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Contract Case Law_03

Consideration 3.1.1 The definition of consideration

Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] Facts: Dunlop sold Dew & Co car tyres on condition that Dew & Co would not sell them below Dunlop's list price except to trade buyers who had to make a similar promise not to sell the tyres below Dunlop's list price. Dew & Co then sold the tyres to Selfridge & Co on condition that Selfridge & Co would not sell the tyres below Dunlop's list price. Selfridge & Co then sold tyres to members of the public at below Dunlop's list price. Dunlop sued Selfridge & Co for breach of their undertaking not to sell the tyres below Dunlop's list price. In order to circumvent the 'privity of contract' rule Dunlop argued that Dew & Co had acted as their agent. For the sake of the argument their Lordships assumed that Dew & Co had acted as agents for Dunlop. The issue, therefore, before the court was whether Dunlop had provided consideration to Selfridge & Co for Selfridge & Co's promise not to sell the tyres below the list price. Held: The court found that even if it could be considered that an agreement was entered into between Dunlop (the third party acting as an agent for Dunlop) and Selfridge, Dunlop could not be regarded as having provided consideration for Selfridges promise not to sell at less than the list price. Consideration for this promise moved only from the third party. 3.1.2 Consideration must be sufficient but need not be adequate

Chappel v Nestle [1960] Facts: This case arose out of a special offer of a familiar kind, from Nestl, under which a person who sent in three wrappers from bars of their chocolate could buy a record, Rockin' Shoes, at a special price. For the purpose of the law of copyright, it was important to decide whether the chocolate wrappers were part of the consideration in the contract to buy the record. Held: The House of Lords decided that the wrappers were part of the consideration, despite the fact that it was established that they were thrown away by Nestl, and were thus of no direct value to them. 3.1.3 Existing obligations as good consideration

Ward v Byham [1966] Facts The father of an illegitimate child agreed to pay the mother a sum of money for maintenance, provided that the child be well looked after and happy, and that the mother offer the child the choice of which parent to live with when she was old enough to understand. The father made payments until the child's mother married, and then he refused. The mother sued for breach of contract. The father's defence was that there was no consideration to the agreement, as the mother was legally obligated to care for the child. Held: The Court of Appeal ruled that the mother had exceeded her statutory duty by bringing up the child in a particular way, and in accordance with the wishes of the father, and this was sufficient consideration.

Contract Case Law_03

Pao On v Lau Yiu Long [1979] Facts: The claimants owned issued share capital in a company called Shing On. The defendants were the majority shareholders in a company called Fu Chip in Hong Kong. Two written agreements were entered into.

1. The claimants were to sell shares in Shing On to Fu Chip in exchange for certain shares in Fu
2. Chip. The defendants agreed to buy back just over half of the shares at the same price at a later date.

The purpose of the second agreement was to protect the claimants against a fall in the share prices of Fu Chip. However, as the share prices were expected to rise, the claimants realized that they had contracted a bad bargain. Accordingly, the claimants refused to perform the contracts, unless a different agreement were reached. The defendants chose to avoid litigation by cancelling the second agreement and replacing it by an agreement by defendant to indemnify the claimants against a drop in the value of the shares. The document of indemnity referred to the first agreement, and incorporated into the guarantee the promise in the first agreement not to sell before a certain date. In fact, the share prices fell. The defendants failed to indemnify the claimants. Held: The Privy Council held that the promise not to sell before a certain date provided consideration supporting the agreement to indemnify, even though it was made prior to that agreement. The promise had been made in anticipation of some sort of guarantee by the defendants which protected the claimants against loss. The Privy Council in this case laid down the necessary preconditions for an act done before the giving of a promise to constitute consideration for the promise:

