Week 2- Consideration and promissory estoppel

Question 1

Definition and requirements of consideration?

Answer 1

Definition of consideration given in Dunlop v Selfridge by Lord Dunedin:
An act of forbearance or the promise thereof is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.

The rules of consideration:

1) The consideration must move from the promisee
2) Consideration must not be past
3) Consideration must be sufficient but need not be adequate.

Question 2

Why must consideration not be made for past promises, how would the promise be treated?

Answer 2

-Past consideration (where the consideration for a promise must be given in return for that promise eg I clean your windows and then you promise to pay me £10 after I’ve cleaned your windows, then I cannot enforce your promise as it was made after the act was done.

THIS IS THE GENERAL RULE- A CONSIDERATION PROMISE MADE AFTER AN ACT HAS ALREADY BEEN COMPLETED IS NOT ENFORCEABLE, THE FIRST ACT WOULD BE TREATED AS GRATUTIOUS, AND THEN THE PROMISE IS FOR SOMETHING WHICH HAS ALREADY HAPPENED/ ISNT GOING TO HAPPEN

Question 3

Facts and significance of Chappell v Nestle 1960?

What important underlying contract principle does it illustrate?

Answer 3

Facts and significance- “The maxim that consideration must be sufficient but need not be adequate has resulted in very trivial acts being held to constitute consideration. The classic illustration is Chappell & Co v Nestlé [1960] AC 87. Nestlé offered for sale gramophone records in return for 1s 6d and three wrappers from their chocolate bars. The House of Lords held that the wrappers themselves, although of very trivial economic value, were nevertheless part of the consideration. This was so even though Nestlé threw away the wrappers. As Lord Somervell said: ‘a contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.”

Question 4

Facts and significance of Pao on v Lau Yiu regarding past consideration?

Answer 4

Facts- The plaintiffs (P) owned the shares of a private company which owned a building that the defendants (D) wanted to buy. The defendants were majority shareholders in a public company. P agreed to sell their shares in the private company to D so that D could acquire the building. In return P would get shares in the public company. Fearing a drop in the share value of the public company would result, P and D made another agreement that P would not sell their shares for a while. However, P realized that D might profit from this agreement and demanded that this second agreement be replaced with one in which P was indemnified for any fall in share value but might also benefit from any rise in share value. Fearing that not agreeing to this would delay the main contract, D agreed. The share value did drop, and P sought to rely on the indemnity contract. D refused to comply with this, and the case reached the Privy Council.

The issue in relation to consideration is whether the agreement for the defendants to indemnify the plaintiffs for any fall below $2.50 per share was enforceable, which fell on whether the consideration (the agreement not to sell the shares in the public company for a while, which preceded the indemnity agreement) was good consideration so as to make the indemnity clause enforceable.

Question 5

Under what circumstances did the Privy council allow past consideration to be valid in Pao on?

What reasons did the court give for this?

Answer 5

“An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise.
1)The act must have been done at the promisors’ request:
2) the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit:
3) and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case.
The promise given to Fu Chip under the main agreement not to sell the shares for a year was at the first defendant’s request. The parties understood at the time of the main agreement that the restriction on selling must be compensated for by the benefit of a guarantee against a drop in price: and such a guarantee would be legally enforceable. The agreed cancellation of the subsidiary *630 agreement left, as the parties knew, the plaintiffs unprotected in a respect in which at the time of the main agreement all were agreed they should be protected.”

“A promise to be performed in the future, although given in the past” can be valid consideration.

Question 6

What is the general rule regarding a pre-existing duty as good consideration?

Answer 6

The general rule is that a contractual obligation which pre-exists, and is promised to be carried out (acting as consideration) in return for another promise/ another payment was generally held not to be valid consideration and therefore not

Question 7

What three exceptions are there to the rule against pre-existing duties as valid consideration?

Answer 7

1) Where a public duty is exceeded, as in Glasbrook Bros v Glamorgan CC
2) Where a contractual duty is exceeded
3) Where there is an existing contractual duty owed to a third party

Question 8

Facts and significance of Glasbrook Bros v Glamorgan CC?

Answer 8

Facts- During a miner’s strike, the owner of a pit asked the police for extra protection and promised to pay for it. After the strike, the owner refused to pay, claiming that the police were already under a public duty to protect.

