consideration Flashcards
what is the definition of consideration according to thomas v thomas (1842)?
“some detriment to the plaintiff or some benefit to the defendant”
what is the definition of consideration according to currie v misa (1875)?
“some right, interest profit of benefit accruing from one party or some forbearance, detriment or loss or responsibility given, suffered or undertaken by the other”
what is the definition of consideration given by pollock, and approved in dunlop v selfridge (1915)?
“the price for which the promise of the other is bought and the promise thus given for the value is enforceable” note: this is considered to be the classic definition (so probably use this in your exam?)
what is the definition of consideration given by restatement, contracts 2d s71?
(1) to constitute consideration, a performance or a return promise must be bargained for (2) a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise (3) the performance may consist of an act other than a promise, or a forbearance, or the creation, modification or destruction of a legal relation
what does consideration seek to prevent?
mistake, misrepresentation, duress or illegality
what is the law concerned with?
consideration for a promise, not consideration for a contract (Professor Treitel)
justifications of consideration
Evidence of the existence and seriousness of the undertaking
- If someone has given a consideration for a promise, it represents a serious intention to be bound.
- CRITICISMS: But consideration is unnecessary if the intention of the parties can be proved in another way. Furthermore, consideration only answers the question of which takings are enforceable, it does not address who can enforce the undertaking and hence, privity issues since 3rd parties can sue.
Intuitive justice of exchange
- Enforcement bargains reflect the idea of reciprocity.
- It distinguishes trading from taking and bargains from exploitation, hence treating the other party we’re contracting with on an equal basis.
Explains the measure of relief
- Consideration is the value which the promisee valuates the promised performance, hence it explains the extent of liability for the breach of contract.
Marks the boundary of appropriate legal environment
- Contract law helps people do trading with strangers and with strangers, people do not usually make gifts. Instead, the trade so that both parties will benefit from the exchange.
criticism of consideration
- Doctrine is too narrow in scope; does not give effect to gifts and promises
- Gifts and promises can evince an intention to be legally bound but the doctrine does not recognise this concept.
- Doctrine becoming extremely technical, artificial and in some places, internally incoherent
- Doctrine is divorced from commercial reality
- Consideration is not of major significance in modern commercial transactions because people recognise consideration trivially (companies being sold for $1).
- Difficult to reconcile consideration with other modern theoretical models of contract law
- If contract law is based on the promise principle or upon the will of the partie5444s, why insist on consideration to make the promise enforceable?
- Doctrine too broad and other specific doctrines (duress/intention to create legal intentions) can target with greater precision the law’s refusal to give effect to promises.
what is meant by the requirement of nexus?
consideration must
- move from the promisee
- be in return for the promise
- not be past consideration
Consideration must move from the promisee
Promisee must provide consideration
- Person to whom a promise was made can enforce it only if he himself provides consideration Promisee need not provide the whole consideration for the promise
- i.e. He can enforce a promise which consideration was provided for partly by him and partly by his agent/partner/co‐promisee
Consideration need not move to the promisor
- Promisee suffers a detriment at the request of the promisor but there is no corresponding benefit on the promisor
- E.g. I use a credit card and the issuer of my card promises the supplier that he will be paid. The supplier gives goods to me (the customer).
- Supplier = promisee (the credit card company promised to pay him)
- Card company = promisor
- Consideration = goods given to the customer (at the request of the card company)
- Detriment = goods given without receiving any payment
- No corresponding benefit on promisor = card company did not get the consideration (goods given by the supplier
Benefit to promisor sufficient
- If benefit is conferred on the promisor, the promisee need not suffer detriment
Combe v Combe (1951)
Facts
The parties were married in 1915 and separated in 1939. After a decree nisi of divorce was pronounced, the Df’s solicitor wrote to the Pf’s solicitor and stated that the Df had agreed to allow the Pf £100 annually free of tax. The Df failed to make any of the promised payments. The Pf pressed for payment but made no application to the Divorce Court for maintenance. The Pf’s annual income was between £700 to £800 annually and the Df’s was about £650. The Pf then brought an action 7 years later in which she claimed arrears of £675.
