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Consideration

In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance, the performance is consideration for the promise, while the promise is consideration for the performance.

Definition

Example

A promises to give B 500 pounds, and subsequently changes his mind, B has no remedy by way of contract, unless B has provided some consideration in return for that promise. (estoppel may arise if B has acted in reliance on the promise, it remains the case that there is no contract between A and B even if B has so acted.)


Hawkes v Saunders (1782)




Lord Mansfield

“Where a man is under a moral obligation, and promises, the honesty and rectitude (moral correctness) of the thing is a consideration .… The ties of conscience upon an upright mind are a sufficient consideration.”

Quote

Moral Duty?

According to this decision, where a promise was made in response to a pre-existing moral duty, then that duty is the necessary consideration for making the promise enforceable.


Moral obligation with legal duty and therefore threatened to entirely undermine the doctrine of consideration.

Eastwood v Kenyon (1840)

Infant girl, dead father. Guardian spent money on her education, and benefit of her estate.


Girl & husband promised to reimburse.


Existence of a pre-existing moral obligation was consideration for what would otherwise have amounted to a gratuitous promise.


Lord Denman expressly rejected this argument, such an argument was a recent innovation of Lord Mansfield, one which would virtually annihilate the requirement for consideration.


A mere moral obligation was not consideration.

Guardian

Definition 1

"Something which is of value in the eyes of the law, moving from the plaintiff:




it may be some detriment to the plaintiff or some benefit to the defendant.”

Definition 2

A promise, must be bought, either by doing some act, or by offering a counter-promise.

Adequate or Sufficient

Need not be adequate but must be sufficient.




Parties to a contract are the best judges of their own interests, and they will not refuse to find an agreement is an enforceable contract because it appears to be unfair or one-sided.

Thomas v Thomas (1842)

Husband - if he predeceased her, she have the use of his house.


Agreed by his executor, the defendant, that the plaintiff should occupy the house by virtue of her late husband’s wishes and on the payment of £1 per year.


Sufficient consideration, not by virtue of the wishes of the late husband (which would give rise to a mere moral obligation on the executor) but by virtue of the payment of £1 per year.


Once consideration had been provided it would not look behind it to consider its value.

Use of house

Chappell & Co Ltd v Nestle Co Ltd [1960]

Reduced price records, so long as the purchaser supplied three wrappers.


Copyright owner sued for infringement of copyright. It was necessary for the court to determine the retail selling price of the record, and to determine whether the wrappers could be said to be consideration.


Held that they were.

Wrappers

Sufficient

Consideration must be of a type recognised by the law to make a promise given enforceable, the law will not accept certain types of consideration as justifying this.

O’Neill v Murphy [1936]

Architect sued Canon for work on parish buildings. Claimed that a contract existed between them whereby the defendant would offer prayers for the benefit of the plaintiff and his family. The NI COA found that no such contract existed, holding: the saying of prayers could not be said to be sufficient consideration.

Prayers

England v Davidson (1840)

Reward - information leading to the conviction of a felon.


Constable gave information and claimed payment. Constable was bound to give the information by virtue of his office: Rejected. The giving of such information was not something which the constable was bound to do as part of his duties.


His actions could amount to sufficient consideration to enforce his claim.

Police Constable

Glasbrook Brothers v Glamorgan County Council [1925]

Coal mine sought static police guard during a strike. Police thought it enough to provide a mobile unit.


Ultimately, agreed to provide a static unit for payment of extra cost. Defendant refused to pay. Argued no consideration could be found where the police were under a public duty to provide protection.


Rejected by HOL: While police were bound to provide protection, they enjoyed a discretion as to the appropriate level, promise to provide more protection than deemed necessary was capable of amounting to consideration. If the police had believed that a static guard was necessary for the protection of the mine, then provision of a static guard would merely amount to fulfilment of their statutory duty, which could not amount to good consideration.

Coal Mine

Harris v Sheffield United FC [1988]

The defendant was a football club which denied to pay for the policing of their stadium at home matches. Large police presence was necessary to separate rival fans.