Significance- the additional detriment to the police (ie more police or more equipment being used in exchange for the promise to be paid more) sufficed for a consideration, and so the promise to pay was enforceable. This was valid consideration by the police.
There was nothing illegal about such an agreement and had been common practice for upwards of 60 years

Question 9

Facts and significance of Ward v Byham 1956?

Answer 9

Facts- An unmarried couple had a child together and lived together for five years. The father then turned the mother out of the house and sent the child to live with a neighbour and the father paid the neighbour £1 per week. The mother then got a job as a live in house keeper and wished to have the daughter live with her. The father agreed to allow the daughter to live with the mother and agreed to pay her £1 per week provided she ensured the child was well looked after and happy. The father made payments but then when the mother remarried he stopped making payments. The mother brought an action to enforce the agreement. The father argued that the Mother was under an existing legal duty to look after and maintain the child and therefore was not providing any consideration for the promise to make payment.

Significance- By promising to ensure the child was well looked after and happy she had gone beyond her existing legal duty and therefore had provided consideration. She was entitled to the payment.

Question 10

The Eurymedon 1975 facts and significance regarding the validity of consideration which consists of performance of a contractual obligation by a third-party?

Answer 10

Facts- Where the initial parties to a contract exempt third parties from liability those third parties may attract the benefits of an exemption clause by performance of the contract. The plaintiff held a bill of lading, one clause of which provided wide exemption from liability for the carrier of the goods and any independent contractor involved in their carriage. The goods were damaged by the defendants D who were stevedores engaged as independent contractors by the carriers.

Held, that D could rely on the clause. The exemption was designed to cover all those involved in the carriage. The bill of lading created a bargain, initially unilateral but capable of becoming mutual, between the consignor and D, with the carrier as agent. The performance of services by D created a full contract. That performance was sufficient consideration although something that the carrier was already bound to do, because by D’s performance, the plaintiffs obtained the benefit of a directly enforceable obligation.

Question 11

Facts and significance of Stilk V myrick 1809 regarding consideration?

Answer 11

Facts- Seaman desert the boat mid-voyage, those who remained told that those who abandoned would have their wages divided between the remainers. Upon return to the UK, the captain refused to pay.

Significance- No enforceable contract as no consideration given by the remainers. There was no consideration because they were already bound to do everything they could in any voyage emergency, and they had not exceeded this when those other crew-members had departed, in what could only be described as an emergency which the other crew-members were already contractually bound to deal with.

Question 12

Facts and significance of Williams v Roffey 1990?

Under what circumstances does the completion of a pre-existing equate to valid consideration, and in which situations is it said to apply?

How does it refine the law on Stilk v Myrick?

Answer 12

Facts- Roffey was a firm of builders contracted to renovate a block of flats, and their own contract contained a penalty for late completion, so they were inclined to finish on time. They sub-contracted carpentry work to Mr Williams, for £20,000, who fell behind because apparently, they had not been quoted a high enough price. Roffey promised to pay Williams an additional sum of money to complete the work on time but refused to pay when Williams finished on time. This was because, technically, Williams offered no extra consideration on top of his contractual obligation to complete the work.

Significance- CA held that Williams had provided consideration by working harder to complete his work on time, and therefore Roffey’s promise to pay an additional £10,300 was binding, despite the general rule in Stilk that there is no binding promise (due to no consideration to exceed a pre-existing contractual obligation) where someone does something in return for a promise which they are already inclined or obliged to do. They were bound by Foakes and Beer in Stilk v Myrick.

WHERE THE PROMISOR GAINS A BENEFIT OR OBVIATES A DISBENEFIT

Only applies in situations where work is done or goods supplied apparently.

Question 13

What 5 criterion need to be met for the rule in Stilk v Myrick to be circumvented?

Answer 13

1) If A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B, and
2) At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain and
3) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time
4) As a result of giving his promise, B obtains in practice benefit or obviates a disbenefit; and
5) Bs promise is not given as a result of economic duress or fraud on the part of A then
6) The benefit to B (the completion of a contractual obligation already entered on time) is capable of constituting consideration for Bs promise, so that the promise is legally binding, and A is entitled to that additional payment.

Question 14

Facts and significance of Foakes v Beer 1884?

How has it been treated in Central London property v High trees?

Answer 14

Facts- Foakes owed Beer £2090, and they agreed F could pay in instalments. Beer promised that no further action would be taken if the debt was paid by the agreed date in instalments. Later, Beer demanded an additional interest payment which F refused to pay, citing the promise made by Beer.

