Discuss about the Consideration Adequate or Commercially Realistic.
In Australia, to make any valid contract, the basic ingredients that are required are agreement (offer plus acceptance), consideration, legal intention and capacity of the parties. Though all elements are very important but amongst all consideration is one of the significant elements which are required in any contract formation[1].
In this present essay, the definition of consideration is evaluated. An attempt is also made to understand as what a valid consideration comprises off. Whether it is sufficiency of the consideration that makes it valid or whether it is its adequacy that makes any consideration legal in law?
This theme of the essay is grounded with case laws and various primary and secondary sources of law. Now, the foremost issue that requires analysis is the brief understating on the law of consideration.
One of the significant Element of Law – Consideration
As already discussed the basic ingredients that are required are agreement (offer plus acceptance), consideration, legal intention and capacity of the parties. Consideration is one of the significant elements in contract formation. The concept of consideration was evaluated in English cases which were later followed by the Australian courts in order to give edge to the contract and their enforceability. In Currie v Misa[2], Lush J submitted that consideration can be some kind of profit, interest, rights or benefit which can be gained by one party or it can be some kind of detriment, forbearance, responsibility or loss which is endured by some other party[3].
In Australia, the basic requirements for the presence of valid considerations are; Firstly, a consideration of past nature is invalid in law[4]; secondly, it must always move from the promisee or claimant[5]; Thirdly, every kind of consideration should not be against the policy of the public, immoral or illegal[6]; Fourthly, the promisor must always make some kind of request to the promisee; Fifthly, there must be sufficiency of consideration. In Carlill v. Carbolic Smoke Ball Co[7], it was analyzed that any gain to the promisor or any loss to the promisee is consideration regardless of its adequacy. The only requirement is that it must have some value in the eyes of law; Sixthly, performance of an existing duty is not a valid consideration in law[8].[9]
So, it can be submitted that consideration is nothing but something of value in the eyes of law which is moved from the promisor to the promisee to support the promises that are exchanged amid the parties. Every valid consideration causes some kind of loss to the promisee for which the promisor is promising to pay some kind of gain or benefit.
From the above essentials it is clear that consideration must be sufficed but need not be adequate. But, to authenticate this statement with the help of case laws, it is first important to understand some fundamental terminologies that are related to the word consideration, that is, nominal, illusionary, inadequate, sufficient consideration. All these terms will help in understating the true nature of the term consideration.
Illusionary and inadequate consideration
As already discussed, in the leading case of Currie v Misa[10] consideration was defined as some kind of profit, interest, rights or benefit which can be gained by one party or it can be some kind of detriment, forbearance, responsibility or loss which is endured by some other party[11]. Thus, the consideration must move at the desire of the claimant or the promisee. From the basic understanding on the elements of consideration, it is also crystal clear that a consideration should not be illegal, immoral or against public policy. In law, any promise to act or not to act which is based on consideration should be of some kind of substance. A consideration should not be illusionary, such as, a promise to do an act which is legally imposed[12] or to perform an existing duty[13] or uncertain or vague promise[14]. It is settled law in Wigan v Edwards[15] that any consideration which is illusionary in nature and which has no substance in law has no relevance and is not a consideration in law at all. Thus, an illusionary consideration is neither sufficient nor adequate; rather it is no consideration at all[16].
Thus, it is clear that illusionary consideration has no relevance in law. It is neither sufficient nor adequate to gave meaning to the conceit that what kind of consideration is valid in law, it is sufficient or adequate, because an illusionary consideration is no consideration at all.
However, an illusionary consideration is different from inadequate consideration.As an illusionary consideration is no consideration at all, an inadequate consideration is something which is not equivalent to the actual price for the act or forbearance. But, whether an inadequate consideration is valid or not is discussed in Woolworths Ltd v Kelly[17] where it was held that the courts are not interested in the inadequacy of the consideration. The only requirement is that the consideration should be legal and not illusionary.
Thus, that means that the courts are submitting that there is no requirement for any adequacy of the consideration. Does that mean that the only requirement is that consideration should be sufficient?
This statement can only be evaluated by understating the fundamental principle behind nominal consideration and then moving ion to analyze the when sufficient considerations were held to be valid.
In the contract law, a consideration should not be illusionary or illegal but a nominal consideration was held to be valid in the eyes of law. The court has held that the feelings, emotions, etc are not good consideration in the eyes of law. But, even a nominal or small amount of consideration to support the promises was held to be valid in law. In Thomas v Thomas[18], the court has held the repairs and rent even though are very negligible but still hold good consideration to support the promises that are exchanged amid the promisor and the promisee. It was held that a nominal consideration is valid in law and is enforceable in law[19].
So, after having a brief analyzing that a consideration can be nominal but cannot be illusionary and considering the fact that the courts are not interested in taking any kind of heed on the inadequacy of the consideration, it is now time to actually understand as to what amounts to a valid consideration. When a consideration is legal in law, only when it is adequate or only a sufficient consideration is also enough to support a contract and make it enforceable.
A consideration is a significant element in the formation of contract. It is a must to make any contract enforceable. But, it has been found with the help of series of cases that the courts are not reluctant in establishing that a ‘sufficient consideration’ is enough to make a contract valid. But what is sufficient consideration in law. Sufficiency of consideration submits that the consideration have some value in law regardless of the fact what its monetary value is? The consideration to support the promises may not be equivalent to the actual price of the contract but till the time the consideration has some value in the eyes of law, it was held to be sufficient and is enough to make the contract enforceable. A promise to support another promise is found to a valid sufficient consideration to make the contracts enforceable[20].
