Assignment: 01

Law: 200

Section: 06

Instructor: Barrister Ishtiaque Ahmed

Student Name: Nazia Haider

Student ID: 0920207030

Assignment topic:

“Consideration must be sufficient but

need not be adequate”

Introduction:Section 25 (explanation 2) provides that, “An agreement to which the consent of the party

is freely given is not void merely because the consideration is inadequate; but the

inadequacy of the consideration may be taken into account by the court in determining

the question whether the consent of the promisor was freely given.” Judges do not have

the training or expertise to determine the economic value of the bargained for

consideration. Courts would have to base the determination of adequacy on witness

testimony and different judges would come to different conclusions of value.

For the courts to determine the adequacy would make this area of law uncertain.

Certainty particularly n contract law is important.

Some case analyses are given below for our explanation:

1 st case:

Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 is an important English contract law

case, where the House of Lords confirmed the traditional doctrine that consideration must

be sufficient but need not be adequate. Chappell & Co. owned the copyright to ‘Rockin’

shoes’ (by The King Brothers). Nestle was giving away records of it to people who sent

in three wrappers from 6d chocolate bars, as well as 1s 6d. The Copyright Act 1956 s 8

said a 6.25% royalty needed to be paid on the ‘ordinary retail selling price’ to the owners

of copyrights. Nestle said 1s 6d was the ordinary retail selling price, but Chappell & Co

argued that it should be more and sought an injunction for breach of CA 1956 s 8. In this

way the question arose as to whether the wrappers were consideration for the records.

Upjohn granted an injunction. The Court of Appeal reversed the decision and Chappell &

Co appealed.

Judgment

The majority of the House of Lords (Lord Reid, Lord Tucker and Lord Somervell) held

that the wrappers were part of the consideration, and so Nestle was in breach of the

Copyright Act 1956, by failing to pay royalties reflecting the extra cost of the wrappers.

Lord Somervell allowed the appeal.” Viscount Simonds and Lord Keith delivered

dissenting judgments.

2 nd Case:

Fry v Lane (1888) 40 Ch D 312 is an English contract law case relating to exploitation of

weakness, allowing escape from a contract.

Facts

JB and George Fry worked as a plumber and laundryman, earning £1 a week. But they

had the reversion of their Uncle’s estate, subject to the life tenancy of their Aunt. They

sold it in 1878 to Mr Lane for £170 and £270 respectively. They were advised by an

inexperienced solicitor who also acted for Mr Lane. When the Aunt died in 1886, the

interests were each worth £730, and in 1878 it would have been £475.

Judgment

Kay J cited Evans v Llewellin[1] and Haygarth v Wearing[2] saying equity most

commonly interferes in favour of an expectant heir, in his youth, or ‘a poor man with

imperfect education’. Where such circumstances are shown the onus is on the purchaser

to show it was ‘fair, just and reasonable’ (Lord Selborne LC, Aylesford). The undervalue

was ‘so gross as to amount of itself to evidence of fraud.’

3 rd Case:

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (C.A. D.C. 1965), was a court

opinion, written by Judge J. Skelly Wright, that had a definitive discussion of

unconscionability as a defense to enforcement of contracts in American contract law. As

a staple of first-year law school contract law courses, it has been briefed extensively.

It flows from interpretation of the Uniform Commercial Code § 2-302 (1954) and is

relevant for the Restatement (Second) of Contracts § 208.

Facts

The case involved Walker-Thomas (Washington, D.C. at 7th St. & M St) extending credit

from 1957 to 1962 to Williams for a series of furniture purchases. The contract was

written in such a way that no furniture could be paid off until all of it was. When

Williams defaulted on the contract in 1962, Walker-Thomas tried to repossess all the

furniture sold since 1957. The District of Columbia Court of Appeals ruled that the lower

court could rule the contract unconscionable and refuse to enforce it, and returned the

case to the lower court to decide whether or not the contract was in fact unconscionable.

Judgment

Skelly-Wright J held that the case needed to be sent back to trial to determine further

facts, but in doing so held that a contract may be set aside if it was procured through

unconscionable means. “...we hold that where the element of unconscionability is present

at the time a contract is made, the contract should not be enforced....

Unconscionability has generally been recognized to include an absence of meaningful

choice on the part of one of the parties together with contract terms which are

unreasonably favorable to the other party....

In many cases the meaningfulness of the choice is negated by a gross inequality of

bargaining power....

The manner in which the contract was entered is also relevant to this consideration. Did

each party to the contract, considering his obvious education or lack of it, have a

reasonable opportunity to understand the terms of the contract, or were the important

terms hidden in a maze of fine print and minimized by deceptive sales practices?

Ordinarily, one who signs an agreement without full knowledge of its terms might be

held to assume the risk that he has entered a one-sided bargain. But when a party of little

bargaining power, and hence little real choice, signs a commercially unreasonable

contract with little or no knowledge of its terms, it is hardly likely that his consent, or

even an objective manifestation of his consent, was ever given to all the terms. In such a

case the usual rule that the terms of the agreement are not to be questioned should be

abandoned and the court should consider whether the terms of the contract are so unfair

that enforcement should be withheld. ”

Significance

This case is often used by professors to question their students' ideology or presumptions.

It is also used as a case study in some modern economics classes.

The parties may have settled out of court.

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