Consideration lecture sheets. it will help you understand consideration. PDF

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Consideration Md: Tarek AnisISSUE 1: Does past consideration amount to good consideration?• General principle + case. Exception + case ISSUE 2: Does performance of existing legal duty amounts to goodconsideration? • General principle + case. Exception + case ISSUE 3: Does performance of existing dut...

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Consideration

Md: Tarek Anis

ISSUE 1: Does past consideration amount to good consideration? • General principle + case. Exception + case • ISSUE 2: Does performance of existing legal duty amounts to goodconsideration? • General principle + case. Exception + case • ISSUE 3: Does performance of existing duty owed to third party amount togood consideration? • General principle + case. Exception + case • ISSUE 4: Does performance of existing contractual duty amounts to goodconsideration? • General principle + case. Exception + case • ISSUE 5: Does part-payment/part performance of a debt satisfy the whoamount/whole performance? • Common law principle + case. Exception in equity + case • ISSUE 6: Did the parties have intention to create legal relation? • Social agreement + case + exception. Commercial agreement + case + exception • ISSUE 7: Did the parties to contract intend to transfer any benefit or burdento a third party? • Common law principle + exception. Contract (Right of the Third Parties) Act 1999

In contract law consideration is concerned with the bargain of the contract. A contract is based on an 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 (Thomas v Thomas) (1842) 2 QB 851. This excludes promises of love and affection, gaming and betting etc.

Look at the traditional definition of consideration as set out in Currie v Misa (1875): …………….a valuable 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 of responsibility given, suffered or undertaken by the other………………

There are various rules governing the law of consideration: 1. The consideration must not be past

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

The consideration must not be past Past consideration is insufficient to form a legally enforceable agreement. Only consideration which is given at the time or after the promise for which it is given will be enforceable. A promise given after the consideration has been completed is unenforceable. Re McArdle Eastwood v Kenyon (1840) The case involved someone who as executor of a deceased estate had taken on himself the task of looking after the deceased’s daughter until she became an adult. In doing so he had spent a lot of money and even had to borrow money from one Blackburn, secured by a promissory note. The daughter, when she came of age and subsequently promised to repay Plaintiff the amount of the note, and indeed paid one year’s interest on the note to Blackburn. She then got married to the defendant, who promised to reimburse the plaintiff. But the defendant did not made any payments and so the plaintiff sued on his promise. It was that the promise to reimburse was a purely moral obligation. It was not supported by consideration. This was because it was not part of an exchange. What he had done in the past could not constitute part of an exchange. This idea is reflected in one of the rules of consideration the rule, says that past consideration is no consideration.

In Pao On v Lau Yiu Long (1979), Lord Scarman laid down three conditions which must be satisfied if the exception is to operate. 1. The act constituting the consideration must have been done at the promisor’s request. (See, for example, Lampleigh v Braithwaite (1615).) The defendant had killed

a man and was due to be hung for murder. He asked the claimant to do everything in his power to obtain a pardon from the King. The claimant went to great efforts and managed to get the pardon requested. The defendant then promised to pay him £100 for his efforts but never paid up. Held: Whilst the promise to make payment came after the performance and was thus past consideration, the consideration was proceeded by a request from the defendant which meant the consideration was valid. The defendant was obliged to pay the claimant £100.

2. The parties must have understood that the work was to be paid for in some way, either by money or some other benefit. (See, for example, Re Casey’s Patents (1892).) 3. The promise would be legally enforceable had it been made prior to the acts constituting the consideration.

Consideration must be sufficient but need not be adequate: There is no requirement that the consideration must be market value, providing something of value is given eg £1 given in exchange for a house would be valid. The courts are not concerned with whether the parties have made a good or bad bargain: Chappell v Nestle

case of Thomas v Thomas(1842) 2 QB 851 highlights this principle in operation. This case involved the rental of a property for the cost of £1. It was argued that this £1 could not be considered valid consideration due to the actual value of the property rental significantly exceeding the £1 consideration. The courts ruled that this was irrelevant; the fact that there was some consideration made it valid.

Consideration must move from the promisee If a person other than the promisee is to provide the consideration, the promisee can not enforce the agreement: Tweddle v Atkinson

An existing public duty will not amount to valid consideration

Where a party has a public duty to act, this can not be used as consideration for a new promise: Collins v Godefrey In the latest case of Leeds United FC v Chief Constable of West Yorkshire [2013] EWCA Civ 113, the Court of Appeal held that the police were under a duty to prevent crime, maintain law and order and protect property.

