Consideration

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CONSIDERATION. Cheshire and Fifoot,

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Consideration

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1. Consideration

2. CONSIDERATION Cheshire and Fifoot, ‘consideration has a somewhat unfortunate air of learning. It is in fact nothing more than a sign and symbol of bargaining’ Ian Thomas; ‘Consideration is the price (need not be money) that one party pays for the other act or promise’ Dunlop v Selfridge – Lords adopted Pollock's definition of consideration, ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought’

3. Three Types of consideration Executory – Promise in return for promises which have not yet been carried out Executed – Promise in return for an act i.e. a reward Past – Too late! Not sufficient for legally enforceable agreement

4. Good Consideration Cases to use - 1 Roscorla v Thomas – in this case a seller made a promise about a horse after it had been bought. Obviously this was made too late. ‘Caveat emptor’ – let the buyer beware. Lampleigh v Braithwait – Braithwait promised Lampleigh £100 after the latter secured a royal pardon for him. Although the consideration was made too late it had been expected all along therefore liable

5. Good Consideration cases to use - 2 Kennedy v Brown – Reinforced Lampleigh v Braithwait, it was held that bargain is struck when services are requested Tweddle v Atkinson – No consideration had been given by son in agreement with two fathers to give him money. As some consideration must be given for the promise of another party

6. Privity of Contract The relationship which exists between the immediate parties to a contract which is necessary to enable one person to sue another on it

7. Sufficiency and Adequacy of Consideration Adequacy – Must be some consideration but does not have to be adequate i.e. a thimble for a Ferrari Sufficiency – Must be of same value to the other party however trivial or disproportionate in worth Justification for this – Freedom of contract idea

8. CASES Thomas v Thomas – Husband wanted his wife to be able to live in the house he owned if he died, for £1 a year. Although this was not adequate it was sufficient to enforce the agreement Ward v Byham – Denning case. Father who agreed to support mother of his child as long as she kept the child well and happy claimed there had been no consideration. Court held that she was doing more then her legal obligation of not treating the child badly as she had to also keep it well and happy and hence consideration had taken place

9. Performance of an existing public duty General rule – If you are performing something which you are already bound to do, you cannot have consideration Collins v Godefory – It was held that giving evidence in a court case was not consideration as this was already a public duty England v Davidson – Davidson offers reward for evidence leading to a conviction of a person. England, a policeman does this and claims reward. When Davidson does not pay arguing that England was only doing his duty court held that private ads do not have to be answered by policeman, therefore England was going beyond his duty

10. Performance of a contractual duty If one party is only performing his part of the contract he cannot claim for something extra Stilk v Myrick 1809 – When two sailors on ship left the captain promised to share their wages with the rest of the crew if they stayed on. Court held that the crew were only performing their parts of the contract. They were not doing anything extra therefore there was no consideration. Obiter: If their workload became wholly different to the original agreement it would be different, which was shown in: Hartley v Ponsonby 1857 – Same facts except 36 sailors were reduced to 19. Court held second agreement was different enough that they were doing more than their contractual duty.

11. (continued) Williams v Roffey 1990 – Builders who have to meet deadline (otherwise they will lose their bonus) offer to pay extra to carpenters in order to get the job done earlier. Refused to pay and were successfully sued. Court held: ‘There was no hardship for the defendant in paying’. Defendant was reaping the benefit from the plaintiffs action. There are 3 BIG problems with this case; - Did not investigate duress Completely ignored consideration Completely ignored precedent

12. Performance of a contractual duty owed to a third party Shadwell v Shadwell 1860 – Uncle is sued for not giving promised money to nephew for the nephew getting married. The court held on grounds of benefit and detriment that the nephew had been relying on this money, and the uncle had an objective interest in the marriage before it took place

13. Problems with the Shadwell Case How can this be justified when there appears to be no consideration Pollock – There are two possible breaches of the contract – - Nephew not marrying - Uncle not paying Nephew is opening himself up to being sued for the breach of contract which is the consideration

14. Intention to Create Legal Relations Basically means that both parties would intend to sue if a contract is not met Two presumptions: Social/domestic agreements – presumption that there is not intention to create legal relations, unless proved otherwise Business agreements – Opposite is true

