Consideration case law

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Consideration Case Law

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Consideration case law

  1. 1. Page 1 of 16 CONSIDERATION LIST OF CASES 1. Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554 2. Dunlop v Selfridge Ltd [1915]AC847 3. Re Casey's Patents; Stewart v Casey[1892] 1 Ch. 104, Chancery Division 4. Lampleigh v Braithwait (1615)Hob 105 5. Pao On v Lau Yiu Long [1980] AC614 6. Price v Easton 1833 7. Alliance Bank v Broom (1864) 2 Dr & Sm 289 8. Collins v Godefroy [1831] 109 ER 1040 9. Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270 House of Lords 10. Stilk v Myrick (1809) King's Bench 11. Hartley v Ponsonby (1857) 119 ER 1471 Queen's Bench 12. Scotson v Pegg (1861) 6 H & N 295 13. Combe v Combe [1951] 1 All ER 767, CA YOU WILL NEED TO LOOK UP THESE ADDITIONAL CASES 1. Ferguson v Davies(1996) The Independent December 12th1996 2. Re C (a Debtor) [1996] BPLR 535 3. Woodv Robarts(1818) 4. Durham Fancy Goodsv MichaelJackson (Fancy Goods) [1968] 2 QB 839 5. The Scaptrade [1983] QB 529 6. Ajayiv Briscoe [1964]1 WLR 1326 7. Alan Co Ltd v El Nasr Export & Import Co [1972]2 QB 189 8. Re WyvenDevelopments[1974]1 WLR 1097 9. Evenden v Guildford City AFC [1975]QB 917
  2. 2. Page 2 of 16 Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554 Facts A company named Lizardi & Co, then in good credit in the City, sold four bills of exchange to Mr Misa, drawn from a bank in Cadiz. Mr Currie was another of the banking firm and the plaintiff bringing the action. The bills of exchange were sold on the 11th of February, and by the custom of bill, brokers were to be paid for on the first foreign post-day following the day of the sale. That first day was the 14th of February Lizardi & Co. was much in debt to his banking firm, and being pressed to reduce his balance, gave to the banker a draft or order on Mr Misa for the amount of the four bills. This draft or order was dated on the 14th, though it was, in fact, written on the 13th, and then delivered to the banker. On the morning of the 14th the manager of Misa's business gave a cheque for the amount of the order, which was then given up to him. Lizardi failed, and on the afternoon of the 14th the manager, learning that fact, stopped payment of the cheque. Judgment - Exchequer Chamber Lush J, Archibald J, Quain J held that the banker was entitled to recover its amount from Mr Misa. Lord Coleridge CJ dissented. House of Lords The House of Lords upheld the decision of the majority in the Exchequer Chamber. Lord Chelmsford gave the opinion, with which Lord Hatherley and Lord O'Hagan concurred.
  3. 3. Page 3 of 16 Dunlop v Selfridge Ltd [1915] AC 847 Facts Dunlop sued its tyre retailer, New Garage, for breaching an agreement to not resell Dunlop tyres at a price lower than that listed in the contract. The agreement then said if that did happen, New Garage would pay £5 per tyre ‘by way of liquidated damages and not as a penalty’. The judge held the £5 sum was liquidated damages and enforceable. The Court of Appeal held the clause was a penalty and Dunlop could only get nominal damages. Dunlop appealed. Judgment The House of Lords held the clause was not a penalty, and merely a genuine preestimate of Dunlop’s potential loss, and so Dunlop could enforce the agreement. Lord Dundein set out the following principles. “To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. This though one of the most ancient instances is truly a corollary to the last test. Whether it had its historical origin in the doctrine of the common law that when A. promised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable. (c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage". (Lord Watson in Lord Elphinstone v Monkland Iron and Coal Co. On the other hand: (d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility.
  4. 4. Page 4 of 16 On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties. Turning now to the facts of the case, it is evident that the damage apprehended by the appellants owing to the breaking of the agreement was an indirect and not a direct damage. So long as they got their price from the respondents for each article sold, it could not matter to them directly what the respondents did with it. Indirectly it did. Accordingly, the agreement is headed "Price Maintenance Agreement," and the way in which the appellants would be damaged if prices were cut is clearly explained in evidence by Mr. Baisley, and no successful attempt is made to controvert that evidence. But though damage as a whole from such a practice would be certain, yet damage from any one sale would be impossible to forecast. It is just, therefore, one of those cases where it seems quite reasonable for parties to contract that they should estimate that damage at a certain figure, and provided that figure is not extravagant there would seem no reason to suspect that it is not truly a bargain to assess damages, but rather a penalty to be held in terrorem.
