Consideration in Contract Law

In this presentation, I discuss the concept of consideration in detail, the types of consideration, and the principles of consideration. Further to the above, I discuss the modifications to the common law principles of consideration under Ghana's Contracts Act 1960, Act 25

1. INTRODUCTION TO CONTRACT LAW PATRICK AGATIBA ABOKU The Law guide

2. Content What is consideration Types of consideration Principles and rules Reforms under Act 25 Promissory Estoppel

3. What is consideration The essential requirements for contract aside offer and acceptance is consideration Older Definition – Defined in terms of benefit/detriment A valuable consideration may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. – Curie v Misa Modern Definition – Defined in terms of price of the promise An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought - Dunlop v Selfridge Consideration is very essential under the common law especially for contracts not made under a seal

4. What is consideration All contracts require something to be given in return for something else from the other party E.g. a promise in return for a promise or a performance of some activity Consideration may be a benefit or detriment to one party It is reason for the enforceability of the contract The promisee must provide some So, if A agrees to paint B’s house for GHS 50, A’s promise to dig is the price paid for B’s promise to pay GHS 50.

5. Types of consideration 1. Executory Consideration Promise to to be performed in the future in return for a promise Typical of Bilateral contracts So, if A agrees to paint B’s house for GHS 50, A’s promise to dig is the price paid for B’s promise to pay GHS 50. A and B have both yet to fulfil their promises when the contract is made, so the consideration from both parties is executory

6. Types of consideration 2. Executed Consideration An act performed in exchange for a promise Exchange of a promise for an actual performance Typical of unilateral contracts e.g. reward cases If C offers GHS 200 for the return of her lost watch, and D returns it in response to the offer, D’s consideration would be executed, because his side of the bargain would be completed

7. Types of consideration 3. Past Consideration The act constituting consideration is done before the promise is made To qualify as past consideration the act must be subsequent and independent of the promise If the thing that is to be consideration has already been performed before the promise is made, then in the eyes of the law it will not be consideration at all

8. PRINCIPLES GOVERNING CONSIDERATION Consideration need not be adequate but sufficient The words sufficient and adequate , although having very similar meanings in everyday language, have rather different meanings when applied to consideration The courts do not concern themselves with the market price or adequacy of the bargain Due to the doctrine of freedom of contract, it is presumed the parties are able to determine the value of the promises and what they want out of the contract The adequacy of consideration is for the parties to consider at the time of the making of the contract and not for the court to consider when it is sought to be enforced – Bolton v. Madden

9. PRINCIPLES GOVERNING CONSIDERATION Consideration need not be adequate but sufficient In the absence of fraud or misrepresentation, inadequacy of consideration cannot be a ground for avoiding a sale validly made – Adjabeng v. Kwabla Note that the principles governing contract and for that matter consideration are mostly products of the common law In Ghana, there has been some modifications captured in the Contracts Act, 1960 (Act 25)

10. PRINCIPLES GOVERNING CONSIDERATION Consideration need not be adequate but sufficient Adequacy of Consideration : assessment of the value or relative worth- Courts refrain from assessing adequacy of a consideration Sufficiency of consideration : concerned with whether or not the consideration qualifies as a considerations. Courts will usually undertake this assessment to ensure acts/promises are sufficient considerations Promise to perform pre-existing legal obligations Part payments of debts Read Chappell & co Ltd v. Nestle Co. Ltd – wrapper of chocolates were held to be good consideration even though Nestle Ltd threw them away on receiving them

11. PRINCIPLES GOVERNING CONSIDERATION Past Consideration At common law past consideration is not sufficient to support the enforcement of a contract Whether a consideration is past or present is a matter of fact to be determine from case to case In Roscorla v. Thomas payment for a the sale of a horse was held to be past consideration and not sufficient for a warranty given by the seller after the sale In Re Mcardle works done on the defendant’s deceased father’s house by the plaintiff for a subsequent unrelated promise by the defendants to pay was held not to constitute sufficient consideration because it was past consideration

