Consideration – notes on contract law

Standard

Consideration is essential to determing if a contract exists in English law. There must be mutuality in a contract.

A promise of a gift is not oftentimes legally enforceable.

A court will look for ‘an intention to create legal relations’ This exceedingly seldom applies to gifts.

Exceptions to consideration – ‘reasonable reliance’ and ‘promissory estoppel’.

These apply chiefly to the variation of pre-existing legal obligations.

One should be able to tell what behaviour does and does not constitute proper consideration with regard to a contract under the law of Cymru and England.

Consideration sometimes modifies contracts that already exist.

promissory estoppel sometimes leads to the enforcement of promises not supported by consideration.

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McKendrick  – ‘badge of enforceability’ – that is what cosnideration gives.

money for goods – consideration.

a promise must be supported by consideration to be legally valid.

a deed is a special form that makes a promise of a gift legally binding.

Law of Property (Miscellaneous Provisions) Act 1989 – about deeds.

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Definition of consideration.

Currie v Misa (1875). ”a valuable consideration , in the sense of the law, may consist either in some right, interestm profit or benefit accruing to the one party or some forebearance, detriment, loss of responsibility given, suffered or undertaken by the other.”

there must be a benfit to the promisor or a detriment to the promisee. Either one is good enough-ski.

Some agreements are executory which means beased on promises that neither party has yet performed. This is a minefield.

Making a promise (not just caryring it out) can be considered to be good consideration under the law of Wales and England.

Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) – p. 855 –

A promise cannot be to the detriment of the person making it unless it is enforceable. A promise is only enforceable if there is benefit or detriment,.

Courts now look more for mutuality than benefit and detriment.

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CONSIDERATION – SUFFICIENT BUT NOT ADEQUATE.

Consideration must be worth something – even if precious little. It need not be adequate. That means it does not have to be the going rate for whatever good or service is being sold.

If some chap is damn fool enough to contract for a piffling consideration then that is not of interest to Her Majesty’s courts.

Thomas v Thomas (1842) – 1 pound per annum rent was sufficient.

Chappell v Nestle (1960) – Lord Somervell says that the court upholds ‘freedom of contract.’ ‘A party may contract for what consideration he chooses’. Be it understood that he may be read for she and they.

Sweet wrappers in that case were sufficient because this contract caused more people to buy sweets thus accruing proft to Nestle.

White v Bluett (1852). A son promised to stop complaining about something was not good consideration for a contract.

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EXISTING OBLIGATIONS AS GOOD CONSIDERATION.

3 ASpects to this.

1. Ob;igation which arise under law irregardless of any contract.

2. Obligations which are owed under a contract with a third party.

3. Obligations which exist under a contract with a person who has made a new promise, for which the existing obligation is alleged to provide good consideration.

The third situation is about varying existing contracts. To what extent can variations become binding? This is fiendishly complex. We will look at it later.

EXISTING OBLIGATION – policeman has a duty to uphold the law. If a member of the public promises to pay him to carry out his duty this promise is not normally enforceable since the police officer is obliged to do his duty anyway.

If a public official does more than he obliged to do anyway then the promise will be enforceable. Cf Glasbrook Bros Ltd  v Glamorgan CC (1925).

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The second situation – obligations to a third contract. This CAN be good consideration whether the context is domestic or commerical.

Shadwell v Shadwell (1860) – a promise to marry.

Unloading goods by stevedores – pre-existing obligation was good consideration since the pre-existing obligation was owed to a third party. This case is ‘The Eurymedon’ (1975).

Privy Council case – Pao On v Lau Yiu Long (1980) – pre-existing promiose as well as the performance of the said promise can be good consideration.

The third type of pre-existing obligation. This is an obligation owed under a contract with the party making the new promise. Key cases –

Stilk v Myrick (1809) and Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991).

Stilk v Myrick. Sailors were under a contract to sail a ship back home. They were given a fresh promise to induce them to do what they were already contractually obliged to do. They sailed the ship home and then wanted to collect their reward. Their attempt to enforce this promise was blocked by the court because they were only doing what they had already contracted to do.

Williams v Roffey Bros – the carpenter did work on flats that he was already obliged to do. Williams attempted to enforce this promise. He won his case. The Court of Appeal dealt with the case.

Glidewell LJ said that practical benefits would come to the defendants through Williams doing the work so the promise must be enforced.

the benefits were  – this ensured that the work was continued and Williams did not give up the project.

The defendants would have had to pay compensation to the owner of the flat if the work was not done because of a penalty clause in a separate contract.

The defendants avoided the trouble and expense of finding new carpenters.

