Chapter 4: Consideration PDF

CHAPTER4: CONSIDERATION BY NATHAN MARAN What is consideration? PROMISOR A contract will only be legally enforceable when there is an ITCLR and also consideration. It is the badge of enforceability in a contract The classic idea of con...

CHAPTER4: CONSIDERATION BY NATHAN MARAN What is consideration? PROMISOR A contract will only be legally enforceable when there is an ITCLR and also consideration. It is the badge of enforceability in a contract The classic idea of consideration is based on the idea of ‘reciprocity’ PROMISEE - two promises are exchanged - each party is a promisor and a promisee DEFINITIONS Lush J in the case of Curie v Misa (1875) gave a classic definition “ a valuable consideration, in the sense of the law, 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) “ An act of forbearance of one party, or the promise thereof, is the price for which the other is bought, and the promise thus given for value is enforceable. Prof. Atiyah - It is the reason for the enforcement of promises. Prof. Treitel - It is based on reciprocity (benefit/detriment) EXECUTORY - A promise to do something in the future THERE ARE 2 TYPES - Normally happens after the contract has been formed - Where : Usually bilateral EXECUTED contracts - The promise for doing - Example : Contracting for a something has already been sale of good to be delivered done. to your house upon promise - Normally happens before or of payment after delivery. at the time the contract has been formed - Where : Usually unilateral contracts - Example : Returning a lost dog as advertised is both acceptance and consideration provided.  In order to understand consideration, we must know the rules thereof when applying them Consideration MUST move from Past consideration IS NOT good the promisee BUT need not move consideration to the promisor RULES Consideration CAN BE a OF promise not to sue CONSIDERATION Consideration MUST BE sufficient but NEED NOT BE adequate Consideration MUST BE of economic value ELEMENTS of consideRATION  Consideration MUST move from the promisee BUT NEED NOT move to the promisor. CONSIDERARTION Consideration need not benefit the promisor As long as it moves from the promise – there is consideration It is sufficient that the promise suffers some detriment at the promisor’s request, eventhough this detriment does not give any benefit to the promisor Promisor Promisee In Tannner v Tanner (1975) , the court held that the girlfriend did provide consideration eventhough it did not directly benefit the boyfriend Tweedle v Atkinson (1861) - Jones v Paddavaton Third party PAST consideration is NOT good consideration CONTRACT PROMISE MADE AFTER UNENFORCAEBLE Promisor Promisee General Rule : Consideration must be given in exchange for the other party’s consideration. If an act or a promise is given for other reasons, it is not a valid consideration If performance of a party is completed before the other offered his consideration – earlier performance is not a good consideration  Roscola v Thomas – D’s promise was made after the sale of horse - consideration unenforceable Re Mc Ardle – wording in document suggested payment for work to be done in the future- court ruled it as past consideration , facts of case was clear that promise was given in return for something already done. Exceptions : The act must be done at the promisor’s request, as held in the case of Lampleigh v Braithwaite It must be reasonably contemplated by both parties that payment ought to be made – Re Casey Patents – where court ruled that plaintiff’s services were clearly always meant to be paid for, and the promise was merely putting the expectation into the form of a specified amount The promise must be legally enforceable – Pao On v Lau Yiu Liong (1980) Note the difference between past consideration and executed MUST be sufficient NEED NOT be adequate sufficient VS adequate If what has given in exchange for the promise has value in the eyes of the law, the court will not question whether that value was adequate  But the law will take it as a consideration as adequate if the parties are agreed to the exchange. The courts will not inquire into the adequacy of the consideration as long as there is one. This is in line with the laissez-faire doctrine where parties have the freedom to contract without any external interference. Thomas v Thomas (1842) – court ruled that widow’s promise to pay 1 pound to keep up repairs was sufficient consideration to make the owner’s promise binding Chappel and Co v Nestle (1959) – court ruled that even wrappers would form part of a consideration and should be considered when calculating royalties that should be paid for the record. Eventhough they had no real worth to the defendants. MUST be of SOME economic value