#2218 - The Concept Of Consideration - Contract Law

Should the consideration doctrine remain?

Justifications

• Chen Wishart: Evidence of existence and seriousness of undertaking

  • Consideration = evidentiary role, is “valuable signal” to show undertaking

  • Looks at which undertakings are enforceable rather than who can enforce

  • Problems:

    • McKendrick: existence of deeds mean that no consideration required at all sometimes

      • But Me: But in such cases, we have the written deed which provides evidence of the promise made and what the promise was for.

        • Consideration serves an evidentiary purpose without which oral contracts

    • McKendrick: Consideration need not be adequate e.g. 1 for Football Club (cos you’re actually buying the debt they’re in)

      • 1 doesn’t really reflect “seriousness of undertaking”.

      • BUT it is a clear indication that the contract is meant to be enforceable – often used as a lawyer device, parties may not even know about it and it may not be paid

        • so yes it is artificial, but has a clear evidential value – some other declaration would have to get involved otherwise.

    • 3. Couldn’t we just infer this from the surrounding circumstances?

      • Possibly, but not as quick and easy for the court to see

        • Equally, meant to be an objective concept, and we may very well get involved in a debate of the subjective views of the parties about whether it was enforceable or not

• Chen Wishart: Intuitive justice of exchange

  • Enforceability of bargain reflects idea of reciprocity which reflects the norm between equals in social arrangements and symbolises difference between trading and talking

  • Stevens: Force behind consideration = maxim that “equity will not assist the volunteer”

    • Deed much easier to be set aside as a “mistake” rather than a contract with good consideration

• Chen Wishart: Explains measure of relief

  • Bargain model explains extent of liability for breach of contract

    • Expectation measure gives promise value of performed contract because he has given the agreed equivalence of that performance.

• Raz: marks boundary of appropriate legal involvement

  • Contract law facilitates institution

    • We can facilitate agreements between friends owing to trust and social sanctions

    • Much harder to do that with strangers

      • Use of contract law viz. consideration helps to bridge that gap of trust

  • Collins: consideration draws line between public enforceable transactions and private unenforceable agreements.

• Collins: distinction between gift and contract

  • Gift = altruistic – this notion is destroyed if X is then compelled to give a promised gift.

The problem

• All of these justifications relate to the first contract formation – where two strangers without a pre-existing contractual relationship in that transaction decide to go ahead with it

  • The difficulties come as it is too inflexible and does not seem to serve a purpose after the initial signal of the contractual relationship

    • However, it is because of the different context of formation and modification which suggests that different rules should be used

  • This formation/modification distinction is supported in other jurisdictions

    • E.g. US Art 2-209(1) of the Uniform Commercial Code dispenses with consideration requirement at contract modification

    • Or NZ Antons Trawling Co v Smith – “in absence of countervailing policy reasons”

• So in Stylks, what we’re concerned with is whether there has been genuine agreement to change the contractual terms

  • Does requiring new consideration make sense here?

    • It does perhaps have evidential function to signal this – however, the cases (e.g. Roffey) don’t dispute that the factual events transpired, or the court finds that they have,

      • the question is merely whether the court will give effect to them or not

  • The doctrine of duress makes more sense – contract formation has already occurred

    • Now we want to know whether the parties are acting freely when they modify the terms

      • Threats to breach contracts are economic duress

      • Whereas an honest statement of financial difficulties

• But since consideration serves that formation role, we either have to find a different replacement to serve this function

  • E.g. only give effect to written contracts – itself an inflexible rule, and doesn’t help with contract renegotiations either

  • OR Gay Choon Ing v Loh Sze Ti [2009] only require it for verbal contracts

    • Phang JA

      • There is also the proposal of the UK Committee to the effect that consideration is merely evidence of a serious intention to contract,

        • with the result that it should not be required where the promise itself is in writing

    • Me: But this in itself adds complexity to the law where a simple rule on formation applies to all contracts, whether written or oral

      • And also, while a written contract may in itself assist in evidence, even deeds have more formalities than this (e.g. witnessing and signing) –

        • an indication that writing alone is not always sufficient evidence of an intention to be bound

  • Or Atiyiah = make it so that consideration is a good reason to enforce contracts, but not the only one

    • “when the courts found sufficient reasons for a promise they enforced it, and when they for one reason or another thought it undesirable to enforce it, they did not”

  • Chen Wishart: Good point, but goes too far – inclusion of non-bargain stuff weakens contract law internal coherence rather than strengthens it

    • Contract law orthodoxy sets a threshold for enforceability based on bargain considerations, is restrictive of the scope of excuses for non-performance.

      • Expanding beyond this will require appropriate adjustments

  • Also Me: Again is a level of complexity not required at formation stage – contract law formation needs certainty b/c of the new relationship involved

    • Therefore need some kind of signal to show that want a promise to be enforceable

    • Also, not particularly desirable that courts decide what is desirable to enforce and what is not – consideration shows the court that it should be enforced, regardless of its content.

• OR we strengthen the vitiation doctrines of duress or estoppel so they can fulfil these roles

Could other doctrines do this instead?

• Duress as an alternative doctrine

  • Definitely works for contract reformation

    • Would make re-negotiated contracts easier to deal with

      • Peel: Abolish consideration requirements and test their enforceability on the basis of principles now known as economic duress

        • You’d have to refine the precise manner of how it works

          • But it would be more sophisticated than that provided by a consideration based approach

            • Under which bona fide re-negotiations would be enforceable whereas those obtained by exploitation would not.

    • Chen Wishart:

      • This would have the advantage of giving effect to the promisor’s seriously considered intention

      • Would allow good faith contract negotiations where party actually in financial difficulties

        • However, allowing unlimited re-negotiations would allow for opportunism and reallocating of risks already legitimately allocated.

      • Would minimise waste and inconvenience parties had already gone through

• The problems

  • Generally involved in the vitiation process, not the formation bit – would require adapting

  • Problems in the doctrines themselves

    • Gay Choon Ing v Loh Sze Ti Terence Peter [2009]: After giving judgement, the court added a coda discussing the doctrine of consideration.

      • Phang JA (Singapore CoA)

        • We pause to observe, if only in the briefest of fashions, that the possible alternatives to the doctrine of consideration are themselves subject to their own specific difficulties

        • For example, the fledgling nature of the doctrine of unconscionability….

          • And while the doctrine of undue influence, however, has been relatively well established in the landscape of the common law

            • the doctrine of economic duress is of very recent origin by common law standards…and is not without difficulties of its own

    • E.g. Economic duress

      • Confusion over whether the doctrines under “bad faith” are under one banner or not

        • Borelli v Ting

          • Lord Saville:

            • Ting’s failure to provide any assistance to the liquidators, his resorts to forgery and false evidence to further that opposition

              • All amounts to unconscionable conduct on his behalf

        • McK: this looks like duress and unconscionable conduct cases are being merged, but this probably wasn’t what the Privy Council intended

          • Since they listed criminal ways of getting his point across, they were probably dealing with duress and this is a slip.

      • Confusion over whether economic duress makes the contract void or voidable

        • Borrelli v Ting (unreported) [2010]:

          • Lord Saville

            • An agreement entered into as the result of duress is not valid

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