17720190
Description
Flashcards by Sam Grimley, updated more than 1 year ago
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Created by Sam Grimley
about 5 years ago
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| Question | Answer |
| Principal: consideration cannot be in the past, consideration is used to “buy into“ a contract. You can’t use an act or forbearance that has occurred in the past as consideration for the promise in the present. There is no valid ‘exchange’ if the act is already done. Give case authority. |
Eastwood v Kenyon (1840)
"Facts: Sarah‘s father died, so she was brought up by a guardian, Eastwood. Eastwood borrowed £140 to help pay for Sarah‘s upbringing. When she came of age, she was married to Kenyon. Kenyon promised to repay Eastwood’s debt to thank him for having brought Sarah up. Kenyon reneged on this promise.
Held: The consideration provided by Eastwood, that is to say bringing up Sarah, was not adequate because it was in the past.
Another Authority for this principle is Roscorla v Thomas (1842). Roscorla bought Thomases horse for £30. Subsequently, Thomas promised the horse was sound and free from bias. This turned out not to be the case. Held: the promise that the horse was free from vice occurred after consideration had been given, thus, was not binding.
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| Principal: if the prior act or service was provided at the request of the promisor, and it was always understood that payment would be made for that act or service, past consideration may be valid. You knew you needed to pay, all that needed to be decided was the ‘quantum’ - how much. Give case. |
Pao On v Lau Yiu Long [1980]
"Plaintiffs owned a company called Shing On
Defendants and a company called Fu Chip
Facts: Defendants want to buy a building owned by the plaintiff’s company Shing On. The parties agree to make the sale through an exchange of shares in their respective companies. The defendants were worried that after the exchange of shares, the plaintiffs might sell them all at once, resulting in the market being flooded, and the share price going down. So, the plaintiffs agreed to hold back 60% of the shares for one year. This was all in the main agreement. There was a subsidiary agreement that the defendants would buy back those 60% shares at today’s price a year from now at a fixed price. However, the plaintiffs realised that this could be a bad deal if the price went up, so threatened not to go through with the main deal unless the subsidiary deal was changed to insurance of a minimum price, rather than a fixed price. The defendant’s could have sued for specific performance of the main agreement, but instead, agreed to the plaintiff’s terms. The share price crashed
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| Pao On cont. 1 |
in the interim, and the defendants refused to make up the difference. They claimed that the consideration, that is to say, holding back the shares until the specified date, had occurred in the past, before the promise to indemnify had been made, and was therefore not valid consideration.
"Held: Lord Scarman ruled that the promise to indemnify was binding. He outlined three conditions for this to be the case:
1) The act must’ve been done at the promisors request (in this case, holding back shares for 1 year at the request of Fu Chip). (Mention - Lampleigh v Brathwait (1615))
2) The parties must have understood that the act was to be rewarded either by a payment or the conferment of some other benefit. (Mention - Casey’s patients tells us that this is likely assumed in a commercial context - a bit like ICLR).
3) The contract is enforceable apart from this issue - there is no taint of illegality. If this had been a promise in advance, would there have been a legal problem? In a problem question be on the lookout for: intention to create legal relations (family member or friends?), or
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| Pao On cont. 2 |
another legality issue related to consideration. This is important.
Scarman uses two cases to support his judgment. These both say the same thing in slightly different ways:
- Lampleigh v Brathwait (1615). Brathwait killed a man and asked Lampleigh to intercede with the king for pardon. Lampleigh expended much effort and expense at securing the pardon. Brathwait then promised to pay £100. Held: the act of Lampleigh was good consideration for Brathwait’s payment. The parties had understood that payment would be made, the precise figure of £100 was simply a final confirmation to fix the amount of the reward.
- Casey's Patents [1892]. The owners of patent rights promised their manager (employee) a share in those rights in consideration for his previous services for them. Bowen L.J. said: "Even if it were true, as some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot receive a proper effect in some other way. Now, the fact of a past service raises an implication
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| Pao On cont. 3 |
that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give the third share." Casey’s patients tells us that payment for a promise is likely assumed / implied in a commercial context - a bit like ICLR
The important thing here is that the act (the promise by Shing On to hold back shares in the first agreement) was done at Fu Chip’s request; and both the parties understood that the act (the promise to hold back shares) would be remunerated (even if that was not specified in the first agreement); furthermore, the act (the promise to hold back shares) was part of a legally enforceable contract. Because the first agreement contained an act (the promise) that required consideration in return
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| Pao On cont. 4 |
(the guarantee), and the new subsidiary agreement for indemnity constituted the fulfilment of that requirement and could not be considered to be under duress.
