What is consideration?
Consideration is essential for a valid contract because law requires a bargain and not a gift. This means that both parties to the contract must give something to each other by way of exchange. Consideration can be a benefit, where something is given, or can be a detriment, where there is a loss, e.g. X agrees to stop smoking in return for £500.
What are the two types of consideration?
There are two types of consideration:
Executed consideration - consideration that has already been carried out.
Executory consideration – consideration that is yet to be performed.
What are the rules of consideration?
- Consideration must be sufficient but need not be adequate
- Performance of a pre-existing duty cannot be the consideration for a new contract
- Past consideration is not good consideration
- Consideration must move from the promisee
- Part payment of a debt is not good consideration
What is meant by Consideration must be sufficient but need not be adequate?
This means that consideration must be of some recognisable value, however trivial, but need not be an amount that is fair or which represents market value.
What does sufficiency mean?
Sufficient means that consideration must be real and have some value.
Thomas v Thomas
A man before his death expressed a wish that his wife was to stay in the house and charged a nominal rent of £1 per year.
Held: the payment of rent of £1 however small was sufficient and the fact it was inadequate made no difference. The wishes of the man themselves were not sufficient as they were too vague.
White v Bluett
A son owed money to his father. His father promised not to enforce the debt if his son promised not to moan about how the father chose to give out his property to his children.
Held: A promise not to complain was not sufficient consideration, and so the father’s promise was not contractually binding.
What does adequate mean?
It is up to the parties to agree the value of the things being exchanged. As long as there is some value consideration will be adequate.
Chappell v Nestlé where a dispute arose over Nestlé’s running of a promotional offer.
Held: Chocolate bar wrappers were said to be adequate consideration in exchange for a vinyl record.
What is the performance of a pre-existing duty?
A pre-existing duty is something that you are already legally required to do. If someone just does what they were already bound to do, this is not good consideration.
Stilk v Myrick
Two members of a ship’s crew deserted, and the captain promised the remaining crew that they could share the two men’s wages if they got the ship home safely.
Held: The promise to pay the extra wages was unenforceable as the sailors were only doing what they were already paid to do under the contract.
What is the execption to performance of a pre-existing duty?
However, if you do something extra, then this is good consideration.
Hartley v Ponsonby
More than half the crew deserted the ship.
Held: The remaining sailors could get the extra wages promised as the journey became more dangerous, and so they had provided extra consideration by staying and doing their jobs.
This will also be the case if the party gains an extra benefit.
Williams v Roffey
A carpenter, Williams, was sub-contracted to refurbish flats by Roffey, but couldn’t complete the job as he had put in too low a quote. Roffey then agreed to pay him more if he could guarantee to finish the work on time. By doing this Roffey gained a benefit because if the work was not done on time
he would have had to pay a penalty under the building contract.
Held: Although Williams was only doing what he had agreed to do (finish the flats), Roffey was gaining the extra benefit of not having to pay his client money if the flats were completed late, so Williams had provided consideration.
What did the Court of Appeal say in Re Selectmove?
In Re Selectmove the Court of Appeal held that this is limited to cases involving provision of goods and services and does not apply to cases involving part payment of a debt.
What is past consideration?
Past consideration is defined as something that is already done at the time the agreement is made. Where consideration is past, it has no value.
Re McArdle
Mrs. McArdle and her brothers and sisters were had been left a house in a will. Mrs McArdle repaired and decorated it. After the work was carried her siblings promised to pay towards the improvements. However, they did not keep this promise and she sued them.
Held: The payment could not be claimed. As Mrs. McArdle had already finished the work when the promise to pay her was made, this was past consideration and not valid.
What is an exception to past consideration?
An exception to this rule is where there is an implied (suggested by the context) promise to pay for a particular task.
Lampleigh v Braithwaite
Braithwaite was convicted of murder and was waiting to be hanged. He asked Lampleigh to get him a pardon from the king. Lampleigh got him the pardon and Braithwaite then promised to pay Lampleigh a £100 for his trouble.
Held: Although Lampleigh’s consideration was past, Braithwaite had asked Lampleigh to do this and it was so important that payment was implied all along.
What is meant by consideration must move from the promisee?
This means that a person cannot sue on or be sued under a contract unless they provided consideration. Central to this idea is the principle of privity of contract. This means that only a party to a contract can sue or be sued under a contract.
Tweddle v Atkinson
The fathers of a couple getting married agreed in writing to both give the couple a sum of money. The girl’s father died before giving over the money and the husband sued the estate of the girl’s father for the money.
Held: The husband could not receive the money as he had not provided consideration for the agreement. Consideration must move from the promisee.
What is privity?
Privity: The general principle of privity of contract means that a contract cannot confer (give) rights or impose (force) obligations on someone who is not party to the contract. Only the parties to a contract can benefit under it because consideration must move from the promisee.
Dunlop v Selfridge
D manufactured tyres and sold some to Dew, who agreed not to resell them below a certain price. Dew resold the tyres to Selfridge with the same term not to resell them below a certain price included. Selfridge sold the tyres below the specified price. Dew refused to sue him, so Dunlop sued him.
Held: Dunlop could not sue Dew as they were not party to the contract between Dew and Selfridge.
What is an exception to the rule of privity?
Jackson v Horizon Holidays
Mr. Jackson booked a holiday for himself and his family. The holiday was a complete disaster and did not match the description. Mr. Jackson sued for damages for himself and his family.
Held: Under the strict law of privity, Mr Jackson could only sue for himself as he had made the contract, but the CA allowed him to sue on behalf of the whole family as this was fairer. This method of avoidance is generally only limited to “holiday contracts”
What are Common Law Exceptions to the rule of Privity?
Agency
Collateral contracts
What is Agency?
