contract 5 - consideration[1]

8/9/2019 Contract 5 - Consideration[1]

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Legal Environment

Contract 5

Consideration


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Learning Objectives

Quick Review

The requirement of consideration

Definition of consideration

Types of consideration

Other rules for consideration

Privity of Contract


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Quick Review

A contract is a legally binding agreement

In order to create a valid contract which is

legally enforceable, there must be an offer

and an acceptance


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Requirement of Consideration

In addition to an offer and acceptance, we

also need consideration in order to create a

contract

Only contracts made by deed do not require

consideration


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Definition

Consideration was defined in Currie v. Misa

(1875) 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


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Definition (cont.)

Basically, one party benefits in some way or

the other party is responsible for doing

something (or both)

Paying (or promising to pay) money in

return for the goods or services is the most

common form of consideration


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Types of Consideration

Executory Consideration

Executed Consideration

Past Consideration

Forbearance


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This is where parties exchange promises to

do something in the future

A farmer promises to deliver vegetables to a

restaurant, and the restaurant promises to

pay for the vegetables


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This is where the offeror promises

something once the offeree does something

The promise only becomes enforceable

once the offeree has done the action

If Jane loses her dog and offers to pay a

reward to the person who finds it, she doesnot have to pay until someone finds her dog

and returns it to her


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Executory v. Executed

Executory consideration consists of two

promises

Executed consideration consists of one

promise followed by some action


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Past ConsiderationPast consideration does not form a valid contract

Normally, consideration is given at the time the

contract is made or at a later timePast consideration is where the action is

performed before the promise is made

This is not good consideration because the

consideration must be given in return for a

promise

This cannot be the case if the action was

performed before the promise was made


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Example of Past ConsiderationRe McArdle (1951)

Some children would become owners of a

house when their mother died

While the mother was alive, she lived in the

house with one of her sons and his wife

The wife made improvements to the house

The other children later promised to pay the

wife for the improvements


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Example (cont.)When the children refused to pay, the wife

could not force them to because she did not

do the work because of their promise

She did the work before they made any kind

of promise


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ForbearancePeople tend to think of consideration as

some kind of action which is done

However, not doing something (ie

forbearance) can also be consideration

For example, Tim has the right to sue Bob

over some matter.Bob promises to pay Tim some money if

Tim gives up his right to sue


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Forbearance (cont.)This would create a valid contract because

Tim giving up his right to sue is

consideration

His is not going to take action


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Other rules for considerationPerformance must be legal

Eg our example of the hitman in an earlier class

Performance must be possible

A promise to perform an impossible act cannot

create a contract


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Other rules for consideration(cont.)

The person to whom the promise is made

must give consideration

If Bill promises to pay John 1,000 if John

gives his car to Fred, Fred cannot enforce the

contract against John because he did not give

the consideration


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Other rules for consideration(cont.)

Consideration must be sufficient, but it doesnot need to be adequate

In other words, there must be somethingwhich the court would regard asconsideration

But the value of the consideration is decided

by the parties

The court will not decide if the value isenough


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Privity of ContractAs we saw earlier, consideration must come

from the promisee

From this, we get the principle ofprivity of

contract

This means that a contract can only impose

rights and obligations on people who areparties to the contract


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Privity of Contract (cont.)That also means that third parties (ie people

who are not party to the contract) cannot

sue to make sure the contract is performed


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Exceptions to Privity of ContractThere are a number of exceptions to the ruleof privity of contract

The most important one is the Contracts(Rights of Third Parties) Act 1999

This allows a third party to enforce a termof a contract if:

The contract says he can, or

Where the contract gives some benefit tohim


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SummaryIn addition to offer and acceptance, we alsoneed consideration to create a valid

contractBasically, one party benefits in some way orthe other party is responsible for doingsomething (or both)

Paying (or promising to pay) money inreturn for the goods or services is the mostcommon form of consideration


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Summary (cont.)Consideration can be :



Past Consideration

Forbearance


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Summary (cont.)Other rules:

Performance must be legal

Performance must be possible

The person to whom the promise is made

must give consideration

Consideration must be sufficient, but it does

not need to be adequate


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Summary (cont.)Privity of Contract

In general, third parties cannot enforce

contracts to which they are not a party

Main exception is the Contracts (Rights

of Third Parties) Act 1999


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ReadingChapter 5

Page 123 section 5.5 first paragraph

Pages 123-4 section 5.5.1

Page 124 section 5.5.2

Pages 125-6 section 5.5.3

Pages 132-3 section 5.6 first paragraph Page 135 section 5.6.1 first paragraph

contract 5 - consideration[1]

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