Consideration - 1 - Introduction

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[a] - Theoretical Basis and Historical Background

Atiyah, Consideration in Contracts

Sutton, Consideration Reconsidered

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TBR

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Markesinis (1978), 37 C.L.J. 53

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TBR

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Atiyah, (1978), 94 L.Q.R. 193

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TBR

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Simpson, (1975), 91 L.Q.R. 247, 262-263

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TBR

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The Case of the Humber Ferryman, Bukton v. Tounesende (1348)

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Nicholas Tounesende of Helle undertook to ferry a John Bukton's horse across the Humber river. Tounesende overloaded the boat with horses and Bukton’s horse fell overboard. Bukton sued in tort, for trespass. There was no sealed document, and under previous law it had been required to sue for breach of a covenant. So Tounesende argued that the action should be brought in covenant.

The King's Bench held the action could rightly be brought in tort. The claim was against the killing of the horse, and not merely the failure to transport it. Accordingly no documentary proof of a covenant was needed. The royal courts had developed the very effective action of trespass for wrongfully inflicted physical harm, and whether to person, goods or land. However the plaintiff in trespass had to allege and prove a breach of ‘the king’s peace’, a violation of law and order; which could not be said of damage done by a person to whom property had been entrusted. Surprisingly, the royal court was willing to allow his action of trespass to apply to the damage and loss caused by the badly-performed agreement. This case is the first known such instance.

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[b] - Terminology - definition of Consideration (Currie v Misa [1875])

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"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. in Currie v. Misa (1875), L.R. 10 Exch. 153, 162.)

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Shadwell v Shadwell (1860)

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• held that it would be a valid consideration for the court to enforce a contract if a pre-existing duty was performed, so long as it was for a third party.
• there was good consideration for the promise by the nephew marrying Ellen Nicholl, despite the fact that the marriage had already happened when the promise was made. There was good consideration in performing a pre-existing contract, if it was with a third party.

D (P's uncle) promised P £150 yearly during D's life until P's annual income from P's profession as chancery barrister reached 600 guineas.

In “consideration” (return) P was to marry one Ellen Nicholl. P married EN (whom she has promised to marry anyway) and the uncle fulfilled his promise until after his death. After his death, his estate refused to continue the annual payments to P.

Issue(s): Was there any consideration flowing from the P to D in accordance with the term of D's promise?

Ratio: Performance of an existing contractual duty owed to a 3rd party is a sufficient consideration for a promise, it does not seem to matter if promisee cannot prove that s/he has suffered a detriment or that the promisor has earned a benefit.

Analysis: Marriage is a “boon” to a man

In a sense it also exposes a man to a loss; Pl may have made pecuniary adjustments in expectation of the uncle?s promise which if not kept would result in embarrassment

The uncle, as the promisor is not totally without benefit; he has interest in the status of his nephew

Holding: Decision in favour of Plaintiff.

Comments: Reaffirmed in Canada re. Heichman v. National Trust Co.

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Dickinson v Abel (1969)

Consideration versus condition.

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Where A had promised to pay £10,000 to B if A succeeded (as he did) in buying Blackacre from X. This was said to be “nothing but a conditional promise without consideration” because B had not been requested to do anything to promote the sale by X to A.

WESTLAW:

The taxpayer's wife was a granddaughter of J.W. deceased, whose estate included land, Broadfields Farm, vested in trustees, and in which neither the taxpayer nor his wife had any interest. In 1964, a number of people made offers to the taxpayer to purchase Broadfields Farm which were transmitted by him to the trustees. On June 29, 1964, a representative of I Ltd. offered £100,000 for Broadfields Farm. The taxpayer told him that he was in no position to accept or refuse, and that any contract must be sent to the trustees. At the end of the interview, the taxpayer asked “What's in it for me?” The representative of I Ltd. said that I Ltd. would pay him £10,000 if they bought Broadfields Farm for £100,000 or less. The taxpayer did not at any time offer to speak to the trustees, nor were any services to be performed by the taxpayer mentioned by either party. The taxpayer did in fact telephone the trustees and, when asked by them for his opinion, said that he personally would accept the offer. In due course, the trustees sold Broadfields to I Ltd., and the taxpayer received £10,000 from I Ltd. He was assessed to income tax thereon under Case VI of Schedule D. He appealed to the general commissioners, who allowed his appeal on the grounds that there was no consideration for the promise to pay the £10,000 and, consequently, no contract; therefore no liability under Case VI arose.

On appeal by the Crown:

Held, dismissing the appeal, that, the commissioners having accepted that no services to be performed were specified or offered, and that the taxpayer did not know what was in the mind of the representative of I Ltd., and there being no evidence to the contrary, the court could not go behind the commissioners' findings.

(2) That the evidence was inconsistent with a contractual consensus, either express or tacit, between the taxpayer and I Ltd., and all that existed between them was a conditional promise made without valuable consideration; the payment was therefore, not chargeable under Case VI of Schedule D.

The distinction between consideration and condition depends, in such cases, on whether “a reasonable man would or would not understand that the performance of the condition was requested as the price or exchange for the promise.”

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Pitts v Jones (2007)

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The defendant shareholder provisionally agreed for the sale of his shares without regard to a right of pre-emption in favour of the claimants. He then made an oral promise to indemnify the claimants against any losses should the purchaser fail to satisfy any liability arising. He now argued that there was no consideration and therefore no contract, and that any such promise was unenforceable under the 1677 Act as an oral guarantee.

While as a rule, a party to a contract would be consciously aware of what consideration he was giving for the promise he was accepting, in the instant case the course of events was such that the recorder ought to have held that P gave consideration even though they did not consciously work out exactly what they had given. There was such a clear chronological link between J's offer of the undertaking and P's willingness to sign the documents that the natural inference to draw was that the two were directly connected. P's co-operation was given in return for J's undertaking. That was good consideration even though P did not consciously realise that by signing documents they were subjecting themselves to a detriment and were giving consideration for J's undertaking. J's undertaking was therefore a contractual agreement.