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Elements in a Contract V - Consideration
Having identified the first two elements in a contract, offer and acceptance, let’s move on to the third, consideration. Consideration can be in the form of abstaining from performing an act, it could be in the form of performing an act or acts stipulated by the offeror as in the case of Carlill v Carbolic Smoke Ball Co (1893), it could be inferred or implied by conduct as in the case of Brogden v Metropolitan Rly Co. (1877) and it could be part consideration provided in lieu of completing the terms stipulated in a contract, Dahlia v Four Millbank Nominees (1978).
In Currie v Misa (1875) it was held that consideration from the perspective of the law may consist of some right, benefit, interest or profit accruing to the party or some loss, sufferance, detriment, or responsibility incurred by the party.
Consideration must be distinguished from an outright gift and therefore it has to be either expressly or impliedly requested for by the promisor. In Dahlia v Four Millbank Nominees (1978) for example, the offeror requested for some form of consideration. If the plaintiff had taken it upon himself to arrange for a bank draft to be delivered to the defendant, without the defendant asking for it, then that might not have been deemed as consideration but might have instead been perceived as a gesture of goodwill.
Consideration must move from the offeree or from the promisee to the oferor or the promisor. In Tweddle v. Atkinson (1861) the parents of the bride and groom agreed to pay a certain sum to the groom upon his marriage to the bride. The bride’s father died before the payment could be made and the groom brought a claim against his estate. The court ruled that because consideration did not move from him, he was unable to claim i.e. a party who has not provided consideration for the promise cannot enforce the promise.
Past consideration is not good consideration. In Roscola v Thomas (1842) the seller of a horse made an assertion after the offer and acceptance had been concluded or after the agreement had passed, that the horse was free from vice. Following the sale, the buyer brought an action against the seller but his action was unsuccessful because the assertion was made after the sale was concluded.
In Eastwood v Kenyon (1840) the guardian of a young girl educated her on the promise that the young lady would repay the debt once she’d come of age. The young lady, once she’d come of age, did make some repayments but soon after married, following which, her husband promised to repay the loan on her behalf. The husband failed to do so and the guardian brought an action against him. It was held that while the husband had a moral obligation to honor his promise there was no legal obligation to do so.
In R v Clark (1927) (High Court of Australia) there was a reward for information given leading to the arrest of several murderers. Clark gave the information but at the time he did so he had forgotten about the reward that was offered. He later tried to claim the reward but was denied by a court because at the time that he had given the information he gave no thought to the reward
In Re McArdle (1951) the plaintiff had made some renovations and repairs to her father-in-law’s bungalow. The father-in-law had left the property first to his wife for life and subsequently on trust for her husband and his four siblings. The siblings later, once the work had been completed, promised to pay the plaintiff a certain amount for the work that had been done. The payment was not made and the plaintiff brought an action against the defendants but was unsuccessful because past consideration is not valid consideration or is no consideration.
Past consideration however is consideration or is regarded as good consideration when it is done at the request of the offeror or the promisor. In Lampleigh v Braithwaite (1615) the defendant had committed murder and was found guilty and sentenced to hang accordingly. The defendant asked the plaintiff to get him a pardon and the plaintiff was successful in doing so. The defendant then promised the plaintiff £100 for his efforts but later refused to pay. It was held that the plaintiff was entitled to his reward because the act was done at the request of the defendant.
Past consideration is also good consideration when there is an understanding between the parties that the act that is done is to be remunerated. In Re Casey Patent’s (1892) the plaintiff did some patenting work for the defendant and upon the completion of the work the defendant promised to give the plaintiff one-third of the share in the patents. The defendant later failed to comply and the plaintiff sued. The plaintiff was successful in his claim because the work was done on the understanding or the premise that the plaintiff would be given some form of remuneration or the other.
An act done before the giving of a promise to make a payment or to confer some other benefit could be consideration for the promise where
(i) the act was done at the promisor's request,
(ii) the parties understood that the act was to be remunerated either by payment or the conferment of a benefit, and
(iii) the payment or conferment of benefit was legally enforceable.
Consideration however must not be something that is illegal. In Wyatt v Kreglinger and Fernau (1933) the plaintiff’s pension was dependent on him taking no further part in the wool trade. It was held that the stipulation was void because it was contrary to public interest.
Consideration must be sufficient but need not be adequate i.e. it does not need to correspond exactly or precisely, in monetary terms, to the offer or to what’s being offered but it must be in the form of monies or monies worth.
In Thomas v. Thomas (1842) a dying husband transferred the ownership of his seven houses to his brother but informed him prior to death, in front of two witnesses that, he wanted his wife to be permitted to live in one of those houses.
His brother Samuel complied with his wishes and after his death he allowed his brother’s wife (Eleanor) to stay in one of the houses and had a written agreement drawn up whereby his brother’s widow was to remain in the house on the conditions that she kept the house in good repair and paid a rent of £1 per annum. The agreement continued for some years until Samuel’s death whereby the executors refused to continue with the arrangement. It was held that the rent of £1 per annum was sufficient consideration and that Eleanor could continue to remain in the house.
In Chappell v. Nestlé (1960), Nestle ran a promotion whereby any person who sent in 3 wrappers and a postal order for 1s and 6d would be sent a record. Chappell a copyright owner in one of the records disputed Nestle’s offer and argued that the records would normally retail at 6s or more.
The matter before the courts was to decide if the wrappers formed part of the consideration and if they did there was no possible means to ascertain their value and Chappell would be successful in obtaining an injunction preventing Nestle from distributing the records. The court held that the wrappers were indeed part of the consideration and Chappell was successful in obtaining an injunction to stop Nestle from distributing the records.
