UK Law - Is this contract "past consideration" ?

Question

Between March 2006 and June 2007, I loaned a friend money on the understanding that he would pay me back. As he was never able to pay me back, we entered into a contract whereby he transferred ownership of goods to me "as payment towards an outstanding debt" (this is the wording of the contract).

The reality is that these goods were full and final settlement of the money he was due me.

Is this contract legally binding or is it null and void due to "past consideration" ?

Answer 1

Pedantic point (to start with): there's no such thing as "UK law" in this context, there are 3 legal systems, those of Scotland, England and Wales, and Northern Ireland. For contract law they aren't very different in their practical outcome, but I practice in England and Wales, so I'll give you an answer from my own perspective.



So lets do a detailed analysis.



First you have what is called a "gratuitous loan" - you don't get anything out of it, but he has an obligation to pay you back. English law has never been very good at giving a theoretical analysis of gratuitous loans, but its clear what the effect is, namely you have an enforceable right to the return of your money.



Now we come to the contract in question. The only real trouble I have with the wording "as payment towards an outstanding debt" is that it doesn't say how much of the debt the payment is towards (the whole, or just a part?). But lets assume that its obvious from context (as you say) that that is what is meant.



You are worried about the rule in English law that past consideration is no consideration (Dent v Bennett (1839) 4 My & Cr 269).



That does not seem to be a problem. You appear to have given up a right against your friend (the right to sue for debt - what is technically known as a "chose in action") *in return* for which he transfered the ownership of some goods to you. Each of you got something from the other, so good consideration was given.



The situation would have been different if (for example) you had *given* him money freely in the past and alter he contracted to transfer goods to you. The consideration would there be past.

Answer 2

As your consideration concerning your new contract was lending him money a long time ago, with the new contract, you have not provided any consideration. This means that the new contract is probably void.



However, nowadays the law allows parties to rediscuss terms of old contracts as long as they concern debt. Although it may seem that your friend would not have provided any more consideration as he is just repaying the debt that you have already agreed he would pay, you get a factual benefit of actually getting your value in money back. Therefore, you should reopen the last contract and alter the terms.



(look at judgment of Reselectmove)

Answer 3

It's not even clear to me why the second contract would be problematic. He gave you goods; you gave him a waiver of a pending debt. There's no issue of "past consideration."



An example of a fact pattern to which the "past consideration" concept would apply would be if you had GIVEN him the money in the first place, with no expectation of repayment, and then he subsequently promised you something in exchange for the money you'd already given him. Because, in this hypothetical, you would have given him nothing in exchange for the goods, the contract would be UNENFORCEABLE (not void) for lack of legally cognizable consideration.



This is not intended as legal advice. If you require legal advice, you should consult an attorney.

Answer 4

Yep, past consideration. Actually its arguable. IN that you know about consideration etc i'm going to assume you are pretty savvy about our quid pro quo contract law.



So look at it in that way, 'quid pro quo' 'this for that'. While the consideration in this contract may APPEAR to be past consideration and as such no consideration at all if you focus on the money as the consideration. Clearly your friend is giving you these goods. Clear consideration on his part. But what is he getting out of this contract? He's getting the discharge of the debt. So I would say that your consideration lies in relieving him of his debt.



When you think about discharge of contract, one way to discharge a contract is by mutual agreement. Essentially you are creating a new contract relieving the other of his obligations. Thats where cancellation fees for eg. hotel bookings come in. You are both agreeing to cancel, creating a new agreement (ie contract) and as such new consideration needs to be provided. In the hotel room example, the companys consideration is the relieving you of your contractual obligations (ie to pay for the room). Your cancellation fee forms your consideration for the new agreement.



So taking that logic, and using the language of the example, you as the company are relieving him of his obligation to repay you, whilst his provision of goods forms his cancellation fee.

Answer 5

I think that it is unenforceable for the reason stated. Presumably your friend still has the option of paying you back the money you lent him. The new (unenforceable) contract would be proof of the fact that it was a loan rather than an outright gift. Some friend he's proving to be!

Answer 6

Its deemed to be a ermanent role, renewable at the end of each year, or not, as both parties have the right to terminate. In any permant job, both sides have the right to teminate with 4 weeks during a probationary period, 3 months, and by agreement thereafter, by 12 weeks notice. So, no permanent role lasts longer than 4 weeks and one day, in reality. However, as the job is a rolling and renewal one, every 12 months, thus consiered a new job, you may lose all enmployees rights as a permanent member of staff.