Contract: Consideration, privity and agency Flashcards
Summarise the 2 definitions of consideration.
- It may be either a benefit to the person receiving or a detriment to the person giving; it need not be both (Currie v Misa)
- The price one party pays for the other party’s promise (Pollock)
What does the statement ‘consideration must be sufficient, it does not have to be adequate’ mean?
It does not have to adequately reflect the value of the promise in return for which it is given, but it must have some value (Chappell & Co Ltd v Nestlé Co Ltd)
What is the principle regarding past consideration?
Past consideration is not good consideration (Roscorla v Thomas)
What are the three conditions that must be satisfied for a past act to be good consideration?
Lampleigh v Brathwait:
- The act must have been done at the promisor’s request.
- The parties must have understood from the outset that the act was to be rewarded in some way.
E.G: Re Casey’s Patents: It must always have been assumed that Casey’s work would be paid for in some way
- The usual requirements for a binding contract apply. If there is an issue here, it will usually be with contractual intention
Is performance of existing duties good consideration? (3 key cases)
No: Performing an existing contractual duty owed to the other party will not be sufficient consideration to enforce a promise to pay more (Stilk v Myrick)
EXCEPTION 1: It can if you exceed a contractual obligation that you owed - conferred an extra benefit on me and probably suffered additional detriment - (Hartley v Ponsonby)
EXCEPTION 2: Williams v Roffey: 5 step test
Explain the principle in Williams v Roffey Bros (5 steps)
1, There is a contract for the supply of goods and services in return for payment
2. Before performance is completed, one party has reason to doubt whether the
other will, or will be able to, complete the contract
3. A promise of extra payment is made in return for the promise to perform the
contractual obligations on time
4. As a result of giving his promise, the promisor obtains in practice a benefit, or
obviates a disbenefit
5. The promise of extra money must not have been given as a result of duress or
fraud
Is part payment of a debt good consideration?
Payment of a debt is not sufficient consideration for a promise to accept less and discharge the balance – Foakes v Beer and Pinnel’s Case.
Pinnel Case exceptions:
- Payment accompanied by fresh consideration
- Prepayment of debt at the creditor’s request
- Promissory Estoppel
Do any of the common law exceptions apply to the rule in Foakes v Beer?
Practical benefit (no): A practical benefit is not good consideration for a promise governed by the principle in Foakes v Beer (Re Selectmove).
Fraud (yes): Part payment of a debt by a third party
What four conditions must be satisfied for promissory estoppel to apply?
High Trees House Ltd:
- A promise to waive a legal right
• Need not be made expressly; the promise may be implied by conduct (Hughes v Metropolitan Railway Company)
- The promisee must act in reliance on the promise
• The promisee does not have to act to his detriment, it is enough that the promisee had altered his position in some way as a result of the promise (W J Alan v El Nasr; Emanual Ajayi v Briscoe)
- Promissory estoppel does not give rise to a cause of action; it can only be used as a defence (Combe v Combe)
- It must be inequitable/unjust for the promisor to go back on his promise and insist on his full legal rights (D&C Builders v Rees)
What is the effect of the doctrine of promissory estoppel?
The doctrine appears to operate both to suspend and extinguish legal rights.
What factors will the court consider when deciding whether to suspend or distinguish rights under the doctrine of promissory estoppel?
- Was the promise was clearly intended to last only until a particular event happened or a particular situation came to an end (such as wartime conditions in the High Trees case)
- Can the promisee be returned to his original position? The promise only becomes final and binding if the promisee cannot resume his original position (Ajayi v RT Briscoe)
- With ongoing payments the doctrine appears to operate both to suspend and extinguish legal rights. So provided reasonable notice is given, the creditor is entitled to full payment in the future, but probably cannot recover arrears. (High trees & Tool Metal Manufacturing v Tungsten Electric)
- Lord Denning MR said obiter in D & C Builders v Rees that the right to the balance of the lump sum payment may be extinguished - but no case where the doctrine has been applied in this situation and it seems likely that the courts would feel bound by Foakes v Beer and allow the creditor to give notice and recover
the balance.
What is the doctrine of privity of contract?
The Contracts (Rights of Third Parties) Act 1999:
Section 1 of the Act allows a third party to enforce a contract term if either:
o the contract expressly provides that he may, or
o the term purports to confer a benefit on him (unless it appears that the parties did not intend the term to be enforceable by the third party).
What is agency?
An agent is authorised to enter into a contract on behalf of the principal and so bind the principal. Provided the agent has authority, the agent acquires no rights or liabilities under the contract. Authority may be actual or apparent.
What is agency by estoppel?
The principal has given the distinct but false impression that the agent has authority to enter into a particular contract
What three conditions must be satisfied for an agency by estoppel to arise?
- At some stage the principal must have represented (by words or conduct) that the agent had authority
- The third party must rely on this representation believing that the agent had authority; and
- The third party must alter his position, eg by entering into contract.
