Consideration

As always the notes follow the outline of the mindmap. The picture below has less detail it’s just to give an overview of the main points. The PDF version (Consideration2) shows all the levels of the mindmap. (Reflected in the notes)

DEFINITION

Classical definition:

• Currie v Misa: a valuable consideration is some benefit to one party whilst the other party has to suffer some type of loss. The something must be of value as courts are keen to enforce bargains.

Modern approach:

• Williams v Roffey Bros: a promise to make bonus payments was enforceable when the promisor obtained a benefit or obviated a disbenefit where the promise hadn’t been obtained by fraud or duress.

GENERAL RULES OF CONSIDERATION

1. THE RELEVANT TIME:it must be given in exchange for the promise i.e in response to the promise it can’t be given beforehand.

• Eastwood v Kenyon: promises were not sufficient to found a contract (looking after Sarah). Consideration made in the past is no consideration at all.= general rule
• Roscorla v Thomas: you cannot use one consideration for more than one promise because each promise has to be given in exchange for something. Past consideration isn’t valid, consideration must be given to the actual promise D makes, and it must be contemporaneous with the contract.

Exceptions:

• If you promise to pay and agree to decide the terms later
• services performed at the request of the promisor in circumstances that raise an implication that they are to be paid for.

1. CONSIDERATION MUST MOVE FROM THE PROMISEE

• Tweddle v Atkinson:  a person can only enforce a promise if they have provided the consideration themselves, it cannot move from a third party.Natural love and affection isn’t sufficient consideration in the eyes of the law.

1. MUST BE SUFFICIENT BUT NOT ADEQUATE

• it is something that has value in THE EYES OF THE LAW
• Treitel: the courts never really set out to create a doctrine of consideration. They probably meant no more than that there was a reason for the enforcement of the promise.

Tangible returns

• Thomas v Thomas: consideration must be of economic value but also in the eyes of the promisor. Consideration must be sufficient but not adequate, so it didn’t matter that the husband had stipulated on his death bead that £1 pa was enough rent for his wife to pay to stay in the house.
• Chappell & Co v Nestle: a contracting party can specify what consideration he chooses. A peppercorn doesn’t cease to be good consideration if it’s established that the promisee doesn’t like pepper and will throw it away. So in this case the chocolate wrappers had value to Nestle because people had to buy them and the promotion was designed to generate more sales.
• HMRC v Aimia Coalition: Decided Nectar cards have no intrinsic value by themselves and so for our purposes they have no consideration
• Lipkin Gorman v Karpnale: Essentially about the intrinsic worth of gambling chips. No value as the chips are merely a convenient mechanism for facilitating gambling and the gamblers didn’t buy them.

Intangible Returns: are where for example A agrees to sell book and B promises to be nice in return. Can emotional gifts be consideration?

• White v Bluett: father’s promise to his son to pay off his debts in return for him being nice and not complaining about how he was being treated wasn’t sufficient consideration. reciprocal exchange is necessary for consideration- he was not giving anything in return for what his father was doing for him.
• Hamer v Sidway: In return for his uncle discharging his debt, nephew promised to stop smoking, swearing and gambling, as usual uncle dies before he discharges debt. US courts held that because the nephew was agreeing to not enjoy one of his legal rights this was goods consideration.

1. PAST CONSIDERATION IS NO CONSIDERATION

• Re McArdle: the promise to make payment for the improvements she made on the property was made after consideration had been performed therefore the promise to make payment wasn’t binding. past consideration is NOT valid.

With English law being English law, there are however a number of exceptions to this general rule.

• Lampleigh v Braithwaite: B allegedly murdered someone in prison and asked L to ride to the king and ask for a pardon. On return B says in consideration for you doing that I will pay you £100.

Normally this would be past consideration as the action is done before the promise. However the court held that if it’s clear that the only reason someone would do an act is in expectation of a reward, then even if consideration is past it WILL be valid.

• Re Casey’s Patents: A letter sent to the manager said that in consideration of your work you will be given the patent (which of course is never transferred to him). It was clearly understood between the two parties that the manager would get a reward, why else would he work so hard. Therefore court held that the agreement was enforceable.
• Pao On v Lau Yiu Long: if a later promise would have been enforceable if consideration had been given at the time then past consideration can be valid if it is done at the promisor’s request

1. PERFORMANCE OF AN EXISTING DUTY THAT YOU OWE UNDER THE LAW

Exceptions to the general rule

1. where a public duty is exceeded
2. where a contractual duty is exceeded
3. where there’s an existing contractual duty owed to a third party
4. where the rule in Williams v Roffey Bros applies.

