Consideration - 2 - General Principles

Front 1

General Principles

Back 1

Can sue for breach of promise if promise is made with good consideration.

Consideration need not be adequate, so economic equivalence is not necessary.

Consideration must be sufficient. For example, contract to sell a car for £1 is economically bad but is good consideration.

What amounts to good consideration? Receive something in return of your promise. A valuable consideration is either some right, interest, profit or benefit to one party or some forbearance, detriment, loss of responsibility to the other.

i) A good consideration can be a benefit to the promissor or a detriment to the promisee. (In ordinary bilateral contract, benefit and detriment exist).

a. Not all conditions constitute ‘good’ consideration. (birthday example).

Forbearance: Giving up right to do something which you are entitled to do.

Executory contract: Contract which is made but not fully performed. Still as enforceable as a K that has been performed.

Front 2

Wigan v English and Scottish Law Life Assurance (1909)

Consideration must be causally related to the promise. (it is not enough that there should be something in the facts could be capable of being good consideration…necessary that promisor’s promise must be given in return )

Back 2

Hackblock had a life insurance which was to be forfeited if the insured committed suicide, but without prejudice to the bona fide interests of third parties. He owed money to Wigan, and had effected an assignment of the policy to secure the debt in order to obtain more time to pay. Wigan gave him more time without knowing of the assignment, which was subsequently destroyed. After Hackblock had committed suicide, Wigan learned of the assignment, and claimed benefit under the policy as an assignee for valuable consideration.

Wigan did not give any consideration for any interest he might have acquired under the deed. The mere existence of a debt from A to B is not sufficient consideration for the giving of a security from A to B in respect of it. Such security may well be given in return for extra time to pay, or for forbearance to sue. None of those things existed here, therefore the security was voluntary.

Front 3

Roscorla v Thomas (1842)

The consideration must not be past (exception: IF what promisee has done has been done at promisor’s request and in circumstances where the promisee would expect to receive something in return for what he has done, then becomes enforceable.)

Back 3

P bought horse for 30. After sale D said horse was free from vice. Later horse was aggressive. Would the consideration support and express promise?

Past consideration is not valid consideration (are limited exceptions where subsequent promise would be binding).
→ Consideration must be given to the actual promise D makes.
→ Consideration must be contemporaneous with the contract

Exceptions arise where there will be good consideration:
→ If you promise to pay and agree to decide the terms later.
→ Services performed at the request of the promisor, in circumstances that raise an implication that they are to be paid for.
→ Subsequent promise may become binding in a minors co

Plaintiff had given no consideration for the subsequent promise, and thus it was not enforceable

Front 4

Re McArdle (1951)

The consideration must not be past

Back 4

Majorie McArdle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband's father who had died leaving the property to his wife for life and then on trust for Majorie's husband and his four siblings. After the work had been carried out the brothers and sisters signed a document stating in consideration of you carrying out the repairs we agree that the executors pay you £480 from the proceeds of sale. However, the payment was never made.
Held: The promise to make payment came after the consideration had been performed therefore the promise to make payment was not binding. Past consideration is not valid.

Front 5

Lampleigh v Braithwait (1615)

The consideration must not be past; implied assumpsit; EXCEPTION TO THE RULE: services performed at the request of the promisor, in circumstances that raise an implication that they are to be paid for.

Back 5

The defendant had killed a man and was due to be hung for murder. He asked the claimant to do everything in his power to obtain a pardon from the King. The claimant went to great efforts and managed to get the pardon requested. The defendant then promised to pay him £100 for his efforts but never paid up.
Held: Whilst the promise to make payment came after the performance and was thus past consideration, the consideration was proceeded by a request from the defendant which meant the consideration was valid. The defendant was obliged to pay the claimant £100.

Front 6

Re Casey's Patents, Stewart v Casey (1892)

The consideration must not be past; EXCEPTIONS: If you promise to pay and agree to decide the terms later AND Services performed at the request of the promisor, in circumstances that raise an implication that they are to be paid for.

Back 6

Facts:

The plaintiff was asked manage promoting some patents. After the plaintiff had completed much of the work the patent owners stated: In consideration of your services as practical manager in working our patents, we hereby agree to give you one-third share of the patents....

Issue: Can past consideration form good consideration?

Held: The past consideration was sufficient. As there was an understanding of renumeration, there was an obligation to pay; the consideration was sufficient

Bowen LJ: .. Even if it were true, as some scientific students of law believe, that a past service cannot support a future promise, you must look at the document and see if the promise cannot receive a proper effect in some other way. Now, the fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered. So that here for past services there is ample justification for the promise to give the third share....

