Consideration PDF

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Lecture notes on consideration...

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9/11/16

Contract

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Consideration and Promissory Estoppel Formation of the contract - Agreement (Offer+Acceptance) - Intention to create legal relations - Consideration Contract Buyer and Seller are both promisor and promisee (goods going one way and money going the other). So there is a difference between promisor and promisee and offeror and offeree. When is a promise binding? - Historically promises were only recognised if they were contained in a deed. - Today promises can be binding if something is given in exchange. - McKendrick (2013): ‘badge of enforceability’ referring to consideration. Consideration key points - Each promise must be binding, i.e. in a bilateral contract there must be consideration for BOTH promises. - Consideration is needed both for (i) the FORMATION of a new contract (ii) the VARIATION of an existing contract TOPIC 3 STRUCTURE 1. General Rules of Consideration 2. Consideration in Variation Contracts 3. Promissory Estoppel —————————————————————— I. General Rules of Consideration Consideration is what one party gives (or promises to give) in exchange for the other party’s performance (or promise of performance). Benefit/Detriment analysis (Currie v Miss (1875) LR 10 Ex 153) Routledge v Grant (1828) 4 Bing 653 Guy promised to keep offer open for 6 weeks but it wasn’t legally binding because there was no consideration, he was getting nothing in return. Three basic rules of consideration

- Consideration must not be ‘past’ General rule: If promise of benefit comes AFTER performance, consideration is ‘past’ and NOT valid, so the promise is unenforceable. Roscorla v Thomas [1842] 3 QB 234 Guy bought horse and seller promised the horse was healthy. The horse wasn’t, but it was not binding because the promise was made after the horse was sold. BUT careful: an earlier promise may be implied (getting into a taxi, for example). Exception: Lampleigh v Braithwaite [1615] EWHC KB J17 Guy killed a man and asked Lampleigh to get the King’s pardon. He promised him to pay him £100 but he didn’t. Here, Braithwaite asked Lampleigh for the performance so he had to pay him. Pao On v Lau Yiu Long [1980] AC 614 - the act was performed at the request of the promisor AND - it was understood or implied it was to be paid for AND - it would have been enforceable if made before the act

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- Consideration must move from the promisee Example of case with three parties: Andrew owes some money to Chris (£200). He also has contract with Bridget to repair her boiler in exchange for £200. Question is whether Chris can claim the money from Bridget? The court says no because there is no consideration between him and Bridget. Contracts (Rights of Third Parties) Act 1999

- Consideration must be sufficient but need not be adequate I. What counts as sufficient consideration? II. Is doing what you are already obliged to do sufficient? —————————————————————— I. General rule: Consideration must be sufficient but not necessarily adequate. Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 If you send them 1 shilling and 6 dime and 3 chocolate papers, you would receive a song. The court had to decide whether the chocolate papers were part of the payment. The case caused quite a discussion. The House of Lords decided on a majority of 3 to 2, the chocolate papers were part of the deal. The court said there was consideration because they got a benefit because it boosted sales of chocolate. White v Bluett (1853) 23 LJ Ex 36 Father lent money to son. He kept complaining that Father loved other kids more than him. He felt he wasn’t treated fairly in the will. He kept nagging. The Father promised not to demand back the money if he stopped nagging. The Father died so son still owed him money. The court had to decide if this was binding. There was no consideration because the son didn’t get anything in exchange for not asking for loan back because the son was not entitled to be an annoying fuck. ——————————————————————II. Key question: can doing what you are already obliged to do constitute consideration to enforce a new promise? 1) Performance of an existing public duty 2) Performance of contractual duty owed to third party 3) Performance of existing contractual duty owed to the promisor (=variation contracts see below).

1) General Rule: the performance of an existing public duty is NOT good consideration Collins v Godefroy (1831) 1 B&Ad 950 Promised some payment if Collins testified. Collins had to go to court to give testimony anyway. He later asked Godefroy for the money. The court found he didn't owe him anything because there was no consideration. Ward v Byham [1956] 2 All ER 348 Had kid but split up. The father kicked woman out and payed neighbour to look after kid. The mother, when she got her house, asked to look after daughter for same money (a pound a week). Father agrees as long as daughter can live where she wants. But after that mother gets another guy so father stops paying. She takes him to court. The court held that the mother did a bit more than the statutory interpretation (Denning), by making her happy and letting her live where she wants. 2) Shaldwell v Shaldwell (1860) 9 CB (NS) 159 An engagement was a binding contract. The uncle of the fiancee said he was glad of the marriage. He said he would pay them £150 yearly until the end of his life or until he earned enough. The uncle did not pay all the time and he passed away at one point. The court had to determine whether the uncle’s promise was binding. Was there consideration? He was already obliged to marry her anyway because they were engaged (it was a contract). Therefore, there was no consideration. The Eurymedon [1974] 1 All ER 1015 The rule is quite clear. Owner of goods who wants goods transported far. The carrier is the person who ships the goods to the new port. They have a contract, carrier promises to ship goods and

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owner promises to pay for it. Loads of terms, one of the terms is that limited liability for damage. When goods are unloaded, the carrier said to the stevedores that he would pay them to unload boat. The stevedores damage goods. The question here is whether the promise to limit liability can be claimed by the stevedores. The court had to ask: if this promise is binding to you, what consideration do you get? The fact that the promisee had to do it anyway does not mean there was no consideration.

