A Contract Is Void Without Consideration: Case Study Examples

'A valuable in the sense of law 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' noted John.B, 1976, Osborn’s-Concise-Law-Dictionary 6th edn., Sweet & Maxwell, London.

When both parties had an agreement, each of the parties has to furnish by consideration by give other something or do a favor as exchange. A contract is void without consideration. In other words, the court will never enforce a gratuitous agreement.

Q1.2 Constitution of a consideration

Firstly, past consideration is not a consideration. A promise after an act is void to be a consideration as it already past. This principle demonstrated in Roscorla v Thomas(1842). Roscorla bought a horse from Thomas. Thomas promised the horse is sound. Roscorla sued defendant for the horse was vice. In fact, the consideration is past as Thomas’ warranty made after the sale. Secondly, consideration needs not to be adequate but must be sufficient. The law states that both parties must exchange with value, but it need not to be balance. This principle applied in Chappell v Nestle (1959). Nestle advertise that the consumer may get a record with three chocolate wrappers along with some money. Then, Chappell the copyright owner sued that the defendant had a breach of copyright. The court concluded that the chocolate wrappers itself is the consideration whether the consumer tend to throw it away. Consideration can be any condition stipulated by the promisor though it is unequal. Thirdly, consideration must move from the promisee but does not have to move to the promisor. In the case of Tweddle v Atkinson (1861). Defendant and plaintiff’s father agreed to pay plaintiff for his wedding settlement. Plaintiff sued defendant as he refused to pay. The law will only enforce the rights of the persons who make the consideration. The plaintiff is the third party in this contract, though the consideration was made upon him.

Q1.3 Factors govern ‘consideration’ in relation to performance of an existing duty.

Case study 1: Collins v Godefroy (1831).

Godefroy promised to pay Collins if he attends court for him. Collins sued Godefroy that he refused to pay him. The court said that it’s a duty imposed by law. Therefore, there was no consideration. In my opinion, the court decision is reasonable. Although defendant did promise to pay Collins, if he rejects the offer, he was still obliged to attend the court as it’s a public duty enforced by law. Once he got the subpoena, he must be ready to attend the court from time to time whether had furnished with a consideration or not. Therefore, loss of his time is not the concern of defendant, he just performing his existing public duty. There is no sufficient consideration furnished.

Case study 2: Glasbrook Bros Ltd v Glamorgan County Council (1925).

A coal-mine owner promised to pay when he insisted extra police protection during a strike though the existing mobile units were efficient to protect the mine. Then he refused to pay. The court concluded that police is bound to perform their general duty and should not be paid, but without specific forms or method. Therefore, if they do something beyond their obligations and it is specially requested by someone, a consideration had made. I think it’s absolutely correct as mine owner was informed that the existing mobile units were adequate to perform a proper protection. The defendant still request extra policemen to protect his coal mine is sufficient enough to form a new fresh. Upon owner’s request, policemen performing a duty that exceed their existing public duty, they should be rewarded.

Case Study 3: Ward v Byham (1956)

Mother of a child, sued that Byham(father) for stop pay her a weekly maintenance fee. The court said that in the letter wrote by defendant clearly stated if the child is well-cared and happy, then he will pay a sum to the mother. Although it’s legally bound by law to raise the child as a mother, the defendant had benefit that the child was looked after by her mother instead of a neighbor. Hence, the defendant should perform his obligation to continue pay the plaintiff even though she married. In my view, Byham ought to pay Ward as he requests her to do something more than duties as a mother, to ensure the happiness of his child. Furthermore, in the letter he wrote: “…pay you up to £1 per week allowance for her providing you can prove that she will be well looked after and happy ….If you decide what to do let me know as soon as possible” The words he used in the letter show that he willing to pay in return of the child’s happiness. This is a fresh consideration. Besides, in the letter show that he tend to have legally binding with his promise.

Case study 4: Stilk v Myrick (1809)

A ship was lack of two sailors; the captain promised to pay the remaining sailors extra salary. He refused to pay though the crew sailed the ship back. He claimed that they were just did their existing duty and the court approved that he do not have to pay. In this case, I think the crew is doing their own existing duties which were not exceeding their normal tasks. A division of two seamen duties into eight is not much different than their existing contractual. Besides, they had promised to try their best to handle any emergency situations before the voyage. If the captain dismiss that two crews and force the rest to carry their duties without reasonable reason or the original contract end when the emergency happened, their agreement to carry out the duties can be furnish with new valid consideration. Therefore, they were still bound under contract and they nothing more than their original duty, I think there is no new contract.

