Contract Law - 1.2 - Consideration Flashcards
Consideration
“An act or forbearance of one party, or promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable” - Frederick Pollock
Adopted by HoL in Dunlop v Selfridge 1915
Pollock’s Definition of Consideration
Concept of exchange
Something in return to be enforceable
Executory consideration
Where contracting parties make promises to each other to perform something in the future after the contract has been formed
Executed Consideration
At the time of the formation of the contract, the consideration has already been performed.
Rules governing consideration
- must not be past
- must move from the promisee
- must be sufficient
- need not be adequate
Must not be past
Not generally possible to use consideration that has already taken place as an exchange is required.
Eastwood v Kenyon 1840
Eastwood v Kenyon
1840
Payment for the debt of bringing Sarah up, even though Eastwood had already brought Sarah up
Not good consideration
Exception to the past consideration rule
Where some prior act or service was provided by the promisee at the promissors request and it was always understood that payment would be made.
Pao On v Lau Yiu Long 1980
Pao On v Lau Yiu Long
1980
Lord Scarmon outlined three conditions:
1) Act must have been done at the Promisor’s Request
2) Understood the act was always going to rewarded by payment or conferment of benefit.
3) Payment must have been legally enforceable and promised in advance
Consideration must move from the promisee
A party who has not provided consideration may not bring an action to enforce a contract.
related to the doctrine of privity of contract - only a person party to a contract may be sued
Tweddle v Atkinson
1861
Bridegroom could not enforce the father-in-law’s promise as the promise was made between the fathers
Consideration need not be adequate
Courts don’t interfere with a bargain freely reached - doctrine of freedom of contract.
Chappell & Co v Nestle Co Ltd (1960) - sweet wrappers were held to be consideration
Consideration must be sufficient
Must have some value “in the eyes of the law” - worth something
Thomas v Thomas 1982 - £1 per annum towards ground rent, not matter that the obligation match value of property
Stilk v Myrick
1809
Seaman promised to share wages of two deserters if share work equally.
Not binding, seaman not giving considerartion as doing the work anyway
Hartley v Ponsonby
1857
“all reasonable endeavours” to get the ship home - they went beyond reasonable endeavors due to making the journey in dangerous conditions undermanned.
Therefore they deserved extra consideration when Stilk did not
Williams v Roffey Bros & Nichol (Contractors) Ltd [1991]
Factual Consideration
Extra payment for timely completion
Factual Consideration
Factual means nothing new is being promised, but the party in receipt of the promise is still getting something out of the reshaped deal
ie obviates disbenefit
Obligations under public duty
Merely carrying out a public duty imposed by the law will not amount to sufficient consideration.
England v Davidson (1840)
Defendant offered a reward for info leading to conviction. Police officer gave the relevant information but defendant alleged police officer was just doing piblic duty.
Held the police officer’s duty is to prevent crime, and not to provide info to a private individual. Therefore went beyond public duty.
Existing obligation to a third party
Can contract twice offering the same consideration - but twice at risk of liability
New Zealand Shipping Co v AM Satterthwaite & Co
L Wilberforce held that it may amount to valid consideration. However, may be liable for action from both parties.
Part payment of a debt
Seeking to offer an existing obligation as consideration is not good consideration - the debtor remains liable even where creditor has agreed to release them from further liability
Foakes v Beer
1884
FINISH CARD
Mrs Beer - the agreement was unsupported by consideration
Foakes v Beer exceptions
- Introducing a new element into the payment
- Payment of a lesser sum by a third party
Introducing a new element into the payment
Foakes v Beer is only applicable if there is no fresh consideration by the promisee.
ie if at the Creditor’s Request there is some change (location, timing) this may be considered fresh consideration
Pinnel’s Case 1602
Pinnel’s Case
1602
Payment of a lesser sum by a third party
Where a third party enters into an agreement with a creditor, by which the creditor accepts payment by the third party of a lesser sum than the debt in full satisfaction of the debtors obligation, the creditor cannot sue the debtor for the difference
Difference between William v Roffey and Foakes v Beer
Arguably Mrs Beer got benefit of being paid a lesser sim. However this was examined in Re Selectmove [1995] and they found their was a clear distinction between paying more for a contractual obligation (where benefit applied) and promises to accept less than your legal rights.
Different view taken again in CoA MWB Business Exchange Centres Ltd v Rock Advertising Lyd
MWB Business Exchange Centres Ltd v Rock Advertising Ltd 2016
- Landlord agreed orally to reschedule rental payments
- CoA considered if there had been valid consideration for the variation.
- Payment of sum already due is not normally sufficient consideration.
Landlord found to have obtained practical benefit by keeping the property occupied..
