1.1 Introduction
The mere fact of agreement alone does not make a contract. Both parties to the contract most provide consideration if they wish to sue on the contract. This means that each side must promise to give or something for the other.
For example, if one party, A (the promisor) promises to mow the lawn of another, B, A’s promise will only be enforceable by B as a contract if B has provided consideration. The consideration from B might normally take the from of a payment of money but could consist of some other service in the future is just as sufficient a consideration as payment itself or the actual rendering of the service. Thus it request giving something in return for the promise of the promisor in order to convert a bare promise made in his favour into a binding contract.
Definition
Lush J. in Currie v Misa (1875) LR 10 Exch 153 referred to consideration as:
“Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”[1]
The definition given by Sir Fredric pllock, approved by Lord Dunedin in Dunlop v Selfridge Ltd (1915) AC 847, is as follow:
“An act or forbearance of one party, or the promise thereof, is the price for which the other is bought, and the promise thus given for value is enforceable.”[2]
Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other’s performance, the performance is consideration for the promise, while the promise is consideration for the performance.
Consideration must have a value that can be objectively determined. A promise, for example, to make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise.
Traditionally, courts have distinguished between unilateral and bilateral contracts by determining whether one or both parties provided consideration and at what point they provided the consideration. Bilateral contracts were said to bind both parties the minute the parties exchanged promises, as each promise was deemed sufficient consideration in itself. Unilateral contracts were said to bind only the promisor and did not bind the promisee unless the promisee accepted by performing the obligations specified in the promisor’s offer. Until the promisee performed, he or she had provided no consideration under the law.
For example, if someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a Bilateral Contract would be formed binding both of you once you provided consideration by accepting those terms. But if that same person offered to pay you $10 each day you drove him to work, a unilateral contract would be formed, binding only upon the promisor until you provided consideration by driving him to work on a particular day.
Modern courts have de-emphasized the distinction between unilateral and bilateral contracts. These courts have found that an offer may be accepted either by a promise to perform or by actual performance. An increasing number of courts have concluded that the traditional distinction between unilateral and bilateral contracts fails to significantly advance legal analysis in a growing number of cases where performance is provided over an extended period of time.
Suppose you promise to pay someone $500.00 to paint your house. The promise sounds like an offer to enter a unilateral contract that binds only you until the promisee accepts by painting your house. But what constitutes lawful performance under these circumstances? The act of beginning to paint your house or completely finishing the job to your satisfaction?
Most courts would rule that the act of beginning performance under these circumstances converts a unilateral contract into a bilateral contract, requiring both parties to fulfill the obligations contemplated by the contract. However, other courts would analyze the facts of each case so as not to frustrate the reasonable expectations of the parties. In neither of these cases are the legal rights of the parties ultimately determined by courts by applying the concepts of unilateral and bilateral contracts.
In still other jurisdictions, courts have simply expressed a preference for interpreting contracts as creating bilateral obligations in all cases where no clear evidence suggests that a unilateral contract was intended. The rule has been stated that in case of doubt an offer will be presumed to invite the formation of a bilateral contract by a promise to perform what the offer requests, rather than the formation of a unilateral contract commencing at the time of actual performance. The bottom line across most jurisdictions is that as courts have been confronted by a growing variety of fact patterns involving complicated contract disputes, courts have turned away from rigidly applying the concepts of unilateral and bilateral contracts and moved towards a more ad hoc approach.1) payment or money. 2) a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act (forbearance) can be consideration, such as “I will pay you $1,000 not to build a road next to my fence.” Sometimes consideration is “nominal,” meaning it is stated for form only, such as “$10 as consideration for conveyance of title,” which is used to hide the true amount being paid. Contracts may become unenforceable or rescindable (undone by rescission) for “failure of consideration” when the intended consideration is found to worth less than expected, is damaged or destroyed, or performance is not made properly (as when the mechanic does not make the car run properly). Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts. Examples: prostitution, gambling where outlawed, hiring someone to break a skater’s knee or inducing someone to breach an agreement talk someone into backing out of a promise.
1.2 Types of consideration
A. Executory consideration:
Consideration is called “executory” where there is an exchange of promises to perform acts in the future, e.g: a bilateral contract for the supply of goods were by a promise to deliver goods to B at a future date and B promises to pay on delivery. If A does not deliver them, this is a breach of contract and B can sue. If A delivers the goods his consideration then becomes executed.