Argued a large police force at each match was no more than was required of the police under statute.


Rejected by COA, which distinguished this case from GlasbrookBrothers In the earlier case, the threat was one which was external to the parties. In this case, the defendant had voluntarily organised for profit football matches at times when large attendances were likely (with a consequent risk of crowd violence). Court: This meant that the services provided by the police went over and above their normal duties under statute, so as to entitle additional charges to be made.

Football

Fulfillment of Existing Contractual Duty

Where one party already owes a contractual duty to the other, a promise to fulfil that duty cannot (except in exceptional circumstances) amount to consideration.

Definition

Stilk v Myrick (1809)

Wages - sailor. Two members of the crew deserted during the course of a voyage. Promised crew extra wages if they would carry out the home voyage short-staffed. Rejected. No consideration for the promise: it was already part of his duties to meet the normal difficulties which might arise during the voyage. No more than his existing duty in working the return voyage.

Sailors

If A owes B a debt, and A promises to pay part if B will forego the balance, can A insist that B abide by this promise?

No, A cannot: A is seeking to enforce a new contract, but has not provided any consideration for that contract, since he was under a pre-existing duty to pay the entirety of the sum outstanding.

Example

Foakes v Beer (1884)

Plaintiff agreed to allow repayment of debt, £500 at once and instalments. Agreed no further proceedings. Silent on the question of interest. Defendant paid off the amount of the judgment, proceedings for payment of the interest.


HOL: No consideration, the defendant had agreed to do no more than he was already obliged to do. (Note: issues of estoppel may arise in this context.)

Term repayment

Exceptions to the rule




1) Pinnel's Case (1602)

Pinnel’s Case noted exceptions to this rule:


early payment, payment at a different location, or the provision of a chattel of even nominal value might amount to new consideration for the agreement to forego part of a debt.


The addition of some new element which would in itself be good consideration.

2) Hartley v Ponsonby (1857)

Similar facts to the Stilk v Myrick case, shortage of labour made the continuation of the voyage hazardous bringing the original contract to an end, enabling new contracts.



Similar to Stilk

3) Williams v Roffey Brothers & Nicholls Ltd [1990]

"decision that has thrown this entire area of law into confusion".


Building contractors hired sub on agreed fee. Few months after plaintiff discovered himself to be in financial difficulty. This was not only as a result of the contract price being much too low to start with but also because the plaintiff had failed to supervise his workmen properly. Defendants became extremely concerned because there was a penalty clause in the main contract in the event that they did not complete the flats on time. Defendants promised to pay the plaintiffs a further £10,300. Was consideration for this promise? Glidewell L.J. was of the opinion that there was consideration for this promise, a view that was confirmed by Russell L.J. Indeed, the Court of Appeal adopted what was termed a pragmatic approach, reasoning that in spite of the fact that the plaintiffs were already obliged to finish the work, there was a real risk that the work would not be finished in the absence of further finance. The fact that the defendants would have been subject to a penalty clause meant that they were in fact gaining a benefit by the plaintiffs completing the work. Glidewell J. concluded that: "The present state of the law on this subject can be expressed in the following proposition: (1) if A has entered into a contract with B to do work for, or to supply goods or services to B in return for payment by B and (2) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will or will be able to complete his side of the bargain and (3) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligation on time and (4) as a result of giving his promise B obtains in practice a benefit or obviates a disbenefit and (5) B's promise is not given as a result of economic duress or fraud on the part of A then(6) the benefit to B is capable of being consideration for B's promise so that the promise will be legally binding" This judgment has been subject to much criticism. Indeed, Friel has expressed the hope that subsequent cases will confine Williams to its peculiar facts.

A contractual duty owed to a third party can amount to sufficient consideration




The Eurymedon [1975]

Stevedores were to unload plaintiffs goods (which they were already under a contractual duty to a third party to do) then the plaintiff would extend to the stevedores the benefit of a limitation of liability clause. Privy Council held that the act of unloading the goods was capable of amounting to good consideration,notwithstanding that it was an act which the stevedores were contractually bound to another to do

Promissory or Equitable Estoppel

Exception to rule that an agreement will not be upheld without consideration


If a man makes a promise that he will not insist upon a strict legal right, even if there is no consideration for that promise, and he knows/ intends that the other person will act upon his promise, and the other acts upon it, a court of equity will not allow him to go back on his promise.

