Chapter 3 Consideration

Contents
Introduction 31 32 Consideration Promissory estoppel Reflect and review 40 41 47 51

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Introduction
The concept of consideration is the principal way in which English courts decide whether an agreement that has resulted from the exchange of offer and acceptance (as explained in Chapter 2) should be legally enforceable. It is only where there is an element of mutuality about the exchange, with something being given by each side, that a promise to perform will be enforced. A promise to make a gift will not generally be treated as legally binding. One way of regarding consideration is as an indication of the fact that the parties intended their agreement to be legally binding, although in some cases the courts also apply a separate test of intention to create legal relations, as discussed in Chapter 4. The doctrine of consideration, while still central to the English law of contract, has been applied with some flexibility in recent years. There is also a significant exception to it, based around the concept of reasonable reliance and usually referred to as the doctrine of promissory estoppel. This applies mainly to the variation of existing legal obligations.

Learning outcomes
By the end of this chapter and the relevant reading, you should be able to:
u u u

state the essential elements of the concept of consideration explain the significance of consideration to the English law of contract give examples of the types of behaviour which the courts will, or will not, treat as valid consideration describe the situations where the performance of, or promise to perform, an existing obligation will amount to consideration for a fresh promise define past consideration explain the role of consideration in the modification of existing contracts state the essential elements of the doctrine of promissory estoppel explain how the doctrine of promissory estoppel leads to the enforcement of some promises which are not supported by consideration.

u u u u

Elements of the law of contract 3 Consideration

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3.1

Consideration
Essential reading
McKendrick, Chapter 5: Consideration and form 5.1 Requirements of form to 5.21 The role of consideration, pp.6188. Poole, Chapter 4: Consideration, promissory estoppel and form Section 1 Consideration, pp.129160. The function of consideration is to give what McKendrick calls the badge of enforceability to agreements. This is particularly important where the agreement involves a promise to act in a particular way in the future. In exchanges where there is an immediate, simultaneous transfer of, for example, goods for money (as in most everyday shop purchases), the doctrine of consideration applies in theory but rarely causes any practical problems. It is where somebody says, for example, I will deliver these goods next Thursday or I will pay you 1,000 on 1 January that it becomes important to decide whether that promise is supported by consideration (that is, something has been given or promised in exchange). A promise to make a gift at some time in the future will only be enforceable in English law if put into a special form, that is, a deed. (For the requirements of a valid deed, see Law of Property (Miscellaneous Provisions) Act 1989.) Where a promise for the future is not contained in a deed, then consideration becomes the normal requirement of enforceability.

3.1.1 The definition of consideration

Essential reading

McKendrick, Chapter 5: Consideration and form 5.2 Consideration defined to 5.4 Consideration and motive, pp.6168. Poole, Chapter 4: Consideration, promissory estoppel and form Section 1 A What is consideration and B Consideration distinguished from a condition imposed on recipients of gifts, pp.129130. Look at the traditional definition of consideration as set out in Currie v Misa (1875): a valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other. You will see that it is based around the concept of a benefit to the person making the promise (the promisor), or a detriment to the person to whom the promise is made (the promisee). Either is sufficient to make the promise enforceable, though in many cases both will be present. This is generally quite straightforward where one side performs its part of the agreement. This performance can be looked at as detriment to the party performing and a benefit to the other party, thus providing the consideration for the other partys promise. More difficulty arises where the agreement is wholly executory (that is, it is made by an exchange of promises, and neither party has yet performed). It is clear that English law treats the making of a promise (as distinct from its performance) as capable of being consideration see the statement of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) p.855. Thus, in a wholly executory contract, the making of the promise by each side is consideration for the promise made by the other side (so rendering both promises enforceable). This leads to a circular argument. A promise cannot be a detriment to the person making it (or a benefit to the person to whom it is made) unless it is enforceable. But it will only be enforceable if it constitutes such a detriment (or benefit). For this reason it is perhaps better to regard the doctrine of consideration as simply requiring mutuality in the agreement (that is, something being offered by each side to it) rather than trying to analyse it strictly in terms of benefits and detriments.

Activity 3.1
Suppose that A arranges for B to clean As windows, and promises to pay B 30 for this work. B does the work. How does the analysis of benefit and detriment apply in identifying the consideration supplied by B for As promises of payment?

