2.4.3 Consideration & Promissory Estoppel - Hands on Example
Now you have a comprehensive understanding of what consideration is, the limitation to it, and how it can be applied, you can attempt a problem scenario which will test your knowledge. The answers can be found at the bottom of the page. Each of the questions will have a specific legal issue it focuses on.
Problem questions which involve consideration and promissory estoppel will usually be limited only to those principles, however, be aware that sometimes these will be paired with issues of offer, acceptance and intention to create legal relations. In the event it is a problem question focused just on consideration and promissory estoppel, here is a suggested approach.
- First, consider the requirements of consideration – is it adequate, and does it have economic value?
- Second, is the consideration being used subject to any of the limitations of consideration (performance of existing duty, past consideration, or part-payment of a debt)
- Finally, is there any element of promissory estoppel?
With this approach, you should be able to identify the general issues you should be focusing on. You will then need to use your more in-depth knowledge to tackle to specifics, ensuring to apply the correct authority and come to sensible conclusions.
Jeff is the director of a successful business who specialise in selling fridge freezers. Unfortunately, after a few disagreements with his legal team, he has decided he doesn’t need their advice anymore. He has made various different contracts the past week with no issues, but is concerned about the validity of some of them.
- Jeff’s supplier of refrigerator parts, Freeze4lyfe, are in some financial difficulties. Jeff, being the diligent businessman that he is, sees this as a golden opportunity. His business owes Freeze4lyfe £100,000, but this isn’t payable until next year. He is aware that Freeze4lyfe may be willing to accept a lesser amount now in order to get out of their difficulties. He s Freeze4lyfe and offers them £40,000 and 5 new fridge freezers to waive the debt. Freeze4lyfe reluctantly accept the offer and waive the debt.
Is this contract valid or will Jeff have to pay the full £100,000?
- Jeff is selling 20 fridge freezers to a Houses4u, who are refurbishing some houses which they wish to rent out. Houses4u have some viewings in one week, however, Jeff has let them know they might not be ready by then. Houses4u offer Jeff £5,000 to ensure they are delivered before the viewings, Jeff accepts and does so, then Houses4u refuse to pay the extra £5,000.
Can Jeff force Houses4u to pay the extra £5,000?
- Jeff’s main customer, Chilly Food, are aware of a brand new fridge freezer supplier who offer goods for a lower price. As a show of good faith, Chilly Food would like to maintain their agreement with Jeff for 10 fridge freezers a week, but would like to reduce the price slightly. Jeff agrees to a 25% price reduction.
Was there valid consideration for this contract? If not, how could this be resolved?
- The legal issue to identify here is a limitation to consideration. Jeff has offered a part-payment of a debt in order to waive the full debt. As per Foakes v Beer, the part payment of a debt is not considered to be valid consideration. Therefore, it would seem the contract would not be valid, and Jeff will have to pay the full debt.
However, one of the exceptions to the rule from Foakes v Beer is in operation. In Pinnel’s case, if the part-payment is accompanied by or replaced with something other than money, this can be valid consideration. Therefore, as there are fridge freezers offered alongside the cash payment, this will constitute valid consideration.
- This issue pertains to whether the performance of an existing duty owed to the same party can constitute valid consideration. Stilk v Myrick is the authority which rules that this will not form valid consideration; therefore, Houses4u will not have to pay the extra £5,000.
One exception which may apply is suggesting that Jeff has to go above and beyond his contractual obligations, as was the case in Hartley v Ponsonby. However, it would be difficult to argue that Jeff would have to go above and beyond his obligations by delivering the fridge freezer by a certain date.
The exception to this principle from Williams v Roffey may be applied to this scenario. The scenario clearly fits Glidewell LJ’s criteria – there is a contract for the supply of goods, before the contract is complete, Houses4u fear the contract may not be completed in time, and therefore offer some extra payment, this promise to complete the contract in time produces a practical benefit for Houses4u, as they have the fridge freezers in time for their house viewings, which may result in sales. Finally, there is no duress from the parties.
Therefore, Jeff will be able to enforce the £5,000 payment on the grounds of the ‘practical benefit’ principle from Williams v Roffey.
- This issue is similar to the above issue, there is a performance of an existing duty owed to the same party, and as per Stilk v Myrick, this is not valid consideration.
In this circumstance, the first option is that Jeff renegotiates a whole new contract. However, alternatively, Jeff could go ahead with the contract at a reduced cost. This is a viable option for both parties, as although there is no strict consideration for the promise, the equitable doctrine of promissory estoppel would apply to the agreement. If Jeff attempted to claim Chilly Foods were required to pay the full amount, due to the lack of consideration, Chilly Foods would be able to use promissory estoppel as a defence to prevent this. Both parties clearly have an existing legal relationship, and have relied upon the cost reduction (paying less, and using the saved costs elsewhere). Finally, it would be inequitable for Jeff to go back on his promise.
Therefore, applying the High Trees case, the requirements of promissory estoppel are made out.
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