79916 199662 Consideration PDF

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Lecture notes on Consideration...

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CONSIDERATION CRITICAL ANALYSIS POINTS: 1. 2. 3. 4. 5.

In order to have a binding contract consideration must be present. Performance of an existing contractual duty cannot be good consideration for a fresh promise. Performance of an existing public duty cannot be good consideration for a fresh promise. Past consideration is not good consideration. Consider the scope of the decision in Williams v Roffey [1991] 1 QB 1

Consideration is concerned with the bargaining that takes place in a contract, the exchange of promises. Each party to a contract must be both a promisor and a promisee. They must each receive a benefit and each suffer a detriment. This benefit or detriment is referred to as consideration. Consideration must be something of value in the eyes of the law. See for example Thomas v Thomas (1842) 2 QB 851. A one sided promise which is not supported by consideration is a gift. The law does not enforce gifts unless they are made by deed.

Rules of consideration: 1. The consideration must be sufficient but need not be adequate. 2. The consideration must not be past. 3. An existing contractual duty will not amount to valid consideration. 4.The consideration must move from the promisee 5. An existing public duty will not amount to valid consideration 6. Part payment of a debt is not valid consideration for a promise to forego the balance.

DEFINITIONS - The classic definition of consideration was given in:  Currie v Misa (1875) LR 10 Ex 153 - “consideration, in the sense 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”  Dunlop v Selfridge [1915] AC 847 at 855 - An act or forbearance of the 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, Principles of Contract Law (13th ed.,) p.133. THE SCOPE OF THE DOCTRINE: 4.1 (a) Consideration need not be adequate Thomas v Thomas (1842) 2 QB 851 - Since consideration need not be adequate, even trivial acts can amount to consideration Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 - 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 peppercorn 4.1 (b) Consideration must be sufficient –

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White v Bluett (1853) 23 LJ Ex 36 - the promise was too intangible to be consideration for the father’s promise to forego the debt.

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Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 - conclusion also valid for trivial acts.

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Williams v Roffey Bros [1991] 1 QB 1 - The promisee himself must provide the consideration either by incurring some detriment or by conferring a practical benefit on the promisor.

4.2 Consideration must not be past  Roscorla v Thomas (1842) 3 QB 234 - Something done in the past is no consideration for a promise made today. 

Re McArdle [1951] Ch 669 - Whether consideration is past or not is a question of fact, depending on all the circumstances of the case - the wording of the contract alone is not decisive. McArdle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband's father who had died leaving the property to his wife for life and then on trust for Majorie's husband and his four siblings. After the work had been carried out the brothers and sisters signed a document stating in consideration of you carrying out the repairs we agree that the executors pay you £480 from the proceeds of sale. However, the payment was never made. It was held that the promise to make payment came after the consideration had been performed therefore the promise to make payment was not binding. Past consideration is not valid.

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Lampleigh v Braithwait (1615) Hob 105 - There is a possible exception to the rule that past consideration is no consideration. Past consideration may be valid where it is proceeded by a request.

4.3 Performance of an existing contractual duty is not good consideration If a party has an existing contractual duty to do an act, this act cannot be used as consideration for a new promise: Stilk v Myrrick [1809] EWHC KB J58 - It was held that the claimant was under an existing duty to work the ship back to London and undertook to submit to all the emergencies that entailed. Therefore he had not provided any consideration for the promise for extra money. Consequently he was entitled to nothing. Unless the party goes beyond their existing duty: Hartley v Ponsonby [1857] 7 EB 872 or if they confer a practical advantage: Williams v Roffey Bros [1990] 2 WLR 1153 If the existing contractual duty is owed to a 3rd party this may be used as valid consideration for a new promise: New Zealand Shipping v Satterthwaite [1975] AC 154 Scotson v Pegg [1861] EWHC Exch J2 4.4 The consideration must move from the promisee

If a person other than the promisee is to provide the consideration, the promisee cannot enforce the agreement: Tweddle v Atkinson [1861] EWHC QB J57 A couple were getting married. The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the son also died so was unable to sue on the agreement. The groom made a claim against the executor of the will however the claim failed. The groom was not party to the agreement and the consideration did not move from him. Therefore he was not entitled to enforce the contract. 4.5 An existing public duty will not amount to valid consideration:

Where a party has a public duty to act, this cannot be used as consideration for a new promise: Collins v Godefrey (1831) 1 B & Ad 950 King's Bench Division Collins was under a public duty to attend court due to the subpoena. Where there exists an existing public duty this cannot be used as consideration for a new promise. Godefrey was not required to pay him. Unless the promisor goes beyond their duty: Glasbrook Bros v Glamorgan County Council [1925] AC 270 House of Lords In providing additional officers to that required, the police had gone beyond their existing duty. They were therefore entitled to payment. Ward v Byham [1956] 1 WLR 496 Court of Appeal 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. 6. Part payment of a Debt Part payment of a debt is not valid consideration for a promise to release the debt in full: Pinnel's case 1602 5 Rep, 117 This rule from Pinnel's case was affirmed by the House of Lords in: Foakes v Beer (1883-84) L.R. 9 App. Cas. 605 Further exceptions to the rule in Pinnel's case: where part payment is made by a third party and promissory estoppel which will be considered in the next lecture.

