Lecture 5 - Consideration

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CONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATION

Lecture 5Lecture 5Lecture 5Lecture 5

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The mere fact of agreement alone does not make a contract. Both parties

to the contract must provide consideration if they wish to sue on the

contract. This means that each side must promisepromisepromisepromisepromisepromisepromisepromise to give or dodododododododo

somethingsomethingsomethingsomethingsomethingsomethingsomethingsomething for the other. (Note: if a contract is made by deed, then

consideration is not needed.)

IntroductionIntroductionIntroductionIntroduction

For example, if one party, A (the promisor) promises to mow the lawn of another, B(the promisee), A's promise will only be enforceable by B as a contract if B has

provided consideration. The considerationconsiderationconsiderationconsiderationconsiderationconsiderationconsiderationconsideration from B might normally take the

form of a paymentpaymentpaymentpaymentpaymentpaymentpaymentpayment of money but could consist of some otherotherotherotherotherotherotherother serviceserviceserviceserviceserviceserviceserviceservice to which

A might agree. Further, the promise of a money payment or service in the

future is just as sufficient a consideration as payment itself or the actualrendering of the service. Thus the promisee has to give something in return for

the promise of the promisor in order to convert a bare promise made in his

favour into a binding contract

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1. EXECUTORY CONSIDERATION1. EXECUTORY CONSIDERATION1. EXECUTORY CONSIDERATION1. EXECUTORY CONSIDERATION

Consideration is called "executory" where there

is an exchange of promisesexchange of promisesexchange of promisesexchange of promisesexchange of promisesexchange of promisesexchange of promisesexchange of promises to perform acts inperform acts inperform acts inperform acts inperform acts inperform acts inperform acts inperform acts in

TYPES OF CONSIDERATIONTYPES OF CONSIDERATIONTYPES OF CONSIDERATIONTYPES OF CONSIDERATION

the futurethe futurethe futurethe futurethe futurethe futurethe futurethe future, eg a bilateral contract for the supplyof goods whereby A promises to deliver goods

to B at a future date and B promises to pay on

delivery. If A does not deliver them, this is abreach of contract and B can sue. If A delivers

the goods his consideration then becomes

executed.3


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2.2.2.2. EXECUTEDEXECUTEDEXECUTEDEXECUTED CONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATION

If one party makes a promisemakes a promisemakes a promisemakes a promisemakes a promisemakes a promisemakes a promisemakes a promise in exchange for an

act by the other party, when that act iswhen that act iswhen that act iswhen that act iswhen that act iswhen that act iswhen that act iswhen that act is

TYPES OF CONSIDERATIONTYPES OF CONSIDERATIONTYPES OF CONSIDERATIONTYPES OF CONSIDERATION

, ,

unilateral contract where A offers 50 reward

for the return of her lost handbag, if B finds the

bag and returns it, B's consideration is

executed.

Another case example is the claimants act in Carlills case in

response to the smoke ball companys promise of reward

was thus executed consideration.4


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If there is an existingexistingexistingexistingexistingexistingexistingexistingcontractand one party makes a

UNSUPPORTED FRESHUNSUPPORTED FRESHUNSUPPORTED FRESHUNSUPPORTED FRESH

CONSIDERATIONCONSIDERATIONCONSIDERATIONCONSIDERATION

,will arise.

Case example:Case example:Case example:Case example:

RosorlaRosorlaRosorlaRosorla v Thomasv Thomasv Thomasv Thomas 1842184218421842

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(B) BUSINESS SITUATIONS(B) BUSINESS SITUATIONS(B) BUSINESS SITUATIONS(B) BUSINESS SITUATIONS

If something is done in a businessbusinessbusinessbusinessbusinessbusinessbusinessbusinesscontextcontextcontextcontextcontextcontextcontextcontext and it is clearly understood by

EXCEPTIONS TO THIS RULEEXCEPTIONS TO THIS RULEEXCEPTIONS TO THIS RULEEXCEPTIONS TO THIS RULE

,past consideration will be validpast consideration will be validpast consideration will be validpast consideration will be validpast consideration will be validpast consideration will be validpast consideration will be validpast consideration will be valid.


Re Casey's Patents 1892Re Casey's Patents 1892Re Casey's Patents 1892Re Casey's Patents 1892

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(C) THE BILLS OF EXCHANGE ACT 1882(C) THE BILLS OF EXCHANGE ACT 1882(C) THE BILLS OF EXCHANGE ACT 1882(C) THE BILLS OF EXCHANGE ACT 1882

Under s27(1) it is provided that anyantecedent debt or liabilityantecedent debt or liabilityantecedent debt or liabilityantecedent debt or liabilityantecedent debt or liabilityantecedent debt or liabilityantecedent debt or liabilityantecedent debt or liability is valid

EXCEPTIONS TO THIS RULEEXCEPTIONS TO THIS RULEEXCEPTIONS TO THIS RULEEXCEPTIONS TO THIS RULE

consideration or a bill o exchange.For example, A mows B's lawn anda week later B gives A a cheque for10. A's work is valid considerationin exchange for the cheque.

