There are five elements to a contract; these are offer, acceptance, consideration, intention to create legal relations and capacity. A person or persons making an offer to another person or persons is the first step is creating a contract. Clarke defines an offer ‘as a clear and unambiguous statement of the terms upon which the offeror is willing to contract, should the person or persons to whom the offer is addressed decide to accept.’ An offer is often referred to as ‘an invitation to treat’. Acceptance is when the party receiving the offer accepts the terms of the offer. However, the party must be a natural person, that is to say they are sane, not an infant and are not intoxicated. This can be defined as the final expression of agreement. Consideration is similar to intention to create legal relations in so far as it acts as an instrument of control enabling the judiciary to decide what agreements are unenforceable. The courts have established the doctrine of consideration. Contracts that do not contain consideration are unenforceable unless they have been executed by deed under seal. Intention to create legal relations this element is self-explanatory, if there is no intention by either party that the contract will have legal effect then a contract is not formed and it remains an agreement between the parties. The final element of a contract is capacity. Capacity is whether a person has the freedom to enter into contracts, for example a person who is mentally ill and is incapable of forming a contract due to this illness. This essay will focus on the element of consideration in a contract and more specifically it will argue that consideration need not be adequate but must be sufficient. The essay will examine in depth through analyzing academic commentary and case law consideration, adequacy in relation to consideration and if it is necessary that consideration be sufficient.
Consideration is required in contracts to achieve two functions; the first is evidentiary function, which avoids frauds that might otherwise take place if oral promises were generally enforceable. The second is a deliberative function, because people make casual agreements in a casual way in everyday life consideration prevents these promises from being enforced legally. This ensures people are not excessively defensive in day-to-day life and that the courts are not overwhelmed with insubstantial litigation. Sir Frances Pollock defines consideration as “an act of forbearance of the 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 doctrine of considerations is not a principle of law in itself instead it is an expression of a number of sub-principles. These sub-principles are as follows:
· Consideration may be executed or executor but not past.
· Consideration must move from the promisee but not necessarily to the promisor.
· Consideration must be sufficient though not necessarily adequate.
Executory and executed consideration is the way in which the plaintiff purchases the offer or promise of the defendant. Executory consideration is the exchange of a promise by the defendant in return for a promise by the plaintiff. In plain language, the agreement is to take place in the future, for example if A promise’s to purchase B’s laptop on credit with delivery to take place next week. In the example both A’s and B’s consideration is to be carried out in the future so it is executory. In contrast executed consideration occurs when only one of the parties has executed their promise under the contract but the remaining party has not completed their promise so their promise remains executory as it still remains to be carried out in the future.
The principle that consideration must move from the promisee means the onus is on the person to show they have provided consideration for a promise that was made to them if it is to be enforceable. This can be seen in Price v Easton where Price was in debt of £13 to the plaintiff and agreed to work for the plaintiff who made a promised to pay Price’s wages to the plaintiff to cover his debt, however subsequently failed to do so. The court held that the plaintiff could not recover the £13 from the defendant as no consideration had moved from the plaintiff. Lord Denman’s decision in this case is based on the fact that the plaintiff could not ‘show and consideration for the promise moving from him to the defendant’ Lord Denman’s decision was based on the principle that consideration must move from the promisee. Consideration is a fundamental element in the validity of contracts.
Adequacy and sufficiency in ordinary language have one and the same meaning however in legal terms adequacy refers to circumstances where the price a person has paid for something is disproportionate to the value of what the person receives in return. For example if A pays B £3 for a house then it can be said that the price A paid for the house is undoubtedly not adequate consideration. However it is the view of the courts that it is a persons own business what value they wish to sell their goods and services, hence, if the if a contract contains inadequate consideration this will not affect the validity of the contract. This is summed up by Manners L.C in Grogan v Cooke where it is stated that ‘if there be a fair bona fide consideration the Court will not enter minutely into it, and see that it is full and ample.’ The common law rule that consideration need not be adequate is recognised under Red 4 of the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 which, states:
‘A term shall not of itself be considered to be unfair by relation to the definition of the main subject matter of the contract or to the adequacy of the price and remuneration, as against the goods and services supplied, in so far as these terms are in plain, intelligible language.’
Hence, the value of goods and services that are subjects in a contract are free from regulations on the condition that they contain some nominal value. A simple example of this is the sale of Irish Steel Ltd. to a foreign consortium for a payment of just one pound.
It is only right that the courts do not take into account whether a contract contains adequate consideration, as it would be impracticable and beyond the means of the court to ascertain and thus fix a value for each good and service that was contained in contracts that were brought before the court.
