Contract Lecture 3- Consideration PDF

Preview

Summary

Contract Lecture 3- Consideration The Concept of Consideration ● Consideration mainly viewed as the ‘price of a promise’; what one party is receiving from the other ● Currie v Misa (1874) LR 10 Ex 153- “a valuable consideration, in the sense of the law, may consist either in some right, interest, pr...

Description

Contract Lecture 3- Consideration The Concept of Consideration ● Consideration mainly viewed as the ‘price of a promise’; what one party is receiving from the other ● Currie v Misa (1874) LR 10 Ex 153- “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 or responsibility given, suffered or undertaken by the other” ● ● ●

The ‘price of the promise’ depends on what is requested- a party may request something trivial in return for something of great economic value (e.g. a peppercorn rent) The point is that the party must receive what was requested (sufficient) Consideration is also viewed as an indication of seriousness : the intent to enter into a binding contract

●

Combe v Combe (1951) 2KB 215- Divorce proceedings; H agreed to pay W £100pa so W didn’t apply to court for maintenance; H failed to make payments and W sued; CoA held H’s promise wasn’t supported by consideration; H had not asked her to refrain from applying for maintenance, this was done freely by W who was independently wealthy

●

Essential test- whether what is provided by the one party (be it action, inaction, or merely a promise thereof) induced the action, inaction, or promise of the other

Criticisms of Consideration ● Outdated ● Too broad and ineffective ● Other legal systems manage without it General Principles ● Consideration must be sufficient (something of value) but it need not be adequate (doesn’t need to have an economic value comparable with the performance exchanged) ● Consideration must move from the promisee ● Consideration cannot be past Sufficiency Thomas v Thomas (1842) 2 QB 851- Husband indicated he wanted to offer wife opportunity to live in their house in perpetuity if he died; Not written into the will, but executors agreed a £1pa ground rent (‘a peppercorn rent’) with her and agreed she would maintain the house; executors reneged on the deal bc it was financially unfair; held- £1 rent was valid consideration as they has received something of value from her Chappell & Co v Nestle (1960) AC 87- N ran a promotion: record in exchange for 1 shilling and 3 choc bar wrapper; C applied for an injunction to prevent sale at this price (statute required 6.25% of purchase price to be paid to copyright holder); question of whether choc wrappers

could be good consideration for purchase of records- if so value of records was not quantifiable and claim would fail; 3:2 division in HoL- majority viewed wrappers as part of the consideration; irrelevant whether a good deal was struck Movement of Consideration White v Bluett (1853) 23 LJ Ex 36- Father lends money to son- promissory note in exchange; F promised not to enforce note if S stopped complaining about F’s will; held- “the son had no right to complain…and the son’s abstaining from doing what he had no right to do can be no consideration” Key Problems in Consideration ● Past events- generally no consideration (but some key exceptions) ● Performance of public duty- no consideration, unless going above and beyond what this duty requires ● Performance of a pre-existing contractual duty owed to a third party- can be consideration ● Performance of a pre-existing contractual duty owed to the other party- generally no consideration (but some exceptions) ● Part payment of a debt- no consideration, but some exceptions Past Consideration ● Past events- generally no consideration (but some key exceptions) ● Past consideration- parties cannot rely on deeds done or payment made before the contract was formed ○ A does a particular act, freely and without being requested to do so ○ B subsequently promises to pay A for this act ○ B fails to pay A ○ A cannot generally claim ○ As “consideration” has occurred before the contract has commenced ●

Eastwood v Kenyon (1840) 11 Ad & E 438- S died and E was executor of his estate; E spent a considerable amount if money raising S’s daughter and improving the stateneeded a loan from B; S’s daughter married K who promised to pay off the loan; subsequently when B sought repayment of the loan E sued K on his promise to pay it; E could not enforce the promise- “the consideration for it was past and executed long before and the declaration really discloses nothing but a benefit voluntarily conferred by the plaintiff and received by the defendant” per Denman CJ

Requested Performance ● Main exception to the rule of past consideration ● If A asks B to do something and later confirms that B will be paid for it- this could be good consideration

