Unit 2

Question 1

What is consideration?

Answer 1

It is a ‘something in return’. This thing in return may be in the shape of a promise or an act. What is provided by way of consideration should either be a benefit tot the person receiving it or a detriment to the persons giving it. For example if you are giving money to someone for a car you are losing out and the person receiving is gaining something. The price one party pays for the other party’s promise.

It need not be adequate but must be sufficient.

Question 2

Executory Consideration

Answer 2

A promise to do something in the future. Typical in bilateral contracts (exchange of promises).

Question 3

Executed Consideration

Answer 3

An act that has already been performed in return for a promise. Seen in unilateral contracts (promise in return for an act).

Question 4

Rules of Consideration: Consideration need not be adequate, but must be sufficient

Answer 4

Not Adequate: The value of the consideration does not need to be equal to the value of the promise. A nominal amount (e.g., £1 for a car) can be sufficient.
Must be Sufficient: The consideration must have some value in the eyes of the law. This traditionally meant economic value, though this is not strictly enforced today.

Question 5

Conditional Gift vs. Consideration

Answer 5

Performing an act that is merely a condition for receiving a gift is not considered valid consideration (Cheshire, Fifoot & Furmston).

Question 6

Trivial Consideration

Answer 6

A party can stipulate any consideration they choose, even if seemingly trivial, as long as it has some value in their eyes.
Case: Chappell & Co Ltd v Nestlé Co Ltd (chocolate wrappers)

Question 7

Rule 4: Giving Up a Liberty

Answer 7

Giving up a legal right or liberty can be good consideration.
Case (US): Hamer v Sidway (refraining from vices) However this was an American case.

Question 8

Rule 5: Forbearance (Stopping Complaints)

Answer 8

A promise to stop complaining is not usually good consideration, potentially due to public policy or lack of intention to create legal relations.
Case: White v Bluett

Question 9

Past consideration …

Answer 9

Is no consideration (Roscorla v Thomas) (1842).

Question 10

Exception to Past Consideration

Answer 10

The act was done at the promisor’s request.
Case: Lampleigh v Brathwait (seeking royal pardon)

There was a mutual understanding from the outset that the act was to be rewarded.
Case: Re Casey’s Patents, Stewart v Casey (managing patents)

The payment or benefit would have been legally enforceable if promised in advance (usual contract requirements met).

Question 11

Existing Duty by Law - General Rule

Answer 11

Performing a duty already required by law is generally not sufficient consideration for a promise of payment.
Case: Collins v Godefroy (witness subpoenaed)

Question 12

Existing Duty by Law - Exceeding Duty

Answer 12

If someone exceeds their existing public duty, this can be good consideration.
Case: Glasbrook Bros Ltd v Glamorgan County Council (police garrison beyond necessity)

Question 13

Existing Contractual Duty to a Third Party

Answer 13

Performing an act already contractually obligated to a third party can be sufficient consideration for a separate contract with someone else.
Case: Scotson v Pegg (delivering coal)
Rationale: Promisor receives a direct benefit.

Question 14

Existing Duty to Other Party - Traditional Rule

Answer 14

Simply performing an existing contractual duty owed to the other contracting party is not sufficient consideration for a new promise from that same party to pay more.
Case: Stilk v Myrick (sailors’ extra pay promise) Sailors who agreed to work a ship back home after desertion of some crew members were not entitled to extra pay promised by the captain because they were already contractually obligated to do whatever was necessary in the voyage. There was no new consideration for the captain’s promise.

Public Policy in Stilk v Myrick: Lord Ellenborough also referred to public policy concerns (as highlighted in Harris v Watson (1791)) about sailors potentially extorting captains in dangerous situations if promises of extra pay were easily enforceable.

Question 15

Existing Duty to Other Party - Exceeding Duty

Answer 15

If the promisee exceeds their existing contractual obligation, this will be good consideration.
Case: Hartley v Ponsonby (When a large portion of a ship’s crew deserted, making the voyage exceptionally hazardous, the remaining crew’s agreement to continue was considered performance beyond their original contractual duty and thus good consideration for a promise of extra pay.)

Question 16

Modern Approach - Williams v Roffey Bros

Answer 16

This case introduced a significant refinement to the rule in Stilk v Myrick.