Case study 5: Hartley v Ponsonby (1857)

A short-handed of nineteen seamen over thirty-six, the captain promised to pay extra wages for remaining if they could sail to Bombay, he refused to pay after the voyage to the destination. The court said the consideration is valid since the remaining crew had to sail in such a dangerous situation, it should have new contract made. I support that the captain should pay the crew as the ship was actually reached the port which was quite different with case Stilk v Myrick (an emergency happened during the voyage). Although they were still bound under the original contract, the circumstance proved that it is not safe to start a new voyage with a serious shortage of seamen. According public policy, they could be recognized as freeman. In this situation, the captain requested them to start a voyage and they agreed to risk their life with an extra wage, the new consideration is actually legally bound by law.

Case study 6: Williams v Roffey Bros (1990)

Williams (sub-contractor) and Roffey(contractor) contracted to renovate a block of flats. Then plaintiff found that budget given by the defendant is not enough. The defendant promised to pay extra as he worries if the renovation delays will cause him a breach of contract with the owner. Then he refused to pay. The court held that plaintiff should be paid extra for the new contract made upon his benefits to complete the work on time to avoid breach of contract. I agreed as the plaintiff did his obligation to try his best complete the renovation on time, but the progress delay due to the budget given was not enough. In addition, when the defendant informed with this problem, he agreed to pay more mainly because he want to avoid a penalty clause which may cause him loss of money. According to English common law, if a new consideration furnish upon a party benefit or to avoid detriment, it is firm to form a new contract.

Case study 7: Shadwell v Shadwell (1860)

Uncle promised to pay his nephew money annually if he married. The executor then refused to pay the outstanding sum after uncle death. He claimed that there is no consideration for the plaintiff because he was engaged when his uncle make this promise. The court said that it was an interest to pay for the plaintiff changed the status from engaged to married. Once he carried out what his uncle request, a valid consideration should be given to him. In my opinion, the plaintiff ought to be paid. Uncle promised to pay if the plaintiff marries his fiancée. It is a unilateral contract. A promise for an act. Besides, a consideration formed if there is benefit or detriment for both party. The plaintiff’s marriage is a benefit for himself and also to uncle as he got a close relative. Hence, there is valid consideration.

Q1.4 Conclusion:

Consideration is very important to form a contract. Consideration has to make upon both parties benefits or detriment, it can be one-sided as long as it’s adequate. Past consideration is not a valid consideration except it is previously requested or done in a business manner. If someone giving up the right to sue in a contract, it’s also firm to constitute a consideration. Generally, performing an existing public or contractual duty is not an effective consideration. However, if someone requested to do something beyond of an existing duty, or the performance is requested upon a party benefit or avoids detriment, there is a valid consideration.

Q2.1 Introduction of contract law

“What we seek is the reign of law, based upon the consent of the governed and sustained by the organized opinion of mankind.” said Woodrow Wilson, 28th President of United States. Malaysian practiced English Common Law. This set of legal codes can be categorized into few major groups as civil law, criminal law, public law and private law.

Business law included contract law, employment law, labor law, consumer law, etc. Contract law plays a main role in business management. It consider a private law as there is no specific right in a contract, the persons involved set their wills and rights and the law will then enforce if it does not overstep legislation. Contract is a fundamental element which acts as a legal relation for offeror and offeree in business. A contract contributes to ensure the involved parties execute their obligations and it will be enforced by law. In fact, contract law is not like the other existing law codes. There are many ways to make a contract.

Generally, printed written contract is a common and safe business contract. Other than that, business contract can be formed verbally, or by actions performed. There are various types of contracts; an express contract formed when both parties explicitly pointed out the rights required, bilateral contract is usually both parties make promises and intent to legally bind. In a unilateral contract, the promisor makes an offer and intent to have legal binding while the potential promisee has to certain performance to accept the offer.

Q2.2 Formation of a contract

Invitation to treat – a party invite the other party to make the first person an offer.

Display of goods

Fisher v Bell (1960)

A shopkeeper was charged for offering for sale a flick knife prohibited by Restriction of Offensive Weapons Act 1959 s.1(1) that he had displayed the knife in his shop window.

He was acquitted for the court held that displaying goods in window is an invitation to treat. He and the potential buyer can change their mind anytime.

Advertisement

Partridge v Crittenden (1968)

Partridge advertised a sale of wild birds. He was charged for offending Protection of Birds Act 1954. He was acquitted as the court agreed that there are no specific word advertised proved that it’s an offer for sale. The advertiser was not bound to sell to every potential buyer. An advertisement cannot be an offer unless it is made by the manufacturers or there is intention to be legally bound.

