Study Notes for Consideration Contract Law - summarised with cases PDF

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Contract Law notes on consideration. Cases and descriptions and general points included....

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Study Notes – Consideration 

An essential ingredient of enforceability of agreements

Currie v Misa [1875] 

A valuable consideration ‘may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other’

Dunlop v Selfridge [1915] 

More concise definition: ‘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’

Executory and Executed Consideration    

Key to remember that a mere promise can be consideration without the need for anything tangible to be transferred to the other party So valuable consideration may be something promised or something done Regarding a simple contract as a transaction, which is essentially a bargain, consideration may be a price that has only been promised, or a price that has actually been paid ‘price’ here = broadest sense; not necessarily money

Executory consideration   

Where contracting parties make promises to each other to perform something in the future after the contract has been formed Classic example is a contract for the sale of goods where the seller promises to deliver the goods at some time in the future, and the buyer promises to pay for them either on delivery or by some other credit arrangement At the time of the delivery, neither side has done anything towards the performance of the promises made, but agreement still has contractual force

Executed consideration   

Where, at the time of the formation of the contract, the consideration has already been performed Classic example is a unilateral contract where the promise of a reward is made and the price paid in exchange for that promise is performance of the act stipulated in the offer (Carlill v Carbolic) The required act is both the acceptance of the offer (and thus the time when the contract is formed) and the executed consideration

Rules governing consideration Consideration must not be past

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Generally not possible to use as consideration some act or forbearance which has taken place prior to the promise to pay Consideration must be given in return for the promise of the other party If one party has completed performance before the other promised payment, then it is unlikely that the other act was done in return for that promise of payment

Eastwood v Kenyon [1840]   

Eastwood borrowed £140 to pay to bring up a child, Sarah When Sarah married Kenyon, he promised Eastwood that he would repay this debt, but failed to honour his promise HELD: the consideration provided by Eastwood (bringing up Sarah) was not good consideration to support Kenyon’s promise to discharge the debt, because it was in the past

Roscoria v Thomas [1842]    

Roscoria bought Thomas’ horse for £30 He then promised her it was not vicious The horse was vicious HELD: there was no consideration to support Thomas’ promise, and he was not bound  the sale itself was completed prior to the promise being given

Exceptions to the past consideration rule 

An exception exists where some prior act or service was provided by the promisee at the promisor’s request, and it was always understood that payment would be made for that act or service

Pao On v Lau Yiu Long [1980] 

Lord Scarman outlined 3 conditions for the exception to apply

1) The act must have been done at the promisor’s request Lampleigh v Brathwait [1615]    

Brathwait had killed a man and asked Lampleigh to obtain pardon from the king, which he did Brathwait then promised to pay him £100 HELD: the act of Lampleigh was good consideration as his services had been procured by the previous request of Brathwait At the time of the request, there was an implied understanding that a payment would be made

2) The parties must have understood that the act was to be rewarded either by a payment or the conferment of some other benefit  

This requirement that there must be an understanding that payment would be made may be implied This = more likely in a commercial context

Re Casey’s Patents [1892]

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The owners of patent rights promised their manager a share in those rights in consideration for his previous services for them Lord Justice Bowen:

‘The fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in a subsequent document a promise to pay, that promise may be treated as an admission which evidences, or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered’ 3) The payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance 

If the promise had been made at the right time, would it be legally enforceable

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these cases therefore are conventionally cited as being exceptions to the past consideration rule, but the exception may be more apparent than real if subsequent promise to pay is no more than a quantification and evidence of an obligation to pay which had already arisen by virtue of a simple contract between the parties, then the consideration should not be deemed to be ‘past’ at all e.g. if you take a car to a garage, leaving the ultimate price to be decided after completion of the repairs, or seeking advice from a professional person and being presented with a bill afterwards *both these scenarios = consistent with normal commercial practice  no reasonable person could believe that payment could not be enforced just because the service had been rendered prior to any explicit promise to pay for or to demand remuneration

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Consideration must move from the promisee  

Essentially means that a party who has not provided consideration may not bring an action to enforce a contract This rule = related to, but must be distinguished from, the doctrine of privity of contract (only a person who is party to a contract can sue or be sued)

Tweddle v Atkinson [1861]   

Agreement reached between two fathers of a couple about to get married The father of the bride was to pay £200, and the father of the groom £100, to the bridegroom, Tweddle Groom sought to enforce his father-in-law’s promise, but it was held that he could not as had provided no consideration for the promise

Consideration need not be adequate  

Not the court’s duty to assess the relative value of each party’s contribution to the bargain I.e. no reason why a Rolls Royce can’t be sold for 1p

Chappell & Co v Nestle [1960]  

Plaintiffs owned copyright in a piece of music Nestle offered gramophone records of this tune to the public in return for 1s 6d and 3 chocolate wrappers

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These wrappers were thrown away by the company, but in relation to the claim for royalties, the question arose as to whether the wrappers were part of the consideration given for each record HELD: the wrappers were part of the consideration, even though they were of no further value once received

Consideration must be sufficient  

Consideration must have some value ‘in the eyes of the law’ Doesn’t matter how small that value is, so long as it is worth something

White v Bluett [1853]   

A father promised to discharge his son from the obligation to repay money he had borrowed if the son refrained from complaining about the father’s distribution of his property among his children His father’s executors sued the son for the money HELD: there was no consideration from the son for his father’s promise  the father had every legal right to distribute his property as he chose, and his son had no legal right to complain about the distribution; son was therefore giving nothing up by forbearing to complain

Hamer v Sidway [1891]     

An uncle promised his nephew $5,000 if the nephew would refrain from ‘drinking liquor, using tobacoo, swearing and gambling’ until he became 21 Nephew complied, uncle refused to make the payment HELD: the promise was enforceable because the nephew had provided consideration by restricting his lawful freedom of action NB however that here, the nephew had previously partaken of the vices from his uncle had asked him to refrain Where an indiviudla promises to resist a course of action which he never intended to pursue, no consideration will stem from the promise to forbear  Arrale v Costain Civil Engineering

Where will an existing obligation be good consideration? 

Will consider pre-existing obligations which may arise out of a contract between the same parties, under the public law or out of a contract with a third party

Existing obligations within a contract Stilk v Myrick [1809]   

Captain of a ship promised extra wages if the crew shared between them the work of two seamen who had deserted Court held that the promise =/= binding, because the seamen gave no consideration  they were already contractually bound to do any extra work to complete the voyage Part of the decision poss influenced by public policy, discouraging blackmail/economic duress

Hartley v Posonby [1857]    

Here, there were many desertions on a ship, leaving the crew seriously depleted Captain promised remaining members £40 to complete the voyage HELD: the promise was binding  was dangerous voyage due to undermanned ship, and the seamen were not obliged to do this under their contracts of service Here, as opposed to Stilk v Myrick, the seamen gave added value (over and above their original contractual obligations)

This = approved in North Ocean Shipping v Hyundai (The Atlantic Baron) [1979] Williams v Roffey Brothers and Nicholls (Contractors) [1991]      

Roffey employed as contractor for a series of flats Subcontracted carpentry to Williams for £20,000, who then found himself in severe financial difficulties Roffey then, to avoid penalties from Housing Association, told Williams he would pay him a further £575 for each flat completed on time Did not keep this promise, and Williams sued HELD; that as a contractor, Roffey obtained certain practical benefits  in the absence of economic duress, therefore, there was factual consideration for his promise Now, in certain circumstances, a factual or practical benefit may be sufficient to constitute good consideration even if the promise is simply performing existing contractual duties

Re Selectmove Ltd 

Establishes that the judgment laid down in Williams is limited

Obligations under a public duty 

Merely carrying out a public duty imposed by the law will not amount to sufficiency of consideration

Collins v Godefroy [1831]   

Collins was subpoenaed by Godefroy to attend as a witness in an action C then sued G claiming a guinea a day as his fee for his attendance, expressly promised by G HELD: there was no consideration for the promise  the duty to attend was imposed by law

England v Davidson [1840]    

Issue of sufficiency of consideration also arisen in respect of rewards claimed by police officers for giving information Could it not be said that, in giving information, police officers are doing no more than their public duty Here, this arose Held that the duty of a police officer is the prevention of crime, and he is not under a duty to provide information to a private individual

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In doing so, he went beyond his public duty, and thus provided consideration for the offer of reward

Harris v Sheffield United FC [1988]    

Substantial police presence required in the ground According to the police, their attendance at the request of the club amounted to ‘special police services’ for which, by statute, defendants were obliged to pay Club contended that it merely = public duty, and therefore they had provided no consideration for the promise of the defendants to pay for those services HELD: the attendance of the police was necessary to assist club in ensuring security of the game, and the club should pay

Ward v Byham [1956]     

Father was paying £1 a week to separated mother for care of their illegitimate child, who had promised to keep the child happy and allow her to choose where she wished to live After 7 months she married, and he stopped paying Mother sued for breach of contract, and father pleaded want of consideration S 42 of the National Assistance Act 1947 imposed a duty on the mother of an illegitimate child to care for them  so was she just carrying out the public duty imposed on her by law? HELD: that the promise to keep her happy

Existing obligations to a third party  

Question here is whether it’s possible to have given consideration by doing something one was already bound to do under a pre-existing contract with a third party Category can be distinguished from the previous two in the sense that the performance of the pre-existing duty owed to a third party will be regarded as sufficient consideration for a promise given by the promisor

Scotson v Pegg [1861]        

X owned some coal which was being shipped to a port X contracted with S for S to deliver the cargo of coal to X or anyone X nominated once it had arrived While it was being shipped, X sold the coal to P, and, per his right under the contract, X ordered S to deliver it to P P was to unload the coal for a charge upon arrival, and so contacted S promising a discount in return for S delivering it to him Once he found out that S was already under a contractual obligation to deliver to P, he refused this discount P contended that the promise was not binding for lack of consideration since S was already bound S then sued for breach of the promise to unload at a discount, claiming that his promise to deliver the coal to P was consideration for P’s promise to unload it at a discount HELD: that the delivery of the coal to P was good consideration for P’s promise to unload it at a discount

Pao On v Lau Yiu Long [1980]

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Treated a promise by A to perform a pre-existing duty owed to B (as opposed to the actual performance of that duty) as valid consideration for a promise made by C...