Consideration as the Badge of Enforceability for a Contract in English Law - Essay Example

Consideration as the ‘badge of enforceability’ for a contract in English law Contract law provides for the enforcement of promises made by two or more parties. After a contract is made, the variation clause allows for the change in the terms of the contract later, if only both the parties have agreed to the variation, and some form of consideration is presented, to support the agreement (Dawson, 2011 p.135). The most fundamental aspect of a legally binding contract; is the determination that the parties involved have voluntarily assumed liability for the breach of that promise (McKendrick, 2012 p.289). The voluntary assumption of liabilities by the parties to an agreement requires that the parties must agree to exchange something of value, referred to as consideration, without which the agreement is considered null and void (Gamage & Kedem, 2006 p.1302). However, under the doctrine of promissory estoppels, any party can recover what it has rightfully earned, or the value of detriment suffered by reliance on the agreement, even if a court decides there is no legal contract (MacMillan & Stone, 2013 p.27). Thus, consideration forms one of the fundamental elements of a legally binding agreement, and is often referred to as the ‘badge of enforceability’ for a contract in English law. However, in assessing the validity of a variation in the terms of an existing contract, consideration is but one line of argument. This is because: Consideration is regarded by the English courts as the principle way of determining the existence of a contract (MacMillan & Stone, 2013 p.34). The significance of consideration as a vital aspect of a contract in English law is that; it is through the existence of consideration, that the other essential elements of a legally binding agreement are fulfilled. When the parties involved in an agreement makes a mutual agreement regarding the items of value that the parties will exchange, it becomes apparent that the parties have the intention to create a legal relation, which is an essential element for a contract to legally hold (MacMillan & Stone, 2013 p.34). The requirements of contract in English law is that; there should be occurrence of some right, interest, benefit or profit to one party to the agreement, while some forbearance, loss, detriment or responsibility is suffered or undertaken by the other party (Dranias, 2008 p.345). However, while this aspect is a principal requirement in the English contract law, there are further assessments that might be made; in spite of the mere fact that consideration really existed in the contractual agreement, which then nullifies the agreement as unenforceable. Therefore, while consideration forms a fundamental building block as far as the English contract law is concerned, it has emerged that it is not indispensable, and thus there are circumstances under which the courts can regard a contractual agreement that did not entail consideration to be legally binding, while also nullifying a contractual agreement that involved consideration as unenforceable in law (Gillies, 1988 p.72). This simply means that, despite the fact that consideration is a cardinal requirement in the English contract law, it must be interpreted in the context of other principles of a binding contract, and thus consideration is but one line of argument. First, despite the fact that consideration could really exist in a contractual agreement, there is limitation offered to the concept of consideration, which states that past consideration is not consideration (Busch, 2005 p.33). This legal requirement then makes consideration but one line of argument; because it clearly shows that the mere existence of consideration is not sufficient to make an agreement legally binding, since if consideration is past, the contractual agreement will be regarded unenforceable, despite the existence of the consideration (Schulze, 2007 p.49). This principle has been established and demonstrated in various case laws, which has served to show that consideration is a fundamental aspect of English contract law, but it is not indispensable by itself. A case in point: Roscorla v Thomas, [1842] 3 QB 234 Under this case, Roscorla bought a horse from Thomas at a value of ?30, and offered to pay for the horse at a later date. On the following day, Thomas called Roscorla and asked him to pay for the horse, which Roscorla did and Thomas in return issued a memorandum of warranty stating that the horse was free from vice. However, Roscorla later noted that the horse which Thomas sold to him was aggressive, and sued Thomas for breach of the contractual terms, which stated that the horse was free from vice, yet it was observed to be aggressive. In the ruling, the court held that the plaintiff (Roscorla), had not given any consideration for the subsequent promises, and therefore, the consideration he had already paid for the horse was past consideration in relation to the memorandum of warranty offered by Thomas, which was not an agreeable term when the initial agreement to buy the horse was made. In this case, it became apparent that the mere existence of consideration is not sufficient to make a contractual agreement legally binding, where such terms are made later, after the consideration is already paid. The ruling provided that consideration should be given to the actual promise and not in relation to subsequent promises (Chen-Wishart, 2007 p.13). Therefore, this ruling serves to show that, although consideration is often referred to as the ‘badge of enforceability’ for a contract in English law, in assessing the validity of a variation in the terms of an existing contract, consideration is but one line of argument, since further assessments exists, which may nullify consideration. Thus, the mere existence of consideration is inefficient to hold the parties liable, and it has to be subjected to further scrutiny, such as whether there was an agreement to set the terms of the contract later (Dranias, 2008 p.267). Secondly, while consideration is defined as entailing the loss of benefit accruing by one party to the agreement, while the other party obtains that benefit, the case laws in the English contract law has sought to water down this aspect, through determining that the existence of consideration should amount to an economic value (Dawson, 2011 p.152). Therefore, while in some circumstances the existence of a promise that does not entail any economic value would be interpreted to amount to a legally binding contract, there are circumstances under which the same would be considered not to amount to consideration, and thus consideration simply becomes but one line of argument, since there are further arguments that must be considered, to determine the legality of a contract, in relation to the principle of consideration. A contract is supposed to amount to a detriment or some loss to the person making the promise, and a benefit to the person to whom it is made, for the contract to be legally enforceable (Gillies, 1988p.65). This is the cardinal principle of consideration, requiring that one party must incur a detriment while the other party must accrue some benefit, but the laws of English contract have served to show that there is more to the English contract law than just a mere detriment suffering and benefit acquisition in relation to the concept of consideration (MacMillan & Stone, 2013 p.51). This simply means that consideration is not indispensable, and must therefore be interpreted in relation to prevailing circumstances and conditions, even when it actually exists in an agreement. Case in point: White v Bluett [1853] 23 LJ Ex 36 Under this case, Mr. Bluett had appointed Mr. White as the executor in relation to his assets before he died. Mr. Bluett had a son whom he had lent some money, but the son was consistently complaining about the way Mr. Bluett was distributing his property. In return, Mr. Bluett allowed his son not to pay the money he had lent him, in return for him stopping to complain about the distribution of Mr. Bluett’s property. After the death of Mr. Bluett, the executor, Mr. White sued Mr. Bluett’s son for the failure to pay the existing debt. The son argued that his father had promised him that he will not be required to pay, if he stopped complaining about the property distribution. The court held that; the son’s promising not to complain about the distribution of wealth by his father was not enough consideration, in exchange for the promise by his father not to pay the money he owed. In the ruling, the judges observed that the son had no right to complain, and therefore, the promise to stop complaining was not good enough to be exchanged for the debt owed. This case is a clear indication that consideration is but another line of argument, considering that in essence, Mr. Bluett’s son had suffered a detriment, by giving up the benefit accruing from the subsequent distribution of property according to his wishes, which his father exchanged with the promise of forgiving the debt owed. From the cardinal principle of consideration, one party should suffer a detriment or a loss, while the other party should obtain the benefit accruing (Busch, 2005 p55). In this case, the father suffered the detriment of losing the money lent through making the promise to the son, who in turn gained the benefit accruing from the non-payment of the money lent. While this aspect fulfils the requirements of the cardinal principle of consideration, the ruling offered that the consideration should have an economic value, and thus required that the son should pay the outstanding debt. This serves to show that despite the existence of consideration, there are further assessments that are done to validate a contractual agreement as legally binding, which in this case emerges as the assessment of the economic value of the consideration made (Dawson, 2011 p.137). Therefore, although consideration is often referred to as the ‘badge of enforceability’ for a contract in English law, in assessing the validity of a variation in the terms of an existing contract, consideration is but one line of argument, since there still exists further assessments and considerations, which may make the contract legally unenforceable, despite the actual existence of a consideration (MacMillan & Stone, 2013 p.35). Thus, the existence of a consideration must be backed by the existence of an economic value in the consideration offered, for a contract to be legally binding. Thirdly, the other aspect that makes consideration just but one line of argument is the fact that, the existence of consideration, which may be adequate and of relevant economic value, does not make the contractual agreement a valid contract, before assessing the movement of the consideration. The English contract law provides that; for a contract to be legally binding, the consideration must move from the promisee, but it does not necessarily have to move to the promisor (McKendrick, 2012 p.381). This being the case, it is apparent that despite the fact that the parties to an agreement are supposed to have mutually consented the consideration to be involved, there are still chances that a contract can be regarded as legally binding, even where the promisor did not receive the consideration that was offered. The concept of consideration in the English law of contract is further made complex by the fact that, the law provides for the enforcement of a contract by a third party, where the third party, though not engaged in the contractual agreement, was poised to benefit from the implementation of the contractual agreement (Chen-Wishart, 2007 p19). This provision serves to negate the cardinal principle of consideration as a fundamental element of the English contract law, which provides that a contract is legally binding, only where the consideration has been mutually agreed by the parties involved. Considering that a third party is not involved in making a contractual agreement, the provision for a third party’s room to enforce the contract therefore makes consideration just but one line of argument. Case in point: De La Bere v Pearson [1908] 1 KB 280 Under this case, Pearson Ltd, a newspaper company, offered to provide financial advice to people who would be interested in seeking it from its editors. The plaintiff, De La Bere, wrote to the paper seeking for the financial advice, and in a way of reply, received the financial advice which the plaintiff followed but suffered a financial loss, and thus decided to sue the newspaper company. The defendant argued that the financial advice was just given gratuitously, and thus no consideration had moved from the promisee to the promisor, to warrant compensation for the loss suffered. However, the judge, in issuing the ruling observed that; consideration must move from the promisee, but it does not necessarily have to move to the promisor, and thus ruled the defendant should compensate the plaintiff for the financial loss suffered. In this case, the ruling generated a different principle requiring that; as long as the promisee has moved the consideration, it must not be necessarily received by the promisor, to make the contractual agreement legally binding (Dawson, 2011 p.141). Through this ruling, a new window for further assessment was opened, where the existence of consideration does not guarantee the validity of a contract, since the promisor may not receive the consideration, yet the contract is considered to be legally binding (Whincup, 2006 p.68). Further, the motive or the intention to make a consideration, and the actual making of a consideration are two aspects that needs to be differentiated (McKendrick, 2012 p.342), rendering consideration just but one line of argument. Where a real bargain existed between the parties, yet the consideration was not paid, the contract can be legally binding. Therefore, a third party may enforce a contractual agreement based on the motives of the initial parties to the agreement, if the third party is meant to benefit from the implementation of the contract, since the existence of a real bargain takes precedence over the payment of consideration (Whincup, 2006 p.63). Case in point: Thomas v. Thomas [1842] 2 Q.B. 851, 114 E.R. 330 Here, Thomas died after orally expressing his desire to have his wife inherit their estate, and the appointed executor entered into an agreement with the wife to take possession of the house, and continue to pay ?1 per year as ground rent. The executor later died and his co-executor terminated the contract with the plaintiff, on the ground that ?1 was not enough consideration. The ruling held that the court will not consider the adequacy of the consideration, or the reasons for the bargain, as long as a real bargain existed between the parties. In this ruling, it can be clearly seen that real bargain takes preference over the existence of consideration in a contractual agreement, thus reinforcing the view that; although consideration is often referred to as the ‘badge of enforceability’ for a contract in English law, in assessing the validity of a variation in the terms of an existing contract, consideration is but one line of argument, since the nature of bargain forms the other side of the argument. References Busch, D. (2005). Indirect representation in European contract law. The Hague: Kluwer Law International. Chen-Wishart, M. (2007). Contract law. Oxford: Oxford University Press. Gamage, D., & Kedem, A. (2006). Commodification and Contract Formation: Placing the Consideration Doctrine on Stronger Foundations. University Of Chicago Law Review, 73(4), 1299-1367. Gillies, P. (1988). Concise contract law. Sydney: Federation Press. Dawson, F. (2011). Contract as assumption and consideration theory: A reassessment of Williams v Roffey Brothers. Victoria university of Wellington Law Review, 42(1), 135-158. De La Bere v Pearson [1908] 1 KB 280 Dranias, N. C. (2008). Consideration as contract: a secular natural law of contracts. Texas Review Of Law & Politics, 12(2), 267-327. MacMillan, C. & Stone, R. (2013). Elements of the law of contract. University of London. McKendrick, E. (2012). Contract law: Text, cases, and materials. Oxford, U.K: Oxford University Press. Roscorla v Thomas, [1842] 3 QB 234 Schulze, R. (2007). New features in contract law. Mu?nchen: Sellier. European Law Publishers. Thomas v Thomas (1842) 11 LJ QB 104 Whincup, M. H. (2006). Contract law and practice: The English system with Scottish, Commonwealth, and Continental comparisons. Alphen aan den Rijn: Kluwer Law International. White v Bluett [1853] 23 LJ Ex 36 Read More