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Consideration Business Law

By Edited Nov 26, 2015 0 0

1) What is consideration or "Consideration in business law"

The basic idea of consideration inside contract is that before one party can acquire something, he must actually give something to the other party.
It is also one of the means by which the law courts decide if a particular contract is enforceable, or should be enforced.
It adheres to the common sense idea of bargaining where one person trades something for another.
Consideration must act "in return for" an object of value requested by promisor and not as a result of some other thing.

Things You Will Need

2) What forms are there

There are many ways where there can be said to be an equal exchange, and as a result the contract is enforceable.
In the past there were only traditional consideration, like an item for a good or service. Perhaps a coat, or goat, for some coins.

But later on, intangible stuff like love slowly became accepted consideration.

At this point it would be important to note that, legally, there is a distinction between sufficient and valid consideration.
Courts will look to see whether the consideration is valid, but not whether the consideration is sufficient.
For example, 300 dollars for a new car would be valid consideration, but very likely insufficient unless the car was to be used for scrap.
It would still hold legally in general as a contract.

Back to the intangible objects, originally the case was similar to that of White v Bluett, where a promise not to complain was held not to be valid.
Later on, as time progresses and cases studied, the limits were widened and made lax, such that in Ward v Byham, the promise to see her child was happy and not just well looked after was valid.
Similarly, in Pitt v PHH Asset Management Ltd, not causing a nuisance as a consideration was held valid
In those case studies we can see how tolerance has expanded and the allowance widened in the laaw.

Also, Courts have been willing to imply a request for forbearance
Holding that the Bank had shown forbearance by not suing Broom (from the circumstances, Broom had implied request) in Alliance Banks v Broom

Step 1

3) Past Consideration was not good consideration

In fact, as time passed, the scope of consideration was widened even further. It now extends to past consideration, which is like paying a person for something he has done already.
Previously, it was not valid as it was felt the performance predates the promise, and thus does not satisfy the nexus and was already depleted for prior reciprocal promise, and it would be inequitable to gain more for the same

Doctrine of Implied Assumpsit:
To invoke that to count past consideration as valid consideration, you need to satisfy in entirety the following criteria

The conditions that would give rise to such a scenario are as follows (illustrated in Pao On v Lau Yiu Long)

an act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise.
if it was
a) done at the promisor's request and the
b) parties understood that act was to be remunerated
c) payment in (b) legally enforceable if promised in advance

Step 2

4) Practical benefit as consideration

In williams v roffey, consideration was extended far beyond its original restrictions, now even extending to practical benefit if the court so wishes. That is, paying more for the exact same thing would now constitute consideration.
Such contracts would be held valid and the only way to escape that would be to claim factors such as economic duress.

Examples of practical benefit include, paying more so that a person would actually complete his work on time.

Currently, it does not extend per se to debt settlement however, as was the case in Foakes v Beer.
The distinction between the two can be very thin, and some might say even artificial.

In the end, it perhaps lends weight to the idea that a contract party has an option to perform or pay damages and not perform, instead of being bound strictly in business law.
5) What can it be used for?

It can be used to void a contract from the start, if you can prove that there was no consideration. This gives rise to many different forms of remedies, but in essence, it will try to place you back at your starting position.
The pre-existing obligations one might have can be easily struck down, and remedial actions taken, or damages taken in lieu of returning from the change in position.

Alternatively, a business could look to enforce a half way house deal in which an actual contract was not yet written in black and white without resorting to quantum meruit.
In that sense consideration can work in both creating a new contract when there was apparently none to begin with, or to strike down a contract that was just not legally sound and would lead to inequity and injustice.

It is also possible as a vitiating factor to look at fraudulent inducement

Tips & Warnings

Please have proper consultation if you wish to know further about the information contained therein.
The above is purely for informative purposes only and are not indicative.


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