The Meaning of Consideration in Contract Law

What does the word ‘consideration’ means? ‘Consideration’ has many different definitions; some will tell you it means calculations while some says it signifies affability. But in the law of contract there will be only one definition exist. Somewhat of worthy changes hands between the parties at the time of the contractual undertake is what ‘consideration’ only means in the law of contract. [1] Consideration plays an essential role in order to create a contract binding. It is also a part of a must element to a successful contract formation, followed with the offer and the acceptance. [2] For examples, it could be the payment of cash when there is exchange for goods or sevices, or else the goods or services themselves in the case of a trade deal. The main point is consideration is it ought to be related to something valuable, something one party would not normally have but merely for the agreement. ‘Although consideration has withstood direct assault from both the bench and from law reformers over the years, its Holdworthian image as an anachronistic doctrine tried to the law of actions long since dispensed with, has proved impossible to entirely shake off. However, the function of consideration as an arbiter of agreements to vary long-standing arrangements has also been challenged by the development of alternative doctrines such as duress and promissory estoppels. In overturning almost two hundred years a legal history, the Court of Appeal held that an agreementto vary a contract is enforceable without consideration’. [3]

BODY

Traditional approach

Two rules were existed under the word ‘consideration’ in the law. There are the traditional approach and the modern approach. Traditional approach is an ‘existing duty’ which is a very direct rule, as it concerned merely on the completion on a duty that stated on a contract. Dealing with the ‘existing duty’ rule, if a party is already under a duty to perform an act, pursuant to an existing contract, to promise to perform this act on behalf of the same person will not support a new contract between them. [4] The above rule was found in the case of Stilk v Myrick. [5] The mentioned case is about a seaman named Stilk wanted to sue his ship’s captain for not recovering his additional wages which were promised in an earlier stage. The promised where taken when two sailors had deserted in a foreign port and the captain wanted his remaining crew to work the ship back to London. Unfortunately, Stilk’s claim was unsuccessful under the ‘existing duty’ rule as it was argued that Stilk had not done anything further according to his original stated contract. [6] While in the case of Hartley v Ponsonby [7] which is related to the ‘existing duty’ rule, it was about a seaman named Hartley sued his master for reneging his promise of paying him 40 pound addition to his wages. The promise was made to induce those remaining crews to sail when seventeen out of thirty six workers refused to work and ended up in prison. Hartley claim was successes as he did do things extra beyond his original contract which didn’t mentioned. [8]

Modern approach

For the modern approach as a ‘commercial realistic’ rule, it was known as a duty which is considered logically, concerned about the additional risk, beyond what is already stated in the original contract. In the case of William v Roffey Bros & Nicholls [9] , the facts were the carpenter worked on a series of flat renovations which was subcontracted by the plaintiff and were agreed to be paid 20000 pounds for the workmanship. And, with an additional of 575 pounds for completion of each unit of flat when the carpenter got into financial difficulty then intended to stop the renovations. It was held that the plaintiff has the right to own the additional wages due to the ‘commercial realistic’ rule. [10] ‘Practical benefit’ became a good role on consideration as the defendant had avoided both obstacles which were the penalty of late completion and troublesome in engaging another carpenter to continue the renovations. Thus, it can be seen that both parties did contributed and received practical benefits. Next, comes to the case of Musumeci v Winadell [11] , in this case a landlord named Winadell who operates a shopping centre leased a fruit shop to Musumeci on the other hand leased another part of the shopping centre to a large fruit retailer. This had caused Musumeci to face a strong competence hence Winadell agreed as a ‘concession’ to reduce their rent by a third. But in a later stage, Winadell intended to evict the Musumeci. Hence, turn up to bringing up the case to the court to determine if the reduction rent was contractually binding. [12] After the dispute, it was judge that the promise was binding by applying the ‘practical benefit’ test from the case of Williams v Roffey Bros & Nicholls. [13] This can be seen as Winadell received ‘practical benefit’ by having a maintained fully let shopping centre in an exchange of reducing Musumeci’s rental fees. In a nut shell, the main component of this rule is when there are practical benefits and contribution exists between parties, a contract followed to exist.