●

●

Lampleigh v Braithwaite (1615) Hobb 105- B had made an implied promise to L that payment would be forthcoming; promisor must have requested that promisee performs this act In Eastwood v Kenyon K had never asked E to perform these services

Re McArdle (1951) Ch 699- Father died and left house in trust for his 5 adult children equally; mother entitled to live in the house in perpetuity; M (daughter in law) undertook a series of repairs to the house; Mother died and 5 children inherit house- M sought cost of repairs; heldpast consideration ● There’s a difference between: ○ “I've done this- now give me money”- past consideration and; ○ “Will you please do this?, Yes, thanks I will pay you” Pao On v Lau Yiu Long (1979) 2 All ER 65- Initial agreement: PO would sell shares to FC (which was owned by LYL) in return for FC shares; PO would retain some of the acquired shares for a year before resale; PO became concerned that it was exposed to losses if the sale price of the retained shares fell- sought an indemnity from LYL (third party); also sought to retain any benefits if the share price rose; Reluctant agreement by LYL who refused to pay when PO later claimed on the indemnity, claiming duress and no consideration ● Held- “an act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise ○ The act must have been done at the promisor’s request ○ The parties must have understood that the act was to be remunerated either by ○ ●

payment or the conferment of some other benefit Payment or the conferment of a benefit must have been legally enforceable had it been promised in advance

All 3 features are present in this case according to Lord Scarmun giving the decision of the Privy Council

Pre-existing Duties Performance of a pre-existing public duty ● If A is already under a public duty to do something for B, simply performing this duty is not consideration for a promise of payment ● Reasoning- A’s promise has not given B anything of additional value ● Policy argument- prevents extortion by potentially refusing to perform a public obligation ● Collins v Godefrov (1831) 1 B & Ad 950- C’s promise to appear in court as a witness for G was not good consideration as C had already been subpoenaed ● BUT- It is good consideration if A does more than this duty requires Glasbrook Bros Ltd v Glamorgan County Council (1925) AC 270- GB wanted police protection for colliery during strike with officers billeted on the premises; GCC would provide a mobile force but would only agree to billeting if GB agreed to pay for thee additional service; GCC submitted bill, GB refused to pay claiming it was the duty of the police to provide necessary police

protection without payment; HoL (3:2)- by providing additional officers to those required the police has gone beyond their existing duty and were entitled to payment Harris v Sheffield United Football Club (1987) 2 All ER 838- police were required to be involved on duty during a football match; if a club required additional services these had to be paid for; SUFC refused to pay on the same basis as Glassbrook; held- police went beyond the public dutt required of them and therefore able to charge for extra services Ward v Byham (1956) 2 All ER 318- An unmarried couple had a child together; B agreed to allow daughter to live with W and agreed to pay her £1 a week “providing you can prove that she will be well looked after and happy and also that she is allowed to decide for herself whether or not she wishes to come live with you”; W sought to enforce the agreement; B argued she was already legally required to look after the baby; held- by promising to ensure the child was well looked after and happy the mother had gone beyond her existing legal duty and therefore had provided consideration and was entitled to payment (per Morris and Parker LJJ) Performance of pre-existing contractual duty owed to a third party Shadwell v Shadwell (1860) 9 CBNS 159- Nephew informed uncle that he intended to marry EN; uncle “delighted” and promised to pay £150pa “during my life time and until your annual income from your profession of a chancery barrister shall amount to 600 guineas”; uncle died with several per annum payments outstanding; nephew sued his uncle’s estate; nephew performing (binding) obligation to marry EN (a third party)= consideration for uncle’s promise to pay The Eurymedon (1975) AC 154- Plaintiff (P) held a bill of lading; clause in bill provided wide exemption from liability for the carrier of the goods and any independent contractor involved in their carriage; Ps goods were damaged by the stevedores engaged as independent contractors by the carriers; P sued the stevedores- question whether they would rely on the exemption clause

●

Privy Council decision- stevedores could rely on the clause ○ Partly due to earlier case law- of sufficiently clear, shipping contracted could extend to other persons involved in the carriage of goods ○ “An agreement to do an act which the promisor is under an existing obligation to a third party to do, may well amount to valid consideration” ○ Generally accepted as there is no major policy reason otherwise and there is no risk of duress

