1. Element of exchange in a contract 2. What you need to know The function of Consideration The definitions of Consideration Kinds of Consideration Adequacy of Consideration Sufficiency of Consideration Duties Imposed by General Law Duties Imposed by a Contract with same Party Duties owed to third party Promissory Estoppel 3. Traditional view English law will only enforce a promise which is: made under seal-a deed (A deed is a document which is signed and attested and indicates on its face it is a deed) or which is supported by consideration. 4. What is Consideration? Classic definition: Lush J in Currie v Misa (1875) A valuable consideration in the eyes of the law may consist either in some right, interest, profit or benefit to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. 5. Shorter version: A benefit to one party or a detriment to the other. 6. Modern Version Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd: An act or forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable 7. Shorter Version Price paid on which the promise is bought 8. Kinds of Consideration Executory - a promise to do something in the future eg: mutual promises Executed - an act wholly performed at the time the contract is made. (Carlill v CSB) Past consideration Something already completed before the promise is made this is NOT valid consideration in the eyes of the law. 9. Examples of Past Consideration Roscorla v Thomas (1842) - def promised claimant that horse bought by claimant was sound and free from vice. - Held: promise made AFTER sale had been completed there was no consideration 10. Re McArdle A son and his wife lived in his mothers house that on her death would be inherited by her son and three other children. The sons wife paid for substantial repairs and improvements to the property. The mother then made her four children sign an agreement to reimburse the daughter-in-law out of her estate. When she died and her children refused to keep this promise, the daughter-in-law sued unsuccessfully. Her consideration for their promise was past consideration. It came before they signed the agreement to repay her (promise made after the improvements had been done). 11. Exception to the rule 1. Where a service was rendered at the request of the promisor on the understanding that a payment would be made subsequent promise to pay a certain sum will be enforced on the basis that it merely identified the amount. (Lampleigh v Braithwaite, (1615) 12. Lampleigh v Braithwaite (1615) Braithwaite was accused of killing a man and asked Lampleigh to get him a kings pardon. This Lampleigh achieved, at considerable expense to himself, and Braithwaite, in gratitude, promised to pay him 100, which he in fact never did. Lampleigh claimed that there was a contract. He succeeded. Why? Because the service was requested even though no price mentioned at the time, but clear that both parties would have contemplated a payment.The later promise to pay was evidence of this. 13. Quick Quiz 1. While I was away on holiday in Goa it was very hot at home. My neighbour Alison noticed that some of my flowers were dying and so she watered them everyday, saving them. I was very pleased when I returned and told her that I would give her $20 for all her trouble. In fact, I have not given Alison the money and she wondered if she is actually entitled to it. 14. Quiz Last month I had to go to an exam board meeting in Birmingham. My car would not start, so I asked one of my students Neera who has a car if she would take me there. She quite happily agreed and gave me a lift, even waited and brought me home. When we returned, I gave Neera the money for petrol and also promised to buy her a new copy of a law text costing $58.50, that she had been saving hard for. However, last week when Neera asked when she could have the money for the book, I told her I no longer intend to buy the book for her. Advise Neera 15. Examples Re Caseys Patents (1892) Joint owners of a patent wrote to claimant - agreeing to give him one third share of the patents in return for his services as manager of their patents. When claimant wished to enforce agreement, they then claimed agreement actually was in respect of past services and therefore unenforceable as past consideration. He supplied no consideration for the agreement. 16. Re Caseys Patents (1892) (cont) Bowen LJ held: There was an implied promise that in managing the patents the claimant would be paid for his work. The later agreement to pay was therefore enforceable. It was an example of the exception in Lampleigh v Braithwaite. 17. Lord Scarman in Pao On v Lau Yiu Long (1980) laid down conditions 1. The act must have taken place at promisors request. 2. The parties must have understood that the act was to be renumerated, either by payment, or the conferment of some other benefit. 3. The payment or conferment of benefit must have been legally binding. 