Contract Law Week 2
Consideration and Promissory Estoppel
CONSIDERATION
Three Cardinal rules:
1) Consideration need not be adequate
2) Past consideration does not count
3) Is promise to perform a pre-existing duty consideration? (Controversial)
Requirement of form play a minor role in modern contract law.
Chappell & Co Ltd v Nestle Co Ltd 1960
Consideration need not be adequate. Chocolate wrappers can also be consideration,
even if they are thrown away after they are obtained.
Lord Somervell of Harrow: “a peppercorn does not cease to be good
consideration if it is established that the promise does not like pepper and will
throw away the corn”
N. Co. entered into a contract with a company manufacturing gramophone
records to purchase a number of recordings of a piece of dance music, the
copyright of which was vested in the plaintiffs. On the cards on which the records
were mounted there was an advertisement that the records could be obtained by
sending to N. Co. for each record 1s. 6d. together with three wrappers from N.
Co.'s 6d. milk chocolate bars. The wrappers when received were worthless and
were thrown away. The plaintiffs sought an injunction restraining the two
companies from manufacturing and selling the records on the ground that the
transactions involved breaches of copyright.
Held, there was no "ordinary retail selling price" within the Copyright Act 1956
s.8 because the 1s. 6d. was not the whole consideration for the sale of the
records, the wrappers – though of nominal value – were also part of the
consideration; accordingly, neither N. Co. nor the record manufacturers were
protected by the provisions of Copyright Act 1956 s.8.
Eastwood v Kenyon 1840
Past consideration does not count.
The claimant was the guardian of a girl under the age of 21. He took out a loan
from a Mr Blackburn for GBP140 to cover the costs of maintaining and educating
the girl and improving some cottages that had been left for her. After she had
come of age and on her marriage, her husband, the defendant, promised the
claimant to pay off the claimant’s debt to Mr. Blackburn. When he failed to do so,
, the claimant sued him. The action failed because it was held that no present
(only past) consideration had been given by the claimant for the defendant’s
promise.
Reasoning, Lord Denman CJ: The enforcement of such promises by law, however
plausibly reconciled by the desire to effect all conscientious engagements, might
be attended with mischievous consequences to society; one of which would be
the frequent preference of voluntary undertakings to claims for just debts. Suits
would thereby be multiplied, and voluntary undertakings would also be
multiplied, to the prejudice of real creditors. The temptations of executors would
be much increased by the prevalence of such a doctrine, and the faithful
discharge of their duty be rendered more difficult.
PaO On v Lau Yiu Long 1980
What counts as past consideration?
The two parties entered into a contract in which the claimants (the Paos) would
sell their shares in Shing On to Fu Chip, in which the defendants (the Laus) had a
majority share and in return would get 4.2 million shares of $1 each in Fu Chip.
The market value of Fu Chip shares was deemed to be $2.5.
The arrangement was complicated. There was an agreement that Laus would buy
back 60% of the shares for $2.5. The claimants were not happy with this and
made it clear that they would not complete the main contract unless the
defendants agreed (which they did in a “guarantee agreement”) to cover the
claimants for any loss suffered if share price fell. Share price did fall, and the
claimants sough to enforce the guarantee agreement. The defendants resisted by
stating that the their promise to cover the claimants was not supported by
consideration because the consideration was past. It was held that the
consideration was NOT, in fact, past.
Held, that (1) an antecedent (past) act could be valid consideration where it was
done at the promisor's request, where the parties understood that such act was
to be remunerated by the conferment of a benefit and where such benefit would
have been enforceable if promised in advance; and such criteria were here
satisfied; (2) a promise to perform a contractual obligation for the benefit of a
third party was good consideration;
Glasbrook Brothers Ltd v Glamorgan Country Council 1925
On consideration and the promise to perform, or the performance of, a pre-existing
duty imposed by the general law.
During a miner’s strike, the defendant’s colliery manager requested that the
police should be billeted at the colliery so as to ensure that the colliery was kept
open. The police superintendent thought that adequate protection could be given
by having a mobile force ready, but he agreed to send over 70 policemen on the
condition that the defendant would pay for them. After the strike, the defendant
Consideration and Promissory Estoppel
CONSIDERATION
Three Cardinal rules:
1) Consideration need not be adequate
2) Past consideration does not count
3) Is promise to perform a pre-existing duty consideration? (Controversial)
Requirement of form play a minor role in modern contract law.