Applied logic from Williams v Roffey and idea of Practical Benefit in the absence of economic duress
Rock v MWB 2018
Supreme Court
Appeal was allowed as oral variation was uinvalid/
Promissory Estoppel
Equitable doctrine that effectively allows a contract to be enforced despite not being supported by consideration.
Protecting a party’s reliance on a non-bargain promise
Summary of consideration
- Something a party is already obliged to do cannot in general be considered good consideration for a new contract
- Where the new contract consitutes a practical benefit an existing obligation can be considered good consideration Williams v Roffey
- Carrying out public duty will not amount to sufficient consideration.
- Payment of part of a debt is not good consideration - there are exceptions.
- Promise of a third party is considered good consideration
Promissory Estoppel aims to…
Protect a party who has relied on a promise (such as a debtor accepting less).
Equity prevents the promisor going back on their promise in situations where the promisee has relied on it
Modern doctrine of promissory estoppel derives from
Hughes v Metropolitan Railway Co (1877)
developed by Denning J in CLP Trust v High Trees (1947)
Hughes v Metropolitan Railway Co (1877)
Landlords conduct was an implied promise to the tenant that he would not enforce forfeiture at the end of the notice period, in not doing the repairs the tenant had been relying on this promise
Denning and Promissory Estoppel
Developed the Principles of Hughes v Met Railway Co and extended them in Central London Property Trust V High Trees House
Formulated the doctrine of promissory estoppel.
Developed beyond the original doctrine, but now a part of English Law of Contract.
CLP Trust v High Trees (1947)
Where a promise was made with intent to create legal relations and was to the knowledge of person making the promise going to be acted on by the other, and was in fact acted on, the promise would be binding.
Case significant in the development of promissory estoppel
CLP Trust v High Trees 1947
In obiter comments, Denning J would allow a promise in absence of consideration provided that the promisee had relied on the promise
Consideration and promissory estoppel
The lack of consideration needed for promissory estoppel to take effect had potential to impact Consideration greatly.. Parameters constrain its impact
Parameters of Promissory estoppel
*Acts as shield and not a sword
*Clear unequivocal promise that strict legal rights will not be fully enforced
*A change of position in reliance on the promise
*Inequitable to allow the promisor to go back on their promise
A shield not a sword
Promissory estoppel can only act as a defence to an action.
Consideration would be needed to sue (CoA judgment in Combe v Combe 1951)
Combe v Combe
Court of Appel 1951
Following a Divorce Mrs Combe’s husband indicated he was prepared to make an allowance of £100 a year. He did not make the payments.
Promissory Estoppel could not be used to sue as there was no consideration given.
“A shield not a sword”
A clear and unequivocal promise that strict legal rights will not be fully enforced
Woodhouse A.C. Israel Cocoa Ltd SA
Another v Nigerian Produce Marketing Co 1972
The promise must be intended to affect legal relations and not simply amount to a gratuitous privilege.
Can either be express or implied
Parameters of Promissory Estoppel
Woodhouse A.C. Israel Cocoa Ltd SA
Parameters of Promissory Estoppel
Another v Nigerian Produce Marketing Co 1972
Parameters of Promissory Estoppel
A change in position in reliance on the promise
Promise must have influenced the conduct of the party to whom it was made.
Usually need to prove reliance on promise, to their detriment - however in High Tress Denning J made it clear that detrimental reliance is not required.
Sufficient that promise made a change of position in reliance on the promise so it would be inequitable to renege
Inequitable to allow promisor to go back on their promise
Equitable doctine - fairness & discretionary
Balancing exercise to determine whether inequitable
Will look at the conduct of both parties to determine whether or not to grant the defence (D&C Builders v Rees 1966)
D&C Builders v Rees 1966
Courts look at conduct of both parties
Payment of less had been extracted by intimidation they could not rely on the doctrine of Promissory Estoppel
Does promissory estoppel suspend or extinguish legal rights?
Usually promissory estoppel suspends rights and doesn’t extinguish them.
Could resume rights if:
* Period over which promissory estoppel operates ceases. (CLP Trust v High Trees)
* giving reasonable notice (Tool Metal v Tungsten)
Tool Metal v Tungsten 1955
Promisor may resume legal rights after giving reasonable notice of their intention to do so.
Promissory Estoppel Summary
- Relied on to create an exception to the rule that part payment of debt without fresh consideration does not discharge debt obligation.
- PE is only a defence
- Must be clear and unequivocal promise or representation that existing legal rights will not be fully enforced.
*promisee must have relied on the promise - Doctrine only applies when it would be inequitable to go back on their promise.
The Port Chaser
D&C Builders vs Rees
