Consideration (Copy)

Introduction

• Definition and Role of Consideration:
  • Consideration is a core element of contract law that ensures both parties provide something of value in exchange.
  • It can involve:
    • A benefit to one party.
    • A detriment, such as a promise to refrain from an action.
  • Historically, contracts were only enforceable if documented formally. Over time, consideration became the accepted method for validating informal agreements.
• Case Definitions:
  • Currie v Misa (1875): Consideration is defined as a right, interest, profit, or benefit accruing to one party or a detriment or forbearance undertaken by the other.
  • Dunlop v Selfridge Ltd (1915): Consideration is “the price for which the promise of the other is bought,” making it enforceable.

Nature and Function of Consideration

1. Types of Consideration:
   • Executed Consideration: When an act has already been completed by one party. Example: Offering a reward for finding a lost item, where returning the item constitutes executed consideration.
   • Executory Consideration: A promise to perform an act in the future in exchange for another future promise. Example: Agreeing to sell a car tomorrow for payment upon delivery.
2. Sufficiency vs. Adequacy:
   • Sufficiency:
     • Consideration must have some tangible, legal value but need not equate to fairness or equivalence in value.
     • Example: Chappell v Nestlé (1960):
       • Chocolate wrappers used in a promotion were deemed sufficient consideration, even though they had negligible intrinsic value.
   • Adequacy:
     • Courts do not examine whether the consideration is adequate or represents a fair bargain.

Rules of Consideration

1. Consideration Must Not Be Past:
   • Actions performed before an agreement cannot serve as consideration for it.
   • Example: Re McArdle (1951):
     • Repairs made to a property before an agreement were ruled past consideration and therefore unenforceable.
   • Exception: Past consideration is valid if there was an implied or explicit request, as seen in Lampleigh v Braithwait (1615).
2. Consideration Must Move From the Promisee:
   • A party cannot enforce a contract unless they provide consideration.
   • Example: Tweddle v Atkinson (1861):
     • A husband, not party to a contract between his father-in-law and father, could not enforce it despite its intention to benefit him.
3. Performance of Existing Duties:
   • Public Duties:
     • Actions required by law cannot constitute new consideration.
     • Example: Collins v Godefroy (1831):
       • A policeman attending court was performing a legal duty and thus provided no consideration.
   • Contractual Duties:
     • Merely fulfilling existing obligations under a contract is insufficient consideration for additional promises.
     • Example: Stilk v Myrick (1809):
       • Sailors fulfilling their duty to return a ship home could not claim extra wages.
     • Exception: Where parties perform duties exceeding the original terms, as in Hartley v Ponsonby (1857).
4. Promises to Third Parties:
   • Performing existing obligations for third parties can constitute valid consideration for a new agreement.
   • Example: Pao On v Lau Yiu Long (1980):
     • An implied promise provided by fulfilling a pre-agreement duty was deemed valid.

Evolving Doctrine: Consideration in Modern Contexts

1. Williams v Roffey Bros (1990):
   • Significance:
     • This case redefined the boundaries of consideration by emphasizing practical benefits.
     • A contractor’s additional payment to a subcontractor for completing a job on time (avoiding penalties) was deemed valid.
   • Implications:
     • Introduced “practical benefit” as a legitimate form of consideration, raising debates about the traditional doctrine.
2. Part Payment of Debts:
   • Rule:
     • Payment of a lesser amount than the debt owed cannot discharge the full debt (Pinnel’s Case (1602); Foakes v Beer (1884)).
   • Exceptions:
     • Accord and Satisfaction: A mutual agreement to accept a lesser sum in final settlement.
     • Promissory Estoppel: If a creditor promises to accept less and the debtor relies on it, the creditor may be estopped from claiming the full amount.

Exceptions and Refinements

1. Promissory Estoppel:
   • Prevents a promisor from reneging on a promise if the promisee has relied on it to their detriment.
   • Limitations:
     • Operates as a defense, not a cause of action (Combe v Combe (1951)).
     • Does not permanently extinguish rights; they may be reinstated when equitable.
2. Contracts (Rights of Third Parties) Act 1999:
   • Allows third parties to enforce contractual terms if:
     • The contract expressly provides so.
     • The term confers a benefit upon the third party.

Practical Applications and Challenges

1. Economic Duress:
   • Any promise obtained under duress is unenforceable, ensuring fairness in bargaining.
   • Example: D & C Builders v Rees (1965):
     • A creditor accepting partial payment under pressure was allowed to claim the balance.
2. Shift from Doctrine to Practicality:
   • Recent judgments prioritize fairness and reliance over strict adherence to traditional rules.
   • Example: Practical benefits in commercial arrangements are increasingly recognized as valid consideration.
3. Judicial Debate:
   • Cases like Williams v Roffey Bros have led to academic debates about whether consideration should continue to serve as the cornerstone of contract law or be replaced by doctrines like reliance or fairness.