Business Law: Consideration

A brief note on the concept of consideration, with case references.

Consideration is required in order for a contract to be valid, unless the contract is formed by deed under seal.

The parties involved in the formation of the contract must promise something (this may be goods, service or some advantage) to the other party, in return for a promise from the other party. In other words, a promise is only legally binding if it was made in exchange for another promise.

There are a number of rules governing consideration. Firstly, it need not be adequate, i.e. it does not have to reflect the true value of the promise.

This is can be seen in the Thomas v. Thomas (1842) case, whereby the plaintiff was bound to pay £1 per annum for the benefit of use of her deceased husband’s house, as expressed in his will. Clearly £1 does not reflect the value of the house, but is valid consideration nevertheless.

Secondly, consideration must be a something, which the promisee is not already bound to do by general law or an existing contract with the other party.

A good example of this is the Stilk v. Myrick (1809) case: to prevent his crew from deserting the ship, the defendant promised the crew, including the plaintiff, that they could share the wages of the deserters provided that they complete the voyage.

Upon completion of the voyage, the plaintiff requested his pay-off but was refused. It was held that he was already bound to complete the voyage and provided no consideration for the extra pay.

Thirdly, consideration must not have been provided prior to the formation of the contract.

In the case Eastwood v. Kenyon (1840) the plaintiff had paid for the education and maintenance of a girl.

On her marriage, her husband, the defendant, promised to refund the plaintiff the cost of this.

He failed to do so.

It was held that the defendant’s only consideration had already been performed at the time of the contract.

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