Law of Contract - Consideration - Elements and exceptions
INTRODUCTION
Consideration
is one of the five elements required for the formation of a valid contract, the
other four being Offer, Acceptance, Intention to create legal relations, and
capacity to contract. Consideration just like the other four elements has
several essential principles that help determine whether the element has been
satisfied. On that basis it will be the focus of this writing to discuss the
essential principles of consideration which are discussed below.
1. CONSIDERATION MUST BE OF SOME
VALUE
The
rule to this principle is that consideration must be sufficient but need not be
adequate. This means that each party to the agreement must have provided
something of value in the eyes of the law. The role of the Courts is to simply
enforce contracts therefore they are not generally concerned in determining
whether the bargain or what each party provided was fair or the bargains
provided carried equivalent value or worth[1], the parties are left to
negotiate themselves.
Therefore
“sufficiency” denotes something that
the Courts can see of value that makes the bargain a party binding, whilst “adequacy” denotes what the full or
proper value of something is. Hence, the law requires consideration to be
something “sufficient” (meaning
something that the courts deem to be of value regardless of the degree of value
it carries), but not “adequate”
(meaning it should not be as valuable as the other party’ bargain).
|
Example: Yoswa offers Banda a small phone in return for Banda’ Television “TV”
to which Banda agrees. Later, Banda approaches Yoswa requesting for the
return of the TV claiming that the phone they received costed k800 while the
TV they gave costed k5,000, so Yoswa’ bargain was not worth the TV. However,
in applying the above principle it is irrelevant that Yoswa’ phone is less in
worth, but the fact that their Phone represents something of value (Money)
made the contract valid.
|
In
Thomas v Thomas[2]
the claimant’s husband requested the defendant to allow the claimant to
continue to occupy the house they lived in even after his death. After his
death the defendant, agreed to allow the claimant to occupy the house on
payment of £1 per annum. A dispute arose, the defendant argued the £1 per annum
was not enough to constitute good consideration as rent money. The Court held
that although the claimant’ Husband request was not valid consideration but the
payment of £1 per annum was valid consideration as it represented some sort of
economic value.
In
White v Bluett[3]
the respondent owed the deceased some money, the deceased, before death, had
agreed not to sue the respondent over their debt provided they stopped
complaining about been left out of the Will, the claimant being the deceased’ executor
of the deceased will sued the respondent for recovery of the debt they owed
they deceased. The Court held the respondents promise to stop complaining could
not amount to consideration.
Considering
White v Bluett (ibid) the Author
submits that as a general rule, something of value must be understood to be
something that represents an economic gain. However, in Chappell & Co Ltd v Nestlé[4]
where the defendant, a chocolate manufacturer, sold music records for one
shilling and six pence plus three wrappers from their chocolate bars. It was
held that the wrappers formed part of the consideration, even though they possessed
no intrinsic economic value. The wrappers would, in fact, have amounted to sufficient
consideration even if they were the sole payment for a record.
Considering
Chappel & Co LTD v Nestle (ibid),
the author submits that as an exception to the general rule as propounded in Thomas v Thomas and White v Bluett, a bargain may be valid
consideration where although prima facie
it presents to hold no economic value, but the other party has gained or would
likely gain a form of advantage from the said bargain. To exemplify this,
generally, wrappers from chocolate bars are not deemed to hold any economic
value however. from the above case, Nestle clearly gained an advantage in the
sense that customers buying music records would be forced to first buy their
chocolate bars and offer the wrappers for the records. To that effect Nestle
gained an advantage to their business.
2. CONSIDERATION MUST MOVE FROM THE
PROMISEE
The
law requires that consideration moves from the promisee, in applying this rule,
a person to whom a promise has been made can enforce it only if they have
provided consideration for it. This principle places emphasis on the rule that
a valid contract is only formed and binding between two parties and nothing
more.
|
For example, where Omega promises to
wash Clement’s car provided Clement promises to pay Petrine K10. Omega then
washes Clement’ car, Clement later fails to pay Petrine the K10, Petrine then
claims that she is entitled to the K10 as per the agreement between Omega and
Clement. However, Petrine is not entitled to the K10 because she did not
provide something (consideration) to Clement in return for the K10. So here consideration
did not move from the promisee (Petrine) so, only Omega can sue (because he
provided a valuable service to Clement – washing his car)
|
One
can not sue or be sued from a contract, unless they provided consideration to
the exact party suing or been sued- this is called Privity of a Contract.
