Capacity And Consumer Protection Law: Valid Consideration In Contracts

Consideration

Discuss about the Capacity and Consumer Protection Law.

A valid formation of contract can be established by two or more parties who intent to define their obligations in the form of a document. A contract can be oral or written or unilateral or bilateral, but, whatever may be its form, there are few essentials which must always be present. They are offer, acceptance, legal intention, capacity and consideration to make any contract enforceable in law. All the contract essentials are very important and no valid contract can be formed in the absence of any single contract element.

The present essay has made an attempt to define what consideration is and what a valid consideration is, that is, it must be adequate or it must be sufficient? Through this essay it is analyzed that a consideration need not to be adequate but it must be sufficient to make any contract enforceable in law.

Thus, it is first important to define a consideration.

When there are promises which are exchanged amid the promisor and the promisee, then, the price or gain that is sought by the promisor for his promise is called consideration. Thus, it is the price to support the promise. In Australia, to make a binding contract amid the parties, the consideration must be provided by the promisee to the promisor to support the promise that is provided by the promisor.

A consideration is considered to be valid provided there are two essentials which must be present:

In Currie v Misa, it was submitted that a consideration can only be considered to be valid when it is beneficial to the promisor or is detrimental to the promisee in one form or another. At times, promise given against a promise is also regarded as a valid consideration provided it is either beneficial or detrimental in nature.

The benefit to the promisor or the detriment to the promisee must be against some kind of promise or against some kind of price. There must be presence of quid pro qu or some kind of bargain or exchange amid the parties and is held in Australian Woollen Mills Pty Ltd v Commonwealth.

Thus, consideration is the price which is provided by a promisor to the promisee for the promise so made. Consideration can be monetary or non-monetary, but, the only requirement is that there is some detriment that is caused to the promisee against which the promisor is paying some kind of benefit to the promisee. It is not necessary that there should be some kind of benefit which must be received to the promisor. Thus, a valid consideration must move from the promisee.

Nominal consideration

However, it is now important to understand as when a consideration is considered to be valid. Whether the consideration should be sufficient or it has to be adequate to consider it as valid?

In order to understand the true nature of consideration, it is important to understand some basic terminologies.

In Thomas v Thomas, the concept of nominal consideration was evaluated and explained. In the given case, the deceased husband’s executor was sued by the widow. It was stated that when her husband was dying then at that time he, in the presence of the witnesses, submitted that it is his wish that his wife must have one of the houses for life. The executors, on the death of the husband, has conveyed interest in one of the house considering it as the last desire of the husband provided £1 pa rent must be paid by the widow and she must keep the premises in good condition. But, later the executor refused to honor the last wish of the husband.

It was held by Denman CJ that moral feelings of the husband are not a good consideration. Rather, the rent and the provisions of repairs is good consideration in the eyes of law. As per Patteson J, a consideration is valid only when there is some kind of benefit and some kind of detrimental effect and must have some value in the eyes of law, even if such value is nominal. So, the wish of the testator is not a valid consideration but the rent and repair provisions are sufficient even if the consideration is nominal.

Thus, the courts have given regard to the concept of nominal consideration.

Generally, whenever a contract is established amid two parties then the basic rule which must be followed is the rule of caveat emptor, that is, let the buyer beware. The buyer is at a position to look at all the pros and cons of the deal prior finalizing the same. Thus, the courts are normally reluctant to interfere and to consider whether the contract that is established amid the parties is a good deal or not.

As already submitted, anything which is determined by the promisor is consideration. The only requirements are that it is not illegal and must have some value in the eyes of law. Thus, can it be submitted that consideration has to be real and it is not necessary that it must be adequate. In Biotechnology Australia Pty Ltd v Pace, Pace was employed by Biotechnology and it was agreed that Pace is entitled to participate in one of the schemes of the company. However, there was no such scheme at the time or during the time when Pace was employed. Pace sued the company for breach of contract. It was held by the courts that a consideration is considered to be illusionary when the payment of it depends upon the description of the promisor and such illusionary consideration is invalid in law. The court held that the introduction of the scheme is totally within the discretion of the company and is illusionary and illusionary consideration is invalid in law.

Illusionary consideration

Now, what is adequate or what is inadequate consideration is discussed in Woolworths Ltd v Kelly. It was held that normally courts do not look in to the adequacy of the consideration. What is adequate for one person might not be adequate for other persons. Thus, it makes no difference whether the consideration is adequate or not, however, it must not be illusionary or illegal.

A consideration is said to be valid when it is sufficient. It is necessary that every consideration must be detrimental to the promisee and must provide some benefit to the promisor. However, a consideration must have some value in the eyes of law, that is some material or economic value. It is not necessary that the consideration must be of great value, rather, a consideration is valuable even if a promise is reciprocated by another promise, for example, in Alliance Bank Ltd v. Broom, a promise not to sue was held to be a valid consideration provided the claim is reasonable, the caches of claim to be successful is high, there is no concealment of facts.

Thus, a consideration is valid even if it is not adequate but is sufficient to support the promise.

The analysis of all the terms makes a point clear that a consideration is valid provide it is sufficient in the eyes of law and it makes no difference whether the same is adequate or not. This is the main theme of the present essay and is evaluated with the help of leading case laws.

A consideration is valid provided it is determined by the promisor. A valid consideration should not be illegal in the eyes of law, rather, should have some value which proves that consideration exists.

In Chappel v Nestles, the Nestle Company has declared that if people send 3 wrappers of the chocolate bar along with the postal order of 1 shilling within six days then they will be provided with a record. It was submitted by the House of Lords that even though the wrappers has no monetary value but the promise by the company and the repeated action by the promisee amounts to good consideration making the promise enforceable in the law. It was submitted by the judge that pepper corn is still considered to be a valuable consideration in the eyes of law even when the promisor is not interested in pepper and throw the corn.