So, basically, if I go into a bike shop and say “please fix my bike” (act at my request), there is an implied understanding that I will pay, even if it is not exactly known what parts will be required or how long it will take. The bike shop completes the repair on the understanding I will pay. It is legally enforceable, as it is a commercial relationship, with assumed ICLR. I cannot then say “I’m not paying because the consideration you’ve given (fixing the bike) is past consideration” I have not made a promise to pay that sum. Is this issue here that the bill for Fu Chip was enormous? So they’re saying, we didn’t agree to pay THAT much.
Basically, the act is done, but the final fixed payment amount is held back until the last minute, there being an expectation that it will be paid. So, it’s not like new promises are made after the fact of the act, but just that the old promise to pay is solidified and confirmed in its
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| Pao On cont. 5 |
details at the end of the process.
These cases are conventionally cited as creating an exception to the rule of past consideration but in fact, it kinda throws out the notion of past consideration not being valid. If the subsequent promise to pay is no more than a quantification and evidence of an obligation to pay which had already arisen by virtue of a simple contract between the parties then the consideration should not be deemed to be past at all. This analysis can be utilised in relation to many everyday transactions,e.g. taking a car to a garage for repairs and leaving the ultimate price to be decided after completion of the repairs or seeking advice from a professional person and being presented with a bill on completion of the service in question. Both these scenarios are consistent with accepted commercial practice and no reasonable person could realistically believe that payment could not be enforced because the service had been rendered prior to any explicit promise to pay for or to demand remuneration. To recognise such arrangements as contractually binding is simply to
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| Pao On cont. 6 |
reflect the reasonable expectations of the parties. That is to say, until Fu Chip signed the subsidiary agreement, they hadn’t given any consideration for the promise in the first agreement.
The really important difference between Pao On v Lau Yiu Long and Eastwood v Kenyon is that the act offered for consideration was done on request in Pao and with the understanding it would be remunerated. Really, it’s the first step of an agreement.
So really, in Pau On v Lau Yiu Long there wasn’t really a valid contract to complete the holding back of shares in the first agreement unless the subsidiary agreement to indemnify is enforced, because otherwise, Fu Chip weren’t giving any consideration for the act of holding back.
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| Principle: consideration must move from the promisor |
Tweddle v Atkinson (1861)
FACTS: The fathers of a young, engaged couple, both agreed to pay the groom £100 upon the marriage. The fathers signed an agreement with each other, that gave the groom power to sue them for the full amount. The bride's father failed to pay, and died. The groom sued the fathers executors for payment.
HELD: since the groom himself had provided no consideration, he was a stranger to the contract and unable to enforce it. MR JUSTICE CROMPTON: "It would be a monstrous proposition to say that a person was a party to the contract for the purpose of suing upon it for his own advantage, and not a party to it for the purpose of being sued."