CONSIDERATION – PART PAYMENT/PROMISSORY ESTOPPEL CRITICAL ANALYSIS POINTS: 1. Part payment of a debt is not good consideration for the whole debt as in the rule in Pinnel case (1602) 5 Co Rep 117. 2. Exceptions to the rule include the equitable doctrine of promissory estoppel. 3. Promissory estoppel has enabled equity to justice in cases where the common law has been limited. 4. Lord Denning developed the grounds for promissory estoppel in Central London Property Trust Ltd v High Trees Ltd [1947] KB 130.

Part payment of a debt

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Pinnel’s case (1602) 5 Co. Rep 117- If you are bound to pay a certain sum of money, payment of a lesser sum does not discharge the debt, even though your creditor agrees to give up his claim on the rest.

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Foakes v Beer (1884) 9 App Cas 605 - No consideration for the agreement and must therefore pay the interest.

Compare Williams v Roffey Bros (1991) 1 QB1 , Re Selectmove [1995] 1 WLR 474 and MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA CIV 553 However, there are a number of situations where payment of a lesser sum does discharge the whole debt. Below are situations where there is consideration and true exceptions. (i)

Where the debtor, at the creditor’s request, makes an earlier payment than the due debt.

(ii) Where the method of payment is altered, at the creditor’s request, e.g. in a different place. But since 1965 the Ct of App. has held that lesser payment by cheque or other negotiable instrument does not amount to a payment method different from cash so as to amount to a good discharge of the whole debt. (iii) Where some goods, however small, are delivered at the creditor’s request in addition to the lesser payment. (iv) Where payment of a lesser sum by a third party is accepted by the creditor in full satisfaction of the debt – Hirachand Punamchand v Temple [1911] 2 KB 330 CA. (v) Where the creditor’s claim is genuinely disputed by the debtor, for example if the debt is the unpaid purchase price of goods which the debtor-buyer alleges are defective. Introduction to promissory estoppel Promissory estoppel is an equitable doctrine to stop a person going back on a promise which is not supported by consideration. Promissory estoppel was developed by an obiter statement by Lord Denning in Central London Property Trust Ltd v High Trees Ltd [1947] KB 130 which was based on the decision in Hughes v Metropolitan Railway (1876-77) L.R. 2 App. Cas. 439. The House of Lords affirmed the existence of promissory estoppel in contract law in Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761. Requirements of promissory estoppel:    

A pre-existing contract or legal obligation which is then modified There must be a clear an unambiguous promise Change of position It must be inequitable to allow the promisor to go back on their promise

Equitable or promissory estoppel: 

Pinnel’s Case.

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Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 but it has its origin in a principle of equity laid in the earlier case of Hughes v Metropolitan Rly Co (1877) 2 App Cas 439 (see below).

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Hughes v Metropolitan Rly Co (1877) 2 App Cas 439 – The principle in equity is that it does not look kindly on a person who promises relief and then goes back on his word.

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Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 - ‘equitable estoppel’ or ‘promissory estoppel’.

SCOPE OF THE DOCTRINE OF PROMISSORY ESTOPPEL - However, the doctrine of promissory estoppel is not so wide-ranging as it might appear: 1. A pre-existing contract or legal obligation which is then modified IT IS “A SHIELD AND NOT A SWORD” (Birkett, L.J.), i.e. you can use it as a defence when sued, but you cannot use it to bring an action for breach of contract – 

Coombe v Coombe [1951] 2 KB 215 CA - A husband promised to make maintenance payments to his estranged wife but failed to do so. The wife brought an action to enforce the promise invoking promissory estoppel. Her action failed. There was no pre-existing agreement which was later modified by a promise. The wife sought to use promissory estoppel as a sword and not a shield.

1. There must be a clear an unambiguous promise THERE MUST BE RELIANCE BY THE DEBTOR ON THE CREDITOR’S PROMISE. Though this does not mean that the debtor must have relied to his detriment, nor does he need to have acted differently. 2. Change of position Alan v El Nasr [1972] 2 WLR 800 - Held that detrimental reliance is not a requirement of promissory estoppel. It only needs to be established that the promisor has changed their position. 3. It must be inequitable to allow the promisor to go back on their promise THERE MUST BE INEQUITY. The debtor will obtain no relief if no inequity is involved by the creditor going back on his word – 

D&C Builders v Rees [1966] 2 QB 617

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Foakes v Beer (1884) 9 App Cas 605

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Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329

THE DOCTRINE IS SUSPENSIVE, NOT EXTINCTIVE. 

Tool Manufacturing Co Ltd v Tungsten Electric Co (1955) 1 WLR 761

CRITICISMS OF CONSIDERATION a) Internally inconsistent: what is the relationship between consideration and estoppel? b) Random in its operation c) Unnecessary...