Chappell & Co Ltd v Nestle Co Ltd 1960
Consideration need not be adequate. Chocolate wrappers can also be consideration,
even if they are thrown away after they are obtained.
Lord Somervell of Harrow: “a peppercorn does not cease to be good
consideration if it is established that the promise does not like pepper and will
throw away the corn”
N. Co. entered into a contract with a company manufacturing gramophone
records to purchase a number of recordings of a piece of dance music, the
copyright of which was vested in the plaintiffs. On the cards on which the records
were mounted there was an advertisement that the records could be obtained by
sending to N. Co. for each record 1s. 6d. together with three wrappers from N.
Co.'s 6d. milk chocolate bars. The wrappers when received were worthless and
were thrown away. The plaintiffs sought an injunction restraining the two
companies from manufacturing and selling the records on the ground that the
transactions involved breaches of copyright.
Held, there was no "ordinary retail selling price" within the Copyright Act 1956
s.8 because the 1s. 6d. was not the whole consideration for the sale of the
records, the wrappers – though of nominal value – were also part of the
consideration; accordingly, neither N. Co. nor the record manufacturers were
protected by the provisions of Copyright Act 1956 s.8.
Eastwood v Kenyon 1840
Past consideration does not count.
The claimant was the guardian of a girl under the age of 21. He took out a loan
from a Mr Blackburn for GBP140 to cover the costs of maintaining and educating
the girl and improving some cottages that had been left for her. After she had
come of age and on her marriage, her husband, the defendant, promised the
claimant to pay off the claimant’s debt to Mr. Blackburn. When he failed to do so,
, the claimant sued him. The action failed because it was held that no present
(only past) consideration had been given by the claimant for the defendant’s
promise.
Reasoning, Lord Denman CJ: The enforcement of such promises by law, however
plausibly reconciled by the desire to effect all conscientious engagements, might
be attended with mischievous consequences to society; one of which would be
the frequent preference of voluntary undertakings to claims for just debts. Suits
would thereby be multiplied, and voluntary undertakings would also be
multiplied, to the prejudice of real creditors. The temptations of executors would
be much increased by the prevalence of such a doctrine, and the faithful
discharge of their duty be rendered more difficult.
PaO On v Lau Yiu Long 1980
What counts as past consideration?
The two parties entered into a contract in which the claimants (the Paos) would
sell their shares in Shing On to Fu Chip, in which the defendants (the Laus) had a
majority share and in return would get 4.2 million shares of $1 each in Fu Chip.
The market value of Fu Chip shares was deemed to be $2.5.
The arrangement was complicated. There was an agreement that Laus would buy
back 60% of the shares for $2.5. The claimants were not happy with this and
made it clear that they would not complete the main contract unless the
defendants agreed (which they did in a “guarantee agreement”) to cover the
claimants for any loss suffered if share price fell. Share price did fall, and the
claimants sough to enforce the guarantee agreement. The defendants resisted by
stating that the their promise to cover the claimants was not supported by
consideration because the consideration was past. It was held that the
consideration was NOT, in fact, past.
Held, that (1) an antecedent (past) act could be valid consideration where it was
done at the promisor's request, where the parties understood that such act was
to be remunerated by the conferment of a benefit and where such benefit would
have been enforceable if promised in advance; and such criteria were here
satisfied; (2) a promise to perform a contractual obligation for the benefit of a
third party was good consideration;
Glasbrook Brothers Ltd v Glamorgan Country Council 1925
On consideration and the promise to perform, or the performance of, a pre-existing
duty imposed by the general law.
During a miner’s strike, the defendant’s colliery manager requested that the
police should be billeted at the colliery so as to ensure that the colliery was kept
open. The police superintendent thought that adequate protection could be given
by having a mobile force ready, but he agreed to send over 70 policemen on the
condition that the defendant would pay for them. After the strike, the defendant
