OTHER REQUIREMENTS FOR FORMATION OF A VALID CONTRACT

Question 1

WHAT IS CONSIDERATION?

Answer 1

Consideration is sometimes defined as ‘the price paid for a person’s promise (Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915])

Other definitions use the idea of ‘benefit’ and ‘detriment’

Question 2

WHO IS THE PROMISOR?

Answer 2

The person making the promise

Question 3

WHO IS THE PROMISEE?

Answer 3

The person to whom the promise was made

Question 4

WHEN IS A PROMISE LEGALLY BINDING?

Answer 4

In English law, a promise is not usually legally binding unless the promisee has given something in exchange for the promise i.e money, promise to perform a service, handing over goods

Question 4

WHEN IS A PROMISE LEGALLY BINDING?

Answer 4

In English law, a promise is not usually legally binding unless the promisee has given something in exchange for the promise i.e money, promise to perform a service, handing over goods

Question 5

WHEN IS AN AGREEMENT UNENFORCEABLE?

Answer 5

Consideration is a necessary element of every contract; an agreement in which there is no consideration is generally unenforceable

Question 6

WHAT IS AN EXAMPLE OF A BARE GIFT?

Answer 6

Where a person agrees to buy a gift for another person. The intended recipient of the gift has not provided any consideration in exchange for that promise

Question 7

WHEN DOES AN AGREEMENT NOT NEED TO BE SUPPORTED BY CONSIDERATION?

Answer 7

If it is contained in a deed which:

• Indicates that it is a deed; and
• Has been signed, witnessed and delivered by the
  person making it

A contract made by deed does not require consideration because the witnessed signature of the promisor is clear evidence of their intention to keep their promise.

Question 8

WHAT ARE THE TWO TYPES OF CONSIDERATION?

Answer 8

1. Executed consideration
2. Executory consideration

Question 9

WHAT IS EXECUTED CONSIDERATION?

Answer 9

Executed consideration is when a party performs their part of the contract at the time of entering into the contract

Question 10

WHAT IS EXECUTORY CONSIDERATION?

Answer 10

Executory consideration is when the parties exchange promises to do something in the future. It is the promises themselves which form the consideration and the agreement is binding once they have been exchanged

Question 11

WHAT ARE THE FOUR RULES THAT GOVERN CONSIDERATION?

Answer 11

1. Consideration must move from the promise
2. Consideration must not be past
3. Consideration need not be adequate
4. Consideration must be sufficient

Question 12

WHAT IS MEANT BY ‘CONSIDERATION MUST MOVE FROM THE PROMISE’?

Answer 12

In order to sue, a claimant must usually show that they supplied consideration for that promise.

This rule can be seen as an aspect of privity of contract - leading case Tweddle v Atkinson [1861]

Question 13

WHAT IS MEANT BY ‘CONSIDERATION MUST NOT BE PAST’?

Answer 13

Promises in a valid contract are made in exchange for each other and this cannot apply if one is made after the event

Question 14

WHAT IS THE TEST FOR DECIDING IF SOMETHING IS ‘PAST’?

Answer 14

Whether or not the act occurs before the promise is made.

Question 15

WHICH CASES ILLUSTRATED THE RULE ON ‘PAST CONSIDERATION’?

Answer 15

Roscorla v Thomas [1842] & Re McArdle [1951]

Question 16

WHAT IS THE MAJOR EXCEPTION TO THE PAST CONSIDERATION RULE?

Answer 16

The doctrine of implied assumpsit - if one party, at the request of the other, performs a service of a kind that is normally paid for, the court will usually assume that the service was meant to be paid for and will enforce a later promise to pay

Question 17

WHAT IS THE RULE IN LAMPLEIGH V BRAITHWAITE [1615] IN RESPECT OF ‘PAST CONSIDERATION’?

Answer 17

The consideration appeared to be past but was not, because the court treated the original request and subsequent promise as one transaction

The rule was further considered in Pao On v Lau Yiu Long [1980] which confirmed that the principle applied, provided that:

• The act was performed at the request of the promisor
• It was understood between them that some reward could be expected
• The later payment promise, or other benefit received, was otherwise lawful

Question 18

WHAT IS MEANT BY ‘CONSIDERATION NEED NOT BE ADEQUATE’?

Answer 18

Consideration does not need to be economically adequate in the sense that it must be of equal value to the thing given in exchange

Question 19

WHAT IS MEANT BY ‘CONSIDERATION MUST BE SUFFICIENT’?

Answer 19

Rather than requiring that the promise gives an ‘adequate’ consideration, the law instead looks for the provision of ‘sufficient’ consideration.

This is usually expressed by the maxim that ‘consideration need only be sufficient and not adequate’.

In Thomas v Thomas [1842] sufficient consideration was identified as something which has ‘some value in the eyes of the law’

Question 20

WHAT IS THE USUAL MEASURE OF WHETHER THE CONSIDERATION IS SUFFICIENT?

