Consideration - 3 - Adequate Not Needed

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Thomas v Thomas (1842)

Consideration need not be adequate.

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The case concerned an action brought by a widow against her husband's executor. On the day of his death, the husband had said in front of witnesses, that he wanted his wife to have one of the houses for life. After death, the executors agreed to convey a life interest in one of the houses "in consideration of John's desires" - provided she paid £1 pa rent and kept premises in good repair. Later the executor refused to complete the conveyance.

HELD Denman CJ

Provision for payment and the obligation to repair is part of an express agreement and is quite sufficient consideration for a contract. The moral feeling which motivated the arrangement is not relevant.

HELD Patteson J

Consideration must be of value and involve benefit or detriment. Respect for the testator's wishes is not sufficient consideration. But payment and a covenant to repair is sufficient.

It would be giving causa too large a construction if we were to adopt the view argued for by the defendant: it would be confounding consideration with motive. Motive is not the same thing with consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff: it may be some benefit to the plaintiff or some detriment to the defendant.

1. Is respecting the wishes of her dead husband (motive) sufficient consideration?
2. Does the willing of the house constitute a voluntary gift and hence the respondent has no rights?
3. Consideration must have value in the eyes of the law.
4. Motive is not sufficient consideration.
5. In the court's findings Justice Patteson held that motive is not the same as consideration; consideration must be something which is of value in the eyes of the law.
6. The court found that the agreement entered into between the executors and Ms. Thomas contained an agreement to pay £1 rent/year which showed this was not merely a voluntary gift and was sufficient consideration.

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Chappell v Nestle Ltd (1960)

Consideration need not be adequate.

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Nestle ran a sales promotion whereby if persons sent in 3 chocolate bar wrappers and a postal order for 1 shilling 6d they would be sent a record. Chappel owned the copyright in one of the records offered and disputed the right of Nestle to offer the records and sought an injunction to prevent the sales of the records which normally retailed at 6 shillings 8d. Under s.8 of the Copyright Act 1956 retailers were protected from breach of copyright if they gave notice to the copyright holders of the ordinary retail selling price and paid them 6.25% of this. Nestle gave notice stating the ordinary selling price was the 1 shilling 6d and three chocolate bar wrappers. The question for the court was whether the chocolate bar wrappers formed part of the consideration. If they did it was impossible to ascertain the value they represented and therefore Nestle would not have complied with their obligation to give notice of the ordinary retail selling price. If the wrappers were a mere token or condition of sale rather than constituting consideration, then the notice would be valid and Nestle could sell the records. Held: The wrappers did form part of the consideration as the object was to increase sales and therefore provided value. The fact that the wrappers were simply to be thrown away did not detract from this. Therefore Chappel were granted the injunction and Nestle could not sell the records as they had not complied with the notice requirements under s.8.

House of Lords confirmed the traditional doctrine that consideration must be sufficient but need not be adequate. In layman terms this means, to enforce a contract, the person suing must have given value to the other but that the courts won't look at how much value it has or whether it was a good deal at all.

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Esso Petroleum v Commissioners of Custom and Excise (1976)

Consideration need not be adequate.

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Esso produced "World Cup Coins" which they offered as "free gifts" to purchasers of their petrol. The issue was whether these coins were "produced ... for sale" under the Purchase Tax Act 1963 (UK), in which case Esso would be liable to pay some tax on them. The coins were of insignificant intrinsic value, but millions had been produced and the tax bill would be hundreds of thousands of pounds.
Held: 3:2 There was an intention to create legal relations. The coins were offered in a commercial context which raised a presumption that they did intend to be bound. However, the coins were not exchanged for a money consideration and therefore the coins were not for resale.

Held Viscount Dilhorne Esso are engaged in business, and are supplying these coins in order to promote the sale of their petrol. But it does not necessarily follow that there was any intention on their part they should enter legally binding contracts with respect to the coins. Nor is there any reason to impute to the motorist an intention to enter into a legally binding contract for the supply of a coin. If it were found that Esso, the dealer, and the customer intended to create a contract, it would seem to preclude the possibility of any dealer ever offering a free gift, however negligible the value. A common intention to enter legal relations would be found more easily if the item were something of value to the purchaser. But here the coins were of little intrinsic value. If there were any contract relating to the coins, the consideration for it would be not the payment of money, but the entry into a contract to buy petrol.

Lord Simon of Glaisdale In the clearly commercial context in which the offer of the coins was made, it cannot be accepted that Esso did not intend to create legal relations. It is undesirable to allow commercial operators in such situations to say that their offer was a mere puff. While the coins may have little intrinsic value, Esso clearly anticipated that they would have value to their customers, otherwise the promotion would not be worthwhile. What sort of transaction was entered? It appears to be a collateral contract, the consideration for which was entering the contract for the purchase of the petrol.

Lord Fraser of Tullybelton (dissenting) The matter of decisive importance is the form of the promotional posters. They correlate one coin with the purchase of every four gallons of petrol. When a customer purchases four gallons of petrol they are also entitled to receive a coin. Just as if a baker offers an additional bun with each dozen purchased, the customer is actually purchasing the extra bun, and in this case, the coin. The factors arguing against this conclusion are the use of words such as "free" and "gift", and the intrinsically negligible value of the coins. Nevertheless, it cannot be said that once a customer purchases petrol that Esso could say that they have no right to the coin.

Lord Russell of Killowen Considered that in this case, in view of the intrinsically minimal value of the coins, there was no intention to create legal relations. This does not give carte blanche to other to renege on "free offers" where the items are of any value. Supposing that there was a contractual obligation for the dealer to give the customer a coin, the further question arises whether this arises out of a contract of sale for money. Ignoring words such as "gift" and "free" the posters are saying "if you buy four gallons of petrol you will be entitled to a coin". This is not a sale of the coins for money.

Esso promoted the sale of gas, buy 4 gallons and get a world cup coin) D claimed tax supply of coins (was this a sale of coins?). S.2(1) of Sale of Goods Act: money consideration needed (price). Was there money consideration for the world cup coin? CofA: yes the consideration is the money paid for the petrol. HofL: No, making the contract to buy petrol is consideration, therefore no tax.