Contract Law - Consideration (CH3)

Question 1

Why is consideration important?

Answer 1

In order to be able to hold the other party to a promise, you must have agreed to provide ‘something in return’ for that promise.

MUTUALITY OF PROMISES ‘eye for an eye’

Question 2

Why is consideration required for a valid contract?

Answer 2

It is essential for the formation of a legally binding contract.

In order for a contract to be enforceable, ‘consideration must be proved’.

The law has made it clear what types of ‘promises’ are acceptable so that not all of them lead to contracts basically. It will not enforce a promise if there is nothing offered in exchange.

Question 3

Who needs to make the promise?

Answer 3

Both parties need to.

Question 4

What is executory consideration?

Give examples

Answer 4

A promise.

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

Examples:
a contract for sale of goods where seller promises to deliver the goods at some time in the future, and the buyer promises to pay for them.

Neither party has done anything but the agreement has contractual force.

Question 5

What is executed consideration?

Answer 5

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

Example: unilateral contract where promise of a reward is made and the price paid in exchange for that promise is performance of the stipulated act-required act is both acceptance of offer and executed consideration.

Question 6

What are the requirements for consideration?

Answer 6

Consideration must

1) Must be sufficient

2) Need to be adequate

3) Must not be past

4) Move from the promisee to the promisor

Question 7

What are three conditions that must be met for the exception that past consideration is good consideration?

Answer 7

Three conditions must be met for this exception to apply:

1) Act must have been done at promisor’s request (this implies promise to be rewarded by ££).

2) Parties must have understood the act was to be rewarded either by a payment or confinement of some other benefit.

3) Conferment of other benefits must have been legally enforceable had it been promised in advance. E.g. taking a care to a garage for repairs and leaving the ultimate price to be decided after completion of the repairs or seeking advice from a professional person and being presented with a bill on completion of the service in question.

*Consistent with commercial practice and no reasonable person could realistically believe payment could not be enforced because the service had been rendered prior to any explicit promise to pay.

Question 8

What is meant be the requirement for ‘consideration must move from the promisee to the promisor’ and what is the EXCEPTION?

Answer 8

General rule: A claimant can only claim on contract if they have provided consideration.

A person to whom a promise is made can only enforce the promise if they have provided consideration for the promise.

Example 1: Tweddle v Atkinson-two fathers of a couple reach an agreement that the father of the bride was to pay £200 and father of groom £100 to the groom-groom sought to enforce father in law’s promise but he could not as he had provided no consideration- consideration had been provided by fathers.

Example 2: Price v Easton: A man was indebted to Price. The man agreed to work for Easton in exchange for Easton paying his wages to Price to settle the debt. Easton failed to pay, Price sued.
Held: Price could not recover the money as price had not provided any consideration for the promise.

Exception: s.1 Contract (Rights of Third Parties) Act 1999 : 3rd Parties (i.e. people who are not a party to a contract, can now enforce a contract made between others, where the contract confers a benefit on the 3rd party, even if the 3rd party has not provided any consideration).

Question 9

What is not sufficient consideration?

Answer 9

1) Natural love and affection – not regarded as sufficient consideration.

Question 10

What does consideration must be sufficient mean?

Answer 10

*Must have some value in the eyes of the law, no matter how small the value is. (££££)

-What is provided in return must be the sort of thing that the law regards as being appropriate subject matter for a bargain.

E.g. Money, goods, services are provided in exchange for the other party’s commitment, not LOVE or Affection..

Question 11

What does consideration not need to be adequate mean?

Answer 11

Adequacy = amount or value of the ‘something in return’. Needs to be some economic value, albeit nominal, e.g. can be 1 POUND £££ !!!!

Law is not concerned with whether what was provided in return is for the same value as the promise for which it was given – just needs to be ‘SOME VALUE’

Payment for £1 would be good consideration for an Aston martin car.

£1 nominal value = sufficient as it is of some value. The fact that it is not the same value of the car £50,000 doesn’t matter as adequacy is not relevant

Question 12

Is this consideration sufficient and need not be adequate?

