CONTRACT LECTURES TRANSCRIPTS Total time = 46 mins 01 secs
C. STRICKLAND
LECTURE 4
Track/Slide 1
01.24 mins
In this lecture we begin our discussion of the topic of consideration.
To recap, we know that for there to be a legally binding contract, the courts objectively look
for the existence of an
Offer, an
Acceptance of that offer according to the mirror-image rule,
Intention to Create Legal Relations and
Consideration.
The modern law of contract really got under way with the development of a GENERAL
WRIT OF ASSUMPSIT for ‘ breach of a promise’.
Obviously the courts would be overworked if EVERY breach of contract was enforceable
through the courts – so there was a need for some ‘RULES’ to determine which promises
were enforceable. The main 2 rules concern:
i.
ii.
the doctrine of consideration and
the presence of an Intention to create legal relations with the other
party.
Intention to create legal relations has already been considered in a previous lecture. In this
lecture we thus focus on consideration and it is a big topic.
Track/Slide 2
01.40 mins
It must be remembered, that an agreement lacking in consideration may still be enforceable if
made by deed.
WHAT IS CONSIDERATION?
There appears to be 2 approaches to answering this question –
a traditional view and a more modern view – which we can look at in turn.
i.
THE TRADITIONAL VIEW
The traditional view is that consideration involves
EITHER
one party acquiring a BENEFIT under the agreement
OR
one party suffering a DETRIMENT under the agreement as outlined by Lush J in
CURRIE v MISA 1875 – who stated:
‘A valuable consideration, in the sense of law, may consist either in some right, interest, profit
or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility,
given, suffered, or undertaken by the other’..
In addition, under this view, consideration HAS TO MOVE FROM THE PROMISEE – that
is, the person on the receiving end of a promise - see THOMAS v THOMAS 1842
Track/Slide 3
ii.
02.43 mins
THE MORE MODERN VIEW
The more modern view was stated by Sir Frederick Pollack in ‘Pollack’s Principles of
contract’ – that consideration is
‘An act or forbearance of one party, or the promise thereof, being
THE PRICE for which the promise of the other party is BOUGHT’.
That is, one party ‘buys’ the promise of the other party by either doing or not doing
something or promising to do/not do something.
The key factor here is THE EXCHANGE OF PROMISES.
WHICH VIEW IS USED BY THE COURTS TODAY?
BOTH. A key case, which we consider later, showing the continued use of the traditional
view is WILLIAMS v ROFFEY BROS & NICHOLLS LTD 1991 where the idea of a
‘benefit’ was extended to include the notion of ‘practical benefit’. Though as we shall see,
practical benefit as consideration has subsequently only been applied very narrowly in
contracts for goods and services but not for pure repayment of debts.
McKendrick in ‘Contract Law – Text, cases and materials’ published by Oxford Press,
makes the point that whilst the courts continue to use the benefit/detriment approach to
consideration, this approach is inconsistent and does not always seem to stand up to stringent
analysis. Treitel suggests that the courts tend to ‘invent’ consideration.
Thus, although consideration must be of some economic value and must be sufficient, the
cases we look at now reveal how the idea of ‘sufficiency’ and ‘economic value’ are
approached quite flexibly by the courts – and this feeds the argument that the enforceability of
contracts should only be determined by Intention to Create Legal Relations, consigning the
doctrine of consideration to the history books.
Track/Slide 4
02.48 mins
Here we discuss the SUFFICIENCY OF CONSIDERATION
Whichever view of consideration is taken, the general position is that consideration
must be SUFFICIENT though not necessarily adequate.
Thus, A can agree to sell B his jaguar car for £1 and make a legally binding contract because
the £1 is sufficient to amount to consideration by B though it is hard to say that it would be
adequate.
The following quote is taken from the McKendrick textbook mentioned in the previous slide
from pages 161-162:
‘What does it mean to say that consideration must be ‘sufficient’? Who decides whether or
not the consideration is sufficient? … In answering these questions it is useful to distinguish
the case where the alleged consideration takes the form of
a promise to pay money for a service or product, from the case where the promise takes the
form of
a promise to provide some non-monetary benefit.’