Auction

Harris v Nickerson (1873)

Nickerson advertised that a public auction of certain office furniture in Bury St Edmunds on 14 August 1872. Harris sued for a loss of time and money from him travelled from London when Nickerson withdrew the advertisement. It held that even though Nickerson didn’t withdrew the auction, or eventually Harris is the highest bidder, as an auctioneer still can choose to accept or reject Harris. An auction is merely an invitation to treat.

Tender

Spencer v Harding (1870)

Harding sent out a circular which stated an offer to the wholesale trade and must be cash payment. Spencer claimed that the advertisement was an offer which he should be accepted by submitting the highest tender. However, it held that the defendant didn’t state in the circular that they will sell to the highest tender. A circular is not amount an offer unless it specific indicated.

No contract exist

Acceptance – an unconditional consent to the terms of the offer. It must contain terms in the offer to be conditional.

Rules of acceptance:

Communication of acceptance- An acceptance is invalid until it’s communicated to the offeror.

Entores Ltd v Miles Far East Corporation (1955)

Defendant (Holland) made an offer to supply cathodes to plaintiff (England). Plaintiff made a counter offer. The offer was “accepted’ by defendant sending a Telex from Holland. The plaintiff wished to sue defendant in the English courts but could only do so if the contract was made in England and not in Holland. The court agreed the contract made in England as the letter received in England.

Silence is not consent- No contract made if offeree keeps silent results no communication of acceptance.

Felthouse v Bindley (1862)

Plaintiff send a letter tend to buy a horse from John and stated if there is no reply, the horse considered sold to him. Eventually, John’s auctioneer, defendant sold the horse. He sued defendant that the horse should be sold to him. The court said that defendant didn’t reply that the horse is sold to him, therefore no contract made.

Invitation to treat

Offer- a statement made by one party to another with the intention that it shall be legally binding once another party accepts it.

Carlill v Carbolic Smoke Ball Co (1892)

Defendant advertised that they promised to pay whoever gets the influenza after used their ‘smoke balls’. Money is deposited with the Alliance Bank. The plaintiff used the smoke ball as directed but still caught the flu. She sued for the penalty. It held that the defendant convicted as the deposit in the bank showed the intention to be legally bound.

Promisor/Offeror

Consideration- Both parties must be furnished by some benefit or detriment to create a contract.

Principles govern consideration:

Past consideration is not a valid consideration

Consideration need not to be adequate but have to be sufficient

Consideration must from promisee

Giving up to sue

Existing performance can’t constitute consideration except it’s beyond existing duty.

Intention to create legal relation-An agreement with consideration is not a binding contract without any intention of creating legal relations.

Types of legal relation:

Domestic -Agreements within domestic relationship are not intended to be legally binding. There are husband and wife; Parents and child; Close relationship.

Balfour v Balfour (1919)

The defendant(husband) promised to pay plaintiff(wife) monthly as maintenance fee. He refused to pay after divorce. Wife sued but failed. It held that there is no consideration as agreements between husband and wife are not contract because there is no intention to be legally binding.

Commercial- Generally presumption it is to be legally bound. Yet, it’s rebuttable if indication with effective express statement, transaction binding in honor only, ambiguity of a statement.

Jones v Vernon’s Pools Ltd(1938)

Jones sued that he won the football pools. Defendant denied that they had ever received his coupon. The coupon contained the words that any agreement entered into was ‘binding in honor only.’ The court held that with the words indicated, it’s cleared that agreement is based on honor instead of legally binding.

Form of contract- written, oral, etc

Capacity- parties must be capable to form a contract. Such as an adult with normal logical thinking.

Legality- A contract must not infringe the law.

Q2.3 Forms of remedies for breach of contract

If one party failed to perform a contractual obligation and caused to a breach of contract, then the remedies are given to the injured party. The guilty party has the responsibility to carry out remedies upon the injured party.

The following is the various forms of remedies:

1. Rescission:

A breach of contract doesn’t automatically terminate a contract. The injured party can choose to discharge or continue the contract. If he chooses to cancel the contract, he is then free from the contractual obligations and sues for damages. The acceptance of rescission must be communicated with the guilty party.