Economic value can be described as a measure of the benefit from a good or service to an economic agent. It is typically measured in units of currency. Another interpretation is that economic value represents the maximum amount of money an agent is willing and able to pay for a good or service. However in the law of consideration, courts have not adopted a consistent approach when it comes to defining value Trietel suggest the consideration should have at least an ‘economic value’ even if its can’t be precisely quantified  In Chappel v Nestle – was there any economic value? The question for the court was whether the chocolate bar wrappers formed part of the consideration. If they did it was impossible to ascertain the value they represented and therefore Nestle would not have complied with their obligation to give notice of the ordinary retail selling price. The wrappers did form part of the consideration as the object was to increase sales and therefore provided VALUE. The principle seems to suggest there should at least be some economic value and not just an emotional or sentimental one White v Bluett (1853) – court ruled that a son’s promise not to complain was not sufficient consideration as it was too vague Thomas v Thomas – plaintiff argued that following her husband’s wishes was economic value – court rejected and held no economic value Contrast with the case of Hammer v Sidaway (American case)  CAN be a PROMISE NOT to sue If a party to a contract has a good claim over the other Combe v Combe (1951) Alliance Bank Ltd v Broom party, a promise not to enforce (1864) that claim can be a good - Wife argued that not excercising consideration. her right to apply for - D argued no consideration given maintenance order was by the bank for him to provide consideration security Courts held : Not valid Courts held : Implied promise by A promise not to enforce consideration. Husband never the bank not to sue the D was would only be valid asked he to not apply. Promise was considered as consideration for consideration if the promise not made in return for her promise the D to provide security given in return is induced by the promise not to sue not to sue. performance of an EXISTING duty Where the promisee already owes the promisor a legal duty, performing that duty alone should not in itself be a consideration if : ▪The promisee does nothing more than what he is already legally obliged to do ▪The promisee is not suffering any detriment ; and ▪The promisor is only getting a benefit to which he or she is already entitled to. existing PUBLIC duty If a person is merely carrying out his duty which they are legally obliged to perform – doing that alone will not amount to a consideration. Example : ▪ Police doing his duty to keep law and order ▪ A government medical officer treating patients ▪ A juror participating as a jury in a jury trial Collins v Godferoy (1831) Court held that plaintiff was legally obliged to give evidence – doing that alone was not consideration for the D’s promise to pay him Glassbrook Brothers Ltd v Glamorgan City Harris v Sheffield United Football Club Council (1925) (1988) If promise went above and beyond what he is ▪ The D in this case used the Glassbrook’s case as expected to do by law, that extra act can a precedent amount to a valid consideration ▪ They argued they do not have to pay officers Courts held : The police who provided extra attending grounds – as a big police presence services which amounted to consideration. was necessary to maintain law and order. The coal miners promised the police payment ▪ This case was distinguished from Glassbrook – for the extra service as the earlier case strike could not be called off The police were entitled to charge for the ▪ In contrast, in this case, the large police extra service that was promised by Glassbrook presence was self –induced, hence police service has to be paid  Ward v Byham (1956) ▪ Father of an illegitimate child promised the child’s mother a payment of £1 a week for allowance provided she can prove that she will look after the child to be well and happy. ▪ Father stopped making payments – the mother sought to enforce the promise. ▪ Courts held : The promise to pay was supported by consideration and therefore enforceable. Although mother had a legal duty to take care of the child, she had gone beyond that duty to comply with the father’s request – that is to keep the child happy. (See Lord Denning’s judgement) existing CONTRACTUAL duty The position today is unclear but as of a general application – performance of an existing contractual duty owed to a promisor was not consideration Stilk v Myrick (1809) Stilk was one of 11 men contracted to sail to the Baltic and back to London 2 sailors deserted during the voyage Difficult to find replacement, he promised the rest extra payment from the wages of the two deserted sailors After reaching London, master refused payment. Courts held : Sailors did only what they were contractually agreed to do Look at what the Campbell Report and the Espinasse had said.  