Generally where the payment of money is concerned, consideration provides no problems and
commercial contracts often put in a nominal payment if appropriate so that the problems
associated with non-monetary consideration do not come into play.
If the consideration is non-monetary, we shall see that the courts have taken a very liberal and
flexible approach to find consideration when they want a contract to be in existence.
The net result of this flexible and unpredictable approach of the courts to whether or not
consideration exists makes it very difficult for students of contract law to understand the
topic. Sometimes the lengths the courts go to in order to ‘find’ consideration seem farcical
and again support the view that we should no longer require the presence of consideration to
establish a legally binding contract so long as intention to create legal relations has been
established.
Track/Slide 5 04.51 mins
We will now look at some consideration through some key cases.
In the case of THOMAS v THOMAS 1842 a widow was promised the ability to live in a
house for as long as she wished and so long as she REMAINED A WIDOW. It was held that
she BOUGHT this promise by agreeing to pay £1 a year in rent. The £1 was seen as of value
and sufficient consideration. One could analyse this on both views of consideration, possibly
more easily on the exchange of promises for value view.
The case of CHAPELL & Co Ltd v NESTLE CO LTD 1960 is interesting.
This case involves both monetary and non-monetary consideration.
Nestle bought quantities of the record ‘Rockin’ Shoes’ from the manufacturer of the records,
the Hardy Record Manufacturing Co, for 4d each. The record manufacturer knew that Nestle
intended to use the records to help promote sales of chocolate bars. Nestle advertised the
records for sale at 1s 6d with a stipulation that an intending purchaser of the records must
send a 1s 6d postal order and in addition send in 3 wrappers from the 6d chocolate bars.
Nestle stood to make a good profit on sale of the records and get good advertising for their
chocolate bars. The wrappers had no value to them and were thrown away on receipt.
Unless these records were being sold ‘retail’ their sale breached copyright regulations. The
owners of the copyright of the record brought an action against Nestle and the record
manufacturers for an injunction to stop them from breaching these regulations on the basis
that the records were not being sold ‘retail’ because their purchase included the provision of
worthless wrappers.
In the statutory notice to the owners of the copyright in the record Nestle and the record
manufacturer had to state the ‘ordinary retail selling price’. They did this at 1s 6d WITHOUT
MENTIONING THE WRAPPERS. Chappel and Co felt that the manufacture and sale of the
record in this way infringed their copyright in the song.
The House of Lords held that Nestle and the record manufacturer were in breach of the
statutory notice of copyright because they had not mentioned the NON-PECUNIARY PART
OF THE CONSIDERATION for the record.
The majority (3:2), per Lord Reid, held that the consideration here comprised BOTH the
money paid AND the return of the wrappers which were of VALUE to Nestle because
although some of the wrappers would have been sent by people who did not buy the chocolate
themselves or who bought their chocolate anyway, some of the wrappers would have been
sent by customers NEW to the chocolate and this definitely represented a BENEFIT to
Nestle.
In the case of ALLIANCE BANK v BROOM 1864 the consideration was seen as the fact
that the bank was INDUCED not to sue (forebear from suing) the defendant for his debt owed
to them (£22,000) by his promise to provide security for the debt in the form of goods.
Track/Slide 6 05.14 mins
If we look back to the definition of consideration from Lush J in Currie v Misa and at the case
of Alliance Bank v Broom, we see that ‘forbearance’ can amount to consideration. What is
this?
Generally, consideration usually has to be something of economic value – however small ,
such as £1 a week rent or chocolate wrappers that were deemed to have economic value by
the courts.
Intangible things like love and affection, morals and so forth, do not normally amount
to consideration.
Thus, in White v Bluett 1853 there was no consideration for a promise by a father not to sue
for money owed to him by his son, if the son would stop complaining to him about how he
would distribute his money. This could be because the son had no ‘right’ to complain about
how the father distributed his money (that was the father’s right) and so the son had not given
up any legal right.
However, an interesting case where non-monetary consideration was found to be ‘sufficient’
is Pitt v PHH Asset Management Ltd 1994.
Here the claimants had put in an offer for a property of £200.000 which was accepted
subject to contract. Miss Buckle then put in a bid of £210,000 and so the claimant’s offer was
rejected. The claimant made an agreement with the vendors that the property would be sold
to the claimant for £200,000 because the claimant promised to complete within 2 weeks of
exchange of contracts.
