Consideration includes bargain exchange swapping

Learning Outcomes:

To show an understanding of what constitutes a consideration.

To be able to identify the factors affecting the court’s decision in the findings of ‘consideration’ in relation to performance of an existing duty.

Be able to give reasons for your approach.

1.0 Introduction

What is consideration? In the law of contract, consideration does not carry any common meanings of kindness and thoughtfulness to others. This is an element includes of bargain, exchange, swapping and it is a characteristic of common law countries. Thus, consideration is an exchange between the parties, or a promise of mutual exchange. Consideration is needed for most of the contracts to prove there is existence and evidence element. It applies and necessary to all simple contract. Basically, it can be found in the process of offer and acceptance which the procedure to create an agreement or a deed. After this process, in the end the contract or agreement then can be created.

1.0.1 Diagram formation of a contract

1.1 Definition of consideration

The description of consideration is the price of a promise. It can be explained as a mutual exchange of valuable objects, services, rights or promises by the other party to a simple contract. Unfortunately, if consideration does not exist in an agreement it cannot be affirmed as a simple contract.

1.11 Executed, executory and past consideration

There are 3 types of consideration which are executed consideration, executory consideration and also past consideration. Firstly, executed consideration consists of completed action, whereas executory consideration consists of a promise to pay, supply, or perform. It is future actions which have not perform yet. On the other hand, past consideration consists of something that has already happened. Therefore, if a subsequent promise to pay for it is unenforceable.

1.12 Reality and value

Besides, a consideration must reality and valuable. Thus, in order to be valid it must be real and has some value in the law. In the Court’s decision the motives like love, affection or moral obligation are not valuable as forms of consideration which cannot support the contracts.

1.13 Adequacy and sufficiency

Then, consideration must be adequacy and sufficiency. It must real and valuable as legal sufficiency. Whereas it need not be adequate in commercial sense of being a fair exchange or bargain.

1.14 Existing contractual and public duties

In addition, consideration cannot exist in contractual and public duties. It means a person who has entered into a contractual obligation or is under a duty to perform some public service, and then the performance of an obligation or service cannot be a consideration to support another promise and obligation.

1.15 Consideration must move from the promisee

Moreover, consideration must move from the promisee. This means that only valid considerations that are exchanged between the actual parties to the contract. Thus, if a person has not given any consideration, then he or she cannot enforce the contract. Then, consideration must be legal. Legality is a key of all valid contracts.

1.16 Legality

Besides, legal is needed and is a key of all valid contracts, so it follows that all the consideration must be legal. For example, A promises to pay B $1000 if he will break into her former husband home. B would be wise not to have the effrontery to sue on the agreement if he performed it and was no paid by A. The police will not consider and interest if B did.










Diagram of consideration

(Source: Commercial Law, Gerbic, 1998, p.156)

1.2 Factors affecting the court’s decision in finding consideration in relation to performance of an existing duty

Case 1

There are some cases are relevant of consideration to performance of an existing party. The first case is STILK v MYRICK [1809]. In fact, it is a case involves in a ship. It describes a ship on a voyage from England to the Baltic. In return of the voyage, there are 2 of the crew were deserted. The captain could not find any replacement on their position, and he was promised to give the deserters’ wages to the rest of his crew if they worked the ship home. However, the captain refused to give the wages to his crew after the sail ended. The question in this case is “was the extra payable, and argument that there was no consideration for the promise?" In the judgment of the Court stated that the promise of paying extra wages by the captain was not enforceable. It was because there was no consideration existed for the promise, and sailing the ship home was the duties of the crew what had to do which already bound by the original contract. Besides, the crew was only worked for extra load of works which the desertion was only 2 people.

Case 2

The second case which related to consideration is GLASBROOK v GLAMORGAN COUNTY COUNCIL [1924]. In fact, it is about a strike incident at the defendant appellants’ coal mine. The appellants’ manager requested the police to provide a garrison of police to protect the property and safety of the workers to ensure the mine was serviceable. But, the police considered a garrison was unnecessary but considered protection could be given by them. However, the appellants’ manager insisted to have a garrison of police. Police agreed and stated that there should have cost rationing and the services of them be paid at agreed rates, and then the manager was agreed. After the strike ended, the defendants refused to pay and the police sued to recover it. The defendants said that the services of the police were a public duty which paid out of rates and taxes, so there was no consideration for the payments promised by them. In the Court’s judgment, the defendant appellant had to pay the amount agreed. It was because the police had the authority to refuse the special protection unless it was paid in both reasonable and authority’s discretion. The agreement was not invalid being against the public policy because the police had done more than their public duties demanded. Therefore, they were entitled to be paid as private contractors.

