Law of ContractLaw of Contract

ConsiderationConsideration

Is agreement Is agreement enforceable?enforceable?

Doctrine of Consideration !Doctrine of Consideration !

White V Bluett(1853)White V Bluett(1853) Held : Sons promise too vague and Held : Sons promise too vague and would would not constitute a valid not constitute a valid consideration.consideration.

Thus no agreement (no contract) as Thus no agreement (no contract) as there was there was no consideration.no consideration.

DefinitionDefinition TheThe traditionaltraditional “ “benefit and benefit and detrimentdetriment” ” definition based on definition based on reciprocityreciprocity..

Currie V Misa (1875)Currie V Misa (1875) as per as per Lush J,Lush J,

“ “ A valuable A valuable considerationconsideration, in the , in the eyes of the law, may consist of eyes of the law, may consist of either in some right, interest, either in some right, interest, profit orprofit or benefit benefit accruing to one accruing to one party, or some forbearance,party, or some forbearance, detrimentdetriment, , loss or responsibility loss or responsibility given, suffered or undertaken by given, suffered or undertaken by the other”.the other”.

DefinitionDefinition Simplified Definition of Simplified Definition of Consideration.Consideration.

“ “ Consideration, is the Consideration, is the detrimentdetriment incurred by the incurred by the promiseepromisee or the or the

benefitbenefit given to the given to the promisorpromisor, in , in return for the return for the

promisor’s promise “promisor’s promise “

DefinitionDefinition Academic argumentsAcademic arguments

Professor AtiyahProfessor Atiyah : Argues that there : Argues that there is no doctrine of consideration laid is no doctrine of consideration laid down by the law…when the courts down by the law…when the courts found sufficient reasonfound sufficient reason to enforce the to enforce the promise,..they did so.promise,..they did so.

Professor TreitelProfessor Treitel : Says that courts : Says that courts do see if the parties have do see if the parties have suffered suffered detrimentdetriment and the other has and the other has derived derived benefitbenefit..

Rules of Rules of considerationconsideration

1)1) Past considerationPast consideration is not is not good good consideration.consideration.

2)2) Consideration must Consideration must move move from the from the promisee.promisee.

3)3) Consideration must be Consideration must be sufficient sufficient but but need not be need not be adequate.adequate.

Past considerationPast consideration A promise, which is made after an act has A promise, which is made after an act has been been performed is generally not performed is generally not enforceable.enforceable.

Roscorla V Thomas (1842)Roscorla V Thomas (1842)Facts : D promised the plaintiff that the Facts : D promised the plaintiff that the

horse horse which had been bought by him which had been bought by him was sound and free from was sound and free from vice.vice.

It was held that since the “promise” was It was held that since the “promise” was made after the made after the sale there was no sale there was no consideration for it.consideration for it.

Held : Defendant’s promise was Held : Defendant’s promise was unenforceable because unenforceable because the only consideration, the only consideration, which the claimant had which the claimant had provided was his provided was his “entry into the original “entry into the original contract”,..and that consideration is past.contract”,..and that consideration is past.

Past considerationPast consideration Courts look at sequence of events and Courts look at sequence of events and not at the not at the wordings used in contract.wordings used in contract.

Re McAdle (1951)Re McAdle (1951)

Facts : words “In Facts : words “In consideration of your consideration of your carryingcarrying out certain alterationsout certain alterations and and improvements to the improvements to the house….we hereby house….we hereby agree to pay you…”agree to pay you…”

Held : Words by themselves do not Held : Words by themselves do not make a make a consideration valid if it is consideration valid if it is past.past.

Past considerationPast consideration Eastwood V Kenyon (1840) Eastwood V Kenyon (1840) QBQB

Facts : Guardian of young girl Facts : Guardian of young girl raised a loan raised a loan to educate the girl to educate the girl and to improve her and to improve her marriage marriage prospects. After her marriage, her prospects. After her marriage, her husband promised to pay off the loan.husband promised to pay off the loan.

Held : Guardian’s consideration Held : Guardian’s consideration was past.was past.

Although husband had a moral Although husband had a moral obligation obligation it is not “legally it is not “legally enforceable”enforceable”

Past considerationPast consideration Exception to the rule :Exception to the rule :

1)1) Previous requestPrevious request

2)2) Business situationsBusiness situations

3)3) Bills of Exchange Act Bills of Exchange Act 18821882

(statutory intervention)(statutory intervention)

Past consideration/Previous Past consideration/Previous requestrequest

““Doctrine of Implied Doctrine of Implied assumpsit”assumpsit”

Lampleigh V Brathwait Lampleigh V Brathwait (1615)(1615)

Facts : Braithwait killed someone Facts : Braithwait killed someone and then and then asked L, to get him a asked L, to get him a pardon. L got him the pardon. L got him the pardon and gave pardon and gave it to B, who promised to it to B, who promised to pay pay L, £100 L, £100 for his trouble.for his trouble.

Held : Although L’s consideration Held : Although L’s consideration was past, was past, B’s promise to pay could B’s promise to pay could be linked to the be linked to the earlier request.earlier request.

