Consideration

Notes:

Considerationconsideration.ppt

Consideration means that each party to a contract must give something of some value. Consideration must be present for any valid contract unless the agreement is made by a deed (a form of legal document). There are a number of aspects of consideration that need to be understood. There are two types of valid consideration: executed consideration and executory consideration.

 

Executed consideration is the term used to describe the status of a person's promise in a contract where that part of the bargain has been performed. For example, if A agrees with B to pay B £10 to wash A’s car, and B washes the car, B’s consideration is executed, that is, complete, because he has then performed his side of the bargain. He can then hold A to his promise to pay the £10.

 

Executory consideration is the term used to describe the status of a person's promise in a contract where that part of the bargain has not yet been performed. Thus in the previous example, it would be the payment of the £10 that had not yet happened.

 

 

Consideration must have some value

 

As the law is concerned with bargains and not gifts, the consideration must have some value but does not have to be of equal value. The whole point of business is to get more for your goods than you paid for them: clearly this is not equal value.

 

Past consideration is not normally valid consideration

 

Past consideration is defined as something already done at the time the agreement is made. Where the consideration is past, there will not be a valid contract.

 

However, where A requests some performance from B before the contract comes into existence but on the common understanding that there will be a contract and that there will be a payment this is valid consideration. An example is asking a plumber to fix a leak in an emergency.

 

Consideration must move from the promise

 

 This means that the person making the promise must provide the consideration. It does not matter that the contract was made for the benefit of another person.

 

Thus if A agrees to wash B’s car if B pays £10 to C, there is no promise that is enforceable by C, as he has given no consideration for the £10.

 

However, this basic rule has been altered by the Contracts (Rights of Third Parties) Act 1999 so that a person who is not a party to a contract can enforce the contract if he is named in the contract or he gains a benefit from it.  This can be in situations as follows:

 

  1. A person has ordered goods on the Internet to be delivered to someone else
  2. Where someone makes a group booking for an event or travel
  3. Where someone has bought the bride and groom a wedding present from a wedding list in a shop.

 

Issue

Case

Facts

Legal point

Consideration must have some value

Chappell v Nestle

Where chocolate bar wrappers were taken as part payment for a record as part of a promotion. It was acknowledged that used chocolate bar wrappers have little value. They are often described as having a value of 0.0001 pence.

In this case chocolate bar wrappers were enough to be regarded as some value and consideration even though the value was small.

Past consideration is not valid consideration

Re McArdle

In this case a person died and in his will left his assets in equal shares to his five children. The wife of one of the children paid out of her own money for alterations to one of the houses that were included in his assets. The children wrote to the wife, ‘In consideration of your carrying out certain alterations...we hereby agree to repay you [£488] from the estate.'

A promise to pay for work done voluntarily after the work has been done is not consideration. It is past consideration.

 

The court held that the promise of payment did not create a contract as the alterations were over and done with by the time the promise of payment was made.

Issue

Case

Facts

Legal point

Exception where past consideration is valid.

Lampleigh v Braithwaite 1615

Braithwaite killed someone and then asked Lampleigh to get him a pardon from the king. Lampleigh got the pardon and gave it Braithwaite, who promised to pay Lampleigh £100 for his trouble.

Where an act is done at someone’s request and the parties understood that payment would be made; this is valid consideration, not past consideration.

 

The court decided that although Lampleigh’s consideration was past (he had got the pardon) Braithwaite's promise to pay could be linked to Braithwaite's earlier request and treated as one agreement. Therefore, it could be implied at the time of the request that Lampleigh would be paid and so was valid consideration.

Consideration must move from the promise

Contracts (Rights of Third Parties) Act 1999

A person who is not a party to a contract can enforce the contract if he is named in the contract or he gains a benefit from it, e.g. such as where a person has ordered goods on the internet to be delivered to someone else, where someone makes a group booking for an event or travel, and where someone has bought the bride and groom a wedding present from a wedding list in a shop.

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