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Activity 3.2
As in 3.1, but this time A pays the 30 immediately, and B promises to clean the windows next Tuesday. What is the consideration for Bs promise?

Activity 3.3
As in 3.1, but A and B arrange for the windows to be cleaned next Tuesday, with A paying 30 on completion of the work. Suppose B does not turn up on Tuesday. Is B in breach of contract?

3.1.2 Consideration must be sufficient but need not be adequate

Essential reading

McKendrick, Chapter 5: Consideration and form 5.4 Consideration and motive to 5.8 Intangible returns, pp.6970. Poole, Chapter 4: Consideration, promissory estoppel and form Section 1 C Consideration must be sufficient but need not be adequate, pp.131152. The requirement that consideration must be sufficient means that what is being put forward must be something which the courts will recognise as legally capable of constituting consideration. The fact that it need not be adequate indicates that the courts are not generally interested in whether there is a match in value between what is being offered by each party. Thus in Thomas v Thomas (1842) the promise to pay 1 per annum rent was clearly sufficient to support the promise of a right to live in a house: the payment of, or promise to pay, money is always going to be treated as being within the category of valid consideration. On the other hand, the fact that 1 per annum was not a commercial rent was irrelevant, because the courts do not concern themselves with issues of adequacy. Consider the case of Chappell v Nestl (1960). You will see that Lord Somervell justifies the courts approach to the issue of adequacy by reference to freedom of contract: A contracting party can stipulate for what consideration he chooses. The courts will not interfere just because it appears that a person has made a bad bargain. The person may have other, undisclosed, reasons for accepting consideration that appears inadequate. In the case of Chappell v Nestl the reasoning was presumably that the requirement to send in the worthless wrappers would encourage more people to buy the companys chocolate. It is sometimes suggested that consideration will not be sufficient if it has no economic value. This explains White v Bluett (1853) where a sons promise to stop complaining to his father about the distribution of the fathers property was held to be incapable of amounting to consideration. But it is difficult to see that the wrappers in Chappell v Nestl had any economic value either.

Activity 3.4
Read the case of Ward v Byham (1956). Identify the consideration supplied by the mother. Does the consideration meet the requirement of having economic value?

Activity 3.5
Read the case of Edmonds v Lawson (2000). What consideration was supplied by the pupil barrister? Does the consideration meet the requirement of having economic value?

3.1.3 Existing obligations as good consideration

Essential reading

McKendrick, Chapter 5: Consideration and form 5.10 Performance of a duty imposed by law to 5.15 Party payment of a debt, pp.7381. Poole, Chapter 4: Consideration, promissory estoppel and form Section 1 C Consideration must be sufficient but need not be adequate, pp.131152. Chen-Wishart, M. Consideration: practical benefit and the Emperors new clothes, Elements of the law of contract Study pack. There are three aspects to this topic, dealing with three different types of existing obligation which may be argued to constitute consideration.

Elements of the law of contract 3 Consideration

1 Obligations which arise under the law, independently of any contract.

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2 Obligations which are owed under a contract with a third party. 3 Obligations which exist under a contract with a person who has made a new promise, for which the existing obligation is alleged to provide good consideration. The third situation is, essentially, concerned with the variation of existing contractual obligations as between the parties and the extent to which such variations can become binding. These three situations will be considered in turn. (Note that McKendrick deals with the second and third situation in the reverse order to that adopted here.) An example of the first type of existing obligation would be where a public official (such as a firefighter or a police officer) agrees to carry out one or more of their duties in return for a promise of payment from a member of the public. In that situation the promise of payment will not generally be enforceable. This is either because there is no consideration for the promise (the public official is only carrying out an existing duty) or, more probably, because public policy generally suggests that the law should not encourage the opportunities for extortion that enforcing such a promise would create. Where, however, the official does more than is required by the existing obligation, then the promise of payment will be enforceable, as shown by Glasbrook Bros Ltd v Glamorgan CC (1925).

Activity 3.6
In Collins v Godefroy (1831), why was the promise of payment unenforceable?