Front 7

Pao On v Lau Yiu Long (1980)

The consideration must not be past; elements that need to be satisfied for past consideration to be good consideration.

Back 7

Lordships held that past consideration can be good consideration where:

1. The promisee performed the original act at the request of the promisor;
2. It was clearly understood or implied between the parties that the promisee would be rewarded for the performance of the act;
3. The actual promise made, if made before the promisee provided the consideration, must be capable of being enforced, in other words giving rise to a legally binding contract.

"An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisor's request, the parties must have understood that the act was to be remunerated either by payment or the conferment of some other benefit, and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance." (per Lord Scarman in Pao On v. Lau Yiu [1979] 3 All E.R. 65 at p.74)

Fu Chip Investment Co Ltd, a newly public company majority owned by Yiu-Long Lau and his younger brother Benjamin (the defendants), wished to buy a building called 'Wing On', owned by Tsuen Wan Shing On Estate Co. Ltd., whose majority shareholder was On Pao and family (the claimants). Instead of simply selling the building for cash, Lau and Pao did a swap deal for the shares in their companies. Tseun Wan would get 4.2m $1 shares in Fu Chip, and Fu Chip bought all the shares of Tsuen Wan. To ensure the share price of Fu Chip suffered no shock, Pao agreed to not sell 60% of the shares for at least one year. Also, in case the share price dropped in that year, Lau agreed to buy 60% of the shares back from Pao at $2.50. But then Pao realised, if the share price rose over $2.50 in the year, the price would stay fixed and he would not get the gains. So he demanded that instead of that, Lau would merely indemnify Pao if the share price fell below $2.50. Pao made clear that unless he got this "guarantee agreement", he would not complete the main contract. It was signed on 4 May 1973. But as it turned out the shares did slump in value. Pao tried to enforce the guarantee agreement. Lau argued the guarantee agreement was not valid (1) because there was no consideration, only in the past and under a pre-existing duty, and (2) because it was a contract procured by duress. Finding for plaintiff, guarantee upheld. The consideration for the guarantee was the promise to perform according to the other contractual agreement signed by the parties.

Lord Scarman, giving the Privy Council’s advice first disposed of the question about past consideration, because a promise to perform a pre-existing contractual obligation to a third party can be good consideration.[1] The question of whether consideration can be invalidated ‘if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position’ was rejected because ‘where businessmen are negotiating at arm’s length it is unnecessary for the achievement of justice’.

Front 8

Tweddle v Atkinson (1861)

Consideration must move from the promisee.

Back 8

William Tweddle was engaged to a Miss Guy. The groom's father entered into an agreement with the bride's father, William Guy, to pay the groom, William Tweddle, £200 if he paid the groom £100, all of which was recorded in a written contract. However, William Guy subsequently died, and the estate would not pay. The groom then sued William Guy's estate for the promised £200, namely the estate executor Mr Atkinson. His suit was not successful as it was held no stranger to the consideration can take advantage of a contract, although made for his benefit. It was left unanswered if the groom's father could have successfully sued the estate instead. The courts ruled that a promisee cannot bring an action unless the consideration from the promise moved from him. Consideration must move from party entitled to sue upon the contract. No legal entitlement is conferred on third parties to an agreement. Third parties to a contract do not derive any rights from that agreement nor are they subject to any burdens imposed by it.

Front 9

Dunlop v Selfridge (1915)

Consideration must move from the promisee.

Back 9

Dunlop, a tyre manufacturing company, made a contract with Dew, a trade purchaser, for tyres at a discounted price on condition that they would not resell the tyres at less than the listed price and that any reseller who wanted to buy them from Dew had to agree not to sell at the lower price either. Dew sold the tyres to Selfridge at the listed price and made Selfridge agree not to sell at a lower price either and that they would pay £5 in damages if they violated this agreement. Selfridge proceeded to sell the tires below the price he promised to sell them for. Dunlop brought action and was successful at trial but this was overturned by the Court of Appeal. Appeal dismissed.

The Lords agree fundamentally with the decision of the Court of Appeal; there was no contract between Dunlop and Selfridge and therefore Dunlop cannot sue. There are a few fundamental principles of law underpinning this decision: a) the doctrine of privity, which states that only a party to a contract can sue in breach of the contract; b) the doctrine of consideration would require the promisee (Dunlop) to give consideration to Selfridge for the contract to be completed, and this did not occur as Dunlop did not give anything to Selfridge here (Selfridge made a promise to Dunlop to only sell at a certain price but it was gratuitous because Dunlop gave no consideration in return); c) the only way that a principal not named in a contract can be sued is if he acted as an agent on behalf of one of the parties privy to the contract. Selfridge was not an agent of Dew, therefore this does not apply in this case.