Consideration in Contract Law

What is Consideration in Contract Law?

The term consideration is given to the subject that is exchanged in a contract. The most common and obvious exchange is money for goods or services. Consideration means making an agreement to pay for goods or services. If an agreement is made to pay for goods and services upon receiving them, then the contract becomes binding at the point of agreement, not at the point of making payment, the consideration is then referred to as being executory. If the act has been carried out, i.e. goods have been exchanged for money, this is referred to as executed. However, contracts may not always involve exchange for money.

What is the legal definition of Consideration?

The key case that gave consideration its definition is Currie v Misa (1875), which states that the subjects which consideration may consist of are right, interest, profit, benefit, detriment or forbearance. There are two types of consideration, executed and executory. Where considerations may be executed, this is where the consideration has been carried out, so the act has been carried out. An important case of Dunlop v Selfridge (1915) showed the negotiating aspect of a contract.   

How does consideration become acknowledged by the courts?

Consideration, in some way, must be acknowledged, and the legal term for this is ‘sufficient’, therefore the consideration must be sufficient and is usually of monetary value. Another legal term used here is ‘adequate’, this means fair price. However, the consideration does not need to be adequate, but needs to be sufficient to form a contract. An example of this occurred in the case of Thomas v Thomas (1842), where the decision was made that a woman was allowed to reside in a property for £1 a year.

Consideration must be given at the time of agreement, but it does not include previous acts. For example, in the case of Re McArdle (1951), previous work was not seen as consideration in that particular contract for a future arrangement. However, if there is an agreement between parties that previous work is to be included, then that consideration would be seen as valid, this was apparent in Lampleigh v Braithwaite (1615) an in Re Casey’s Patents (1892).

Consideration in a contract must not be illegal, in the case of Foster v Driscoll (1929), this is where goods were smuggled into the USA, and therefore the consideration became illegal. 

Consideration should not be a duty which exists currently. For instance, in the case of Collins v Godefroy (1831), a lawyer who attended court as a witness, could not also agree to appear in court. Another case is Stilk v Myrick (1809), this is where sailors had a duty to sail the ship short-handed, therefore, when they promised the captain they would do this, this was not a consideration because it was their duty to do this anyway.

What is Promissory Estoppel?

This means when someone releases another from their obligations under a contract but then later disagrees, this may not be acceptable by the courts, this is apparent in the case of Central London Property Trust v High Trees House 1949. 

Duties owed under the law of the land and duties owned under a contract.

There are instances when doing something ‘more’ than is stated under the law of the land or under a contract may be seen as consideration.

For instance in the case of Glasbrook v Glamorgan (1925), Glasbrook asked the police to provide assistance at a mining site in fear of a conflict between miners and protesters. When the local authority of Glamorgan presented Glasbrook with a bill, Glasbrook refused to pay for services of the police. Glasbrook believed that it was the duty of the police to carry out these services. It was ruled that Glasbrook had to pay for costs because Glasbrook had requested the services of police; these services were seen as ‘special’ and not within the duty of the police. 

In the case of Hartly v Ponsonby (1857), this is where the crew were sailing a ship short of hands. The master of the ship was short of hands and had agreed to pay in them in additional to their wages. Following a legal challenge by a crew member against the master for the sum agreed, the outcome of the case resulted that the crew were not contractually obliged to continue with the reduced number of hands, therefore their consideration for the promise of payment was seen as good.

In the case of Williams v Roffey (1990), consideration may be possible if it was a result of an existing duty that enabled another party to advantage or prevent disadvantage.

What is the law regarding debt repayment and consideration?

If part of debt is repaid, with the agreement of the creditor, this does not mean the end of a debt. However, in the Pinnell’s Case, the creditor agreed that if something in addition is given to the part of the payment, then this may release the complete debt. A further cases is Re Selectmove (1994).