1. the act must be done at the promisors request

2. the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit; and 3. the payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. Stilk v Myrick [1809] Facts: The dispute in this case arose out of a contract between the crew of a ship and its owners. The crew had been employed to sail the ship from London to the Baltic and back. Part way through the voyage, some of the crew deserted. The captain promised that if the rest of the crew sailed the ship back without the missing crew, the wages of the deserters would be divided among those who remained. When the ship returned to London, the owners refused to honour this promise. A crew member sued to recover the promised money. Held: The sailors could not recover. There was no consideration for the promise to pay the extra money, as the sailors were only doing what they were obliged to do under their existing contract i.e. work the ship back to England. Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991] Facts:

Contract Case Law_03

The case concerned a contract to refurbish a block of flats. The defendants were the main contractors for this work, and had engaged the plaintiffs as sub-contractors to carry out carpentry work. The agreed price for this was 20,000. Part way through the contract, the plaintiffs got into financial difficulties, at least in part because the contract price for the carpentry work was too low. The defendants were worried that the plaintiffs would not complete the work on time or would stop work altogether. There was a penalty clause in the main contract under which the defendants would have been liable in the event of late completion. The defendants therefore promised to pay the plaintiffs a further 10,300, at a rate of 575 for each flat completed. On this basis, the plaintiffs continued to work on the flats, and completed a further eight. Because, at this stage, it seemed that the defendants were going to default on their promise of additional payments, the plaintiffs then ceased work, and subsequently sued for the additional sums in relation to the eight completed flats. The county court judge found for the plaintiffs, and the defendants appealed. They argued that since the plaintiffs, in completing or promising to complete the work on the flats, were only doing something they were already bound to do under the existing contract with the defendants, they provided no new consideration. Held: The Court of Appeal held that the promise to make the extra payments was enforceable. The agreement provided a practical benefit to the defendants, in that it meant they were less likely to have to pay under a penalty clause in the main contract relating to late performance, and avoided the trouble and expense of employing other carpenters.

Re Selectmove [1995] Facts: Selectmove Ltd owed the Inland Revenue substantial sums in outstanding tax and national insurance. The managing director, Mr ffooks, met with Mr Polland, from the Inland Revenue and said he would pay future tax as it fell due and the arrears at 1000 a month. Mr Polland said he would have to check and would contact the managing director if it was unacceptable. Selectmove Ltd heard nothing till a 25,650 notice came in and a threat of a wind-up petition. Mr ffooks subsequently claimed that the Revenue had said he could repay less. The High Court held that even if that were found to be true, Mr Polland had not bound the Revenue, and there was no consideration for the varied agreement anyway. Held: Peter Gibson LJ (Stuart-Smith LJ and Balcombe LJ concurring) said that the House of Lords case, Foakes v Beer precluded any variation of the agreement to repay the debt without good consideration, despite the recent decision in Williams v Roffey Bros Ltd. Peter Gibson LJ state it is clear that a practical benefit of that nature is not good consideration in law. He felt bound by Foakes and could not apply Roffey to leave it without any application, despite seeing the 'force of argument'.

Foakes v Beer [1884] Facts: Dr Foakes owed Mrs Beer a sum of money in relation to a judgment debt. Mrs Beer agreed that Dr Foakes could pay this off in instalments. When he had done so, Mrs Beer sued to recover the interest on the debt, in relation to the delay in the completion of payment resulting from the payment by instalments. Held:

Contract Case Law_03

The House of Lords held that, even if Mrs Beer had promised to forego the interest (which was by no means certain), it was an unenforceable promise because Dr Foakes had provided no consideration for it. Part payment of a debt could not in itself distinguish the debt.

