ACCA F4 - Corp and Business Law (ENG)

58 4: Formation of contract II  Part B The law of obligations

Re McArdle 1951

The facts: Under a will the testator's children were entitled to a house after their mother's death. In the

mother's lifetime one of the children and his wife lived in the house with the mother. The wife made

improvements to the house. The children later agreed in writing to repay the wife 'in consideration of your

carrying out certain alterations and improvements'. But at the mother's death they refused to do so.

Decision: The work on the house had all been completed before the documents were signed. At the time of

the promise the improvements were past consideration and so the promise was not binding.

If there is an existing contract and one party makes a further promise, no contract will arise. Even if the

promise is directly related to the previous bargain, it has been made upon past consideration.

Roscorla v Thomas 1842

The facts: The claimant agreed to buy a horse from the defendant at a given price. When negotiations were

over and the contract was formed, the defendant told the claimant that the horse was 'sound and free from

vice'. The horse turned out to be vicious and the claimant brought an action on the warranty.

Decision: The express promise was made after the sale was over and was unsupported by fresh

consideration.

In three instances past consideration for a promise is sufficient to make the promise binding.

(a) Past consideration is sufficient to create liability on a bill of exchange (such as a cheque) under

The Bills of Exchange Act 1882. Most cheques are issued to pay existing debts.

(b) After six (or in some cases 12) years the right to sue for recovery of a debt becomes statute barred

by the Limitation Act 1980. If, after that period, the debtor makes written acknowledgement of the

creditor's claim, the claim is again enforceable at law.

(c) When a request is made for a service this request may imply a promise to pay for it. If, after the

service has been rendered, the person who made the request promises a specific reward, this is

treated as fixing the amount to be paid.

A bill of exchange can be defined as:

'A negotiable instrument, drawn by one party on another, for example by a supplier of goods on a

customer, who by accepting (signing) the bill, acknowledges the debt, which may be payable immediately

(a sight draft) or at some future date (a time draft). The holder of the bill can thereafter use an accepted

time draft to pay a debt to a third party or discount it to raise cash.'

Lampleigh v Braithwaite 1615

The facts: The defendant had killed a man and had asked the claimant to obtain for him a royal pardon.

The claimant did so at his own expense. The defendant then promised to pay him £100. He failed to pay it

and was sued.

Decision: The defendant's request was regarded as containing an implied promise to pay, and the

subsequent promise merely fixed the amount.

Both parties must have assumed during their negotiations that the services were ultimately to be paid for.

Re Casey's Patents 1892

The facts: A and B, joint owners of patent rights, asked their employee, C, as an extra task to find licensees

to work the patents. After C had done so, A and B agreed to reward him for his past services with one third

of the patent rights. A died and his executors denied that the promise was binding.

Decision: The promise to C was binding since it merely fixed the 'reasonable remuneration' which A and B

by implication promised to pay before the service was given.

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