Reference no: EM13348113

Case study:

Contract law has neither a complete descriptive theory, explaining what the law is, nor a complete normative theory, explaining what the law should be. These gaps are unsurprising given the traditional definition of contract as embracing all promises that the law will enforce. Even a theory of contract law that focuses only on the enforcement of bargains must still consider the entire continuum from standard form contracts between firms and consumers to commercial contracts among businesses. Contract law has more rules regulating various aspects of the contracting relationship than are needed solely to perform its enforcement and interpretation functions. Typically, these rules are defaults, controlling only when parties do not contract out of them. Creating good defaults is widely believed to be the principal function of a law of contracts. . Contract law today is composed of a few default rules, many default standards, and a number of mandatory rules. Most of the mandatory rules should be repealed or reduced to defaults, and most of the defaults should vanish from the law.

Contract law's generally accepted definition of offer, however,  overlaps with the element of consideration by incorporating within  it the proposal of a bargain, potentially resulting in confusion  when analyzing contract formation. Thus, at least for the purpose  of using contract elements as a tool for determining formation,  contract law's definition of offer should be changed. Specifically,  any reference to proposing a bargain should be removed. Also, if  the definition is changed, certain other revisions should be made  to make the definition more useful as a tool for analyzing contract  formation.

Consideration may take the form of a benefit conferred on the  promisor, a detriment incurred by the promise at the promisor's request, or a promise  to confer a benefit or suffer a detriment. For example, in an ordinary contract of  sale, the consideration given for the promise to transfer title to the property can be  either a promise to pay the purchase price, or actual payment. The consideration must be given in response to the promise, or, if given prior to the promise, at the  promisor's request and in such a manner that it can be reasonably understood as  forming part of the same transaction. A new promise that is not supported by new consideration is unenforceable; past consideration is insufficient.

Consideration is an essential element of a binding contract, as under English law gratuitous promises are unenforceable unless made by deed.  The law will only support agreements where there is something to be gained by both parties. A party to an agreement must promise to give, do something or refrain from doing something, in return for a similar promise or action by the other party. In a contract for the sale of goods, a seller promises to supply the goods and a buyer promises to pay for them.  There are a number of legal rules relating to what constitutes consideration.

Consideration is an act or forbearance of one party or the promise thereof , is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. The definition distinguishes between executed and executory consideration.

Consideration may be executory where the parties exchange promises to perform acts in the future. For example, C promises to deliver goods to D and D promises to pay for the goods. Or it may be executed where one party promises to do something in return for the act of another rather than for the mere promise of future performance of an act. Here the performance of the act is required before there is any liability on the promises. Where X offers a reward for the return of his or her lost dog, X is buying the act of the finder and will not be liable until the dog is found and returned.

Consideration must be sufficient but it need not be adequate: adequacy and sufficiency of consideration is a very confusing statement for a layman because in general terms we would expect adequacy and sufficiency to be the same thing or to many people the differences between the words ' adequacy' and 'sufficiency' is either small or non existent. However, to lawyers the two words encompass very different ideas. Adequacy is concerned with the amount of economic value to be supplied or promises. Sufficiency is concerned with the question whether there is any consideration at all.

The first rule of doctrine of consideration is that consideration must be sufficient but it need not be adequate. That is to say, the courts will not enforce a promise unless something of value is given in return for the promise.  This is what is meant by saying that consideration must be sufficient. On the other hand, the courts do not, in general, ask whether adequate value has been given in return for the promise or whether the agreement is harsh or one-sided. This is what is meant by saying that consideration need not be adequate. So if a house worth £160,000 is sold for £1 that is sufficient consideration, even though it is manifestly inadequate.

Consideration can take many forms. For example, it can be something positive, such as a promise to pay for goods or to supply them. It can also be something negative, such as a promise not to sue someone. It must normally have some value in the eyes of the law, which is what lawyers mean when they say that ' consideration must be sufficient' . For exam., in White v Bluett (1853) , the court ruled that a promise by a son not to bore his father had no value. However, in Chappell & Co v Nestle Co Ltd (1959), a court was prepared to regard chocolate wrappers as valuable consideration, even though their value in monetary terms was miniscule ( customers who sent in the wrappers as proof of purchase were entitled to a copy of a record at a reduced price)

In Thomas v Thomas (1842) the claimant was a widow whose husband had stated that if he died before his wife, she should be allowed to live in his house for the rest of her life, after which it was to pass to his sons. When the man died, the defendant who was his executor, agreed that the widow could continue to occupy the house in return for a promise that she would pay £1 a year and keep the house in good repair . Despite this, some time later, the defendant tried to evict the widow, so she sued for breach of contract. The defendant claimed that the earlier promise was not binding because of lack of consideration. However, the court held that the widow's promise to pay £1 and keep up the repairs was sufficient consideration to make the owner's promise binding.

Consideration must be given in return for (must be, to some extent, caused by) promise or act of other party, i.e. there must be fairly direct co-relation between consideration and promise/act. Something only done for reason other than promise will not be valid consideration for promise. This requirement is often summed up by the (slightly misleading) expression "consideration must not be past".

Majorie McArdle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband's father who had died leaving the property to his wife for life and then on trust for Majorie's husband and his four siblings. After the work had been carried out the brothers and sisters signed a document stating in consideration of you carrying out the repairs we agree that the executors pay you £480 from the proceeds of sale. However, the payment was never made.
Held:

The promise to make payment came after the consideration had been performed therefore the promise to make payment was not binding. Past consideration is not valid.

The law of contract is concerned with binding promises. It looks at what constitutes a binding promise and how such a promise is made; at the remedies for breach of such a promise and at who is entitled to those remedies. It has been a traditionally accepted feature of English law that only bargain promises that is , promises supported by consideration- are binding. But even if s bargain promise has been made and accepted it may still not be binding for various reasons such as , it may not be sufficiently certain or it may have been included by the promisee's mispresentation or undue influence etc

Although the court will not inquire into the adequacy of the consideration, there are certain acts and promises which, for reasons of policy, are deemed to be of  no value in the law and which are therefore an "insufficient" consideration. Hence, the curious terminology - the consideration need to be adequate but it must be sufficient.