The vendors sold the property to Miss Buckle for £210,000.
The claimant thus sued the vendors for breach of contract claiming damages. The Court of
Appeal held that the claimant could succeed because there was ‘sufficient’ consideration.
The finding of this in the promise to complete within 2 weeks of exchange of contract seems
plausible as it would definitely be a benefit to the vendors and possibly a detriment to the
claimants.
However, the finding of sufficiency in the fact that the vendors were freed of the ‘nuisance’
of the claimants getting an injunction to stop the sale to Miss Buckle and the ‘nuisance’ of the
claimant generally being troublesome is tenuous and hard to reconcile with White v Bluett
where stopping the nuisance son’s winging was not seen as consideration. I suppose the
claimant here did have a legal right to get an injunction though.
The USA case of Hamer v Sidway 1891 is another interesting case in this area. Here the
promise of an uncle to pay his nephew £5000 if he stopped drinking liquor, smoking,
swearing and gambling until he was aged 21 was enforceable because the nephew had a legal
right to indulge in such pastimes and so was giving up a legal right and this was regarded as
sufficient consideration. Contrast this with the case of White v Bluett where the son had no
legal right to winge about how his father distributed his property.
In order for forbearance to succeed as consideration, there must be some existing right
or liability owed that can be forsaken for a time, even a short time.
Track/Slide 7 02.34 mins
So far, in these cases, it has sometimes been difficult to see where consideration lies – Poole
argues that quite often the 19th century courts
‘ATTEMPTED TO SQUEEZE CASES INTO THE CATEGORY OF CONTRACT’ just to
ensure that a cause of action was available. Often this was because the law of TORT
developed LATER than the law of contract.
Although today some of these older cases might give the claimant a cause of action in TORT
through, for example, negligent misrepresentation, at the time, it was CONTRACT OR
NOTHING.
In the case of DE LA BERE v PEARSON 1908 a newspaper offered free financial advice.
When the plaintiff wrote in he was given the name of a stockbroker who was an undischarged
bankrupt who misappropriated the money sent to him. In order to allow the plaintiff a
remedy, a contract was said to exist between him and the newspaper – CONSIDERATION
WAS SEEN AS THE ‘BENEFIT’ TO THE NEWSPAPER of increased sales. The plaintiff
also suffered the DETRIMENT of bad advice.
On analysis this may not stand up. The plaintiff was not induced to buy the paper by the offer
because he bought the paper anyway. Also, he did not give EXTRA value to the publisher
over and above the cost of the paper for the advice.
You can see that the ‘doctrine of consideration’ has faults and some people have questioned
its role in the modern law of contract.
The point is that it was originally devised as a way of deciding which contracts could be
ENFORCED in court – a sifting mechanism. Some people say it is outdated and the
enforceability or not of a contract should be determined by ‘intention to create legal
relations’.
Track/Slide 8 07.49 mins
We will now move on to look at the topic of
PAST CONSIDERATION.
The general rule here is shown in the case of ROSCORLA v THOMAS 1842. We will track
the development of past consideration through 4 cases.
First, we can look at the case of ROSCORLA v THOMAS 1842
In this case AFTER the 2 parties had made the contract for the sale of a horse, the defendant
told the plaintiff that the horse was SOUND AND FREE FROM VICE. Needless to say the
horse did not match up to this.
The plaintiff tried to sue for breach of warranty made in this oral statement.
It was held that the statement was NOT part of the ORIGINAL CONTRACT and since the
plaintiff had not given any EXTRA consideration for this statement (extra money) there was
no additional contract.
The consideration for the ORIGINAL contract was PAST and so could not support the
EXTRA statement.
This seems reasonable. Though we shall see how the courts have gradually gone against this
general rule.
Second, we can look at the case of LAMPLEIGH v BRATHWAITE 1615
This case shows the inventiveness of the courts in finding consideration when they want a
contract to exist. They did it here by IMPLYING TERMS into the contract of the parties – a
trend which itself goes against the whole idea of LAISSEZ-FAIRE – letting the parties make
their own contracts free from interference.