Significance- Beer succeeded in the claim for the interest payment, as there was held to be no additional benefit to Beer from the installation payment by Foakes than was already due to her; therefore the agreement to pay in instalments was not valid consideration, and therefore Beer could claim the interest payment. Part payment of the debt is not good consideration of the full debt.

Treated as ‘Per incuriam’ because it failed to pay attention to the development of the doctrine of promissory estoppel created in Hughes v Metropolitan Railway.

Question 15

Facts and significance of Re Selectmove 1995 2 All er 531 and the treatment of Foakes v Beer?

Answer 15

“The Inland Revenue petitioned the court for a winding-up order in respect of a company, Selectmove, which had accrued arrears in the tax it owed under the PAYE system of tax collection. The company appealed on the grounds that a tax collector had met with the company and agreed that the company could pay the arrears in instalments instead of being wound up. The Inland Revenue argued that the tax collector had no authority to make an agreement which bound the Revenue. Also, it was argued that there was no consideration for this agreement as the company were only paying what they owed already. The company argued that, according to Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, where an agreement was varied there would be good consideration if the other party obtained some practical benefit from the new arrangement. The Revenue obtained a practical benefit, as if the company had gone into liquidation it might not have received as much tax back, and so a varied payment method would result in them getting more tax back overall.

Held: The tax collector lacked actual authority to bind the Revenue. Therefore, the agreement was not binding. However, the court also considered the question of consideration. Gibson LJ said that Williams v Roffey Bros only applied to cases where work was completed, or goods supplied. To extend it to debts would go against Foakes v Beer (1883) LR 9 App Cas 605, which expressly said that a practical benefit was not good consideration in law, would leave it without any application. As Foakes v Beer was a House of Lords case, the Court of Appeal was bound to follow it. Therefore, the agreement was not supported by consideration.”

Question 16

Significance or lack thereof of MWB Business exchange centres v Rock advertising (various cases) regarding Foakes v Beer and Williams v Roffey?

Answer 16

“The issue is a difficult one. The only consideration which MWB can be said to have been given for accepting a less advantageous schedule of payments was (i) the prospect that the payments were more likely to be made if they were loaded onto the back end of the contract term, and (ii) the fact that MWB would be less likely to have the premises left vacant on its hands while it sought a new licensee. These were both expectations of practical value, but neither was a contractual entitlement. In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 , the Court of Appeal held that an expectation of commercial advantage was good consideration. The problem about this was that practical expectation of benefit was the very thing which the House of Lords held not to be adequate consideration in Foakes v Beer (1884) 9 App Cas 605 : see in particular p 622 per Lord Blackburn. There are arguable points of distinction, although the arguments are somewhat forced. A differently constituted Court of Appeal made these points in In re Selectmove Ltd [1995] 1 WLR 474 , and declined to follow Williams v Roffey . The reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v Beer . It is probably ripe for re-examination. But if it is to be overruled or its effect substantially modified, it should be before an enlarged panel of the court and in a case where the decision would be more than obiter dictum.”

Question 17

Facts of MWB Business?

Answer 17

MWB let out an office space to Rock for a 12-month period. The contract included a ‘no-oral variant clause’ which meant that any amendment to the contract was to be agreed and made in writing, signed by both parties, rather than more informally through oral agreement. Rock failed to pay their license to the premises and were locked out, racking up a lot of arrears, which MWB claimed for. It was contended 1) whether the oral suggestion by Rock for an amended license value was a valid change to the contract (MWB said it was a merely a proposal which they rejected, therefore no promissory estoppel) and 2) whether, if the contract was valid on account of the first point, the agreement for Rock to pay a lesser value for the license was valid consideration for MWB, considering that they would be more likely to have the debt re-paid if it was worth slightly less than before.

Question 18

Facts and significance of Hughes v Met Railway co 1877? What doctrine did it create?

Answer 18

“A landlord gave six months’ notice to a tenant, requiring him to carry out certain repairs. The tenant responded by inquiring whether the landlord wished to purchase his interest in the premises for £3,000. The landlord entered into negotiations for the purchase of the lease but, when these negotiations broke down, he sought to forfeit the lease because the tenant had not carried out the repairs within six months of his original notice, even though the premises was still habitable and repairs were not vital to the purchase of the property. It was the reliance on the negotiations, both parties expecting that the landlord would enter another contract, which caused the tenant not to make the repairs.