Validity of sufficiency of consideration is not a new concept and can be found in an age old principle which was decided in 1602 in a popular case called Pinnel’s case, wherein it was decided by the courts that if any party pay a nominal amount of money for the settlement of the full claim then the same can also be regarded as enough consideration to make the promises enforceable in law. There is no requirement for the consideration to be adequate to support the promises. The courts have given legality to the concept of sufficiency of consideration[21]. The rule was reciprocated in 1880 and courts has given due recognition when a nominal amount is considered to be sufficient consideration against the settlement of full amount[22]. But, later, the sufficiency of consideration is not restricted to some nominal amount of money. But, the courts have given regard to the acts of the promisee to be considered as sufficient consideration to support the contracts. The court held that if one party loses his liberty against an agreed amount then the act of losing liberty is considered to be sufficient consideration in eyes of law even though it is not adequate[23]. Also, a minimal amount to lure the promisee to carry out tasks was held to be sufficient consideration in the eyes of law and to hold the contract valid amid the parties. a consideration of £1 per week by the promisor to the promisee so that promisee takes care of the child was found sufficient though not adequate in the eyes of law[24].
The concept of sufficient was given due recognition in 1960 in the leading case of Chappel v Nestles[25]. In this case, one company submitted that if any person provides a postal order of1 shilling along with three shillings, then, that will amount to be sufficient consideration and such person will get a prize of a record. The court established that even though the wrappers are worthless and is not an adequate consideration but still it has sufficiency and holds valid in the eyes of law.
All the above cases proves one significant point, that is, in law, in order to consider any consideration valid, what is required is not the adequacy of the consideration as the same is very subjective in nature and varies with person to person, but, what is required is the sufficiency of consideration and is more than enough to hold any contract valid in the eyes of law.
But, even the concept of sufficiency has its own loopholes which are submitted herein below.
The major concern over the current law on consideration, that is, there is no need for adequacy of consideration rather a sufficient consideration is enough to hold the contract valid in law, can be evaluated by discussing two major cases. In Chappel v Nestles & Ward v Byham case, the courts submitted that even a sufficient consideration is valid in law (chocolate wrappers were found to be a valid consideration and a very small quantity amount of money for the happiness of the child). But, a promise to stop another party from complaining is not found to be sufficient consideration to hold the contract valid[26].So, the courts are themselves are not unanimous in their own approach[27].
Conclusion
It is thus concluded that consideration can be some kind of profit, interest, rights or benefit which can be gained by one party or it can be some kind of detriment, forbearance, responsibility or loss which is endured by some other party. The presence of consideration is must to hold any contract valid in the eyes of law. It is one of the significant elements in the eyes of law. But, the true nature of consideration is what makes it valid in the eyes of law. From the series of cases it is concluded that a valid consideration need not be adequate in the eyes of law. What is required is that the consideration should have some sufficiency in the eyes of law even when the same is not equivalent to the promises that are exchanged amid the parties. It is not important that the consideration must be ‘much’ or ‘adequate’ in nature, the only requirements is that it has some relevance in the eyes of law to make it valid and enforceable in law.
References
Books/Articles/Journals
E Clark, ‘Cyber Law in Australia’ (2010), Kluwer Law International.
LA Bygrave, consideration, 2013, JUS5260 Spring 2013 – Consideration .
McKendrick & Liu, ‘Contract Law: Australian Edition’ (2015), p 89, Palgrave Macmillan.
The law Teacher, ‘Analysing The Doctrine Of Consideration In Law’ 2016.
Tutorhunt, ‘should consideration be abolished?’, 2017.
Case Laws
Alliance Bank Ltd v. Broom (1864). Carlill v Carbolic Smoke Ball Co [1893]. Collins v Godefrey (1831) 1 B & Ad 950
Chappel v Nestles [1960]. Currie v Misa (1875) LR 10 Ex 153. Dunton v Dunton (1892)Pinnel’s Case (1602).
Roscorla v. Thomas (1842) Stilk v Myrick [1809] EWHC KB J58 Tweddle v. Atkinson (1861).
Thomas v Thomas (1842). Wyatt v. Kreglinger and Fernau (1933). Williams v. Williams (1957).
Ward v Byham [1956] Woolworths Ltd v Kelly (1991) 22 NSWLR 189. White v Bluett (1853) 23 LJ Ex 36
Wigan v Edwards (1973) 47 ALJR 586.
E Clark, ‘Cyber Law in Australia’ (2010), Kluwer Law International.
Currie v Misa (1875) LR 10 Ex 153.
McKendrick & Liu, ‘Contract Law: Australian Edition’ (2015), p 89, Palgrave Macmillan.
Roscorla v. Thomas (1842). Tweddle v. Atkinson (1861). Wyatt v. Kreglinger and Fernau (1933).
Carlill v. Carbolic Smoke Ball Co. (1893). Williams v. Williams (1957).
LA Bygrave, consideration, 2013, JUS5260 Spring 2013 – Consideration.
Currie v Misa (1875) LR 10 Ex 153.
Collins v Godefrey (1831) 1 B & Ad 950.
Stilk v Myrick [1809] EWHC KB J58.
White v Bluett (1853) 23 LJ Ex 36.
Wigan v Edwards (1973) 47 ALJR 586.
W Twyford, ‘The Doctrine of Consideration’ 2002, University of technology, Sydney.
Woolworths Ltd v Kelly (1991) 22 NSWLR 189.
Thomas v Thomas (1842).
The law Teacher, ‘Analysing The Doctrine Of Consideration In Law’ 2016.
Alliance Bank Ltd v. Broom (1864).
Pinnel’s Case (1602)[22] Couldery v Bartrum (1880).[23] Dunton v Dunton (1892).
Ward v Byham [1956]
Chappel v Nestles [1960].
White v Bluett (1853) 23 LJ Ex 36.
Tutorhunt, ‘should consideration be abolished?’, 2017.
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