Performing an existing contractual duty can be good consideration if the promisor obtains a “practical benefit” and the promise was not given under duress or fraud.

Facts: Carpenters subcontracted to refurbish flats faced financial difficulty. The main contractors, concerned about delays and penalties under their main contract, promised to pay the carpenters extra to complete on time.

Question 17

Williams v Roffey Bros - Glidewell LJ

Answer 17

(A has contract with B) -> (B doubts A’s completion) -> (B promises extra for on-time performance) -> (B obtains practical benefit/avoids disbenefit) -> (B’s promise not due to duress/fraud) -> (Benefit to B can be consideration).

Question 18

Williams v Roffey Bros - Practical Benefit

Answer 18

In this case, the main contractors benefited by avoiding penalties and the hassle of finding replacements.

Question 19

Impact of Williams v Roffey Bros:

Answer 19

While seemingly contradicting the strict rule in Stilk v Myrick, it reflects the practical realities of business and allows for contract modifications when unforeseen difficulties arise, provided there is a genuine benefit to the promisor and no duress. However, it has also been argued that it makes it too easy to modify contracts.

Question 20

Part Payment of Undisputed Debts: General Rule (Pinnel’s Case, confirmed by Foakes v Beer):

Answer 20

Part payment of an undisputed debt is not usually consideration for a creditor’s promise to forgo the balance. The debtor is already obligated to pay the full amount.

Question 21

Foakes v Beer (1884):

Answer 21

The House of Lords upheld the rule in Pinnel’s Case, stating that part payment of a debt does not satisfy the whole debt because there is no consideration for the creditor’s promise to forgo the balance.

Question 22

Part Payment: Common Law Exception 1 - Something Different

Answer 22

If debtor provides something different (e.g., goods instead of money) at creditor’s request, this can be good consideration. Adequacy of this different consideration is not questioned.
Case: Pinnel’s Case

Question 23

Part Payment: Common Law Exception 2 - Early Payment

Answer 23

Paying a lesser sum earlier than the due date can be good consideration, as it provides a benefit to the creditor.
Case: Pinnel’s Case

Question 24

Part Payment: Common Law Exception 3 - Payment by Third Party

Answer 24

Part payment by a third party in full settlement can discharge the entire debt. Preventing fraud on the third party.

Question 25

Promissory Estoppel

Answer 25

An equitable doctrine preventing a creditor from going back on a promise to accept part payment if it would be unfair to do so, even without consideration. If promisor makes a clear promise not to enforce legal rights, and promisee relies on it, promisor may be estopped from going back if inequitable.

Question 26

Promissory Estoppel - Central London Property Trust v High Trees House

Answer 26

Landlord reduced rent during wartime. Could not recover full rent for war period (obiter) due to tenant's reliance. Full rent recoverable after concession ended.

Question 27

Conditions for Promissory Estoppel: Condition 1: Clear Promise

Answer 27

Must be a clear promise to waive a strict legal right. Can be express or implied by conduct. Case: High Trees

Question 28

Promissory Estoppel: Condition 2 - Acts on Promise

Answer 28

Promisee must have altered their position as a result of the promise (reliance). Detriment not strictly required. Acting on belief induced by promisor is sufficient. Cases: WJ Alan & Co v El Nasr, Emanual Ajayi v RT Briscoe (Nigeria) Ltd

Question 29

Promissory Estoppel: Condition 3 - Shield, Not a Sword

Answer 29

Can only be used as a defence against a claim, not to create a new cause of action. Case: Combe v Combe

Question 30

Promissory Estoppel: Condition 4 - Inequitable

Answer 30

Must be inequitable for the promisor to go back on their promise. Court considers all circumstances, including conduct. Promise extracted by unfair pressure will not give rise to estoppel. Case: D&C Builders v Rees

Question 31

Promissory Estoppel: Effect - Continuing Obligations

Answer 31

Generally suspends legal rights. The promisor can usually resume their full rights by giving reasonable notice (High Trees, Tool Metal Manufacturing Co v Tungsten Electric Co Ltd). But they will not be able to claim the full amount of rent for the period before the notice expires (although this does depend on what was agreed). Therefore, the court will consider whether the promise was clearly intended to last only until a particular event happened or a particular situation came to an end (such as war-time conditions in the High Trees case). If so, it may be that the promisor is able to resume the right to the full amount of rent (or other form of continuing payment) from that point. If not, then it is likely that the promisor can give reasonable notice and resume full rights when the notice expires.