In Williams V Roffey there was no pressure on Roffey to offer an additional payment. This is the main difference between this and Stilk v Myrick.

There was no economic duress or fraud on the part of William. Glidewell said this counted in favour of Williams.

Part payment of a debt can never discharge a debtor from the obligation to pay the whole of it. Foakes v Beer (1884).

If something extra is done in terms of a debt the remainder can be discharged – such as paying part of the debt earlier than originally agreed or paying in goods that the creditor wants. Pinnel’s Case  1602.

Williams v Roffey does not discount the rule established in Foakes v Beer.

Ferguson v Davies (1995) again upheld the principle in William v Roffey that part-payment of a debt is not good consideration to excuse the remainder of the debt.

In general, consideration must move from the promisee to the promisor. There are exception.

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PAST CONSIDERATION.

Consideration must normally be given AFTER the promise which it is to make enforceable.

Re mCArdle 1951. The man did work in the house. His sisters and brothers then promised to pay him for it. The promise was not enforceable since it was for work that was finished before the promise had been made.

Past consideration is SOMETIMES good consideration. Pao On v Lau Yiu Long 1979. Lord Scarman laid down 3 rules

1. The act which is consideration must be done at the promisor’s request. See Lampleigh v Braithwait 1615.

2. The parties must have understood that the work was to be paid for in some way. See Re Casey’s Patents 1892.

3. The promise would have been legally enforceable if it had been made before the work was done.

Principle 2 is the hardest to determine.

The court will take and objective approach – would a reasonable person have thought at the time that the work was to be paid for in some way whether through money, goods, services etc…

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PROMISSORY ESTOPPEL.

This is about the modification of existing contracts.

The classic view is that contract can only be modified in return for consideration.

There must be mutuality.

Promissory estoppel is an equitable doctrine.

Central London Property Trust Ltd v High Tree Huses Ltd (1947). Denning J dealt witht his.

A rent was agreed on the flats. During the war it was agreed to reduce the rent.

Denning – ”A promise intended to be binding, intended to be acted upon and is in fact acted upon, is binding in so far as the terms properly apply.” No consideration was supplied to the landlord in return for agreeing to reduce the rent. Denning held that this agreement was still binding.

Waiver – the doctrine whereby one can agree to suspend certain of one’s right and then revive them after appropriate notice.

Hughes v Metropolitan Railway 1877 – Denning in the High Trees Housing Ltd cited this earlier case.

Waiver has been subsumed into promissory estoppel.

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LIMITATIONS ON PROMISSORY ESTOPPEL

 

promissory estoppel will only apply in the case of 6 points.

 

1. Need for an existing relationship. It can onyl modify an already existing relationshop not create a new one. Lord Denning though took the opposite view.

2. Need for reliance. Promisee must rely on a promise for their to be promissory estoppel. Someone has relied on a promise and it would be unfair to break this promise.

3. A shield not a sword. This doctrine cn only be used to protect oneself. Combe v Combe 1951. A wife tried to sue her husband for maintenance. She provided no consideration for a promise to pay her monies. Lord Denning and others in the court of Appeal ruled that she could not rely on the promise.

Lord Denning, ”consideration remains s cardinal necessity of the formation of contract though not is modification or discharge.”

4. Must be inequitable to go back on the promise.

The promise does NOT HAVE to be enforced. A court can rule that it is fair to break the promise.

D & C Builders v Rees 1966. Builders accepted part payment of a debt in lieu of the whole lot. Rees had taken advantage of the builders being stoney broke.

”He who comes to equity must come with clean hands.” Rees was forced to pay the whole lot. He had been sharp – using economci duress.

 

The Post Chaser 1982. Promise made and then withdrawn v quickly so no harm was done to the promisee.

 

5. Doctrine is generally suspensory.

It is NORMALLY intended to last only for a limited time.

Promisor is able to withdraw a promise after reasonable notice. Tool Metal Manufacturing v. Tungsten Electric Co Ltd 1955.

 

Reduced payment was agreed. The Plaintiff was able to go back to the original tariff after notice.

 

6. Where promise is forbidden by legislation.

A promise that breaks the law does not count.

Evans v Amicus Healthcare Ltd. 2003. Embryos created. The relationship between man and woman ended. He wanted the embryos destroyed. SHE did not. The man was allowed under legislation to withdraw his consent at any point.

The embryos were discarded.

4.

3.

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About Calers

Born Belfast 1971. I read history at Edinburgh. I did a Master's at UCL. I have semi-libertarian right wing opinions. I am married with a daughter and a son. I am allergic to cats. I am the falling hope of the not so stern and somewhat bending Tories. I am a legal beagle rather than and eagle. Big up the Commonwealth of Nations.

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