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| PRINCIPLE: Consideration must be sufficient (possess some value), but does not need to be adequate (does not need to be fair / the market value. The courts are not interested in market value). Always quote this case when discussing this principle. | Chappell & Co v Nestle [1960] FACTS: Nestlé manufactured records of "rocking shoes". They demanded three chocolate bar wrappers, along with one shilling and sixpence from customers for the records. The normal price for a record was roughly 6 shillings and sixpence. Chappell owned the copyright for "rocking shoes". Chappell wanted to show that Nestlé was accepting wrappers as consideration for the records, and was therefore in breach of copyright laws - copyright law stated that chappell could demand 6% of the "ordinary retail selling price"; and that accepting wrappers as consideration was not "ordinary". Nestlé tried to show that they were not accepting wrappers as consideration, but that the wrappers were merely a qualification for purchasing the records at one shilling and sixpence, and this could be shown because the chocolate bar wrappers were "worthless". Held: Nestlé's defence failed, and it was found that the "worthlessness" of the chocolate bar wrappers was irrelevant. They were good consideration, and therefore acceptance of them for "rocking shoes" amounted to breach. |
| Principle: Consideration must have some value in the eyes of the law. It doesn't matter how small that value is so long as a value can be identified. | White v Bluett (1853) Facts: a father decided to split his estate equally between his children in his will. This was not normal practice in the 19th century, normally an estate was left to the eldest son. The eldest son complained about this incessantly! Eventually, the father agreed to cancel a debt the son owed to him, so long as he stopped complaining about the will. When the father died, the executors came to collect on the debt. The son insisted that his ceasing to complain was sufficient consideration. Held: The sons defence failed, as ceasing complaining was not considered to have any tangible value. |
| Give an American authority that suggests giving up drinking, smoking, swearing and playing cards might be considered good consideration. | Hamer v Sidway (1891) Facts: an uncle promised his nephew $5000 if the nephew stopped drinking, smoking swearing and playing cards until the age of 21. The nephew complied, but the executor of the uncle's will refuse to pay because the consideration was of no value. Held: the promise was enforcible because the son restricted his lawful freedom of action, thereby provided valuable consideration. Note, this is an American authority and it is doubtful that this approach would be followed by English courts. Even in America, where an individual promises to resist a course of action which he never intended to pursue, no consideration will stem from the promise: Arrale v Costain Civil Engineering Ltd [1976] |
| PRINCIPLE: you can't demand new, additional, consideration without offering new additional consideration yourself. | Stilk v Myrick (1809) FACTS: two sailors abandoned ship. The captain promised the remaining sailors that he would share the wages of the deserting sailors between them. When they got back to port, the captain refused. HELD: The sailors were already contracted to do everything required to get the ship safely home. Filling in for the two sailors who deserted, was well within their existing contractual obligations. They provided no consideration for the promise of extra payment, therefore the claim failed. DISPUTE: despite the fact that lack of consideration was offered as the Ratio Decindi for the judgement, contemporary reports suggest that policy considerations may have played a part. If the claim had been allowed, it was thought that sailors might hold the captain to ransom for extra pay, whilst in foreign waters. This would not concern modern courts, who could rely on the doctrine of economic duress. Stilk = 'silk' with a 't'. Myrick = My Rick |
| PRINCIPLE: in contrast to Stilk v Myrick (1809), New consideration can be demanded, where additional consideration offered is sufficiently great. | Hartley v Ponsonby (1857) FACTS: very similar to Stilk v Myrick (1809), but, in this case, huge numbers of sailors abandoned ship, leaving a very small skeleton crew. The captain offered extra pay to get the ship home. HELD: The additional work provided by the sailors went beyond their contractual obligation is, given how arduous and dangerous the journey was. It was held to be adequate consideration. |
| PRINCIPLE: Even when no consideration has been directly given by the promisee, there may be some benefit, extrinsic to the promisee, that can count as adequate consideration for the promisor. | Williams v Roffey Bros [1991] FACTS: The Roffey Bros were the main contractors refitting a large number of flats. They subcontracted the carpentry work to a man named Williams. William's charged a very low price for his work, and it transpired during the job that he had not charged enough, and was running out of money. The surveyor working for the Roffey Bros confirmed this, and suggested they pay an extra sum per flat, to enable the project to finish on time; thereby avoiding the need to find a new carpenter, or suffer any economic penalties for late completion. At the end of the job, the Roffey Bros refused to pay, claiming that Williams had done nothing more than his contractual obligation under the original contract, and had given no consideration for an extra payment. SEE NEXT |