1. Existing Duty to Promisor/ contractual duty is exceeded

• Stilk v Myrick: promise to pay was unenforceable since the sailors were contractually bound to return the ship to London. Therefore there was no consideration given by the sailors in return for the captain’s promise to pay additional wages.
• Facts: sailor bringing an action for unpaid wages, he was on a trip in the Baltic and halfway through the voyage he was promised extra money following the desertion of ship by two crew members. Promise was to share two salaries between the two remaining crew
• Issue: money wasn’t paid
• Held: sailor isn’t entitled to extra money.
• Difficulty with this case, is there are two law reports for this, one by Campbell and one by Espinas. According to Campbell the reason why the sailor isn’t entitled to the money is because there is no consideration for the promise to pay him the extra wages. The only thing that’s being offered by the sailor is to sail the ship back to the UK. He’s contractually bound to do that under the original contract anyway. Only offering existing contractual duty. Espinas says, the reason why the sailor isn’t entitled to the money is on the grounds of Public Policy. He argued It’s not good that sailors are extorting money while they’re in the middle of the ocean. Extorting money in contract is called duress
• PROBLEM: What is the ratio of this case!!!!!!!
• Campbell was a well known and respected law reporter. Espinas was none of those things. Justice Isaac says he doesn’t care for any Espinas or any ass 😀 :’). However Espinas was a barrister on the case so probably knew more about it than Campbell. Down the ages however it’s become accepted that the ratio is actually the one provided by Campbell. I.e if you offer performance of existing contractual duty as consideration, it’s not good enough. Performance of a pre-existing duty is not legally sufficient consideration.

• Hartley v Ponsonby: the promise to pay the sailors was enforceable because the greater reduction in crew numbers made the return voyage dangerous. The sailors’ promise to return under more dangerous conditions had exceeded there existing contractual obligations and therefore this represented good consideration for the promise of extra pay.

1. WHERE THERE IS AN EXISTING CONTRACTUAL DUTY OWED TO A THIRD PARTY

• Shadwell v Shadwell: Uncle agreed to pay nephew to marry girl. consideration is marriage to 3rd party. During this time period once you had agreed to marry someone it was contractually binding. Marriage was an object of interest to the uncle and he benefited in its taking place. Performance of duty owed to the 3rd party was in relation to the promise= good consideration. Although marriage is a boon and a joy, that in itself wasn’t good consideration. Fact that nephew would incur expenses in marriage was.
• Pao On v Lau Yiu Long: performance or promise to perform an existing duty owed by the promisee to a 3rd party is also good consideration.
• Contracts (Rights of Third Parties) Act 1999 s1= remedy for second rule of privity.

1. WHERE PUBLIC DUTY IS EXCEEDED

• Collins v Godefroy: C received a subpoena to appear in court as a witness, G promises to pay him as expenses if he definitely turns up. surprise surprise he doesn’t pay. Court held that the promise to pay wasn’t enforceable because he had been subpoenaed already and so had a legal duty to attend court anyway. If you are just performing an existing legal duty= not consideration

• Ward v Byham: Parents of illegitimate child separate, father promises to pay mum £1 a week in maintenance as long as she promises to keep the child happy and well. he stops paying. Courts say the promise to pay money was enforceable because there was good consideration in this case. Mum owes legal duty to look after child, that in itself isn’t good consideration. But what she offers as well as or instead is the promise to make the child happy. Because she’s offering more than her existing legal duty= good consideration.

• Glassbrook v Glamorgan/ Harris v Sheffield United: : if you do more than is expected then that is sufficient consideration. it is adequate consideration where what is given is more than could have been expected from performance of the existing duty, were in fact something extra is added to what the c is already bound to do.

1. WHERE THE RULE IN WILLIAMS V ROFFEY APPLES

A pre-existing duty to the promisor can be legally sufficient consideration if the promisor derives a practical benefit from the agreement and if the promise isn’t given under economic duress. The test for understanding whether the contract could be legitimately varied is as follows:

1. A has a contract with B for work and before it’s done A has a reason to believe that B may not be able to complete it
2. A promises if B finishes on time they will get more money etc and
3. A obtains in practice a benefit or obviates a disbenefit from giving the promise
4. There must be no economic duress.