12. PRINCIPLES GOVERNING CONSIDERATION Past Consideration Exceptions to the doctrine of past consideration an act is done at the request of the promisor and it was understood all along that payment would be made eventually, or if it was an act for which payment could reasonably be implied – Lampleigh v Brathwaite In Lampleigh v Brathwaite a consideration given in the form of securing a pardon for a friend who subsequently promised to pay and failed to do so was held to be sufficient even though past an act done in a business/formal setting and the parties understood at the time of performance that the act was to be paid for and such payment was legally recoverable – Re Casey’s Patent, Stewart v Casey In Re Casey’s Patent, Stewart v Casey a subsequent promise to give shares to the plaintiff after the performance of the act was considered sufficient consideration

13. PRINCIPLES GOVERNING CONSIDERATION Consideration must not be vague While it is not necessary to be able to specify the exact value of consideration, it must be something tangible, or discernible, to be of value in law - refer White v Bluett (1853) In White v Bluett (1853) a son’s promise to cease his complaints about the distribution of his father’s estate was held to be too vague to form valid consideration.

14. PRINCIPLES GOVERNING CONSIDERATION Forbearance as Consideration Means refraining from doing what one has a right do Forbearance is good consideration Abandoning a legal claim against someone may be good consideration for example In fact this is the basis upon which vast numbers of out-of-court settlements are made, and arises very often in practice Delle & Delle v Owusu Afriyie : the signing of a declaratory deed in exchange for forbearance from suit was considered sufficient consideration Hamer v Sidway : a nephews refrain from smoking and drinking before age 21 in exchange for 5,000BP was considered sufficient consideration Contrast with White v Bluett where a sons refrain from complaining about to his father about his fathers will was held not to be sufficient consideration

15. PRINCIPLES GOVERNING CONSIDERATION Performance of a pre-existing legal obligation Generally, doing something which is already an obligation is not sufficient consideration 2 kinds those where an obligation already exists under the general law of the land, and those where a duty is owed to another under a contract

16. PRINCIPLES GOVERNING CONSIDERATION F.1. Performance of an existing duty owed under the general law of the land B promises a police officer GHS 200 payment to undertake his legal duty of arresting a criminal and seeking to enforce the promise to payment At common law such performance does not constitute sufficient consideration However , going beyond what is strictly required by law, and doing something extra to this existing duty, can be seen as valid consideration.

17. PRINCIPLES GOVERNING CONSIDERATION F.1. Performance of an existing duty owed under the general law of the land ( Cont ) Rule Collins v Godefroy (1831) A lawyer was obliged to appear in court by witness order, but agreed with one party that they would pay him to give evidence. It was held that he was not entitled to enforce this payment, as it was something which he was already obliged to do by law, and merely doing that did not amount to valid consideration. Exception Glasbrook Bros Ltd v Glamorgan County Council a mining company requested for police protection and promised to pay for extra reinforcement. Held, the extra reinforcement constituted sufficient consideration Ward v Byham father of a child promised the mother of the child GP 1 if the child was “well looked after and happy”. Even though the mother was under legal duty to look after the child at the time, the extra duty of satisfying the phrase “well looked after and happy” constituted sufficient consideration Note S.9 of the Contracts Act, 1960, Act 25

18. PRINCIPLES GOVERNING CONSIDERATION F.2. Performance of a pre-existing contractual obligation If a person has already made a contract to do something, this same duty cannot generally be used again as consideration to the same person A & B have already entered into a contract but due to intervening events, A obtains a promise from B to complete A’s obligation within the agreed time B will not be liable Current Position of the common law is that If B obtained a benefit or avoided a disbenefit and B’s promise was not obtained by fraud or duress on the part of A, then B will be liable Williams v Roffey Bros & Nicolls Contractors

19. PRINCIPLES GOVERNING CONSIDERATION F.2. Performance of a pre-existing contractual obligation Stilk v Myrick (1809) Two sailors deserted ship during a journey to the Baltic. Eight of the sailors who were left agreed with the captain to share the wages of the deserters between them in exchange for sailing the ship shorthanded. On arrival at the port the money was not paid, so the sailors sued the captain. It was held that the sailors had done no more than their contractual duty already owed to the captain in their initial agreement to sail the ship

20. PRINCIPLES GOVERNING CONSIDERATION F.2. Performance of a pre-existing contractual obligation Hartley v Ponsonby (1857) Here 17 sailors deserted ship out of a crew of 36, and out of those sailors left, only a few were experienced seamen. A similar agreement was made with the captain to share the wages of the deserters between the eight sailors remaining if the ship was sailed on dangerously short handed. On return the payment was not made. This time it was held that the sailors had gone beyond their existing duty, and that the wages of the deserters should be paid to those remaining. It was suggested, by way of explanation, that what had happened was so fundamentally different from the original agreement that the initial contract had been discharged and a new one formed.

