Doctrine of Consideration - Coursework Example

THE DOCTRINE OF CONSIDERATION Here Here THE DOCTRINE OF CONSIDERATION Introduction A contract is a promise enforceable by the law where one party makes a promise to perform an obligation and has legal complications in the event of non-performance. Contracts are simple to understand but involve a number of aspects which may make the concept of contract law difficult. There are four crucial elements of contracts that include the intention to be bound legally, an agreement, capacity, and the consideration. The element of capacity requires parties entering into a contract to have the ability to understand its terms. Legality stresses that the goods and services being exchanged need to be legal. The element of mutual agreement requires parties to agree on the terms of the contract. It stresses that the agreement must have an offer and acceptance. Finally, the element of consideration required for one party to agree to agree to a specific set of terms at an agreed price. The doctrine of consideration is one of the most crucial and controversial issues in the law of contract.1 It is crucial because for a contract to be valid, consideration must be present. In the absence of consideration, a contract is considered to be invalid and not binding to the parties involved in the contract. This is referred to as “nundum pactum”, that is, a promise made with no supporting agreement. The two main rules of a consideration are that is required to move from the promisee but does not have to move to the promisor, and it does not have to be adequate but needs to be sufficient. The cost-benefit analysis of contracts aims at making sure that parties do not enter into contracts that they will not benefit in one way or another. The doctrine of consideration has over the years developed as seen in the case of Williams v Roffey Bros. and Nicholls(Contractor)Ltd [1991] 1 QB 1.2 In this case, it is clear that little is needed in a contract for consideration to exist. However, even with consideration, not all contracts are fair, and consideration is not sufficient in dealing with these new problems. The doctrine of duress has become crucial in solving complex business relationships especially in monopoly situations. Economic duress is unacceptable uses of economic power aimed at making the victim submit to demand. Its development has affected the doctrine of consideration. Body Contracts are considered to be an exchange of agreements or promises between parties, which binds them legally. However, the mere fact that there is an agreement does not make a contract legal. The doctrine of consideration is very crucial yet controversial issue in English Law of the contract. It creates legally enforceable contracts as it creates the obligation to perform. According to the case of Currie v. Misa [1875] LR 10 Exch 153, consideration is a sense of the law. It may consist either some interest, right, benefit, or profit accruing to one party, or some detriment, forbearance, responsibility, or loss suffered, undertaken, or given by the other. However, there have been different definitions of consideration that leads to criticism because of the inconsistencies.3 Consideration is crucial in providing the courts sufficient freedom to determine the enforceability of a promise. The case of Williams v Roffey Bros. and Nicholls(Contractor)Ltd [1991] 1 QB brings out the issue of variation in a contract.4 In this case, the defendant subcontracted his work to the plaintiff to work under a building contract. The plaintiff was afraid that the contract price would leave him with financial difficulty, and there was a high risk that the work will not be completed. The defendant agreed to pay additional bonus so that he can finish the work. The plaintiff sued for payment under the original and the further agreement. However, the defendant argued that the promise to make additional payment is not enforceable because it was made under commercial duress. It was held that the promise to pay was supported by consideration. It was a promise of existing obligation, and there was a practical benefit to the defendant. The case seems to encourage any form of variation in the contract. The outcome of this case has been criticised for misunderstanding the true nature of the consideration. It has been pointed out that the essence is not to be found in the performance or its consequences but on the exchange of promises.5 It is because consideration is considered to be an ingredient in forming contracts. This case suffers two vices where there was no practical benefit on one party, and no such promise was made. It is also crucial to note that even though the party accepts the terms of the contract intentionally, his will is being coerced. Duress does not leave a party with no other choice but puts the party in a position where there is no other available practical solution. There have been problems with the doctrine of consideration that brings out questions about how the doctrine has been affected in today’s cases. There is strong evidence that the doctrine of consideration is increasingly becoming redundant which makes people look towards other areas of the law to solve