Consideration Under The Contract Law

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Consideration Under The Contract Law

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Consideration Under The Contract Law

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Discuss about the Consideration Under the Contract Law.

The matter in this case is related with consideration under the contract law. In this regard, the contract law provides that elements like offer, acceptance and consideration should be present for making an agreement between the parties legally enforceable. However in this case, Jane was going to give his Lotus Super 7 sports car to Jack for free although the market value of such a car is around $25,000. Jack has accepted the offer made by Jane and in this way the issue arises if the parties have formed a legally enforceable contract. For the purpose of making a contract valid, or in other words the enforceable, it is required that among other elements, consideration should also be present. Each party to the contract should provide consideration in return of the promise received by it. Past consideration is not treated as good consideration (Re McArdle, 1951). For this purpose, consideration is the benefit that has been received by the parties to the contract. The law also provides that past consideration is also not a good consideration. According to the law, consideration can be anything of value and therefore it should be something real and not illusionary (Thomas v Thomas, 1842). In this way, a contract can be enforceable only if it is supported by a valid consideration. But in the present case, the promise made by Jane to give his car to Jack for free is not supported by any consideration. Therefore, it can be said that this promise cannot be enforced by Jack as it is not supported by a valid consideration.
On the other hand if Jane had made an offer to sell her Lotus Super 7 sports car to Jack at a price of 25,000 and at the same time, the price of such a car in the market is also around 21,000, the question arises if this offer has been accepted by Jack, is there a valid and the enforceable contract between the parties. In such a case, the elements that are required for creating a valid contract like offer, acceptance and consideration will be present (Atiyah, 1990). At the same time, the parties have the intention of creating a legal relationship and the parties also have the capacity to contract. In this case, if the offer made by Jane is accepted by Jack, it can be said that all the essential elements are present. An offer has been made by Jane and it has been accepted by Jack. The consideration is also present in this case as Jack had accepted to pay $25,000 as the price of the car. The law of contract requires that each party to the contract should receive the benefit and similarly should also suffer a detriment (White v Bluett, 1853). In this way, this benefit or detriment has been called as consideration. As in this case, a valid consideration has been provided, it can be said that a valid contract is created which can be enforced by the law.
Another issue may arise if Jane makes an offer to sell the car at a price of $2500 while in reality; the market price of the car is around $25,000. Therefore it needs to be considered if the offer is accepted by check, is it a valid contract between the parties. The issue arises as a result of the extremely low price of the car as compared to its current market value. In such cases, it needs to be noted that the parties have been provided the freedom of contract and therefore, generally the courts do not go into the issue of the adequacy of consideration (Beale, 2002). It has been left up to the parties to decide what ever consideration they may deem fit for the promise that has been received by them. In this regard, it is only required that they should be a real consideration, it should not be illusionary (Beatson, Burrows and Cartwright, 2010). Consideration can be anything that has some value in the eyes of law. Hence it is not required that the consideration should also be adequate although the inadequacy of the consideration may be used by the court for the purpose of deciding the presence of unconscionability, force or fraud. In this way, the parties are free to decide any consideration so long as it is real and valid consideration (Re Wragg Ltd., 1897). For example in Chappell v Nestle (1960) it was stated that even the empty wrappers may amount to a valid consideration.
Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 is a significant case of the English contract law that deals with the issue of consideration. In this case, the traditional doctrine has been confirmed by the House of Lords according to which the consideration need not be adequate but it needs to be sufficient. In this case, the copyright for ‘Rockin’ shoes was owned by Chappell & Co. on the other hand, Nestlé company was giving the records of this song to the persons who sent the wrappers of the chocolate bars of the company. According to the Copyright Act, 1956 it has been mentioned that a royalty of 6.25% has to be paid on the ordinary retail selling price. In this regard, it was claimed by this the ordinary retail selling price of the record was 1s 6d. On the other hand, it was argued by Chappell & Co that the price should be more. Therefore the question was if the wrappers of the chocolate bar can also be considered as a partial consideration for the records. In this case, it was stated by the majority in the House of Lords that although the chocolate wrappers had trivial economic value and ultimately they were thrown away, but still they were a part of the consideration in this case.
On these grounds it can be said that the price of $2500 is a valid consideration even if the market value of the car is around $25,000.
