2.4.2 Consideration & Promissory Estoppel

What is consideration?

Consideration can be defined as providing a benefit to one party through the detriment of another (as defined in Currie v Misa(1874) LR 10 Ex 153).  Consideration is essential in contract formation (excluding deeds) and is the final step in ensuring a contract is legally binding.

What can amount to a benefit/detriment?

While in most cases benefits/detriments are obvious to recognise it is also important to acknowledge that a promise can in fact amount to a benefit/detriment - Dunlop v Selfridge Ltd [1915] AC 847.

Types of consideration

Executory consideration: Found in bilateral contracts, this form of consideration occurs when promises are exchanged by the parties i.e. is yet to be executed.

Executed consideration: Found in unilateral contracts.  When the party that is required to perform under the contract does so, the consideration is considered executed.

Consideration requirements

Benefits/detriments are not the only requirements for valid consideration.

Consideration must have economic value

Chappell & Co Ltd v Nestle Co Ltd [1960] AC 97 – Sweet wrappers are considered to have economic value.  However, to contrast, gambling chips do not have economic value - Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.

Consideration need not be adequate

Thomas v Thomas(1842) 2 QB 851 – Consideration need not be adequate (£1 to rent a whole property deemed sufficient).

Limitations to consideration

Performance of an existing duty:

  1. Collins v Godefroy(1831) 1 B & Ad 950 – Performance of legal obligations which are independent of any contract e.g. the legal duties of any persons, will not amount to consideration.  Except when such an act extends beyond that legally required - Glasbrook Bros v Glamorgan County Council [1925] AC 270.
  2. Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168 – Performance of a duty already promised in a different contract will not amount to consideration excluding again when the consideration extends beyond what was originally required - Hartley v Ponsonby [1857] 7 EL BL 872.

Williams v Roffey [AL1] [1991] 1 QB 1 provides another exception – the practical benefit.

Remember Re Selectmove [1995] 1 WLR 474 – Practical benefits don’t apply to the part-payment of debt.

  1. New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154 - the general rule created is that performance of an existing duty owed to a third party may be valid consideration if it allows the party to enforce a direct obligation against the other.

Past Consideration

Re McArdle [1951] Ch 669 – Past consideration is not sufficient.

Exceptions - Lampleigh v Braithwaite (1615) Hob 105:

  • The consideration which is ‘past’ would have operated as valid consideration if the act was done at the promisor’s request.
  • There was an understanding there would be the conferment of some kind of reward, payment or benefit for the act.
  • The consideration would have been valid had it been promised in advance of the contract.

Part-payment of debt

Re Selectmove [1995] 1 WLR 474 – Part-payment of debts is not valid consideration.

Exceptions:

  • If something other than money is exchanged along with the part-payment e.g. goods.
  • Part-payment in a different form or location, provided it bestows a benefit.

Promissory estoppel

Promissory estoppel is an equitable concept that prevents a person or “estops” them from going back on a promise, when said promise has been relied upon - Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.

For promissory estoppel to be effective certain factors must be established.

Factors to be established

  1. Combe v Combe [1951] 2 KB - There must have been an existing legal relationship between the parties.
  2. WJ Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 QB 189 - There must have been a reliance on a promise.
  3. Combe v Combe [1951] 2 KB - Promissory estoppel can only be used as a defence.  Equitable maxim - “Shield not a sword”.
  4. Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 - It must be inequitable to allow the promisor to go back on the promise.

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