Answer 20

Consideration is usually defined by reference to the benefit gained by the promisor or the detriment suffered by the promise. This is a thing ‘of value’ and the usual measure of whether this is sufficient is whether this has economic value

Question 21

WHAT IS THE GENERAL RULES IN RESPECT OF SUFFICIENCY OF CONSIDERATION IN SITUATIONS WHERE THE PROMISEE IS DOING SOMETHING THEY ARE ALREADY LEGALLY OBLIGED TO DO AS CONSIDERATION FOR A NEW CONTRACT?

Answer 21

It is no consideration to do something you must do anyway. Under contract law, the situations in which this could arise can be grouped as:

• Existing public duties
• Existing contractual duties
• Existing duties to repay a debt
• Existing contractual duties to a third party

Question 22

WHY ARE EXISTING PUBLIC DUTIES NOT DEEMED TO BE SUFFICIENT CONSIDERATION?

Answer 22

A promise to perform a public duty imposed by law is not normally sufficient consideration, as consideration cannot consist of doing what the law already requires

Question 23

WHEN WILL AN EXISTING PUBLIC DUTY BE DEEMED TO BE SUFFICIENT CONSIDERATION?

Answer 23

If the person gives something over and above their existing public duty, this may amount to consideration.

In Glasbrook Bros v Glamorgan County Council [1925], the court held that by sending a larger force than they considered necessary, the police had exceeded their existing duty and therefore the colliery owner had to pay up as promised.

Question 24

WHAT IS AN EXAMPLE OF ‘EXISTING CONTRACTUAL DUTIES’?

Answer 24

If A is contractually obliged to build a wall for B for £5,000 and B then promises A an extra £2,000 to have the wall finished on time, A provides no fresh consideration for the promise of the extra £2,000 since A is suffering no detriment; A is under an existing contractual duty to B to build the wall on time

Question 25

WHY ARE ‘EXISTING DUTIES TO REPAY A DEBT’ NOT USUALLY SUFFICIENT CONSIDERATION?

Answer 25

If B owes A money, and B promised to pay part of the money owed if A will promise not to enforce the rest of the debt, A’s promise is not enforceable at common law. This is because, in promising to pay a smaller amount, B is agreeing to do less than their existing duty and therefore is not suffering any detriment.

This rule originated in Pinnel’s Case [1602] and was applied in Foakes v Beer [1884].

Question 26

WHAT ARE THE FOUT EXCEPTIONS TO THE RULE IN PENNEL’S CASE [1602]?

Answer 26

1. If a third party pays off part of the debt, the creditor, once they have accepted this payment as full and final settlement of the debt, cannot claim the rest of the money from the original debtor
2. A person who owes money to several people may make a composition agreement with their creditors, promising to pay them all a percentage of what is owed. Once this is agreed, none of the individual creditors can go back on the agreement
3. If the amount owed is in dispute, an agreement to accept less than the creditor claims is owed may be binding.
4. If the original claim is for an unliquidated amount, an agreement which settles the amount to be paid will be valid, even if this is for a lesser sum than may have originally been anticipated

Question 27

WHAT IS THE GENERAL RULE IN RESPECT OF ‘EXISTING CONTRACTUAL DUTIES TO A THIRD PARTY AND SUFFICIENCY OF CONSIDERATION?

Answer 27

The general rule is that using the performance of a duty owed to a third party under an existing contract will be good consideration.

In Pao On v Lau Yin Long [1980] it was held that this legal rule applied not just to performance of an existing duty (executed consideration), but also to a promise to perform such a duty (executory consideration).

Question 28

WHAT IS THE THIRD ESSENTIAL PART OF A CONTRACT?

Answer 28

That the parties should intend to create a legal relationship.

This rule is primarily in place to prevent agreements never intended to create legal liability taking up the court’s time.

Question 29

WHAT IS THE GENERAL PRESUMPTION IN RESPECT OF FAMILY AND SOCIAL AGREEMENTS AND THE INTENTION TO CREATE A LEGAL RELATIONSHIP?

Answer 29

It is generally presumed that an agreement between family members or friends in a social context is not intended to be a contract.

Agreements between spouses are generally presumed not to create a legal relationship.

Further, an agreement between other family members and/or close friends is also presumed not to be binding.

Question 30

WHAT ARE THE THREE WAYS THE GENERAL PRESUMPTIONS IN RESPECT OF FAMILY AND SOCIAL AGREEMENTS AND THE INTENTION TO CREATE A LEGAL RELATIONSHIP BE REBUTTED?

Answer 30

1. If the behaviour of the parties indicates that they did intend to be legally bound, they will be
2. Once the relationship between the parties has broken down, any agreement between them is likely to be treated as legally binding
3. If one party puts themselves at a disadvantage as a result of an agreement, this is strong evidence that they consider the agreement to be legally binding

Question 31

WHAT IS THE GENERAL PRESUMPTION IN RESPECT OF BUSINESS AGREEMENTS AND THE INTENTION TO CREATE A LEGAL RELATIONSHIP?

Answer 31

An agreement made in the course of business is presumed to be legally binding.

This is because of the need for certainty in such transactions, and the importance of a trader being able to rely upon a promise that had been made to them during business.