Case 3

There is another case such as HARTLEY v PONSONBY [1857]. It was stated that a ship left England with a crew of 36 people. Due to a result of desertions, the existing 36 seamen were reduced to only 19 left which included only 5 able seamen. The captain was promised them for extra paid if they would help to sail the ship back to England. In the judgment of the Court, this promise was enforceable and explained that the number of crew was reduced half. It was so dangerous to sail by the crew and the captain had no right to demand for it. As a result, captain must pay for the extra wages. Then, the original contract had come to an end, and the seamen were free to make a new contract.

Case 4

In the case of BALFOUR v BALFOUR [1919], it was related to a married couple. In 1916 the husband returned to Ceylon, but the wife remained behind on medical grounds. Before the husband left he make an oral promise to his wife to pay her a living allowance £30 a month. After that, the parties subsequently separated and eventually divorced. The wife sued her husband for breach of contract for arrears due under the agreement. Based on the judgment of the Court, no money was needed to pay by the husband. It was because there was no legal contract and the parties did not intend legal consequences to their arrangements. Arrangements such as these are outside the realm of contracts altogether.

Case 5

In the case of MERRIT v MERRIT [1970], husband and wife were married in 1941 and built a house in 1949. The house was under husband’s name and heavily mortgaged. The house was going to put into joint names in 1966, but before that something occurred to the husband left his wife for another woman. After that, the husband and wife had a discussion in the husband’s car about future arrangements. The husband told his wife he would make her a monthly allowance, and he would transfer the house to her when she could pay off the mortgage. There was only £180 outstanding. Then, the wife insisted that the husband writing down what he had promised. After the wife paid off the mortgage, the husband reduced her allowance and refused to transfer the house to her. She sued him for a declaration and to have the ownership of that house. The question is “was the arrangement made in the car of a contract? The husband relying on BALFOUR v BALFOUR [1919] and said it was not. He also said that husband and wife arrangements are not being contracts. In the Court’s decision, the wife got the house because the arrangement was a legally binding contract. The presumption of fact against such an intention to be bound in husband and wife situations does not apply when the parties are separated and about to separate.

1.3 Conclusion

After read and analyzed on the cases of consideration, I disagree on the orthodox view that performance of an existing duty should not constitute consideration. Based on the case of HARTLEY v PONSONBY [1857], we know that a ship which lack of half seamen is very dangerous. From 36 seamen is then left only 19 of them, they will hard and tired to carry out the deserters’ tasks. If we calculate based on proportion, it is 1:2. As a result, each seaman needs to carry out 2 people task which is out of their duties. On the other hand, there is a similar case which is GLASBROOK v GLAMORGAN COUNTY COUNCIL [1924]. It is a situation where a party requests for a special protection from the police, but the police consider there is unnecessary for it. However, the party insists for a garrison, thus there should has an agreed rate to the service of police. In fact, the police have performed out of their public duties work. In the point of my view, if performance of an existing duty could not constitute consideration there will be unfair to some related parties. In reality life, a staff was mentioned and contractual to work from 9am to 5pm in his or her daily routine. But when the boss asks the staff works for overtime, he or she has entitled to gain for extra allowance. Conversely, if the overtime work cannot constitute as consideration, the staff has worked over his or her task and gained nothing in return. This is proved there is unfair and unreasonable to some of the parties.

Question 2

What are the general principles in the formation of a contract? What are the various forms of remedies available for a breach of contract? Give examples with cases.

2.0 Introduction

The law of contract is a branch of civil law. It is governed by the Contracts Act 1950. A contract can be defined as a legally binding agreement. It forms or takes part in between two or more parties which they must acquire rights and owe on their duties and obligations. Besides, they must respect of the subject-matter of that agreement which they made. The main contents of contracts can be called as terms. These involvement in rights and obligations usually consists of what was said, what to be done or written with the intention that they constitute to a part of contract. Terms can be classified into 2 types which are express term and imply term. Express term is specifically agreed upon by the parties to a contract. It can be in the form either oral or in writing or of both. In contrast, a term that is read into the contract by the court or legislators is referred to as implied. It is an integral part of a contract however the parties do not having expressly provided for it. In particular, it involves the element of exchange and a diagram as below can be depicted:

Promise to deliver goods


Promise to pay money

Diagram 1.0.1 Elements of exchange

(Source: Commercial Law, Gerbic, 1998, p.111)

2.0 Principles of formation a contract

Diagram 2.0.1 Formation of a contract

There are 4 general principles in the formation of a contract. The above diagram shows the relationship within the 4 elements.

