Contract - Consideration Flashcards
What is the general rule on consideration?
General Rule: Consideration must be something of value (“sufficient”) but need not be “adequate”
Consideration may:
“consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other…” (Currie v Misa, 1875).
For example: Uncle offers to pay £10,000 to a struggling adult nephew, who is a cars dealer. The nephew accepts and later buys 2 classic cars on credit.
RATIONALE: Consideration is the detriment suffered (agreement to buy cars with the money) by the nephew in buying cars on credit in reliance upon his uncle’s promise.
CURRIE v MISA: If we talk about the consideration, in this case, it was established that the bills of exchange acted as a sufficient consideration on the part of Lizardi & Co. Even though Lizardi & Co. became bankrupt and were not able to pay off their debt, but since it was in good credit while drawing the bills of exchange, it would suffice consideration. Also, at the very same moment, the respondent promised to pay the bills, which would be a consideration from her end.
What are typical invalid forms of considerations?
Invalid forms:
- Something which has no value (“consideration must be sufficient”);
- Consideration cannot be past (e.g. a past act or promise);
- Pre-existing contractual obligation to the promisor/offeror;
- Pre-existing contractual obligation to a third party;
- Consideration must move from the promisee: mutual exchange of obligations between promisor and promisee.
VARIATION - AGREEMENTS TO PAY MORE
How do we deal with these cases? [3 possibilities]
Example: A agrees to pay B £100 for a service.
- Agreeing to pay more for an EXISTING obligation is invalid (Stilk v Myrick - ship case)
- Does B exceed his contractual duty? If yes, the variation [agreement to pay more] is valid.
Example: B paints more bedrooms at A’s requests; B delivers the goods to a new location; B pays more money, or pays sooner than expected. - B is still within his existing obligation but A receives a practical benefit -> (Williams v Roffey) may apply.
- In that case, Williams avoiding triggering a penalty clause if the construction was finished on-time.
- This will not apply in cases of duress (e.g. economic duress where C has no practical choice but to accept D’s worse bargain made in bad faith due to illegitimate pressure).
VARIATION - AGREEMENTS TO PAY LESS
How do we deal with these cases?
Example: B agrees to receive a payment of £50 from A, even if B is owed a full £100.
- Generally, an agreement to accept less than you are owed is not enforceable (Foakes v Beer)
Exceptions:
- Payment at a different time and / or place (EG: creditor requested payment at the lawyer’s office - Vanberger), or payment is made SOONER.
- Payment by a third party.
- Practical Benefit (MWB v Rock).
- Promissory Estoppel [can only be used as a shield, not a sword]
Agreements to pay less are, in certain circumstances, enforceable. One of these situations is promissory estoppel. Please explain this doctrine.
- Clear and unequivocal promise (words/conduct) that legal rights will not be fully enforced
- Change of position, in reliance on promise
- It would be inequitable [unfair] to go back on the promise
Note
- Only applies in cases where there is no consideration for the promise to not fully enforce their legal rights.
- Only available at the court’s discretion.
- Can only be used as a shield, not a sword.
- The period of estoppel can be ended, e.g. by reasonable notice (doctrine in High Trees).
(Note, for example, if a landlord agrees this - he cannot recover the value (nor interest) of any money he discounted for X period of time).
Consideration can be executory - what does this mean?
Consideration can be promises, e.g. A promises to pay £100; B promises to deliver the item.
A gardener has carried out gardening works in return for payment for a client over a period of five years. The client asks the gardener to cut his hedge when she is carrying out other works in the local area. The gardener and client do not discuss payment before the work is carried out. When the hedge is cut the client refuses to pay the gardener’s invoice for £40.
The gardener is entitled to payment. The client requested the work was carried out, the client and gardener must have understood that the act was to be rewarded and the payment would be legally enforceable if promised in advance.
Past consideration (a pre-existing obligation to B) is NOT GOOD CONSIDERATION, unless 3 conditions are satisfied:
- The act must have been done at the promisor’s request. [here, the gardener]
- Parties must have understood that the act was to be compensated by payment or some other benefit.
- The payment or benefit must have been legally enforceable had it been promised in advance.
Past consideration - can it ever become “good consideration”?
Generally, no, unless 3 conditions are satisfied (Pao On v Lau Yiu Long):
- The act must have been done at the promisor’s request. [e.g. a worker. The promisee pays the consideration]
- Parties must have understood that the act was to be compensated by payment or some other benefit.
- The payment or benefit must have been legally enforceable had it been promised in advance.
How does the law deal with variation cases?
Fundamentally, variations are like new contracts - there must always be FRESH consideration (typically money, but can be a “practical benefit”), e.g. Williams & Roffey.
What is the full definition/scope of what can be considered consideration?
BENEFIT/MONEY moving to P1.
Promise/undertaking/detriment that P2 accepts.
Consideration may:
“consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other…” (Currie v Misa, 1875).
For example: Uncle offers to pay £10,000 to a struggling adult nephew, who is a cars dealer. The nephew accepts and later buys 2 classic cars on credit.
RATIONALE: Consideration is the detriment suffered (agreement to buy cars with the money) by the nephew in buying cars on credit in reliance upon his uncle’s promise.
CURRIE v MISA: If we talk about the consideration, in this case, it was established that the bills of exchange acted as a sufficient consideration on the part of Lizardi & Co. Even though Lizardi & Co. became bankrupt and were not able to pay off their debt, but since it was in good credit while drawing the bills of exchange, it would suffice consideration. Also, at the very same moment, the respondent promised to pay the bills, which would be a consideration from her end.