In
Tweddle v Atkinson[5]
where the partners’ (husband and wife) fathers each agreed to pay a sum of
money to the new husband after a marriage and agreed between themselves that
the husband would have a right of action to sue should either parent fail to
pay. The wife’s father died before he could make the payment and his executors
refused to pay. The husband sued the executors. It was held that the husband
did not provide any consideration under the agreement which was only between
his father and his father in-law.
Similarly,
in Price v Easton[6],
a party who owed the plaintiff some money undertook some piece works for the
respondent but requested that payments be made directly to the plaintiff
instead, when this was not done the plaintiff sued the respondent. The Court
held that there was no existing contract between the plaintiff and the
respondents owing to the fact that the former had not provided any consideration.
3. FORBEARANCE TO SUE IS GOOD
CONSIDERATION
Forbearance
to sue means that a party promises not take legal action against the other party.
This suffices as good consideration.
|
For
example: Fortune owes Serah K20,000, Serah realizes that Fortune is in no
position to repay her hence she offers not to sue him but in return Fortune must
deliver her packages to to some place. Here Serah can not sue Fortune for the
K20,000 demanding that Fortune delivers her packages to some place and in
return she wot sue him for the K20,000. amounted to forbearance, making it
good consideration. Similarly, Fortune can not claim something more from
Serah.
|
In
Alliance Bank v Broom[7]
the defendant owed the plaintiffs an unsecured debt, the plaintiff promised not
to sue the defendant provided they provide physical security to the Bank. The
defendant failed to provide the security. The court held that the plaintiff’
promise not to sue was good consideration.
4. PAST CONSIDERATION IS NOT GOOD CONSIDERATION
The
general rule is that past consideration is not good consideration means that consideration
must be provided to the other party at the time or after the time of
contracting. This further denotes consideration can be executed (where consideration
is provided by both parties at the time of contracting) or executory (where
parties agree to contract but consideration shall be provided on a future
date).
|
For example: Paul agree to sell his laptop to Phillip,
Phillip informs Paul that the money that he gave him a few years ago will
count towards the purchase of the laptop. Here, Phillip’ consideration though of value can not
count because it was provided to Paul in the past
|
What
is important for the reader to draw about this rule is that; consideration is
valid when provided at the time the parties are contracting or after the have
contracted.
In
the Landmark case of Roscorla v Thomas[8]
the plaintiff purchased a horse from the defendant and after this transaction,
the defendant promised the plaintiff that the horse was sound and free from
vice. However, the plaintiff later found that the horse was in fact not sound.
Lord Denman held that the promise was made after the contract had been formed
therefore, the plaintiff did not provide consideration for the promise of the defendant[9]. This was confirmed in SAS Realty Developments Pty Ltd v Kerr.[10]
Similarly,
in another important case of Re McArdle[11]
the plaintiff carried out improvements to the house left her father-in-law’
children, the plaintiff then made the five children agree to repay her for the
improvements made to the house. The children however defaulted. The court of
appeal held that the plaintiff’ consideration was in the past thus was not
valid as at the time of contracting the plaintiff had already made the improvements
to the house.
- EXCEPTION: PAST
CONSIDERATION IS VALID IF MADE AT THE REQUEST OF THE PROMISOR
Where
a party’ past consideration was made or performed at the request of the other party,
then is shall be valid consideration
|
For
example: Chanda asks Temwani to wash her car, Temwani does just that at no
cost. After some time Chanda agrees to give Temwani her smart phone as
payment for her service of washing her car some time back. Later, Chanda
demands the return of the phone. Here even though Temwani’ consideration
(service to wash Chanda’ car) is past, the service was requested by the
promisor (Chanda), thus it suffice to be valid consideration.
|
In
Lampleigh v Braithwaite[12]
the defendant killed a relative of the plaintiff. They asked the plaintiff to
secure them a pardon from the king, the plaintiff did just so and the defendant
was pardoned, further, the defendant promised to pay the plaintiff £100 in gratitude.