For consideration to be considered sufficient enough to support a simple contract in the eyes of the law it must be of some economic value. In addition to amounting to economic value the consideration must also be of a kind that is recognised by law. There are many instances that are considered insufficient consideration in the eyes of the judiciary; natural love and affection, moral duty and prayers are but to name a few. For example, where a person makes a promise to do something, which, they are already bound by law to do it then this does not amount to sufficient consideration in the formation of a contract. This would simply be repeating an obligation the promisee is already obligated to do so in other they are promising to do nothing at all. The law finds consideration to be insufficient consideration if the plaintiff performs a duty already owed.
Where the law imposes a public duty: In the case of Collins v Godefroy the plaintiff gave evidence at a civil trial after a subpoena had been issued to them. Afterwards the defendant promised to pay the plaintiff a fee of six guineas. However, it was subsequently held that the plaintiff could not recover the fee owed since he had conferred no consideration for the promise, as he was already legally obliged to attend the trial in accordance with the subpoena.
Where the plaintiff is bound by the provision of already existing contractual obligations to the defendant: If a plaintiff makes a promise to the defendant to fulfill a previous promise made to the defendant then this is considered insufficient consideration as the plaintiff already owes the defendant a promise from a previous contract and is merely promising to complete an obligation already owed to the defendant. An example of this can be seen in the case Stilk v Myrick, the plaintiff was already in a contract to sail a ship from London to the Baltic and back. Before the ship had returned to London two crew members had jumped ship as a kind gesture the captain to the crew to undertake the extra work of the two departed crew members for the journey home the captain promised he would divide the wages of the two crew members between the rest of the crew. However, on return to London the owners of the ship refused to pay the extra wages promised. The defendant claimed that the crew workers were not owed any extra wages as they had only carried out what they were already contractually bound to do. The court agreed with this reasoning that the remaining crew members were already obliged to sail the ship home in accordance to their contracts.
Natural love and affection in general are promises made within a family. In Re Wilson a father made over a property to his son ‘for love and affection’ and then promised to pay the son an allowance for assisting in maintaining the property Johnson J stated that: ‘… in view of the relationship of the parties and the circumstances under which the memorandum was drawn up, it would be impossible to do otherwise than find that it represented the conferring of a bounty by a father upon a son and not the making of a bargain involving mutual considerations’.
The judge in this case quite rightly finds that the father is giving the son quite a generous promise by giving him a property and an allowance for its’ up keep however, as previously stated in this essay it is not for the court to decide the value of the son’s time and the materials needed in assisting to maintain the property therefore it is difficult to agree with Johnsons J decision in this case.
In a Canadian case Zecevic v The Russian Orthodox Christ the Saviour Cathedral the plaintiff sued a priest and his church after he failed to perform a funeral service. The plaintiff had not paid the priest any fee for the funeral service and the subject of money never arose between the plaintiff and the priest and there were no set fee for a funeral service however, in the priest experience funeral payments ranged from $800 to nil and it was traditional to be paid for a funeral. In the Ontario High Court Gray J held that there was no intention to create legal relations and there had been no payment promised implying there had been insufficient consideration in the agreement.
In Pando v Fernandez pray was a fundamental part of the contract between the two parties. The efficiency of prayer cannot be measured or even proved in court so prayer is not considered to be sufficient consideration. The plaintiff was deeply religious and claimed he had purchased the winning lottery ticket worth $2.8 million with the defendants money pursuant to her promise she would give him a share of the prize money equally with him provided he prayed to ‘Saint Eleggua’ to produce the lottery numbers he selected to be drawn and consequently for her to win. The Supreme Court of New York heard that the plaintiff could not prove his prayers were effective and that the saint had caused the numbers he picked to win so he could not prove he had complied with the terms of the contract. The court then pointed out that ‘faith is the antithesis of proof’ and hence, a litigant would never be able to establish if his faith and prayers had brought about an event. Greenfield J emphasised that the contract in question was not that the numbers would win but that the plaintiff’s prayers to the saint had caused them to be the winning numbers.
To conclude it is of fundamental importance that consideration is necessary in the formation of contracts to ensure that only serious agreements are considered to be contracts and people only enter into them intentionally. Secondly, it is impractical for the courts to place a value on goods and services so consideration need not be adequate and it should be up to the parties in a contract to decide what value they wish to place on goods or services. Finally the courts must only allow agreements that contain consideration that has an economic value to be a contract. As it has shown in cases mentioned above, such as Zecevic v The Russian Orthodox Christ the Saviour Cathedral, those agreements where consideration contains no economic value it is impossible to put a value on the promise made and thus becomes almost impossible to regulate under legislation.