Brathwait asked Lampleigh to get him a pardon from the king for killing a man. Lampleigh
did this and THEN B (after the event) promised Lampleight £100 but never paid it. When
Lampleigh sued for the £100 the court got round the rule of PAST CONSIDERATION by
saying that when B asked Lampleigh to get the pardon it was IMPLIED that he would be paid
for doing it although the amount was not specified until later. We can note that:
i.
ii.
this case can be regarded as a COMMERCIAL contract
it was where the plaintiff was SPECIFICALLY REQUESTED to
do something.
This case contrasts with the next case of RE McARDLE 1951
In this case a wife was unable to recover payment for improvements she had done to the
house in question because the document promising her payment was drawn up AFTER she
had done the improvements. This decision can be differentiated from the one above because
here:
first,
was a DOMESTIC situation – where the courts are very reluctant
to say legally binding contracts exist and
second, the wife had NEVER BEEN SPECIFICALLY ASKED to do the
improvements – she just did them.
In COMMERCIAL settings it is perhaps more understandable to IMPLY payment and so
consideration because outside of the family setting it is rare for people to do something for
nothing.
The next case of PAO ON v LAU YIU LONG 1980, supports this distinction.
In this case the plaintiffs had promised not to sell 60% of their shares in the Fu Chip
Investment Co until after a certain date. They made this promise at the request of the
defendants. LATER the 2 parties drew up an INDEMNITY document to compensate the
plaintiffs for not selling their shares as agreed.
Could this LATER DOCUMENT be supported by the consideration ALREADY GIVEN in
the original agreement not to sell?
The Privy Council said YES IT COULD. Lord Scarman said that the normal rule about past
consideration not supporting new agreements could be AVOIDED in COMMERCIAL
agreements where it was possible to IMPLY that both sides understood payment would by
made and that the plaintiff had ACTED AT THE REQUEST of the defendant.
So again you can see how general rules that emerged for consideration are avoided to allow
the courts to find contracts for whatever reason – usually to give effect to COMMERCIAL
AGREEMENTS.
It is worth noting at this point that the doctrine of ‘past consideration’ is NOT affected by the
case of Williams and Roffey Bros & Nicholls (contractors) Ltd 1991 and practical benefit
because with past consideration the problem is to show that promises were made as part of a
‘bargain’ – a consensus ad idem. If 2 parties have made an original contract and then one
later promises to do something extra for the other side, this extra promise cannot be supported
by consideration that was furnished for the original contract as that consideration is past.
Thus, the extra promise is only enforceable if ‘new’ consideration can be found. In Williams
and Roffey, this extra consideration was found in the notion of ‘practical benefit’.
Track/Slide 9 02.35 mins
We are continuing with consideration and are now looking at whether it is possible to
establish a NEW CONTRACT using consideration from an EXISTING CONTRACT. In
other words, can consideration be MULTI-APPLICABLE?
We can look at this under the traditional 3 headings used in the text books – is there
SUFFICIENT CONSIDERATION to make ANOTHER contract in the:
i.
performance of a PUBLIC or STATUTORY duty?
ii.
performance of a contractual duty ALREADY OWED to a 3rd
party?
iii.
performance of an ALTERATION to an existing contractual duty?
We shall look at each of these in turn.
What will become apparent in this section, is that the approach of the courts to finding
‘sufficient’ consideration seems highly unpredictable and inexplicable. Indeed, in this area of
contract law, McKendrick wonders why the courts readily find sufficient consideration when
the subsequent contract is with a 3rd party yet the courts are much more reluctant to find
consideration for an ‘alteration’ promise made between the original promisor and promissee.
McKendrick also notes the difference in approach when looked at in terms of whether or not
one can identify ‘legal’ benefit or detriment, or ‘factual or practical’ benefit or detriment. In
Williams v Roffey Bros & Nicholls (contractors) Ltd 1991 for instance, the developer does
not gain a ‘legal’ benefit when the carpenter performs what he was already legally bound to
do under the original contract, but, he definitely does get a ‘practical’ or factual benefit.
However, we shall see how the courts are reluctant to extend this idea of practical benefit.