The defendant failed to make the payment claiming the promise to pay the plaintiff
came after the they had already performed their consideration (securing the pardon).
The Court held that even though the plaintiff’ consideration was past, the plaintiff
acted upon the request of the defendant. Bowen LJ famously stated:
‘A mere voluntary
courtesy will not have a consideration to uphold an assumpsit. But if that
courtesy were moved by a suit or request of the party that gives the assumpsit,
it will bind’.
Therefore,
what must be drawn from the above is that; as a general rule an action or
omission done before the parties contract is past consideration hence not
valid, however, as an exception to that rule, an action or omission done at the
request of the other party which is before the parties contract is deemed to be
valid consideration.
5. PART-PAYMENT OF A DEBT IS NOT GOOD
CONSIDERATION
As
a general rule part payment of a debt does not amount to consideration, thus it
does not exonerate the party from paying off the full amount. This rule is
commonly referred to as the rule in pinnel’
case. The rationale to this rule is that a debtor is already under an
obligation to pay their debt, thus agreeing to pay less will generally not
suffice as they are already operating under an existing legal obligation- to
pay their debt (in full).
|
For example: Memory owes Gift K200,
Memory only pays Gift K100. However,
after some months Gift demands Memory to pay the other K100. Here even though
Memory payed Gift K100 and he accepted the payment, Memory is still under an
obligation to pay off the full amount of their debt and that does not stop
Gift from demanding he remaining payments.
|
In
Foakes v Beer[13] the respondent promised
not sue the plaintiff for a debt amounting to k2090 provided they payed k500 in
two instalments with six months. The plaintiff did just so. The respondent sued
the appellant over the remaining balance and succeeded. The appellant appealed
claiming that the respondent had accepted the part-payment as full debt. The
court firmly held the rule as propounded in pinnels case ‘part-payment of a debt
is not good consideration’ therefore, the respondent could claim the balance
Before
considering the exceptions to this rule, it is imperative to understand at this
stage that part-payment of a debt on the agreed due date whether made at the request
of the creditor or not is not good consideration.
The
Author submits that this rule also protects the creditor from economic duress.
This is to say; it protects a creditor who on the due date may accept a lesser
amount due to their economic or financial circumstance. However, the creditor
may need to prove they accepted the part-payment on the due date under duress.
EXCEPTIONS
A.
PART-PAYMENT OF A DEBT AT THE REQUEST OF THE CREDITOR BEFORE THE DUE DATE IS
GOOD CONSIDERATION
This
is where the debtor acting upon the request of the creditor pays part of the debt
before the due date, then that shall constitute good consideration and estoppels
the creditor from claiming the balance later on. This rule is premised on the
presumption that the debtor went an extra mile or acted more urgently than expected
in order to meet the creditor’ request.
In
Pinnels case[14] the defendant owed the
plaintiff a debt which was to be paid at a stated date. A month before the due
date, the defendant acting on the plaintiff’ request paid the plaintiff a
lesser amount and had agreed that the lesser amount would discharge the entire
debt. Later on the plaintiff sued to recover the balance.
The
court took cognizance of the rule that part-payment of a debt is not good consideration,
however, the creditor voluntary asked for payments of a lesser sum as full
payment hence the part payment amounted to good consideration.
B.
PART-PAYMENT OF A DEBT AT A DIFFERENT PLACE OR TIME AT THE CREDITOR’S REQUEST
IS GOOD CONSIDERATION
This
is where the debtor pays part of their debt at a different place or time
initially agreed with the creditor, then the part payment shall be deemed to be
good consideration.
|
For example: Mike and Abel agree that Mike
will pay off their K1,000 debt on Monday morning, and they will meet at
East park. Saturday morning Abel requests Mike to meet at Buffalo park, therefore,
when Mike travels to Buffalo park and pays Abel K800 instead it shall be
considered as good consideration.
|
This
rule operates under the assumption that the debtor as incurred a detriment by
changing locations or adjusting their time just to accommodate the creditor.
C.
