general principles of consideration?

Answer 3

1. Must move from promisee to promisor
2. Must be sufficient but not adequate
3. Must not be for an existing duty
4. Must not be past

Question 4

Explain the principle ‘consideration must move from promisee’

Answer 4

Consideration must be provided by the parties themselves not by third party - otherwise you cannot enforce terms of contract

Exception: if third party named in the contract and term to be enforced is for their benefit

Question 5

Explain the principle ‘consideration must be sufficient but not adequate’

Answer 5

1. Consideration must have some value to show exchange of promise
2. Cannot be wholly illusory

Question 6

Will performance of an existing contractual duty be sufficient consideration?

Answer 6

No

Exception: Unless it goes beyond the original obligation or has a practical benefit e.g. avoiding sanction

Question 7

Will performance of an existing contractual duty owed to third party be seen as sufficient consideration?

Answer 7

Yes this is sufficient consideration

Question 8

Will performance of an existing statutory duty be seen as sufficient consideration?

Answer 8

No - performance of duty required by statute will not amount to good consideration

Question 9

What is the rule of ‘consideration must not be past’ and what is the exception?

Answer 9

If act was before promise, can’t be exchanged for that promise Exception: implied understanding of payment but 3 conditions apply:

1. Act must have been done at promisor’s request
2. Parties understood the act was to be remunerated
3. Must have been legally enforceable had the promise been made in advance

Question 10

Is a debtor promising to pay part of a debt in return for release of remainder of liability good consideration?

Answer 10

No - have to receive a further benefit

Exceptions:
1. Disputed in good faith
2. Amount owed is uncertain
3. A third party is making the payment
4. Payment on different means e.g. cash or earlier payment
5. Composition with creditors

Question 11

What is promissory estoppel?

Answer 11

A promise made without the exchange of consideration is binding and enforceable if:

1. The promisor made a clear and unambiguous promise.
2. There promisee relied on the promise
3. Promisee reliance was reasonable and foreseeable and suffered detriment relying on promise.
4. Must be inequitable for promisor to go back on promise