The courts have given the ‘ratio decidendi’ of the Williams v Roffey case a very narrow
interpretation and application.
Track/Slide 10 04.37 mins
We can now move on to look at the first section on the
1.
PERFORMANCE OF A PUBLIC/STATUTORY DUTY
We can look at the performance of a public duty first and then at the performance of a
statutory duty.
i. PUBLIC DUTY
Is it possible for there to be a situation where the police authorities, ambulance service or fire
service, for instance, could claim payment from someone for their services? At first one
would say, NO, because these are PUBLIC SERVICES and they are doing what they are paid
to do – in other words, they GIVE NO CONSIDERATION OVER AND ABOVE what they
are paid to do. This idea of PUBLIC DUTY was illustrated in the case of
COLINS v GODEFROY 1831
where an expert witness subpoened to court could not enforce a promise for payment for
attendance – he was under a PUBLIC DUTY TO ATTEND.
However, the courts have been prepared to find EXTRA CONSIDERATION in some
circumstances. A key case is
GLASBROOK BROS LTD v GLAMORGAN COUNTY COUNCIL 1925.
In this case, during a miner’s strike, when all the miners were on strike, the safety men in the
colliery went to work to pump out the mines to prevent flooding. As the strike progressed the
miners put pressure on the safety men not to go in to work and they became quite aggressive
in ensuring they did not go in.
The colliery manager asked the police superintendent to provide a billeted police presence in
the colliery to protect the safety men so that they dared to go into work. The police
superintendent, Colonel Smith, assessed the situation and said that a billeted force was not
necessary – rather he would have some men on site and have a mobile unit on call if things
got out of hand. The colliery manager did not accept this and insisted that a billeted force be
present.
The police superintendent told the colliery manager that a 70 strong billeted force could only
be supplied on ‘SPECIAL DUTY’ terms and that a requisition must be signed containing a
promise to pay for them.
The colliery manager did this and then after the strike had ended without incident, he refused
to pay the bill of just over £2,200 on the basis that the police had not given any consideration
for this agreement as they were only doing what they were under a duty to do in the first
place.
It was held in the House of Lords that the local authority could recover payment from the
colliery manager for provision of the billeted police force because this level of police
protection was OVER AND ABOVE what the police superintendent had thought was actually
required – this EXTRA MANPOWER was EXTRA CONSIDERATION above that required
for the public duty.
This is a very interesting case to read – and it reads quite easily. You may agree or disagree
with the outcome of the case – and of interest is the dissenting judgment of Lord Carson at
pages 297 – 300.
A follow up case is HARRIS v SHEFFIELD UTD FOOTBALL CLUB LTD 1987.
The provision of services by the police is now governed by the Police Act 1964, section 15
(1) of which provides for payment of ‘special police services’ rendered at the request of the
other party.
Track/Slide 11 03.12 mins
We can now look at
ii.
STATUTORY DUTY
A key case here is WARD v BYHAM 1956.
In this case the mother of an illegitimate child was promised £1 a week maintenance by the
father so long as she KEPT THE CHILD WELL LOOKED AFTER AND HAPPY and
ALLOWED THE CHILD THE CHOICE OF WHETHER SHE LIVED WITH HER OR
WITH A NEIGHBOUR OF THE FATHER.
When the mother married the father stopped paying the £1 a week. In the Court of Appeal it
was held by the majority that although the mother was under a STATUTORY DUTY TO
LOOK AFTER THE CHILD, because she had parental responsibility for the child, she HAD
provided EXTRA CONSIDERATION for the £1 a week from the father by promising to keep
the child happy and by allowing her the choice of where to live. This result seems to go
against the whole idea that to be sufficient, consideration must be on some economic value,
however small. Here then it seems that we see evidence of ‘legal’ benefit or detriment as
opposed to ‘factual’ benefit in the sense that it is the courts that have decided to find a benefit
or detriment where the facts might not really support it.
It is significant to note that Lord Denning, although agreeing with the majority as to the result
in this case, he got there by a different route. He argued that it was NOT NECESSARY to
find EXTRA consideration – he said that the EXISTING CONSIDERATION was enough to
support the promise of £1 a week because it involved a BENEFIT TO THE FATHER. This
was the line of argument he also used in
WILLIAMS v WILLIAMS 1957 where he stated that existing consideration could be good
consideration for a new promise by the other party so long as THERE IS NOTHING IN THE
TRANSACTION CONTRARY TO PUBLIC POLICY.
