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Consideration Promissory Estoppel Notes

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Consideration & Promissory Estoppel There is a fundamental distinction between a bargain and a gift. The latter is only enforceable if it is made by deed. The orthodox view (has been challenged) is that consideration is about reciprocity or bargains. There are five principal criticisms:

1. It is too narrow in scope and so fails to give effect to promises that ought to have legal effect;

2. The doctrine has become too technical;

3. The doctrine is divorced from commercial reality i.e. can enforce where nominal consideration given, but could be something of commercial value which the law does not recognise;

4. It is extremely difficult to reconcile the requirement with modern theoretical methods of contract law i.e. if contract is based on the will then why is there a requirement that something of value must always be handed over;

5. The doctrine of consideration is over-broad and the work done by the doctrine could be better dealt with by others such as duress, unconscionability, estoppel and intention to create legal relations. Yet it is not true to say that the doctrine is devoid of support; note that it can be satisfied by some benefit or a detriment. The effect of estoppel is to supplement the doctrine in deserving cases.

1. Consideration (i) Something of Value

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Chappell v Nestle [1960] AC 87: N had offer that would sell records at reduced rate if sent in three chocolate bar wrappers. Issue as to whether they constituted part of the selling price.

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Viscount Simonds & Lord Keith dissent as they think that the wrappers are not part of the selling price given that they are valueless and thrown away. Purchase of the chocolate bars constitutes an entirely separate transaction. The main intention of the offer was to induce people to buy chocolate which would not have otherwise been bought. Sending of wrappers was therefore of great importance to Nestle. Unrealistic to divorce the transactions. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. Basically consideration will be sufficient but need not be adequate.

(ii) Past Consideration

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Lamplegh v Braithwait (1615) Hob 105, 80 ER 255: D had killed a man and asked P to ride to London to get him a pardon. Upon return D said he would give him money, but then never did.

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In this case there was an implied understanding that money would be paid.

Eastwood v Kenyon (1840) 11 Ad & El 438, 113 ER 482: E borrowed money to pay for sons education who promised to pay it back when came of age. Husband then promised to pay the money. E sued husband to make him pay.

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Where a past benefit was conferred on request and where a reward would be reasonably expected; would be bound by promise to pay.

Husband was in no way connected with E when the money was expended, so he received no consideration. A promise without consideration cannot be binding.

Pao On v Lau Yiu [1980] AC 614: (PC) Agreement made for sale of building in return for shares. So as to not upset the market it was agreed that P should not be able to sell some shares for a period. P threatened not to carry out main contract unless indemnified against potential loss. Sub-contract made to keep P happy. Issue as to whether there was consideration for the indemnity contract.

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A past act can be consideration if it was done at the request of the promissor and both parties understood that the act was to be remunerated either by payment or the conferring of a benefit: and the payment or benefit must have been legally enforceable if it had been promised in advance. All three features are present in this case. A promise to perform, or the performance of a pre-existing contractual obligation can be valid consideration. Court refused to adopt a rule to the effect that here there is a threat to repudiate there cannot be consideration as it would render the law too uncertain. Commercial pressure is not enough for a finding of duress. In determining whether there was coercion of the will such that there was no true consent it is material to enquire whether the person alleged to have been coerced protested; whether he had an alternative course of action open to him such as an adequate legal remedy; whether he was independently advised; whether he took steps to avoid it. A contract may be void on the basis of economic duress only where it satisfies the above conditions.

(iii) Pre-existing Duty

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Glasbrook Bros v Glamorgan CC [1925] AC 270: Manager of colliery applied for police protection for his mine during a strike. Police said that it would only do so if it were paid at a special rate by M for doing so.

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Ward v Byham [1956] 1 WLR 496: Father offered mother money towards the maintenance of child so long as the child was well looked after and happy. Decision by Denning:

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Even so, there was sufficient consideration to support the promise. Denning says has always thought that a promise to perform an existing duty, or performance of it, should be regarded as good consideration because it is a benefit to the person to whom it is given. In this case thinks the fathers promise should be regarded as a unilateral contract.

The ascertainment of a specified sum in lieu of the unascertained has always been held to be good consideration. A promise to perform a pre-existing duty can be good consideration so long as there is nothing in the transaction which is contrary to the public interest. In this case he gave her money to avoid the trouble and expense of coming to court notwithstanding that he would have had a defence. Also important is that she could have returned to the husband and if he had rejected her she would have been entitled to money from him. Thus her right to maintenance had only ever been suspended rather than forfeited.

Shadwell v Shadwell (1860) 9 CB (NS) 748, 142 ER 62: Uncle agrees to pay in consideration of marriage for so long as their wage stayed below a certain amount.

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The mother, in looking after the child was only doing what she was legally bound to do.

Williams v Williams [1957] 1 WLR 148: Husband agreed to pay deserted wife maintenance so for long as she was single and indemnified him against all debts incurred by her and not to use his name to obtain credit. Decision by Denning:

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Payment for general protection is made through rates and taxes, and a person cannot lawfully be called upon to make a payment for that which is their right. However, the police may lend constables for special services at the request of a member of public. Two dissents on the basis that they thought that on the facts these actions were part of the ordinary duty; police stated that the mine would have been protected anyway, although they would have done so in a different way.

Majority thought that the letter could be construed as a request for marriage, being of personal satisfaction for the Uncle. Byles LJ dissent as he thought that a promise based on what one is already bound to do cannot be enforced. The reason why this is the rule is not only because the promise has no value in the judgment of the law, but because a man can hardly say that the prior legal obligation was not his determining motive.

New Zealand Shipping v Satterthwaite, The Eurymedon [1975] AC 154: Agreement for carriage of goods contained a clause that liability would extinguish within a year for 'the carrier, servants and independent contractors'. Stevedore was negligent, C claimed that could not rely on the exemption because no consideration had moved from him.