• Facts: Williams v Roffey Bros concerned a contract to refurbish a block of flats. The defendants were the main contractors, and they subcontracted the carpentry work to the claimants for £20,000. Part way through the work the claimants realised they had underestimated the cost and told the defendants of their financial difficulty. The defendants (mindful of the fact that if the work was not completed on time the defendants would be liable to pay compensation under the main contract) promised to pay the claimants extra money (ie £575 per flat) to complete on time. On this basis the claimants continued to work on the flats but in the event were not paid the extra money promised by the defendants and sued.
• Issue: The main issue before the Court of Appeal was what, if any, consideration the claimants had given in return for the promise of additional money. Whilst it was conceded by the defendants that they had secured practical benefits (i.e. avoiding liability under the compensation clause in the main contract and the cost and expense of finding other carpenters to finish the job), the defendants argued that there was no legal benefit. Was there sufficient consideration for the increased amount for on time completion?
• Held: a promise to make bonus payments was enforceable when the promisor obtained a benefit or obviated a disbenefit where the promise had not been obtained by fraud or duress. On the facts R had obtained a benefit and so there was consideration to support the agreement to make bonus payments to W.

• South Caribbean Trading v Trafigura Beheer BV: critices the decision in Roffey.
• Judge says about William and Roffey, says you have to use Foakes Scope on Roffey- he says its wrongly decided. J Coleman first instance, if it wasn’t because it came from CoA he wouldn’t have followed it at all. Rather than saying Foakes is from the HoL and that’s why we can ignore Williams and follow Foakes, he does something else. He says that if you look at judgement in Roffey of Glidewell, you can see there was a lot of reliance on the case of Pao On, and Glidewell relied an awful lot on the idea of the performance of an existing duty to a third party to reach his conclusion.
• Coleman says if you actually look at the situation in Roffey it’s just about two people, Williams and Roffey bros, there is no third party. What he argues is: if you’re talking about a duty owed just between two people then thats Foakes and Beer and not Pao On.

Criticism: Roffey wrongfully decided and doesn’t take into account Beer. And reasoned wrongly as it relies on a case that’s not relevant, and extrapolates case to a two person relationship. Basically its wrong!

Problem: Coleman’s comments are obiter and not ratio. So it’s left to us to think about the rightness of Williams and Roffey bros. Easy answer: they deal with different issues. They both cases deal with performance of an existing contractual duty.

• In South Caribbean Trading Ltd. v. Trafigura Beheer BV Coleman J widened the effect of economic duress, apparently dispensing with the requirement of coercion on the promisor. He stated that any unjustified threat by the promisee not to perform an existing duty would invalidate any practical benefit conferred in the making of the new promise of more for the same [36] . This approach could, however, totally negate the effect of the recognition of practical benefit

1. PART PAYMENT OF DEBT

• Pinnel’s Case: general rule- a promise to pay less on due date is not good consideration. However there are two exceptions:
  • if you part pay early then that’s good consideration
  • if you pay less on the due date but you give something else of value as well.

Basically part payment and something= good consideration

• Foakes v Beer- part payment of debt is not good enough for consideration, therefore Foakes had to pay interest. The decision in this case seems unfair as Foakes had relied on Beer’s promise to not take further action if the debt was repaid. Its the potential harshness of this common law rue (which is still good law) that led to the development of the equitable doctrine of promissory estoppel.

Which is why William v Roffey Bro’s is controversial- if you’re owed a debt then getting the money early is of benefit to you, so surely early payment should be good consideration?

• Re Selectmove- agreement to accept payment of the debt by installments was not binding on the Inland Revenue. Their Lordships distinguished the case from that of Williams v Roffey on the basis that the present case was concerned with an existing obligation to pay a debt, whilst the Roffey case was concerned with a contract for goods and services, and because of this the court was bound by the House of Lords decision in Foakes v Beer.
  • Bankruptcy case. Attempt to rely on Roffey. Peter Gibson argues Roffey does not apply, it has to be the Foakes and Beer case , because Beer is a HoL case and not CoA.
  • Controversial because: Foakes is an 1884 case and Roffey is a later 1991 case. The case of Foakes was never cited in Roffey but it should’ve been, so we have parallel tracks where in some instances, practical benefit applies and some when it doesn’t= mess of law. Attempts to reconcile, differentiate by saying Roffey is about goods and Foakes is about debt, these are obviously two different issues. Difficulty when you read the case is the idea of promising on existing duty is the same, that won’t work. Other thing, is to talk about reliance on promise. Waters further muddied in South Caribbean case. The Court of Appeal in Re Selectmove refused to extend the principle to a case involving part-payment of a debt.

1. FORBEARANCE TO SUE

• If you promise not to sue when you can then that’s good consideration.
• If you know your claim is invalid then that’s not good consideration. Wade v Simeon
• If you think your claim is valid but it’s not, but the other party believes it is then that can be good consideration.

Cook v Wright (1861) 1 B & S 559

• A promise to give up a claim that you have a reasonable belief in and is valid and non frivolous, is good consideration for a contract. The position of both parties must be altered in cases of compromise.