“Consideration need not be adequate or commercially realistic. It merely needs to be sufficient”
Discuss what the term ‘sufficient’ means in this context and whether the statement is accurate in regards to Australian contract law.
Introduction: According to the law of contract, consideration is the price that is asked by the promisor in lieu of the promise. Therefore, consideration is the price paid for the promise. According to the common law, a promisee should give consideration for the promise made by the promisor for creating a legally enforceable agreement. As a result of this position, generally the parties are not able to enforce gratuitous promises although some exceptions are present in this regard. However in most of the cases, the parties cannot legally enforce gratuitous promises and it is necessary that some consideration should be provided by the promisee.
In this way, consideration is the price asked before by the promisor in return of his or her promise. At this point it should also be noted that in this case, the term ‘price’ has been used in a broad sense. It is not necessary that price should include a monetary value. The only requirement is that the price should have some detriment which has to be suffered by the promisee. Therefore, this detriment can be the losing of a freedom by the promisee like a promise to quit smoking or to study on a Saturday night. At the same time, it is also not necessary that any tangible benefit should be received by the promisor.[1] An example in this regard can be given of the famous case Carlill v Carbolic Smoke Ball Company[2] there in the opinion of the Court, it was considered a sufficient by the code that the plaintiff has suffered a detriment in the form of using the Smoke Ball of the company in accordance with the directions of the company and it is not material if the company has not a benefit.
In the same way, although it is required that consideration should be supplied by the promisee but the law does not require that it should move towards the promisor. For example in case the promisor (A) asks the promisee (B) to give some money to C in return of A’s promise made to B. Therefore in such a case, the money given to C can act as a valid consideration. But if it is required by A (promisor) that the consideration should be provided by C in return of A’s promise made to B, it cannot be treated as a valid consideration. The reason is that in this case, B has not suffered a detriment in the form of consideration. Then there are two or more promisees, the consideration moved from a single promisee is considered a sufficient for the promise.
According to the law of contract, consideration can be in form of anything that the promisor has stipulated. Therefore the consideration has to be stipulated by the promisor and as long as it is legal, the consideration can be provided in any form. In such a case, it is not necessary that the consideration should be comparable to the value of the promise that has been made in return. The famous case of Chappell & Co Ltd v Nestle Co Ltd[3] discusses in detail the issue related with the value of consideration. In this case, Lord Somervell mentioned that for creating a valid contract, even a ‘peppercorn’ can provide a valuable consideration if the promisor has stipulated that the peppercorn will be the consideration for the contract. However the issue of the adequacy of consideration can play an important role in some other aspects, especially when the court has to deal with the issue of duress or undue conduct as a result of which, the contract can be stated to be voidable.
In Chappell v Nestle, Nestlé Company issued an advertisement according to which the company promised to provide a music record to all the persons who send some money to the company along with 3 wrappers of the chocolate of the company. As a result, it has to be decided by the court if the wrappers of chocolate can be treated as a part of the consideration related with the contract for music records. It was mentioned by the code that the chocolate wrappers were indeed a part of consideration and it was not only a condition precedent. The court stated that the fact that the chocolate wrappers were a part of consideration was made clear by the offer made by the company according to which it was clearly stated that with the help of these wrappers, any person can get a smash hit record. However in order to refute this condition, Nestlé claimed that no value can be attributed to the wrappers of chocolate. However, the court stated that this was not relevant and the famous statement was made by Lord Somervell when he said that “anything can be stipulated by a contracting party as consideration”. In this way, even a peppercorn can be considered as good consideration.