| Roffey Bros cont. 1 | "HELD: Court of Appeal. Even though no new consideration had been given directly from Williams to the Roffey Bros, Lord Justice Glidewell invented a new category of ""factual"" or ""practical"" benefit. He claimed that the Roffey Bros did derive some factual benefit from the new arrangement. That is to say, they were saved the expense and inconvenience of finding a new carpenter, and avoided incurring fine for late completion. A key factor is that the Roffey Bros did not enter into this contractual variation under duress. No, indeed, it was the idea of their employee, the surveyor. Had Williams threatened the Roffey Bros, the decision might of been different. Without this key factor of it being a voluntary suggestion on the part of the Roffey Bros, it would've been a classic case of duress. The doctrine of promissory estopple cannot be employed because it would have to be used as a sword and not a shield in this case. (i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has |
| Roffey Bros cont. 2 | completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B's promiseis not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding. |
| Roffey Bros cont. 3 | DISPUTE: Williams v Roffey is controversial, but it remains good law, it has been enforced in Adam Opel v Mitras Automotive (2008), but Lord Justice Donaldson said: “in terms of its result, and the reasons advanced by the judges, Williams v Roffey would seem to permit any variation of contract, even if the benefits and burdens move soley in one direction, and I am bound to apply the decision accordingly, whatever view I might take of it’s logical coherence.” For top marks in the LLM see: Mindy Chen-Wishart, ‘Consideration: Practical Benefit and the Emperor’s New Clothes’ in Beatson and Freedman(eds), Good Faith and Fault in Contract Law (OUP, 1995) 123). |
| PRINICPLE: this judgement refines Williams V Roffey Bros [1991], finding that William V Roffey Bros only applies where extra payment has been provided in exchange for "factual" benefit, and does not apply to reduced payment in exchange for "factual" benefit. | RE Selectmove Ltd [1995] Facts: Selectmove owed the Inland Revenue a lot of money. They couldn't pay. Selectmove offered to pay in instalments. Initially, an officer, without authority, accepted the idea, but said he would have to ask his superiors at the Inland Revenue. The IR subsequently demanded payment in full, and moved to liquidate the company. Selectmove tried to argue that the IR would obtain ‘practical’ benefit by accepting part payment, following Williams v Roffey Bros, because the Inland Revenue enjoyed the "practical benefit" of receiving the money owed, as, in the absence of the agreement to pay by instalments, the Inland Revenue would receive no money, as Selectmove couldn't pay. Held: In the event, the case was decided on the basis that the tax official had no authority to make a deal regarding payment by instalments. However, there was an interesting obiter discussion. In the event that the official’s agreement’s could be binding, the court could not accept Selectmove's argument, as this would conflict with Foakes v Beer. Foakes v Beer was a HoL judgment, and given |
| Re Selectmove cont. | this was the CoA, they were bound by it. Peter Gibson LJ, quoted Lord Blackburn’s speech in Foakes v Beer in which he expressed disagreement with the judgment in that case. Gibson suggested that the authority of Foakes v Beer was ripe for revision, but would require a higher court or parliament to consider. They managed to wiggle out of their conundrum by stating, for the time being, that Williams v Roffey Bros only applied to extra payments, and not to reduced payments. Dispute: The judgement in RE Selectmove Ltd is, arguably, illogical. Why should the consideration of providing extra payments be distinguished from the consideration of accepting a reduced payment, if practical benefit can be shown from both? |
| Principal: at first, this seemed to be an extension of Williams V Roffey Bros, on an alternative set of facts to Re Selectmove, that extended the principle of Williams V Roffey Bros to part payment of debts. | Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2016] and [2018] Facts: Rock Advertising were tenants of MWB business exchange. They couldn't pay their rent. Rock agreed with MWB, orally, to pay by instalments. However, MWB ended up demanding payment in full. Held: in the court of appeal, the judges held that MWB obtained a "practical benefit" of retaining Rock as a tenant, and that this was adequate consideration for the payment restructuring. This was escalated to the Supreme Court. Sadly, this case was decided on the invalidity of an oral agreement, so the Supreme Court did not provide clarification on the relationship between Williams the Roffey Bros and Foakes v Beer. Lord Sumption stated that this point of law should be decided in the ratio, or by legislation, not by obiter dictum as it would be in this case. |