Activity 3.7
In Ward v Byham (1956), why was the fathers promise enforceable? In the second type of situation, which regards the performance of, or promise to perform, an existing obligation owed under a contract with a third party, the position is much more straightforward. The courts have consistently taken the view that this can provide good consideration for fresh promise, whether the context is domestic or commercial. Thus it has been applied to the fulfilling of a promise to marry (Shadwell v Shadwell (1860) such a promise at the time being legally binding) and to the unloading of goods by a firm of stevedores, despite the fact that the firm was already obliged to carry out this work under a contract with a third party (The Eurymedon (1975)). The fact that the promise to perform the existing obligation, as well as its actual performance, can constitute good consideration was confirmed by the Privy Council in Pao On v Lau Yiu Long (1980). The third type of existing obligation that owed under a contract with the party making the new promise is the most difficult to deal with. This results from the fact that a principle which was clear, though impractical in some circumstances, has now been modified, but the extent of the modification is unclear. There are two particular cases on this area which it is important you should read in full Stilk v Myrick (1809) and Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991). Stilk v Myrick was long accepted as establishing the principle that the performance of an existing contractual obligation could never be good consideration for a fresh promise from the person to whom the obligation was owed. The sailors contract obliged them to sail the ship back home. Thus in bringing the ship back to London they were doing nothing more than they were already obliged to do under their original contract. This could not be good consideration for a promise of additional wages.

Stevedores: dock workers who load and unload ships.

Activity 3.8
What other explanation can there be for the decision in Stilk v Myrick?

Activity 3.9
How can Stilk v Myrick be distinguished from the factually similar case of Hartley v Ponsonby (1857), where the recovery of additional payments was allowed? The Court of Appeals decision in Williams v Roffey raised the question of whether Stilk v Myrick could still be said to be good law. The plaintiff carpenters, in completing the work on the flats, appeared to be doing no more than they were already obliged to do under their contract with the defendants.

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Photo: Williams v Roffey Brothers Twynholme Mansion (photo C. MacMillan 2003) How could this constitute consideration for the defendants promise of additional payment? The application of Stilk v Myrick would point to the promise being unenforceable. Yet the Court of Appeal held that the plaintiffs should be able to recover the promised extra payments for the flats which they had completed. The Court came to this conclusion by giving consideration a wider meaning than had previously been thought appropriate. In particular, Glidewell LJ pointed to the practical benefits that would be likely to accrue to the defendants from their promise of the additional money. They would be:
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ensuring that the plaintiffs continued work and did not leave the contract uncompleted avoiding a penalty clause which the defendants would have had to pay under their contract with the owners of the block of flats avoiding the trouble and expense of finding other carpenters to complete the work. The problem is that very similar benefits to these could be said to have accrued to the captain of the ship in Stilk v Myrick. The main point of distinction between the cases then becomes the fact that no pressure was put on the defendants in Williams v Roffey to make the offer of additional payment. In other words, the alternative explanation for the decision in Stilk v Myrick, as outlined in the feedback to Activity 3.8, above, is given much greater significance. The effect is that it will be much easier in the future for those who act in response to a promise of extra payment, or some other benefit, by simply doing what they are already contracted to do, to enforce that promise. You should note that Glidewell LJ summarises the circumstances where, in his view, the practical benefit approach will apply in six points, which relate very closely to the factual situation before the court and emphasise the need for the absence of economic duress or fraud. There is no reason, however, why later courts should be restricted by these criteria in applying the Williams v Roffey approach. Williams v Roffey has not affected the related rule that part payment of a debt can never discharge the debtor from the obligation to pay the balance. This rule does not derive from Stilk v Myrick but from the House of Lords decision in Foakes v Beer (1884). As with the general rule about existing obligations, if something extra is done (for example, paying early, or giving goods rather than money), then the whole debt will be discharged (as held in Pinnels Case (1602)). But payment of less than is due on or after the date for payment will never provide consideration for a promise to forgo the balance. In Foakes v Beer the House of Lords held, with some reluctance, that the implication of the rule in Pinnels Case was that Mrs Beers promise to forgo the interest on a judgment debt, provided that Dr Foakes paid off the main debt by instalments, was unenforceable.