B. Executed consideration:
If one party make a promise in exchange for an act by the other party, when that act is completed, is it executed consideration e.g: in a unilateral contract where A offers Tk.500 reward for the return of her lost handbag, if B find the bag returns it, B’s consideration is executed.
1.3 Rules Governing Consideration
1.3.1 Consideration Must Not Be Past:
If one party voluntarily performs an act and the other party then makes a promise, the consideration for the promise is said to be in the past. The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A give B a lift home in his car. On arrival B promise to give A th.50 towardes the petrol. A can not enforce this promise as his consideration, giving B a lift, is past.
Re McArdle (1951) 1 ALL ER 905-A wife and her three grown up children lived together in a house. The wife of one of the children did some decorating and later the children promised to pay her $488 and they signed a document to this effect. It was held that the promise was unenforceable as all the work had been done before the promise was made and was therefore past consideration.[3]
Exceptions to This Rule:
(A) PREVIOUS REQUEST
If the promise has previously asked the other party to provide goods or services, than a promise made after they are provided will be treated as binding.
Lampleigh v Braithwait (1615) Hob105.
(B)BUSINESS SITUATION
If something in done in a business contex and it is clearly understood by both side that it will be paid for, then past consideration will be valid.
Re Casey’s Patents (1892) 1 Ch 104.
1.3.2. Consideration must be Sufficient but Need Not Be Adequate
Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is realized by the law as having some value. It is described as “real” or “sufficient” consideration. The court will not investigate contracts to see if the parties have got equal value.
Chappell & Co Ltd v Nestle Co Ltd(1959) 2 All ER 701.
This was not a case directly on contract-it was in fact a copyright case. Nestles advertised that they would provide customers with a copy of a record “Rockin Shoes” if they sent in 1/6d together with three wrapper from bars of nestles chocolate. The owners of the copyright in the record were entitled to 6.25% of the normal selling price. They argued that the value was to be calculated on the 1/6d plus the valu of wrappers. Nestles said the wrapper had no valu. It was held by 3:2 majorities in the House of Lords that the wrappers were part of the consideration price, and an injunction was granted. It is unrealistic to divorce the buying of chocolate from the supply of the records. The consideration has two parts (a) the buying of the chocolate bars for the wrappers and (b) the payment of money. Clearly both are of value to Nestles.
It was said that the provision of wrapper was merely a condition prior to purchase. But if the qualification is of value to the vendor and must be re acquired on each occasions, then it is hard not to se this as part of the consideration. Acquiring the wrappers might well involve expenditure which would not otherwise have been incurred.
1.3.3. Consideration must move from the promise
The person who wishes to enforce the contract must show that they provide consideration, it is not enough to show that someone else provided consideration. It must show that consideration “moved from” (ie was provided by) him. The there are three parties involved, problems many arise.
Easton made a contract with X that in return for X ding work for him; Easton would pay Price $ 19. X did the work but Easton did not pay, so Price sued. It was held that Prices claim must fail, as he had not provided consideration. Price v Easton (1833) 4B & Ad433 [4]
1.3.4. Forbearance to Sue
If one parson has a valid claim against another but promises to forbear from enforcing it that will consideration valid consideration if made in return for a promise by the other to settle the claim.
The defendant owed an unsecured debt to the plaintiffs. When the plaintiffs asked for some security, the defendant promised to provide some gods but never produced them. When the plaintiffs tried to enforce the agreement for the security, the defendant argued that the plaintiffs had not provided any consideration. It was held that normally in such a case, the bank would promise not to enforce the debt, but this was not done here. By not suing however, the bank had shown forbearance and this was valid consideration, so the agreement to provide security was binding Alliance Bank v Broom (1864) 2 Dr & Sm 289.
1.3.5. Existing Public Duty
If someone is under a public duty to do particular task, then agreeing to do that task is not sufficient consideration for a contract.