| Principal: merely carrying out an obligation on the law, cannot be considered sufficient consideration for a contract. Going above and beyond an obligation under the law is required to qualify as consideration. | Collins v Godefrey (1831) facts: Collins was subpoenaed by Godefrey to attend as a witness in court. Collins demanded one guinea per day for his services. Collins attended court, but then Godefrey refused to pay. Held: Collins could not submit as consideration that which was already his duty under the law. |
| Priniciple: If an individual goes above and beyond their duties, as prescribed by public office, it may be regarded as consideration | England v Davidson (1840) facts: The defendant offered a reward for information leading to the conviction of a criminal. The plaintiff, a police officer, gave the information, but the defendant refused to pay, alleging the police officer was only doing his duty in law. Held: The duty of a police officer is to prevent crime, and not to provide information to a private individual. In so doing, he went beyond his public duty, and provide his consideration. |
| Priniciple: If a public body goes above and beyond their duties, as prescribed by public office, it may be regarded as consideration | Harris v Sheffield United FC [1988] facts: in order to maintain law and order, a substantial police presence was required at Sheffield United football ground. The police charged Sheffield United for their services. Sheffield United claimed that The police were simply carrying out their obligations under the law. Held: policing outside the grounds was within the scope of the public duty of the police force, but policing within the grounds went above and beyond obligations on the law, and thus amounted to good consideration, and Sheffield United were liable to pay for them. |
| Priniciple: If a parent goes above and beyond their duties, as prescribed by public office, it may be regarded as consideration | Ward v Byham [1956] Facts: The parents of a child separated. The child went to live with the father. The father paid and they bought 1 pound per week to look after the child. Subsequently, the mother asked if she could have a child, and also 1 pound per week. The father agreed if: one, the mother could prove the child would be well and happy: and two, the child was allowed to decide herself whether or not she wished to live with the mother. The child chose to live with the mother. Seven months later, The mother remarried, and the father refused to continue paying the 1 pound per week. The mother sued for breach of contract. The father claims that no consideration had been given, Because the mother was only fulfilling her obligation under the law - s42 of the National Assistance Act 1948. held: the court of appeal held that the mother was going above and beyond her moral duty under the law, by undertaking to keep the child happy and to allow her to choose where she wished to live. |
| Principle: existing obligations to a third-party can be sufficient consideration. | Scotson v Pegg (1861) Facts: X owned some coal which was coming in on a ship to port. X contracted Scotson to transport the coal to whomsoever X nominated. What the coal was coming in X sold the coal to Pegg. After the sale, Pegg contacted Scotson and said "if you transport the coal from the docks, directly to us, we will give you a discounted rate for unloading" (presumably, Pegg thought that Scotson was going to deliver the coal to X, and then X would transport the coal to Pegg. The cost of unloading the coal must have been bundled into Scotson's fee for transportation, thus Pegg is offering Scotson a good deal). Later, peg discovered that the deal between X and Scotson included delivery to whomsoever X nominated. Therefore, the request for direct delivery, Made by Pegg, was already covered by the existing contract. Pegg refused to provide the discount, on the basis that Scotson was already obliged to deliver the coal directly, and so had provided no consideration. Held: immaterial that Scotson had a pre-existing contract, Pegg got what he wanted, thus it was valid consideration. |
| Principal: applying Scotson v Pegg (1861). | New Zealand Shipping v AM Satterwaite (The Eurymedon) [1975] Facts: very similar to Scotson v Pegg (1861). Held: Lord Wilberforce makes the point that even though Scotson only had to deliver the coal once, and was benefiting from two separate contracts, Scotson also had double liability, because if they did not deliver the coal, both X and Pegg would be able to sue Scotson. 'An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce.' |
| Which is the case that says you can substitute other goods for consideration, or pay at a different time? | Pinnel’s Case (1602) Held: Underpaying a debt is not good consideration (obiter dictum), but substituting, with agreement, some other thing of value may be: "Payment of a less sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole. The gift of a horse, hawk, robe, etc. in satisfaction, is good”. |
| Principal: part payment of a debt cannot be sufficient for completion of a contractual obligation. | This is because, although the creditor has offered consideration by accepting a lower sum, the debtor has offered no consideration, beyond his existing obligations. Pinnel's case offers way to circumvent this principle, through substitution of another thing of value, but Foakes v Beer affirms the general principle. Foakes v Beer (1884) Facts: Mrs Beer is owed money by Dr Foakes. Dr Foakes can't pay. Mrs Beer takes him to court, and secure payment by instalments. In the instalment payment agreement, there is no provision for interest, although, in fact, this is a legal right. At the end of the payments, Mrs Beer are takes Dr Foakes to court again to claim the interest owed by law. Held: part payment of a debt (in this case, payment without interest) is not valid completion of a contract, because the debtor has not given any consideration in exchange for the consideration of paying a lower sum. |
| Foakes v Beer Dispute | "Disputes: Earl of Selbourne LC seems to suggest, in his Judgment in Foakes v Beer, the need for Promissory Estopple long before Dennings creation of it: ""It might be (and indeed I think it would be) an improvement in our law, if a release or acquittance of the whole debt, on payment of any sum which the creditor might be content to receive by way of accord and satisfaction (though less than the whole), were held to be, generally, binding, though not under seal; nor should I be unwilling to see equal force given to a prospective agreement, like the present, in writing though not under seal; but I think it impossible, without refinements which practically alter the sense of the word, to treat such a release or acquittance as supported by any new consideration proceeding from the debtor"" Also, Lord Blackburn, although assenting to the judgment of the other Lords, states that he can see many situations in which prompt part payment of a debt would be more beneficial to a creditor than full payment at a later date. This would be all the more apparent in the case of a debtor in danger.. |
| Foakes v Beer Dispute 2 | of insolvency. Thus, he suggest’s that Lord Cokes obiter dictum in Pinnel’s case could be justifiably overruled: "What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so. I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question." See Re Selectmove and Rock v MWB above. |
| Principle: the tender of a promissory note was a sufficient novelty to constitute consideration for the creditor’s promise to accept a lesser sum. |
Sibree v Tripp (1846)
Facts: This was based on the argument that, by accepting the peculiar obligation inherent in a negotiable security, the debtor would be doing something which he was not already bound to do. Baron Alderson said, ‘if for money you give a negotiable security, you pay it in a different way. The security may be worth more or less; it is of uncertain value. That is a case falling within the rule of law as enunciated.’
Held: Applying Pinnel: "A man may give, in satisfaction of a debt of £100, a horse of the value of £5, but not £5. Again, if the time or place of payment be different, the one sum may be in satisfaction of the other”.
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| Principle: 1. Distinguished from Sibree v Tripp (1846), a cheque for a lessor amount cannot replace cash of a higher amount. 2. Promissory estoppel is an an equitable doctrine, therefore, you cannot use it if you act inequitably (in this case through intimidation). |
D&C Builders v Rees [1966]
Facts: D & C Builders had done some work for the Rees and payment of £482 was still outstanding. The defendant’s wife offered the plaintiffs £300 in full and final settlement. The plaintiffs reluctantly accepted the cheque marked: ‘in completion of account’ because they were in severe financial difficulties: a fact known to the defendant’s wife. The plaintiffs then brought the action to recover the balance.
Held: Lord Selbourne distinguished the Sibree case. He said that in no way in 1965 could it be better to have a cheque for a lesser amount than to have the whole amount in cash.
"Dispute: this judgment leaves the rule in Foakes v Beer intact but it is now vulnerable on two fronts: first, there is the challenge presented by the practical benefit test in Williams v Roffey and,secondly, there is the potential application of promissory estoppel to a promise to accept a lesser sum in full and final settlement of a debt. Whether for reasons of practical economic sense or of fair dealing, we might think that time is running out for the rule in Foakes v Beer.
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| Principle: If a third party pays off a debt, even if it’s for a lessor amount, once the creditor has accepted it, they cannot then sue the debtor for the remainder. Otherwise, they would committing fraud against the third party. |
Welby v Drake (1825)
Facts: Dad payed of half of son’s debts. Creditor tried to sue son for the difference.
Held: part payment from a third party is adequate.
Justin Welby (the archbishop) v Drake (the rapper).