Elements of the law of contract 3 Consideration

This rule has been regarded with some disfavour over the past 100 years and in some circumstances its effect can be avoided by the doctrine of promissory estoppel (discussed below, at 3.2). It might have been thought that the extension of the scope of consideration in Williams v Roffey would have provided the opportunity for a revised view of Foakes v Beer. After all, in many situations it may be to the creditors practical benefit to get part of the debt, rather than to run the risk of receiving nothing at all. In Re Selectmove (1995), however, the Court of Appeal held that Williams v Roffey had no impact on the Foakes v Beer principle. That principle has also subsequently been confirmed by the Court of Appeal in Ferguson v Davies (1997). In South Caribbean Trading Ltd (SCT) v Trafigura Beeher BV [2004], however, Colman J (paras.10609 of the judgment) doubted the correctness of the decision in Williams v Roffey. He noted that the decision was inconsistent with the long-standing rule that consideration must move from the promisee.

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Activity 3.10
Read the case of Foakes v Beer, preferably in the law reports (1884) 9 App Cas 605 (although extracts do appear in Poole). Which of the judges expressed reluctance to come to the conclusion to which they felt the common law (as indicated by Pinnels case) bound them? What was the reason for this reluctance?

Activity 3.11
Why do you think that the Court of Appeal has been reluctant to overturn the decision in Foakes v Beer?

3.1.4 Past consideration

Essential reading

McKendrick Chapter 5: Consideration and form 5.16 Performance of a duty imposed by contract with a third party to 5.18 Past consideration, pp.8283. Poole, Chapter 4: Consideration, promissory estoppel and form Section 1 C Consideration must be sufficient but need not be adequate, pp.131152. A further rule about the sufficiency of consideration states that generally the consideration must be given after the promise which it is to make enforceable. A promise which is given only when the alleged consideration has been completed is unenforceable. The case of Re McArdle (1951) provides a good example. The plaintiff had carried out work refurbishing a house in which his brothers and sister had a beneficial interest. He then asked them to contribute towards the costs, which they agreed to do. It was held that this agreement was unenforceable, because the promise to pay was unsupported by consideration. The only consideration that the plaintiff could point to was his work on the house, but this had been completed before any promise of payment was made. It was therefore past consideration and so not consideration at all. As with many rules relating to consideration, there is an exception to the rule about past consideration. The circumstances in which a promise made after the acts constituting the consideration will be enforceable were thoroughly considered in Pao On v Lau Yiu Long (1979). Lord Scarman laid down three conditions which must be satisfied if the exception is to operate.

The act constituting the consideration must have been done at the promisors request. (See, for example, Lampleigh v Braithwait (1615).)

2 The parties must have understood that the work was to be paid for in some way, either by money or some other benefit. (See, for example, Re Caseys Patents (1892).) 3 The promise would be legally enforceable had it been made prior to the acts constituting the consideration. The second of these conditions will be the most difficult to determine. The court will need to take an objective approach and decide what reasonable parties in this situation would have expected as regards the question of whether the work was done in the clear anticipation of payment.

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Activity 3.12
Why was the approach taken in Re Caseys Patents not applied so as to allow the plaintiff to succeed in Re McArdle, since it was obvious that the improvement work would benefit all those with a beneficial interest in the house?

Activity 3.13
Jack works into the night to complete an important report for his boss, Lisa. Lisa is very pleased with the report and says I know youve worked very hard on this: Ill make sure theres an extra 200 in your pay at the end of the month. Can Jack enforce this promise?

Self-assessment questions
1 What is an executory contract? 2 Is the performance of an existing obligation owed to a third party good consideration? 3 What principle relating to consideration is the House of Lords decision in Foakes v Beer authority for?

Summary
The doctrine of consideration is the means by which English courts decide whether promises are enforceable. It generally requires the provision of some benefit to the promisor, or some detriment to the promisee, or both. The value of the consideration is irrelevant, however. The performance of existing obligations will generally not amount to good consideration, unless the obligation is under a contract with a third party, or the promisee does more than the existing obligation requires. This rule is less strictly applied following Williams v Roffey. Part payment of a debt can never in itself be good consideration for a promise to discharge the balance. Consideration must not be past, unless it was requested, was done in the mutual expectation of payment and is otherwise valid as consideration (Lord Scarmans three conditions).

