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.