Contract Law in Hong Kong

4: Consideration

4 Consideration OVERVIEW Consideration is a requirement, in English and Hong Kong law, for all “simple” contracts (i.e. contracts not made under seal). Stated in its simplest terms, consideration means the giving of something of value to the other contracting party. Consideration is essentially a creation of the common law system and is not generally required in civil law systems such as those found in most of Western Europe. That being so, it is useful to ask why we have a doctrine of consideration; what is its purpose? What consideration does not do is to prove that an agreement is fair. The rule is that “Consideration must be ‘sufcient’ (of some value) but need not be ‘adequate’ (of equal value to the other party’s consideration).” There is nothing wrong, in consideration terms, with an agreement to buy a valuable painting for $10 (though it might indicate that the agreement has been produced by fraud or threat, either of which would invalidate the agreement). Consideration is, essentially, a token of a party’s intention to make a legally binding contract as opposed, for example, to a non-binding social arrangement. That token takes the form of the giving of something valuable in the eyes of the law. Consideration may not prove that a bargain is fair or equal but it is evidence of a legally enforceable contract, as opposed to a mere friendly arrangement never intended to be contractual. In practical terms, while it is said that each party must provide consideration, it is for the party wishing to enforce an agreement to show that he has provided consideration. This is the usual meaning given to the requirement that “consideration must move from the promisee”. Any legal pleading based on breach of a simple contract must describe the plaintiff’s consideration. So, for example, the buyer who wishes to enforce a sale must show that he has given something of value to the seller. This may be the fact that he has already paid the price for the goods or that he has made a binding promise to do so (which he has not broken). In the former case, the buyer’s consideration is said to be “executed”; in the latter it is “executory”. Both forms of consideration are recognised by the courts. The doctrine of consideration has been criticised as articial and unnecessary. It is said that, where courts wish to uphold an agreement, they are prepared to “invent” consideration. Further, it is said, since the function of consideration is to provide 74 Contract Law in Hong Kong 1. See chapter 5. evidence of an intention to make some contractual “bargain”, rather than a merely social arrangement, a preferable approach would be to adopt the civil law emphasis on “intention”, with the existence of consideration merely being a factor in determining the parties’ intention. To take a simple example, if A promises B $500 if he will complete 50 “push-ups”, B’s completion of the act could clearly be seen as “executed” consideration. It might be, however, that in such a case a court would nd that the parties never “intended” that such a trivial arrangement would constitute a binding contract.1 Despite the criticism of consideration from some judges and academics, the doctrine has remained largely intact and consideration remains a requirement for the formation of a contract and any “variation” thereof. The best-known denitions of consideration speak of the need for the party seeking to enforce the contract to show either that he has conferred some benet on the other party or that he has incurred some detriment to himself. In many cases there will be both benet and detriment. The buyer of goods will give the benet of the price to the seller and incur the detriment of payment himself. It is not, however, necessary to show both elements. If a person swims across Hong Kong harbour in response to a promise of $5,000 reward to anyone who does so, he will incur a detriment but show no obvious benet to the promisor. In addition to the benet/detriment requirement, however, it must also be shown that what the party seeking to enforce the contract has done, or promised, is in response to, the other party’s promise; it must be “the price of the promise”. So, if our swimmer swam across the harbour the day before the promise of $500 reward was made...