Consideration Flashcards
Consideration
Refers to what one party to an agreement is giving or promising, in exchange for what is being given or promised from the other side.
Deed
A legally enforceable document that is generally enforceable despite any lack of consideration.
Requirements of a Deed
It must be signed by the covenantor.
2. The signature must be witnessed by a third party.
3. The document is activated by ‘delivery’ (usually physical transfer to covenantee).
Elements b. and c. distinguish a deed from an ordinary contract.
Definition of Consideration (Currie v. Misa)
“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” - per Lush J
Definition of Consideration (Dunlop v. Selfridge)
“An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” - per Dunedin LJ
Adequacy of Consideration
Adequacy refers to whether what is being provided as consideration corresponds in value to what is being given for it. Under the freedom of contract approach, parties can make any (even unfavourable) bargain they wish.
Sufficiency of Consideration
Sufficiency refers to whether what is being offered as consideration is capable of amounting to consideration. Consideration must be something of value in the eye of the law.
Past Consideration is No Consideration (Re McArdle)
Mrs. McArdle had already performed the work before she asked for payment. Her consideration was in the past, which is generally not valid consideration.
Exception to Past Consideration Rule (Pao On v. Lau Yiu Long)
The plaintiffs transferred their shares in Shing On to the defendants, and the defendants transferred their shares in Fu Chip to the plaintiffs. Later, the defendants promised to indemnify the plaintiffs against any loss in the value of the Fu Chip shares. Despite the promise being made after the initial transfer, it was considered valid consideration due to the act being done at the promisor’s request and the parties’ understanding of remuneration.
Performance of an Existing Duty
Public duty: The courts usually find a lack of consideration if the promisee agrees to do something already obliged by public duty.
Example: Collins v. Godefroy (1831) - Collins’ attendance at court as a witness could not be considered consideration for a promise to pay him, as he was already under an existing public duty to give evidence.
Exceeding an Existing Duty Imposed by Law
If the promised or done action goes beyond the existing duty imposed by law, it can be regarded as good consideration.
Example: Glasbrook Brothers Ltd v. Glamorgan County Council [1924] - Payment was due because the billeting of police on premises went beyond their legal obligation.
Performance of an Existing Contractual Duty Owed to a Third Party
Shadwell v. Shadwell [1860]: The performance of an existing contractual duty owed to a third party can be considered good consideration.
Example: New Zealand Shipping Co. Ltd Appellant v. A.M. Scatterthwaite & Co. Ltd. (The Eurymedon) [1975] - An agreement to do an act which the promisor is under an existing obligation to a third party to do can be valid consideration.
Performance of an Existing Duty to the Same Promisor
Hartley v. Ponsonby (1857): Where the promisee goes beyond the scope of their original obligation, it can be good consideration.
Example: Williams v. Roffey Bros. & Nichol (Contractors) Ltd [1991] - Roffey’s promise to pay additional money was considered good consideration because Williams went beyond their original obligation.
Lord Justice Glidewell’s Five-Stage Test (Williams v. Roffey)
- Promisee has a contract with promisor to supply goods or services.
- Promisor has reason to doubt promisee’s ability to complete.
- Promisor promises to pay extra for completion on time.
- Promisor obtains practical benefit or obviates a disbenefit.
- Promisor’s promise not a result of fraud or duress.
Lee v. GEC Plessey Telecoms [1993]
Upheld Williams v. Roffey.
Continuing to work in the context of pay negotiations can be considered consideration if it benefits the employer practically.