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| Authority for common law exception to promises to accept less - different place. | Vanbergen v St Edmund Properties [1933] |
| How do you answer a question concerning whether partial payment of debts is sufficient consideration? | "1. Consider the basic rule under Foakes v Beer. 2. Do the common law exceptions apply? a) Lesser amount paid by a 3rd party (Welby v Drake 1825). b) Has something else been given as a consideration for the new agreement (a horse a hawk or a robe, as in Pinnel’s Case (1602))? 3. Is their a 'practical benefit' under Williams v Roffey? Consider that Re Selectmove has held that Williams v Roffey only applies to the payment of additional funds, rather that simply accepting less than is owed. (Argue - why should this be? It is not logically clear why the loss suffered from paying extra should be legally distinct from the loss suffered by accepting less, Williams v Roffey creates a lopsided precedent, however it remains law). 4. MWB v Rock showed that keeping Rock as an ongoing tenant could be considered a ‘practical benefit’ under Williams v Roffey, thus extending the principle to the underpayment of debts. (Argue despite already going to the supreme court, this needs additional SC or legislative support to be a firm and certain precedent). 5. If none apply, use Promissory Estoppel. |
| Why was Promissory Estoppel created? | The result from Foakes v Beer can lead to some harsh results, especially if the defendant has relied on the debt relief. Promissory Estoppel steps in to make things fairer where necessary. |
| Principle: The case from which the principle for Promissory Estoppel derives. Although PE is not explicitly formulated in this case, it’s the case that Denning drew on to construct his principle. | Hughes v Metropolitan Railway Co. (1877) Facts: Tenant was under contractual obligation to keep property in good repair. Repairs were requested by the landlord and 6 months was given to complete them. A month later, the tenant and landlord began negotiations for the tenant to buy the lease. Negotiations eventually broke down, and shortly thereafter the ‘6 months’ were up. Tenant had not completed the repairs and the landlord claimed this had forfeited the lease. Held: Unanimous panel in the House of Lords held that the Landlord had ‘implied’, but negotiating on the sale of the lease, that he would not enforce the terms of the contract regarding repairs. |
| Principle: The first case in which Denning clearly articulates promissory estoppel - a binding promise, despite the lack of consideration. | Central London Property Trust v High Trees House [1947] Facts: Central London Property Trust own a block of flats. It’s leased to High Trees House, who in turn, let out the individual flats. War breaks out in 1939. London is evacuated and the flats are only 1/3 full. Central London Property agree to halve the ground rent during the war. War ends, and Central London Property want to put the rent back up and claim back rent for the last two quarters of 1945, after the war. Held: Denning finds for the plaintiffs, but notes in his obiter, that had they tried to claim the full arrears, back to 1939, they would have been prevented to do so as a result of promissory estoppel. Dispute: The decision is controversial since it appears to conflict with Foakes v Beer. The case of Foakes v Beerestablished that part payment of a debt could never be good consideration for satisfaction of the whole of the debt. It could be argued that promissory estoppel circumvents this principle. Despite the adoption of the doctrine, there has been acute judicial keenness to constrain within strict parameters. |
| What are the five main requirements for Promissory Estoppel? With cases | 1. Shield not a sword. You only use it as a defence, not as a basis for a claim. (Combe v Combe) 2. Clear and unequivocal promise to suspend existing contractual arrangements. There must be an existing contract that is being varied. (Hughes if it's clear conduct, Woodhouse if it's clear words) 3. Change of position of the promisee in reliance on the promise. Reliance need not be detrimental. (The Post Chaser; Ajayi v Briscoe 4. It must be inequitable for the promisor to go back on their promise (D&C Builders v Rees). |
| Principle: the case that established Promissory Estoppel as a ‘shield and not a sword’. |
Combe v Combe [1951]
Facts: Wife leaves husband, and then asks for £100 a year. Husband agrees, but then never makes a single payment. Wife sues.
Facts: Wife leaves husband, and then asks for £100 a year. Husband agrees, but then never makes a single payment. Wife sues.
Dispute: The High Court of Australia has allowed Promissory Estoppel to be used as a sword in Walton Stores v Maher (1988). However the CoA has since confirmed that PE is only a shield in: Baird Textile Holdings Ltd v Marks & Spencer plc(2001) and Smithkline Beecham plc v Apotex Europe Ltd [2006].