Pre-existing Contractual Obligations Varying a contract ● Contracts are often varied once they have been negotiated to reflect difficulties or changing circumstances ex. Covid ● Parties can renegotiate- but it is still necessary to find consideration in order to effect a binding alteration of the terms ● If the renegotiation affects the rights and obligations of both parties, there will be the required mutuality to constitute consideration ● Renegotiated version of the contract replaces the old contract ● 2 key problems: ○ Performance of pre-existing contractual duty ○ Promise to accept less for the same contractual performance (part payment) Performance of a pre-existing contractual duty ● Performance of a pre-existing contractual duty is no consideration ● Party claiming the bonus payment has not generally provided any consideration for the additional payment ● Main policy concern- one party might “ransom” their contractual performance and force the other to renegotiate in their favour ● The rule on consideration prevents a party having to pay more under duress to the other party ● Consideration is valid where there is a genuine negotiation and no duress Stilk v Myrick (1809) 2 Camp 317- S a sailor contracted to sail between London and the Baltic; 2 crew members deserted bear St Petersburg; M promised A and the crew a share of the wages of the deserters if they worked the ship back to London; M reneged on this when the voyage ended; held- S was unable to recover the money- he had provided insufficient consideration for the bonus payment ● Reasoning- 2 law reports: ○ Campbell Report 317- “here I say the agreement is void for want of consideration...Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage...the desertion of a part of the crew is to be considered an emergency of the voyage...and those who remain are bound to exert themselves to the utmost to bring the ship in safely to her destined port” ○ Espinasse Report 129- much shorter, fear of mutiny by sailors, effect on trade and empire Hartley v Ponsonby (1857) 119 ER 1471- Similar to Stilk- crew members deserted, additional payment offered and captain reneged on the deal once vessel was safely at port; differencesdesertion reduced crew from 36 to 19 also few of the remaining crew had any real sailing experience; held- there was good consideration for the extra payment- the conditions were now far more difficult than before; Crew were free to make a new agreement for more money

Williams v Roffey Bros & Nicholls (1990) 1 All ER 512 (CA)- RB contracted to refurbish block of flats- time penalty clause in contract; RB employed carpenter (W)- £20,000 for 27 flats; tender was too low for work to be carried out satisfactorily; Promise by RB to pay further £10,300 if W finished on time ● 2 issues: ○ Did W substantially perform his part of the contract? (yes) ○ Was there consideration for RBs promise to pay the extra £10,300? ● If: ○ There is a contract for goods or services between A and B (so note it does not cover part payment of debts) ○ And A cannot perform as promised ○ And B agrees to pay more for the performance ○ From which B obtains a benefit or obviates a disbenefit ○ And there is no evidence of fraud or duress by A to obtain the promise from B ○ Then this can amount to consideration for the promise from B ●

●

On Stilk v Myrick- “There were strong public policy grounds at that time to protect the master and owners of a ship from being held to ransom by disaffected crews. Thus, the decision that the promise to pay extra wages even in the circumstances established in those cases, was not supported by consideration is readily understandable” “In the particular circumstances which I have outlined above, there was clearly a commercial advantage to both sides from a pragmatic point of view in reaching the agreement” ○ Avoidance of time penalty clause ○ Commercial reputation intact ○ Rescheduling of work to make it easier to coordinate with other tradesmen

Part payment of a debt (promise to accept less) Pinnel’s Case (1602) 77 ER 237- Part payment of a debt is no consideration; if a debtor only pays part of a debt they still owe the remainder although “payment of a less sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole. The gift of a horse, hawk, robe...in satisfaction, is good. Payment of part before the day, and acceptance, may be in satisfaction of the whole; so payment of part at a different place” per Lord Coke ● Part payment of debt does not amount to a total satisfaction of debt, since the debtor has provided no consideration for the benefit that they have received ● Exceptions: ○ Payment at earlier date ○ Payment in different place ○ Part payment plus something else ex. Part payment plus a pair of shoes Foakes v beer (1884)- F owed B £2090; B obtained a judgement against F; F requested additional time to pay; B accepted payment of the debt by instalments but interest on debt was