Hammer had a legal right to drink and smoke tobacco. An agreement to refrain from indulging in drink or tobacco?

Answer 12

Yes, sufficient consideration.

‘Legal right’.

Question 13

Is this consideration sufficient and need not be adequate?

X allowed Y to weigh two boilers requiring their return in perfect condition, within a reasonable time. The boilers were returned in pieces.

Answer 13

Yes, sufficient consideration.

Agreement to part with the boilers, even temporarily, was sufficient to amount to consideration.

Question 14

Is this consideration sufficient and need not be adequate?

Handing over a document evidencing an invalid agreement, which the parties believed to be valid.

Answer 14

Yes, sufficient consideration.

Question 15

Is this consideration sufficient and need not be adequate?

Gaming chips in a casino?

Answer 15

Not sufficient consideration.

Gaming chips were held not to constitute consideration for the money paid for the chips by member of the gaming club.

The gaming chips themselves were worthless, they merely facilitated gambling and did not have value outside of the casino.

Question 16

Is this consideration sufficient and need not be adequate?

Promise to pay and maintain a property and pay £1 per annum.

Answer 16

Yes, sufficient consideration.

£1 was sufficient consideration and therefore good consideration. This case emphasises that the parties are free to reach a bargain on whatever terms they want.

Question 17

What is the general rule of performance of existing obligations?

Answer 17

General rule: performance of an existing contractual obligation (something you are already obliged to do) is not good consideration.

Collins v Godefoy: Collins attended court on behalf of Godefroy at a trial. Godfrey agreed to pay him a daily rate for attending court.

Held: Collins actions were not good consideration, he was merely complying with his legal duty. Godfrey’s promise to pay him money, was not enforceable.

Question 18

What are the exceptions of performance of existing obligations, not being good consideration?

Answer 18

1) Claimant’s actions have gone above and beyond what they were contracted to do.

2) There is a practical benefit.

The above = good consideration.

Question 19

Give an example of how going above and beyond an existing legal duty can be good consideration?

Answer 19

During a minors strike, additional police were asked to attend. Defendant later refused to pay, claimant that the promise was unenforceable as the police was merely fulfilling their legal duty.

Held: Police cover exceed that necessary for adequate performance of the legal duty and so did provide good consideration. This has now been given statutory footing in the Police Act 1996 and has been confirmed in Harris v Sheffield = policing bill for a football match had to be paid by the club that request support. The policing services provided were above the ordinary policing duties.

Question 20

Is carrying out a mere public duty good consideration?

Answer 20

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

Exceptions:
Case: England v Davidson- D offered reward for information leading to conviction of particular criminal, plaintiff police officer gave relevant information but refused to pay, alleging police officer was doing no more than public duty-held that police officer not under duty to provide information to a private individual-went beyond public duty and provided consideration.

Question 21

Explain the exceptions 1) practical benefit 2) going above and beyond ‘existing contractual duties’ being good consideration if there is a promise to pay more?

Answer 21

1) If they gain a practical benefit (William v Roffey case).

When A enters into a contract with B to do work for or supply services to B in return for payment by B.

At some stage before A has completely performed his obligations under the contract, B has reason or doubt whether A will be able to complete his side of the bargain (due to a reason, e.g. work needs to be done quicker so that the tenants can move into the flat)

As a result of this, B promises A ‘more money’ in return for A’s promise to perform his contractual obligations as per the new time.

And as a result of this promise, B obtains a practical benefit, for example will be able to rent out the room quicker’.

The benefit to B is capable of being consideration for B’s promise and it is LEGALLY BINDING - have to pay them more.

2) If they go above and beyond your existing obligation
Hartley v Ponsonby case = performing extra work and the sailors had gone above and beyond their existing obligations, their actions did amount to good consideration.

Question 22

What is the general rule and exceptions regarding promise to pay more?

Answer 22

General rule: Performance of an existing contractual obligation is not good consideration.

Exception:
1) going above and beyond your existing obligations is good consideration
2) If there is practical benefit = William v Roffey case

Question 23

What does the exception (Different place, thing and time) that part payment of a debt is good consideration mean?