Reminder of learning outcomes

By this stage, you should be able to:
u u u

state the essential elements of the concept of consideration explain the significance of consideration to the English law of contract give examples of the types of behaviour which the courts will, or will not, treat as valid consideration describe the situations where the performance of, or promise to perform, an existing obligation will amount to consideration for a fresh promise define past consideration.

Useful further reading

Anson, pp.88111.

Elements of the law of contract 3 Consideration

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3.2

Promissory estoppel
Essential reading
McKendrick, Chapter 5: Consideration and form 5.22 Estoppel to 5.29 Conclusion: the future of consideration, pp.91100. Poole, Chapter 4: Consideration, promissory estoppel Section 2 Promissory estoppel, pp.160173.

3.2.1 The concept of promissory estoppel

The doctrine of promissory estoppel is primarily concerned with the modification of existing contracts. The position under the classical common law of contract was that such modification would only be binding if consideration was supplied. Thus in a contract to supply 50 tons of grain per month at 100 per ton for 5 years, if the buyer wanted to negotiate a reduction in the price to 90 per ton, because of falling grain prices, this could only be made binding if the buyer gave something in exchange (for example, agreeing to contribute to the costs of transportation). Alternatively the two parties could agree to terminate their original agreement entirely, and enter into a new one. The giving up of rights under the first agreement by both sides would have sufficient mutuality about it to satisfy the doctrine of consideration. These procedures are a cumbersome way of dealing with the not uncommon situation where the parties to a continuing contract wish to modify their obligations in the light of changed circumstances. It is not surprising, therefore, that the equitable doctrine of promissory estoppel has developed to supplement the common law rules. This allows, in certain circumstances, promises to accept a modified performance of a contract to be binding, even in the absence of consideration. The origin of the modern doctrine of promissory estoppel is to be found in the judgment of Denning J (as he then was) in the case of Central London Property Trust Ltd v High Trees House Ltd (1947). This is a case which you should read in full.

Photo: High Trees House (photo C. MacMillan 2003) The facts of the case concerned the modification of the rent payable on a block of flats during the Second World War. The importance of the case, however, lies in the statement of principle which Denning set out to the effect that a promise intended to be binding, intended to be acted on, and in fact acted on, is binding so far as its terms properly apply. Applying this principle, Denning held that a promise to accept a lower rent during the war years was binding on the landlord, despite the fact that the tenant had supplied no consideration for it.

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The common law recognises the concept of estoppel by representation. Such an estoppel only arises, however, in relation to a statement of existing fact, rather than a promise as to future action: see Jorden v Money (1854). The concept of waiver has been recognised by both the common law and equity as a means by which certain rights can be suspended, but then revived by appropriate notice. See, for example, Hickman v Haynes (1875), Rickards v Oppenhaim (1950) and Hughes v Metropolitan Railway (1877) (this case was the one on which Denning placed considerable reliance in High Trees). It never applied to situations of part payment of debts, however. Under the modern law the concept of waiver has been effectively subsumed within promissory estoppel.

3.2.2 The limitations on promissory estoppel

The doctrine of estoppel has been considered in a number of reported cases since 1947 and now has fairly clearly defined limits. There are six points which must be considered.

Need for existing legal relationship

It is generally, though not universally, accepted that promissory estoppel operates to modify existing legal relationships, rather than to create new ones. The main proponent of the opposite view is Lord Denning himself who, in Evenden v Guildford City FC (1975), held that promissory estoppel could apply in a situation where there appeared to be no existing legal relationship at all between the parties.

Need for reliance

At the heart of the concept of promissory estoppel is the fact that the promisee has relied on the promise. It is this that provides the principal justification for enforcing the promise. The lessees of the property in High Trees had paid the reduced rent in reliance on the promise from the owners that this would be acceptable. They had no doubt organised the rest of their business on the basis that they would not be expected to pay the full rent. It would therefore have been unfair and unreasonable to have forced them to comply with the original terms of their contract. It has sometimes been suggested that this reliance must be detrimental, but Denning consistently rejected this view (see, for example, W J Alan & Co v El Nasr (1972)) and it now seems to be accepted that reliance itself is sufficient.

