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NANYANG TECHNOLOGICAL UNIVERSITY NANYANG BUSINESS SCHOOL AB1301 - BUSINESS LAW SEMESTER 2 AY2021/22 Notes for Week 3: Formation of Contract II - Consideration, Promissory Estoppel, Privity Key Learning Points: • • • • •

To continue the discussion on how a contract is formed after last week’s lesson on intention to contract and agreement (offer and acceptance) To understand the next element in the formation of contract i.e. consideration – its nature and the role it plays in the enforcement of contracts To have a basic knowledge of the rules on consideration and the types of consideration as well as concepts like sufficiency of consideration To understand the concepts of promissory estoppel and To understand the concepts of privity of contract and the exception under the Contract (Third Party Rights) Act

Contents A. Consideration B. Promissory estoppel C. Privity of Contract

Recap: Four pillars of contract ‒ Offer + acceptance = agreement ‒ Consideration + intention = enforcement A.

Consideration Definition and importance of consideration ‒ Benefit-detriment analysis; reciprocity ‒ Why consideration is essential for all contracts ‒ Exception: deeds Types of consideration ‒ Executory and executed consideration: in terms of the same consideration seen at different moments of the transaction (before & after the promise is carried out) ‒ Past consideration: in that this is fundamentally different as having been done before there is any agreement Principles or rules on consideration ‒ Consideration must move from the promisee but it need not move to the promisor ‒ Consideration must be sufficient but need not be adequate ‒ General rule : Consideration must not be past Exception : Pao On’s case Comments: ‒ Students should be able to: ▪ Define consideration and explain the key elements of the concept. ▪ Understand and be able to explain how the benefit/detriment analysis and how this must move from the promisee constitute the exchange (bargain) element in contract.

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▪ Understand what is past consideration and explain why this means that the exchange (bargain) element is missing for past consideration, and how this is present in the exception.

Sufficiency of consideration ‒ Sufficient consideration ▪ Good or valuable consideration ▪ Money, goods or services ▪ Forbearance to sue ▪ Performance of existing duty to third party ‒ Insufficient consideration ▪ Moral obligation; vague promises ▪ Performance of existing public duty ▪ Performance of existing contractual duty owed to promisor: Stilk v Myrick ▪ Part payment of existing debt: Pinnel’s case ▪ Past consideration ‒ Possible conflict between Stilk v Myrick and Williams v Roffey

Comments: Students should be able to: ▪ Explain sufficient and insufficient consideration ▪ Identify the different examples of sufficient and insufficient consideration, and explain when they apply ▪ Identify and state the difference between sufficiency and adequacy of consideration and be able to suggest a rationale for this in terms of market operations for determining the value of things ▪ Apply the relevant case law, including resolving possible conflicts

B.

Promissory Estoppel ‒ Equitable principle - the legal notion of fairness and fairplay ‒ Promisor is estopped from breaking his promise not to enforce a legal right ‒ Definition and decision in High Trees case ‒ Accommodation between common law and equity: how equity acknowledges the common law but amends its operation ‒ Nature of promissory estoppel: suspensory or extinctive ‒ Used as a shield, not a sword

Comments: Students should be able to - Apply the notion of promissory estoppel in certain cases where it enables one to circumvent the effects of the common law rule that a contract promise to forbear from claiming a debt cannot be supported by purported consideration (because insufficient) that is merely the bare payment of a lesser portion of that debt. - Discuss the notion of inequitableness as an element of promissory estoppel and how it may lead to extinction (as opposed to suspension) of the original obligation

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C.

Privity of Contract ‒ Only parties to a contract can sue (rights) or be sued (obligations) on the contract ‒ 3rd party (stranger to contract) cannot sue or be sued under the contract ‒ Exceptions eg. Joint contractors, Agency, Contracts (Rights of Third Parties) Act Comments: Students should be able to: ▪ Explain and apply the concept of privity of contract ▪ State and apply the exceptions

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