  5. 5. Page 5 of 16 Re Casey's Patents; Stewart v Casey[1892] 1 Ch. 104, Chancery Division Facts The holders of letters patent employed Casey to promote their invention in the commercial world. Afterwards, they undertook in a letter, "in consideration of his services as manager in working the patents" to give him A one third share of the patents. Later, the other patent holders attempted to have his name removed from the Register of Patents. HELD Bowen LJ Counsel for the applicants presented a number of arguments: 1. It was argued that there was no consideration and that the document was not under seal. 2. It was also argued that the consideration here was a future consideration, for which nothing was done. Yet that cannot be so, for the consideration is not the doing of a future act, but the promise to do the future act. 3. Counsel then said that it was really past consideration, in that it refers to past services - and past services cannot support a future promise. The correct approach is to look at the document and see if it cannot receive a proper effect. A past service raises an implication at the time it was rendered, that it was to be paid for. When subsequently there is evidence of a promise to pay, that may be seen as an admission which fixes the amount of the bargain, on the basis of which the service was rendered. Fry LJ took the same view. [NB. Bowen's argument really is a factual one rather than a legal one. He is saying that on the evidence adduced he is able to infer that payment was part of the original agreement. As such, the decision would carry little value as a precedent. One gets the impression that Bowen was determined to find grounds for finding an enforceable contract for the payment].
  6. 6. Page 6 of 16 Lampleigh v Braithwait (1615) Hob 105 Facts Braithwait killed someone and then asked Lampleigh to get him a pardon. Lampleigh got the pardon and gave it to Braithwait who promised to pay Lampleigh £100 for his trouble. Held It was held that although Lampleigh's consideration was past (he had got the pardon) Braithwaite's promise to pay could be linked to Braithwaite's earlier request and treated as one agreement, so it could be implied at the time of the request that Lampleigh would be paid.
  7. 7. Page 7 of 16 Pao On v Lau Yiu Long [1980] AC 614 Facts Fu Chip Investment Co Ltd, a newly public company majority owned by Yiu-Long Lau and his younger brother Benjamin (the defendants), wished to buy a building called 'Wing On', owned by Tsuen Wan Shing On Estate Co. Ltd., whose majority shareholder was On Pao and family (the claimants). Instead of simply selling the building for cash, Lau and Pao did a swap deal for the shares in their companies. Tseun Wan would get 4.2m $1 shares in Fu Chip, and Fu Chip bought all the shares of Tsuen Wan. To ensure the share price of Fu Chip suffered no shock, Pao agreed to not sell 60% of the shares for at least one year. Also, in case the share price dropped in that year, Lau agreed to buy 60% of the shares back from Pao at $2.50. But then Pao realised, if the share price rose over $2.50 in the year, the price would stay fixed and he would not get the gains. So he demanded that instead of that, Lau would merely indemnify Pao if the share price fell below $2.50. Pao made clear that unless he got this "guarantee agreement", he would not complete the main contract. It was signed on 4 May 1973. But as it turned out the shares did slump in value. Pao tried to enforce the guarantee agreement. Lau argued the guarantee agreement was not valid (1) because there was no consideration, only in the past and under a pre-existing duty, and (2) because it was a contract procured by duress. Held Lord Scarman, giving the Privy Council’s advice first disposed of the question about past consideration, because a promise to perform a pre-existing contractual obligation to a third party can be good consideration. The question of whether consideration can be invalidated ‘if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position’ was rejected because ‘where businessmen are negotiating at arm’s length it is unnecessary for the achievement of justice’. On the point of duress, Lord Scarman held the following. “There must be present some factor ‘which could in law be regarded as a coercion of his will so as to vitiate his consent.’ This conception is in line with what was said in this Board's decision in Barton v Armstrong [1976] AC 104, 121 by Lord Wilberforce and Lord Simon of Glaisdale - observations with which the majority judgment appears to be in agreement. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open
  8. 8. Page 8 of 16 to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v Horner [1915] 3 KB 106, relevant in determining whether he acted voluntarily or not. ” This was commercial pressure and no more, since the company really just wanted to avoid adverse publicity. For a general doctrine of economic duress, it must be shown ‘the victim’s consent to the contract was not a voluntary act on his part… provided always that the basis of such recognition is that it must amount to a coercion of will, which vitiates consent.’
  9. 9. Page 9 of 16 Price v Easton (1833) Easton made a contract with X that in return for X doing work for him, Easton would pay Price £19. X did the work but Easton did not pay, so Price sued. It was held that Price's claim must fail, as he had not provided consideration.