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Providing consideration has some value, the

courts will notwill not investigate its adequacy. Whereconsideration is recognized by the law as

" "

CONSIDERATION MUST BE SUFFICIENTCONSIDERATION MUST BE SUFFICIENTCONSIDERATION MUST BE SUFFICIENTCONSIDERATION MUST BE SUFFICIENT

BUT NEED NOT BE ADEQUATEBUT NEED NOT BE ADEQUATEBUT NEED NOT BE ADEQUATEBUT NEED NOT BE ADEQUATE

"sufficient" consideration. The courts will notThe courts will notThe courts will notThe courts will notThe courts will notThe courts will notThe courts will notThe courts will not

investigate contracts to see if the parties haveinvestigate contracts to see if the parties haveinvestigate contracts to see if the parties haveinvestigate contracts to see if the parties haveinvestigate contracts to see if the parties haveinvestigate contracts to see if the parties haveinvestigate contracts to see if the parties haveinvestigate contracts to see if the parties have

got equal valuegot equal valuegot equal valuegot equal valuegot equal valuegot equal valuegot equal valuegot equal value.


Chappell & Co Ltd v Nestle Co Ltd 1959Chappell & Co Ltd v Nestle Co Ltd 1959Chappell & Co Ltd v Nestle Co Ltd 1959Chappell & Co Ltd v Nestle Co Ltd 1959

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The person who wishes to enforce the contract

must show that they provided consideration; itis not enough to show that someone else

provided consideration. TheTheTheTheTheTheTheThe promiseepromiseepromiseepromiseepromiseepromiseepromiseepromisee mustmustmustmustmustmustmustmust

CONSIDERATION MUST MOVECONSIDERATION MUST MOVECONSIDERATION MUST MOVECONSIDERATION MUST MOVE

FROM THE PROMISEEFROM THE PROMISEEFROM THE PROMISEEFROM THE PROMISEE

show that consideration "moved from" (show that consideration "moved from" (show that consideration "moved from" (show that consideration "moved from" (show that consideration "moved from" (show that consideration "moved from" (show that consideration "moved from" (show that consideration "moved from" (ieieieieieieieie, was, was, was, was, was, was, was, wasprovided by) him.provided by) him.provided by) him.provided by) him.provided by) him.provided by) him.provided by) him.provided by) him. The consideration does not

have to move to the promisor. If there are three

parties involved, problems may arise.


Price v Easton 1833Price v Easton 1833Price v Easton 1833Price v Easton 183311


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Price v Easton 1833Price v Easton 1833Price v Easton 1833Price v Easton 1833

The facts: Easton made a contract with X that in

return for X doing work for him and Easton would

a Price 19. X did the work but Easton did not

CONSIDERATION MUST MOVECONSIDERATION MUST MOVECONSIDERATION MUST MOVECONSIDERATION MUST MOVE

FROM THE PROMISEEFROM THE PROMISEEFROM THE PROMISEEFROM THE PROMISEE

pay, so Price sued.

Decision: It was held that Price's claim must fail, as

he had not provided consideration.

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If one person has a valid claim against another (incontract or tort) but promises to forbearforbearforbearforbearforbearforbearforbearforbear from

enforcing it, that will constitute valid consideration ifmade in return for a promise by the other to settlethe claim.

FOREBEARANCE TO SUEFOREBEARANCE TO SUEFOREBEARANCE TO SUEFOREBEARANCE TO SUE(Consideration can be a promise not to sue)(Consideration can be a promise not to sue)(Consideration can be a promise not to sue)(Consideration can be a promise not to sue)

If, for example, Ann crashes into Bens car, Benmight agree that he will not sue Ann if Ann pays forthe damage, and Bens promise not to sue will be

consideration for Anns promise to pay.


Alliance Bank v Broom 1864Alliance Bank v Broom 1864Alliance Bank v Broom 1864Alliance Bank v Broom 1864

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If someone is under a public dutypublic dutypublic dutypublic dutypublic dutypublic dutypublic dutypublic duty to

do a particular task, then agreeing

to do that task is not sufficient

EXISTING PUBLIC DUTYEXISTING PUBLIC DUTYEXISTING PUBLIC DUTYEXISTING PUBLIC DUTY

consideration for a contract.