Doctrine of Implied Doctrine of Implied AssumpsitAssumpsit

Where the act of the promisee was Where the act of the promisee was performed performed

at the at the request of the promisorrequest of the promisor, and , and subsequent subsequent

to the performance of the act by to the performance of the act by the promisee, the promisee,

the promisor promises to pay for the promisor promises to pay for it, then such it, then such

a promise may be enforceable.a promise may be enforceable.

Doctrine of Implied Doctrine of Implied AssumpsitAssumpsit

Pau On V Lau Yiu Long (1980)Pau On V Lau Yiu Long (1980) as per Lord as per Lord Scarman. Privy CouncilScarman. Privy Council

03 conditions must be satisfied by a promisee 03 conditions must be satisfied by a promisee who who wishes to invoke the doctrine.wishes to invoke the doctrine.

1)1) He must have performed the original He must have performed the original act at act at the the request of the promisorrequest of the promisor..

2)2) It must have been clearly understood or It must have been clearly understood or implied between the parties when the implied between the parties when the

act was act was originally requested that originally requested that the promisee would be the promisee would be rewarded for doing rewarded for doing the act.the act.

3)3) The eventual promise of payment after The eventual promise of payment after the act was the act was completed must be one which, completed must be one which, had it been made prior to or had it been made prior to or at the time of the act, at the time of the act, would have been enforceable.would have been enforceable.

Business SituationsBusiness SituationsIf something is done in a business If something is done in a business context and it is clearly understood by context and it is clearly understood by both sides that it will be paid for, then both sides that it will be paid for, then past consideration will be valid.past consideration will be valid.

Re Casey’s Patent (1892)Re Casey’s Patent (1892)Facts :Facts : A and B owned a patent that C A and B owned a patent that C

a a manager worked on. A and B then manager worked on. A and B then promised C a promised C a one-third share in the one-third share in the invention.invention.

Held: C could rely on agreement and Held: C could rely on agreement and promise as promise as C’s consideration was done C’s consideration was done in a business situation, in a business situation, at the request of at the request of A&B and it was understood by A&B and it was understood by both both that C would be paid.that C would be paid.

Bills of Exchange Act 1882Bills of Exchange Act 1882

S27 (1) (b) Bills of Exchange Act S27 (1) (b) Bills of Exchange Act 18821882

: an : an antecedent (previous)antecedent (previous) debt or debt or liability is liability is

valid consideration for a valid consideration for a bill of bill of exchangeexchange(an unconditional order in writing , (an unconditional order in writing , requiring a person to pay a sum of money to requiring a person to pay a sum of money to a specified person or to bearer)a specified person or to bearer)..

S27(5) Limitation Act 1980S27(5) Limitation Act 1980

: A written acknowledgement of a debt : A written acknowledgement of a debt by a debtor shall be deemed to have by a debtor shall be deemed to have accrued accrued onon and and not beforenot before the date of the date of acknowledgement.acknowledgement.

Consideration must move Consideration must move from the promiseefrom the promisee

Price V Easton (1833)Price V Easton (1833)

Facts : Easton made a contract with Facts : Easton made a contract with X, that in X, that in return for X doing return for X doing work for him, work for him,

Easton would pay Price. X did Easton would pay Price. X did the work.. the work.. but Easton did not pay, but Easton did not pay, so price sued.so price sued.

Held : Price’s claim must fail as he Held : Price’s claim must fail as he had not had not provided the provided the consideration.consideration.

Maxim : Maxim : A person to whom a promise is A person to whom a promise is made can only enforce the promise if he made can only enforce the promise if he himself provides the consideration for the himself provides the consideration for the promise.promise.

Consideration must move Consideration must move from the promiseefrom the promisee

Bolton V Madden (1873)Bolton V Madden (1873)

Held : Consideration can move from Held : Consideration can move from the promisee to a 3rd party, at the the promisee to a 3rd party, at the request of the promisor.request of the promisor.

Consideration must be Consideration must be sufficientsufficient

Chappell & Co Ltd V The Nestle Chappell & Co Ltd V The Nestle Co Ltd (1959)Co Ltd (1959)

Held : Records obtained for three Held : Records obtained for three chocolate wrappers.chocolate wrappers.

Value of the wrappers is irrelevant,..if Value of the wrappers is irrelevant,..if it was meant as consideration, its it was meant as consideration, its sufficient.sufficient.

Consideration must be Consideration must be sufficientsufficient

Midland Bank V Green (1981)Midland Bank V Green (1981)

Facts : Husband conveyed an estate Facts : Husband conveyed an estate to his wife at a very low price, to to his wife at a very low price, to avoid the operation of an option to avoid the operation of an option to purchase.purchase.

Held : Held : AdequacyAdequacy is not relevant. is not relevant.

Consideration must be Consideration must be sufficientsufficient

Midland Bank V Green (1981)Midland Bank V Green (1981)Facts : Husband conveyed an estate to his Facts : Husband conveyed an estate to his wife at a very low price, to avoid the wife at a very low price, to avoid the operation of an option to purchase.operation of an option to purchase.