2.1 Intention to create legal relation

An important factor to differentiate legally binding contracts from other arrangements is the intention of the parties. It means if the court have decided the legal intention was present, then this aspect is satisfied. Intention to create legal relation consists 5 type categories:

2.11 Nature of intension

The law requires that the parties to a contract should have the intention either express or implied term. This would allow them to enter into a relationship with legal consequences and being recognized by the Court. Conversely, if there are without intention, even though there are other elements present, it would be no contract at all.

2.12 Presumptions

There are 2 types of presumptions which are social in nature and business or commercial nature. In arrangement of social nature, the courts incline strongly against any legal consequences which intended. Then, in arrangement of business nature, courts will presume the necessary intention to bind and be bound. The intention of the parties is based on evidence and relationship.

2.13 Family and social arrangements

Agreements between members of a family, close friends or appear out of other social circumstances, there are not contracts. The Courts assume there is lack of intention to be bound, although the persons involved in consideration of such intention. For example case is BALFOUR v BALFOUR [1919]. However, the parties could be bound if the presumption is rebutted. In this case, evidence can be proved and show the intention to make a legally binding contract like the case of MERRIT v MERRIT [1970].

2.14 Business Arrangements

These are presumed to contain serious of intention by the parties, an example of CARLILL v CARBOLIC SMOKE BALL CO [1893]. Implied contractual intention can be avoided by using some specific words. The Court held that a clause or phrase in an agreement can be replaced the normal presumption, if the clause or phrase is clear in meaning and being communicated properly.

2.15 Advertisements

In law, advertisements are generally having no legal significance, they used for attracting interest in them advertised only. However, if the words of an advertisement are reasonable, the person might assume that a legal relationship can be formed. It depends on those words that may produce a contract. For example case like CARLILL v CARBOLIC SMOKE BALL CO [1893].

2.2 Offer

What is an offer? Offer is a sign, statement or an action. When a person is willing to have or enter into a legal contractual relationship with other parties. However, it takes place when his or her promise or proposal is accepted. An offer must be clear and has specific terms. It can be made by verbal communication, writing, conduct or combination any of it just mentioned.

Statements and actions are not offers:

2.2.1 The giving of information in response to a query

It happens in negotiation that a question is asked, and the answer is given to the questioner is not usually an offer. It is because there is no intension exists. There is an example case like HARVEY v FACEY [1893].

2.2.2 Statements of intention

These occur when a person broadcast that what they want to buy, sell, or deal. However, these statements are not offers because there is no intention that they have any legal significance. An example case is HARRIS v NICKERSON [1873].

2.2.3 Invitations to treat

It is the kind of statement or action is designed to encourage or entice offers from others. They only show a willingness to start the offer and acceptance process which may in time produce to make a contract. The word of “offer" appears may be in a form of enticement or attention. The common law regards them has no legal significance because the party making them never intends to be legally bound. In addition, there would be severe and practical difficulties if they were regarded as offers. There is an example case like PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v BOOTS CASH CHEMISTS LTD [1952].

2.2.4 Communication of the offer

The offer must be communicated directly to the offeree. It means that a person who intended for must receive the offer personally. Besides, the offer must actually reach to the offeree through sight, sound or others. It is also necessary that all the terms that make up the offer must be communicated to the other party.

2.3 Acceptance

It is a sign, statement or an action which shows intention to be legally bound by the terms of the offer. An effective acceptance response must show absolute and unqualified assent to all the terms of the offer. Besides, it must prove that it is clear of the bargaining process is completed. Responses to offers must be considered carefully, because they may not be acceptances. There are 3 types of incomplete acceptances which are inquiries as to change of terms of the offer, counter-offers, and also conditional acceptances.

2.4 Consideration

In law of contract, the word of consideration does not carry any common meaning of kindness and thoughtfulness to others. Consideration is an exchange between the parties, or a promise of such exchange. The requirement of consideration for most contracts originated as part of the need for evidence of the existence of a contract. Consideration is necessary to be applied to all contracts. It can be found in the process of offer and acceptance for creating an agreement. There are 3 types of consideration which are executed, executory and past.