21. PRINCIPLES GOVERNING CONSIDERATION F.2. Performance of a pre-existing contractual obligation Williams v Roffey Bros: Builders promised carpenters to pay extra money in order for carpenters to finish work within schedule so Builders could avoid penalties for late delivery. Held builder’s are liable for second promise

22. PRINCIPLES GOVERNING CONSIDERATION Williams v. Roffey Contractors (Illustration)

23. PRINCIPLES GOVERNING CONSIDERATION F.2. Performance of a pre-existing contractual obligation The current position of the common law is the same as S.9 of Ac 25 “The performance of an act or the promise to perform an act may be a sufficient consideration for another promise although the performance of that act may already be enjoined by a legal duty, whether enforceable by the other party or not”

24. PRINCIPLES GOVERNING CONSIDERATION F.3 . Performance of pre-existing contractual obligation owed to a third party Performance of a pre-existing contractual obligation owed to a third party constitutes sufficient consideration for another promise Shadwell v Shadwell: a nephew contractually bound to marry a girl was promised 150 BP by his uncle if he married the her. Held, there is a binding contract between uncle and nephew Scotson v Pegg (1861) This is in line with Section 9 of Act 25

25. Section 9 of the contracts act on modification contracts Section 9 of Act 25 “The performance of an act or the promise to perform an act may be a sufficient consideration for another promise notwithstanding that the performance of that act may already be enjoined by some legal duty, whether enforceable by the other party or not” Section 9 of Act 25 takes a bolder step in dispensing with the requirement of consideration altogether in the modification of contracts thus ensuring contractual flexibility in the enforceability of renegotiated contracts

26. PRINCIPLES GOVERNING CONSIDERATION Consideration must move from the promisee For a contract to be enforceable, the bargain must have been made, and the consideration provided, by the two parties involved - Tweddle v Atkinson (1861) Thus at common law, the general rule is that consideration must move from the promisee

27. PRINCIPLES GOVERNING CONSIDERATION if A pays B £50 and B agrees to cut C’s lawn, C cannot sue A. C has not provided any consideration. Tweddle v Atkinson(1861) a promise between the fathers of a marriage couple was held to be unenforceable by the son because he did not give the consideration for the promise. The only persons who could enforce the contract were the persons who made it. Note the position of Section 10 Act 25 on this. Read on Privity of Contract

28. PRINCIPLES GOVERNING CONSIDERATION Section 10 of Act 25 “ No promise shall be invalid as a contract by reason only that the consideration for it is supplied by someone other than the promise” Section 10 of Act 25 abolishes the common law principle that consideration must move from the promisee

29. PRINCIPLES GOVERNING CONSIDERATION Promise to keep offer open for a specified period is not binding on the offeror unless it supported by fresh consideration – Routledge v Grant Section 8(1) of Act 25 abolished this principle in Ghana “A promise to keep an offer open for acceptance for a specified time shall not be invalid as a contract by reason only of the absence of any consideration thereof” A offers to sell his house to B for GHS 2000 and says that the offer will be open for a week. Before the week expires A sells the house to X. Provided that there is some evidence from which a court can infer that B has accepted A’s promise to keep the offer open (not the offer to sell the house) B will have an action against A for breach of this contract Activity Comment on Section 8(1). Have you noticed any mischief with the provision

30. PRINCIPLES GOVERNING CONSIDERATION At common law, a promise to waive or forego a debt or part payment of a debt is not binding on the promisor unless there is some fresh consideration from the promisee (aka the Pinnel’s case) Promisee is already obligated to pay the debt so the part payment does not constitute consideration and There is no benefit accruing to the creditor Pinnel’s Case A man called Cole owed Pinnel some money, and at request of Pinnel had paid him a lesser sum over one month early. Pinnel had at first said that this would end the debt, but then tried to sue for the rest. It was held that although in general a lesser sum did not satisfy the whole debt, earlier payment, at the request of the creditor, would do so, as would payment in a different place or in a different form Read Foakes v Beer Note Section 8(2) of Act 25

