7 Consideration

1 Definitions

1.1 It is the element of value in the agreement.

1.2 Both parties must bring something of value to the agreement.

1.3 E.g. A sells B a car for ￡1. A and B are both providing value.

1.4 ‘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’: Dunlop v Selfridge.

2 Rules of consideration

2.1 Must be provided by both parties (unless in the form of deed).

2.2 (a) May be executed: an act in return for a promise.

(b) Executory: a promise given for a promise.

(c) Must not be in the past: Re McArdle.

An exception is where there is an implied promise to pay : Lampleigh v Braithwait.

Privity of contract

2.3 Only a party to a contract may sue on that contract – 'Privity of Contract'. Dunlop v. Selfridge.

There are a number of exceptions:

(a) persons entitled to benefit under third party motor insurance can sue the insurer directly: Road Traffic Act 1972.

(b) a principal where his agent was the party entering into the contract.

(c) a special relationship exists between the parties (eg acting as executor of a deceased's estate).

(d) where there has been an assignment of the benefit of the contract. The burden can only be assigned with the consent of the other party.

2.4 Also be aware of Contracts (Rights of Third Parties) Act 1999.

This has a fundamental effect on the rule of privity of contract and sets out the circumstances in which a third party may enforce a contract term.

(a) the third party must be expressly identified in the contract.

(b) the contract must give an express or implied right to the third party to enforce the term.

3 Doctrine of consideration

3.1 Need not be adequate, but must be sufficient: Chappell v Nestle.

3.2 The law defines what will be insufficient.

(a) Performance of an existing legal or contractual obligation is insufficient consideration to support a promise of additional reward Stilk v Myrick unless:

(i) More than existing duties are performed Hartley v Ponsonby; or

(ii) Both parties derive a benefit, provided no duress or fraud Williams v Roffey Bros & Nicholls (Contractors) Ltd.

(b) Partial performance of an estimating legal or contractual obligation is insufficient consideration to support a waive of contractual or legal rights.

Rule in Pinnell's Case, Foakes v Beer

Unless:

(i) Payment made other than in cash;

(ii) payment made before due date;

(iii) payment made at other than agreed location;

(iv) payment is made by a third party.

(v) Equitable doctrine of promissory estoppel applies.

Central London Property Trust v High Trees House and D & C Builders v. Rees

Promissory estoppel

3.3 If the doctrine of promissory estoppel applies then the creditor may be estopped from suing for the balance of the original debt.

The doctrine may apply if:

(a) the creditor agrees to accept part payment in full and final settlement of a debt; and

(b) the creditor intends that the debtor will rely on the agreement; and

(c) the debtor does act in reliance on the agreement (it is not sufficient merely to pay the lower amount).

3.4 Recent case law supports the Rule in Pinnel's case: In re Selectamove Ltd