A shield not a sword

This is related to the first point (concerning the need for an existing relationship). The phrase derives from the case of Combe v Combe (1951). A wife was trying to sue her former husband for a promise to pay her maintenance. Although she had provided no consideration for this promise, at first instance she succeeded on the basis of promissory estoppel. The Court of Appeal, however, including Lord Denning, held that promissory estoppel could not be used as the basis of a cause of action in this way. Its principal use was to provide protection for the promisee (as in High Trees providing the lessees with protection against an action for the payment of the full rent). As Lord Denning put it: consideration remains a cardinal necessity of the formation of a contract, though not of its modification or discharge.

Must be inequitable for the promisor to go back on the promise

The doctrine of promissory estoppel has its origins in equitable waiver. It is thus regarded as an equitable doctrine. The effect of this is that a judge is not obliged to apply the principle automatically, as soon as it is proved that there was a promise modifying an existing contract which has been relied on. There is a residual discretion whereby the judge can decide whether it is fair to allow the promise to be enforced. The way that this is usually stated is that it must be inequitable for the promisor to withdraw the promise. What does inequitable mean? It will cover situations where the promisee has extracted the promise by taking advantage of the promisor. This was the case, for example, in D & C Builders v Rees (1966) where the promise of a firm of builders to accept part payment as fully discharging a debt owed for work done was held not to give rise to a promissory estoppel, because the debtor had taken advantage of the fact that she knew that the builders were desperate for cash. Impropriety is not necessary, however, as shown by The Post Chaser (1982), where the promise was withdrawn so quickly that the other side had suffered no disadvantage from their reliance on it. In those circumstances it was not inequitable to allow the promisor to escape from the promise.

Elements of the law of contract 3 Consideration Doctrine is generally suspensory

Whereas a contract modification which is supported by consideration will generally be of permanent effect, lasting for the duration of the contract, the same is not true of promissory estoppel. Sometimes the promise itself will be time limited. Thus in High Trees it was accepted that the promise to take the reduced rent was only to be applicable while the Second World War continued. Once it came to an end, the original terms of the contract revived. In other cases, the promisor may be able to withdraw the promise by giving reasonable notice. This is what was done in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1955). To this extent, therefore, the doctrine is suspensory in its effect. While it is in operation, however, a promissory estoppel may extinguish rights, rather than delay their enforcement. In both High Trees and the Tool Metal Manufacturing case it was accepted that the reduced payments made while the estoppel was in operation stood and the promisor could not recover the balance that would have been due under the original contract terms.

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Where promise is prohibited by legislation

Evans v Amicus Healthcare Ltd [2003] EWHC 2161, [2003] 4 All E.R. 903 concerned the use of embryos created by IVF prior to the breakdown of the couples relationship. The man wished the embryos to be destroyed, the woman to have the embryos used. In this context it was found, inter alia, that the man had not given such assurances to the woman as to create a promissory estoppel because the relevant legislation allowed him to withdraw his consent to the storage of the embryos at any time. This judgement contains an important discussion as to the current state of promissory estoppel and its possible future development.

Activity 3.14
Why was Dennings statement of principle in High Trees seen as such a potentially radical development in the law?

Activity 3.15
Do you think that the doctrine of promissory estoppel is still needed, now that Williams v Roffey has made it much more likely that a modification of a contract will be found to be supported by consideration?

Self-assessment questions
1 How does promissory estoppel differ from common law estoppel, and from waiver? 2 What is the meaning of the phrase a shield not a sword in the context of promissory estoppel? 3 What important statement of principle did Denning J make in the case of Central London Property Trust Ltd v High Trees House Ltd?

Summary
Generally the modification of a contract requires consideration in order to be binding. The doctrine of promissory estoppel, however, provides that in certain circumstances a promise may be binding even though it is not supported by consideration. The main use of the doctrine has been in relation to the modification of contracts, but it is not clear whether it is limited in this way. The doctrine is only available as a shield, not a sword; there must have been reliance on the promise; it must be inequitable to allow the promisor to withdraw the promise; but it may well be possible to revive the original terms of the contract by giving reasonable notice.

Reminder of learning outcomes

By this stage, you should be able to:
u u u

explain the role of consideration in the modification of existing contracts state the essential elements of the doctrine of promissory estoppel explain how the doctrine of promissory estoppel leads to the enforcement of some promises which are not supported by consideration.

Useful further reading

Anson, pp.112123.

