Business Law: Consideration and Legal Issues - Case Study Example

Business law Business Law: Consideration and Legal Issues Case synopsis Frank, Gerald and Harvey each owe £1500 to Jeremy. Frank is Jeremy’s tenant while Gerald is Irma’s tenant. Jeremy makes an offer and enters into an agreement with each one of them for settlement of the dues owed by them to him. According to the agreement with Frank, Jeremy accepted to ‘let him off’ £750 out of his total dues, if Frank continued to be his tenant and paid the balance £750. Frank accepted the offer and acted accordingly. According to the agreement with Gerald, Jeremy accepted to ‘let him off’ £750 out of his total dues, if Gerald continued to be Irma’s tenant and paid the balance £750. Gerald accepted the offer and acted accordingly, although Jeremy is not a party to the tenancy agreement between himself and Irma. According to the agreement with Harvey, Jeremy accepted to settle his full dues by accepting £750. Harvey accepted the offer, acted accordingly and paid the amount of £750 by way of a cheque. It is not mentioned if Jeremy encashed the cheque or not, or if he had given the ‘full discharge’ in writing. However, inferences can be drawn from the claim made against Harvey and the conduct of the parties. Jeremy raised a claim for £750 each from Frank, Gerald and Harvey, and has come for legal advice on the tenability or otherwise of his claims. Legal issues The main legal issue involved in the above case is consideration and its adequacy. Incidental to this, one needs to examine other issues of promissory estoppel, part payment vs. full Business law 2 payment, and the involvement of a third party, namely, Irma. Consideration When, at the desire of the promisor, the promisee or any other person does or abstains from doing, or promises to do or to abstain from doing, something, such act, abstinence or promise is called a consideration for the promise. Agreements without consideration are void, except in special cases. Generally, consideration is the price at which the promise is bought. In the words of Lush J. in Currie vs. 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 or responsibility given, suffered or undertaken by the other.” Jeremy vs. Frank Jeremy’s offer to Frank to ‘let him off’ £750 of the dues was conditional to Frank paying the balance £750 immediately and continuing to stay as his tenant. This offer was accepted and Frank’s agreeing to make immediate payment, and to stay as Jeremy’s tenant falls within the definition of a valuable consideration as held in Currie vs. Misa (1875) case, cited above. In the alternative, Frank had the freedom to vacate and move elsewhere, which in Jeremy’s calculation was not a desirable option, even if Frank were to pay the dues in full. Further, the amount of £750 immediately paid by Frank has an extra value compared to the same amount received at a later date by reason of interest accruals. Hence, Jeremy had an interest for Frank to make an immediate down payment and to continue as a tenant, and in lieu of securing these interests, he offered to let Frank off £750, the amount representing the adequacy of those interests. Thus, Jeremy’s legally binding offer was accepted by Frank and acted upon, leaving Jeremy no recourse to claim the dues surrendered. Business law 3 Jeremy vs. Gerald Jeremy’s offer to Gerald to ‘let him off’ £750 of the dues was conditional to Gerald paying the balance £750 immediately and continuing to stay as a tenant of Irma. From the case synopsis, it is clear that Irma had not played any role in the offer made by Jeremy and accepted by Gerald. Thus, bringing Irma into the picture was irrelevant. There is no privity of contract or privity of consideration among Jeremy, Gerald and Irma. At the same time, the offer made by Jeremy and accepted by Gerald, suffers from insufficiency of consideration and hence is liable to be held void. The fact that Gerald paid £750 to Jeremy (which was accepted) does not materially alter the position since it was not specially and solely received as a payment against the full dues, the other consideration being the tenancy with Irma, which is no consideration. The inadequacy of consideration is the subject matter of The Pinnel’s Rule under which, a promise to pay less than what is due under a contract cannot be regarded as consideration (Pinnel’s case, 1602). In this case, it was held that less payment in satisfaction of a greater couldn’t be any satisfaction for the whole. Gerald should not have accepted the offer, and he continues to be in debt of the balance £750, which Jeremy can claim and recover. Jeremy vs. Harvey Jeremy’s agreement with Harvey for full settlement of his dues with the payment of £750 is a binding contract, in spite of the fact that the consideration does not represent the full value of debt. Harvey must have got his ‘full discharge’ in writing from Jeremy before making payment by way of a cheque, and proceeding on a holiday. Jeremy also must have also encashed the cheque since he is claiming only the balance amount of £750. The conduct of the parties to the agreement viz., issue of full discharge in writing, payment by cheque and its encashment, and Business law 4 proceeding on a holiday give clear evidence of a mutually acceptable and enforceable settlement. This will be an exception to the principle of Pinnel’s Rule discussed above and is supported by the ruling in Hirachand Punamchand vs. Temple case (1911) for settlement for a lesser amount by a third party, although there is no third party involved, since the principle of Promissory Estoppel and the cases settled under that, support this view. This principle prevents a party from insisting upon strict legal rights, when it would be unjust to enforce them, having regard to the dealings which have taken place between the parties, as held in Combe vs. Combe (1951) case. Jeremy also cannot take recourse to the judgment in the case of Central London Property Trust Ltd. vs.. High Tree House Ltd. (1947) involving the Promissory Estoppel principle, where the plaintiff made a successful claim for full rental value against only half rental value received during an earlier. As per the ruling in this case, full rental value was restored only after a mitigating circumstance elapsed, and during that specified period, there was no relief. Thus, Jeremy has no right to claim the balance amount from Gerald. Conclusion and advice Jeremy can proceed legally against Gerald for recovery of the balance amount of £750. However, he cannot do so against Frank and Harvey. Reference Bajaj A., Bajaj P., (2005), Law of contracts, Macmillan India, New Delhi. Read More