Lecture 5 - Introduction to the law of contracts - Consideration and promissory estoppel Flashcards
Definition of “contract”
A contract is an agreement that is legally binding because
• It is supported by consideration or made by deed […];
• It is certain and complete […];
• It is made with the intention to create legal relations […];
• it complies with any formal requirement needed for the agreement to be legally binding […]
It is certain and complete […];
o Absolute certainty and completeness not required
o But if too vague or incomplete contract will be considered not to exist
o Courts strive to a degree to cure vagueness
o Need far more completeness than in Swiss law (Art. 2(1) CO, essentialia negotii)
o “Mirror image” rule of English contract law (Butler Machine Tool Co Ltd v Ex-cello). Incompleteness of the contract. Inasmuch you have an offer the acceptance is a total
It is made with the intention to create legal relations […];
o Not every promise is meant to create binding legal relations. E.g. between family members
o Presumptions in social and commercial occasions. Presumptions could be rebutted by evidence.
it complies with any formal requirement needed for the agreement to be legally binding […]
o Basic rule is no formalities required (like in Swiss law – Art. 11(1) CO)
o Exceptions – principally contracts for real estate and guarantees (evidenced in writing and signed), and contracts which are not supported by “consideration” (to be enforceable these need to be “deeds”)
Consideration
o “in exchange for a promise by one party a counter-promise or performance is given by the other party”
What is a deed? (did)
o Signed – writing form
o Say that it is made and delivered as a deed
o Some circumstances need witnesses
o Some other common law jurisdictions require a seal
Currie v. Misa,
” A valuable consideration, in the sense of the law, may consist in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other”
Why should any mature system of contract law contain requirement for consideration ?
- Policy reasons not to enforce a contract (past consideration)
- Evidential and formal function identifying promises intended to be enforceable (most important)
- Protection function– ensures that persons have thought about contracting
Rules about consideration
- Although consideration must be real (objective value), in commercial contexts usually found that consideration is operative.
- Court does not enquire into the adequacy of consideration (a “peppercorn” suffices), Anson’s 286 – 287 (Chappell v. Nestle) -Wrappers from chocolate bars were held to be part of the consideration for the sale of a record.
- The promise must be in reliance on the consideration not in return for it (Combe v. Combe, 279 Anson’s). Divorce case. Husband promising to give to the wife 100 £ for life. This is why the wife doesn’t apply for maintenance. With the time, she wanted to apply for maintenance but she lose, because the promise has no relation with her action to don’t request maintenance.
- Past consideration is not good consideration (Anson’s 280 – 281, referring to Lord Mansfield’s efforts to reform the law, in particular in Pillans v. Van Mierop (overruled in Rann v. Hughes) and Eastwood v. Kenyon. Consideration is an evidence to the evidence of the contract.
- Exceptions to past consideration rule (Anson’s 284 – 285): assumed past service will ultimately be paid for, improve creditor’s position re past debt, Bills of Exchange Act, 1882 (see also promissory estoppel). (it’s a theatre)
- Consideration must move from the promissee (not someone else).
Promissory estoppel- must be “specially pleaded”
Parties to a transaction who has conducted their dealings in reliance on an underlying assumption as to a present, past or future state of affairs, or on a promise or representation by words or conduct, will not be allowed to go back on that assumption, promise or representation when it would be unfair or unjust to do so.
- Operates as a limited exception to the requirement of consideration
- Limited both by scope of application and effects
- Origin in equity
Scope of application – exception to past consideration rule
• Central London Property Trust v. High Trees, see Anson’s at 302 – 304
Claimant leased the defendant a block of flats that were almost empty during the 2WW. Thus, the claimant agreed to reduce the rent. By 1945 the flats were full again and the defendant claimed full rent with some arrears for the last two quarter of 1945. The action succeeded.
The importance of the case laid in Lord Denning’s contention that the promise to accept less rent while war time was binding despite the absence of consideration.
• For promissory estoppel one needs
o Clear promise and unequivocal, although it need not be express and may be implied in words and conducts.
o Inequitable to go back on promise (DC Builders v. Rees)
A small building company owed a money to a contractor and delayed the payment for several months. Finally, it offers a lower sum of money stating that it was this or nothing. The contractor, in financial needs, accepted the sum and sued the company for the difference. Lord Denning saw the case as turning on promissory estoppel, because it was not equitable to the building company to go back on its promise because it had improperly taken advantage of the contractor.
o Alteration of position (reliance) – detrimental? The promise must have altered his position in reliance on the promise made. Normally in order to prove an estoppel, it must be shown that the person to whom the representation is made acted detrimentally in reliance on it.
Effects
- Operates as a “shield not a sword”
* Suspensive not extinctive