Pinnels case [1602] Facts: Pinnel sued Cole for 8 10 s. due on a bond in November 1600. Coles defence was that at Pinnels request, he had paid him 5 2s. 6d. on 1 October, and that Pinnel had accepted this payment in full satisfaction of the original debt. Held: The court found in favour of Pinnel, because part-payment of an original debt did not make for fresh consideration. Therefore the agreement was not a contract. Payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk, or robe, etc. in satisfaction is good... [as] more beneficial to the plaintiff than the money. Pinnels Case is cited as the authority for the proposition that: Payment of a lesser sum on the day in satisfaction of a greater sum cannot be any satisfaction for the whole. 3.1.4 Past Consideration

Re McArdle [1951] Facts: William McArdle left a house to his sons and daughter. One of the sons was living in the house, and he and his wife carried out various improvements to it. His wife then got each of his siblings to sign a document agreeing to contribute to the costs of the work. The document was worded in a way which read as though work was to be done, and that when it was completed, the other members of the family would make their contribution out of their share of William McArdle's estate. Held: The document did not truly represent the facts. If it had done so, then, of course, it would have constituted a binding contract, but, as Jenkins LJ pointed out:
The true position was that, as the work had in fact all been done and nothing remained

to be done at all, the consideration was a wholly past consideration, and therefore the beneficiaries' agreement for the repayment of the 488 out of the estate was nudum pactum, a promise with no consideration to support it. This being so, the agreements to pay were unenforceable.


Promissory estoppels

Central London Property Trust Limited v High Trees House Limited [1947] Facts:

Contract Case Law_03

The plaintiffs were the owners of a block of flats in London, which they rented to the defendants at a rent of 2,500 per annum. Following the outbreak of the Second World War in 1939, the defendants were unable to find sufficient tenants to take the flats, because of the large numbers of people leaving London. As a result, the plaintiffs agreed that, in the circumstances, the rent could be reduced by half, to 1,250 per annum. This arrangement continued until after the war ended in 1945, and the difficulty in letting the flats ceased. The plaintiffs then sought to return to the original terms of the agreement, and also queried whether they might not be entitled to claim the other half of the rent for the war years, since the promise to accept less was not supported by any consideration. Held: Denning J confirmed that the plaintiffs were entitled to recover the full rent from the end of the war. Their promise to take less had clearly only been intended to last until that point. On the more general issue, however, he considered that the plaintiffs would not be able to recover the balance for the war years. The reason for this was that he thought that there was a general equitable principle whereby: A promise intended to be binding, intended to be acted upon, and in fact acted on, is binding so far as its terms properly apply. These conditions were satisfied on the facts of this case in relation to what had happened during the war years, and the plaintiffs were bound by their promise, which had been acted on by the defendants.


The limitations of promissory estoppels

Combe v Combe [1951] Facts: In this case, a husband and wife were getting divorced. Between the decree nisi and absolute, the husband agreed to pay his wife 100 per annum net of tax. The husband never paid any money, and after seven years his former wife sued on the basis of his promise. Byrne J held that while there was no consideration for the husband's promise, the wife could recover on the basis of the High Trees decision. The husband appealed. Held: The trial judge's decision was overturned by a Court of Appeal which included Lord Denning himself. He commented that consideration remained a cardinal necessity of the formation of a contract, but not of its modification or discharge. If this is so, then it severely limits the doctrine's scope as a general challenge to the doctrine of consideration. Promissory estoppel is limited to the modification of existing legal relationships rather than to the establishment of new obligations.

D & C Builders v Rees [1966] Facts: The plaintiff builders had done work for the defendants and were owed nearly 500. After pressing for payment for some time, the plaintiff agreed to take 300 in satisfaction of the account. Mrs Rees, who knew that the plaintiffs were in financial difficulties, had told them that that was all they were likely to get. Despite their promise to accept the 300 (a promise for which there was no consideration), the builders then sought to recover the balance of the debt. Held: Lord Denning, in the Court of Appeal, held that although there was clearly a promise here of a type which might raise promissory estoppel, the element of intimidation in the defendant's behaviour, knowingly taking advantage

Contract Case Law_03

of the plaintiffs' circumstances, meant that it was not inequitable to allow the plaintiffs to go back on their promise. The other members of the Court of Appeal did not think it was even necessary to discuss the doctrine.