PAYMENT IN A DIFFERENT FORM AND THE CREDITOR ACCEPTS CONSTITUTES GOOD CONSIDERATION
This
where the debtor offers something other than money as payment of their debt to
which the creditor accepts.
|
For example: Musonda owes Mulenga K100
but offers to give Mulenga a phone instead and Mulenga accepts. Mulenga can
not successfully sue Musonda as they accepted payment in a different form.
|
it
is therefore immaterial that the thing offered is of lesser value in comparison
to the debt. (*consideration must be sufficient and not adequate)
In
the very important Pinnels case (as
cited above) Lord Coke stated:
‘Payment of a lesser sum
on the day [due date] in satisfaction of a greater sum cannot be nay
satisfaction pf the whole… but the gift of a horse, hawk, or robe etc. in
satisfaction is good. For it shall be intended that a hawk, horse, or robe,
etc. might be more beneficial to the plaintiff than the money’
6. PERFORMANCE OF AN ALREADY EXISTING
DUTY IS NOT GOOD CONSIDERATION
As
a general rule performance of an already existing duty; which can be imposed by
law separate from a contract, or imposed by an independent contract, is not
good consideration
The
rationale of those principle is that a party can not offer as consideration
that which they were already obligated to do.
a.
EXISTING DUTY IMPOSED BY LAW SEPARATE FROM A CONTRACT
This
is where a party is under an obligation imposed by for instance a statute to do
something, and they contract with a party offering the same service. The
performance of their service is not good consideration as it is something they
are naturally obligated to do.
|
For
example: the police service is obligated to protect members of the general
public from whatever kind of danger or harm. Zimba whose house is surrounded
by armed robbers contact the police and promise to pay each K1,000 if the
quickly come and rescue him. Later the police claim the K1,000 after in fact
rescuing Zimba. Here the police actions of rescuing Zimba is no good
consideration because they are obligated to protect Zimba in times of danger,
simply put they were just doing their Job thus they are not entitled to the
K1,000.
|
In
Collins v Godefroy[15] the respondent promised
to pay the plaintiff a sum of money as a witness to give evidence in court.
However, the respondent defaulted and the plaintiff sued to claim the money.
The court held the plaintiff just like any other individual is under a legal
obligation to give evidence to the courts of law.
EXCEPTION:
GOING OVER AND BEYOND THE EXISTING DUTY
This
where a party though under a legal obligation does more than what is expected
to do in return for the promise of the other party, that will constitute good
consideration
|
For
example: as provided by the above example, the police are under an obligation
to protect members of the general public, however, where Moses offers to pay
the police for the police to provide him with a ‘presidential’ like escort
(even when there is no eminent danger). Here the police have acted beyond
their fixed duty hence their actions amount to good consideration |
In
Glasbrook Bros v Glamorgan County
Council[16]
a party requested the police’ protection in form of constant presence on
their property, the police only had resources to make visiting patrols, the
appellants offered to give the police finances to ensure that police constables
are placed on the premises 24/7. The appellants further refused to pay.
The
court by a slim margin of 3:2 held that the police were entitled to be paid.
The court stated that the police had a duty without being paid through a
contract to provide protection to life and property, keeping peace and
preventing crime, however, having stationed constables at the appellants
premises 24/7 was something over and beyond their legal duty.
The
author submits that in determining whether a party acted within their legal
duty or went over and beyond their legal duty, the courts must critically
examine the specific facts and circumstances in each case. The test to take
should be a subjective one.
b.
EXISTING DUTY IMPOSED BY AN INDEPENDENT CONTRACT
This
rule is similar to the above exception only that here the party performs that
they already are obligated to do under another contract between the same
parties.
|
For
example: where Sepiso and Niza agree that Sepiso will build Niza a house and
Niza will pay Sepiso K50, 000 in return. Later Niza promises to pay Sepiso an
extra K10,000 for the same job. Here Sepiso is only entitled to receive
K50,000 not the extra K10,000 because they were doing something (Building
Niza a house) that they already promised to do under the earlier contract.
|
In
Stilk v Myrick[17]
the plaintiff together with several others were crewmen who were contracted to
sail a vessel. Two crewmen refused to continue to sail the vessel consequently,
the remaining sailors were promised a split of the refusing party’ wages.
The
court held that the plaintiff was operating under an already existing duty to
sail the vessel therefore, the promise of extra money to sail the same vessel
was not good consideration.