Hartley v Ponsonby (1857) There were 36 crew members and 17 of them deserted. Only 4 or 5 were remaining Master promised extra payment to the remaining sailors if ship sailed to Bombay After returning. master refused payment Courts held : There was consideration as the voyage became dangerous to sail. Remaining sailors did above and beyond. Sailors had provided fresh consideration in exchange of captain’s promise to pay more. CONTRACTUAL DUTY TO SUPPLY GOODS OR SERVICES Williams v Roffey Bros (1991) ▪ The case of Williams introduced a new element in the doctrine of consideration ▪ If a party’s promise to perform an existing contractual duty confers an additional practical benefit on another party, it would be sufficient consideration. ▪ In this case, P were running behind schedule. D offered extra £10,300 provided that i) The work is finished on time ii) P consents to a change in work arrangements Court ruled : - - Offer of extra payment was supported by valid consideration by P. - If P finished job on time, D would avoid losing money on the penalty clause & avoid cost and inconvenience of finding for new contractor - D also benefit from change in work arrangements although P did what they were contractually obliged to do. PRACTICAL BENEFIT The courts relied upon a number of factors in identifying the practical benefit obtained. i) C continued with the work and did not breach his subcontract ii) D were spared the trouble and expense of engaging other people to complete the carpentry work iii) They avoided the penalty under the main agreement iv) The D prevented an avoidance of hassle to make new arrangements. All these things are practical benefit that had been enjoyed by the defendant and this. The courts held that the defendant had obtain a PB as a result of the claimant’s promise to complete the work on time and that PB, at least for this purpose, did constitute sufficient consideration [Consider the judgement by Glidewell LJ on the proposition of practical benefit in the case of Williams ] CONTRACTUAL DUTY TO PAY DEBTS GR : Part payment of debt is no satisfaction to the full sum. If someone owes another person money, paying part of the debt owed instead of a full amount will not relinquish the creditor’s right to sue. Even if the creditor accepts the part payment of debt, it will only be binding if the debtor provides some consideration Pinnel’s case (1602) - Pinnel sued Cole for the debt owed to him ( £ 8 10 s) - Pinnel accepted £ 5 2 s 6 d in full settlement of the debt - Court found in favour of Pinnel due to a technicality - If not for that, courts would have found favour in Cole The principle that was decided in Pinnel’s case was further approved in two later cases. Foakes v Beer (1884) HOL held that Mrs. Beer was entitled to the interest because the payment of part of the debt was not consideration for her promise to forgo the balance Re Selectmove Ltd ( 1995) – Court ruled Selectmove cannot rely on Williams v Roffey. Incorrect to argue that the Inland Board would receive a ‘practical benefit’ if Selectmove company continue to exist Exceptions : The courts in Pinnel’s case said that part-payment of debt can be accepted, only if: - The debt is paid at an earlier time - More convenient place - Debtor gives something else as part of the settlement of the sum Disputed Claims : Where there is a dispute about debt actually owed and the amount owed, part-payment will Payment by a third be a consideration for the promise not to sue – Cooper v party: A creditor who Parker accepts part-payment form a third party, in full settlement of the debtor’s Unliquidated claims : Amount is uncertain , liability, cannot then sue value of claim unknown – Pinnels’ case does not for the outstanding apply – hence part-payment of debt would amount – Hiramchand discharge the debt owed Punamchand v Temple Composition agreements : A debtor who cannot pay may offer to pay Promissory Estoppel each one a percentage of their claim. existing contractual duty to THIRD PARTY Scotson v Pegg (1861) - Court held that delivery of the coal can be considered to be a benefit to the D and detriment to the P – it would be valid consideration - Same as in the case of Pao On v Lau Yiu Long (1980) Shadwell v Shadwell (1860) - Court held that the P marrying his fiancée was a consideration for his uncle’s offer to give him 150 pounds a year- as it was a detriment to the P (financial burden) and beneficial to uncle (pleased and happy about the marriage) Note : Judgement not entirely satisfactory