Consideration in Contract Law - Case Study Example

The truth is that the courts have never set out to create a doctrine of consideration. They have been concerned with the much more practical problem of deciding in the course of litigation whether a particular promise in a particular case should be enforced When the courts found sufficient reason for enforcing a promise they enforced it; and when they found that for one reason or another it was undesirable to enforce a promise, they did not enforce it. It seems highly probable that when the courts first used the word "consideration" they meant no more than there was a "reason" for the enforcement of a promise. If the consideration was "good", this meant that the court found sufficient reason for enforcing the promise. Professor Patrick Atiyah1. Consideration can be defined as "An act of 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." F. Pollock2. Consideration comes under the ambit of a number of complex rules, which have exceptions. These rules and their exceptions are appended below: 1. Consideration must move from the promisee, but it need not move to the promisor. 2. Consideration should be sufficient although it need not be adequate. 3. Consideration must be current and not past. 4. Performance of an existing obligation under a contract owed to the promisor is not Consideration for a promise. 5. Part payment of a debt cannot be construed to be Consideration for a promise to discharge the whole sum. 6. Performance of a public law duty is cannot be considered to be Consideration for a promise. 7. Performance of a contractual obligation owed to a third party is tantamount to Consideration for a promise. A redundant or free promise is hence, legally unenforceable. Such promises do not involve consideration and consequently, they are not regarded as contractual promises unless made as a formal contract by deed. In English Law a promise made under contract is unenforceable in the absence of consideration. Further, the legitimacy of a simple contract can be ensured only if there is consideration from the party accepting the offer. Increasingly, judges are being encouraged to find consideration in cases; this is so that contractual claims can be assessed on the basis of the real intention of the contracting parties to one and another, rather than a strict and narrow interpretation of case law. Consideration is only at issue in simple contracts, Courts often have to find consideration to be able to infer that a contract exists. In a Contract By Deed, consideration is unnecessary; as it is clear what is due form whom. In addition, where the traditional narrow view of consideration may lead to inconsiderate results, Courts may accept a request for applying the principle of equitable estoppel. Therefore, a contract which contains promises unsupported by consideration is void ab initio. Valid consideration has the following features: 1. Consideration must move from' the offeree to the offeror, that is, the person making the offer must be expecting something in return. 2. Consideration must be something of value, however trifling to the offeror, or something of detriment to the offeree. 3. Consideration must be sufficient in law, but need not be sensible in fact. An offer of sale of a Rolls Royce Car for 1 is valid consideration though not sensible. However, if this car is offered gratis, there is no consideration and the agreement is unenforceable. 4. Consideration must impose an obligation in the future; it is unusual and inadequate to base an offer on past consideration3. In the case Currie v Misa it was held that, "A valuable consideration, in the sense of law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other"4. Hence, reciprocity is essential to the doctrine of consideration, in other words, a promisee cannot enforce a promise unless he has given or has promised to give something in exchange for the promise which is beneficial to the promisor. In Tweddle v Atkinson, it was held that consideration need not be a benefit given by the person seeking to enforce the contract. This case illustrates that without consideration a contract may not be enforceable even if it incorporates a clause that it should be enforceable5. In Chappell and Co. v Nestle, the consideration was held to be chocolate bar wrappers, though this consideration was so negligible that it could be regarded as non - existent, all the same it was held to be valid consideration6. In Collins v Godefroy, it was decided that the performance of a duty of law howsoever onerous does not constitute consideration7. In Glasbrook Bros v Glamorgan CC, a police authority provided protection in excess of what was required by their statutory duty. The Court decided that if the duty of law performed was over and beyond what was strictly required by the statute, then such performance constitutes valid consideration and therefore the Police Authority was entitled to payment for the provision of this special protection8. In Ward v Byham, the Court held that a mother's duty to care for her child could not be deemed to be consideration for an agreement. It however, held that to care for a child in a particular way was consideration. Time and again there has been a clamour for the repeal of the principle invoked in this case. The cause for this demand is that it leads to unfairness. An agreement connotes a coincidence of views of both the parties to a contract9. In all the above cases the Courts have decided on the basis of the intention of the