Where one person makes a contract on behalf of another person (the ‘principal’), the principal is bound by those terms even though they did not make the contract themselves, e.g. when an employee enters into a contract on behalf of a company (Wakefield v Duckworth [1915]).
What are collateral contracts?
Collateral contracts
Shanklin Pier Ltd v Detel Products
The Shanklin Pier company hired a firm of painters to paint their pier and, following a representation made by Detel Products that their paint would last for seven years, instructed the painters to use Detel Products’ paint. When the paint did not last anywhere near this long, Shanklin Pier found themselves unable to sue the defendants as they were not party to the contract between Detel Products and the painters.
Held: there was a collateral contract between Shanklin Pier and Detel products that the paint wouldlast seven years. The consideration proceeded by Shanklin Pier was their instruction to the painters to use Detel Products’ paint.
How can the rule of privity cause problems?
The rule of privity can cause problems. For example:
Beswick v Beswick
Mr Beswick made a contract with his nephew to sell his coal merchant’s business, in exchange for weekly payments to the uncle for life and after his death to his wife, the nephew’s aunt. After his death the nephew refused to make payments to his aunt.
Held: The aunt could not enforce the payments as she was not a party to the contract.
What is the exception to the strict rule of privity?
However, there is an exception under the Contracts (Rights of Third Parties) Act 1999. Under s1(1) someone who is not a party to a contract (a third party) may enforce a contract if the third party is expressly identified by name, or is a member of a group of people or matches a description in the contract; and
(a) the contract expressly provides that the third party may enforce the contract; or,
(b) the contract term is an attempt to confer the benefit of the term on a third party.
Under s1(2), s1(1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
What did the courts say in Nisshin Shipping v Cleaves?
In Nisshin Shipping v Cleaves the court held that if the contract is neutral as to whether a third party is intended to benefit, the third party will be able to sue, so the onus is on the party seeking to avoid s1(1)(b) to show that it should be disapplied.
Under s1(3), in order for a third party to enforce a term of such a contract, they must be expressly identified by name, class or description. However, they need not exist at the time of the contract.
Under s3 if the Act applies, the defendant can rely on any defence or valid exclusion clause that was available to the original contracting party.
What are the cases for part payment of a debt is not good consideration?
Pinnel’s Case
Held: The payment of a lesser sum on the day a debt is due cannot be in satisfaction of the greater debt.
Foakes v Beer
Dr Foakes owed Mrs Beer £2,090 after a court judged against him. They agreed that Foakes could pay by instalments, and Beer agreed that no further action would be taken providing the debt was paid off by the agreed date. Later Beer demanded interest (which is always payable on a judgement debt), and she sued when Foakes refused to pay.
Held: Part payment of a debt is not good consideration for an agreement not to claim the whole debt at once. Mrs Beer was successful in her claim.
What are the execptions to the rule of part payment of debt?
a) The creditor adds something else to the payment. It may be suggested that part of the payment is provided together with an item of value. In Pinnel’s Case the judge suggested “the gift of a horse, hawk or robe”. This must be at the request of the creditor, not the debtor. For example, the creditor is owed £1000 and suggests the debtor gives him a car plus £200 (even if the car is worth less than £800) and the debtor agrees.
b) The doctrine of promissory estoppel. If one party to an existing contract agrees to vary the contract and the other party relies on that promise, the promisor cannot go back on that agreement as they are estopped (prevented)from breaking their promise.
What are the cases for promissory estoppel?
Central London Property Trust v High Trees House
The owner of a block of flats agreed with the company to which he leased the block that only half the rent was to be paid during World War Two, as it was difficult for the company to find tenants at this time. After the war, this was no longer a problem so the owner of the flats claimed the full rent
for the period after the war.
However, Lord Denning ruled that the owner would not have been entitled to the foregone rent accrued during the war because the company had relied to their detriment on the owner’s promise, even though there was no consideration for it.
Coombe v Coombe
D promised to pay C £100 per year. When he stopped paying, she tried to sue him for 10 years’ worth of payments using High Trees.
Held: Promissory estoppel is a shield, not a sword.
This means it cannot be used to found a new contract, but only to defend an existing claim.
From this case we know that the essential requirements for use of promissory estoppel are:
1. There is an existing contract between the two parties
2. One party agrees to waive a right that they are entitled to under the contract
3. Waiving this right, they are aware the other party is relying on it.
4. The other party alters their conduct and does rely on it to their detriment.
Re Selectmove
Selectmove Ltd owed tax to the Inland Revenue. An agreement was reached that they would pay in instalments and the company started making payments. The Inland Revenue then claimed the whole debt.
Held: The Inland Revenue were entitled to the full amount. The argument that Selectmove had relied to their detriment on the Inland Revenue’s promise was rejected. Promissory estoppel does not extend to tax cases.
D&C Builders v Rees
The builders did work for a family, who only paid part of the bill claiming that the work was unsatisfactory. They paid by cheque at the request of the builders. The family argued they could
not be sued for the rest based on promissory estoppel, because by accepting the cheque, the builders had agreed to part payment of a debt.
Held: The builders could sue, as the court felt they had been held to ransom by being forced to take whatever they could in the form of a cheque. In these circumstances it would have been inequitable to allow the family to succeed in a claim of promissory estoppel, as the whole idea of equity is to do justice.
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Offer24
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Acceptance20
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Consideration23
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Intention to Create Legal Relations10
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Express and Implied Terms18
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Sales of Goods and Services Act - Terms Implied by Statute in non-consumer contracts4
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Consumer Rights Act 2015 - Terms Implied by Statute in Consumer Contracts19
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Conditions, Warranties and Innominate Terms6
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Misrepresentations28
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Economic Duress10
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Performance8
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Frustration13
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Breach of Contract4
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Exclusion Clauses14