Unless the promisor goes beyond their duty: Glasbrook Bros v Glamorgan County Council Ward v Byham

Give up a claim ( it can be a good consideration) It is sometimes suggested that consideration will not be sufficient if it has no economic value. This explains White v Bluett (1853) where a son’s promise to stop complaining to his father about the distribution of the father’s property was held to be incapable of amounting to consideration. But it is difficult to see that the wrappers in Chappell v Nestlé had any economic value either. The undertaking to give up a claim that the prosecutor wrongly but in good faith believes to be well founded is good consideration, Cook v Wright. Giving up a claim that is known to be bad discloses no good consideration, Wade v Simeon

An existing contractual duty will not amount to valid consideration

If a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise:Stilk v Myrrick Unless the party goes beyond their existing duty: Hartley v Ponsonby if they confer a practical advantage: Williams v Roffey Bros The application of Williams v Roffey was held to apply when: 1. There was a contract for the supply of goods or services. 2. A was unable to perform as promised (which can include economic reasons). 3. B agreed to pay more. 4. B obtained a practical benefit from that promise (as outlined above). 5. There was no fraud or duress by A to obtain that promise. 6. If the above are satisfied then consideration is found.

Would it be possible for D to raise the issue of economic duress here? Economic duress is the use of unlawful economic pressure to compel a party to a contract to agree to demands which they would not have otherwise. In Pao on v Lau yiu Long the Privy Council identified 4 factors to consider in assessing whether economic duress was present: 1. After entering into the contract, did they take steps to avoid it? 2. Did the person claiming to be coerced protest? 3. Did that person have any other available course of action? 4. Were they independently advised? Atlas Express Ltd v Kafco The Kafco imported basket ware and entered a contract with Atlas to sell and deliverbaskets to Atlas retail stores. Atlas tried to negotiate a further term in the contract fora minimum order of £440 per trailer load. Several days later, an Atlas representativeturned up to Kafco’s premises with an empty trailer and told Kafco that if the trailerwas not returned with £440 worth of goods as the new minimum, the trailer would bedriven away unloaded. Kafco reasonably believed they would be unable to negotiatefurther terms of the contract and thereby sabotaging their opportunity to trade withAtlas, so they felt compelled to sign the agreement and meet the new terms ofminimum stock trade. The agreement continued until Kafco sent them money onaccount and a letter stating they had signed the contract under duress. Atlas sued forthe money on account. • Issues: • Whether Kafco signed in duress, even though they had honored the contract. • Held:• Judgment was awarded in favour of Kafco. Kafco were found to have signed theagreement under economic duress as they felt that in the circumstances they had noalternative but to sign the varied contract. Kafco had not approved the new terms ofthe agreement (as they had previously rejected the proposed variation) and further,there was no consideration for the new agreement as the variation placed Kafco in aless favourable position financially. Thus, their non-payment of the money of accountresulted from the duress. North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] The defendants agreed to build a ship for the claimants for acertain price specified in US dollars. After entering the contract theUS dollar was devalued by 10%. The defendants threatened not to complete unless the claimants paid an additional 10% on thecontractually agreed price. The claimants had a valuable charter lined up so agreed to pay the additional sums and did pay them without protest. 8 months after delivery of the ship the claimants brought an action to recover the additional sums paid. Held: The contract was voidable for duress, however, since the claimants had left it so long in bringing their claim they had affirmed the contract and lost their right to rescind.

Relevant issue to William v Roffey case. Question: on 1st January Nice girl inters into contract with the Whinger, to join the group as a new singer at an annual salary of £300,000. On 1 Feb, they tell Whinger that they are disappointed with the public

reaction to her joining the band and so they want to reduce her salary to £150,000. Whinger agrees because she thinks the group will otherwise terminate her contract and she needs money to pay for her boyfriend’s drug rehabilitation programme Is the salary decrease supported by consideration? In the past the CA had held that Williams v Roffey had no application to ‘reducing’ modifications (ReSelectmove) but strong answers will be aware of the change effected in MWB vRock (2016). Does Whinger get a practical benefit sufficient to be consideration by retaining the benefit of continuing employment? If so, consider whether there reduction was nonetheless obtained by economic duress. Discuss therequirements of the doctrine: a) Did the Nice Girls threaten to breach Whinger’s contract? b) If so, did she act under compulsion, c) consider the relevance of: protest, the existence of alternatives, etc. asdiscussed in Pao On, Atlantic Baron. MWB vRock (2016). The case may therefore be characterised as one where a contractor promises to do less, because the agreement to accept deferred payment is functionally equivalent to an agreement to accept a lesser sum on the date originally specified (see Foakes v Beer (1884) below). If MWB can be characterised in this way, then henceforth a promise to do less than, as opposed to the promise in Williams v Roffey to do the same as, that which was originally undertaken can constitute good consideration where that promise confers a practical benefit upon the other party. ( this case indicates that if the party like landlord gets half payment from tenant then it can be treated a good consideration as landlord gets practical benefits by not getting anything. He gets something instead of nothing which can be considered as practical benefit).