18. Other Exceptions 2. Written acknowledgement of a statute barred debt will revive the debt (Limitations Act 1980) 3. Negotiable instruments (Bills of Exchange Act 1882) 19. Consideration must move from the promisee Who is the promisee? The person whom the promise is made. Only a person who has provided consideration for a promise can enforce a promise. 20. Dunlop Pneumatic Tyre Co v Selfridge(1915) Dunlop sold tyres to Day who resold them to Selfridge. Day on the request of Dunlop, inserted a term prohibiting Selfridge from re-selling the tyres below list price. Selfridge broke the term. Dunlop sued for breach of contract Held: even if Day had acted as agents for Dunlop, Dunlop could not enforce the contract as they had not provided any consideration for the promise by Selfridge. 21. Consideration need not be adequate Element of mutuality most important in doctrine of consideration Adequacy Means whether consideration provided corresponds with the value Sufficient Means whether some consideration is provided for the value of the subject matter What is the difference? 22. Thomas v Thomas (1842) Facts Mr T before death expressed his wish that his wife should for the rest of her life have the house in which they lived After his death, his executors made agreement with Mrs T to the abovementioned effect with obligation that she pay 1 per year and to keep the house in repair It was argued that Mrs T did not provide good consideration 23. Thomas v Thomas (1842) Held Payment of 1 and keeping the house in repair was good consideration This was held although, the amount paid was not adequate to the commercial rent of the property. 24. Other Examples Mountford v Scott (1975) $1 was paid for an option to purchase a house Good consideration Chappell v Nestle (1960) Three wrappers from the defendants chocolate were found to be good consideration 25. Consideration can be a promise not to sue Withdrawal of threatened legal proceedings will amount to good consideration even though claim later found to have no legal basis, provided, claimant believed in good faith that he was giving up something of value. 26. Alliance Bank v Broome (1864) Forebearance to sue = good consideration Def owed $22 000 to his bank Bank pressed for him to provide security He promised and therefore bank forebore to sue Held: there was consideration 27. De La Bere v Pearson (1908) Def owned a newspaper. Invited readers to apply by letter for free financial advice. Letters and advice published. Advice given to Plaintiff was negligent and he lost money. Held: Plaintiff given consideration by writing a letter which could be published. 28. White v Bluett (1853) No good consideration here where promises are vague stop being a nuisance to father Father promised not to enforce a promissory note against the son if the son stopped complaining about the way in which the father distributed his porperty. Pollocks analysis of the case: The son had no right to complain as the father could do what he wanted with his property. So the son abstaining from what he had no right to do can be no consideration. 29. Courts not consistent with the ratio in White v Bluett Hamer v Sidway (American case) A promise not to drink alcohol, smoke tobacco, and swear was held to be good consideration . Ward v Byham (1956)(UK) It was suggested that a promise to ensure that a child was happy could be good consideration. 30. Other examples of invented consideration Chappell & Co v Nestle Co Ltd (1960) Facts Case arose out of a special offer of a familiar kind, from Nestle , under which a person who sent in three wrappers from bars of their chocolate could buy a record, Rockin Shoes, at a special price For the purpose of copyright law, it was important to decide whether the chocolate wrappers were part of the consideration in the contract to buy the record 31. Other examples of invented consideration Chappell & Co v Nestle Co Ltd (1960) Held The House of Lords decided that the wrappers were part of the consideration Despite the fact that it was established that they were thrown away by Nestle and were thus of no direct value to them 32. Other examples of invented consideration Lipkin Gorman v Karpnale Ltd [1992] Facts Gambling chips given in exchange for money was not good consideration Customer had given mistakenly 153, 693 in exchange for gambling chips He sought to recover this from the club 33. Other examples of invented consideration Lipkin Gorman v Karpnale Ltd [1992] Held If good consideration for the money had been given then there was no claim But what was given at the club were plastic chips which could be used for gambling or buy refreshments at the club Any chips not lost or spent could be converted into cash This was not considered as consideration for the money given 34. Other examples of invented consideration Edmonds v Lawson (2000) Facts: Whether there was a contract between a pupil barrister and her chambers in relation to pupilage The problem was to identify what benefit the pupil would supply to her pupil master or to chambers during the pupilage 35. Other examples of invented consideration Edmonds v Lawson (2000) Analysis Whether there was a contract between a pupil barrister and her