problems arising from this doctrine. These doctrines include economic duress, the requirement of writing, promissory estoppels, undue influence, and unconscionability.6 The doctrine of economic duress serves to make contracts that have been formed through improper conducts voidable. In the law of contract, economic duress means a threat to an individual’s financial and well-being, which exceeds the usual commercial pressure. The doctrine of economic duress is applicable in cases where parties enter into the contract as a result of unlawful pressure. It seeks to prevent people from being extorted, which is a further reach as compared to the doctrine of consideration that only analyses if there is a sufficient consideration that makes the contract valid.7 However, to prove the existence of economic duress, a party needs to prove that there was no other alternative but to agree to the conditions given under excessive pressure. The party must prove that that he protested against such illegitimate pressure and took all the steps to avoid the deal. It must be proven that if the pressure is removed, the party would not have consented. It seems to be more relevant and appropriate in today’s context where there is a rise in unethical business behaviours that are driven by the thirst for money. The doctrine of consideration usually does not extend to areas where there are possibilities of extortion.8 People are not able to discharge themselves from unfair contracts by applying the case of Williams as it only requires for consideration to be sufficient. The doctrine of consideration does not try to find out the reason a promise is enforceable. The development of the doctrine of economic duress has greatly affected the doctrine of consideration in a number of ways. One of the major factors about the doctrine of consideration is that the consideration must be sufficient but not adequate. It means that the value of the consideration given by the promise must not be equal to the value of the promise made by the promisor. The courts do not compare the value of the promises that is exchanged between the two partied. However, this rule results in a conflict of the extent of consideration where one party feels exploited. However, this rule has been affected by the doctrine of economic duress that examines the reasons for consideration. It offers better protection for the interest of the exploited party as it is in a better position to deal with such circumstance. The doctrine of economic duress, unlike the doctrine of consideration, makes a contract voidable if it can be proven that a party entered into the contract after being coerced.9 The innocent party is given an option to render the contract useless if he can present substantial evidence of being pressured to sign the contract, and that it was the main reason that led to the contract. The injured person is allowed to have the contract put aside unless he has impliedly or expressly affirmed it. An example of this doctrine is seen in the case of Universe Tankships Inc. of Monrovia v International Transport Workers Federation, The Universe Sentinel [1983] 1AC 366 House of Lords.10 In this case, the plaintiff paid money after being demanded by the defendant, which included payment of a large sum of money to the Seafarers International Welfare Fund. It was a condition for the plaintiffs’ ship to be released from the port. The plaintiff then sought to recover the money paid to the welfare fund. The court held that the money had been paid under economic duress, so it was recoverable. It is clear that the doctrine has become more relevant than the doctrine of consideration because it looks at what each party gains from the contract. Even though consideration is present, the doctrine of economic duress is sufficient o make the contract void. Many people argue that the doctrine of consideration has become outmoded or even redundant. It has cause discrepancy on what is considered to be sufficient or insufficient consideration. It is clearly seen in the case of Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 House of Lords.11 In this case, The House of Lords held that the three chocolate bar wrappers were part of the consideration even though they were not significant to Nestle. The House of Lords demonstrated that there may be very small to non-existent amount of consideration in a contract but still be sufficient to uphold and agreement. In this case, consideration was sufficient to support the agreement, even though, the chocolate bar wrappers were simply thrown away. On the other hand, in the case of Stilk v. Myrick [1809] EWHC KB J58, the court held that there was no sufficient consideration for the crew to as for extra wages because they performed tasks that initially bounded them in the contract. The decision was made despite the fact that the workers had to slog harder when two sailors deserted. The two cases show that the doctrine of consideration has caused discrepancy on what is sufficient or insufficient consideration. Three chocolate bar wrappers were considered to be more efficient than two more hours, which is more economical. Analysis of the two cases makes that the doctrine of consideration seem redundant