Inadequate consideration

Thus, even if the consideration is not adequate still the same is considered to be valid because it was sufficient enough to keep the promise made by the promisor open for a specific period of time.

In Woolworths Ltd v Kelly, Kirby J has submitted that there is no need for the consideration to be adequate because what is adequate for one might be inadequate for another. Thus, a consideration has to be sufficient and not necessarily adequate.

In Thomas v Thomas, the nominal amount of rent and the promise to keep the premises in good condition was held to be sufficient consideration to make the promise of the promisor enforceable in law.

In Wigan v Edwards, the defendant agreed to sell his house to P @ $15,000. However, before the sale can be finalized, P submitted that there are defects in the house and thus is not intended to proceed further. In order to proceed with the sale, the defendant further promised to P that if there will be any faults within five years of sale, then, it is the defendant’s responsibility to cure them. But, when there is a presence of bonfide compromise of a disputed claim which is believed by the promisor to exist and any promise to resolve such dispute (even when the duty is an existing duty) is a good consideration in the eyes of law even when such consideration is not adequate and is only a sufficient consideration.

In Butler v Fairclough, it was held that a promise made not to sue the promisee for a specific time limit is a valuable and sufficient consideration provided there is a bona fide claim and there is presence of liability. But, forgiving a claim when there is no bona fide claim or liability is not a valuable or sufficient consideration in the eyes of law.

In Pinnel’s Case, The defendant was sued by P on bond. However, the defendant submitted that P had agreed to accept £5 2/6d on 1 Oct against £8 10s which is due on 11 Nov. It was submitted by the court that when a party pays a less sum of money on the day when it was due, then, it cannot be submit that it is given in satisfaction of the whole amount of money. But, if a part of the money is paid before the due date then it can be regarded as a good consideration for the whole amount. Thus, payment of less money prior to due date is sufficient consideration for the whole amount. In Couldery v Bartrum (1880), it was held that if the creditors decide to take the fewer amounts in settlement of the full claim then it is sufficient consideration to honor the agreement amid the parties.

Sufficient consideration

In Dunton v Dunton the defendant has agreed to pay to his wife £6-00 per month, provided, his wife will remain sober and act with virtuous, respectful and orderly manner. It was held by the court that the promise by the promisor is supported by the detrimental effect of the promisee as she is giving away her liberty and this can be considered as a sufficient consideration even though the consideration is not adequate in the eyes of law.

In Ward v Byham, it was agreed by the father that he will provide £1 per week maintenance to the mother of the child only on the condition that the mother will look after the child adequate and will keep him happy. It was held by Denning MR that the consideration provided by the father may not be adequate but is sufficient to keep the act of the mother going and is thus a valid consideration in the eyes of law.

Thus, from all the cases which are analyzed above it is submitted that in order to make a valid consideration it must have some value in the eyes of law even though it is not adequate. Also, the consideration must not be illegal or illusionary though a nominal consideration is also valid in the eyes of law.

Now, it is important to understand the difficulties that exist with the current law of consideration.

As already discussed that a consideration is valid if it is sufficient, even though the same is not adequate in nature. However, the approach of the courts has found to be contrasting in nature. In Chappel case, the chocolate wrappers are considered to be sufficient consideration. Likewise in Ward v Byham case, the money provided to keep the child happy was also held to be sufficient consideration to enforce the promises amid the parties. But, in the leading case of White v Bluett[29], a promise made to refrain the other party from complaining is found not to be sufficient consideration. Thus, what is recognized in the cases of Chappel & Ward v Byham was not recognized in White v Bluett. Thus, the approach which is undertaken by the courts is not same which brings difficulty in understating the actual concept that revolves around the principle of adequacy and sufficiency of consideration[30].

Also, it is very difficult to understand as what actual a ‘practical benefit’ is which is found in Williams v Roffey Bros case. It was discussed by Phang LJ that when there is promise to gave more can be considered as practical benefit then why not the principle is extended to when there is a promise to pay less. These problems that are raised have evolved an issue regarding the adequacy of the Principe of consideration in its present form.

However, disregarding the issues that are raised, the importance of the principle of consideration can be shed away.

Conclusion

To conclude, it is submitted that the consideration as one of the elements in the formation of contract is very important. It makes the contract enforceable and provides an indication that the parties intent to honor the promises that are exchanged amid them. And the act or forbearance by the promisee is supported by some kinds of benefit which has the sanctity in the eyes of law. Further, the consideration that is provided must be sufficient and have presence in the eyes of law regardless of the fact whether it is adequate or not. The adequacy of consideration is not important because what is adequate or one person might be irrelevant for another. The only thing that is relevant is sufficiency of the consideration. Thus, even a nominal consideration was held to be valid provided the same is not illusionary or illegal in nature.

Thus, it is correct to submit that Consideration need not be adequate or commercially realistic. It merely needs to be ‘sufficient’ in nature.

Reference List

FJR Caelum, 2013, Case Brief.

Goldring et al, 1998, ‘Consumer protection law’, Federation Press.

Julie C, 2015, Australian Contract Law, Consideration.

LA Bygrave, consideration, 2013, JUS5260 Spring 2013 – Consideration .

M Furmston & G.J. Tolhurst, Contract Formation: Law and Practice, 25-Mar-2010, OUP Oxford.

R Moles & B sangha, ‘Consideration – in Acceptance of Contract’ 1998.

The LawHandBook (2015) Elements of contract. Unistudyguide, 2012, Elements of consideration. Alliance Bank Ltd v. Broom (1864).

Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424.

Beaton v McDivitt (1987) 13 NSWLR 162.

Butler v Fairclough (1917) 23 CLR