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Lecture Notes - Consideration

Consideration is required for a contract to be enforceable in court. Consideration involves both parties providing something of value, such as one party providing goods or services and the other providing payment. Consideration must be exchanged at the same time as the promise, as past acts cannot serve as consideration. However, an exception exists where it can be implied that one party's performance was dependent on a future promise from the other party.

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4K views3 pages

Lecture Notes - Consideration

Consideration is required for a contract to be enforceable in court. Consideration involves both parties providing something of value, such as one party providing goods or services and the other providing payment. Consideration must be exchanged at the same time as the promise, as past acts cannot serve as consideration. However, an exception exists where it can be implied that one party's performance was dependent on a future promise from the other party.

Uploaded by

Adam 'Fez' Ferris
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Contract I – Lecture III

Consideration
Recap on the four constituents of a contract: Offer, acceptance, consideration
and intention to create legal relations. Offer and acceptance go into the
existence of the agreement; consideration and intention go into the
enforcement of the agreement.

Definition: Consideration is only needed when a contract is not made by deed.


The courts only enforce bargains not gratuitous promises. In order to
transform the gratuitous promise into a bargain both parties must pay
something.

Example: [Currie v Misa 1875] ‘Consideration may consist of some right,


interest of profit or benefit accruing to one party or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other.’

Benefit to promisor, detriment to the promisee.

Example 2: [Edmunds v Lawson 2000] A pupil barrister makes a claim against


barristers’ chambers. The pupil was offered a 12 month pupilage, at the end of
which she would receive his qualification. Pupil brings a claim against the
chambers saying that she is entitled to minimum wage. The chambers argue
that they did not pay anything or guarantee anything to the claimant,
therefore there is no consideration. Furthermore, the claimant owes nothing
to them so there is no consideration there. H of L judgment: There is
consideration in this case. Even if there is no money changing hands we can
look at the outside circumstances to show that there is consideration: The
chambers has the ability to attract good students in the future. The chambers
may also get the benefit of having connections with the people who used to
train with them. However, there doesn’t seem to be any detriment to the
promisee. The court decided that this issue did not matter as the benefit was
enough.

Sufficient benefit is enough to constitute consideration. There is now far less


weight on detriment in modern cases.
When must consideration be furnished?

Consideration must be given in return for the promise. If the consideration is


given after the promise it’s not good (said to be past consideration). If
performance of the obligation predates the promise then this makes the
consideration past.

Example: [Eastwood v Kenyon 1840] Claimant is acting as a guardian for the


child. The child’s father dies, therefore responsibility passes to claimant. The
father’s estate proves insufficient to take care of the child. The claimant
borrows money for the benefit of the child. In return, the child agrees to pay
the money back when she’s of age. When the child comes of age she begins to
pay the money back and the claimant transfers the father’s estate back to her.
The child then marries the defendant. The defendant takes on the role of
paying the money back. However, he then stops paying and refuses to pay any
further. Can claimant enforce the contract against the defendant? (Note: In
1840 a woman – in legal terms - ceases to exist upon marriage and therefore
the child cannot be sued, only her husband) Judgment: This contract is not
enforceable as there is no consideration. Reasoning: The promise to pay from
the defendant came too late. The consideration came before the promise. The
consideration was taking care of the child and getting money for the child and
this happened before the promise was made. This is past consideration.

When there is an attempt to use one lot of consideration to enforce to


promises this may also be considered as past consideration.

Example 2: [Roscorla v Thomas 1842] Defendant buys a horse off the claimant
for £20. The defendant then gives an oral promise that the horse was free from
vice. Claimant brings an action against the defendant for a breach of warrantee
(the promise), because the horse is sick. Judgment: Not enforceable as there is
no consideration. The consideration was the selling of the horse for £20. The
oral promise occurs later and there is no exchange at this point. The £20
cannot be used as consideration for the second promise as it is only
consideration for the first promise (to sell the horse).
Exception: Doctrine of implied assumpsit

Although Y makes a promise to give something to X after X has undertaken a


task, X may be able to claim – if it can be implied at the time of Y’s request –
that X’s performance was conditional on X receiving that promise.

Example: [Pao On v Lau Yiu Long 1980] An agreement is made to sell shares.
There is also a collateral contract: In this contract our claimant agrees not to
sell 60% of the shares for the first year after exchange. In return, Lau agrees to
protect the other party against the drop in value of the shares and to buy them
back for the original price at the end of the year. Pao realised that they might
be forced to sell the shares at the end of the year and didn’t like this. Pao
saught to get this changed. Instead Pao wanted a guarantee of indemnity – this
means that Lau would get compensated for the drop in value of the shares
instead. This promise (indemnity) was not enforceable because it was too
distinct from the original agreement. Judgment: The promise not to sell the
shares was a promise in the future, not a promise in the past and because of
this it coincides with the new arrangement (the indemnity agreement). It was
implied at the time the agreement was made that there would be some
reciprocal benefit for the agreement not to sell the shares. 3 things must be
shown for this exception: 1) The request was made by the promisor. 2) It was
understood at the time the promise was made that the promise would be
rewarded. 3) The later promise would have been enforceable if there’d have
been consideration at the time.

Read some McKendrick/cases on the handout list to aid understanding.

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