Law 231 L 04
Enforcing Contractual Rights
Consideration
The assumption in English law is that promises made with the intention of creating
contractual obligations must be bought or sold. This is the requirement that “there
must be consideration for the promise”. Promises made under seal are legally binding
regardless of consideration. The view that promises ought to be legally binding
because they are morally binding has been rejected over the centuries. Eastwood v
Kenyon (1840) 11 A & E 438
Currie v Misra (1875) LR 10 Exch 153 at 162
“A valuable consideration in the sense of the law, may consist of some right,
interest, profit or benefit accruing to one party, or some forbearance, detriment, loss
or responsibility given, suffered or undertaken by the other.”
Dunlop v Selfridge [1915] AC 847 at 855
“An act or forbearance of one party, or the promise thereof, is the price for
which the promise of the other is bought, and the promise thus given for value is
enforceable.”
a) can be a promise or an act
b) involves either conferring a benefit or suffering a detriment (or both)
c) does not have to be a positive act (it may involve giving up a right)
d) must have been agreed
i) Executory, Executed and Past Consideration
Re McArdle [1951] Ch 669 (CA)
Lampleigh v Brathwait (1615) Hob 105
Pau On v Lau Yiu Long [1979] 3 All ER 65 (PC) see Lord Scarman at 74
ii) Adequacy of Consideration
Chappell & Co Ltd v Nestle Co Ltd [1959] 2 All ER 701 (HL)
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iii) Sufficiency of Consideration
Is it permissible for a prommisor to furnish consideration by promising to perform an
act that he is already under a duty to perform?
a) Duty imposed by law
Ward v Byham [1956] 2 All ER 318 (CA)
Williams v Williams [1957] 1 All ER 305 (CA)
b) Existing contractual duty to a third party
The Eurymedon [1974] 1 All ER 1015 (PC)
c) Existing contractual duty to the promise
Stilk v Myrick (1809) Camp 317; 6 Esp 129 (see BBF p103)
Williams v Roffey [1990] 1 All ER 512 (CA)
Re Selectmove Ltd [1995] 2 All ER 531 (CA)
Promissory Estoppel
As a general principle, a contracting party who promises voluntarily not to rely upon
his contractual rights is not bound by that promise by reason of a lack of consideration
Pinnel’s Case (1602) 5 Co Rep 117a (CA)
Foakes v Beer (1884) 9 App Cas 605 (HL)
i) The origins of promissory estoppel
Jordan v Money (1854) 5 HL Cas 185 (HL)
Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 (HL)
Central London Property Trust Ltd v High Trees House ltd [1947] KB 130
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ii) Scope of the doctrine
Since High Trees there has been a continuous flow of case law, some restrictive and
some generous. The current requirements of the doctrine appear to be that the
promise is clear and unambiguous, and that it operates as a “shield”, not as a “sword”.
Woodhouse v Nigerian Produce Marketing Ltd [1972] 2 All ER 271 (HL)
Combe v Combe [1951] 1 All ER 753 (CA)
iii) Effect of the doctrine
The effect of a promissory estoppel is to suspend pre-existing rights, but under certain
circumstances such rights may be extinguished. However, doubts remain as to
precisely what conduct is required of the promisee for the courts to find the promise
binding.
Emmanuel A. Ajayu v R. T. Briscoe (Nigeria) [1964] 3 All ER 556 (PC)
Brikom Investments v Carr [1979] 2 All ER 753 (CA)
Finally, the doctrine does not operate if the promise has been extracted under duress
D & C Builders v Rees [1965] 3 All ER 857 (CA)
Williams v Roffey [1990] 1 All ER 512 (CA)
Privity
The basic principle underlying the privity doctrine is that only parties to the contract
may sue, or be sued, on the basis of that contract.
Comes out of consideration - you cannot sue / be sued on a contract that you are not a
party to - i.e. you most have shown consideration.
A major problem area is 3rd party beneficiaries - C ← A ←→ B
Dunlop v Selfridge
Tyre manufacturer v Retail outlet. Dew & Co - middle company, not involved in the
action. Dew buys tyres at a discount price, but must be resold at the current retail
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price. Dew sold these to Selfridges - supposed to be at the retail price, which he did.
Selfridge then sold the tyres at a discounted price - so Dunlop sued Selfridge.
contract
A
B
benefit
contract
sue? lack of proximity
C
A = Dew & Co; B = Selfridge & Co Ltd; C = Dunnlop
The House of Lords said that they could not sue - the consideration does not move
from the promisee to the promisor.
i) Can the Promisee enforce the obligation on behalf of the intended
benefiaciary?
Beswick v Beswick [1966] AC 58 (HL)
£5 per week annuity on his death. Widow sued, but she's not a party to the contract.
But the Court of Appeal said that as the widow was the administratrix of his estate,
the contract should hold. House of Lords said that the contract must be performed
(avoidance of the privity rule). But contract claim ⇒ loss or damage? None - House
of Lords said … equitable remedy is …
Jackson v Horizon Holidays Ltd [1975] 3 All ER 72 (CA)
Jackson booked a holiday for himself, wife and children. The hotel was not built
when they arrived ⇒ disruption. Jackson sued for his own, his wife's and his
children's loss. Denning LJ said that Jackson could sue for his holiday, and for the
disappointment of seeing his wife and children's disappointment. (Jackson had his
own bank account out of which the holiday had been paid.)
Woodar v Wimpey [1980] 1 All ER 571 (HL)
An "exception" to the privity rule. ⇒ reform he doctrine of consideration (not been
done yet! - instead, Parliament has just enacted the Contracts (Rights of Third Parties)
Act)
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Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68
The "St Martin's Property" exception
lack of damage - sue?
A
B
Contract
benefit
valid assignment
sue?
C
A = Morgan Grenfell (LAS); B = Wiltshire Northern Ltd; C = Darlington BC
Because A had signed its rights to C, the contract could be "transferred" ⇒ A can not
sue?
Stein LJ - hammered the privity doctrine - absurd - Law Commission Report No 242,
1996 Cm 3329 said that there should be a change in the law. Stein LJ also said that
Parliament would never get round to doing it! But Parliament has now done this!
Contracts (Rights of Third Parties) Act 1999:
s.1 - third party may enforce a term:
a) if the contract expressly says that he may
b) if the term imports a benefit on him
s.2 - (b) does not apply if the parties did not intend it to be enforceable by a third party
s.3 - third party must be defined
s.4 - ability limited to be consistent with the contract
ii) Can a 3rd party enforce the obligation on his own behalf?
Pre-existing law, now more-or-less redundant!
Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 (HL)
The Eurymedon [1974] 2 All ER 115 (PC)
Southern Water Authority v Carey [1985] 2 All ER 1077
Norwich CC v Harvey [1989] 1 All ER 1180 (CA)
Contracts (Rights of Third Parties) Bill 1999
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Law Commission Report “Privity of Contract: Contracts for the benefit of Third
Parties” Law Com No 242, 1996 Cm 3329
iii) Privity & consideration
Coulls v Bagot’s Executor & Trustee Co Ltd [1967] ALR 385 (High Court of
Australia)
Shanklin Pier v Detel Products [1951] 2 All ER 471
Shanklin Pier asked a contractor to paint the pier using paint from Detel products,.
SP ←→ Contractors (Third Party) ←→ Detel Products
Court allowed this providing they provided consideration to Detel Products.
Consideration - request that the paint must be bought from Detel ⇒ ok. "Collateral
contract".
The Eurymedon [1974] 1 All ER 1015 (PC)
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