For any contract to be valid, consideration is needed. Consideration is the benefit or detriment in the exchange process. If X goes to the shop to buy a bag of rice. And he takes it to the cashier. X pays the money for the bag of rice. He looses his money but gains a bag of rice. The shop on the other hand looses the bag of rice but gains the money.
Consideration need not be adequate and has to be nominal. A peppercorn is still a peppercorn. So if Y sells his book for Rm 1.00 and the book actually cost Rm 200.00. By paying Y Rm 1.00 and he accepts, then a contract exists.
If someone agrees to sell you a piece of property for Rm 300,000.00 and you pay a deposit of Rm 1,000.00, a contract exists. If you cannot pay the balance of the purchase money, then the seller has the right to forfeit the Rm 1000.00 deposit.
If the seller refuses to sell the property to you, then you can sue him for breach of contract. Apply to the court for Specific Performance to force him to sell you the house.
Past Consideration is not consideration.
Eastwood v Kenyon
Eastwood gave his own money to a minor who was his ward. He was the administrator of her father's estate. Later she promised to pay him back all the money he had given to her while she was a minor.
Held : this was past consideration and was not consideration. She did not have to pay him back. After all he was her guardian and was responsible for her up bringing.
Roscorla v Thomas.
Roscorla went to a horse auction. Bought the horse and then after paying the money he asked the owner whether it was a good horse. The owner replied," The best horse I have had". The next day Roscorla found the horse to be bad tempered and crazy. He sued the horse owner.
Held: Past Consideration was no consideration.
Anderson v Glass
The Employer informed the employees that as they had worked hard the previous year he was going to give them a reward. He did not give them the reward and they sued for breach of contract.
Held: Past Consideration. Employer does not have to pay.
Lampleigh v Braithwaite
Braithwaite was convicted of murder and he asked Lampleigh to get a King's pardon. In return he would pay Lampleigh if the pardon were granted. Later he refused to pay.
Held: By getting the King's pardon, this was good consideration.
Re: Casey's Patent
X and Y were inventors. They promised Casey that if he did the administrative work and got the product the patent they would make him a partner. Later X died and Y refused to make Casey a partner.
Held: There was good consideration provided by Casey.
Privity of Contract.
What this means are those only parties to the contract can sue? Sometimes there are exceptions where parties not directly involved in the contract can sue. This is the exception to the rule of the privity of contract.
Dunlop Pneumatic Tyre Company v Selfridge.
Tire Manufacturer -----------------Tire Wholesale and dealer
The term of the contract was |
Not to sell any tires below $5.00 each |
Bought the tires from Drew and sold below $ 5.00 each
Dunlop then sued Selfridges.
Held: Dunlop could not sue Selfridges as there was no privity of contract between them.
Official Receiver in Bankruptcy v Arcaidou
Advanced money loan
Finance Company---------------------------------- X
Y was the guarantor for X. When X could not pay, the finance Company sued Y.
Held: Finance Company can sue Y.
Consideration can be nominal.
What this means is that 5 cents is still good consideration. As long as the court can quantify, this suffices for consideration.
Thomas v Thomas.
Thomas senior was dying. He did not make a will. He contacted his executor of his estate and requested that when he died his wife could live in his house rent free until her demise.. The executor agreed and later drew up an agreement with the wife. She was to pay $1.00 a year to stay in the house until she died.
Held: The $1.00 was good consideration.
Chappel & Co. v Nestle & Co.
Chocolate Company advertised that if anyone bought their chocolates and sent in 3 chocolate wrappers with 10 pence, they could buy a record from the company. The record was sold for 25 Pence.
The Inland Revenue claimed tax on the chocolate wrappers. The Company argued the wrappers had no value.
Held: The chocolate wrappers were good consideration and a money value had been placed on them.
Consideration Must be Tangible:
White v Bluett
Son borrowed money from his father. Father asked son to sign and I.O.U form. Son signed. Later son kept nagging at the father and son promised he would be a good boy if his father tore up the IOU. Father agreed but did not. After the father died the administrator of the estate found the note and claimed money from the son. Son said his father agreed to forgo the loan if son behaved well.
Held: No consideration as the court said that the son was under a duty to behave in the first place.
Loftus v Roberts
Whether or not to discretionary to perform a promise is not good consideration. Discretion is different from mandatory.