Chapter 2: Consideration Flashcards
What is the third essential element of a valid contract?
Consideration
Definition of consideration
Consideration is an act or forbearance (or the promise of it) on the part
of one party to a contract as the price of the promise made to him by
the other party to the contract.
DUNLOP PNEUMATIC TYRE CO. v SELFRIDGE (1915)
Definition of consideration simplified
Put more simply, it is the price by which one party bought the other party’s act or promise.
When must a contract by supported by consideration?
All simple contracts must be supported by consideration.
When is a contract not required to be supported by consideration?
Contracts made by deed (speciality contracts) do not require consideration unless the terms of the agreement require it.
What is a deed?
A deed is a formal promise between the parties that must be in writing and signed.
What contracts must be in the form of a deed?
Conveyances and leases for three years or more.
What are 2 occasions when they are capable of being valid consideration?
Both executed and executory consideration are capable of being valid consideration.
What is executed consideration?
Executed consideration is a performed act in exchange for a promise, e.g. paying for goods at the time the goods are delivered.
What is executory consideration?
Executory consideration is a promise given in exchange for a promise, e.g. a promise to pay for goods that are to be delivered at a later date.
Does a consideration need to be sufficient and adequate?
Consideration must be sufficient but need not be adequate.
What is sufficient consideration
Sufficient consideration is consideration which is capable of being given a value.
Chappell & Co v Nestle (1960)
Thomas v Thomas (1842)
What is inadequate consideration?
Inadequate consideration is consideration which is unequal in value. The parties have freedom to contract under any terms they wish and a court will not attempt to make a contract a fair bargain as long as there is some identifiable value.
White v Bluett (1853)
Facts of ‘Chappell & Co v Nestle (1960)’
A promotion by Nestle offered records for a sum of money plus three chocolate wrappers.
Held by ‘Chappell & Co v Nestle (1960)’
The wrappers were part of the consideration even though they had minimal value.
Facts of ‘Thomas v Thomas (1842)’
A promise was made to allow Mrs Thomas to use a house for a rent of £1 per year.
Held by ‘Thomas v Thomas (1842)’
The promise was binding as the consideration has value, even though it was inadequate.
Facts of ‘White v Bluett (1853)’
A son agreed with his father that he would not complain about the father’s will and his rights under it if the father let him off a debt he owed.
Held by ‘White v Bluett (1853)’
The promise could not be measured in value and was too insubstantial to amount to real consideration.
Forbearance/waiver of rights
If one of the parties forfeits his or her rights to something this could be good consideration if it is capable of being assigned a value.
Past Consideration
Consideration is past if it involves something which has already been done at the time the promise is made. Past consideration cannot support a contract.
Re Mcardle (1951)
Facts of ‘Re Mcardle (1951)’
A husband and wife carried out improvements to a house. At a later date promise was made to reimburse the couple.
Held of ‘Re Mcardle (1951)’
The works had been carried out before the promise to pay had been made. Past consideration is no consideration.
What can constitute good consideration?
If an act was done in response to a specific request and payment might be expected in such situation, then there is an implied promise to pay and this will constitute good consideration.
Re Stewart v Casey (Casey’s Parents) (1892)
Facts of ‘Re Stewart v Casey (Casey’s Parents) (1892)
An employee spent many hours of his own time in developing an invention at his employer’s request. The work was finished and the employers then said they would pay him a share of the profits once the invention was patented.
Held by ‘Re Stewart v Casey (Casey’s Parents) (1892)
The employers were bound by their promise as the request they had made for the employee’s services was treated as an implied promise to pay, even though the actual promise was not made until later.
Existing Statutory Duty
Generally, performance of an existing statutory duty is not good consideration
Collins v Godefroy (1831)
However, if it can be shown some extra service over and above that statutory duty is required this will constitute good consideration
Glasbrook Brothers Ltd v Glamorgan County Council (1925)
Facts of ‘Collins v Godefroy (1831)’
A witness who was legally required to attend court (subpoenaed) was promised payment if he would attend court to give evidence.
Held by ‘Collins v Godefroy (1831)’
There was no consideration as the witness has a statutory duty to attend court.
Facts of ‘Glasbrook Brothers Ltd v Glamorgan County Council (1925)’
G bros. required the police to provide protection over and above their statutory duty during a miners’ strike.
Held by ‘Glasbrook Brothers Ltd v Glamorgan County Council (1925)’
The payment to the police for extra protection was additional to their statutory duty and therefore good consideration.
Existing Contractual Duty
Performance of an existing contractual duty will not normally be good consideration for a new contract with the same person.
Stilk v Myrick (1809)
Facts of ‘Stilk v Myrick (1809)’
A captain promised to share the wages of deserting seamen with the rest of the crew if they completed the voyage.
Held by ‘Stilk v Myrick (1809)’
The promise was not binding as there was no extra consideration from the seamen who, by completing the voyage, were doing no more than they were contractually bound to do.
When can existing contractual duty be good consideration?
If the existing duty is exceeded.
Hartley v Ponsonby (1857)
If both parties gain an additional practical benefit from the new contract not anticipated in the original agreement.
Williams v Roffey Bros. (1990)
For a new contract with a third party.
Facts of ‘Hartley v Ponsonby (1857)’
A large number of seamen deserted from a ship making the ship undermanned and hence unseaworthy. the captain offered extra pay to the remaining seamen if they would complete the voyage.
Held by ‘Hartley v Ponsonby (1857)’
The promise of more money was recoverable by the seamen as they were involved in a dangerous situation and were doing more than they had originally contracted to do.
Facts of ‘Williams v Roffey Bros. (1990)’
Williams agreed to do some work for Roffey Bros in a block of flats at a fixed price by an agreed date.
The work ran late and R agreed to pay extra to have the work completed on time.
If the work had overrun R would have suffered a penalty on his own contract with the owner of the flats.
Held by ‘Williams v Roffey Bros. (1990)’
Even though W was only doing what he was contracted to do, the extra payment was good consideration as the new payment constituted a new contract from which both R and W benefited.
R benefited by not incurring penalties on his contract with the owner of the flats and by not having to find contractors to finish the work.
Also R had approached W to offer extra payment, there was no pressure put on him.
The court held it would have been inequitable for R to go back on his promise.
Promise to do or the act of doing an illegal act
The courts will not enforce a contract for an illegal purpose and as such performance of an illegal act is not good consideration.
The part payment problem (waiver of an existing debt)
Payment of a lesser sum in satisfaction of a greater sum cannot be any satisfaction for the whole sum.
Foakes v Beer (1884)
Facts of ‘Foakes v Beer (1884)’
Foakes obtained judgment against Beer for a sum of £2,090 plus interest.
She agreed to payment by instalments and that further proceedings on the judgment would not be taken.
B paid the £2,090 but refused to pay the interest.
F sued.
Held by ‘Foakes v Beer (1884)’
B had to pay interest. Payment of the debt itself was not consideration for the whole amount which included the interest.
Name the 3 exceptions to the part payment problem
Alternative Consideration
Bargain Between Creditors
Payment by Third Party
What is alternative consideration?
If the debtor offers some alternate type of consideration and the creditor freely accepts this, it can be valid consideration.
What is a bargain between creditors?
When a group of creditors jointly agree to part payment in lieu of the full debt all creditors are bound to the specified terms.
What is a payment by a third party?
If the payment is made by another party this can be good consideration.
