Examining Consideration in Contract Law

Introduction

In this case study, there is a contract existing between the parties to the tune of £5 million. Subsequently, Simon agreed to give Kylie a gift for performance of obligations already covered by the initial contract. One the key elements of a valid contract is consideration. As a result, a contract must meet all other elements including consideration for that promise. There should be consideration from Kylie for the promise of a gift given by Simon. The element of consideration is entrenched in common law especially from judicial pronouncements made in the UK over the years.

Rules of Consideration

In the words of Lush J in Currie v Misa, ‘a valuable consideration entails the existence of some benefit or interest in favour of one party or some loss or forbearance suffered by the other’. Consideration can either be executed or executory in nature. It may be that the consideration had been given or carried out so that it is termed as executed. On the other hand it could be that the contract involves a promise to do perform certain obligations in future or refrain from doing certain acts, and this is executory in nature. Since a contract involves the exchange of promises, one party will receive a benefit while the other suffers a detriment. It is this benefit or detriment that is known as consideration, as explained in Currie v Misa. As a result, a promise to confer benefit to one party in return for nothing is merely a free gift.

Consideration must not be past To determine whether there was consideration in the promise by Simon to grant Kylie a gift, the consideration must have been given at the time the agreement. Past consideration is where a party has performed an obligation before an agreement is made. Essentially, it is a scenario where one party has given consideration either in contemplation or ignorance of a promise from the other party. As a general rule, past consideration is not valid and parties will not be bound by such a contract. It is

To determine whether there was consideration in the promise by Simon to grant Kylie a gift, the consideration must have been given at the time the agreement. Past consideration is where a party has performed an obligation before an agreement is made. Essentially, it is a scenario where one party has given consideration either in contemplation or ignorance of a promise from the other party. As a general rule, past consideration is not valid and parties will not be bound by such a contract. It is sometimes referred to as moral consideration given that there is no obligation on a party to perform certain obligation. Thus, it can be equated to the actions of a Good Samaritan which may later prompt the victim to promise payment to the Samaritan, a gift which is not enforceable in contract law.

The position on past consideration has long been entrenched in Re McArdle. In this case, a party decided to carry out some repairs on a house belonging to the defendants. Having been impressed by the nature of work carried out by the plaintiff, the defendants agreed in writing to pay him £480 once the estate was sold. When the defendants failed to pay him as agreed, the plaintiff sued for the amount due to him. His action was dismissed given that the promise to pay him had come about after the consideration in form of making repairs had been carried out. Therefore his action failed for past consideration.

Although past consideration is not a good consideration, there are exceptions to the general rule. In Lampleigh v Braithwaite, past consideration was held to be valid where it is preceded by a request from the other party. The defendant in this case had been charged with murder and requested the claimant to plead with the King for a pardon, which he did obtain. Thereafter, the defendant agreed to pay the claimant £100 for obtaining a pardon for him. The upshot of the above case is that the law will uphold past consideration if there was a request by one party for the performance of that obligation or an agreement between the parties indicating that past obligations be included in the present contract.

Consideration must be sufficient but need not be adequate

The requirement is that consideration must be of some value but not necessarily a market value. In Thomas v Thomas, the Queen’s Bench Division held that £1 as ground rent was a sufficient consideration even though not adequate in the circumstances. Justice Patterson found that whereas motive could not be viewed in the same light as consideration, the promise to pay £1 rent was sufficient consideration in the agreement between the deceased’s wife and the executors. Further, the Justice made it clear that consideration need to be something of value in the eyes of the law. It appears that the courts will not concern themselves as to whether the parties negotiated a good or bad bargain but only as to the question whether, the consideration was valuable in contemplation of the law.

Further, the above position has been reaffirmed in the case of Chappell v Nestle where Chappell opposed Nestlé’s decision to give away their records in return for chocolate wrappers. The House Lords found that the wrappers formed part of the consideration despite being of no value to the buyer or the plaintiffs. It means that in as much as the chocolate wrappers were of no value and would be thrown away later, it would still constitute good consideration. Both cases show that even the most worthless things will still constitute consideration in law and the courts are reluctant to delve into an inquiry of whether one party has had good bargain to the detriment of another.

Under international law, the same position has been maintained with regard to sufficiency of consideration. The law under this agreement deals majorly with consumer contracts and questions of fairness. Under Regulation 4, it provides that a term will not be considered unfair merely because of inadequacy of price and remuneration.