Godefroy promised to pay Collins if Collins would attend court and give evidence for Godefroy. Collins had been served with a subpoena. Collins sued for the payment. It was held that as Collins was under a legal duty to attend court he had not provided consideration. His action therefore failed-Collins v Godefroy (1831) 1 B & Ad 950. [5]
1.3.6. Existing Contractual Duty
If the performance of an existing contractual duty confers a practical benefit on the other party this can constitute valid consideration.
Roffey had a contract to refurbish a back of flats and had subcontracted the carpentry work to Williams. After the work had begun, it becomes apparent that Williams had underestimated the cost of the work and was in financial difficulties. Roffey, concerned that the work would not be completed on time and that as a result they would fall foul of a penalty clause in their main contract with the owner, agreed to pay Williams an extra payment per flat. Willams completed the work on more flats but did not receive full payment. He stopped work and bought an action for damages. In the court of Appeal, Roffey argued that do and had not provided consideration.
It was held that where a party to an existing contract later agrees to pay an extra “Bonus” in order to ensure that the other party performs his obligation under the contract, then that agreement is binding if the party agreeing to pay the bonus has thereby obtained some new practical new practical advantage or avoided a disadvantage. In the present case of there where benefits to Roffey including (a) making sure Williams continued his work (b) avoiding payment under a damage clause of the main contract if getting someone else.
Therefore, William was entitled to payment- Williams v Roffey Bros ltd (1990) 1 all ER
a. Existing contractual Duty owed To A Third Party
If a party promise to do something for a second party, but is already bound by a contract to do this for a third party, this is good consideration.
Scotson v pegg (1861) 6 H & N 295
b. Part Payment of Debt
If one person owes a sum of money to another and agrees to pay part of this in full settlement, the rule at common law is that part payment of debt is not good consideration for a promise to forgo the balance. Thus, if A owes B $50 and B accepts $25 in full satisfaction on the due date, since there is no consideration preceding from A to enforcer the promise of B to accept part-payment. It also protects a creditor from the full amount. It also protects a creditor from the economic duress of his debtor.
If one person owes a sun of money to another and agrees to pay part of this in full settlement, at common law is that part payment of a debt is not good consideration for a promise to forgo the balance. Thus if A owes B $50 and B accept $25 in full satisfaction on the due date, since there is no consideration proceeding from A to enforce the promise of B to accept part-payment. This is because he is already bound to pay the full amount, an agreement based on the some principal as Stilk V Myrick (1809). It also protects a creditor form the economic duress of his debtor.
In Pinnel’s Case (1602), Cole owed Pinnel $8-19-od which was due on 11 November. At PInnel accepted in full settlement of the debt. Pinnel sued Cole for the amount owed. It was held that the agreement accept part payment would be binding if the debtor, at the creditor’s request, provided some fresh consideration. Consideration might be provided if the creditor agree to accept:
-Part-payment on an earlier date than the due date
-clattel instead of money
-part payment in a different place to that originally specified.
Despite its harshness the rule in Pinnel’s Case was affirmed by the House of Lord and still represent the law.
In Foak v Beer (1884) Mrs Beer had obtained judgment for a debt against Dr Foakes, who subsequently asked for time to pay. She agree that she would take no further action in the matter provided that Foakes paid $150. Foakes duly kept to his side of agreement. Judgment debt, however carry interest. The House of Lords held that Mrs Beer was entitled to the $360 interest which had accrued. Foalks had not “Bought” her promise to take no further action on the judgment. He had not provided any consideration.
The rule was recently applied by the Court of Appeal:
In Re Selectmove (1995), Selectmove owed arrear of tax to the Inland Revenue. The IR was in a position to put Selectmove into liquidation because it was unable to meet its liability. There was a meeting at which Selectmove proposed to pay all tax as and when it fell due and that it would pay off the arrear at the rate of $1000 a month commencing the following February. The Collector of Tax informed Selectmove that this proposal would need approval of his superior and that he would get back to them if it was not acceptable. Selectmove later the IR commenced liquidation preceding which Selectmove resisted, relying upon the agreement made at the meeting in July.
The court of Appeal held, dismissing the t (1) that a promise to pay a sum which the debtor was already bound to pay was not good consideration (2) any promise made by the Collector of Taxes was made without actual or ostensible authority. Selectmove’s attempt to use the notion in Williams’s v Roffey Bros (1990) failed as it was held that it was applicable only where the existing obligation which is pre promised to supply goods or service, not where it is obligation to pay money.