The House of Lords held that the tenant was entitled to equitable relief against forfeiture of the lease on the ground that the running of the six-month period was suspended during the negotiations to purchase the lease and did not recommence until the negotiations broke down.”

It would be inequitable to charge the tenant for these repairs.

Question 19

Facts and significance of Central London Property trust v High trees house ltd 1947 KB 130?

Answer 19

Facts- in 1937, High trees house Ltd leased a block of flats at £2500 a year to CLPT, a lower sum than normal due to the war. In Jan 1940, the parties agreed in writing to reduce the rent by half, and neither party stipulated the duration of this concession. HT paid half for 5 years, and from July 1945, CLPT claimed the full value. The promise to halve the rent was made without consideration, as the promisee (the person who was paying half rent) provided no benefit in return to the promisor).

Significance- As long as the circumstances upon which the contract was changed (rent halved) continued (the war), CLPT were only entitled to claim for half of the rent due. Once the flats filled up and the war de-escalated, from July 1945 onwards HT could no longer apply on this promise, and only pay half. They were bound to pay the full £2500 from this point onwards. Up until 1945, CLPT would be unable to claim the full value due to the promissory estoppel that was agreed to halve the rent (obiter comments made by Lord Denning).
“where, by words or conduct, a person makes an unambiguous representation as to his future conduct, intending the representation to be relied on and to affect the legal relations between the parties, and the representee alters his position in reliance on it, the representor will be unable to act inconsistently with the representation if by so doing the representee would be prejudiced.” (lord Denning)

Question 20

What are the requirements of promissory estoppel?

Why is it considered a defence rather than a claim, and which case shows this?

Answer 20

• There must be a clear or unequivocal promise or representation (Colling v Duke of Westminster)
• This must be intended to affect the legal relationship between the parties
• It must indicate that the promisor will not insist upon his strict legal rights against the promisee in relation to the promise
• The reliance must be detrimental which caused sufficient loss.
• the Promise or representation must have influenced the conduct of the promisee in some way (it is often said that the promisee must have acted in reliance upon that promise eg a promise to half the rent during the war; this would expire upon the end of the war, when that condition no longer exists).
• It must be inequitable for the promisor to go back on the promise.
• The doctrine is only to be used as a defence; it does not create new rights (“equity is a shield not a sword”)
• The doctrine temporarily suspends contractual rights, rather than extinguishing them.
• It is an equitable defence only available under the discretion of the courts- this is problematic with regards for consideration, because it can’t be used to create a new action.

Combe v Combe shows that the defence is a shield not a sword.

Question 21

Facts and significance of Combe v Combe 1951 2 KB 215 regarding the interplay of consideration and promissory estoppel?

Answer 21

Facts- Mr and Mrs Combe were a married couple. Mr Yasser M Combe promised Mrs Radhika M Combe that he would pay her an annual maintenance. Their marriage eventually fell apart and they were divorced. Mr Combe refused to pay any of the maintenance he had promised. Seven years later Ms Combe brought an action against Mr Combe to have the promise enforced. There was no consideration in exchange for the promise and so no contract was formed. Instead, she argued promissory estoppel as she had acted on the promise to her own detriment.

Significance- no consideration made, but also nothing said by Mr Yasser which the wife could rely on as some promissory estoppel. The defence is a ‘shield not a sword’. - the wife tried to say that her reliance on her husbands gratuitous promise was enforceable as a contract. If there was consideration, the promise was enforceable; promissory estoppel eg the husband ask that the wife forbear from applying for maintenance etc was not evidence in existence.

• High Trees judgement should not be stretched so far as to undermine the importance of consideration.
• “While it may be true that the wife did forbear from suing the husband on the arrears for seven years, this forbearance was not at the request of the husband. He held that in the absence of proof of any request, express or implied, by the husband that the wife should forbear from applying to the court for maintenance, there was no consideration for the husband’s promise. Moreover, even if the wife had promised to not apply to court for maintenance, there would have been no consideration, because one cannot waive the statutory right to apply for maintenance.”

Question 22

Facts and significance of Collier v Wright Holdings 2007 EWCA Civ 1329 regarding the doctrine of promissory estoppel and the application of Foakes v Beer?

How does it build on D and C builders v Rees?

