Consideration is the essential element Essay
Consideration is the essential element
1 According to Lord Pollock’s definition of consideration which is an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable.2 Besides that, consideration must be something of value given or promised in exchange for the promise given by the other party in order for a valid contract to be formed.3 The term “something of value” can be defined as a payment, an act or services, an object or giving up legal right.
There are certain rules of consideration that have been established in the precedent case. The first rule of consideration is it will only exist when a contract is to be enforceable.4 Secondly, a good consideration can be done in the present and future but not the past.5 A consideration can be done even though the promisor has no knowledge of it.6 The fourth rule of consideration is it does not have to be adequate or commercially realistic.7 Also, consideration must be tangible and cannot be too vague.
8 Lastly, consideration must be legally sufficient in the eye of the law.9 The objective of this research essay is to discuss and explain the rule of the consideration which is consideration does not have to be adequate or commercially realistic but it has to be sufficient and how these legal concepts relate to the cases. Thus, this research essay also discusses whether Australia contract law should provide greater clarity about what is sufficient consideration. Consideration can be Nominal
It is one of the rules of consideration where consideration does not have to be adequate or commercially realistic.10 This rule simply means that the price in return does not have to be right.11 Thus, court will not look into whether the price is adequate or not, as long as some price is paid, the court will not look further about it. Even though it is a very low price or a nominal price is paid or promised, the price might be a price in name only.
The case of Thomas v Thomas12is often cited on this rule. In the case of Thomas v Thomas where Thomas was ill and he had made a will but had made no provision for his wife’s residence after his death. He called his executor and requested that when he died his wife could live in his house until her demise. The executor agreed and later drew up an agreement with the Thomas’s wife. She was requires to pay $ 1.00 per year to stay in the house until she died.
The court held that, any amount of money is enough to support a contract even though the price that requires to paid was only a nominal price. Thus, the court will not look behind the price as long as a price is paid or promised.
Through the case of Thomas v Thomas, it shows that any some of money even it is small or nominal, it will constitute good consideration for a contract.13 Besides that, the court are not involved in the price detailed for two reason which the first is the “freedom of contract” principle applies and the second reason is that the case wouldn’t end if the court did look into more detail of the price to be paid.14
Furthermore, consideration does not only express in currency terms, it can also be anything valuable. This concept has been stated in the case of Chappell & Co v Nestle Co Ltd.15 In the case of Chappell & Co v Nestle Co Ltd, Nestle want to promote their sale of the chocolate, they offered recorded music to the public for the sterling equivalent of 15 cents, but buyers had to also send in the wallpaper from three 5 cents chocolate bar. Where, Chappell owned the copyright of one of tunes in the free record so they charge Nestle 6.25% of the retail selling price.
Chappell claimed revenue of 6.25% of the record price plus the value of three chocolate bar wrappers. The court held that the empty wrappers were part of revenue collected. The fact that the empty wrappers have no intrinsic value to Nestle was irrelevant. Thus, the consideration for the free record was the money plus the value of three chocolate bars wrappers.
As we can see from the case of Chappell & Co v Nestle Co Ltd, the chocolate bars wrappers would have constituted sufficient consideration in the eye of the law.16 Therefore, consideration does not only express in money term, it can also be anything that is valuable.
Consideration must be tangible
This is another rule of consideration where it must not be too vague or indefinite.17 Consideration must be tangible but not nebulous.18 This has been shown in the case of White v Bluett.19 In White v Bluett, a son borrowed money from his father and signed a “promissory note” to prove the debt. He notices that similar loans were made by his father to his brother without a note having been signed. He harassed his father, and his father told him that he would forgive the repayment of debt if the son ceases the harassment.
After the father died, the administrator of the estate found out the note and sued the son but the son argued that the debt had been forgiven in consideration of his undertaking to cease harassment. The court held that there is no consideration as the promise was too vague to have legally recognized value. From the case of White v Bluett, it shown that if a promise is relied on as consideration is too vague and indefinite that the courts will not enforced it and it will not constitute consideration.20 Consideration must be Legally Sufficient
This rule simply mean that consideration must be sufficient and it must have a legally value recognised value.21 Thus, a mere moral obligation or the natural love and affection do not deliver sufficient consideration.22 This has been shown in the case of Eastwood v Kenyon.23 In this case, as a guardian, Eastwood had incurred many expenses for the girl.
24 As an adult, the girl and her husband Kenyon promised to pay Eastwood.25 At the end, they refuse to pay back then Kenyon was sued upon this promise. Therefore, the situation show that such a moral obligation is not a consideration.26
Besides that, in general rule a promise to perform an existing obligation is not a sufficient consideration as it promises no more than what that party already bound to do.27The rule expresses the concept of illusory consideration. Thus, when there is a promise not to sue, or when there is an abandon to a claim, it can be a sufficient consideration. This has been shown in the case of Wigan v Edward28.
Where the court decision is that, given that the buyer honestly believed that they do not need to settle unless he rectified the defects, the compromise of that belief provided good consideration for the builder’s promise.29
Furthermore, performing an obligation under a pre-existing contract is not a good consideration for a new promise for extra payment unless the performance of the obligation requires additional tasks to be completed or involves providing additional practical benefit to the promisor.30 The additional practical benefit is an exception to the rule that a promise to carry out a pre-existing duty may create valid consideration.
This has been show in the case of Williams v Roffey Bros & Nicholls (Contractors).31 In Williams v Roffey Bros & Nicholls, Roffey were a firm of builders contracted to renovate a block of flats. Their own contract contained a penalty clause for late completion, so it was in their interest to finish the work in time. Part of this work they sub-contracted to Williams. As work progressed, Williams fell behind schedule because, they claimed, they had not set an adequate price for the work. They negotiated a new deal with Roffey that an additional sum was to be pay on the completion of each building. When the next building was complete, Roffey refused to pay.
The court held that, there was consideration in this case as the new agreement conferred additional practical benefit on Roffey, in particular an early completion would allow them to avoid the exercise of the penalty clause. As we can see from the case of Williams v Roffey Bros & Nicholls, a promise to perform an existing contractual duty does not provide valuable consideration but the case show that Roffey had provide additional practical benefit and then consideration exist. Conclusion
In conclusion, consideration must be of sufficient value in the eye of law and it must be something that identifiable and tangible. Thus, it does not have to be commercially adequate to the promise as the parties are free to make their own bargains and the court will not get involve into the commercial adequacy.32 Therefore, Australia Contract Law should not provide greater clarity as it is a sufficient consideration.