One can see the argument for this stance and yet one can see how it goes against the general
rule. In the WARD case, was the mother ONLY keeping the child happy because she was
INDUCED to by the £1 a week? Does parental responsibility not extend to happiness? Lord
Denning’s view seems to be stretching the general rule if not avoiding it altogether.
We can now move on to consider performance of a contractual duty already owed to a third
party.
Track/Slide 12 01.44 mins
2.
PERFORMANCE OF CONTRACTUAL DUTY ‘ALREADY’ OWED TO A THIRD
PARTY
In these situations the general rule is AVOIDED so that performance of a duty to a third party
can be consideration for a NEW PROMISE. The leading case is:
SCOTSON v PEGG 1861
A contracted with B to deliver coal to C.
In a separate agreement, C agreed with A that if A delivered the coal then C would unload it
at a fixed rate per day. C failed to unload it at this rate and A sued for payment.
The Court of Appeal held that there WAS A CONTRACT between C and A because
although A ‘had’ to deliver the coal to C under his contract with B, nevertheless, performance
of this original contract could provide the consideration to support the contract with the third
party, C.
This rule seems to exist for Business reasons and was reinforced in 1975 in a very important
case
NEW ZEALAND SHIPPING CO LTD v SATTERTHWAITE – THE EURYMEDON.
Track/slide 13
04.50 mins
We shall now look at the Eurymedon case in more detail.
The arrangement was that the Eurymedon (the ‘carriers’) was to carry an expensive drill from
Liverpool to Wellington, New Zealand. The carriers were contracted to do this under a Bill
of Lading (which is much like a delivery note). By Clause 1 of the bill of lading the carrier
and all his independent contractors were exempt from liability for any damage, loss etc during
the delivery of the drill.
On arrival in Wellington the drill was unloaded (discharged) by the stevedores and they
damaged it. As a result they were sued by the company who had ordered the drill,
Satterthwaite and Co Ltd, for £880 which was the cost of repairs to the drill – who were thus
the plaintiffs.
The stevedores claimed that they were covered by the exemptions to such actions by Clause 1
of the bill of lading and under Clause 1 claims had to made within one year of the date of
delivery of the drill. The plaintiffs had waited nearly 3 years to sue and so the stevedores
claimed that Clause 1 of the bill of lading thus made the claim in- effectual.
The plaintiff claimed that the stevedores were not covered by Clause 1 of the bill of lading
because they said that there was no contract between the stevedores and the shippers. They
based this claim on the argument that since the stevedores unloaded the drill on the basis of a
contract between themselves and the carrier (the consideration for this by the stevedores being
the unloading of the drill) then there was no extra consideration by the stevedores to support
the creation of a contract between them and the shippers – therefore the bill of lading did not
cover them.
The Privy Council (per Lord Wilberforce who delivered the opinion of the majority) held that
the relationship between the shippers and the stevedores could be put to contractual analysis
by regarding the bill of lading as a UNILATERAL OFFER that was accepted by the
stevedores when they PERFORMED THE ACT of unloading the drill. The
CONSIDERATION by the stevedores in this contract was the unloading of the drill and it
MADE NO DIFFERENCE that the stevedores WERE ALREADY CONTRACTED TO
UNLOAD THE DRILL BY THE CARRIER. His lordship quoted SCOTSON v PEGG.
Since there existed a contract between the shippers and the stevedores under the bill of lading
(using the carrier as agent), then the stevedores could make use of the exemptions in Clause 1.
In commentary, we need to ask why the Privy Council would find a contract between the
shippers and the stevedores? Not only did they have to resort to UNILATERAL contract
notions, they also had to rely on consideration which really supported a different contract.
Lord Wilberforce said that it was plain that the whole set of relations was commercial, to
make a profit, so to describe one set of promises as gratuitous or nudum pactum seemed
paradoxical. And although it was difficult to analyse the dealings within the classical notions
of offer, acceptance and consideration, nevertheless this difficulty could be overcome.