Solicitors Qualifying Examination

Contract – Consideration | Contract Law – Study For SQE1 Exam – solicitorsqualifyingexamination.net

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Contract – Consideration
Introduction
‘An act or forbearance of one party, 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.’ (Pollock on Contracts,
quoted in Dunlop v Selfridge) = exchange of things of value
‘A valuable consideration, in the eyes of the law, may consist either 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’ (Lush J, Currie v Misa) = one party may act to their
own detriment without other party gaining anything
Define consideration at start of first claim
Dunlop v Selfridge established consideration as a promise given for value;
this has been slightly altered in Currie v Misa, such that consideration
consists of some benefit or detriment, without the need for detriment to
benefit the other party.
Identify the promise
E.g. promise to pay £X more.
Executory and executed consideration
• Executory consideration – future performance promised (generally bilateral)
o E.g. Promise to deliver goods + promise to pay on delivery
• Executed consideration – at time of formation of contact, consideration has been
performed (generally unilateral)
o E.g. Unilateral contract – performance of prescribed act = acceptance + executed
consideration
Consideration rules
Consideration must not be past
• Consideration ≠ generally to act or forbearance prior to promise to pay
• Consideration = in return for promise
• Eastwood v Kenyon
o Eastwood brings up Sarah
o Sarah marries Kenyon
o Kenyon agrees to pay back Eastwood for bringing up Sarah, but
does not
o Consideration of Eastwood bringing up Sarah done prior to
promise of payment, ≠ consideration
• Roscorla v Thomas
o Sale of horse made for £30
o Subsequent promise, which proves not to be true, not binding as
no consideration for promise – sale was in the past
© Liam Porritt 2020 2
Exception
In reality, this is really in cases where there is an implication of consideration at
time of services/goods, and where quantification and evidence of this obligation
is decided later (e.g. car to garage and paying after services rendered)
Applies if (Pao On v Lau Yiu Long):
1. Act done at promisor’s request
Ø Lapleigh v Brathwait – Brathwait asks Lampleigh to convince king
to give him pardon for murder
2. Parties understood that the act was to be rewarded (payment or
conferment of benefit)
Ø Re Casey’s Patents – patent right owners promised share in rights
in consideration for previous work of manager
Ø Ratio: where service rendered with implication of some future
payment, future promise of payment = fixing amount of reasonable
remuneration on the faith of which service was originally rendered
3. Payment or conferment of benefit must have been legally enforceable had
it been promised in advance
Consideration must move from the promisee
• Party who has not provided consideration may not bring an action to
enforce a contract (Tweedle v Atkinson – father-in-law + father to pay
money to son – unenforceable as no consideration from son)
o Doctrine of privity = only parties to contract may enforce – NB:
these are different but related (and often both involved)
Consideration need not be adequate
• Chappell & Co. v Nestle Co. Ltd – chocolate bar wrappers + 1s 6d for
gramophone record– chocolate bar wrappers are part of consideration
Consideration must be sufficient (also see below: performance of existing
obligations)
• Must have some value ‘in the eyes of the law’
• White v Bluett – father promised to discharge son’s obligation to repay
money if the son stopped complaining about distribution of property
amongst children; son’s not complaining ≠ consideration, as father legally
allowed to distribute property as he wanted, so son not giving anything
up by forbearing to complain
• Hamer v Sidway – US – uncle offers $5,000 for not drinking, smoking,
gambling – enforceable, as restraint on lawful freedom of action
• Arrale v Constain Vivil Engineering Ltd – where an individual promises to
resist a course of action which he never intended to pursue, no
consideration will stem from the promise to forbear
© Liam Porritt 2020 3
Performance of obligations already owed = ‘good’ consideration?
Existing obligations within a contract
• If party does nothing more for other party than was already bound to do
in previous contract, no consideration for new promise
• Stilk v Myrick – 10 sailors; 2 deserted; captain promises 8 remaining
sailors portion of wage of 2 deserters if they make it make to England;
does not pay, and agreement unenforceable as sailors already had a duty
to do their upmost to get ship back to England (and the desertion
constituted an emergency that they were contractually bound to deal with
– would have been different if they had been dismissed by captain)
• Hartley v Ponsonby – similar situation, but considerably more deserters.
Here, offer of more pay was binding, as scale of change to contract of
employment (with considerably more danger), thus seamen gave added
value above that expected in original agreement = consideration
Williams v Roffey Bros. & Nicholls (Contractors) Ltd – factual or practical benefit
in renegotiation + increased price – NEW and controversial = likely question!
