CONSIDERATION

Introduction

Parties to a contract must provide consideration if they wish to sue on the contract. This means that each party must promise to give or do something.

Lush J. in Curie v Misa referred to consideration as consisting f a detriment to the promise or a benefit to the promisor.

“ … some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”

Consideration must be something of value in the eyes of the law. Thus, a promise of love and affection does not constitute consideration.

Types of consideration

i)                   Executory consideration

Consideration is called executory where there is an exchange of promises to perform acts in future e.g. a contract for the sale of goods where A promises to deliver goods to B at a future date and B promises to pay on delivery.

It is promise in return of a promise.

ii)                 Executed consideration

Executed consideration is an act in return of a promise. The consideration for the promise is a performed or executed act.

Thus if one party makes a promise in exchange for an act by the other party, when that act is completed, it executed consideration. e.g. in a unilateral contract where A offers $ 50 reward for the return of her lost handbag. If B finds the bag and returns it, B’s consideration is executed.

Rules governing consideration

i)                  Consideration must not be past

If one party voluntarily performs an act, and the other party then makes a promise, then the consideration for the promise is said to be in the past.

The general rule is that past consideration is no consideration. For example, A gives B a lift home in his car. On arrival, B promises to give A $5 towards petrol. A cannot enforce this promise as his consideration, giving B a lift, is past.

Exceptions

a)  Previous request

If the promisor has previously asked the other party to provide goods or services, then a promise mad after they are provided will be treated as binding.

Lampleigh v Braithwaite: The defendant had killed a man and was due to be hung for murder. He asked the claimant to do everything in his power to obtain a pardon from the King. The claimant went to great efforts and managed to get the pardon requested. The defendant then promised to pay him £100 for his efforts but never paid up. Held: Whilst the promise to make payment came after the performance and was thus past consideration, the consideration was proceeded by a request from the defendant which meant the consideration was valid. The defendant was obliged to pay the claimant £100.

b)  Business situations

if something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration is valid.

Re Casey's Patent (1892) ; A and B owned a patent and C was the manager who had worked on it for two years. A and B then promised C a one-third share in the invention for his help in developing it. The patents were transferred to C but A and B then claimed their return. It was held that C could rely on the agreement. Even though C's consideration was in the past, it had been done in a business situation, at the request of A and B and it was understood by both sides that C would be paid and the subsequent promise to pay merely fixed the amount.

c)      The Bill of Exchange Act 1882

S. 27(1) provides that any antecedent debt or liability is valid consideration for a bill of exchange. For example, A mows B’s lawn and a week later B gives A a cheque for $10. A’s work is valid consideration in exchange for the cheque.

ii)               Consideration must be sufficient but need not be adequate

Provided that consideration has some value, the courts will not investigate its adequacy. Where consideration is recognized by the law as having some value, it is described as “real” or “sufficient” consideration.

Courts will not investigate contacts to see if parties have got equal value.

Thomas v Thomas; Plaintiff’s husband’s dying wish was that his wife have either the house in which he lived or 100 pounds. The declaration was relayed to the Plaintiff’s brothers (one being the Defendant) and they agreed to carry out the intentions. The agreement was that Plaintiff would have a house for her life, or until she remarried. She agreed to pay one pound yearly for ground rent and to keep the house in repair. Defendant brought an ejectment action after death of the second brother. It was held that provision for payment and the obligation to repair is part of an express agreement and is quite sufficient consideration for the contract. The moral feeling which motivated the arrangement is not relevant.

iii)            Consideration must move from the promisee

The person who wishes to enforce the contract must show that they provided consideration.

Price v Easton (1833;) Easton made a contract with X that in return for X doing work for him, Easton would pay Price £19. X did the work but Easton did not pay, so Price sued. It was held that Price's claim must fail, as he had not provided consideration.

iv)             Performance of existing contractual duty is no consideration

If someone promises to do something they are already bound to do under a contract, that is not valid consideration.

Stilk v Myrick (1809); Two out of eleven sailors deserted a ship. The captain promised to pay the remaining crew extra money if they sailed the ship back, but later refused to pay.It was held that as the sailors were already bound by their contract to sail back and to meet such emergencies of the voyage, promising to sail back was not valid consideration. Thus the captain did not have to pay the extra money.

 However, if a claimant does more that perform a contractual duty, this may amount to consideration.