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| Define Consideration with Case Law Quote | Dunlop v Selfridge [1915] ‘an act or forbearance of 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.’ |
| Principle: the standards of 'clear and certain’ as applied to contracts must also apply to promissory estoppel. Promissory estoppel only varies an existing contract, and must be held to the same standard. | Woodhouse v Nigerian Produce [1972] Facts: Contract for sale created in Nigerian £. Subsequently, the buyers requested to make payment in Sterling £. Sellers agreed. Sterling’s value dropped, and sellers tried to enforce payment of the numerical value of the contract in Sterling rather than Nigerian £. Held: The sellers had only made a vague statement that they would accept Sterling, they hadn’t specified that the amount would be numerically the same. Standards of clarity applied to the original contract, should be applied to the promise that varies the terms of the contract. |
| Principle: Promisee must have altered their conduct in reliance on the promise for estoppel to be valid. | Ajayi v Briscoe [1964] Facts: Defendant leased some lorries from the plaintiff. The lorries broke down and he took them out of action / sent them back to the claimant to be repaired. Defendant / plaintiff agreed to suspend payment of the lease while the lorries were out of action. Held: It appears that the defendant may have refused to use the lorries / pay the lease even after they were repaired. This seems key. However, the basis that the claim was allowed was that the promisee had taken the lorries out of service before the promise was made by the promisor, and the promisee had not acted in reliance on the promise. Apparently the judges held the fact that the defendants had suffered no detriment as key to finding no reliance on the promise. Dispute: what is considered a ‘change in position’ is highly contentious. In Collier v Wright [2007] L.J. Arden suggests that merely paying the lesser amount in the context of debt relief is reliance, but this seems to do away with Foakes v Beer entirely. Has been criticised by academia for being ‘insufficiently substantial reliance’. |
| Principle: Alteration of promisee’s conduct need not be detrimental. Of course. |
Alan v El Nasr [1972]
Facts: Plaintiffs (Alan) are Kenyan coffee producers. Defendants (El Nasr) are Egyptian importers. Sale contract made out in Kenyan Shillings. Payment actually sent in Sterling. By the time the cheque is cashed (some months later) the value of Sterling had dropped in relation to Kenyan Shillings. Plaintiffs sued for the difference.
Held: Acceptance and cashing of the cheque was seen as implying Promissory Estoppel. Thus, by cashing the cheque, the plaintiffs had agreed to waive their contractual rights. It didn’t matter the promisee had benefited from the arrangement (I mean… this is hardly surprising… that’s the point of Promissory Estoppel - the promisee has benefited, and PE exists to protect that benefit). Did I miss something?
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| Principle: It must be inequitable for the promisor to go back on their promise. This basically takes the idea that ‘the promisee must have acted in reliance of the promise’ a step further, and says ‘the promisee must have changed their behaviour sufficiently so as to make it unfair to go back on the promise’. | The Post Chaser [1982] Facts: A sale of Palm oil is made. In the contract, the sellers are required to tell the buyers ‘as soon as possible’ that the ship containing the oil has left the port. The sellers leave it a month. Theoretically, this should void the contract, but when the sellers finally inform the buyers, the buyers don’t make a fuss, and ask the sellers to send through the documentation. Very quickly the buyers hear that their sub-buyers no longer what the oil, and the buyers enforce their contractual rights and cancel the sale. The sellers were forced to sell to someone else for a lower price and sued for the difference. The sellers claimed that requesting the documentation constituted implied Promissory Estoppel, and that sending through the documentation constituted acting in reliance of that promise. Held: Turnaround from requesting to rejecting was so fast, that it can’t be said that the sellers relied so heavily on that PE, that it would be inequitable to cancel. Presumably, if the buyers had waited two weeks before rejecting, that would have been inequitable. |
| Principle: Promissory Estoppel suspends but does not extinguish legal rights. It’s a fog, not a pair of scissors. When notice is given, or situations change, rights resume. |
Tool Metal v Tungsten [1955]
Facts: Tool gave Tungsten a license to produce a certain kind of metal. If Tungsten produced more than a specified quantity, they would have to pay a fine. During the 2nd world war, Tool suspended this fine. At the end of the war, they tried to resume the fine system, and their claim was rejected because they had not given any notice. They made a 2nd claim 2 years later.
Held: The second claim succeeded, as it was deemed that the first claim constituted notice. Promissory Estoppel suspends but does not extinguish legal rights.
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| Read: O’Sullivan, J., 1996. In Defence of Foakes v Beer, Cambridge Law Journal. 55(2). pp.219–228 | Read: O’Sullivan, J., 1996. In Defence of Foakes v Beer, Cambridge Law Journal. 55(2). pp.219–228 |
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