chambers in relation to pupilage The problem was to identify what benefit the pupil would supply to her pupil master or to chambers during the pupilage 36. Other examples of invented consideration Edmonds v Lawson (2000) Facts: The court noted that that the pupil was not obliged to do anything which was not conducive to her own professional development. Also noted that if there was work of real value done by the pupil whether for the pupil master or anyone else, there was a professional obligation to pay On this basis, the court was led to the conclusion that there was no contract between the parties 37. Other examples of invented consideration Edmonds v Lawson (2000) Held: The court however looked to the relationship created by the parties in chambers Chambers have an incentive to attract talented pupils to compete for a place in chambers Even if they do not remain at the chambers, there may be advantages in the relationships that have been created in future (networking) Hence the pupil did provide good consideration where the pupil by accepting the offer made by the chambers would be able to provide general benefits for the work done at chambers 38. Consideration must be sufficient Consideration must have value in the eyes of the law. Traditionally, doing something which one is legally bound to do cannot amount to consideration. 39. Consideration must be Sufficient Duty Imposed by General Law Duties imposed by general law include not taking part in a crime or promising to appear in court after being subpoenaed. Collins v Godefroy (1831)-If the promisee performs a legal duty and nothing more this is not sufficient consideration. 40. Duty imposed by the general law Glasbrook Bros v Glamorgan CC (1925)- If promisee exceeds his legal duty, he provides consideration. ( Facts: council-as police authority, sued on an agreement to pay for police protection during a strike. In the opinion of a senior police officer, a garrison was unnecessary to preserve the peace, a mobile force would have been adequate. On insistence of colliery manager, he agreed to provide a garrison in return for a promise of payment. Held: the decision as to what measures were necessary is the responsibility of senior police officer on the spot, and provided it was made in good faith, and reasonable, court would NOT interfere. Thus police had DONE MORE than they were obliged to do and were entitled to be paid.) 41. Duty imposed by general law (cont) Ward v Byham (1956) Facts: father of an illegitimate child wrote to mother from whom he was separated, saying that she could have the child and an allowance of 1 per week if she proved that the child was well- looked after and happy. Held : mother was entitled to enforce the promise because in undertaking to see that the child was well-looked after and happy, she was doing more than her legal obligation. 42. Ward v Byham (1956) (cont) Lord Denning,however, based his decision on the ground that the mother provided consideration by performing her legal duty to maintain the child. Treitel agrees with Denning that performance of a duty imposed by the law can be consideration for a promise. He argues that it is public policy which accounts for refusal of the law in certain circumstances to enforce promises to perform existing duties. He claims where there are no grounds of public policy involved, then a promise given in consideration of a public duty can be enforced. 43. He cites: 1. promises to pay rewards for information leading to the arrest of felons See Skyes v DPP (1961)- House of Lords held that citizens had a duty to reveal felonies known to them and to give what information they had. 2. Ward v Byham (above) 44. Sufficiency of consideration Duty imposed by a contract with same party General rule: If promisee performs existing contractual duty owed to promisor this is not sufficient consideration. 45. A request for extra payment for doing the same work Stilk v Myrick two sailors deserted ship, captain promised the rest of crew extra wages if they sail ship back home. Held: crew already bound by contract to meet normal emergencies of voyage and were doing no more than their original contractual duty in working ship home. Hartley v Ponsonby nearly half the crew left. Sailors exceeded their existing contractual duty. 46. Williams v Roffey Bros & Nicholls Contractors (1990)- an exception to the Stilk v Myrick rule A n exception to the basic rule occurs where the party making the promise to pay extra receives an extra benefit from the other partys agreement to complete what he was already bound to do under an existing arrangement. 47. FACTS Roffey Bros builders sub-contracted the carpentry on a no, of flats they were building to Williams for 20 000. Williams had under quoted for the work and ran into financial difficulties. Because there was a delay clause in Roffeys building, meaning they would have to pay money to the client if the flats were not built on time, they promised to pay Williams another 10 300 if he would complete the carpentry on time. When Williams completed the work and Roffeys failed to pay extra, his claim to the money succeeded. 48. Williams v Roffey Bros (cont) Even though Williams was only doing what he was already contractually bound to do, Roffeys were gaining the extra benefit of not having to pay the money for the delay to client. Williams was providing consideration for the work merely by completing his existing obligations. NOTE: Remember there was no attempt on Williams part to extract the extra money by threats or coercion. The rules of economic duress would in any case have preventing him from succeeding if there was such findings 49. Williams v Roffey Bros (cont) Held: 3 benefits conferred on defendants by claimant : 1. claimant continued work; 2. avoided penalty; 3. avoided the trouble and expense of employing another carpenter. 50. Williams v Roffey Bros (cont) Cases which applied William v Roffey Bros: 1. Anangel Atlas Compania Naviera SA v Ishikawajima- Harima Heavy Industries Co Ltd (No 2) [1990] 2 Lloyds Rep 526 2. Simon Container Machinery Ltd v Emba Machinery AB [1998] 2 Lloyds Rep 429 In both cases it was decided that avoidance of the other party withdrawing from a contract was held to be sufficient practical benefit to provide consideration for the new promise designed to keep them within the contract 51. Sufficiency and existing contractual duty to third party Shadwell v Shadwell fulfilling a contractual duty to a third party is sufficient consideration. New Zealand Shipping Co. v Satterthwaite stevedores provided consideration by performing an existing contractual duty to a third party. Scotson v Pegg (1861)-A agreed to deliver coal to Bs order. B ordered A to deliver coal to C who promised A to unload it. It was held that A could enforce Cs promise since As delivery of the coal was good consideration, notwithstanding that A was already bound to do so by contract with B. 52. Shadwell v Shadwell (1860) At a time when an action for breach of promise to marry was still available in law, a young man became engaged to marry. His uncle wrote to him congratulating him, and promising to pay him 150 per year until her reached an income of 600 per year as a Chancery barrister. The young man did in fact marry and claimed the money from his uncle when it remained unpaid. 53. Shadwell v Shadwell (1860) (cont) The court held: even though the claimant was legally bound to marry, doing so was good consideration for the uncles promise and the promise was enforceable. 54. Shadwell v Shadwell :Comment: We see in this case exception to the basic rule even in apparently social arrangements, where it is arguable whether it can in reality be considered that there is also an intention to create legal relations. 55. Sufficiency of consideration and part payment of debts The rule in Pinnels Case (1602): Payment of a smaller sum will not discharge the duty to pay a higher sum. Thus if a creditor is owed 100 and agrees to accept 90 in full settlement, he can later insist on the remaining 10 being paid since there is no consideration for his promise to waive the 10 56. The rule in Pinnels case confirmed by House of Lords in Foakes v Beers (1884) Facts: Dr Foakes was indebted to Mrs Beers on a judgment sum of 2 090. It was agreed by Mrs Beers that if Foakes paid her 500 in cash and the balance of 1 590 in instalments, she would not take any proceedings whatsoever on the judgment. Foakes paid the money exactly as requested by Mrs Beers then proceeded to claim an additional 360 as interest on the judgment debt. 57. Foakes v Beers (1884)(cont) Foakes refused and when sued pleaded his duty to pay interest had been discharged by the promise not to sue. House of Lords held: There was no consideration for the promise and that Foakes was still bound to pay the additional sum 58. Exceptions to Pinnels case Where the promise to accept a smaller sum in full settlement is made by deed, or in return for consideration Disputed claimswhere the debt & amount owed is disputed. Unliquidated claimswhere the amount is uncertain. 59. Exceptions to Pinnels case Accord and satisfaction : an agreement to accept something other than the money from existing debt. Eg Where debtor does something different, ie where payment is made at the creditors request: (a) at an earlier time; (b) at a different place; (c ) by a different method (held in D & C Builders v Rees (1966)- payment by cheque is not paymnent by a different method) (d) where payment is accompanied by a benefit of some kind. Composition agreementpay % to creditor in full settlement. Hirachand Punamchand v Temple (1911) -payment by third party, accept lesser sum in settlement of full amount owed. 60. In the case of composition agreement with creditors and where payment is made by a third party (see Hirachand) It has been argued that to allow the creditor to sue for the remaining debt would be a fraud on the third parties in the above two cases. 