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Sample examination question

Simone owns five terraced houses which she is planning to rent to students. The houses all need complete electrical rewiring before they can be rented out. Simone engages Peter to do this work during August, at an overall cost of 5,000, payable on completion of the work. After rewiring two of the houses Peter finds that the work is more difficult than expected because of the age of the houses. On 20 August he tells Simone that he is using more materials than anticipated and that the work will take much longer than he originally thought. He asks for an extra 500 to cover the cost of additional materials. Simone agrees that she will add this to the 5,000. In addition, because she is anxious that the houses should be ready for occupation before the start of the university term, she says that she will pay an extra 1,000 if the work is completed by 15 September. Peter completes the work by 15 September, but Simone says that she is now in financial difficulties. She asks Peter to accept 5,000 in full settlement of her account. He reluctantly agrees, but has now discovered that Simones financial problems were less serious than she made out and wishes to recover the additional 1,500 he was promised. Advise Peter.

Advice on answering the sample examination question

This question is concerned with the role of consideration in the modification of contracts, and the doctrine of promissory estoppel. There are three separate issues which you will need to consider.
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Was Simones promise to pay the extra 500 a binding variation of the contract? Was Simones promise of an extra 1,000 if the work is completed by 15 September a binding variation of the contract? Is Peters promise to take the 5,000 in full settlement binding on him? The first two questions involve discussion of what amounts to consideration. If Peter has provided consideration for Simones promises, then he will be able to hold her to them. The answer to the third question will depend to some extent on the answer to the first two. If there has been no binding variation of the original contract, then Peter is not entitled to more than 5,000 in any case. If there has been a binding variation, then the question will arise as to whether he is precluded from recovering the extra money because of the doctrine of promissory estoppel. As to the promised 500, you will need to consider whether the fact that Peter is buying additional materials is good consideration for this promise. Simone may argue that it was implicit in the original contract that the cost of all materials needed would be included in the 5,000. The fact that Peter has made an underestimate is not her responsibility. Similarly, in relation to the promised extra 1,000, is Peter doing any more than he is contractually obliged to do, in that it seems likely that the original contract was on the basis that the work was to be done by the end of August? In answering both these questions you will need to deal with the principle in Stilk v Myrick and the effect on this of Williams v Roffey. This will involve identifying any practical benefit that Simone may have gained from her promises. If such a benefit can be identified and there is no suggestion of improper pressure being applied by Peter, then the variations of the contract will be binding on Simone. In relation to the third issue, assuming that there has been a binding variation, you will need to decide whether Foakes v Beer applies (in which case Peter will be able to recover the 1,500), or whether Simone can argue that Peter is precluded from recovery by the doctrine of promissory estoppel. In relation to the latter issue, one of the matters which you will need to consider is whether promissory estoppel can apply in a situation of a debt of this kind, as opposed to money payable under continuing contracts such as those involved in High Trees and Tool Metal Manufacturing v Tungsten Electric. You will also need to consider whether the fact that Simone may have not been fully truthful about her financial position may make it inequitable for her to rely on promissory estoppel (see D & C Builders v Rees).

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Reflect and review

Look through the points listed below. Are you ready to move on to the next chapter? Ready to move on = I am satisfied that I have sufficient understanding of the principles outlined in this chapter to enable me to go on to the next chapter. Need to revise first = There are one or two areas I am unsure about and need to revise before I go on to the next chapter. Need to study again = I found many or all of the principles outlined in this chapter very difficult and need to go over them again before I move on. Tick a box for each topic. Ready to move on I can state the essential elements of the concept of consideration. I can explain the significance of consideration to the English law of contract. I can give examples of the types of behaviour which the courts will, or will not, treat as valid consideration. I can describe the situations where the performance of, or promise to perform, an existing obligation will amount to consideration for a fresh promise. I can define past consideration. I can explain the role of consideration in the modification of existing contracts. I can state the essential elements of the doctrine of promissory estoppel. I can explain how the doctrine of promissory estoppel leads to the enforcement of some promises which are not supported by consideration. Need to Need to revise first study again

If you ticked need to revise first, which sections of the chapter are you going to revise? Must revise 3.1 3.2 Consideration Promissory estoppel Revision done

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Notes