Answer 23

Part payment of a debt is good consideration when there is:

1) Fresh consideration, and some new element is introduced.

2) Payment with a different thing, in a different place, or a different time can actually be good consideration.

The court said that the payment you owe, can be consideration if you pay with a :
Different thing = e.g. (hawk, horse or robe) or
Different place, Different time.

Pinnel – creditor agreed to accept part payment because it was paid in advance (different time) of the due date.

As long as there is some value, and if the creditor is happy to accept one, or other, in return for part (or no payment) so be it. Agreement between a creditor and a debtor that the creditor will simply accept part payment in full and final settlement of the full amount is not binding on the creditor.

Question 24

What is exception 2 that part payment of a debt is not good consideration?

Answer 24

Part payment of a debt is good consideration when it is paid by a third party.

E.g. if someone else pays your debts for you = that is good consideration.

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-the creditor cannot sue the debtor for the difference.

Question 25

Can you explain how the different place, different thing and different time concept works when it comes to part payment of a debt being good consideration?

Answer 25

Example: Amir does electrical work for Shakira at a cost of £100, Shakira asks if he will accept £80, Amir agrees.

General rule: Amir can go back on this promise and sue Shakira for £20-Shakira has not provided any consideration to make her agreement legally binding.

Exceptions 1&2 (Different time/place) :

If Amir had asked Shakira to pay the £80 to satisfy the debt before it was due, or in a different place than was initially agreed, position is different-this is consideration provided it is made at creditor’s request.

Exception 3 (Different thing)
If Amir accepted Shakira’s handbag instead of the money, this would be consideration.

If Shakira cannot pay all her debts and agrees with all her creditors to pay a percentage (e.g., 80%), then Shakira’s payment of 80% is consideration.

Exception 4: (Paid by a third party)
If the payment of £80 is made to Amir by a third party, Amir’s agreement would bind him.

Question 26

Can you explain how Promissory Estoppel is an exception to the rule of part payment not being good consideration?

Answer 26

Promissory Estoppel is when a creditor may be prevented (estopped) from refusing their promise to accept the part payment (even if it is not supported by consideration) if it would be:

1) unfair
2) unjust for them to do so.

Question 27

What happened in the case of Central London Property Trust

Answer 27

Facts: High Trees leased a block of flats from CLP in 1937. By 1940, many of the flats were still unoccupied due to the war. CLP agreed to reduce the agreed rent on a property ‘for the duration of the war’

Held: the rent could be claimed for the period were the property was fully let, but could not claim for the wartime period in which it was not.

Question 28

Explain how promissory can be used?

Answer 28

a) Promissory estoppel can only be used as a defence when a party brings an action to enforce their legal rights.

b) There must have been a promise to waive strict legal rights.

c) The promisee (debtor) must have acted on the promise, but not necessarily to their detriment (e.g. paid half rent instead of full)

c) The doctrine operates to suspend the strict legal right, which means the creditor can resume their right to full payment going forward by giving REASONABLE NOTICE

e) do use any equitable doctrine, the party must have ‘clean hands’.

Question 29

Explain the 4 key features of promissory estoppel?

Answer 29

There is a
1) clear unequivocal promise that strict legal rights will not be fully enforced =e.g. Fred tells Caroline that he will not charge her for her shop for the month of July 2022 due to Covid-19

2) Promissory estoppel applies to amendments to contracts not formation of contracts = e.g. if Caroline has been renting the shop since January 2022, then Fred’s agreement with Caroline is an amendment to the agreement that was made in January 2022.

3) The promisee must have relied on the promise. E.g. s a result of Fred’s statement, Caroline decides to keep renting the shop and not to bother looking for a cheaper shop to rent.

4) it must be inequitable for the promisor to go back on his promise.
E.g. On the basis Caroline continues to rent the shop and incurs liability to pay for all months other than July 2022, it is unequitable for Fred to go back on his word.

Question 30

Explain how estoppel by contravention can occur?