While in ordinary language, adequacy and sufficiency are considered to have the same meaning but in legal terms, the term adequacy is related with the circumstances under which the price that has been paid by a person for something is disproportionate to the value of what has been received by such a person in return. Therefore, for instance, if A has paid $50 as the consideration for a house, it can be said that clearly, adequate consideration has not been provided by A for the house. But in these cases, it is the general opinion of the courts that the value of the goods and services provided under the contract has to be decided by the parties to the contract themselves and it is not for the courts to decide the adequate consideration. As a result of this position, even if adequate consideration is not present in a contract, it will not have any impact on the validity of the contract. The consideration is stated to be sufficient if it is sufficient enough for supporting a simple contract in the eyes of law. This requires that the consideration supplied by the party should enjoy some value under the law. There are many examples where the consideration is not treated as having any real value in the eyes of the judiciary. Therefore, moral duty, natural love and affection and prayers are not considered as having an economic value. The result is that these are not treated as sufficient consideration that can support the formation of a valid contract. In such a case, it will only be repeating the obligation that the promisee is already obliged to do. According to the law, a particular consideration has to be treated as insufficient if the plaintiff has performed a duty that the plaintiff was already obliged to do.
Therefore it can be said regarding the presentation that the consideration of $2500 is adequate consideration even if the market value of the car is around $25,000.
On the grounds of the facts of this case, it can be said that the issue is related with the enforceability of the promise made by the buyer to pay extra US$3 million. In this case, as a result of the devaluation of the US currency, the shipbuilder is set to suffer a loss. As a result, demands extra US$3 million otherwise the construction of the ship will be stopped. On the other hand, the buyer already had the charter for the tanker and therefore it became very significant that the tanker should be delivered on time. Under these circumstances, it has to be seen if the buyer may be successful in recovering the excess amount paid to the shipbuilder.
A case with similar facts is that of Williams v Roffey Bros and Nicholls Contractors) Ltd (1990). In this case, one party had created a contract with the other for performing some carpentry work. However the midway, it became clear that the other party will not be able to finish the work on time. On the other end, the plaintiff had entered into a contract with a third-party according to which if the work was not completed on time, the plaintiff was required to pay a penalty. Therefore in order to avoid paying penalty to the third party, the party agreed to pay extra money so that the work may be completed on time.
The brief facts of this case are that the carpentry work for the flats was subcontracted by the defendant to the plaintiff. However as a result of the price decided by the parties for the work, financial difficulties were created for the plaintiff and it became difficult for the plaintiff to complete the work on time. These were the circumstances when the defendant agreed that additional payment will be made to the plaintiff for each flats completed on time. However later on the defendant refused to make these additional payments. As a result, the plaintiff sued the defendant for the recovery of his payment under the original contract and also under the further agreement created between the parties. However, it was argued by the defendant that the promise of making additional payment was not enforceable as it was not supported by any consideration. The Court stated that the rule provided in Pinnell’s case is not applicable in the cases where the debt has arisen as a result of the provision of services. Therefore the promise to perform an existing duty can also be treated as good consideration if the other party is going to achieve practical benefits as a result of the performance of an existing contractual duty.
An example in this regard can be given of the situation where A has made a contract with B for the performance of some work or to provide goods or services in return of the payment made by B and at some stage, before the work was completed, B has reasons to believe that A may not be able to complete the work on time, and B makes a promise that in return of an additional payment by A, it will perform these obligations under the original contract on time. It is also required that due to the promise made by B to complete the work on time, A is going to achieve practical benefit or to avoid a loss and at the same time, the promise is not the result of fraud or economic duress, it can be said that the benefit achieved by B will act as a good consideration for the promise made by B to make additional payment.
Under these circumstances, the issue was if this contract to pay the extra money was valid and if consideration was present to support the promise of being the extra money (Atiyah, 2000). The court arrived at the conclusion that in this case the promise to pay the extra amount was legally enforceable. The court mentioned that the additional amount was recoverable. Therefore when a promise to pay additional amount has been made by one party to the other in return of a promise that they work will be completed on time and the party that had promised to pay extra amount was going to achieve an advantage or avoid a loss by the completion of the work on time, and the promised to pay additional amount was not due to economic duress or fraud, the benefit that such party is going to receive by the completion of the work on time may act as a good consideration.
On these grounds, it can be said that the promise to pay extra US $3 million for the completion of the tanker on time was legally enforceable as the buyer was going to achieve a benefit by the completion of the tanker on time. This provided the consideration for the promise to pay the extra amount. As a result, the buyer cannot recover the excess amount from the shipbuilder.
Atiyah, P.S. 1990, Essays on Contract, Oxford University Press, New York
Atiyah, P.S. 2000 An Introduction to the Law of Contract, Clarendon
Beale, H., (ed) 2002 Cases, Materials and Text on Contract Law (Hart
Beatson, J.  Burrows A. and Cartwright, J. 2010 Anson’s Law of Contract, 29th edn OUP
Publishing, Oxford
Chappell v Nestle [1960] AC 87
Re McArdle (1951) Ch 669
Re Wragg Ltd [1897] 1 Ch 796
Thomas v Thomas) (1842) 2 QB 85
White v Bluett (1853) 2 WR 75
Williams v Roffey Bros and Nicholls Contractors) Ltd (1990) 1 All ER 512

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