It also needs to be noted that the law does not require the consideration to be adequate and the only requirement is that it should not be illusionary. In this way, anything can be stipulated by the promisor has consideration. The only requirement prescribed by the law in this regard is that the consideration should not be against the law. But in this regard it is required that consideration should be in the form of something which can be edited some value by the law or the consideration should be present. The result of this proposition is that it is not possible to treat an illusionary undertaking has consideration. Another requirement prescribed by the law contracting this regard is that it should come into existence along with the promise or the consideration should arise soon after the making of the promise. Therefore if the stipulated consideration has been in existence even before making the promise that consideration is not treated as a good consideration. In this regard an example can be given of the situation in which A promises to transfer a car to B a return of his assistance provided to A in the last month. But in this case, this assistance cannot be treated as the consideration for the contract because it is past consideration. In Roscorla v Thomas[4] this was the main issue before the court and it was stated that a promise does not become binding only because of the reason that the consideration for the promise related with the soundness of the horse was to create the original contract but it had taken place before the promise has been made. The facts of this case are that P purchase the horse from D and D promised the soundness of the horse. In fact, it was not sound and therefore D was sued by P on the ground of the breach of contract. However, the court gave the decision that consideration was not present for the promise made by D. The original contract that has been pointed out as the consideration was a past consideration because the contract preceded the promise of the defendant. As a result, the court stated that it was not a part of the bargain and not given against the promise. Therefore, the court came to the conclusion that consideration was not present in this case.
But in this regard it needs to be noted that an exception is also present to the general rule that past consideration is not good consideration. This exception provides that even past consideration can also be good consideration if such consideration has been provided by the promisee on a request of the promisor and there was also an understanding between the parties that the act of the promisee will be remunerated and such promise was made prior to the act itself. If these conditions are fulfilled, even a past consideration is a good consideration. The law of contract also provides that performing an existing duty cannot be a good consideration for the creation of a contract.
Therefore the statement that a consideration has to be sufficient but it is not required to be adequate means that while it is required by the law that consideration should be sufficient but it does not mean that the law also requires the consideration to be adequate. The only requirement in this regard is that there should be the possibility of certain value that is capable of being expressed in economic terms but the law does not require that such value should be adequate too. In this way, the gratuitous promise is not enforceable by the law. Similarly, natural love and affection is not treated as sufficient consideration. The result of this position of law is that the courts do not go into the question of the adequacy of consideration. This means that the courts are not concerned with the question if a party has received sufficient consideration in return of the promise made by such party.[5] Therefore even if an offer is made by A to sell his house for $1 only, still the consideration is valid. However if A offers to sell his house for free, there is no consideration present and therefore any agreement made between the parties is not enforceable by the law. For example in Thomas v Thomas[6], the rent promised to be paid was 1 pound per annum but the court did not go into the issue of the adequacy of the consideration. This rule has also been firmly established after the decision given by the court in Chappell v Nestlé Co Ltd.[7]
At the same time, the parties are also free to stipulate anything as the consideration for their contract. The courts will not interfere in the choice that has been made by the parties in this regard only on the ground that in a particular case it appears that a party has made a bad bargain. The ground on which the decision of the court in Chappell was based probably was the requirement according to which people had to send worthless chocolate wrappers would also have made the people to buy these chocolates.
Conclusion
At the end of the present discussion, it can be said that the above-mentioned position summarizes the points of law and also the arguments that are given in the favor of the statement according to which consideration needs to be sufficient but it is not required that it should also be adequate. Similarly, while it is required that at the time of considering the ‘value’ of the consideration stipulated by the parties, the courts do not deal with the issue of the adequacy of consideration and they are not bothered with the fact if a party to the contract has received a fair price or not. The only concern for the courts in such cases is to see if the party has paid the consideration under the contract and such consideration should be capable of being expressed in terms of monetary value.[8] The result of this provision of law is that intangible things like the lack of boredom or emotions are not treated as the consideration to which some value can be attributed. Therefore, the only requirement is that the consideration should be of such a nature that has some monetary value for the parties.
References
Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009)
Case Law
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Chappell & Co Ltd v Nestle Co Ltd [1990] AC 87
Chappell & Co Ltd v Nestle Co Ltd [1990] AC 87
Roscorla v Thomas (1842) 3 QB 234
Stilk v Myrick [1809] EWHC KB J58
Thomas v Thomas, 1842 2 QB 851
White v Bluett (1853) 23 LJ Ex 36
[1] Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009)
[2] Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
[3] Chappell & Co Ltd v Nestle Co Ltd [1990] AC 87
[4] Roscorla v Thomas (1842) 3 QB 234
[5] White v Bluett (1853) 23 LJ Ex 36
[6] Thomas v Thomas, 1842 2 QB 851
[7] Chappell & Co Ltd v Nestle Co Ltd [1990] AC 87
[8] Stilk v Myrick [1809] EWHC KB J58
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