Hartley v Ponsonby (1857);When nineteen out of thirty-six crew of a ship deserted, the captain promised to pay the remaining crew extra money to sail back, but later refused to pay saying that they were only doing their normal jobs. In this case, however, the ship was so seriously undermanned that the rest of the journey had become extremely hazardous. It was held that sailing the ship back in such dangerous conditions was over and above their normal duties. It discharged the sailors from their existing contract and left them free to enter into a new contract for the rest of the voyage. They were therefore entitled to the money.

v)                  Performance of an existing obligation imposed by the law

 This is no consideration for a promise. Collins v Godefroy (1831); Godefroy promised to pay Collins if Collins would attend court and give evidence for Godefroy. Collins had been served with a subpoena (ie, a court order telling someone they must attend).

Collins sued for payment. It was held that as Collins was under a legal duty to attend court he had not provided consideration. His action therefore failed.

vi)               Existing contractual duty owed to a third party

If a party promises to do something for a second party, but he is already bound by a contract to do this for a 3^rd party, this is good consideration.

ACCEPTANCE

This is a final and unqualified expression of assent to the terms of an offer. There must be an objective manifestation by the recipient of the offer, of an intention to be bound by the terms. Once a valid acceptance takes place, a binding contract is formed.

There are three main rules relating to acceptance;

•    The acceptance must be communicated to the offeree
•    The terms of acceptance must exactly match the terms of the offer
•    The agreement must be certain

     i)                  Communication

The general rule is that the offeror must receive acceptance before it is effective.

Silence will not amount to acceptance. In Felthouse v Bindley, a nephew discussed buying a horse from his uncle. He offered to purchase the horse and said if I don't hear from you by the weekend I will consider him mine. The horse was then sold by mistake at auction. The auctioneer had been asked not to sell the horse but had forgotten. The uncle commenced proceedings against the auctioneer for conversion. The action depended upon whether a valid contract existed between the nephew and the uncle. He court held that a contract had not been made. Silence does not amount to acceptance

The acceptance nay be by express words, by action or inferred from conduct.

Brogden v Metropolitan Railway – The claimants were the suppliers of coal to the defendant railway company. They had been dealing for some years on an informal basis with no written contract. The parties agreed that it would be wise to have a formal contract written. The defendant drew up a draft contract and sent it to the claimant. The claimant made some minor amendments and filled in some blanks and sent it back to the defendant. The defendant then simply filed the document and never communicated their acceptance to the contract. Throughout this period the claimants continued to supply the coal. Subsequently a dispute arose and it was questioned whether in fact the written agreement was valid. It was held that the written contract was valid despite no communication of the acceptance. The acceptance took place by performing the contract without any objection as to the terms.

The postal rule

where it agreed that the parties will use the post as a means of communication, the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box.

In Adams V Lindsell, the defendant wrote to the claimant offering to sell them some wool and asking for a reply 'in the course of post'. The letter was delayed in the post. On receiving the letter the claimant posted a letter of acceptance the same day. However, due to the delay the defendant's had assumed the claimant was not interested in the wool and sold it on to a third party. The claimant sued for breach of contract.

It was held that there was a valid contract which came in to existence the moment the letter of acceptance was placed in the post box.

Where the offer stipulates a particular mode of communication, the postal rule may not apply. In that case, the letter of acceptance will take effect only when received.

ii)               The terms of acceptance must exactly match the terms of the offer

If the terms differ, this will amount to a counter offer. A counter offer does not constitute acceptance; it is the making of a new offer which may be in turn be accepted or rejected.

Similarly, a request for further information does not amount to acceptance.

In Hyde v Wrench, The defendant offered to sell a farm to the claimant for £1,000. The claimant in reply offered £950 which the defendant refused. The claimant then sought to accept the original offer of £1,000. The defendant refused to sell to the claimant and the claimant brought an action for specific performance. It was held that there was no contract. Where a counter offer is made this destroys the original offer so that it is no longer open to the offeree to accept.

Neale v Merrett; M offered to sell N land for £280.00 in one payment. N accepted the offer by correspondence and enclosed £80 with the letter promising to pay the balance in £50 monthly instalments. Held: The purported acceptance was not in fact acceptance but a counter offer.

iii)            The agreement must be certain

 It must be possible to determin exactly what the the parties have agreed.

