Consideration and Making Mistakes in the Legal Agreements

Consideration is crucial to the formation of any contract created without deed, it is the bargain element. As it was held in Currie v Misa, a benefit to both parties and a detriment suffered from both is considered a valuable consideration. Although the focus is concluding if there is legally sufficient consideration during Sarah and Joseph’s encounter, it is essential to identify the key elements of consideration involved, such as; past consideration and unexpressed bargain.

Past consideration is insufficient to form a legally binding agreement. This is due to the promise being presented after the act has been performed, emitting the motivation of the promise and making it unenforceable. Sarah promised to pay Joseph for making the cake for her company’s anniversary party after Joseph had already made the cake. This is illustrated by Re McArdle, where the act of improving a family house was done before the promise to be repaid, resulting to a legal consequence of the promise being unenforceable. Based on past consideration, the promise of payment made by Sarah to Joseph may be considered as unenforceable. This is because the promise of payment did not motivate Joseph to bake the cake, there were no expressed promises exchanged at the time and the promises were not mutually dependent to each other.

Contrasting to past consideration, is an unexpressed bargain and this is when a certain act is requested by one party to the other, but no further payment is discussed. As illustrated in Re Casey’s Patents, where a patent owner, promised an employee a payment after the designated task was completed. The court held that it was clear to both parties that the promise was occurring in a business setting and the employee would always be paid for their work, since both parties already had a contract aside from the promise. Therefore, it was an unexpressed bargain and not past consideration. So, to here Sarah and Joseph’s conversation transpired at a business conference which introduces the professional atmosphere of the conversation. Furthermore, it can be argued that the relationship between Sarah and Joseph was already of a professional status, as they were business associates. Thus, based on the concept of unexpressed bargain, it can be said that Joseph’s motivation to make the cake was not an act of goodwill or a gift. As a business associate of Sarah’s, there is a clear implication that Joseph may expect a payment after the action of making the cake, keeping in mind he is a professional chef too.

As demonstrated in Re Casey’s Patents, a key element of an unexpressed promise of payment is that it must be understood by both parties. In Lampleigh v Braithwait, the court held that the promise of payment was enforceable because Lampleigh went to obtain pardon from the King on behalf of the murder convict, Brathwait, who was imprisoned. Lampleigh obtained the bargain at the request, therefore Braithwait was obliged to pay. It can be argued that Joseph’s act of making the cake was not a response to a request, but instead a gift to Sarah. This is merely because Sarah did not ask him to make a cake, but simply expressed her frustration of the party arrangements to Joseph and he took it upon himself to make the cake to surprise her. A further element to consider is Joseph’s occupation, not only is he a business associate of Sarah’s, but a professional chef too. Therefore, it may be argued that Joseph may have used Sarah’s anniversary party as an opportunity to promote his business, considering it was a professional event that can eventually grant him more clients.

Furthermore, Lord Scarman noted in Pao On v Pau Yiu Ling, when an act is acted upon at the promisor’s request, an unexpressed bargain exists and both parties are expected to have understood that the act was to be rewarded further. Therefore, considering that Sarah did not request Joseph to bake the cake for her event, it may be argued that the contract was unenforceable and no unexpressed bargain, thus she is not required to make any contractual payment to Joseph. In contrast, if it were that Sarah had made a request and asked Joseph to bake her a cake for the anniversary party, she would be held liable for the payment of £1,000, because both parties would be aware that a payment is expected after the act.

For Equipment Hire Ltd to identify whether they are bound by the contract or not, we are required to acknowledge the lawfulness of the contract. When concluding whether the contract is valid or not, we must look at the vitiating factor, a factor that impairs or destroys the legal validity of a contract for example; a mistake in a contract. Despite the focus of the question is on the mistake present in the contract, it is essential to identify the type of mistake as a communication mistake in contract terms.
When one party or both parties enter into a contract on the grounds of a misunderstanding or error this results to a mistake, which may or may not in some cases lead to a legal consequence of the contract being void. The focal point of the problem is whether there was a mistake in the contract between Roberta and Equipment Hire Ltd. Based on the facts given, it can be stated that the main type of mistake present between the two parties was a communication mistake as to the terms of the contract. For the court to impose a contract it requires the contract to have an agreement or a meeting of the minds, also known as consensus ad idem. Courts determine the agreement between the parties through the objective test, a test that focuses on what the extraneous circumstances would have demonstrated to the objective bystander.
In Smith v Hughes, we discover how courts focus on the negotiation of the buyer and seller to determine whether a contract is void or not void. A reasonable bystander given all the external conditions would have imagined that there was consensus ad idem between the parties, because prior to the new oats being delivered to the buyer, a sample was sent to him. However, the buyer did not pay attention to the type of oats and assumed they were the old oats that he preferred. Based on the facts, the court decided that there was a contract and that in no point of the agreement did the buyer mention the type of oats.

Furthermore, the objective test applies in a situation where it is proven that a party or both parties are not aware of the presence of the mistake. As illustrated in Centrovincial Estates plc v Merchant Investors Assurance Co. Ltd, the rental value of a £126,000 property was mistaken for a lower price of £65,000 by the landlords. The court applied the objective test and upheld the agreement. Due to the fact, that the reasonable bystander would have presumed that the price stated was correct for a commercial property at the given time. However, if the buyer was aware of the mistake and deliberately proceeded, the objective test would not apply, and the contract would be void. Roberta had knowledge and experience on renovation, this applies that she was aware of how much a small mechanical digger would cost. Hence why she was pleasantly surprised after seeing a lower price of £1,080 than expected. As held in Hartog v Colin, a contract is void when the buyer is aware of the innocent mistake made by the seller yet takes advantage of the mistake and this is known as a snapping on case. The court concluded that the contract was void by focusing on the expertise the buyer had of the market. Going back to the contract between Roberta and Equipment Hire, it is evident that she was aware of the correct price of the digger. Since she had knowledge of the task to an extent where she was able dig up and re-pave the front driveway of her house on her own. Hence why Roberta was delighted with a lower price of the machine and sent back an immediate response to Equipment Hire Ltd.

Given the facts we can conclude that, a reasonable bystander given all external circumstances would identify that Roberta was aware of the error made by Equipment Hire Ltd, through her expertise and knowledge of the market price of the small mechanical digger. However, Roberta deliberately took advantage of the mistake. Therefore, it can be concluded that the contract is void and Equipment Hire Ltd is not bound by the contract.