Hanan Campbell
In my last article, I wrote about making the law accessible and understandable. I’d like to continue with that theme and discuss the concept of “consideration.”
For this article, I’m going to introduce two fictional characters: Jane and Joe. Let’s assume that Jane has offered to buy Joe’s 2019 Rolls Royce and Joe has accepted that offer. They now want to document this arrangement in a contract. Their contract contains the following language: “NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the sum of ONE DOLLAR ($1.00), and the premises and mutual covenants and agreements herein, the parties agree as follows: …”.
In order for Jane and Joe’s contract to be legally established, each side to the contract must receive something of value from the other. This “something of value” is called “consideration.” Without some form of consideration, a contract will not be enforceable by the courts. If there is no consideration exchanged, there is no contract. If there is no contract, there is only a voluntary promise, or a gift, which is not enforceable by the courts.
The consideration in Jane and Joe’s contract is $1.00 and the promise of both parties to perform the obligations described in their contract (namely, Joe to provide Jane with the car and Jane to accept the car). Without that exchange of consideration, Joe will have made a gift of the car to Jane. If Joe changed his mind and decided not to give the car to Jane, the courts could not force Joe to do so.
Consideration seals the deal. Once Jane has paid Joe that $1.00, a legally enforceable contract is created and the parties must perform their obligations within it. If one of the parties fails or refuses to performs its part of the contract, that party can be sued for breach of contract and may have to pay to the innocent party money in the amount of the losses the innocent party has suffered as a result of that party failure or refusal to perform.
But is it reasonable for Jane to pay only $1.00 for Joe’s 2019 Rolls Royce? The answer, surprisingly, is yes! The adequacy of the consideration is for the parties to determine at the time of making the contract. The courts will not weigh in on whether the consideration is adequate. Unless there is any evidence of fraud or duress, the courts assume the parties are both equally capable of looking after their own interests. Any consideration, even of nominal value, is sufficient for the purposes of establishing a contract so long as it is acceptable to the parties to the contract. The following are examples of consideration the courts have found valid:
- a lobster licence in exchange for a catch of lobster, tuna and swordfish1
- a $1.00 purchase price for land in exchange for the purchaser’s promise to build a library on that land2
- three chocolate bar wrappers in exchange for a gramophone3.
And so why not a peppercorn in exchange for a castle? If you think I’m joking, I stumbled across an online article in The Scotsman, entitled “Castle for a peppercorn rent”4. One lucky individual has the opportunity to live next door to Queen Elizabeth II at Invercauld Castle in Scotland (it sits opposite Balmoral Castle, where the Queen vacations annually). In exchange for a peppercorn for rent, the trustees of the castle estate will enter into a lease agreement for up to 20 years. The catch? Under the lease agreement, the tenant is required to invest in extensive improvements to the castle to the tune of 450,000.00 (roughly $727,242.75 in Canadian dollars) over 10 to 20 years.
So, if you have any peppercorns burning a hole in your pocket, be very careful how you use them. While it might seem like a great bargain, the responsibilities of running a castle, I am told, are quite daunting.
Hanan Campbell is an Okanagan-based lawyer at Avery Law Office in Summerland. Her legal practice is focused on assisting clients with a variety of corporate commercial matters.
1 Fish Reduction Ltd. v. Malone, 1999 CanLII 2314 (NS CA)
2 Yellowhead Regional Library Board v. Spruce Grove (Town), 1982 CanLII 369 (AB CA)
3 Chappell & Co. Ltd. v. Nestle Co. Ltd. [1960] AC 87 House of Lords
4 See: https://www.scotsman.com/news-2-15012/castle-for-a-peppercorn-rent-1-644753