Scammell and nephew v Ouston; The parties entered an agreement whereby Scammell were to supply a van for £286 on HP terms over 2 years and Ouston was to trade in his old van for £100. There was then some disagreement and Scammel refused to supply the van. Held: There was no certainty as to the terms of the agreement. Whilst there was agreement on the price there was nothing in relation to the HP terms stating whether it would be weekly or monthly instalments or how much the instalments would be.

OFFER

Introduction

An offer is an expression of willingness to contract on specified terms made with the intention that it shall become binding on the offeror as soon as it is accepted by the offerree. The offer maybe made to one person, to a class of persons or to the world at large, and only the person to whom it is made may accept it.

Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.) – The Carbolic Smoke Ball Co produced the 'Carbolic Smoke Ball' designed to prevent users contracting influenza or similar illnesses. The company's advertised (in part) that:

“100 pounds reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball.  1,000 pounds is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter”.

After seeing this advertisement Mrs Carlill bought one of the balls and used it as directed. She subsequently caught the flu and claimed the reward.  The company refused to pay. Mrs Carlill sued for the reward. The company argued that;

a)      The offer was so vague that that it could not form the basis of a contract, as no time limit was specified.

b)     It was not an offer which could be accepted since it was offered to the whole world.

The court held that Mrs Carlill was entitled to the reward. There was a unilateral contract comprising the offer (by advertisement) of the Carbolic Smoke Ball company) and the acceptance (by performance of conditions stated in the offer) by Mrs Carlill. There was a valid offer for the following reasons;

·         An offer can be made to the whole world

·         This was not a mere sales puff (as evidenced, in part, by the statement that the company had deposited £1,000 to demonstrate sincerity)

·         The language was not too vague to be enforced

A statement which is vague cannot be an offer. In Gunthing v Lynn, the offeror offered to pay a further sum for a horse if it was ‘lucky’. It was held that the offer was too vague and no contract could be formed.

However, an apparently vague offer can be made certain by reference to previous dealings. In Hillas & Co. ltd v Arcos ltd, the claimants agreed to purchase from the defendants 22, 000 standards of soft wood goods of fair specification over the season of the of 1930. The agreement contained an option to buy a further 100,000 standards in 1931, without terms as to the kind or size of timber being specified. The 1930 transaction took place, but the sellers refused to supply any wood in 1931 saying that the agreement was too vague. The court held that the missing term of the agreement could be ascertained by reference to the previous transaction.

An offer must be distinguished from;

-          A statement which supplies information

-          A statement of intention

-          An invitation to treat 

a)  Supply of information

A statement which sets out possible terms of a contract is not an offer unless it is clearly indicated. In Harvey v Facey, Harvey sent a Telegram to Facey which stated: -
"Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid;" Facey replied by telegram:-
"Lowest price for Bumper Hall Pen £900."
Harvey then replied:-
"We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession."
The Privy Council held that there was no contract concluded between the parties. Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer. There was thus no evidence of an intention that the telegram sent by Facey was to be an offer.

However, such a statement can amount to an offer if in the course of the negotiations, the vendor states the price at which he will sell.

b)  A statement of intention

Advertising that an event such as an auction will take place is not an offer to sale. In Harris v Mickerson, it was held that potential buyers may not sue the auctioneer if the auction does not take place.

c)  Invitation to treat

This is an invitation for other people to submit offers. It is an indication that a person is prepared to receive offers with a view to entering into a binding contract. The following are examples of invitations to treat;

-          Auction sales

-          Display of goods

-          Advertisements

-          Tenders

i)                   Auction sales

In auction, the call for bids is an invitation to treat, a request for offers. The bids made by persons at the auction are offers, which the auctioneer can accept or reject as he chooses. In Payne v Cave, it was held that the contract is formed at the end of an auction, when the hammer strikes. Before that moment, neither party is bound and neither can back out.

ii)                 Advertisements

An advertisement is usually an attempt to induce offers. In Partridge v Crittenden (1968) 2 All ER 421, The defendant placed an advert in a classified section of a magazine offering some bramble finches for sale. S.6 of the Protection of Birds Act 1954 made it an offence to offer such birds for sale. He was charged and convicted of the offence and appealed against his conviction. The court quashed the defendant's conviction. The advert was an invitation to treat not an offer. The literal rule of statutory interpretation was applied.

iii)              Display of goods for sale

The display of goods with a price ticket attached in a shop or on a supermarket shelf is not an offer to sell but an invitation for customers to make an offer to buy. In Fisher v Bell [1961] 1 QB 394, the defendant had a flick knife displayed in his shop window with a price tag on it. Statute made it a criminal offence to 'offer' such flick knives for sale. His conviction was quashed as goods on display in shops are not 'offers' in the technical sense but an invitation to treat. The court applied the literal rule of statutory interpretation.

iv)               Invitation for tenders

An invitation for tenders does not generally amount to an offer to contract with the person quoting the lowest price, except where the person inviting tenders actually makes it clear that he is making an offer.