15. Cases on Domestic Agreements Balfour v Balfour – Husband and wife who return to England with a view to leaving again. She becomes ill and stays, with him agreeing to pay £30 a month. After arguing he refuses to pay. Court held – This was a Social/domestic agreement and so there was no intention to create legal relations Merrit v Merrit – Similar type of case but as couple were going through divorce at the time an intention to create legal relations was assumed

16. Business Arrangements Honourable pledge clauses – this is an example of when the presumption of the intention to make legal relations can be rebutted Rose and Frank company v The Crompton Brothers – A clause saying that two companies were not entering into a ‘formal or legal agreement’ but a ‘definite expression and record of the purpose and intention’ of the two parties. The court held this was sufficient for the presumption to be rebutted

17. Capacity All parties in a contract must have full capacity for the contract to be legally enforceable Most people have full capacity except for these three groups Corporations (registered business organisations) Persons of unsound mind and drunkards Minors

18. Corporations Corporations are protected by the incorporation procedure in company law which gives them limited liability to others However there may be some capacity given to corporations in order to protect shareholders, and investors etc. The provision for this is usually given by instrument, so by certain statutes

19. Mental disability and intoxication For a person to be protected by this defence they must prove that: They do not understand the nature of the transaction The other party was aware of this Hart v O’Connor – Privy council said that where one party is not aware of the incapacity of the other and the state of the afflicted party is not apparent, then the contract will be regarded as a valid contract between two people of sound mind

20. Diplomats and Sovereigns Limited protection is given to those who work on behalf of their country In practice it is only seen actively in minor incidents, apart from a few rare high profile cases

21. Minors Person under 18 – Family Reform Act Generally the law protects anyone under the age of 18 But there are some examples of when a contract with a minor is valid (see next slide)

22. Necessaries A minor will be liable for a contract for the sale of necessaries Necessaries – Shelter, food, clothing, also anything which is essential and suited to the minors position in life Sale of Goods Act s3(3) defines necessaries as, ‘goods suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery’

23. Nash v Inman Cambridge university student claimed he did not have capacity to form a contract buying eleven waistcoats. Court held that although at the time this was normal student clothing, the students father had already supplied him with waistcoats and so these were not actually required. However this position may be different if a similar situation arose today

24. Necessaries (contd) If a contract for services is particularly onerous (harsh) on the minor it will not be considered binding even if it is necessary Fawcett v Smethurst Minor hired vehicle to transport his goods – necessary but one clause in the contract would have left him liable for the cost of repairs to the vehicle. As this was deemed to be onerous the contract was held to be not binding

25. Beneficial Contracts of Service Second type of contract with a minor which could be honoured by the courts Often takes the form of a contract of employment, education, or training for a minor Regarded as an extension to idea of necessaries as learning a skill or trade is essential to support themselves

26. What is a Beneficial Contract of Service Relatively self explanatory; if the contract of service is beneficial to the minor then it will be binding even though an individual clause may not be to their advantage. On the other hand, if the contract is oppressive it will be unenforceable De Francesco v Barnum – 14 year old girl had formed a seven year agreement to train as a dancer. The agreement said she could not accept any other work, could not marry or travel abroad, and their was no guarantee of work from her stage master. The court held this was oppressive and therefore unenforceable

27. Voidable Contracts Third and final type of contract that can be made with a minor which may be binding Contract of ongoing nature, such as the renting of accommodation. In this case the contract will be regarded as valid unless the minor repudiates it before reaching 18 or within a reasonable time afterwards. Edwards v Carter – Lord Watson explained this situation as follows; ‘If he (the minor) chooses to be inactive, his opportunity passes away; if he chooses to be active, the law comes to his assistance’

28. PROBLEM Exactly what is a reasonable amount of time for the repudiation to tale place after the minors 18th birthday?

29. What is the effect of the repudiation? The minor’s obligations end, and he is generally not entitled to money already paid unless there was a complete lack of consideration It is also possible that minor could be held liable for debts incurred up to the point of repudiation

30. The Minor’s Contracts Act 1987 Two main provisions were made in this act; Where a minor enters into a contract for a loan, guaranteed by an adult, the guarantee is enforceable against the adult Where a minor unjustly acquires goods under an unenforceable contract, the court may order restitution (handing back) of the goods, or of ‘other property’ representing the goods

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