Unit 2

Question 1

What are the 5 requirements of consideration?

Answer 1

1) Consideration must not be past

2) Consideration must move from the promisee to the promisor

3) Consideration must be sufficient but need not be adequate

4) Performance of an existing obligation between parties is not good consideration

5) Part payment of a debt is not good consideration

Question 2

Is giving up a legal right sufficient consideration?

Answer 2

Yes. But promising not to enforce a right that you do not have is insufficient.

Question 3

Does exceeding an existing obligation provide good conisderation?

Answer 3

Yes. Going over and above what was already requested or putting in more work acts as good consideration.

Question 4

What is the rule on duties owed to third parties as being good consideration?

Answer 4

Promising to do something that you are already obliged to do under contract with a third party is good consideration with the new party. The new party acquires a direct right to sue you if you fail to fulfil the promise.

Question 5

What is the exception to completion of an existing obligation will not be good consideration?

Answer 5

Williams v Roffey Bros:

1) Where A already has a contract with B

2) B has reason to doubt that A will complete (A cannot approach B and say this as it would be duress); and

3) B approaches A and B then promises to pay A extra to complete on time

4) B obtains a practical benefit, or obviates a disbenefit

5) B’s promise was not given as a result of duress or fraud

6) The benefit to B is capable of being consideration, so B’s promise to pay more for the same will be binding.

Question 6

What are the requirements for duress?

Answer 6

1) Lack of practical choice

2) Illegitimate pressure

3) A significant cause to enter the contract

Question 7

What is the effect of duress?

Answer 7

Renders the variation in the contract voidable, which means the contract remains valid until the victim takes the perpetrator to court to rescind or affirm the contract.

Question 8

What are the exceptions to the general rule that part payment of a debt is not good conisderation?

Answer 8

1) A debt can be part paid with either a) a different thing, b) in a different place or 3) earlier which count as good consideration.

2) Part payment of a debt by a 3rd party is good consideration.

3) Promissory Estoppel

Question 9

What are the 5 elements of promissory estoppel?

Answer 9

1) Clear promise to suspend or waive contractual rights

2) Change of position by the promisee in reliance on the promise

3) reliance need not be detrimental

4) Must be inequitable for the promisor to go back on the promise

5) Promissory estoppel is a defence and not a cause of action

Question 10

When can the rights suspended by promissory estoppel be resumed?

Answer 10

1) Following reasonable notice or

2) When circumstances giving rise to estoppel cease

Question 11

Do trading contracts or commercial contracts bind minors?

Answer 11

No. A trading contract made with a minor is voidable by the minor.

Question 12

What contracts bind minors?

Answer 12

Contracts of service which are beneficial to them.

Contracts for necessaries.

Question 13

What is a ‘necessary’?

Answer 13

– Necessaries include not just the supply of necessary goods and services, but also contracts of service for a minor’s benefit. They extend beyond the absolute essentials (e.g., food & clothing) i.e., telephone contracts and going out for dinner.

– What is necessary for a particular minor will depend on their social status and their actual requirements at the time of purchase.

Question 14

What is the general rule on contracts with mentally incapacitated people and drunk people?

Answer 14

Contracts made with people in either state will be valid, unless, at the time of the contract, the person was uncapable of understanding the nature of the transaction and the other party knew that to be the case.

If the other party is not aware of their condition, the contract remains binding.

Question 15

When does apparent authority arise?

Answer 15

When a principal gives the impression to the innocent party that the agent has authority to do specific thing(s).

Question 16

What is the effect of apparent authority?

Answer 16

The principal will be bound to honour the contract (i.e., perform the contractual duties where they gave the impression to the claimant (innocent party) that the agent had authority

Question 17

Will a third party have to pay again (or pay the principal) if they had paid to an agent who was no longer an agent?

Answer 17

No under apparent authority. Unless the principal has notified all its third parties that the agent is no longer an agent.

Question 18

Who can the third party sue in the case that the agent made a contract with the principal where they had no authority to do so?

Answer 18

 The principal cannot sue the third party or be sued by the third party (because the agent did not have the authority to bind the principal).

 The third party may sue the agent in deceit, where the agent knew they had no authority, or for a breach of implied warranty of authority (e.g., where the agent’s authority had been terminated without the agent’s knowledge).

 The agent cannot sue or be sued for breach of contract as the agent had purported to contract on another’s behalf and the third party never thought there was a contract with the agent.

 Where the agent does not have authority (actual or express), the agent cannot bind the principal to a deal, and as the agent was purporting to act on behalf of someone else, the agent will not be personally liable on the deal (although the agent may be liable in the tort of deceit.

Question 19

What is the doctrine of privity?

Answer 19

Under the doctrine of privity, a third party cannot:

1) Enforce

2) Acquire rights under, or

3) Be liable for a contract to which that person is not a party.

Question 20

What are the statutory exceptions to the doctrine of privity?

Answer 20

The main one is:

1) Contract Rights of Third Parties Act

Question 21

When can a third party enforce a contract under the Contract Rights of Third Parties Act?

Answer 21

Where:

1) The contract specifically states that a third party may enforce it;

2) The contract “intended to confer a benefit” upon the third party

Question 22

What are the requirements for the contract rights of third parties act to apply?

Answer 22

1) Third party is expressly identified

2) Term purports to confer a benefit on the third party (this is a presumption which can be rebutted where the contract appears to infer that the term is not enforceable by the third party)

Question 23

Where a third party has rights under a contract, what do the other parties need to vary or rescind the contract?

Answer 23

The third party’s consent where:

a) The third party has communicated agreement of the term to the promisor;

b) The promisor is aware that the third party has relied on them; or

c) the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.

Question 24

Where somone buys a gift for someone else and passes to them a gift receipt, does this confer contractual rights on the third party to enforce the contract? E.g., return goods

Answer 24

Yes.