Question 32

Promissory Estoppel: Effect - One-Off Debts

Answer 32

Less clear. Denning LJ suggested it could prevent recovery if debtor acted equitably (D&C Builders v Rees), but difficult to reconcile with Foakes v Beer.

Question 33

Re Selectmove [1995]

Answer 33

explicitly considered whether the "practical benefit" principle from Williams v Roffey Bros could be extended to the context of part payment of debt. While sympathetic to the argument, the Court of Appeal, led by Peter Gibson LJ, rejected the extension of the Williams v Roffey Bros principle to part payment of debt. The primary reason was the binding precedent of Foakes v Beer, a House of Lords decision. Reasoning: Extending the "practical benefit" concept to debt payment would, in effect, undermine the rule in Foakes v Beer. In many situations where a creditor agrees to accept payment by installments, they would likely perceive a practical benefit (avoiding potential non-payment). If this benefit were considered sufficient consideration, Foakes v Beer would become largely inapplicable.

Question 34

Upward Variations

Answer 34

Governed by Stilk v Myrick (modified by Williams v Roffey Bros). Focus on additional consideration or promisor's practical benefit (without duress).

Question 35

Downward Variations

Answer 35

Governed by Foakes v Beer. Traditionally requires new consideration beyond mere partial payment. "Practical benefit" extension rejected by Court of Appeal.

Question 36

Doctrine of Privity of Contract

Answer 36

Fundamental principle that only parties to a contract can sue or be sued on it. Third parties not part of the original agreement generally have no rights or obligations under it. Tweddle v Atkinson

Question 37

Reform: Contracts (Rights of Third Parties) Act 1999

Answer 37

Act providing a significant exception to privity for contracts entered into on or after 1 May 2000. Third party can enforce a term if the contract expressly provides that they may do so. Third party can enforce a term if it purports to confer a benefit on them, unless it appears the contracting parties did not intend it to be enforceable. The third party must be identified in the contract by: Name, Member of a class (e.g., 'employees'), Particular description The Act also allows third parties to rely on the benefit of exemption clauses in certain circumstances (to be discussed later).

Question 38

What is Agency?

Answer 38

Legal relationship where one person (agent) acts on behalf of another (principal) with power to affect the principal's legal position with a third party.

Question 39

Examples of Agents

Answer 39

Travel agents, insurance brokers, ticket agents, shop assistants, auctioneers.

Question 40

How is Agency Created?

Answer 40

Agent generally needs actual authority to bind principal to a third party contract. Authority the principal actually gives the agent to contract on their behalf.

Question 41

Actual Authority: Express

Answer 41

Principal explicitly instructs the agent to perform specific actions.

Question 42

Actual Authority: Implied

Answer 42

Agent with express authority for a task also has authority to do things normally incidental to that task (e.g., advertising, receiving payment for sales).

Question 43

Agents Acting Beyond Actual Authority

Answer 43

Can occur due to misunderstanding, uncertainty, or unknown revocation. Principal may argue they are not bound.

Question 44

Apparent Authority

Answer 44

Agent lacks actual authority, but principal's actions create an appearance of authority in the third party's eyes, potentially binding the principal.

Question 45

Apparent Authority: Key Requirement

Answer 45

The principal, not just the agent, must create the appearance of authority. 1. Principal (words or conduct) must have represented to the third party that the agent had authority. 2. Third party must have relied on this representation and believed the agent had authority. 3. Third party must have acted on this belief, typically by entering into a contract with the agent.

Question 46

Authorised Agent: No Rights/Obligations

Answer 46

Agent acting with actual or apparent authority acquires no rights or obligations under the contract between principal and third party. The resulting contract is directly between the principal and the third party. Agent "drops out" after formation.

Question 47

Unauthorised Agent - effects

Answer 47

- Principal cannot sue third party, and third party cannot sue principal on the contract. Unauthorised agent had no power to bind principal. - Agent cannot be sued on the contract itself. Third party believed they were contracting with the principal. - Third party may sue agent in tort of deceit if agent knowingly misrepresented their authority or for Breach of Implied Warranty - Collen v Wright