White & Carter (Councils) Ltd v McGregor (1961)

Plaintiff had a contract with defendant for advertisements defendant’s business for three years. When contract was made, defendant repudiated the contract but plaintiff refused to accept the repudiation. The court held that since it is a breach of contract. The option opened to the injured part and he has the right to continue the original contract. Therefore, plaintiff can advertise McGregor’s business on their and defendant has to pay for the full three years.

2. Damages:

A common remedy that used for breach of contract. The court usually held a monetary penalty. The guilty party has to pay the injured party a certain sum according to the loss of damages.

Compensatory damages, Remoteness of damage

In order to get reasonable compensation, the injured party to show calculates the loss of damages. However, it should not exceed the remoteness.

Hadley v Baxendale (1854)

The plaintiff, owner of a mill contracted defendant to deliver a broken shaft(only tool to run the mill) to engineer. The defendant failed to do so, plaintiff sued for loss of damage. The defendant appealed. The court said that the loss of damages should rise naturally from the breach of contract. However, in this case, the plaintiff’s loss of damage upon defendant. The plaintiff should informed the defendant for the consequences or prepare a spare shaft to run the mill. A new trial then applied in this case.

Consequential Damages

Damage can be given due to disappointment, frustration, mentally distress of the injured party or loss from special circumstances.

Jarvis v Swans Tours Ltd (1973)

Jarvis planned to have holidays to organize with the defendant. The defendant’s brochure stated that plaintiff would have a great time for it will be a welcome party with special resident host and ski pack. Then, defendant failed to do so. Plaintiff sued for mentally distress, a sum double of his travel fee as defendant failed to provide sufficient entertainment.

Penalty clauses and liquidated damages clauses

Punitive Damages

The guilty party is punished without compensate the injured party. Usually applied when the guilty party infringed certain torts or statutes.

Liquidated Damages & Penalty Clause

Some contract might indicate a sum to be paid for breach of contract. This clause known as liquidated damages clause which will be valid once breach of contract occurred. The damages sum recovered should not more than that specific sum. The court will consider this clause if it is reasonable or the damage is difficult to be calculated.

Cellulose Acetate v Widnes Foundries (1933)

The plaintiff contracted with defendant that if breach of contract occurred, £20 will be to pay per working week. When the breach happened, plaintiff appealed that the sum indicated was not enough to recover the damage. However, the court held that it is not a penalty clause. Therefore, the sum they earlier agreed with is still effective.

3. Specific performance

It is an equitable remedy which is only available in unique circumstances. Usually applied in breach that involved sale of land.

Rules govern specific performance:

Inadequate damages:

applied if the plaintiff proves damages recovered is not adequate.

Beswick v Beswick (1967)

Defendant promised his uncle to pay plaintiff annually in return to own his uncle’s properties. As plaintiff was not a party to the contract, she sued as executor. It held that damages should be specifically enforced by the executor against the nephew. The loss of the estate was serious therefore the defendant had to perform his obligation in the contract.

Needs of Mutuality:

The court won’t approve a specific performance to one party if it couldn’t fit suit of the other.

Price v Strange (1977)

Defendant agreed to sublet of a house to plaintiff and allowed him to refurbish the house. After Price done interior works Strange repudiated the agreement she refurbish exterior her own expense. Price sued for specific performance of the agreement. Defendant claimed that there is lack of mutuality. However, plaintiff succeeded in entitled specific performance for he already done his part.

4. Injunction

An order enforced by law that requiring or restraining a specific performance.

Categories of injunction:

Prohibitory injunction- restraining involved party to do something

Mandatory injunction- request related party to do something.

5. Restitution

Both parties have to return valuables that they had previously delivered. Sometimes, restitution applied in the cases of rescission. This remedy used to avoid unfair enrichment upon defendant.

Restitutio in intergrum

In order to nullify a contract void, Restitutio in intergrum applied for the parties restored their original position. Every transaction must be undone by both parties.

Clarke v Dickson (1958)

Plaintiff bought a share in a partnership on the strength of defendant’s mispresentation and result the partnership turned to limited company. As the nature of both is different, it held that it’s difficult to put both parties into the original position. Therefore, plaintiff failed to rescind the contract as there is no ‘Restitutio in intergrum’ exist.

Q2.4 Conclusion

A contract with must come with a valid offer, acceptance, consideration with the intention to create legal relations and it has to be a legal contract. Once a contract made, involved parties are bound by particular contractual law. They have to carry out their obligation to avoid a breach of contract. However, there are contractors infringe the terms and codes of the contract. No matter the contractors result a breach of contract consciously or unconsciously, remedies open to the injured party to recover the damages caused. Therefore, contract act as a insurance for both parties in business.