Legal Issue(s)
Can an act of forbearance be deemed as consideration for a promise to pay?
Holding/ Rule
An act of forbearance will be deemed as consideration for a promise only if it proceeds from a request, express or implied, on the part of the promisor.
Judgement
Df not held liable for the arrears
Reasons
Wife had provided no consideration for the payments
Although she did not make applications to the divorce court (forbearance)
This was not at the request of the husband
Therefore it was not consideration
Agreement to forbearance is consideration
But actual forbearance is not consideration unless it is at the request of the promisor (can be expressed or implied)
Implied will be construed by the court
Alliance Bank v Broom (1864)
Parties
Plaintiff: bank who was rich Defendant: heavily indebted bank
Facts
The Df was heavily indebted to the Pf and promised to provide the Pf with security to cover his indebtedness. The Df failed to provide the promised security and was sued by the Pf. The Df contended that his promise to provide security was not supported by consideration.
Legal Issue(s)
Can an act of forbearance be deemed as a consideration for a promise to pay?
Holding/ Rule
An act of forbearance can be construed as consideration for a promise when there is an implied request of forbearance.
Judgement
Df held liable for failing to provide securities
Reasons
Pf had in fact provided consideration in that it had refrained from taking proceedings against the Df in relation to his indebtedness
Forbearance was held to be at the implied request of the Df
Pf here was much more likely to institute proceedings than the wife in Combe
therefore easier to imply a request to forbear
Evaluation
Depends on the facts and circumstances of each case
Readier the court is to find existence of such a request, the wider the doctrine of consideration will be
Less need to invoke estoppel
Invented consideration? May be a source of uncertainty
past consideration is not good consideration
- Since consideration must be given in response to the promise, it cannot logically cover something that was given or done before the promise was made.
- Consideration may be past because
- it pre-dates the promise given or
- it already buys a reciprocal promise and cannot be used to buy additional promises from the same promisor.
In re McArdle, Decd (1951)
HELD: Although the promise was made “in consideration of your carrying out” certain work, consideration was past because the work was completed before the promise was made, it was not something yet to be performed.
Pao On v Lau Yiu Long (1980)
(exception to the rule)
- The parties agreed to exchange shares in their companies. P agreed not to sell 60% of the shares it received for a year to avoid triggering a fall in the value. In exchange, D agreed to buy back the shares at $2.50/ea. When P realised that that they could be compelled to sell it for that price even if the shares increase in value, they refused to assent unless D agreed to an indemnity for guarantee. The share values eventually fell sharply and D refused to acknowledge either arrangement.
- HELD: Promise not to sell was a valid consideration. It is an exception to the past consideration rule.
- P’s act of not selling the shares must be performed at D’s request.
- The parties clearly understood that P was to be rewarded for the act (compensated by indemnity to protect against the drop in share price).
- D’s eventual promise would have been enforceable if it was made at the time of the act.
- All 3 conditions are fulfilled, satisfies the doctrine of implied assumpsit.
Sim Tony v Lim Ah Gee (1995)
HELD: P’s introductions of D to the third party were made previously and considered past consideration. The promise to give a share of the commission to the appellant was not enforceable because he failed to provide a fresh consideration for it.
what is valuable consideration?
definition as provided by currie v misa (1875)
pros supporting enforcement of promises
- Recognises performance actually bargained for when there is technical obstacle to qualifying as consideration.
- Recognises subjectivity of values & respecting parties’ intention (nominal consideration like chocolate wrappers).
- Protecting the promisee’s reliance
- Prevents the promisor’s unjust enrichment at the promisee’s expense.
- Encourages finality in dispute resolution (promisee can either compromise his claim, or forbear from claiming)
- Imposes responsibility otherwise regarded as just.