EXCEPTION;
(i)
GOING OVER AND BEYOND THE EXISTING DUTY
Where
a party performs over and beyond to what is expected to the contract, then that
shall be good consideration for the promise of the other party.
|
For example: where Sepiso and Niza agree
that Sepiso will build Niza a house and Niza will pay Sepiso K50, 000 in
return. Later Niza promises to pay Sepiso an extra K10,000 to also paint the
house. Here Sepiso is entitled to the extra amount as painting the house goes
beyond what they party’ initially agreed (only building the house)
|
In
Hatley v Ponsonby [18] the plaintiff together
with several others were crewmen who were contracted to sail a vessel, however,
in this case the majority of the crewmen deserted the ship and a handful of men
were left to sail the ship back this involved taking on a significant higher
amount of work and dangerous. The court held in favour of the Plaintiffs as the
task was dangerous due to lack of crewmen therefore, this went over and beyond
their obligation hence constituting valid consideration.
It
is important to distinguish Stilk v
Myrick (as already cited above) from Hatley
v Ponsonby (as already cited above. The rational decidendi of the former is
that the task of the remaining sailors was not significantly difficult and
dangerous to undertake due to the only few crewmen refusing to sail the ship.
While of the later is that because the majority of the crewmen deserted the
ship making, the work of the remaining crewmen significantly difficult and
dangerous.
(ii) WHERE THE PROMISOR GAINS AN ADDED
ADVANTAGE FROM THE PROMISEES PERFORMANCE
This
is also known as the rule in William v
Roffey. This principle dictates that it is good consideration where a
party’ performance though performing an existing duty, results in the other
party gaining an advantage or benefit.
|
For
example: Robert is delivering a package belonging to Janet at the price of
K50, Janet later learns that she will gain profit if the package is delivered
on time that moves Janet to promise Robert an extra K15 if the package is
delivered on time. Here Robert is entitled to the extra K15 if he delivers on
time because delivering on time shall give Janet a profit.
|
In
William V Roffey Bros and Contractors[19]
the respondents were contracted to build some flats, they subcontracted local
carpenters, the plaintiff, to do the work. Due to financial difficulties the
plaintiff could not complete the flats within the time stipulated time, the
respondent would have been penalized for late completion as per the penalty in their
contract therefore, they promised to pay the plaintiff an extra amount if the
finished within the stipulated time. The respondent failed to pay the extra
amount.
The
court held that where the promisor obtains a practical benefit as a result of
the promise work, then the promisee’ work even though is performance under an
already existing duty shall suffice to be good consideration owing to the fact
that the promisor gains a practical benefit however. In the above case the
respondents gained a practical benefit as they would have been penalized.
CONCLUSION
This
writing has explained the element of consideration to a valid contract. It has
discussed several principles and rules and their exceptions that determine
whether consideration was satisfied or not. The following are principles that
guide whether consideration was present or not: (i) Consideration need to be of
some value (ii) consideration must move from the promisee (iii) forbearance to
sue is good consideration (iv) past consideration is not good consideration (v)
part-payment of the debt is not good consideration (vi) performance of an
already existing duty is not good consideration. However, these are general
rules and one must consider each exception critically as discussed in this
writing.
[1] The Rating Valuation Consortium and D W Zyambo & Associates (Suing as a Firm) V the Lusaka City Council and the National Tender Board. (2004) Scz No. 13
[2] (1842)
2 QB 851; 114 ER 330
[3] (1853)
LJ Ex 36
[4] [1960]
AC 97
[5] (1861)
1 B&S 393
[6] (1833)
4 B&Ad 433
[7] (1864)
2 Dr & Sm 289
[8] (1842) 3 QB 234
[9] for binding nature of a promise see: Teddy Musonda. Currie v Misa: the nature of Consideration in a contract. (Legal Aid Initiative, 2024) extracted from www.amulufeblog.com
[10] [2013]
NSWCA 56
[11] (1951)
Ch 669
[12] (1615)
Hob 105
[13]
[1884] UKHL 1
[14] (1602)
5 Co. Rep. 117a
[15] [1831]
EWHC KB J18
[16] [1925]
AC 270.
[17] [1809]
EWHC KB J58
[18] [1857]
26 LJ QB 322
[19] [1989]
EWCA Civ 5
This Article is Brought to you by:
LEGAL AID INITIATIVE
(Access to Knowledge )
About the Author:
