Law of Contract Consideration

1. Law of ContractConsideration

2. Is agreement enforceable? Doctrine of Consideration ! White V Bluett(1853) Held : Sons promise too vague and would not constitute a valid consideration. Thus no agreement (no contract) as there was no consideration.

3. Definition Thetraditional “benefit and detriment” definition based on reciprocity. Currie V Misa (1875) as per Lush J, “ A valuable consideration, in the eyes of the law, may consist of either in some right, interest, profit or benefit accruing to one party, or some forbearance,detriment, loss or responsibility given, suffered or undertaken by the other”.

4. Definition Simplified Definition of Consideration. “ Consideration, is the detriment incurred by the promisee or the benefit given to the promisor, in return for the promisor’s promise “

5. Definition Academic arguments Professor Atiyah : Argues that there is no doctrine of consideration laid down by the law…when the courts found sufficient reason to enforce the promise,..they did so. Professor Treitel : Says that courts do see if the parties have suffered detriment and the other hasderived benefit.

6. Rules of consideration 1) Past consideration is not good consideration. 2) Consideration must move from the promisee. 3) Consideration must be sufficient but need not be adequate.

7. Past consideration A promise, which is made after an act has been performed is generally not enforceable. Roscorla V Thomas (1842) Facts : D promised the plaintiff that the horse which had been bought by him was sound and free from vice. It was held that since the “promise” was made after the sale there was no consideration for it. Held : Defendant’s promise was unenforceable because the only consideration, which the claimant had provided was his “entry into the original contract”,..and that consideration is past.

8. Past consideration Courts look at sequence of events and not at the wordings used in contract. Re McAdle (1951) Facts : words “In consideration of your carryingout certain alterations and improvements to the house….we hereby agree to pay you…” Held : Words by themselves do not make a consideration valid if it is past.

9. Past consideration Eastwood V Kenyon (1840) QB Facts : Guardian of young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. Held : Guardian’s consideration was past. Although husband had a moral obligation it is not “legally enforceable”

10. Past consideration Exception to the rule : 1) Previous request 2) Business situations 3) Bills of Exchange Act 1882 (statutory intervention)

11. Past consideration/Previous request “Doctrine of Implied assumpsit” Lampleigh V Brathwait (1615) Facts : Braithwait killed someone and then asked L, to get him a pardon. L got him the pardon and gave it to B, who promised to pay L, £100 for his trouble. Held : Although L’s consideration was past, B’s promise to pay could be linked to the earlier request.

12. Doctrine of Implied Assumpsit Where the act of the promisee was performed at the request of the promisor, and subsequent to the performance of the act by the promisee, the promisor promises to pay for it, then such a promise may be enforceable.

13. Doctrine of Implied Assumpsit Pau On V Lau Yiu Long (1980)as per Lord Scarman. Privy Council 03 conditions must be satisfied by a promisee who wishes to invoke the doctrine. 1) He must have performed the original act at the request of the promisor. 2) It must have been clearly understood or implied between the parties when the act was originally requested that the promisee would be rewarded for doing the act. 3) The eventual promise of payment after the act was completed must be one which, had it been made prior to or at the time of the act, would have been enforceable.

14. Business Situations If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid. Re Casey’s Patent (1892) Facts :A and B owned a patent that C a manager worked on. A and B then promised C a one-third share in the invention. Held: C could rely on agreement and promise as C’s consideration was done in a business situation, at the request of A&B and it was understood by both that C would be paid.

15. Bills of Exchange Act 1882 S27 (1) (b) Bills of Exchange Act 1882 : an antecedent (previous) debt or liability is valid consideration for a bill of exchange (an unconditional order in writing , requiring a person to pay a sum of money to a specified person or to bearer). S27(5) Limitation Act 1980 : A written acknowledgement of a debt by a debtor shall be deemed to have accrued on and not before the date of acknowledgement.

16. Consideration must move from the promisee Price V Easton (1833) Facts : Easton made a contract with X, that in return for X doing work for him, Easton would pay Price. X did the work.. but Easton did not pay, so price sued. Held : Price’s claim must fail as he had not provided the consideration. Maxim : A person to whom a promise is made can only enforce the promise if he himself provides the consideration for the promise.