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Where, as here, the whole of the contract as a commercial character to suggest that one of the clauses is gratuitous is prima facie implausible. English law must take a practical approach, often at the cost of forcing facts to fit uneasily within the slots offer, acceptance & consideration. Could be analysed as a unilateral contract which was complete when A performed services by discharging the goods. The performance was consideration for the benefit of exemptions and limitations. An agreement to do an act which the promisor is under an existing obligation to a third party to do may well amount to valid consideration and does so in this case: the promisee obtains the benefit of a direct obligation which he can enforce. Two dissents on the basis that the clause was not intended as an offer but as an agreement; thought that amounted to rewriting of it.

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Pao On v Lau Yiu (above)

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Stilk v Myrick (1809) 2 Camp 317: In the course of a voyage seamen deserted the captain. He offered to divide wages which would have become due among the remainder of the crew so long as they did not desert him.

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The agreement is void for want of consideration: those who remain are bound by the terms of the original contract. Where a person performs beyond the scope of the original obligation it will be otherwise.

Williams v Roffey [1990] 1 All ER 512: P entered into sub-contract with D for carpentry work. P got into financial difficulty because the agreed price was too low. D wanted to avoid time penalty clause in main contract and so offered P extra to get it done in time. P had substantially completed when D decided to stop making the payments.

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Substantial completion is enough to entitle P to the payments promised. Notwithstanding the attempts of Lord Denning to say that Stilk is not good law, other judges in those cases seem to have put the matter differently, always finding something extra beyond the pre-existing obligation. The dictum of Denning does not provide a sound basis for avoiding the usual approach. The present state of the law can be expressed as follows:??

If A has entered into a contract with B in return for payment by B, and; At some stage before obligations are complete B has reason to doubt whether A will be able to complete his side of the bargain; B thereupon promises additional payment; As a result B obtains a practical benefit or obviates a disbenefit;

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If B's promise is not given as a result of economic duress or fraud, then;

The benefit to B is capable of being consideration; These observations may limit and refine the application of Stilk but they do not contravene the principle. Russell LJ warns against applying Stilk rigidly thinking that the court should be ready to find consideration so as to reflect the intention of the parties where the relative bargaining powers of the parties are not unequal. Relevant factors taken into account in this case:??

Liquidated damages clause; More formalized method of payment would be beneficial; Interest in the continued performance by the same party; Avoiding having to conclude another contract to get the work completed.

(iv) Part Payment of a Debt

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Foakes v Beer (1884) 9 App Cas 605: P owed D money. D agreed that she would not take action if he signed an agreement to pay twice yearly until it was paid. D further agreed to waive interest but later decided to sue for it.

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P was under an antecedent obligation to pay the sums; he did not provide any additional consideration for the waiver; Payment of a lesser sum on the day in satisfaction of a greater cannot be satisfaction for the whole; There must be something additional or collateral for there to be consideration.

Re Selectmove [1995] 2 All ER 531: Company owed tax. C alleged the existence of an agreement that would not pursue a claim so long as PS1,000 p/m was paid off, although there was only silence on the part of HMRC. Revenue brought a claim for money.

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Unconcluded view, but inclines to opinion that where an offeree indicates that an offer is to be taken as accepted if he does not indicated objection within a time period, he is undertaking to speak is he does not want the agreement to be concluded. Says that if Roffey is to be extended to the debt cases it must be done so by Parliament or the House of Lords. Estoppel not applicable because the company failed to keep up with payments in any event.

2. Promissory Estoppel

* Hughes v Metropolitan Rly (1877) 2 App Cas 39: 6 month repair notice given to lessee. L expressed desire to purchase and entered into negotiations. Sale never completed. P tried to evict L for not repairing.

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If parties have entered into terms involving certain legal results and afterwards enter upon a course which leads the other to suppose that the strict rights will not be enforced, the person may not be able to rely upon the legal rights where it is inequitable to do so.

Central London Property v High Trees House [1947] KB 130: P let D a block of flats. Outbreak of war meant that D was not getting enough revenue to cover the cost of the lease. Agreed that rate should be reduced for period of war. Flats were then filled up again and P tried to claim the full sums due for the entire period. Denning judgment:

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It must be taken that all the time which elapsed between the notice and negotiations were waived as part of the 6 months.

A promise to accept a smaller sum in discharge of a larger, if acted upon, is binding notwithstanding the absence of consideration. Estoppel operates where a promise is 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, was in fact so acted upon.

Combe v Combe [1951] 2 KB 215: H promised to pay W money. She forbore to apply to a divorce court because of the payments, but not on any request by H. He failed to pay and she brought an action.

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Asquith LJ: It is a mistake to think that the High Trees case in any struck at the doctrine of consideration. Denning LJ:The principle in High Trees does not create new causes of action where they did not exist before. It only prevents a party from relying on strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings.o

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The principle is that where one party has, by his words or conduct, made the other a promise or assurance which was intended to affect the legal relations between them and to be acted upon accordingly, then once the other person has acted, the one who gave the promise cannot be allowed to revert to the legal relations, but he must subject himself to the qualification introduced, even though it is not supported by consideration but only his word. Birkett LJ: Promissory estoppel can only be used as a shield and not a sword.

Tool Metal v Tungsten Electric [1955] 1 WLR 761 (HL): Agreement for patents subject to clause that is exceeded the stated quantity then compensation payments would be made. Provisions suspended pending formation of new agreement. Issue as to whether clause could be enforced in light of the intimation that it should end because a claim was being made to that end.

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Equity will require sufficient notice and a period of adjustment for reversion to the original position, In this case the requirement of notice seems to have been satisfied by the bringing of a counter claim.

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