Circumstances

(1) Parties must have an existing contract supported by consideration.+


(2) Parties make new agreement to change/ discharge a duty under that contract.+


(3) New agreement is thereby not supported by consideration.+


(4) New agreement is clear and unequivocal.+


(5) Promisor must intend new agreement to be binding.+


(6) Promisor must intend promisee torely on it.+


(7) Promisee must in fact rely on it.+


(8) Promisor then tries to act inconsistently with that agreement.+


(9) It would be unfair/ inequitable to allow the promisor to act inconsistently with agreement= Promisor may be ‘estopped’ from going back on promise.

Bennett Construction v Greene (2004)

Purchased site from defendants which had outline planning permission. Planning permission showed a sewage drain from house running across a portion of land which belonged to defendant.


Ct: Plaintiff failed to establish presence of a “clear and unambiguous promise / assurance”. Therefore defendant not estopped

Sub Contract

Central London Properties Trust v High Trees Ltd [1947]

1939, A let flats to B at an annual rent. During the war A agreed to accept a reduced rent from 1940 to 1945. In 1945, the flats were fully let. A sought the rent at the full annual rate for the final two quarters of 1945. The Court of Appeal held that A was entitled to the rent for this period only. The agreement to reduce the rent was temporary. If full rent was claimed, would be estopped.

Flats / War

Does the doctrine suspend or extinguish the rights given up by the promisor?

In general the doctrine only suspends rights.


exceptional cases it may extinguish rights.

Suspend

Must the promisee act to his detriment?




Re. JR [1993]

Promisor asked promisee to live with him, assuring her that she would be well looked after and would have a home for life.


Promissee proved that she relied on this promise to her detriment by leaving her home and moving in with him.

Home for Life

Summary

The doctrine of consideration is integral to the law of contract. The common law requires consideration to be present in a legally enforceable contract.


Equity on the other hand requires that a detrimental reliance be shown in order to enforce an agreement which has no consideration.

Common Law / Equity

Time at which Consideration is Provided.

(1) Executory - Most contracts


(2) Executed - Unilateral


(3)Past




Past consideration is no consideration

Re McArdle [1951]

Family arrangement. Children entitled under their father’s will to a house after their mother’s death. Wife of one of the children made various improvements to the home while mother alive. A later date agreed with her that she would be reimbursed for this work. However, it was held that since the work had, at that point, been completed, the purported consideration was past consideration, and the promise was unenforceable.

Work in House

Exceptions to the Rule against Past Consideration

Where a person carries out services at the request of another, and where both parties assume that the services are ultimately to be paid for.

3rd Parties

Suppose that A and B enter into a contract under which A agrees to carry out work, and B agrees to pay C £100 once that work is complete. Can C enforce that agreement? Under the doctrine of privity of contract, it is clear that C cannot, since he is not a party to the contract. Now suppose that A, B and C enter into the same contract. Can C enforce it? Again, it is clear that C cannot, not because he is not a party to the agreement, but because he has provided no consideration for B’s promise. While B’s promise is not gratuitous insofar as A is concerned, it is gratuitous insofar as C is concerned.

Significant exception

Where a promise is made to two or more people collectively, then the consideration furnished by one will suffice to enable the other to enforce that promise.

McEvoy v Belfast Banking Corporation [1935]

A father had £10,000 on deposit with the bank. Transferred it into a joint account in his own name and the name of his son.Executors were allowed by the bank to withdraw the entirety of the money, which they lost. The son brought an action against the bank.


Defences raised by the bank was that the son acquired no rights against the bank by way of contract, since he had furnished no consideration. Rejected by the HOL, which held that where the contract was made with both parties collectively, and where one party purported to make the contract on behalf of the other as well as himself,then the consideration supplied by the one sufficed to enable the contract tobe enforced by both.