  10. 10. Page 10 of 16 Alliance Bank v Broom (1864) 2 Dr & Sm 289 Facts The defendant owed an unsecured debt to the plaintiffs. When the plaintiffs asked for some security, the defendant promised to provide some goods but never produced them. When the plaintiffs tried to enforce the agreement for the security, the defendant argued that the plaintiffs had not provided any consideration. Held It was held that normally in such a case, the bank would promise not to enforce the debt, but this was not done here. By not suing, however, the bank had shown forbearance and this was valid consideration, so the agreement to provide security was binding.
  11. 11. Page 11 of 16 Collins v Godefroy [1831] 109 ER 1040 Facts Plaintiff sued to recover compensation for loss of time in attending court as a witness under subpoena. Held That since the law imposes a duty on people to turn up, a promise of remuneration to do that which the court requires is without consideration. The principle also applies to promises not to do that which the law prohibits.
  12. 12. Page 12 of 16 Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270 House of Lords Facts During the 1921 coal strike, miners were involved in picketing which sometimes led to violence. The colliery manager insisted on extra police cover and some 70 people were provided. Under a written agreement, Defendant promised to pay specified amounts. When payment was sought, Defendant refused to pay. Held That any attempt by a public authority to extract payment for normal services should be strongly resisted. If in any situation the provision of police is deemed necessary, then it would not be proper to exact payment for those services. However, where the person or institution under a duty has, in return for a promise of payment, gone further than that duty requires, the additional performance can constitute consideration. Where there is no public policy bar to the performance of the duty being a matter of contract, then another person can acquire a right to enforce the duty by a promise to pay for its performance. If the provision of extra police was in excess of operational requirements, (as was the case here) then it could be proper to ask for payment for it.
  13. 13. Page 13 of 16 Stilk v Myrick (1809) King's Bench Facts Plaintiff was employed as a seaman under articles at £5 per month. On a voyage from London to the Baltic and back, 2 of the crew deserted. The captain could not replace them and the rest of the crew said that they would work the vessel back to London, and share the wages of the other 2. The extra money was not paid. It was said that before they left on the voyage, they had undertaken to do all they could under all the emergencies of the voyage and the desertion of the crew is to be taken as part of such an emergency. Held The court found that the remaining crew had no liberty to quit when the other men left.
  14. 14. Page 14 of 16 Hartley v Ponsonby (1857) 119 ER 1471 Queen's Bench Facts Plaintiff was a seaman on a ship sailing from UK to Bombay and earning £3 per month. During the course of the voyage, 17 of the crew refused to work and were sent to prison. Defendant undertook in writing to pay Plaintiff £40 to assist in sailing the vessel to Bombay with a crew of 19. They arrived in Bombay 6 weeks later. The extra payment was refused. At trial, it was established that Defendant entered the agreement voluntarily. Additional crew could not have been found at a reasonable price. There should have been crew of 36. Held The court found here that it was unreasonable for the ship to proceed with just 19. Because it was dangerous for the ship to proceed with so few hands, Plaintiff could not have been required to perform the work. Therefore Plaintiff was free to undertake the remaining voyage or not. The agreement was voluntary on both sides. They were free to make a new contract. Plaintiff may have taken advantage of this position to make a hard bargain, but this did not amount to duress.
  15. 15. Page 15 of 16 Scotson v Pegg (1861) 6 H & N 295 Facts Scotson contracted to deliver coal to X, or to X's order. X sold the coal to Pegg and ordered Scotson to deliver the coal to Pegg. Then Pegg promised Scotson that he would unload it at a fixed rate. In an action by Scotson to enforce Pegg's promise, Pegg argued that the promise was not binding because Scotson had not provided consideration as Scotson was bound by his contract with X (a third party) to deliver the coal. Held It was held that Scotson's delivery of coal (the performance of an existing contractual duty to a third party, X) was a benefit to Pegg and was valid consideration. It could also been seen as a detriment to Scotson, as they could have broken their contract with X and paid damages.
  16. 16. Page 16 of 16 Combe v Combe [1951] 1 All ER 767, CA Facts W was granted a divorce nisi from her husband H. H promised to allow her £100 per annum after tax by way of maintenance, and so W did not apply to the court for a formal maintenance order. After the divorce was final, H made no payments and W sued. Held Byrne J gave judgment in her favour, but the Court of Appeal said this was not a case in which promissory estoppel could be used. Denning LJ said the principle stated in High Trees does not create new causes of action where none existed before; it only prevents a party from insisting on his strict legal rights when it would be unjust to allow him to enforce them. Birkett and Asquith LJJ were equally clear that promissory estoppel must be used as "a shield and not a sword", though that is not to say that it can only ever be used by a defendant.

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