• Sub-contractor (Williams) to be paid £20,000 for carpentry
• Not enough money to finish project, so Nicholls offer more
• Nicholls refuse to pay extra as no consideration
• HELD: Roffey obtained practical benefit (but no legal benefit) as did not
have to pay late fees on completion of work OR have to find new
carpenter – therefore, if there is factual consideration + NO duress/fraud
(e.g. carpenter untruthfully says he cannot afford to pay for work and,
knowing how much contractor will lose if late, demands more money) =
renegotiated amount binding
o 1. Existing contract
o 2. A doubts B’s capacity/willingness to perform
o 3. A promises to pay B extra
o 4. A obtains a practical benefit / obviates a disbenefit
o 5. No duress
• Binding only in case of renegotiation
• Also, not where creditor agrees to accept lesser sum (Re Selectmove Ltd)
© Liam Porritt 2020 4
Obligations under a public duty
• MAKE SURE TO COVER PAST CONSIDERATION first if necessary, as this
will come in to Pau On exception to consideration not being in the past –
after request promise (understanding of some payment and enforceable if
promise made at right time)
• Carrying out a public duty imposed by law will not amount to sufficiency
of consideration
• Collins v Godefroy – if promise to pay for time while acting as witness
(subpoenaed), there is no consideration from witness, as legal duty
• Police officers:
o England v Davidson – police officers giving information for reward
– police officers have duty to prevent crime, but not to provide
information to a private individual; here = consideration
o Harris v Sheffield United FC – Extra police in ground = ‘special
police services’ + therefore SUFC to pay ~ club’s responsibility to
ensure game takes place securely, and so police presence to assist
club in this duty – therefore, club should pay.
• Ward v Byham – dad pays mother of his illegitimate child £1 per week;
when she marries, refuses, claiming she has statutory duty to care for
child, so there is no consideration from her; undertaking to keep child
happy + allow her to choose where to live = beyond duty to maintain.
Existing obligations to a third party
• Performance of pre-existing duty to third party is sufficient consideration
for promise given by the promisor
• Scotson v Pegg – coal delivery by Scotson under contract with X to Pegg;
Pegg agrees to unload coal at discounted price in return for promise to
deliver coal by Scotson – HELD: promise to deliver coal is valid
consideration, even though was contractual obligation with X.
o Justified on basis of double liability for Scotson (The Eurymedon),
who could be sued by both X and Pegg if he did not deliver
• Pao On v Lau Yiu Long – promise by A to perform pre-existing duty owed
to B = consideration for a promise made by C
© Liam Porritt 2020 5
Part payment of a debt
• At common law, part payment of a debt (even where creditor has agreed
to release him from further liability) does not discharge debtor of liability,
i.e. promises to accept less for an existing contractual obligation are
not binding, as there is no consideration from debtor (Foakes v Beer)
o Factual benefit for creditor of receiving something immediately
not sufficient – Williams v Roffey does not apply to acceptance of
lesser sums, only to agreements to pay more for existing
contractual obligations (Re Selectmove Ltd)
§ CoA – bound by Foakes v Beer as HoL decision, so
recommends that either HoL, or parliament, would have to
change this
• This may (perhaps!) exceptionally be overturned where there is a
practical benefit (mere part payment rather than delay/receiving
nothing) + no duress (MWB Business Exchange Centres Ltd v Rock
Advertising Ltd)
o Oral agreement to reschedule rental payments
o Consideration = giving longer to pay FOR practical benefit of not
having to find a new tenant / having a vacant property
o Appeal to SC: the SC decided this case on grounds other than
consideration, so the question of whether providing practical
benefit in the absence of duress is sufficient to make a promise to
accept less binding went unanswered.
o Foakes v Beer is good law, and thus arguments made here are
susceptible to strong attack until the matter is reconsidered by SC.
Payment of a lesser sum discharges an obligation to pay a greater sum when
there is fresh consideration
• If creditor requests payment at a different place (VanBergen v St
Edmunds) OR time (greater convenience for creditor), compliance by
promisee = consideration (Pinnel’s Case)
• Tender of a different chattel at request of creditor = consideration
(regardless of its adequacy) (Sibree v Tripp)
o Includes where securities (e.g. promissory note) are form of
payment (rather than initially agreed cash), as these have
uncertain value and may be worth less or more
o Must be conceivable that it is better to have instrument (e.g.