II. Consideration in variation contracts Old consideration for new promise? What counts as sufficient consideration when varying the terms of an existing contract? Two issues: A) A promises to pay B more for the same amount of work 1. Stilk: fresh consideration 2. Williams: consideration = practical benefit General rule: a new promise is only enforceable if new (‘fresh’) consideration is given. Stilk v Myrick (1809) 2 Camp 317, 6 Esp 129 Crewman on ship. During the voyage 2 of the crewmen deserted. The captain promised that they would split the salaries of the ones who left however, when they got home, captain didn’t split the money. Still went to court, they said the promise was not binding. Stilk was unable to recover ‘bonus’ of other wages. But, why? Two law reports: 2 Campbell 317 and 6 Espinasse 129. Campbell report: the original contract included the whole voyage with eventual emergencies (people deserting ship was emergency). They didn’t give any new consideration to the promise of new money. Espinasse report: the reason for the judge not finding it binding was for policy reason. He said we have here a situation where the captain is stranded with cargo far from home. He had to promise money to get home. Williams v Roffey [1990] 1 All ER 512 Building which needs redevelopment. They have contract with Roffey. They employed a carpenter (sub contractor). They got job by quoting a very low price (carpenter work on the 27 flats). It became quite clear he wasn’t going to finish apartments in time. It was bad for Roffey because they had to pay penalty for every day it was late. For every flat they completed, Roffey would give them more than £30000. A promise to pay more for the same amount of work. Williams still didn’t complete it in time and Roffey didn’t pay him. Roffey said that their promise to pay was not binding because there was no consideration. The Court of Appeal surprised everyone saying there was consideration. Roffey did get a benefit because he would have been in a better situation because he wouldn’t have to pay penalty clause so there was consideration. Promise to pay more may be enforceable if consideration in form of a ‘practical benefit’. What is the practical benefit in this case? - Avoidance of time penalty clause - Commercial reputation - No need to find a new contract partner - No need to litigate Stilk v Myrick: new consideration for new promises needed Williams v Roffey: practical benefit sufficient consideration Critical Evaluation of WvR - Performance is better than breach of contract - But: is this not true for all contracts? - Flexibility, commercial practicability - Do we need consideration in variation contracts? - What exactly counts as ‘practical benefit’?

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Adams & Bownswood Regarding the role of consideration: recognise the tension between the legal certainty of the strict rule and reasonable justice. They tend to give more priority to needs and fairness. Regarding the reconciling Stilk v Myrick and Williams v Roffey: was not primarily about consideration but about the problem that the captain was held under ransom (economic duress). Regarding the practical benefit: the authors point out that there used to be a straight rule to find consideration. The new rule is practical benefit. They say that the new rule must not become as strict as the old rule. 20 years after the decision, Mark Gianscaspro talks about this. He is not so keen on this practical benefit. He said keeping to the contract is always more beneficial than breaching it. There are 2 problems: 1) Benefit is much too easy to find. 2) Who decides what is a benefit? (is it the subjective or the objective test, is it the courts, or is it the parties? Dan Halyk If the promisee argues that the promisor has received subjective, intangible benefit as a result of actual performance, would this be sufficient consideration to make a promise binding? In Williams v Roffey, if as a result of promisee’s completion, the promisor could once again be able to sleep at night, would this benefit flowing from the actual performance count as practical benefit? Wu Zhang-Hui After all, if party did not find the performance worth benefiting from, he or she would presumably not have agreed to the variation of the contract. B) A promises to accept less than what B owe General rule: Promise to accept less is only enforceable if new consideration is given. Pinnel’s Case (1602) 77 ER 237 The creditor accepted less payment and the person in debt was taken to court after. The court said there needed to be consideration. The promise is binding if something else is given (some new consideration). Consideration can be: - before the due date or - together with something else (horse, hawk, robe..) - to a different destination Foakes v Beer (1884) Dr Foakes lost a case against Mrs Beer. He had to pay her £2000. He said he’d pay her £500 straight away then payment in different instalments. They signed a contract. However, they didn’t say anything about interest. She was owed £2000 with interest. After the 5 years she asked all of the interest from Dr Foakes. He said she accepted the £2000 instead of the £2000 with interest. The court confirmed the Pinnel’s case, saying it was only binding if something was given. The judge said that the promise to pay less would be binding if both parties agreed on it. It was better for her to have some money than to have the whole of the money at some stage. They said it was the law, and that they couldn’t change it. The contract was not binding because of the rule set out in Pinnel. Re Selectmove They needed to pay taxman. They came to agreement to pay instalments instead. Three problems: in the end they didn’t pay all of it and Revenue sued them for it. But the person who signed the contract had no authorisation to sign the agreement. And the second issue is that it couldn’t be binding because they said there was no consideration, they didn’t get anything in return. The defendant said that it was a practical benefit because there was some consideration, therefore it should be binding. The court of Appeal said that Williams v Roffey could not be followed because it didn’t acknowledge Foakes v Beer which says they need fresh consideration. They said that the House of Lords or Parliament would have to change this rule if you want the practical benefit rule to apply to all cases.

9/11/16 Consideration in Variation Contracts Pinnel Case (1602) Stilk v Merick (1809) Foakes v Beer (1884) HL Williams v Roffrey (1990) CA

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Re Selectmove (1995) CA

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They needed to distinguish whether there was a promise to pay more of a promise to accept less. They followed Foakes and Beer because it was a promise to accept less. This allowed them to not overrule Williams v Roffey (1990) CA. Promissory Estoppel is an answer to the problem seen above. Critical Evaluation of Consideration - Rules are technical, complicated and sometimes inconsistent - Exceptions have developed to serve commercial purposes - Fails to differentiate sufficiently between bargains and non-bargains - It is not required by civilian law jurisdictions and has not been adopted in various international sales codes - Does not recognise the will of the parties - Over-broad doctrine (better specific doctrines such as duress, estoppel, intention to create legal relations). BUT the relatively limited amount of case law involving issues of consideration suggests that it is not a significant problem in practice...