Consideration must move from the promise

The nature of contract is such that there is an exchange of promises and the party that gives the promises expects the other party to do something in return. Hence, another party whom the promise was not addressed cannot purport to enforce the promise. Essentially, the doctrine of privity of contract will apply to exclude the party. Where a promise is made to someone, then it is only that person who can enforce that promise if he provides consideration for it. A stranger to the consideration cannot take advantage of the contract even if it was for his own benefit. Interestingly, consideration does not necessarily have to move to the promisor although it is mandatory that it has to move from the promise.

In support of this position is the case of Tweddle v Atkinson where two parties promised to pay a sum of money to the other’s child upon their marriage. One of the two men failed to pay up and until his demise. John Tweddle sued the executors of the deceased’s estate for the sum promised. The court dismissed his action indicating that it was in fact his father who provided consideration for promise made to him (the father). Since he did not receive any consideration, he could not purport to enforce the promise. This strengthens the doctrine of privity of contract where a stranger to a contract cannot sue upon the contract’s terms.

An existing public duty will not amount to a valid Consideration

There are duties that one is obligated to perform by virtue of their position or offices. If a person has an existing public duty and he called upon to perform such a duty in return for compensation, he cannot enforce the agreement for compensation if the other party refuses to honour the promise. In Collins v Godefrey, a lawyer could not enforce a promise for payment in exchange for his testimony in court. The court held that Collins was under a public duty to give evidence in court since he had been there through a subpoena. Hence there was an existing public duty to attend court which could not thereafter be exploited as a consideration for a promise by Godefrey to pay him.

However, there are instances where the nature of obligation for the promise goes over and above what is required of a person by public duty. Therefore if a promisor performs actions that goes beyond the requisite public duty, then that will amount to good consideration in law. In Glasbrook Bros v Glamorgan County Council police officers who were in performance of their public duty to keep peace went beyond the same necessitating additional officers and were thus entitled to payment. Similarly, in Ward v Byham where the wife although was under a legal duty to care for her daughter as agreed with the husband, went beyond the same by making the child happy. She was therefore entitled to payment since she provided consideration by doing that which was beyond her existing legal duty to take care of her daughter.

An existing public duty will not amount to a valid Consideration

Parties to a contract are under obligation to perform their part as consideration to the other party. Therefore, if one party promises the other payment for performing existing contractual duties, he cannot purport to enforce the promise. In Stilk v Myrick, a promise to pay more money to a seaman on account of work done after some of them had deserted their duty was found to be unenforceable. The seaman merely did work as per the contract and had not provided any consideration in the circumstances.

As a general rule, performance of existing contractual duty is not a valid consideration but there are instances, just like public duties, where it will constitute a valid consideration. As a result, the court held in Hartley v Ponsonby held that a crew that worked shorthanded after half of the crew deserted duty were entitled to payment. The rationale for this decision is based on the fact that the remaining crew had gone beyond their existing contractual duty. This decision conflicts with the one made in Stilk v Myrick but is qualified on the basis of dangerous conditions and contractual duty going beyond the exiting one.

In another controversial decision, the court found in Williams v Roffey that consideration will become valid for performance existing contractual duties where it benefits another party or precludes a detriment. This decision appears to stretch the pronouncement in Hartely v Ponsonby by creating another leeway for enforcement of performance of existing contractual duties. Glidewell LJ may have gone too far by the introduction of the practical benefit test which challenges the traditional approach to consideration.

Part payment of debt is not good consideration

A party’s promise to release a debt in full cannot be enforced on the basis that the other party has paid the debt in part. Hence, the creditor will still be entitled to sue for recovery of the remainder of debt. On authority of Pinnel’s Case, part payment of debt may be valid consideration where the promisor requests part payment earlier than the date previously set, payment with a chattel or payment to be effected at a different destination. Therefore, the complete debt could be released if the creditor agrees to accept part payment in addition to some other thing. Subsequently, the House of Lords in Foakes v Beer upheld the rule in Pinnel’s case where Dr Foakes was liable to pay the interest on the debt since the complete instalments were merely part payment of debt.

Apart from the three exceptions stated in the Pinnel’s case, payment made by a third party is a valid consideration. This is the import of Hirachand Punamchand v Temple. Alternatively, promissory estoppel will imply a valid consideration and a party will be precluded from going back on a promise relied on by another party despite lack of consideration. Consequently, a promise by a party to discharge a larger sum for a smaller one if acted upon will be binding on the parties regardless of the lack of consideration.

Conclusion

In light of the above discussion on the rules of consideration, Kylie did not provide any consideration for the gift promised by Simon. She was promised a gift for performance of existing contractual duties as per the running contract with Simon. As a result there is no valid consideration and the promise of a gift is unenforceable on her part as the promisor. The promise would have been enforceable if she had provided consideration by performing duties beyond those in the existing contract between them.

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