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CONSIDERATION

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English law only enforce a promise which is :

b) made under a Deed A deed is a document which is signed, attested and indicates on its face it is a Deed.

Normally used to grant/transfer right.

Previously, a Deed had to be sealed

(a wax impression onto the document)

Difference between a Deed & a normal contract is that:

- no need for Consideration

- allows a 3rd party beneficiary to enforce the deed

(against the doctrine of privity)

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English law only enforce a promise which is:

b) supported by Consideration.

What is Consideration?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.”

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In short …

A benefit to one party or a detriment to the other

Benefitto

PROMISOR

Detrimentto

PROMISSEE

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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 Carbolic Smoke Ball)

Past consideration- Something already completed before the

promise is made – this is NOT valid consideration in the eyes of the law.

Kinds of Consideration

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Examples of Past Consideration

Roscorla v Thomas (1842)- D 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

ReMcArdle- A dying mother made her 4 children to sign an agreement to

reimburse her daughter-in-law for money spent on upkeeping the house.

- Held : consideration was given before the reimbursement agreement was signed, thus past consideration – not valid

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Exception to the Past-Consideration rule

If the 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)

Re Casey’s Patents (1892)

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Lampleigh v Braithwaite (1615)

• Braithwaite was accused of killing a man and asked Lampleigh to get him a king’s 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 although it is a pass consideration• Because the service was requested by the Promisor • even though no price mentioned at the time, but it is

clear that both parties would have contemplated a payment.The later promise to pay was evidence of this.

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Lord Scarman in Pao On v Lau Yiu Long (1980) laid down conditions :

• The act must have taken place at promisor’s request.

• The parties must have understood that the act was to be remunerated, either by payment, or the conferment of some other benefit.

3) The payment or conferment of benefit must have been legally binding.

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Consideration must move from the promiseeOnly a person who has provided consideration promise can enforce a promise.

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.

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Horton v Horton (1961) ; Alliance Bank v Broome (1864)One party give up claim while the other agree to pay compensation

Freedman v Union Group Plc (1997)X threatened Y with legal action. But later X found that the accusation was baseless. X withdraw the threat.

good consideration

Wade v Simeon (1846)X threatened Y with legal action. X knows very well that the accusation was baseless. But X offers to withdraw the suit.

No consideration

Consideration can be a promise not to sue

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Consideration must be sufficient but need not be adequate

Mountford v Scott (1975)Paid $1 for an option to purchase a house – deem good consideration

Chappell v Nestle (1960)Three wrappers from the defendant’s chocolate - deem good consideration

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What is deemed “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 eg. not taking part in a crime • If the promisee performs a legal duty and nothing more this is not sufficient consideration Collins v Godefroy (1831)

Lord Denning in Ward v Byham (1956)The father of a child wrote to the mother, saying that he would pay her 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.

Also see : Glasbrook bv Glamorgan CC (1925)

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Duty under a contract with the same partyIf Promisee performs existing contractual duty owed to Promisor this is not sufficient consideration.

Stilk v Myrick2 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 Ponsonbynearly half the crew left. Sailors exceeded their existing contractual duty.

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Shadwell v Shadwell (1860)

New Zealand Shipping Co. v Satterthwaite

Scotson v Pegg (1861)

Consideration delivered to a 3rd party are good consideration

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The Pinnel’s Case (1602) rule :

Payment of a smaller sum will not discharge the duty to pay a higher sum.

Example : a creditor is owed £100 and agrees to accept £90 in full settlement, he can later insist on the remaining £ 10 because there is no new consideration from the debtor for his promise to waive the £10.

Consideration for part payment of debt

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Exceptions to Pinnel’s case

• By deed or for fresh consideration - the promise to accept a smaller sum in full settlement of the entire debt is made by deed, or in return for consideration

• Disputed claims – where the debt & amount owed is disputed.

• Unliquidated claims – where the amount is uncertain.

4) Payment to a 3rd party - Hirachand Punachand v Temple (1911)

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5) Accord and satisfaction an agreement to accept something other than the money

from existing debt the debtor does something different –

eg : where payment is made at the creditor’s request : (a) at an earlier time;

(b) at a different place;(c ) by a different method(d) payment is accompanied by benefit of some kind.

• Composition agreement – pay % to creditor in full settlement.

7) Equitable exceptions – one party agrees not to enforce their strict rights under the contract (waived their right)- Hickman v Haynes

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A defense available for the debtor to prevent creditor from claiming the remaining of the debt where part payment has been accepted.

Hughes v Metropolitan Railway Co.(1877)

It would be inequitable to permit the creditor to go back on his promise.

Central London Property Trust v High Trees House (1947)

Lessor’s right to the balance rent for the war years extinguished.

The Doctrine of Promissory Estoppel

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Central London Property Trust v High Trees House• Central London leased a block of flat to High Trees for £2,500 • High Tree earned profit by subletting the flats to individual tenants. • However, less people wanted to live in the flat because of the

WWII.

• Therefore, Central London halved the gross rental payment to High Trees but never specified the time ended at 1940.

• After the war ceased at 1945, the flats were fully occupied.

• Central London sued High Trees for the rental at the original rate for period from Jun – Dec 1945.

Held : the claim was allowed.

J.Dening’s obiter dictum - if CL were to claim for the full payment between 1940 - 1945 then they would have failed. They would have been estopped from asserting their strict legal right to payment in full by their promise to accept the lesser sum.

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When debtor can only seek protection under the Doctrine of Promissory Estoppel

• 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)

• The claimant has waived these rights knowing that the D would rely on the promise in determining his future conduct.

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• The defendant has in fact acted in reliance on the promise to forgo some of the debt.

5. Inequitable to enforce strict legal rights

D&C Builders v Rees

6. Future rights not destroyed

Tool Metal Mfg. Co. v Tungsten Electric Co.

7. No new rights created

Combe v Combe

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Exercise

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.

a) Dave will have to pay the remaining $5 000 to the supplier

b) Dave can use the supplier’s promise as a defense to a claim

for the money.

c) The supplier can recover the material used by Dave.

d) Dave can sue the supplier

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Mary, a student, asks Donald, her teacher, if he will give her good tuition for which she will pay him $100.

c) There is a contract. Mary will have to pay the $100 to Donald.

d) Mary will be able to sue Donald if his tuition is not good.

e) Donald cannot demand the $100 from Mary. He is only doing his duty.

f) Donald can sue for the $100 if Mary does not pay.

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Sid, the manager of a firm, promises Danny, a packer, $100 on top of his wages if he will stay late at work one evening to get out a rush order.

c) There is no contract. Danny is only doing his job.

d) Danny is entitled to the $100. He is doing extra to his normal job.

e) Danny can only be paid the $100 if he does $100 worth of extra work.

f) Sid can sue Danny if he refuses to stay late.

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What is meant by the phrase

“estoppel can act as a shield

but not as a sword”?