31. PRINCIPLES GOVERNING CONSIDERATION Exceptions to the rule in Pinnels Case If, at the request of the creditor, something else is added to the payment. This could arise if A owes B GHS200, and at B’s request pays GHS100 together with a piece of jewellery that A likes. If, at the creditor’s request, the debtor pays a lesser sum before the date on which it is due. This gives the creditor something ‘extra’ in terms of the time, so is regarded as good consideration. If C owes D GHS30, to be repaid on 15 December, but at D’s request C repays GHS25 on 1 December in settlement, this will be regarded as ending the debt, and D will not be able to go back on the agreement and sue for the other GHS5. If, at the request of the creditor, the method of payment is changed. The payment may be made at a different place, or in a different form, for example if E owes F GHS100 to be paid at his office in Accra, and at F’s request, E takes the money to F’s home in Kumasi.

32. PRINCIPLES GOVERNING CONSIDERATION Exceptions to the rule in Pinnels Case Where there is a composition agreement with creditors . If X is declared insolvent, and owes money to Tom, Dick and Harry, X clearly cannot repay them all in full. However, they may then agree to accept a proportion of the debts owed to them in settlement of their claims against X. This will be held binding in the courts, since if Tom, Dick and Harry have each made an agreement with X concerning each other, it would be a fraud on each other to go back on that and sue X Where payment of a lesser amount by a third party is accepted, the creditor cannot then sue the original debtor for the full amount. This arose in the case of Hirachand Punamchand v Temple (1911), where the plaintiff money lender agreed with Temple’s uncle to accept a cheque in settlement of Temple’s debt, even though the cheque was not for the full amount. The plaintiff was then unable to go back on his word and sue Temple for the rest. Again, in doing so, the plaintiff would have been in breach of the agreement with the uncle. (the rule is not too strict on this)

33. PRINCIPLES GOVERNING CONSIDERATION Exceptions to the rule in Pinnels Case Section 8(2) “A promise to waive the payment of a debt or part of a debt or the performance of some other contractual or legal obligation shall not be invalid as a contract by reason only of the absence of any consideration thereof” Thus in Ghana a promise to waive a debt or part of it is binding on the promisor even in the absence of any fresh consideration

34. PRINCIPLES GOVERNING CONSIDERATION Doctrine of promissory estoppel This principle is grounded in equity and not under the common law If a party in a contract enters into a subsequent agreement to waive his rights in the contract for period of time, he will be prevented from going back on that promise for the only reason that the other party did not provide fresh consideration in return Note that this is a modification contract At common law such agreements would not be binding on the promisor unless there is additional consideration from the promisee In equity however, it is binding on the promisor through the equitable principle called the doctrine of promissory estoppel Central London Property Trust v High Trees House Read Hughes v Metropolitan Railway Company Refer S. 8(2) and S.9 on modification contracts

35. PRINCIPLES GOVERNING CONSIDERATION Central London Property Trust v High Trees House (1947) The plaintiff owners of a block of flats in London leased it to the defendant in 1937 for £2,500 per year, and the defendant in turn let out the property as individual flats to tenants. During the period of World War II it became increasingly difficult to find tenants, so the defendant was going to end the arrangements. Rather than do this, the plaintiffs agreed to reduce the payment due under the lease to £1,250 per year. As a result the defendant was able to continue with a reduced number of tenants. At the end of 1945 people were returning to London, and the flats were again full. The plaintiffs then decided to go back to the original full payment under the lease, and to test their case, sued for the full payment for the last half of 1945. It was held that the full amount should be paid for this six-month period, since the flats were fully occupied. However, Denning J (as he then was) also took the opportunity to make the following points (obiter):

36. PRINCIPLES GOVERNING CONSIDERATION Central London Property Trust v High Trees House (1947) cont. The plaintiffs were entitled to request full payment from now on. On the other hand, if the plaintiffs should sue for payment for the war years (up to 1945), then they would be estopped from enforcing payment. It would be inequitable to allow them to go back on a promise on which the defendant had relied in continuing with the contract.

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