Lecture Notes - Consideration

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.

W hen

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 money back. However, he then stops paying and refus es to pay any further. Can claimant enforce enforce the contract against 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. W hen

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] 1980] An agreement is made to sell shares. 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 enforc eable if thered have been consideration at the time. Read some McKendrick/cases on the handout list to aid understanding.