History and Criticism of traditional approach

According to the researches, the ‘existing duty’ rule was trenchantly criticized, avoided during its two hundred years history. It was noted that the court wasn’t focused on the presence of the consideration, but the need on public policy grounds in order to prevent extortive and fraud agreement exist between parties. This issue was focused to solve especially in the nonexistence of an expanded concept of the duress [14] . Besides, this rule leads to few effects which includes when a new promise exists, the court cannot use existing duty of contract as consideration while judging those cases. Next, the rule affected a promisor facing a not legal bound to new promise. In addition, whenever promisor was not able to fulfill the new promise, a promisee would not have the right to sue a promisor. Obviously, the above rule has strongly supported the side of a promisor and may lead a promise to a loss. Hence, this rule wasn’t fully supported by an amount of public led to the development of a number of avoidance of technique. To provide a better explanation, an example of mine in the ‘existing duty’ rule is when a dealer intend to sell off all the remaining old stocks, the dealer orally provided a promise of a trip to Europe for promoters who successfully sold above 50 stocks. The above oral promise was not written black and white beyond the original contract. The dealer reneged his promise by refusing to commit the expenses for the trip to Europe. Hence, those promoters who reached the target sued the dealer for not admitting the promise. By using the ‘existing duty’ rule, the promoter’s claimed will be unsuccessful as it was not written as a statement in the original contract. It was also argued that selling off the amount of goods is not an additional act being a promoter. This is because the responsibility of a promoter is to promote a product, convincing customers to purchase it. Hence this is the responsibility but not an additional act being a promoter.

History of modern approach

In the case of William v Roffey Bros & Nicholls, ‘commercial realistic’ was involved. The decision made in this case was driven by pragmatic approach to consider but universal approval has not been greeted. It was first designed to gain what the court regarded as the commercially acceptable solution. The fact in this case was Glidewell LJ was knowledge that in return for the additional payment the main contractors intended to avoid those obstacles. Therefore, ‘practical benefit’ did been criticized for hopelessly compromising the doctrine of consideration’. [15] Nevertheless, this rule was more to public’s support as it concerns more on an individual’s benefits logically compare to the ‘existing duty’ rule. [16] To have a better description of the above rule, I would take an example of the case mentioned in the ‘existing duty’ rule in addition of the promoters working overtime to reached the target of selling off at least 50 stocks without entitled to be paid extra wages during their extra working period. Due to the ‘commercial realistic’ rule, the promoters have the right to sue the dealer as it was précised that both parties did contributed and gain benefits. At the promisor side, the dealer could avoid remaining enormous amount of old stock which may be a obstacle from ordering new stocks and earned more profit in the way off selling off large amount of old stocks. While the promoter did give up their precious time spending on selling off the stocks which they can choose to use the period of time doing other things. Hence, they won in the above case in getting the extra benefit of having a trip to Europe due to the word of ‘practical benefit’. Followed by the development of the world, the rule changed over time from ‘existing duty’ to ‘commercial realistic’ when limitations were found in the rule through the days. The decision made in the case which mainly influenced the development of the rule was Musumeci v Winadell. [17] In conclusion, ‘existing duty’ rule was originally created to please where the promise confers a benefit on the promisor without suffering any loss just like the case of Stilk v Myrick. [18]

Strength and weakness of the rules

Referring the new ’commercial realistic’ rule from William v Roffey Bros & Nicholls and Musumeci v Winadell, its puzzle is that one party can threat another party in extracting more payment or benefit additional provided under the original terms in the contract. While in the ‘existing duty’ rule used in Stilk v Myrick, it had overlook the additional risk in the terms of the original contract. [19] Within these two rules, pros and cons were found in them. The ‘existing duty’ rule has a protection against threat which requires something exceeds unformulated can easily fulfilled practical benefit as it’s a good motivation for a requirement of consideration. But, it does not protect when a new agreement is substituted while the parties terminated an existing one. A situation where an additional payment is promised in compromise if a bona fide dispute is not excluded too. [20] ‘Bona fide’ is a Latin word which means ‘good faith’, it indicates sincerity, the fact in the case of a party claiming title as ‘bona fide’ buyer or possessor, innocence or lack of understanding of any fact that would occurs doubt on the right to hold title is also what it signifies. [21] Even a promise which undertakes additional risk, act and forbearance wasn’t protected by the ‘existing duty’ rule too. [22] “Commercial realistic’ rule view its strength in the way of benefiting party which facing additional risk, act or forbearance under the original terms in the contract as these will be undertaken. It merely had difficulty in defining the word ‘practical benefit’ as it has many different meaning. For example, ‘practical benefit’ can acts as an effective doctrine of consideration which protects parties against casual promises; it could also be the advantage of obtaining the actual contract performance that is already due. [23] Last but not least, it fails in meeting the expectation of parties to a renegotiated contract and ignoring any actual benefits received by the promisor as a result of the contractual variation. [24]

CONCLUSION

In conclusion, the development of the rule influenced by the changing of ‘existing duty’ to ‘commercial realistic’ and eventually lack of precision in the traditional definition in Stilk v Myrick. The rule and its development been perceived through the situation of ‘commercial realistic’ in Musumeci v Winadell and the modern law of ‘economic duress’ by legal experts. It should be focused on the good faith of the contracting parties to decide the existence and relevance of any supposed practical benefit in the development of a contract law. Both doctrine of consideration and the more basic underlying basis of the law itself were harmed by the introduction of practical benefit in the consideration. [25]