Consideration in Contracts on Example of Trials - Essay Example

Consideration in Contracts In the present problem, Peter agreed to pay an extra amount of £2,000 to Rapid Builders, in order to ensure that the latter would complete the work as per the original agreement between them. He agreed to do so, because he wanted to avoid cancellation of reservations to his pub. As such, Peter was being benefitted, due the work being completed within the originally stipulated time. In accordance with the rule in Williams v. Roffey, the practical benefit accruing to Peter constituted sufficient consideration, for the extra payment made by him. He cannot evade the payment, since the work has already been completed as agreed upon, by the Rapid Builders. In accordance, with the principle of promissory estoppel, Peter cannot go back on his promise to Rapid Builders and thereby causing a loss to the latter1. The realisation of a practical benefit to the promisor can be treated as consideration for the extra bonus or incentive offered by him. In CTN Cash and Carry Ltd v. Gallaher Ltd, the Court held that the promisor had received the practical benefit from the promise. The Court further opined that this practical benefit constituted the consideration for the additional payment promised by the promisor2. The reasoning of the Court in Williams v. Roffey suggested that if one party to a contract had promised to perform the existing contractual duty, and if there had been no detriments to the other party, and if the promisor had benefitted, then it could be said that there had been good consideration3. Promissory estoppel can be used as an instrument of defence and not as a cause of action. It was first employed in Central London Property Trust Ltd v High Trees Ltd4 and the ruling in Coombe v Coombe5 relied upon it. Due to financial setbacks and the Yuletide season not proving to be as lucrative as Peter had hoped that it would; he was unable to pay Keg Ltd the agreed upon amount of £8,000 for the supply of champagne. As per the extant case law, a part payment of a debt cannot be considered as full settlement of the outstanding debt. Hence, Peter has to pay Keg Ltd the remaining £2,000. The relevant case law has been discussed in the sequel. In D & C Builders v. Rees, the plaintiff sustained substantial financial loss. The defendant agreed to pay just £300 towards the complete repayment of her debt. The plaintiff accepted this lesser amount due to financial duress. Later on, the plaintiff company sued the defendant, in order to recover the remainder of the amount due from her. The Court held that the plaintiff was well within its rights to recover the balance amount due from the defendant6. This legal tenet was reinforced in Foakes v. Beer, wherein the Court ruled that a partial repayment of a debt did not constitute satisfactory consideration for a guarantee to sacrifice the remaining amount of the original debt. The issue that emerged from this case and which was placed before their Lordships, concerned whether Beer was entitled to the interest, after having agreed to forego the same7. To this the House of Lords ruled that in accordance with the rule in Pinnel’s case, she could sue for the interest on the judgement debt. However, the House of Lords emphatically stated that if the agreement had been in a deed under seal, then Beer would not have been entitled to such interest8. In the Selectmove Ltd case, the Court of Appeal dealt with whether payment in instalments. The issue was whether the benefit derived by the creditor in agreeing to such an arrangement constituted adequate consideration to make this understanding legally binding. The Appellate Court held that such an arrangement was not legally binding, in respect of the appellant Selectmove Ltd, in respect of a compulsory winding up order pronounced by the Companies Court9. However, in Hartley v. Ponsonby, the court found that the offer of extra money to sailors to sail home in a shorter period of time could be treated as good consideration. There had been a risk of desertion in great numbers, of these seamen if the defendant had failed to offer extra money to them10. The court found that although the sailors were under a contractual obligation to carry out their duty, what they had done was beyond such duty. The sailors had carried out the duty of those who had already deserted the ship. Furthermore, the return journey proved to be more perilous, and the number of crew members had reduced to half of the number present when the voyage had commenced11. This opinion was upheld in Re Wyvern Developments Ltd, wherein the court held that promissory estoppel could be used as a cause of action. In this case two parties had acted on the promise made by a third party. Later on the first two parties and altered their stance. Subsequently the third party failed to discharge his promise12. The court relied on the principle of promissory estoppel and directed the third party to fulfil his contractual obligation. The latter’s contention, based on the ruling in High Trees, that a promise, unsupported by consideration could not be realized, was rejected by the Court13. Many agreements are not legally binding due to the lack of intention in such contracts, to approach the court in cases of non fulfilment. Agreements between friends and family members, which are of a social or domestic nature, are presumed to be devoid of an intention to form a legal relationship. Contrary to this, business agreements are deemed to incorporate an intention to create legal obligations14. In Simpson v Pays, a house was shared between the owner of the house, her granddaughter and a paying guest; who regularly participated in a newspaper contest. Although the entries were submitted in the name of the grandmother, all of them shared the prize money. On one occasion, they won £750, which the grandmother did not agree to share with the other members15. However, the court held that the other members were also entitled to a share, on account of the legally binding intention of the parties. Business agreements are presumed to be legally binding, since the intention behind these agreements is to create legal relations. This presumption can be rebutted only by submitting strong evidence like a statement in a written deed16. Stewie, a friend of Peter, was asked by the latter to work in the pub, in the place of a waiter, who had fallen ill. Peter subsequently, promised Stewie £50 for this work. Later only, Peter refused to pay him for this work. As per the case law, Stewie has to be paid the agreed upon amount by Peter, for the work performed by him in the pub. This offer by Peter to Stewie is legally binding, because the latter had worked in this manner for Peter, on several past occasions. Moreover, the extant case law also states that unless there is a statement that stipulates that there is no intention to be legally bound, any business agreement is invariably legally binding. For instance, in Pao On v. Lau Yiu, the court held that any act performed before a promise to make payment was made, constitutes consideration: provided, such act was at the promisor’s behest; it was clear to the parties that the act was to be remunerated by means of payment; and such payment was legally enforceable17. Hence, Peter has to pay Stewie the £50; since, all the conditions specified in the Pao case are satisfied in our problem. Stewie was asked perform the night shift of an absent waiter, which depicts intention to make payment for the work done, hence, there is valid consideration. Bibliography ‘Agreement not legally binding’, 1994, The Times. January 13, LexisNexis Academic, viewed 6 December 2008. Central London Property Trust Ltd v High Trees Ltd (1947) 1 K.B. 139 Coombe v Coombe (1951) 2 KB 215 CTN Cash and Carry Ltd v. Gallaher Ltd (1994) 4 All ER 714 D & C Builders v Rees (1965) 2 QB 617 Hartley v. Ponsonby (1857) 7 E B 872 John Weston Foakes v. Julia Beer. No. [1881-85] All ER Rep 106. House of Lords. 1 April 1884 Pao On v. Lau Yiu, [1980] A.C. 614 Re Wyvern Development Ltd (1974) 1 WLR 1097 Stanley Bryan Marsh & J. Soulsby, Business Law, 2002, P. 108, Nelson Thornes Williams v Roffey Bros. and Nicholls (Contractors) Ltd (1991) 1 QB 1 Read More