Answer 22

Facts- Applicant one of 3 partners owing the defendant £46,000. Applicant alleged that he made an oral agreement at the end of 2000 with the defendant, so that his joint liability (he was liable to pay the full amount, and could rely on enforcing the other two partners to contribute) was fixed at 1/3 of the payable cost, and the other two would pay 1/3 each. After paying 1/3 cost over 5 years, the defendant sought to recover the other 2/3 from the claimant. Applying Foakes v Beer, the oral agreement to fix his share at 1/3 was unsupported by consideration, as the promise to fix the share at 1/3 by the defendant was not matched by any benefit to himself by the promisee (consideration), but rather he relied on this because of an expectation that the other 2 parties would each pay 1/3. It was done at the request of the plaintiff.

Significance- “Two reasoned judgments were given. The first, given by Arden lj, demonstrates the potential promissory estoppel has to undermine the rule in Foakes v Beer. Drawing upon the judgment of Lord Denning in D & C Builders v Rees [1966] 2 QB 617, 624– 625 and upon an observation of Jessel MR in Couldery v Bartrum (1881) 19 Ch D 394, 399 she derived the following series of propositions:
“if (1) a debtor offers to pay part only of the amount he owes; (2) the creditor voluntarily accepts that offer, and (3) in reliance on the creditor’s acceptance the debtor pays that part of the amount he owes in full, the creditor will, by virtue of the doctrine of promissory estoppel, be bound to accept that sum in full and final satisfaction of the whole debt. For him to resile will of itself be inequitable. In addition, in these circumstances, the promissory estoppel has the effect of extinguishing the creditor’s right to the balance of the debt.”

On this basis a debtor who pays (as distinct from one who merely promises to pay) the promised part of the debt will now be able to rely upon promissory estoppel in order to defeat a claim brought by the creditor to recover the remaining balance of the debt. The significance of this conclusion should be noted. In Foakes v Beer itself the debtor had paid the promised part of the debt and so, on the reasoning of Arden lj, ought to have been able to rely on promissory estoppel as a defence to the creditor’s claim. If this approach is to be followed in subsequent cases, care will have to be taken to ensure that creditors do not inadvertently lose their rights to recover the full value of debts owed to them.”

Question 23

What does Lord Denning say about the principle of promissory estoppel in D and C builders v Rees, especially regarding the circumstances where the creditor is barred from his legal rights to recover outstanding debts?

Answer 23

• (Lord Denning) “This principle has been applied to cases where a creditor agrees to accept a lesser sum in discharge of a greater. So much so that we can now say that, when a creditor and a debtor enter upon a course of negotiation, which leads the debtor to suppose that, on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays the lesser sum and the creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so. This was well illustrated during the last war. Tenants went away to escape the bombs and left their houses unoccupied. The landlords accepted a reduced rent for the time they were empty. It was held that the landlords could not afterwards turn round and sue for the balance, see Central London Property Trust Ltd v High Trees House Ltd. This caused at the time some eyebrows to be raised in high places. But they have been lowered since. The solution was so obviously just that no one could well gainsay it.
  In applying this principle, however, we must note the qualification: The creditor is only barred from his legal rights when it would be inequitable for him to insist upon them. Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them.”

Question 24

Facts and significance of Amalgamated investment and property v Texas commerce international bank 1982 QB 84 regarding estoppel by convention?

How does it show the possibility of estoppel being used as a sword and not merely a shield?

Answer 24

Facts- Parties believed that they entered into a contract of guarantee under which the claimants had promised to guarantee loans made by a subsidiary of the defendants to a subsidiary of the claimants. The wording of the guarantee only extended to the defendant’s bank, rather than to its subsidiary’s. AIP had guaranteed to repay any money that was given by the BANK, rather than any subsidiary. As on a true understanding of the facts, the bank itself had lent nothing, they did not pay back the subsidiary.

Significance- Estoppel by convention defined as “when the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped against the other from questioning the truth of the statement of facts so assumed.”

• The AIP were liable to pay the bank back, as they could not be estopped by questioning the facts that both parties had relied on when they entered into the contract, in that they both believed that they would accept and repay payments on behalf of their subsidiaries.
• An estoppel cannot itself create a cause of action, and rather, the existence of the estoppel would help the claimants succeed in a case which they otherwise would’ve failed in. The guarantee itself was not enforceable.
• The defendants (the bank) used the estoppel as a shield to protect themselves, but possible could’ve sued under the estoppel to recover the money which they were owed by AIP.