WEEK 2 - Consideration - key principles

so what is valuable consideration?

may be something promised or something done.

Consideration need not be adequate - what is this? Case law?

According to the doctrine of freedom of contract, the courts will not interfere with a bargain freely reached by the parties. It is not the court's duty to assess the relative value of each party's contribution to the bargain. There is no reason, for example, why a party should not be bound by a promise to sell a new Rolls Royce car for one penny. If the agreement is freely reached, the inadequacy of the price is immaterial. Chappell & Co v Nestle Co Ltd [1960]

Whats an exception to the past consideration rule? Case law on this?

An exception to the past consideration rule exists where some prior act or service was provided by the promisee at the promisor's request and it was always understood that payment would be made for that act or service. Pao On v Lau Yiu Long [1980] Lord Scarman recognised that 'An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise'.

Consideration must be sufficient - what does this mean?

Consideration must have some value 'in the eyes of the law'. It matters not how small that value is, so long as it is worth something Example - Thomas v Thomas (1842) The executor of an estate agreed to transfer a house to the deceased's widow in return for a payment from the widow of £1 per annum towards the ground rent for the property and the widow's agreement to keep the house in repair. The court made clear that it did not matter not whether the widow's obligations in any way matched the value of the property.

what are the 4 rules governing consideration?

Consideration must not be past Consideration must move from the promise Consideration need not be adequate Consideration must be sufficient

Consideration must not be past: case?

Eastwood v Kenyon (1840) a father died leaving his daughter, Sarah, in the care of a guardian, Eastwood. Eastwood borrowed £140 to help pay for Sarah's upbringing. When she came of age, Sarah married Kenyon, who then promised Eastwood that he would pay off the debt to repay Eastwood for having brought up Sarah. However, Kenyon failed to honour his promise. It was held that the consideration provided by Eastwood (by bringing up Sarah) was not good consideration to support Kenyon's subsequent promise to discharge the debt because it was in the past. It was held that the moral obligation to fulfil such a promise was insufficient to create a legally binding contract. (peak form, but not legal bound)

REMINDER - what are the elements needed to create a binding contract?

In order for there to be a binding contract, these three elements must be present: offer and acceptance; intention to create legal relations; and consideration.

Consideration must not be past: what is this?

It is not generally possible to use as consideration some act or forbearance which has taken place prior to the promise to pay. (e.g I did this then, you need to promise to pay this this - doesn't really work) Consideration must be given in exchange for the promise of the other party. If the act / forbearance has taken place prior to the promise, then it cannot be in exchange for that promise.

Pao On v Lau Yiu Long [1980] - what are the 3 conditions needed for this exception to the past consideration rule to apply?

Lord Scarman went on to outline the necessary three conditions for the exception to apply: a) The act must have been done at the promisor's request. b) The parties must have understood that the act was to be rewarded either by a payment or the conferment of some other benefit. These could be because it was expressly agreed that there would be a reward / benefit, or because such an understanding can be implied. The latter is more likely in a commercial context. - how would this be recorded? c) The payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance.

Pao On v Lau Yiu Long [1980] - what is interesting about the 3 conditions laid out in this case? what can this analysis be utilised for?

This case is conventionally cited as creating an exception to the rule of past consideration but the exception may be more apparent than real. The three conditions together indicate that, at some point in the request, an act was done at person A's request and with an understanding of reward / benefit for doing that. Perhaps at that stage (when the consideration is not yet 'past') a simple contract is formed, and all that happens later is that the precise value to be paid is fixed. This analysis can be utilised in relation to many everyday transactions, eg taking a car to a garage for repairs and leaving the ultimate price to be decided after completion of the repairs or seeking advice from a professional person and being presented with a bill on completion of the service in question. To recognise such arrangements as contractually binding is simply to reflect the reasonable expectations of the parties.

what does consideration require?

consideration requires an exchange between the parties. It is the price that one party pays to make the other party's promise enforceable If you give nothing in return for the other party's promise it is a gratuitous promise which isn't enforceable ( basic example - a donation ) the law requires reciprocity to make contract enforceable

what is consideration? easy definition and academic definition in which case was this definition adopted by the House of Lords?

easy: Payment, in any form, under a contract; any value given at the counterparty's request can be good consideration, including any action, inaction, or a promise. Academic Frederick Pollock gives us a concise definition of consideration: '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.' This definition has been adopted by the House of Lords in Dunlop v Selfridge [1915]

Consideration must move from the promisee: what is this? Case?

effectively means that a party who has not provided consideration may not bring an action to enforce a contract. Tweddle v Atkinson (1861) The two fathers of a couple who were about to get married reach an agreement that the father of the bride was to pay £200 and the father of the groom £100, to the bridegroom, William Tweddle, the claimant. The groom sought to enforce his father-in-law's promise, but it was held that he could not as he had provided no consideration for the promise - the consideration had been provided by the fathers.

what are the two types of consideration? details on each

executory consideration and executed consideration Executory consideration is where contracting parties make promises to each other to perform something in the future after the contract has been formed. The classic example is a contract for the sale of goods where the seller promises to deliver the goods at some time in the future, and the buyer promises to pay for them either on delivery or by some other credit arrangement. At the time of the agreement, neither side has done anything towards the performance of the promises made but the agreement still has contractual force, and a party who fails to carry out his promise can be sued. A bilateral contract usually involves executory consideration. Executed consideration is where, at the time of the formation of the contract, the consideration has already been performed. The classic example is a unilateral contract where the promise of a reward is made and the 'price paid' in exchange for that promise is performance of the act stipulated in the offer: Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256. The required act is both the acceptance of the offer (and thus the time when the contract is formed) and the executed consideration.

what is usually given as consideration?

money