More recent case includes:
Freguson V Davies (1996) the Independent December 12th 1996 Re C
1.4 EXCEPTION TO THE RULE
Apart form the exception to the rule mentioned in pinnel’s Case itself there are two other at common law and one exception in equity.
1.4.1 PART PAYMENT OF THE DEBT BY A THIRD PARTY
A promise to accept a smaller sum in full satisfaction will be binding on a creditor where the part payment is made by a third party on condition that the debtor is released from the obligation to pay the full amount.
1.4.2 COMPOSITION AGREEMENT
The rule does not apply to composition agreements. This is an agreement between a debtor and group or creditors, under which the creditors agree to, accept a percentage of their debts in full settlement. Despite the absence of consideration, the courts will not allow an individual creditor to sue the debtor for the balance: Wood v Robarts(1818). The reason usually advanced for this rule is allow an individual creditor to claim the balance would amount to a fraud on other creditor who had all agreed to percentage.[6]
1.4.3 PROMISSORY ESTOPPEL
This is the name that has been given to the equitable doctrine which has as its principal source the obiter dicta of Denning J in High Trees House Ltd (1947).
1.5 REQUREMENTS
The exact scope of the doctrine of promissory estoppel is a matter of debate but it is clear that certain requirement must be satisfied before the doctrine can come into play.
A) CONTRACTUAL/LEAGAL RELATIONSHIP
All the case relied on by Denning J in High Good v Michael Jackson, (1968) Donaldson J said that an existing contractual relationship was not necessary providing there was “a pre-existing legal relationship which could in certain circumstance, give rise to liabilities and penalties’
B) PROMISE
There must be a clear and unambiguous statement by the promisor that his strict legal rights will not be enforced; one party must make a promise which is intended to be binging. The scaptrade (1983), however it can be implied or made by conduct as in the Hughes Case (1877).
C) RELAINCE
The promise must have acted in reliance on the promise. There is some uncertainty as to whether the promise 1) should have relied on the promise by changing his position to their detriment. 2) whether they should have merely altered their position in some way, not necessarily for the worse.
D) INEQUITABLE TO REVERT
It must be inequitable for the promisor to go back on his promise and revert to his strict legal rights. If the promisor’s promise has been extracted by improper pressure it will not be inequitable for the promisor to go back on his promise.
E) A SHIELD OR A SWORD?
At one point it was said in Coombe V Coombe(1951) that the doctrine may only be raised as defence “as a shield and not a sword”. It was held that the doctrine only operates as a defense to a claim and cannot be used as basis for a case. However this was doubted in Re Wyven Developments (1974).
F) EXTINCTIVE OR SUSPENSIVE OF RIGHTS?
Another question raised by this doctrine is whether it extinguishes rights or merely suspends them. The prevalent authorities are in favour of it merely suspending rights, which can be revived by giving reasonable notice or by conditions changing.
PROMISSORY ESTOPPEL
There are three exceptions to the rule in Pinnel’s case. They are composite agreement, paymentr of debt by third party and promissory estoppel. The rule in Pinnel case(1602) is that part payment of debt is not good consideration to forgo the balance. Thus the creditor may sue for the remaining debt unless there is fresh consideration.
Conclusion
Law is most important to us. The objective of Law is order, and the result of order is that men are enabled to look ahead with some sort of security as to the future. More importantly, the objective of law is to bring order in the society with a view to enable its members to progress and develop with some sort of security regarding the future. In addition I mention this report full Law of contract but especially I have made this report about consideration which is most important element to make a contract. Without consideration cannot make a contract. Moreover, Law of Contract is to introduce certainly in commercial and other transaction. Anson observes that the law of contract is indented to ensure that what a man has been led to expect shall come to pass, and what has been promised to him shall be performed. Last but not the least, Law, Law of Contract and the part of consideration all things are most important to us. As a Citizen of a country we have right to live with peach and to use a pa proper law.
References
Book:
- Commercial Law : A.K. sen
- Commercial Law : M. Ahemed
- Business Law Denis Keenan
Documents:
- Different types of Report, research Paper
Internet browsing, Online Library.
- Different types of journal and article
- Different types of cases
- Different types of website