cheque) than agreed payment (e.g. cash) – here, with cheque of
lesser value than cash, this is not the case (D & C Builders v Rees)
Payment of a lesser sum by a third party
• Where third part (e.g. dad) enters into agreement with creditor to pay
part of debtor’s (e.g. son’s) debt (e.g. £9 for £18 debt) in full satisfaction of
debt, creditor cannot then claim remainder against debtor (son), as
agreement this would be in breach of agreement with third party (dad)
(Welby v Drake)
© Liam Porritt 2020 6
Promissory Estoppel
• Prevents reliance on strict legal rights where unjust to do so (as party has
acted in reliance on promise)
• Hughes v Metropolitan Railway Co. – origin of promissory estoppel ~ HoL
decision that there was an implied promise not to rely on contractual
right of forefeiture by landlord, and thus could be promissory estoppel
against exercising this right
• Central London Property Trust v High Trees House – Denning J:
o Agreement for rental
o WWII starts + unable to sublet, so lower rent agreed on by parties
o End of war, subletting of whole building
o Claimant wants to claim full rent for when building full and in
future
o Accepted by Denning – reduction was intended to be temporary
o Denning = C would not have been able to claim higher rent for
whole time, in spite of lack of consideration for lower rent, as:
‘a promise intended to be binding, intended to be acted on
and in fact acted on, is binding so far as its terms properly
apply’
© Liam Porritt 2020 7
Restricting promissory estoppel
A shield and not a sword
• Combe v Combe – PE only a defence
o Wife claims because ex-husband does not pay her agreed
£100/month
o As no consideration from her, no contract
o She claims that it was promise, acted on by her – PE
o However, PE cannot be cause of action, only a defence to an
action
• Australia adopted more lenient approach (Walton Stores v Maher), but UK
courts have maintained Combe (Smithkline Beecham plc v Apotex Europe
Ltd)
Clear and unequivocal promise that existing legal rights will not be enforced
• Can be implied (Hughes v Metropolitan Railway Co)
• Woodhouse A.A Israel Cocoa Ltd. S.A. and Another v Nigerian Produce
Marketing Co. Ltd.:
o Buyers asked if sellers would accept sterling (instead of originally
agreed Nigerian pound)
o Sellers agreed
o Was not clear whether they meant that value was fixed in contract
in Nigerian pound, payable in Sterling, or whether £N X could be
paid with £ X.
o Therefore, not promissory estoppel or variation
Promisee must have altered their position
• Conduct of debtor / promisee must have been influenced by promise
• Emmanuel Ayodeji Ajayi v R.T. Biscoe (Nigeria) Ltd.
o Owners let lorries to D
o D cannot get them serviced, so has to withdraw them and asks
owners to stop taking installments as long as they are out of active
service, to which the owners agree
o Owners claim installments later
o The renters had not acted out of reliance on promise –
withdrawing the lorries happened before promise
o No PE
• Promise ≠ only cause of change of action; but must have had some
influence
• If promisee conducts in way intended by promisor, promisor must
establish that conduct was not induced by the promise (Brikom
Investments v Carr)
© Liam Porritt 2020 8
Collier v P & MJ Wright (Holdings) Ltd [2007]
• Arden LJ: if (1) debtor offers to pay part; (2) creditor voluntarily accepts;
(3) in reliance on creditor’s acceptance, debtor makes part payment =
promissory estoppel against claiming balance of debt
• Problematic as removes the need for genuine reliance on promise before
PE applies (Trukhtanov, Foakes v Beer: reform of the common law at the
expense of equity, 2008)
Three possibilities for relaxing of Foakes v Beer – need for consideration for
acceptance of part payment / delay until payment:
1. As per Arden LJ, part payment = PE
OR part payment + altered position beyond payment = PE
2. MWB Business – practical benefit (Williams v Roffey) = consideration for
purposes of reducing debt / extending payment date
3. Legislation
Must the promisee act to his detriment, in reliance on promise?
• Detriment is not essential (Alan (W.J.) & Co v El Nasr Export & Import Co. –
Lord Denning MR)
• Detriment makes it easier to establish that it is inequitable for the
promisor to go back on his promise (The Post Chaser – Mr Justice Goff)
Inequitable for the promisor to go back on his promise
• D & C Builders v Rees
o Builders agree to accept cheque for lower amount from Rees
o Builders’ promise extracted though intimidation, as Rees knew
they were in financial difficulty
o Debtor could not rely on PE as he who seeks equity must do equity
• The Postchaser – where there is detriment, it will be easier to show that it
was inequitable to go back on the promise.
© Liam Porritt 2020 9
PE ~ Suspension (not extinction) of legal rights
• PE can end in two ways (confirmed in Tool Metal Manufacturing Co. v
Tungsten Electric Co – HoL):
o High Trees – Denning: PE = temporary, ceasing when conditions
prevailing (WWII) ceased
o Emmanuel Ayodeji Ajayi v R.T. Briscoe (Nigeria) Ltd – PE can be
ended through reasonable notice (does not need to be formal),
allowing for readjustment by promisee
• … Allows grantor to enforce strict legal rights again
• If suspension with ability to claim all sums owed once estoppel ceases,
estoppel has only limited effect of allowing a little more time to pay
• High Trees and Tool Metal – not possible to claim installments (i.e. they
are extinguished) before estoppel ceased
• With lump sums, it is not clear whether these are extinguished or
suspended – if they are extinguished, this cannot be reconciled with
Foakes v Beer
o However, it appears from case law that this would not be the case
+ that it would only be suspension

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