parties and their decision has varied in the interpretational aspect from case to case. In other words no strict and narrow rules were followed in the application of the relevant statute, while assessing the validity of the contract. The traditional view is that it is insufficient to agree to carry out some action for which there is already a contractual obligation. This is highly debatable, and there are conflicting case reports in this respect. In Stilk V Myrick, the captain of a ship, agreed to pay the remaining ten crew members an additional amount after the desertion of two crew members. However, on reaching their destination he refused to do so and the Court upheld his stance on the grounds that the plaintiffs had not offered adequate consideration. The Court further held that Stilk had made a gratuitous promise by offering to do something he already had to do10. . In Hartly v Ponsonby though the facts were superficially similar, the number of desertions were 31 out of 36 and this engendered a vast change to the contractual situation; consequently, the captain's offer of extra money was construed as a new agreement, and the decision in Stilk v Myrick (1809) was considered to be superfluous to the issue11. Accordingly, the Courts had interpreted consideration in accordance with the circumstances of the case. Although, past consideration is not valid, all the same if there is any practical benefit arising out of the performance of the contract it will be treated as valid consideration12. Irrespective of the value of an act, in general, it cannot be treated as consideration on a new agreement. In Re McArdle the tenants of a house carried out improvement works during their occupancy for which they were offered payment. However, they were unable to claim this payment, because the consideration was past13. Though the performance of existing contracts is treated as invalid consideration, all the same, under certain circumstances, Courts have held that it constitutes a valid contract. The conventional view is that it is insufficient to agree to carry out some action for which there is already a contractual compulsion. That this is highly litigious is borne out by the ruling in Williams v Roffey Bros, wherein the Court of Appeal held that although Williams were agreeing to do something which was already part of a contract, Roffey was all the same, gaining practically from Williams. It further, held that this was adequate to support the contract and that the practical benefit in this case was to be interpreted to imply that Williams' promise was not gratuitous. The Court further, decided that the decision in the Stilk v Myrick case would be applicable. When one party reneges on an agreement and claims that consideration was absent, then the other party can claim that this agreement was a contract and can ask the Court to support the contract. In the case Central London Property Trust Ltd v High Trees Ltd, the doctrine of promissory estoppel was invoked. In this case a landowner agreed to reduce the cost of leasing a block of flats, and then attempted to renege on the agreement stating that there was insufficient consideration. The Court did not uphold the landowner's contention. However, courts have repeatedly stressed that the decision in this case is not to be construed to set a precedent for a party to renegotiate a contract on less favourable terms and then prevent that party from making a claim for damages14. This is illustrated in the case Combe v Combe, wherein the plaintiff, a divorced woman, pleaded that in accordance with the judgement in the Central London Property Trust Ltd v High Trees Ltd case, the Court was to issue orders to enable her to enforce an agreement made by her former husband to pay her maintenance after their divorce. The Court of Appeal ruled that the High Trees case did not create new causes of action where none existed before and accordingly dismissed her plea15. From the foregoing it can be concluded that, the interpretation of the statute with regard to the aspect of consideration varied based on the situation or the circumstances of the particular case. In this manner it can be deduced that consideration need not be adequate but must be sufficient and consideration must be current and not past. However, under certain circumstances, performance of an existing obligation under a contract owed to the promisor will be treated as consideration. Further, there are no strict or stringent rules of applicability in respect of the doctrine of consideration. The Courts have interpreted it in such a way as to dispense justice to the aggrieved party. These decisions are therefore different from case to case without any uniformity being maintained. Instead of basing their decisions on this doctrine, the Courts have attempted to identify consideration in contract cases in order to redress the genuine grievances of the parties to whom an injustice had been done. Bibliography. 1. P.S Atiyah 'Consideration: a restatement' in Essays on Contract, Oxford University Press, 1986. 2. P.S Atiyah 'An introduction to the law of contract' 5th ed., Clarendon Press Oxford, 1995. 3. H.G Beale, W.D Wishop, M.P furmston, 'Contract: cases and materials' 4th ed., Butterworth, 2000. 4. M. Cope 'Duress, undue influence and unconscientious bargains', Monash studies in law, The law book company Ltd, 1985. 5. E. McKendrick 'Contract law', 4th ed., Palgrave law masters, 2001. 6. G.H Treitel 'The law of contract' 10th ed., Sweet and Maxwell, 1999. Read More