still technically due; B promised to take no further action if debt repaid; F repaid the £2090 in instalments; B subsequently sued F for the interest due on the debt ● “I think it would be… an improvement in our law, if a release… of the whole debt, on payment of any sum which the creditor might be content to receive by way of accord and satisfaction (though less than the whole), were held to be, generally, binding … [B]ut I think it impossible, without refinements which practically alter the sense of the word, to treat such a release… as supported by any new consideration proceeding from the debtor” per Earl of Selborne ● The value of Foakes: ● Protects creditors from unscrupulous debtors D & C Builders v Rees (1966) 2 QB 617- D&C performed building work for R who failed to pay in full- £482 outstanding on the account; R realised that D&C were getting into financial difficulties; R contended that the work was deficient and offered £300 “in completion of the account”; D&C subsequently sued got the remainder ● “In the present case, … it seems to me that there was no true accord. The debtor’s wife held the creditor to ransom. The creditor was in need of money to meet his own commitment, and she knew it. She said … ‘we will pay you £300 [instead of £480 owed] if you will accept it in settlement. If you do not accept it on those terms, you will get nothing.’ … No person can insist on a settlement procured by intimidation … There is no reason why the creditor should not enforce the full amount of the debt due to him” per Lord Denning MR Re Selectmove (1995) 2 All ER 531- tax arrears- proposal to pay by instalments; IR- check with superiors and will inform S if this is unacceptable; no response sent to S; IR later demanded full payment; question whether promise to accept instalments and if so was it backed by consideration; could “practical benefit” test from Williams v Roffey Brother be applied? ● “Foakes v. Beer was not even referred to in the Williams case, and it is in my judgement impossible, consistently with the doctrine of precedent, for this court to extend the principle of the Williams case to any circumstances governed by the principle of Foakes v. Beer. If that extension is to be made, it must be by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission” ● NB – Law Reform Committee recommended this in 1937, but it was never implemented ● Must now be overturned by Parliament or Supreme Court – although cases can be distinguished MWB Business Exchange Centres Ltd v Rock Advertising Ltd (2016) EWCA Civ 553- R licensee of office space owned by MWB; R in arrears with monthly licence fees- MWB served notice to terminate licence ● Oral agreement reached between MWB and R to reschedule monthly licence fees (so that R would pay at a lower rate for a number of months and then pay at a higher rate for the remainder of the licence- Was variation agreement supported by sufficient consideration provided by R?

●

●

●

● ● ● ●

“[T]he oral variation agreement would have a number of beneficial consequences for MWB. First, MWB would recover some of the arrears immediately and would have some hope of recovering them all in due course. But secondly and importantly, Rock would remain a licensee and continue to occupy the property with the result that it would not be left standing empty for some time at further loss to MWB. … Rock would remain in occupation of the property, continue its business without interruption and have an opportunity to overcome its cash flow difficulties. Accordingly… MWB derived a practical benefit which went beyond the advantage of receiving a prompt payment of a part of the arrears and a promise that it would be paid the balance of the arrears and any deferred licence fees over the course of the forthcoming months” per Kitchen LJ “In my judgment, this requirement is satisfied where the promisee shows that his renewed promise to perform an existing obligation results in the promisor receiving a benefit which he requested or at least indicated he wanted from the renegotiation” Selectmove is distinguishable from the present case and decides only that the benefit which a creditor obtains from a promise to pay an existing debt by instalments is not good consideration in law. … My conclusion that Selectmove can be distinguished in this case is not inconsistent with Foakes v Beer, where the only suggested consideration was the debtor's promise to pay part of his existing debt. Nor is it inconsistent with the dictum of Lord Coke LC in Pinnel's case itself. … As the law of consideration now stands, the gift of the horse, hawk or robe is no different in principle from the conferral of an benefit or advantage” per Arden LJ Decision appealed to Supreme Court – overturned CA’s finding that the new agreement was enforceable Supreme Court focused on “No Oral Modification” clauses – terms that prevent parties from varying contract unless in writing Decided that the variation of the contract was invalid, so no need to address consideration element of the case “The reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v. Be...