Contract Formation 2 Flashcards
What is the idea of consideration?
A concept of exchange - to enforce a promise made to you, you have to show that you agreed to give something in return for that promise
What is the difference between executory consideration and executed consideration?
Executory - parties promise to each other to do something in the future
Executed - when contract is formed, the consideration has already been performed
What are the four rules regarding consideration?
Must not be past
Must move from the promisee
Need not be adequate
But must be sufficient
What does ‘must not be past’ mean?
You can’t use an act which happened before the contract as consideration e.g. I once did X for you
What is the exception to the past consideration rule?
If a prior act or service was provided by the promisee at the promisor’s request and it was always understood that payment would be made for that act
What are the three conditions for the past consideration rule to apply?
Act must have been done at the promisor’s request
Parties must both have understood that the act will be rewarded by a payment / conferment of a benefit (more likely if commercial)
Payment must have been legally enforceable if promised in advance
What does ‘must move from the promisee’ mean?
A party who has not provided consideration cannot bring an action to enforce a contract
What does consideration ‘need not be adequate’ mean?
An inadequate price does not mean that an agreement has not been freely reached and cannot be valid
What does ‘must be sufficient’ mean?
Consideration must have some value in ‘the eyes of the law’ but it does not matter how small that value is
If someone is already contractually bound to do something, is agreeing that again to the same party good consideration?
No
When might consideration be found based on variation of an existing obligation?
If the party agrees to exceed their existing obligations - a radical change in nature of work, for example.
What is the ‘practical benefit’ consideration from Williams v Roffey?
If a party obtains a practical benefit from an agreement this is a form of consideration called ‘factual consideration’. In W v R R avoided late payment fees and maintained a more efficient working practice
What are the conditions for finding a practical benefit?
There has been doubt as to whether an obligation can be performed
Additional payment made to perform an existing contractual obligation
The promise confers a benefit on the promisor as they obtains in practice a benefit or obviates a disbenefit
The promise is not obtained through fraud or duress
Is consideration sufficient if there is already a public duty to act in that way?
Merely carrying out a public duty is not sufficient consideration.
But if a police officer goes beyond public duty and helps a private individual that can be consideration.
Is consideration sufficient if Party A recommits the same act already committed to Party B to Party C?
Yes - because then you’ll face double liability.
Is part payment of a debt in return for a release from the remainder of liability sufficient consideration?
No, it is not - Foakes v Beer
When does Foakes v Beer not apply and a part payment of a debt is considered sufficient consideration?
When a new element is introduced into the deal e.g. payment at a different place, time, or a new thing instead of money
What is promissory estoppel?
An equitable doctrine that allows a promise to be enforced even if not supported by consideration
What are the four key parameters of promissory estoppel?
It is a sword not a shield
A clear and unequivocal promise that existing legal rights will not be enforced (cannot be express / implied and must be more than a gratuitous privilege)
A change of position in reliance on the promise (no need for detrimental reliance)
It is inequitable to allow the promisor to go back on their promise
Does promissory estoppel suspend or extinguish legal rights?
Suspend - can be resumed once period over which promise presides ends, or once promisor gives reasonable notice of their intention to do so.
When is ICLR presumed versus not presumed?
Presumed in commercial agreements but not in social / domestic ones.
Presumptions can be rebutted - onus is on the party who wishes the contrary to do so in clear words
What is the effect of the phrase ‘subject to contract’?
Creates a strong inference that parties do not want to be bound until a contract is executed.
What is the general rule about minors and capacity?
Minors are not bound even if their age is not know or they have lied
What are the exceptions to the rule about minors and capacity?
Necessaries
Contracts of employment, apprenticeship or education
When is a minor bound by a contract for necessaries?
They are bound by a contract to supply necessaries to them if it is for their benefit - but only for a reasonable price as opposed to the actual cost
What constitutes a ‘necessary’?
Depends on age and what their situation is
When are contracts of employment, education enforceable?
Only if for the benefit of the minor
What happens if a minor ratifies a contract once they turn 18?
The contract becomes binding on them
How is capacity understood?
Relative to each individual decision, the following must be considered:
Can X:
Understand the relevant information
Retain the relevant information
Use the relevant information
Communicate a decision
What can a person lacking capacity be liable to pay?
A reasonable price for necessaries - again defined by a persons condition and life
General rule on incapacity:
Contract is binding unless the person claiming incapacity can establish that they did not understand what they were doing and the other party knew this to be the case
What is the rule on drunk / drugged people?
If they do not understand what they are doing - reasonable price for necessaries but not bound by anything else