and outmoded as the judgments are highly unfair. Further to this, it is clear that in normal circumstances, a reason person would not enter into a contract if only one party benefits.12 The doctrine of economic duress has been able to solve the discrepancy caused by further requiring the courts to look at the reason for the consideration to know its legitimacy. However, it does not mean that the doctrine of consideration has become useless. Arguably, for a contract to be legal in the first place, there must be a legal intention, and the element that binds the parties to the contract. While the doctrine of economic duress has become an alternative in fulfilling the duties of the doctrine of consideration, it is not with its weakness. This only renders a contract voidable and not void as was seen in the case of Barton v. Armstrong [1976] AC 104.13 In this case, the court held that the contract is not void because even without the threats made, the plaintiff would still have entered into the contract. Since the doctrine only renders the contract voidable and not void, it has a different role when compared to the doctrine of consideration that will not even allow the contract to be formed if absent. It means that the two doctrines are crucial and applicable in different stages of a contract. The doctrine of duress is also not as established as the doctrine of consideration. As one of the fundamental doctrines of contract law, it will not be easy for the doctrine of consideration to be fully affected of be abolished. The result will be more negative than the problems that the doctrine is currently generating. The doctrine of economic duress also comes with its weaknesses especially because it is the most unclear and complicated areas in law. It is difficult for judges to determine some of the most crucial factors that amount to duress.14 Some of these questions include the sort of environment the agreement has been signed in if the contract was affirmed by the victim, and if the victim relied on the terms. Other questions are if the victim sort independent legal advice, if negotiation took place, and if the respondent acted in good or bad faith. All these issues have been discussed in past cases related to economic duress. It is crucial for the victim to demonstrate that they tried to avoid the agreement that they entered into because of pressure. In the case of Ctn Cash and Carry Ltd v Gallaher Ltd [1994] 4 All E.R.714the concept of lawful act duress was analyzed, however, the Court of Appeal was unwilling to introduce and accept it.15 Lord Justice Steyn brought out the question as to whether a lawful pressure can count. This is a difficult question because judges must indicate what pressures are unacceptable when compared to the prevailing standards. This shows how courts are reluctant to accept introducing the description of a lawful pressure. Conclusion Contract Law is one of the most crucial laws affecting businesses today. A contract is a promised made by one party to another to perform and obligation. The concept of consideration is one of the most crucial elements of a legally enforceable contract. It has proven to be a highly debatable topic in contract law. However, without this doctrine, a contract is considered to be legally invalid. It has been greatly affected by its alternatives including the doctrine of undue influence, unconscionability, and economic duress. The doctrine of economic duress has set the rule that there cannot be a legal agreement if a contract was formed with unfair pressure on a person. It has been able to relieve parties from unfair contracts because if economic duress is found, the consideration is overridden, and the validity of the contract is negatively affected. However, there seems to be no strict guideline in determining economic duress and the results. Even though the doctrine of economic duress has become an alternative in fulfilling the duties of the doctrine of consideration, it is not with its weakness because it is the most unclear and complicated areas in law. It is difficult for judges to determine some of the most crucial factors that amount to duress. Bibliography Primary Sources Cases Barton v. Armstrong [1976] AC 104 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 House of Lords Ctn Cash and Carry Ltd v Gallaher Ltd [1994] 4 All E.R.714 Currie v. Misa [1875] LR 10 Exch 153 Universe Tankships Inc. of Monrovia v International Transport Workers Federation, The Universe Sentinel [1983] 1AC 366 House of Lords Williams v Roffey Bros. and Nicholls(Contractor)Ltd [1991] 1 QB 1 Williams v Roffey Bros. and Nicholls(Contractor)Ltd [1991] 1 QB Secondary Sources Books Bix B, Contract Law: Rules, Theory, and Context (Cambridge University Press 2012) Chen-Wishart M, Contract Law (Oxford University Press 2015) Chen-Wishart M, Contract Law (Oxford University Press 2012) Gillies P, Business Law (Federation Press 2004) Shute S and Andrew P S, Criminal Law Theory: Doctrines of the General Part (Oxford University Press 2002) Taylor R, Contract Law Directions (Oxford University Press 2015) Taylor R D and Taylor D, Contract Law (2013) Virgo G, Principles of the Law of Restitution (Oxford Univ. Press 1999) Read More