3.0 Remedies in Contract

In the beginning, remedies in contract are the solution by the law gives rights or compensation to the victims of being breached. Besides, it can also say that it is the legal cures for what has happened to the injured parties. These remedies originate from common law, equity and also statue. There is a diagram which illustrate as below.

3.0.1 Remedies in Contract (diagram)

(Source: Commercial Law, Gerbic, 1998, p.218)

3.1 Debt recovery of liquidated sums

Failure to pay a sum of money due under a contract is a breach of that contract. Recovery of such money is usually to claim back the amount which is owned. The amount of money to be claimed must be the actual sum and not on hypothetical assessment. Hence, the sum is called liquidated which means fixed in amount.

3.2 Damages

Damages are the monetary compensation awarded by the Court. It is the most common form of remedy. Damages are available as of right, for each and every breach. In addition, it also awarded in conjunction with other remedies. There are 5 aspects to the award of damages.

3.2.1 Remoteness of loss

The plaintiff will recover only limited of damages, or no damages at all other than nominal amounts. There is a related case like HADLEY v BAXENDALE [1864].

3.2.2 Special head of loss

Damages for humiliation, injury to feelings and mental distress are available to claims for wrong dismissal under the Employment Contracts Act. This is based on implied term in such contracts that employers will not unjustifiably damage the reputation on their employees, or cause them undue distress. On the other hand, “emotional damage" and “stress and inconvenience" may be awarded as the result of civil claim under s 43 of Fair Trading Act. There are relevant of cases like OLIGLY AND MATHER (NZ) LTD v TURNER [1995], and ROWLANDS v COLLOW [1992].

3.3.3 The quantum or amount is based on financial compensation for actual and estimated losses

These are generally aimed in restoring the plaintiff to the expected position when there is a breach occurs. The compensation can be classified into 6 types which are substantial damages, general damages, special damages, nominal damages, exemplary damages, and also contemptuous damages. Example of relevant case is THOMSON v RANKIN [1993].

3.4.4 Difficulty of assessment cannot be a bar to an award

The court must fix the amount which considers is appropriate. Example case is CHAPLIN v HICKS [1911].

3.5.5 There may be a mitigation factor

An injured party to a contract by other’s breach must take reasonable steps to minimize or mitigate the loss to be sustained. If the plaintiff fails to mitigate, in the thought of the Court, he or she cannot recover more than the amount which need has been lost. Example of a case is BRACE v CALDER [1985].

3.6 Specific performance

Justice provides some alternative remedies to debt recovery and damages. The first is called a decree of specific performance. In this case, the Court directs the defendant to perform an unperformed contractual promise.

3.7 Injunctions

In this case, the order is invariably prohibitory in nature. It states that the defendant must stop his or her progression of certain action. However, its uses are limited. It is only worked 2 aspects, the first in areas of restraint of trade. The second is in areas as breach of copyright and patent contracts.

3.8 Rectification

It is a remedy involves the power of the Court to put right and correction of the written terms of a contract, so it can be accurate reflects the original agreement of the contractual parties. The original agreement may have been oral or in writing, but because due to some mistakes occur it may not proper reproduced into the final document.

3.9 Rescission

It is an order of the Court to restore status quo. Today it is used as the remedy to a contract which in duress or undue influence. In addition, it also used in circumstances where sale of goods contracts are induced by misrepresentations.

4.0 Cancellation

Contractual Remedies Act 1979 provides a code governing a party’s right to end a contract in the case of misrepresentation, repudiation or breach, and replaces the old case law rules. An example of case is JOLLY v PALMER [1984].

4.1 Other statutory remedies

These few types of examples can be found in individual Acts like the special remedies in Sale of Goods Act 1908.

5.0 Conclusion

After I have done this question 2, I have learnt the concept of formation of law and its elements. It encompasses offer, acceptance, intention to create legal relation and consideration. Besides, I have learnt the relationship within these 4 elements. On the other hand, I have identified the different types of remedies for a breach of contract. Those remedies are based on common law, equity and statue. Remedies n common law, it has debt recovery and damages. Then, remedies in equity there have 4 types which are specific performance, injunction, rectification and rescission. The last remedies in statue have cancellation and other remedies.