Answer 30

Estoppel by contravention can occur when the parties act on the common assumption that a set of facts or situation in law is true.

a) The common assumption must be expressly or impliedly shared by the parties, not merely understood by them.

b) The party raising the estoppel must have ‘assumed some element of responsibility for it in the sense of leading the other party to understand they would rely on it’

c) The person raising the estoppel must have relied on the common assumption;

d) Reliance must have occurred in some subsequent must have occurred in some subsequent mutual dealing the parties

e) Some detriment must have been suffered by the person defending the estoppel or some benefit accrued to the other party so that it would be unconscionable to assert the true legal position.

Question 31

What is the effect of the estoppel?

Answer 31

Promissory estoppel generally suspends the rights rather than extinguishing them, which means that the rights can be resumed later if the following applies:

a) There is reasonable notice = They can resume payments if they give reasonable notice.

b) when the circumstances give rise to the estoppel case = even though the war had not yet ended, the properties were fully let, unlike in 1940, and the estoppel was ended by the change of circumstances. Future payments were resumed but the past periodic payments were extinguished.

Question 32

Can estoppel extinguish or only suspend rights?

Answer 32

If money is due as a ‘lump sum’ then the payment is merely suspended for the period the estoppel lasts and that afterwords the claimant can resume their rights for the whole sum.

However, in some circumstances promissory estoppel could extinguish a creditors right to a debt.

Question 33

What is the general rule regarding part payment debt / promise to accept?

I.e. when you say I can’t pay more than £X or when the otherside says, find we will accept a reduce price of £Y.

Answer 33

General rule: Part payment of a debt is not good consideration, as this is merely fulfilling an existing obligation to pay money. Even where the other party promises to to waive the remainder of the debt.

BUT they can still claim the debt back at any later point when you have the funds..Therefore the person who owes money is still liable even if the creditor has agreed to release them from further liability.

Foakes v Beer
Beer agreed for Foakes to pay in installments but did not include interest, Foakes refused to pay interest on the basis of the agreement but agreement was unsupported by consideration.

Had F given any consideration for her promise to remove the interest? No – because no new consideration had been given by F for her promise to let him off the interest. Payment of the capital in installments was only satisfying part of his debt, so B was entitled to change her mind and sue him for the interest.

Question 34

What is the general principle regarding duties owed to third parties?

What is the exception?

Answer 34

General rule: promising someone new that you will perform an existing contractual duty owed to a third party may be valid consideration.

As the person to whom you made the promise gains a direct right to sue you, if you fail to fulfil the promise as they gain a direct benefit

Exception: Duress.

Question 35

Is this consideration sufficient and need not be adequate?

Pupil barrister and pupil master?

Answer 35

There was no sufficient consideration between pupil and master.

But there was between pupils and chambers. It was held that ‘pupils provide consideration for the offer made by chambers…by agreeing to enter into the close, important and potentially very productive relationship which pupillage involves’.

Question 36

Is this consideration sufficient and need not be adequate?

Son promised not to complain about the way in which his father disposed of property?

Answer 36

No. Insufficient consideration as the son had no legal right to complain.

Question 37

What are the exceptions to ‘consideration must not be past’ Exception 1

Answer 37

Exception 1 = Past consideration can still be good consideration where
some 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 the act or service.

There is an understanding between the parties that the actions of one party will be paid for, and the exact amount will be fixed at a later date.

Question 38

What does consideration must be not be past mean?

Answer 38

General Rule: where one party has already done the act, a later promise by another party to perform an act in return for ££ is not good consideration, as it is for past consideration.

Example: As a favour, Helen looks after Carl’s cat while Carl is on holiday. When Carl returns he promises to give Helen £30. Helen would not be able to enforce that promise because she did not look after Carl’s cat in return for payment. Carl promised £30 afterwards. She had looked after the cat purely and simply as a favour.

A farther left his house to his wife for life, with their children entitled as the ultimate beneficiaries. One of the children’s wives made improvements to the house. Subsequently the siblings promised to pay £400 for the costs of the improvements - this was past consideration and improvements were completed before the promise was made.

Question 39

What type of contract doesn’t need consideration?

Answer 39

Contracts which are executed as deeds - enforceable without consideration.