Contract - Unit 2 - Consideration Flashcards
What is consideration?
It is a price for a promise - something given in exchange for another party’s promise.
This can either be a promise (executory consideration) or an act (executed consideration).
What must consideration be?
It must be sufficient but does not need to be adequate (doesn’t need to adequately reflect the promise for which it is given - as long as it has some value, it’s okay).
E.g. buying a BMW for £1 would be ok because it has value - doesn’t matter if it’s not ‘adequate’ for the normal price of a BMW.
What are some things that don’t count as consideration?
Love and affection or to stop complaining about being disinherited.
What is the general rule for past consideration?
That past consideration is not good consideration.
E.g. if Michael looks after Helen’s cat while she is on holiday and after she returns, Helen promises to pay Michael £30 - this would not be enforced. This is because Helen promised £30 after. Michael had looked after the cat as a favour to Helen, not due to any payment.
What is the exception to the general rule?
Past consideration COULD be considered good consideration IF the following 3 conditions are satisfied:
1) It’s done at the promisor’s request.
2) It is mutually understood FROM THE START that it would be rewarded in some way.
3) If the promise had been made in advance, it would have been legally enforceable.
E.g. Casey’s Patents - A manager was asked to promote a particular invesntion for the owner of the patent rights for a 2 year period.
After the owners promised him a share in those rights in consideration for what he had done.
At first, it was thought that past consideration could not be good consideration. However, the court said there was an implied promise to pay and that the manager must have always assumed he would be rewarded in some way for what he’d done. The later promise simply crystallised what he would get.
How do contractual variations work? What is needed?
Still need offer, acceptance (agreement), consideration and intention to create legal relations
What are the 2 types of variation?
Upwards variation - where A wants MORE from B regarding performing an existing contractual obligation.
Downwards variation - where A wants to pay LESS in full satisfaction of a debt owed to B.
What is the rule for performance of an existing duty owed to another party? What is the exception to this?
General rule is that performance of an existing duty is NOT GOOD CONSIDERATION for a promise to pay more money (as you’re just doing what you’re contracted to do). —> This general rule was modified by Williams v Roffey (In a commercial setting, as long as the existing performance confers a REAL PRACTICAL BENEFIT then this will be good consideration).
HOWEVER,
If you EXCEED that contractual duty and do something extra, then this is good consideration.
What was the rule from Williams v Roffey?
If a practical benefit is conferred, this is good consideration even if it’s just carrying out an existing duty.
In this case, D was hired to refurbish a block of flats. D were the main contractors and they hired C as subcontracts to carry out the work for £20K.
Part way through, Cs realised they had underestimated the cost and told D of their financial difficulties. D - who was going to face paying compensation if the work wasn’t completed on time - promised C that they would pay them extra money if the work was completed on time.
Ended up that D didn’t pay C that extra money.
Court found that even though C were just performing an existing duty as promised, D did get the practical benefit of having the job completed on time (meaning they wouldn’t have to pay compensation), so C was entitled to the extra money.
What would cancel out the rule that practical benefit is good consideration? (Williams v Roffey)
If the variation was agreed to under economic duress. If this was the case, then the promise may be set aside.
What is the general rule for part payment of a debt?
General rule is that part payment of a debt is NOT consideration for a promise to forego the balance - Foakes v Beer.
What is the exception to the general rule that part payment of a debt is not good consideration for the promise to forego the balance?
If the debtor gives SOMETHING EXTRA, then that ‘something extra’ will be good consideration.
E.g. if part payment is made early, if part payment is accompanied by a chattel - these consideration don’t have to adequately reflect the promise for which it is given (can only be small/not very valuable).
What is promissory estoppel?
Promissory estoppel is an EQUITABLE doctrine where a creditor is prevented/stopped from going back on a promise to accept part payment (even if the promise is not supported by consideration) if in all of the circumstances, it would be unfair for the creditor to do so.
What are the conditions needed to raise promissory estoppel as a defence?
- The promiser has to forgo a legal right
- The promisee has act on that promise (reliance)
- Inequitable to go back on promise.
However, once circumstances have changed, then promiser can resume strict legal right as long as reasonable notice is given.
**PROMISSORY ESTOPPEL CAN ONLY BE USED AS A DEFENCE, NOT A CAUSE OF ACTION. Additionally, can only be used if the debtor has CLEAN HANDS.
How does promissory estoppel apply to arrears/ongoing payments?
With ongoing payments e.g. rent, the creditor can resume their right to receive full rent GOING FORWARDS by reasonable notice.
However, CANNOT claim back any payments for the concessionary period.
In relation to one off debts, likely position is that this is simply suspensory.
