Consideration, Promissory Estoppel & Privity Flashcards
(20 cards)
What is meant by consideration?
Each party must gain a benefit and suffer a detriment as a result of entering into a contract. This is necessary in order for a simple contract to be formed
What is the difference between executory and executed consideration?
Executory: promise given for a promise (e.g. promise to do work in return for pay)
Executed: occurs when one party has done all they are bound leaving outstanding liability on one side
What is meant by need not be adequate but must be sufficient?
Consideration must be something real and have some value in the eyes of the law, however the courts are not concerned whether a good deal exists or not, hence it need not be adequate but must be sufficient (Chappell v Nestle Co)
What is past consideration?
A mere sentiment of gratitude for benefits received after the act has been carried out is not valid consideration, this means where the promise is subsequent to the act it cannot be enforced
What are the requirements in order for past consideration to be valid?
Pao On v Lau Yiu Long:
1. The act was performed at the request of the promisor
2. Both parties understoof that payment or some benefit would follow the act
3. The promise would have been enforceable if made in advance
What is the rule on consideration where there is performance of a contractual duty owed to a third party? (i.e. someone other than the person who makes the promise?)
- The Eurymedon: Performance of pre-existing duty to a third party is good consideration (unloading goods from a ship which the stevedores were bound to do by a third party could form good consideration to the goods owners)
- Pao On v Lau Yiu: This applies where the consideration takes the form of a promise to perform as opposed to actual performance of it
What is the rule on consideration when there is a pre-existing duty owed to the promisor?
Stilk v Myrick: No consideration to carry out a duty that you already had to HOWEVER
Williams v Roffey: Where the person derives a practical benefit and the duty has an extra element, this is valid consideration. Courts should be more readu to find consideration to reflect the intention of parties
What is the rule on consideration where there is performance of a duty imposed by law?
- This is not good consideration
- However, this has been attacked and challenged by Lord Denning in the case of Ward v Byham
What is the rule on consideration and payment of pre-existing debt?
Foakes v Beer: Payment of part of a debt is not good consideration for a promise to discharge the entire debt. Debtor does not provide any additional consideration beyond the existing obligation to pay the full amount
Re Selectmove: The doctrine of practical benefit from Williams v Roffey does not extend to a promise to accept less, no consideration will be found (Advantage of prompt payment not enough)
MWB Business Exchange Centres v Rock Advertising: Court of Appeal held that a practical benefit was conferred to C beyond receiving prompt payment because the licencee would stay in occupation. HOWEVER, the Supreme Court declined to overrule Foakes and said there was no consideration, this was obiter as they had held the non-oral variation clause valid (said they didn’t want to change it in obiter FLOPS)
What is promissory estoppel?
Central London Property Trust v High Trees House: Where a party promises not to enforce a contractual obligation on another they may be estopped from going back on this if the other party relies on it
* HOWEVER, promissory estoppel is not itself a cause of action, i.e. it cannot do away with consideration Combe v Combe
What are the circumstances dictating promissory estoppel?
Baird Textile Holdings v Marks & Spencer: Not a cause of action but can assist a claim, can only be applied where there is a pre-existing contractual relation betweent the two
Collier v Wright:
1. Debtor offers to pay part of debt
2. Creditor voluntarily accepts that offer
3. In reliance on the acceptance the debtor pays that part in amount he owes in full
If this is made out then creditor is bound, estoppel has the effect of extinguishing the original agreement
What is some academic commentary concerning consideration?
CHEN-WISHART: Discretionary nature and uncertain nature of promissory estoppel make it a poor substitute for a coherent doctrine of variation
- Distinction between the legal right to performance and actual performance (what someone is entitled to versus what a person actually does)
- There is a unilateral contract on top of the original one to pay more in order to complete the work on time
O’SULLIVAN: Practical benefit cannot be given in the negative, it would undermine commercial transactions and what creditors can expect
- But there is still good in Foakes, because getting some money upfront is better than a vague promise that you will never get, therefore there is the serious that is typically needed for consideration (reflects their intentions)
What is the privity doctrine under the common law?
You cannot be sued or sue under a contract unless you are a party to it
What cases demonstrate the doctrine of privity?
Tweedle v Atkinson: The agreement was made between the fathers. Consideration must move from the party entitled to sue on the contract
Dunlop Pneumatic Tyre Co Ltd v Selfridge: Suggests the rule of privity is an extension of the rule on consideration (if no consideration given then the contract cannot be enforced)
What act protects third parties so they can claim in a contract?
Contracts (Rights of Third Parties) Act 1999
When can a person claim under the act?
S1(1) Person may enforce the term of a contract if (a) it expressly provides he may or (b) it purports to confer a benefit on him
S1(2) (b) does not apply if on a proper construction of the contract it appears the parties did not intend for it to be enforced by a third party
S1(3) Third party must be expressly identified by name, as a member of a class, or answering a particular description
Nisshin Shipping: Where a term purports to confer a benefit there is a rebuttable presumption of enforcability, s1(2) applies only if the contract provides they did not intend for third parties
What does the case law tell us about an action by the contracting party for the benefit of a third party?
Beswick v Beswick: Promisee may be able to obtain an order for specific performance against the promisor to compel him to carry out performance for the third party (C was in one sense a third party and in another a party, could only get the remedy as the latter)
Jackson v Horizon Holiday: Held that a party could recover for the distress of third parties from a contract intended to benefit them
Woodwar v Wimpey: A promisee in a contract cannot sue on behalf of a third party if he has not personally suffered loss or is not acting as their agent. The view from Jackson should be limited to specific fact pattern, e.g. family holidays, meals out, group taxis etc.
What is an exception to the rule in Woodar and how can this be limited?
The Albazero exception means that a third party can sue under a contract for carriage of goods and construction cases (i.e. building properties that are to be sold or for the benefit of another) when the original party is unable or unwilling to sue the other
- Alfred McAlpine Construction v Panatown: If the contracting parties explicitly provide a remedy for the loss to a third party, the exception does not apply
Can a third party enforce an exclusion clause?
The Eurymedon: The third party could rely on an exclusion clause as the wording was designed to cover all parties involved in carrying the goods. There was sufficient consideration between both parties even though they were only doing what they had contracted to do with a third party
What does the most recent case law tell us about the operation of the Contract (Rights of Third Parties) Act 1999?
Sec of State for the Dept of the Environment v PCSU
* The presumption under s1(1)(b) is a strong one, the only thing that will rebut it under s1(2) an express clause or the test finding there is an implied term
* Lord Burrows critiqued Chudley v Clydesdale in which s1(3) was found to be complied with by reference to a ‘client account’. Said this came too close to identification by implication, when under s1(3) it must be explicit
NOTE: Can refer to as the DEFRA case