Collins vCollins vCollins vCollins v GodefroyGodefroyGodefroyGodefroy 1831183118311831

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Collins vCollins vCollins vCollins v GodefroyGodefroyGodefroyGodefroy 1831183118311831

The facts:

Godefroy promised to pay Collins if Collins would attendcourt and give evidence for Godefroy. Collins had been


served with a subpoena (ie, a court order telling someonethey must attend). Collins sued for payment.

Decision:

It was held that as Collins was under a legal duty to attendcourt he had not provided consideration. His actiontherefore failed.

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If someone exceedsexceedsexceedsexceedsexceedsexceedsexceedsexceeds theirpublic duty, then this may


be valid consideration.

Case example:Case example:Case example:Case example:GlassbrookeGlassbrookeGlassbrookeGlassbrooke Bros vBros vBros vBros v GlamorganGlamorganGlamorganGlamorgan County Council 1925County Council 1925County Council 1925County Council 1925

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If someone promises to do

something they are alreadyalreadyalreadyalreadyalreadyalreadyalreadyalready

EXISTING CONTRACTUAL DUTYEXISTING CONTRACTUAL DUTYEXISTING CONTRACTUAL DUTYEXISTING CONTRACTUAL DUTY

,that is not valid consideration.

ContrastContrastContrastContrast ---- Case example:Case example:Case example:Case example:

StilkStilkStilkStilk v Myrickv Myrickv Myrickv Myrick 1809 Hartley1809 Hartley1809 Hartley1809 Hartley vvvv PonsonbyPonsonbyPonsonbyPonsonby 1857185718571857

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The principle set out in Stilk v Myrick was

amendedamendedamendedamended by the following case. Now, if theperformance of an existing contractual


other party this can constitute validconsideration.


Williams vWilliams vWilliams vWilliams v RoffeyRoffeyRoffeyRoffey Bros Ltd 1990Bros Ltd 1990Bros Ltd 1990Bros Ltd 1990

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Williams vWilliams vWilliams vWilliams v RoffeyRoffeyRoffeyRoffey Bros Ltd 1990Bros Ltd 1990Bros Ltd 1990Bros Ltd 1990The 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 apparentthat Williams had underestimated the cost of the work and was in financialdifficulties. Roffey, concerned that the work would not be completed on time andthat as a result they would fall foul of a penalty clause in their main contract withthe owner, agreed to pay Williams an extra payment per flat. Williams completed


.

brought an action for damages. In the Court of Appeal, Roffey argued thatWilliams was only doing what he was contractually bound to do and so had notprovided consideration.

Decision: It was held that where a party to an existing contract later agrees to pay anextra "bonus" in order to ensure that the other party performs his obligationsunder the contract, then that agreement is binding if the party agreeing to pay thebonus has thereby obtained some new practical advantage or avoided adisadvantage. In the present case there were benefits to Roffey including (a)making sure Williams continued his work, (b) avoiding payment under a damagesclause of the main contract if Williams was late, and (c) avoiding the expense andtrouble of getting someone else. Therefore, Williams was entitled to payment.

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If a party promises to doto doto doto doto doto doto doto do

somethingsomethingsomethingsomethingsomethingsomethingsomethingsomethingfor a second party,but is already bound by abound by abound by abound by abound by abound by abound by abound by a


OWED TO A THIRD PARTYOWED TO A THIRD PARTYOWED TO A THIRD PARTYOWED TO A THIRD PARTY

contractcontractcontractcontractcontractcontractcontractcontract to do this for a thirdparty, this is good consideration.


ScotsonScotsonScotsonScotson vvvv PeggPeggPeggPegg 1861186118611861

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ScotsonScotsonScotsonScotson vvvv PeggPeggPeggPegg 1861186118611861

The facts: Scotson contracted to deliver coal to X. X sold the coal toPegg and ordered Scotson to deliver the coal to Pegg. Then Peggpromised Scotson that he would unload it at a fixed rate. In an

'


OWED TO A THIRD PARTYOWED TO A THIRD PARTYOWED TO A THIRD PARTYOWED TO A THIRD PARTY

,

promise was not binding because Scotson had not providedconsideration as Scotson was bound by his contract with X (a thirdparty) to deliver the coal.

Decision: It was held that Scotson'sScotson'sScotson'sScotson's delivery of coaldelivery of coaldelivery of coaldelivery of coal (the performanceof an existing contractual duty to a third party, X) was a benefit toPegg and was valid considerationwas valid considerationwas valid considerationwas valid consideration. It could also been seen as adetriment to Scotson, as they could have broken their contractwith X and paid damages.

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Lecture 5 - Consideration

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