61. Comments It has been argued that to allow the creditor to sue for the remaining debt would be a fraud on the third parties in the above last two case. 62. Re Selectmove (1995) A company argued that it was entitled to pay its debts to the inland revenue by instalments The CA considered whether it could extend the rule laid down in Williams v Roffey to part payment of debts, ie whether a part payment could provide an actual as distinct from legal benefit. The court refused to apply the principle on the basis that it would be in direct conflict with the House of Lords ruling in Foakes v Beers and it was only the House of Lords which could overule its own decisions. 63. Equitable exceptions Waiver Where one party agrees not to enforce their strict rights under the contract. Hickman v Haynes buyers request to deliver goods later than originally agreed waived terms in the contract. 64. The Doctrine of Promissory Estoppel The doctrine act as a defence to a claim by a creditor for the remainder of the debt where part payment has been accepted. Effect of doctrine: to prevent (estop) the claimant from going back on the promise because it would be unfair and inequitable to do so. Lord Denning in obiter statements developed the doctrine from the older doctrine of waiver. 65. Promissory estoppel developed from: Hughes v Metropolitan Railway Co.- it would be inequitable to permit the creditor to go back on his promise. This was applied in Central London Property Trust v High Trees House lessors right to the balance rent for the war years extinguished. 66. Central London Property Trust Ltd v High Trees House Ltd (1947) Facts From 1937, the def leased from the claimants a block of flats in Wimbledon which they sub-let to tenants. When the war started, it was impossible to find tenants and so the def were unable to pay the rent. The claimants agreed to accept half rent, which the def continue to pay. By 1945 the flats were all let and the claimants wanted the rent returned to its former level and sued for the higher rent for the last two quarters. They succeeded but Lord Denning stated, obiter, that had they tried to sue for the extra rent for the whole period of the war, they would have failed. 67. Central London Property Trust Ltd v High Trees House Ltd (1947) (cont) Estoppel would prevent them from going back on the promise on which the def. had relied so long as the circumstances persisted. As Lord Denning stated: A promise was made which was intended to create legal relations and which to the knowledge of the person making the promise was going to be acted upon by the person to whom it was made, and which in fact was so acted upon. In such cases the courts have said the promise must be honoured the logical consequence, no doubt is that a promise to accept a smaller sum in discharge of a larger debt if acted upon, is binding notwithstanding the absence of consideration. 68. Conditions for promissory estoppel to apply 1. There must be an existing contractual relationship between the claimant & defendant 2. The claimant must have agreed to waive (give up) some of his rights under the contract (the amount of the debt that has been unpaid) 3. The claimant has waived these rights knowing that the def. would rely on the promise in determining his future conduct. 4. The defendant has in fact acted in reliance on the promise to forgo some of the debt. 69. Conditions for promissory estoppel to apply 5. Inequitable to enforce strict legal rights D&C Builders v Rees (defendant took advantage of claimants financial difficulties and offered part payment -promise should be given voluntarily) 6. Future rights not destroyed Tool Metal Mfg. Co. v Tungsten Electric Co. 7. No new rights created Combe v Combe is a shield and not a sword 70. Possible subsequent development of the doctrine Uncertain , esp. now that Lord Denning has died. In Brikom Investments v Carr (1979), RoskillLJ stressed that it would be wrong to extend the doctrine of promissory estoppel, whatever its precise limits at the present day, to the extent of abolishing in this back- handed way the doctrine of consideration. 71. Certainly application of the principle of estoppel to the area of part-payment of debt as an enforceable replacement for the whole debt is likely to be rejected . (See: Re Selectmove, (1995) Attempts to apply the principle in Williams v Roffey to situations involving promises to accept part payment of debts in full satisfaction of whole debt has been specifically rejected. (Re Selectmove) 72. Activity Select the appropriate statement from the choices which follow: Dave, a builder, owes his supplier $50 000 for materials. Dave has been unable to sell the house he has recently built at a profit, due to a slump in the property market, and has only $45,000. The supplier agrees to accept the $45,000 to prevent Dave from going out of business. Six months later the supplier has learned that Dave has just gained a building contract worth $5 million. 73. a) Dave will have to pay the remaining $5 000 to the supplier immediately. b) Dave can use the suppliers promise as a defence to a claim for the money. c) The supplier can recover the material used by Dave. d) Dave can sue the supplier. 74. The End