Termination of offer

An offer may come to an end by revocation, rejection, lapse of time, failure of a condition and death

a)  Revocation

Revocation means an offer is withdrawn by the offeror. In Payne v Cave, it was stated that offer may be withdrawn at any time before acceptance takes place. The revocation must be communicated effectively, directly or indirectly to the offerree before acceptance.

Where the offeror states that his offer shall remain open for a specified time, he may still revoke it within that time, unless by a separate contract he has bound himself to keep it open. In Routledge v Grant, the defendant offered to buy the claimant’s house, promising that he would keep the offer open for six weeks. It was held that he could withdraw the promise at any time before the offer was accepted, as his promise was merely gratuitous which means giving something for nothing. Even if Morgan had made an offer to Beatrice, he can still refuse to sell the car on the grounds that his promise to sell the car at the price of 6,000 Euros was a mere gratuitous promise.

Nevertheless, the withdrawal of the offer must be brought to the attention of the offeree. 

b)       Rejection

An outright rejection of an offer by the offeree terminates an offer. 

c)      Counter-offer

A counter-offer also terminates the original offer. Acceptance must be unqualified agreement to the terms of the offer. A purported acceptance which introduces any new term is a counter offer, which has the effect of terminating the original offer. A counter offer is thus made where the offeree responds to an offer by introducing new terms. If a counter offer is made, the original offeror may accept it, but if he rejects it his original offer is no longer available for acceptance.

In Hyde v Wrench, The defendant offered to sell a farm to the claimant for £1,000. The claimant in reply offered £950 which the defendant refused. The claimant then sought to accept the original offer of £1,000. The defendant refused to sell to the claimant and the claimant brought an action for specific performance. It was that there was no contract. Where a counter offer is made this destroys the original offer so that it is no longer open to the offeree to accept.

c)  Lapse of time

An offer will lapse if it is open for a specific length of time and that time limit expires. Where there is not express time limit, an offer is normally open only for a reasonable time. The length of reasonable time will depend on the circumstances f he case. In Ramsgate  v Montefoire (1866) LR 1, the defendant offered to buy shares in the plaintiff company 8^th June. On 23^rd Nov, the plaintiff accepted but the defendant no longer wanted them and refused to pay. It was held that the six-month delay between the offer in June and the acceptance in November was unreasonable and so the offer had 'lapsed', ie it could no longer be accepted and the defendant was not liable for the price of the shares.

d)  Failure of a condition

An offer may be conditional in that it is dependent on some event occurring or there being a change of circumstances. If the condition is satisfied, the offer is not capable of acceptance. In Financings Ltd v Stimson 1962, the defendant wished to purchase a car, and on 16 March signed a hire-purchase form. The form, issued by the claimants, stated that the agreement would be binding only upon signature by them. On 20 March the defendant, not satisfied with the car, returned it. On 24 March the car was stolen from the premises of the dealer, and was recovered badly damaged. On 25 March the claimants signed the form. They sued the defendant for breach of contract. It was held that the defendant was not bound to take the car. His signing of the agreement was actually an offer to contract with the claimant. There was an implied condition in this offer that the car would be in a reasonable condition.

e)    Death

The death of the offeree terminates the offer. The offeror’s death only terminates the offer, once the offeree is notified of the death. However, where the offer is for a service to be provided by the deceased in person, then the fact of their death will normally revoke the offer immediately, because they are obviously in no position to provide he service anymore.  This was stated in Bradbury v Morgan (1862). Facts: JM Leigh requested Bradbury & Co to give credit to HJ Leigh, his brother. JM Leigh guaranteed his brother's account to the extent of £100. Bradbury thereafter credited HJ Leigh in the usual way of their business. JM Leigh died but Bradbury, having no notice or knowledge of his death, continued to supply HJ Leigh with goods on credit. JM Leigh's executors (Morgan) refused to pay, arguing that they were not liable as the debts were contracted and incurred after the death of JM Leigh and not in his lifetime. Judgment was given for the plaintiffs, Bradbury.