Consideration however must have some economic value. In White v. Bluett (1853) the defendant owed his father some money but his father had promised him that he would write off the debt if his son stopped complaining as to how the property was distributed among the children.
Upon his death, the executor sued for the outstanding debt. It was held that not complaining was not sufficient consideration and the plaintiff was successful. Consideration must have some economic value i.e. it must be in the form of monies or monies worth.
The performance of an existing duty will not amount to consideration. In Collins v Godefrey (1831), the plaintiff had been subpoenaed for jury duty. While he didn’t actually go on duty, he was on standby for 6 days. He later brought an action against the defendant for expenses incurred. His claim failed. They court held that an existing public duty does not amount to consideration.
In instances of debts, the rule of thumb is that part payment will not amount to sufficient consideration. In Pinnel’s Case (1602) the defendant paid off part of his debt and hoped that he would be discharged. The plaintiff brought an action for the outstanding debt and was successful in his claim.
In Foakes v. Beer (1884) the defendant owed the plaintiff a certain amount of money and made an arrangement with the plaintiff to pay it off in installments but no mention was made of the interest. The defendant eventually paid off the full debt as promised but the plaintiff brought an action for the outstanding interest. Pinnel’s rule was applied and the plaintiff was successful.
A promise not to sue can also be sufficient consideration. In Alliance Bank Ltd v Broom (1864) the plaintiff, a bank, asked the defendant to provide some security for his overdraft. The defendant promised to do so but never provided the security and the plaintiff sued. The defendant argued that there was no consideration for his promise to provide security but the courts held that the bank’s implied promise not to sue should the defendant provide the appropriate or relevant security was consideration enough.
In Miles v New Zealand Alford Estate Co (1886) however, the plaintiffs purchased some land from the defendant and they were unhappy with their purchase and they informed the defendant of this. The defendant promised to make amends by making certain payments but failed to do so. The plaintiffs brought the matter before a court and argued that they had provided adequate consideration by not suing but the court found in favor of the defendant and found that not suing was not sufficient consideration in this particular instance.
If anything, the plaintiff should have at the very least inspected the land or asked for the advice of someone knowledgeable in the area prior to making the purchase.
If the party had done more than what was required or expected of him in the contract than that would be deemed to be sufficient consideration.
In Hartley v Ponsonby (1857) half the crew in a ship deserted while the ship was sailing to Mumbai. The captain of the ship promised the remainder of the crew extra wages should they be willing to carry on. The remainder of the crew agreed and upon reaching Mumbai the captain of the ship refused the crew the additional wages. The plaintiff sued.
It was held that by agreeing to take on the additional duties, the plaintiff had taken on duties that were not in his contract and was thus entitled to the extra wages.
In the earlier case of Stilk v Myrick (1809) however two sailors abandoned ship during a voyage and the captain of the ship promised the rest of the crew additional wages should the remainder of the crew take on their duties and help the ship complete its journey. Once the journey was completed the captain did not pay the additional wages and the plaintiff brought an action in court.
It was held that the plaintiff was not entitled to the additional wages because he had merely done what he was contracted to do i.e. complete the journey.
Hartley v Ponsonby (1857) can be distinguished from Stilk v Myrick (1809) in that, in the former the number of persons that had deserted the ship were so substantial that it would have jeopardized the entire voyage and in the latter the number of persons that had deserted the ship were so small that the additional duties may have been minimal.
In Glasbrook Brothers v Glarmorgan County Council (1925) the defendants owned a colliery and requested for protection from the police during a strike. Once the strike was over the police submitted a bill for the work that they had put in. The defendants refused to pay and an action was brought against the defendants. The plaintiffs were successful because in providing the additional resources that was required the police had gone over and above their duty.
If one party promises additional payments to complete an existing duty, than it would be deemed to be sufficient consideration, unless it is tainted with illegality.
In William v Roffey (1990) the plaintiff was a sub contractor who ran into financial difficulties while performing his duties under a contract and as a result didn’t look likely to complete his duties, which in turn would have resulted in a loss of income for the defendants.
The defendants in order to keep the plaintiff afloat promised an additional payment because the initial payment was too low and further amended the working conditions to accommodate the new promise. The plaintiff agreed and completed his duties but the defendants refused to make the additional payments.
It was held that the plaintiff was entitled to the additional payment because it allowed the defendants to complete the duties they were required to perform under a contract and as a result the defendants were remunerated accordingly.
With regards to third parties, when a party to a contract promises to provide a service or perform a duty, which it is already bound to do under an existing contact; the party can still receive or derive some form of remuneration from a third party.
In Shadwell v Shadwell (1860) the plaintiff was engaged to be married when his uncle wrote to him promising him £150 a year, until he was earning a specified sum from his practice. The plaintiff duly got married but he never reached the stipulated amount of earnings. The amount was not paid regularly and upon his uncle’s death the plaintiff sued for the arrears.
The court held that the plaintiff was entitled to the arrears because he had acted to his detriment by getting married, despite the fact that he was already engaged at the time of the agreement, and that he had incurred additional expenses by doing so.
In Scotson v Pegg (1861) the plaintiff brought and action against the defendant for failing to unload the coal that he had delivered. The plaintiff was in actual fact contracted to another party to deliver coal to any person that the contracting party nominated.
The defendant argued that he was not liable because the plaintiff was already contracted to deliver the coal to him under the terms of an existing contract.
The plaintiff was successful in his claim and it was held that the plaintiff had acted to his detriment by delivering the coal and the defendant benefitted from it regardless of the fact that the plaintiff was already obligated to do so under the terms of an existing contract.
© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward