Consideration in Law of Contract - Essay Example

CONSIDERATION Consideration is essence of every agreement in the law of contract. Without a valid and legal consideration an agreement cannot be enforceable in the court of law. It is one of the essentials of Contract. Consideration in law of contract is understood as following: Meaning of consideration: Consideration means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee. When the word consideration is qualified by the word adequate it makes consideration stronger so as to make it sufficient and valuable having regard to the facts, circumstances and necessities of the case. The Dictionary meaning of Consideration is "Consideration means something which is of value in the eyes of the law, moving from the plaintiff, either a benefit to the plainiff or detriment to the defendant. Consideration is not to be confounded with motive." (Black's Dictionary) Consideration means "Something that is legally regarded as the equivalent or return given or suffered by one for the act or promise of another". Adequate consideration means, "Legally sufficient, lawfully and reasonably sufficient". (Webster's third new International dictionary) The word "Adequate" means fully equal requirements or occasions, commensurate, but in its primary and not more popular significance, nothing can be said to be 'adequate' which is not equal to what is required, suitable to the case or occasion, fully sufficient, proportionate, and satisfactory". [Words and Phases, Permanent edition, volume 2 p. 545,553] Consideration is of two types Executory consideration and Executed consideration. Consideration is studied under two theories such as 'bargain theory' and 'benefit-detriment theory'. Certain conditions of Consideration are 1. Past consideration is not valid consideration except where both the parties are aware that the amount will be paid at later date. 2.Consideration must be sufficient but need not be adequate. 3. Consideration must move from the promisee 4. Forbearance of a valid legal right in exchange of the other promise is valid in law. "Alliance Bank v Broom (1864) Dr & Sm 289". 5. Anything done as a public duty, which is legally bound to do for which he is paid do not constitute the Consideration "Glassbrooke Bros v Glamorgan County Council" [1925] AC 270. 6. Promise to perform an existing contractual obligations is a valid consideration. Definition of Consideration: Sir Frederick Pollock, defined consideration as "An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable." Lord Dunedin ratified this definition in Dunlop v Selfridge Ltd [1915] AC 847, Patteson J defines Consideration in Thomas v Thomas [(1842) P 118)] case as "Consideration means something which is of some value in the eye of the law, moving from the plaintiff; it may be some detriment to the plaintiff or some benefit to the defendant, but at all events it must be moving from the plaintiff. [Contract Cases and Materials by H.G.Beale, W.D.Bishop and M.P.Furmston. Chapter 6 p.93] Consideration is defined by Lush J. in the case of Currie v Misa [(1875) LR 10 Exch 153, 162.] as "A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other". [Contract Cases and Materials by H.G.Beale, W.D.Bishop and M.P.Furmston. Chapter 6 p.93] Evaluation of this definition with reference to the Court of Appeal's understanding of consideration in Williams v Roffey Bros &Nicholls (Contractors) Ltd (1990) 1All ER 512, Court of appeal. [Contract Cases and Materials by H.G.Beale, W.D.Bishop and M.P.Furmston. Chapter 6 p.107] Before we attempt this it is necessary to know brief facts of the case. In this case Roffey Bros. are the Principal contractors undertaken the carpentry work in an apartment. In the principal contract there was a penalty clause attracting the penalty if the work is not completed within the agreed time. Time was essence of the contract. These contractors have engaged Carpenter Williams to carry out the carpentry work, by entered into a sub-contract. In this sub-contract the subcontractor will do carpentry work in 27 flats at 20,000, which was inadequate. Due to inadequate consideration the subcontractor incurred heavy losses. Then the subcontractor asked the principal contractor to pay extra price to enable him to complete the work with the time period. The principal Contractor has promised for extra price at the rate of 575 per flat total amounting to 10,300, which is in addition to the agreed price of 20,000. The subcontractor completed eight flats and claimed for the extra payment as promised. The principal contractor has failed to pay the additional price as agreed. Then the subcontractor stopped the work and sued the Principal contractor for the extra price promised. The defendant Principal contractor contended that there is no consideration for the promise to pay additional amount, and the plaintiff has not done any thing new or any extra work what he agreed initially and he is legal bound to do the work. The court rejected the contention of the defended. The judges held that the agreement was enforceable and do not suffer from absence of consideration. The plaintiff was decreed. The plaintiff aggrieved by the decree appealed in the appellate court. The appellate court dismissed the appeal on the ground that a promise to perform existing contractual obligations is a valid consideration and hence the promise is enforceable. The judges while deciding the case in favour of the plaintiff referred the various cases. A few important cases are discussed in brief for better understanding of the subject consideration. "Ward v. Byham [1956] 1 W.L.R. 496 " in this case unmarried couple separated after an issue. The father of the child agreed to pay 1 per week to the mother of the child for looking after the child. After some time he stopped paying contending that it is bounded obligation and duty of the mother to look after the child. Hence there is no consideration to the agreement. The county court held that a promise to perform an existing duty, or the performance of an existing duty is regarded as good consideration. The court of appeal upheld the same relying on Hicks v. Gregory (1849) 8 C.B. 378. "Williams v. Williams" [1957] 1 All ER 305, Court of Appeal [Contract Cases and Materials by H.G.Beale, W.D.Bishop and M.P.Furmston. Chapter 6 p.101]. In this case a wife gets separated from her husband. The husband promised to pay her maintenance. Subsequently he stops paying stating that there is no consideration for his agreement. Hence the promise is not enforceable. The court held that there is consideration and the judges applied the doctrine of Promissory Estoppel. Under the doctrine of Promissory Estoppel, when one person promises to pay extra amount for any existing contract which the other is bound to perform under the law. The other person relies on such promise and acts. The person is estopped from saying that there is no consideration for his promise at the later date. If we critically view and analyze the case of Williams v Roffey Bros &Nicholls the key issues we find are 1.Whether there was inadequate consideration in the sub-contract. 2.Whether the promise to pay the extra price is lacking the consideration with in the meaning of the definition. 3.Whether the plaintiff is eligible for the remedies prayed, if yes to what extent. But here our point of discussion is on consideration. Whether the promise to pay the extra price is lacking the consideration with in the meaning of the definition. The definition is so framed to suit to all types of contracts by including the many ingredients such as promise right, interest, profit or benefit accruing to one party and forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other party. This is construction contract. In this contract couple of ingredients such as benefit accruing to the one party and responsibility under taken by the other party are clearly existing. Therefore there is existence of consideration in the promise. The benefit accrued to the defendant is that (i) by making of promise to pay extra price he enabled the plaintiff to complete the work at faster rate and to finish within the time scheduled there by he accrued the benefit of avoiding the breach of original contract with the third party. (ii) He would avoid the penalty due to non-completion of the work with in the scheduled time. (iii) To some extent he could save the extra amount since he would have incurred more amount by engaging other carpenter. The other side the plaintiff has undertaken the responsibility of completing the work within the time scheduled, though it is an existing contractual obligation the law recognizes it as valid consideration. The plaintiff has completed the substantial quantity of the work by the time revoking the contract. The plaintiff has revoked the contract since the defendant has failed in performing his part of the promise to pay extra price. Therefore the definition of consideration as defined by Lush J. in Currie v Misa case is perfectly fulfilled in this case. Hence the courts have rightly adjudicated the case in favour of the plaintiff. Another point to discuss in this case is whether there is a promissory estoppel. Before we discuss this it is better to under stand the promissory estoppel. Estoppel is an equitable doctrine: Courts apply this doctrine as discretion. It is not a remedy at law. When one party did said something to induce the other party to make a promise. At later stage if he differs as unlawful and not enforceable. The court can apply its discretion of Estoppel on sufficient proof. In the present case of Williams v Roffey Bros &Nicholls there is promissory estoppel. The defendant has promised to pay the extra price. Believing that promise the plaintiff has performed the work. The defendant cannot say there is no consideration hence he need not pay. Here the promissory estoppel applies as decided in the "Williams v. Williams" [1957] case. Bibliography Contract Cases and Materials by H.G.Beale, W.D.Bishop and M.P.Furmston. www.kevinboone.com/lawglos_consideration.html www.personalweb.unito.it/ugo.mattei/ www.answers.com/topic/consideration www.officefinder.com/glossary.html www.homemortgageofnc.com/homemortgage/GLOSSARY/web%20GLOSSARY2.htm www.boise-idahos-real-estate.com/real-estate-definitions-c-158.html www.kellerlowry.com/glossary/glossary_c.htm www.financeandimprove.com/glossary.html www.realestateagent-listings.com/terminology/terminology_c.htm www.bbc.co.uk/watchdog/legalglossary/c.shtml www.lawteacher.net/Contract/ Agreement/Consideration%20Lecture.htm Read More