Obligations which are owed under a contract with a third party

In the second type of situation, which regards the performance of, or promise to perform, an existing obligation owed under a contract with a third party, the position is much more straightforward. The courts have consistently taken the view that this can provide good consideration for fresh promise. Thus it has been applied to the fulfilling of a promise to marry (Shadwell v Shadwell – such a promise at the time being legally binding) and to the unloading of goods by a firm of stevedores, despite the fact that the firm was already obliged to carry out this work under a contract with a third party (The Eurymedon). The Privy Council confirmed, in Pao On v Lau Yiu Long, that the promise to perform an existing obligation owed to a third party can constitute good consideration. In Scotson v Pegg [1861] EWHC,A purchaser of some coal paid the defendant to carry and to unload the coal. The claimant was the supplier of the coal who had also paid the defendant to carry and unload the coal. The claimant brought an action to recover the money paid arguing the defendant was already under an existing duty to carry and unload the coal and thus provided no consideration. Held: An existing contractual duty owed to a 3rd party to the contract can amount to valid consideration for a new promise. Consequently the claimant could not recover the sums paid and the defendant was entitled to get paid twice for doing the same thing

Consideration can move to a third party Bolton v Madden:

Blackburn J said that ‘The general rule is that an executory agreement, by which the plaintiff agrees to do something on the terms that the defendant agrees to do something else, may be enforced if what the plaintiff has agreed to do is either for the benefit of the defendant or to the trouble or prejudice of the plaintiff.’ Bolton v Madden Facts: The parties were members of a charity and both could vote on how the charity's funds were to be spent. They both agreed that in consideration of the claimant using his 28 votes to support the defendant's child, the defendant would use his 28 votes to support the claimant's child. The claimant did use his votes to support the defendant's child, but the defendant did not. The claimant sued, but the defendant argued that the claimant had not provided him with any consideration. Held: There was considerations because the claimant had given a benefit to a third party (the defendant’s child) – it does not matter that the defendant himself did not receive that benefit. Consideration can therefore be given to a third party at the promisor’s request

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- Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made: a). before the due date b). with a chattel c). to a different destination this rule from Pinnel's case was affirmed by the House of Lords in: Foakes v Beer

Further exceptions to the rule in Pinnel's case: 1. Where part payment is made by a third party: Hirachand Punamchand v Temple [1911]

2. Promissory estoppel

The origin of the modern doctrine of promissory estoppel is found in older cases such as Hughes v Metropolitan Railways but was more widely developed in the judgment of Denning J (as he then was) in the case of Central London Property Trust Ltd v High Trees House Ltd (1947)

Need for a clear and unequivocal promise: The promise by one party to a contract that he will not insist on his strict legal rights under a contract must be clear and unequivocal, but may nonetheless be express (as in the landlord’s promise in High Trees to accept half rent). Where the words used to make the statement claimed as the basis for a promissory estoppel were ambiguous and capable of being interpreted in several ways (including one which would not support the estoppel) then the words could not be said to found an estoppel unless the representee sought and obtained clarification of the statement. See Kim v Chasewood Park Residents [2013]

Need for reliance: At the heart of the concept of promissory estoppel is the fact that the promisee has relied on the promise. It is this that provides the principal justification for enforcing the promise. The lessees of the property in High Trees House had paid the reduced rent in reliance on the promise from the owners that this would be acceptable. it is now accepted that reliance is sufficient when it is in circumstances where it would be inequitable to allow the promisor to go back on his word (The Post Chaser (1982))

A ‘shield not a sword: The phrase derives from the case of Combe v Combe (1951). The Court of Appeal, however, including Lord Denning, held that promissory estoppel could not be used as the basis of a cause of action in this way.

Must be inequitable for the promisor to go back on the promise: The way that this is usually stated is that it must be inequitable for the promisor to withdraw the promise. What does ‘inequitable’ mean? It will cover situations where the promisee has extracted the promise by taking advantage of the promisor. This was the case, for example, in D & C Builders v Rees (1966) where the promise of a firm of builders to accept part payment as fully discharging a debt owed for work done was held not to give rise to a promissory estoppel, because the debtor had taken advantage of the fact that she knew that the builders were desperate for cash.

Doctrine is generally suspensory: Sometimes the promise itself will be time limited. Thus in High Trees House it was accepted that the promise to take the reduced rent was only to be applicable while the Second World War continued. Once it came to an end, the original terms of the contract revived. In other cases, the promisor may be able to withdraw the promise by giving reasonable notice. This is what was done in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1955)...