17. Consideration must move from the promisee Bolton V Madden (1873) Held : Consideration can move from the promisee to a 3rd party, at the request of the promisor.

18. Consideration must be sufficient Chappell & Co Ltd V The Nestle Co Ltd (1959) Held : Records obtained for three chocolate wrappers. Value of the wrappers is irrelevant,..if it was meant as consideration, its sufficient.

19. Consideration must be sufficient Midland Bank V Green (1981) Facts : Husband conveyed an estate to his wife at a very low price, to avoid the operation of an option to purchase. Held : Adequacy is not relevant.

20. Consideration must be sufficient Midland Bank V Green (1981) Facts : Husband conveyed an estate to his wife at a very low price, to avoid the operation of an option to purchase. Held : Adequacy is not relevant Thomas V Thomas (1842) Mrs. Thomas was allowed to stay in her husband’s house because, the husband wished so, and secondly for a promise that she would pay £1 per year. Held : £1 was consideration but not the husband’s wish.

21. No consideration - some situations 1) Performance of an existing public duty 2) Performance of an existing contractual duty 3) Performance of an existing contractual duty owed to a third party. 4) Acts of Forbearance

22. Performance of public duty A promise to perform a duty already imposed by law does not constitute good consideration Collins V Godefroy (1831) Facts : Plaintiff had attended a subpoena to give evidence on the Defendant’s behalf, in a case where D was the litigant. Plaintiff alleged that D agreed to pay him for the attendance. Held : Performance of public duty is not valid consideration, for the “promise to pay”. He had a duty to attend by law.

23. Performance of public duty England V Davidson (1840) Facts : D offered a reward to anyone who gave information to the conviction of a felony. The Plaintiff a police constable gave such evidence. Held : It was P’s public duty to provide information to convict felon. Held no consideration. .

24. Performance of public duty Exception to Public duty : not valid consideration rule. 1) Police doing duty beyond their public duty,..held sufficient consideration Glasbrook Bros V Glamorgan County Council 2) If promissor derives a practical benefit… “if a party to an existing contract later agrees to pay an extra bonus in order to ensure that the other party performs his obligations under the contract, then that agreement is binding, if the party agreeing to pay the bonus has obtained some new practical advantage or avoided a disadvantage.

25. Performance of existing contractual duty Stilk V Myrick (1809) Facts : 02 out of 11 sailors deserted a ship. The capt promised to pay the remaining crew extra money if they sailed the ship back but later refused to pay. Held : It was held that as the sailors were already bound by their contract to sail back,..which includes emergency contingencies..there is no new contract as consideration is not valid. The Atlantic Baron (1979) : follows above case but see Harley V Ponsonby (1857)

26. Performance of existing contractual duty Hartley V Ponsonby (1857) Facts : Similar facts except that ship was seriously undermanned that the rest of the journey had become extremely hazardous….thus. Held : Sailing the ship back under such dangerous conditions was over and above their normal contracted duties.

27. Performance of existing contractual duty Williams v Roffey Bros (1990) Facts : Roffey had a contract to refurbish a block of flats and had sub contracted the carpentry work to williams. After the work had begun, it became apparent that Williams had underestimated the costs of the work and was also in financial difficulties. Roffey, aware of this and also concerned that the work would not be completed on time, agreed to pay an extra bonus. Williams completed the work but Roffey refused to pay saying that Williams was doing what he was contractually bound to do, and so had not provided consideration. Held : Agreement is binding if party agreeing to pay bonus/extra, obtained some new practical advantage or avoided a disadvantage.

28. Performance of existing contractual dutyto a 3rd party Scotson V Pegg (1861) Facts : S contracted to deliver coal to X.,.or rather to X’s order. X sold the coal to Pegg, and ordered 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 the consideration. Held : Scotsons delivery of coal (the performance of an existing contrct to a 3rd party) was a benefit to Pegg and thus valid consideration. New Zealand Shipping V Satterthwaite (1975) P/C Privy council, followed the above decision.

29. Acts of forebearance If one person has a valid claim against another, in contract or tort, but if he promises to forbear from enforcing it, that will constitute a valid consideration, if made in return for a promise by the other to settle the claim. Alliance Bank V Broom(1864)