Contract Law - 1.2 - Consideration

Question 1

Consideration

Answer 1

“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

Question 2

Pollock’s Definition of Consideration

Answer 2

Concept of exchange
Something in return to be enforceable

Question 3

Executory consideration

Answer 3

Where contracting parties make promises to each other to perform something in the future after the contract has been formed

Question 4

Executed Consideration

Answer 4

At the time of the formation of the contract, the consideration has already been performed.

Question 5

Rules governing consideration

Answer 5

• must not be past
• must move from the promisee
• must be sufficient
• need not be adequate

Question 6

Must not be past

Answer 6

Not generally possible to use consideration that has already taken place as an exchange is required.

Eastwood v Kenyon 1840

Question 7

Eastwood v Kenyon

Answer 7

1840
Payment for the debt of bringing Sarah up, even though Eastwood had already brought Sarah up
Not good consideration

Question 8

Exception to the past consideration rule

Answer 8

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

Question 9

Pao On v Lau Yiu Long
1980

Answer 9

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

Question 10

Consideration must move from the promisee

Answer 10

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

Question 11

Tweddle v Atkinson
1861

Answer 11

Bridegroom could not enforce the father-in-law’s promise as the promise was made between the fathers

Question 12

Consideration need not be adequate

Answer 12

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

Question 13

Consideration must be sufficient

Answer 13

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

Question 14

Stilk v Myrick

Answer 14

1809
Seaman promised to share wages of two deserters if share work equally.
Not binding, seaman not giving considerartion as doing the work anyway

Question 15

Hartley v Ponsonby
1857

Answer 15

“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

Question 16

Williams v Roffey Bros & Nichol (Contractors) Ltd [1991]

Answer 16

Factual Consideration
Extra payment for timely completion

Question 17

Factual Consideration

Answer 17

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

Question 18

Obligations under public duty

Answer 18

Merely carrying out a public duty imposed by the law will not amount to sufficient consideration.

Question 19

England v Davidson (1840)

Answer 19

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.

Question 20

Existing obligation to a third party

Answer 20

Can contract twice offering the same consideration - but twice at risk of liability

Question 21

New Zealand Shipping Co v AM Satterthwaite & Co

Answer 21

L Wilberforce held that it may amount to valid consideration. However, may be liable for action from both parties.

Question 22

Part payment of a debt

Answer 22

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

Question 23

Foakes v Beer
1884
FINISH CARD

Answer 23

Mrs Beer - the agreement was unsupported by consideration

Question 24

Foakes v Beer exceptions

Answer 24

• Introducing a new element into the payment
• Payment of a lesser sum by a third party

Question 25

Introducing a new element into the payment

Answer 25

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

Question 26

Pinnel’s Case

Answer 26

1602

Question 27

Payment of a lesser sum by a third party

Answer 27

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

Question 28

Difference between William v Roffey and Foakes v Beer

Answer 28

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

Question 29

MWB Business Exchange Centres Ltd v Rock Advertising Ltd 2016

Answer 29

• 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

Question 30

Rock v MWB 2018

Answer 30

Supreme Court
Appeal was allowed as oral variation was uinvalid/

Question 31

Promissory Estoppel

Answer 31

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

Question 32

Summary of consideration

Answer 32

• 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

Question 33

Promissory Estoppel aims to…

Answer 33

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

Question 34

Modern doctrine of promissory estoppel derives from

Answer 34

Hughes v Metropolitan Railway Co (1877)

developed by Denning J in CLP Trust v High Trees (1947)

Question 35

Hughes v Metropolitan Railway Co (1877)

Answer 35

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

Question 36

Denning and Promissory Estoppel

Answer 36

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.

Question 37

CLP Trust v High Trees (1947)

Answer 37

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.

Question 38

Case significant in the development of promissory estoppel

Answer 38

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

Question 39

Consideration and promissory estoppel

Answer 39

The lack of consideration needed for promissory estoppel to take effect had potential to impact Consideration greatly.. Parameters constrain its impact

Question 40

Parameters of Promissory estoppel

Answer 40

*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

Question 41

A shield not a sword

Answer 41

Promissory estoppel can only act as a defence to an action.
Consideration would be needed to sue (CoA judgment in Combe v Combe 1951)

Question 42

Combe v Combe

Answer 42

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”

Question 43

A clear and unequivocal promise that strict legal rights will not be fully enforced

Answer 43

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

Question 44

Woodhouse A.C. Israel Cocoa Ltd SA

Answer 44

Parameters of Promissory Estoppel

Question 45

Another v Nigerian Produce Marketing Co 1972

Answer 45

Parameters of Promissory Estoppel

Question 46

A change in position in reliance on the promise

Answer 46

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

Question 47

Inequitable to allow promisor to go back on their promise

Answer 47

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)

Question 48

D&C Builders v Rees 1966

Answer 48

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

Question 49

Does promissory estoppel suspend or extinguish legal rights?

Answer 49

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)

Question 50

Tool Metal v Tungsten 1955

Answer 50

Promisor may resume legal rights after giving reasonable notice of their intention to do so.

Question 51

Promissory Estoppel Summary

Answer 51

• 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.

Question 52

The Port Chaser

Question 53

D&C Builders vs Rees