Held : Held : AdequacyAdequacy is not relevant is not relevant

Thomas V Thomas (1842)Thomas V Thomas (1842)Mrs. Thomas was allowed to stay in her Mrs. Thomas was allowed to stay in her husband’s house because, the husband husband’s house because, the husband wished so, and secondly for a promise that wished so, and secondly for a promise that she would pay £1 per year.she would pay £1 per year.

Held : £1 was consideration but not the Held : £1 was consideration but not the husband’s wish.husband’s wish.

No consideration - some No consideration - some situationssituations

1)1) Performance of an existing Performance of an existing public dutypublic duty

2)2) Performance of an existing Performance of an existing contractual contractual dutyduty

3)3) Performance of an existing Performance of an existing contractual contractual duty owed to a duty owed to a third party.third party.

4)4) Acts of ForbearanceActs of Forbearance

Performance of public dutyPerformance of public dutyA promise to perform a duty A promise to perform a duty already imposed by law does not already imposed by law does not constitute good considerationconstitute good consideration

Collins V Godefroy (1831)Collins V Godefroy (1831)Facts : Plaintiff had attended a subpoena to Facts : Plaintiff had attended a subpoena to give evidence on the Defendant’s behalf, in give evidence on the Defendant’s behalf, in a case where D was the litigant. Plaintiff a case where D was the litigant. Plaintiff alleged that D agreed to pay him for the alleged that D agreed to pay him for the attendance.attendance.

Held : Performance of public duty is not Held : Performance of public duty is not valid consideration, for the “promise to valid consideration, for the “promise to pay”.pay”.

He had a duty to attend by law.He had a duty to attend by law.

Performance of public dutyPerformance of public dutyEngland V Davidson (1840)England V Davidson (1840)Facts : D offered a reward to anyone Facts : D offered a reward to anyone who gave information to the conviction who gave information to the conviction of a felony. The Plaintiff a police of a felony. The Plaintiff a police constable gave such evidence.constable gave such evidence.

Held : It was P’s public duty to provide Held : It was P’s public duty to provide information to convict felon. Held no information to convict felon. Held no consideration.consideration.

..

Performance of public dutyPerformance of public dutyException to Public duty : not Exception to Public duty : not valid consideration rule.valid consideration rule.1)1) Police doing duty beyond their public Police doing duty beyond their public duty,..held sufficient considerationduty,..held sufficient consideration

Glasbrook Bros V Glamorgan County CouncilGlasbrook Bros V Glamorgan County Council

2)2) If promissor derives a practical benefit… “if If promissor derives a practical benefit… “if a party to an existing contract later agrees to pay a party to an existing contract later agrees to pay an extra bonus in order to ensure that the other an extra bonus in order to ensure that the other party performs his obligations under the contract, party performs his obligations under the contract, then that agreement is binding, if the party then that agreement is binding, if the party agreeing to pay the bonus has obtained some new agreeing to pay the bonus has obtained some new practical advantage or avoided a disadvantage.practical advantage or avoided a disadvantage.

Performance of existing Performance of existing contractual dutycontractual duty

Stilk V Myrick (1809)Facts : 02 out of 11 sailors deserted a ship. The capt promised to pay the remaining crew extra money if they sailed the ship back but later refused to pay.Held : It was held that as the sailors were already bound by their contract to sail back,..which includes emergency contingencies..there is no new contract as consideration is not valid.The Atlantic Baron (1979) : follows above casebut see Harley V Ponsonby (1857)

Performance of existing Performance of existing contractual dutycontractual duty

Hartley V Ponsonby (1857)Facts : Similar facts except that ship was seriously undermanned that the rest of the journey had become extremely hazardous….thus.

Held : Sailing the ship back under such dangerous conditions was over and above their normal contracted duties.

Performance of existing Performance of existing contractual dutycontractual duty

Williams v Roffey Bros (1990)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 apparent that Williams had underestimated the costs of the work and was also in financial difficulties. Roffey, aware of this and also concerned that the work would not be completed on time, agreed to pay an extra bonus. Williams completed the work but Roffey refused to pay saying that Williams was doing what he was contractually bound to do, and so had not provided consideration.Held : Agreement is binding if party agreeing to pay bonus/extra, obtained some new practical advantage or avoided a disadvantage.

Performance of existing Performance of existing contractual dutycontractual duty

to a 3rd partyto a 3rd partyScotson V Pegg (1861)Facts : S contracted to deliver coal to X.,.or rather to X’s order. X sold the coal to Pegg, and ordered to deliver the coal to Pegg. Then Pegg promised Scotson that he would unload it at a fixed rate. In an action by Scotson to enforce Pegg’s promise, Pegg argued that the promise was not binding because Scotson had not provided the consideration.

Held : Scotsons delivery of coal (the performance of an existing contrct to a 3rd party) was a benefit to Pegg and thus valid consideration.New Zealand Shipping V Satterthwaite (1975) P/CPrivy council, followed the above decision.

Acts of forebearanceActs of forebearance

If one person has a valid claim against another, in contract or tort, but if he promises to forbear from enforcing it, that will constitute a valid consideration, if made in return for a promise by the other to settle the claim.Alliance Bank V Broom(1864)