Chapter 14.1

Consideration

Consideration is either:

•some detriment to the promisee, that the promisee may give value; or

•some benefit to the promisor, that the promisor may receive value.

That the promisee suffer a detrimentThat the promisee suffer a detriment

Agreed Uncle !

Nephew, I will give you $1000 if you do not smoke for a year.

That the promisee suffer a detrimentThat the promisee suffer a detriment

Agreed Uncle !

Nephew, I will give you $1000 if you do not smoke for a year.

The uncle promises to pay the nephew $1000.

The nephew promises in return to give up something he is legally entitled to do (suffers a detriment).

That the promisee suffer a detrimentThat the promisee suffer a detriment

Agreed Uncle !

Nephew, I will give you $1000 if you do not smoke for a year

The uncle promises to pay the nephew $1000.

The nephew promises in return to give up something he is legally entitled to do (suffers a detriment).

The uncle’s promise, supported by consideration, is enforceable.

The Categories of Consideration

Executory considerationExecutory consideration

I will give you $5000 for your

car.

Agreed

The promise to pay the $5000 is executory consideration, this is, it still has to be done.

Executed considerationExecuted consideration

LOST

A SMALL DOG

$100

Reward

LOST

A SMALL DOG

$100

Reward

Acceptance of this offer is by finding and returning the dog. Acceptance, provided there is the specified consideration, which is thus executed.

Past ConsiderationPast Consideration

Where a promise is made

in return for an act that has already been performed, or

for benefit that has already been received,

the consideration for the promise is said to be past and will not support the promise.

I.e. the promise in return for past consideration is unenforceable.

BUT

Hunt v Bate (1568) 73 ER 605

Re McArdle [1951] 1 All ER 905

Where the act was performed, or the benefit conferred at the request of the promisor,

in circumstances that suggested that some payment would be made, then

the promise is enforceable since the consideration in that case is not regarded as being past.

Sidenham v. Worlington (1585) 78 ER 905

Casey v. Inland Revenue Commissioner [1959] NZLR 1052

What will amount to consideration?

There are two propositions:

Consideration need not be adequate.

Consideration must be real.

Adequacy Adequacy of of ConsideratiConsiderationon

The court will not upset a bargain merely because the exchange of values is unequal.The court will not upset a bargain merely because the exchange of values is unequal.

Thomas v Thomas (1842) 114 ER 330

Illusory Consideration

Three situations where the alleged consideration may be illusory:

1.The consideration is performance of a legal duty.

2. The consideration is the performance of an existing contractual duty owed to the promisor.

3. The consideration is the performance of an existing contractual duty owed to a third party.

1. The consideration is performance of a legal duty.

The performance of a duty already required of the promisee by law will not support a promise – the consideration is illusory.

Collins v. Godefroy (1831) 109 ER 1040

BUT

If, at the promisor’s request the promisee does more than the law requires, this will be good consideration.

Glasbrook Bros v. Glamorgan County Council [1925] 1 AC 270

2. The consideration is the performance of an existing contractual duty owed to the promisor.

Where the act is one that the promisee was contractually bound to perform for the promisee, it cannot amount to consideration for a fresh promise unless some additional act is performed at the request of the promisor.

Stilk v. Myrick (1809) 2 Camp 217

Hartley v. Ponsonby (1857) 119 ER 1471

HOWEVER

Williams v. Roffey Bros [1990] 1 All ER 512

If A is contractually bound to perform service or supply goods to B, and

it appears that A cannot perform the obligation in time, and

B promises A an additional payment or other benefit if A promises to perform the obligation on time, and

as a result B obtains a practical benefit or avoids a disbenefit, then

the promise of extra payment will be enforceable, provided

A exerted no improper pressure amounting to economic duress.

3. The consideration is the performance of an existing contractual duty owed to a third party.

•If A promises to deliver goods to B or to B’s order, and

•B sells the goods, and

•tells A to deliver the goods to C, then

• if A requires C to promise to, say, unload within a specified time frame, then

• C’s promise is enforceable.

Scotson v. Pegg (1861) 158 ER 121

Variation of existing contractual rights

Waiver and forbearance

While variations in a contract require consideration, a mere waiver or forbearance, such as an extension of time, may be enforceable without fresh consideration.

Rickards (Chas.) Ltd v. Oppenheim [1950] 1 All ER 420

Satisfaction of debt by payment of a lesser sum

A debt can only be discharged

• by payment of the debt in full, or

• the substitution, at the creditor’s request, of some other benefit, with or without payment of a lesser sum, the intention being to discharg the debt.

Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237

Foakes v Beer (1884) 9 App Cas 605

In New Zealand

Section 92 Judicature Act 1908

A written receipt from the creditor, marked in full satisfaction of the entire debt, will bar further action by the creditor.