Consideration: Formation of Contracts

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  • Formation: Consideration
    • Definition of consideration
      • Used to be defined in terms of benefit and detriment as in Currie v Misa 1875
        • There are problems with this relationship
          • most modern agreements are executory so at the time of promise - no detriment
          • promises to give up something harmful for a price may be a detriment even though advantage is gained
          • in a good bargain, paying for goods and services can't really be a loss
        • Some detriment to the plaintiff or benefit to the defendant (Thomas v Thomas 1842)
      • Now consideration is defined in Dunlop v Selfridge 1915
        • Repeats Pollock's definition in Principles of Contract
        • This is the idea of the price of the promise
        • Still a problematic definition - a judge can enforce an agreement induced by actions of one party or because of the context of the promise (Williams v Roffey Bros 1990)
        • Means both promises and acts are enforceable
    • Executory and executed consideration
      • Executory consideration is where a promise to perform under the contract is given in return for a similar promise by other party
        • such as  goods ordered in return for a promise to pay a set price
        • The difference is the difference between bilateral and unilateral agreements
      • Executed consideration is consideration already given
        • such as money under a reward
        • The difference is the difference between bilateral and unilateral agreements
    • Rules of Consideration
      • Need not be adequate
        • Freedom of contract vital - not about good or bad bargains
        • Contract is enforceable even if price does not matched what is being gained
          • Thomas v Thomas 1842 - £1 nominal rent sufficient consideration
      • Must be sufficient
        • Sufficiency has a precise legal meaning
          • it is real - White v Bluett 1853
          • it is tangible - Ward v Byham 1956
          • it has some discernable value - Chappel v Nestle 1960
          • Economic value measured against benefit gained
      • Must not be past
        • Prevents coercion by suppliers
        • A voluntary act with no promise of payment = no payment expected
          • Re McArdle 1951 - later promise to pay can't be enforced
          • An agreement reached after consideration has passed is not enforceable
            • Couldn't have been based on a mutual position - Roscorla v Thomas 1842
          • An exception is Lampleigh v Braithwaite 1842
            • Applies when the service was originally requisition bbs one person but carried out by another party
            • A later promise to pay = enforceable even after service is rendered
            • The reason for the rule is that that requesting the service initially implies WTP - Re Casey's Patent 1892
      • Must move from the promisee
        • Hand in hand with privity
        • Only a person who has provided consideration can sue or be sued under the contract
          • Third parties who appear to have rights denied an action as in Tweddle v Atkinson 1861
      • Relating to performance of existing obligations
        • A person can never use something they are bound to do as consideration for new agreement - Stilk v Myrick 1809
          • This also applied to public duties - Collins v Godfroy 1831
          • Some exceptions to this basic rule
            • If something extra is given above the original contract - Hartley v Ponsonby 1857
            • If something more than basic public duty - GlassbrookBros v Glamorgan CC 1925
            • If 3rd party rights are affected by performance - Pao On v Lao You Long 1980
            • If the integrity of commercial arrangement is preserved by performance - The Eurymedon1975
            • If a party promising to accept existing obligations gains some extra benefit Williams v Roffey Bros 1990
      • Relating to part payment of debt
        • Basic rule in Pinnel's case 1602 is part payment can never satisfy the whole debt
          • Any agreement accepting this lacks consideration = unenforceable
        • The rule operates fairly when debtor is trying to avoid the debt extracting promise as in D+C Builders v Rees 1965
          • May be  unfair where creditor goes back on a  promise relied on for future course of conduct Foakes v Beer 1884
        • Exceptions to the rule developed on fairness grounds
          • if something different is added to the payment or it is made in another form - identified in Pinnel's case
          • Promissory estoppel
            • Recognised by Lord Cairns in Hughes v Met Railway 1877 - a party should be prevented from going back on a promise to waive rights
              • Lord Denning in Central London Property Trust Co Ltd v High Trees 1947 modernisedthe doctrine
                • If one party promises to forego or not to rely upon his strict legal rights and the other party relies on it and acts upon it the promisor is estopped from asserting his full legal rights
                  • This  was confusing so Denning laid down 4 key ingredients in Coombe v Coombe 1951
                    • there must be a pre-existing contractual relationship
                    • one party agrees to waive rights they are entitled to under the agreement
                    • they waive knowing that the other party will rely
                    • the other party actually does rely on the waiver
                  • Coombe - shield not sword
                  • The court has recently taken a more relaxed view of estoppel in Collier v P + MJ Wright Ltd 2008
        • Re Selectmove1995 rejected Roffey Bros extending to part payment for full satisfaction

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