Failure of consideration

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Failure of consideration is a technical legal term referring to situations in which one person confers a benefit upon another upon some condition or basis ("consideration") which fails to materialise or subsist. It is also referred to as "failure of basis". [1] It is an 'unjust factor' for the purposes of the law of unjust enrichment. Where there is a "total failure of consideration" the claimant can seek restitution of the benefit by bringing an action in unjust enrichment against the defendant. Historically speaking, this was as a quasi-contractual claim known as an action for money had and received to the plaintiff's use for a consideration that wholly failed. The orthodox view is that it is necessary for any relevant contract to be ineffective, for example because it is discharged for breach, void ab initio (from the beginning) or frustrated. However, it will be available on a subsisting contract where it does not undermine the contractual allocation of risk. [2]

Contents

Failure of consideration is a highly technical area of law. Particular areas of controversy include:

Cases

Further reading

Related Research Articles

A quasi-contract is a fictional contract recognised by a court. The notion of a quasi-contract can be traced to Roman law and is still a concept used in some modern legal systems. Quasi Contract laws have been deduced from the Latin statement "Nemo debet locupletari ex aliena jactura", which proclaims that no man should grow rich out of another person's loss. It was one of the central doctrines of Roman law.

In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make restitution, subject to defences such as change of position. Liability for an unjust enrichment arises irrespective of wrongdoing on the part of the recipient. The concept of unjust enrichment can be traced to Roman law and the maxim that "no one should be benefited at another's expense": nemo locupletari potest aliena iactura or nemo locupletari debet cum aliena iactura.

The law of restitution is the law of gains-based recovery, in which a court orders the defendant to give up their gains to the claimant. It should be contrasted with the law of compensation, the law of loss-based recovery, in which a court orders the defendant to pay the claimant for their loss.

Assumpsit, or more fully, action in assumpsit, was a form of action at common law used to enforce what are now called obligations arising in tort and contract; and in some common law jurisdictions, unjust enrichment. The origins of the action can be traced to the 14th century, when litigants seeking justice in the royal courts turned from the writs of covenant and debt to the trespass on the case.

<i>Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd</i>

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd[1942] UKHL 4 is a leading House of Lords decision on the doctrine of frustration in English contract law.

<span class="mw-page-title-main">English contract law</span> Law of contracts in England and Wales

English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth, from membership in the European Union, continuing membership in Unidroit, and to a lesser extent the United States. Any agreement that is enforceable in court is a contract. A contract is a voluntary obligation, contrasting to the duty to not violate others rights in tort or unjust enrichment. English law places a high value on ensuring people have truly consented to the deals that bind them in court, so long as they comply with statutory and human rights.

Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] UKHL 7 is an English unjust enrichment case, concerning the framework for a claim.

The English law of unjust enrichment is part of the English law of obligations, along with the law of contract, tort, and trusts. The law of unjust enrichment deals with circumstances in which one person is required to make restitution of a benefit acquired at the expense of another in circumstances which are unjust.

<i>Lipkin Gorman v Karpnale Ltd</i> English case

Lipkin Gorman v Karpnale Ltd[1988] UKHL 12 is a foundational English unjust enrichment case. The House of Lords unanimously established that the basis of an action for money had and received is the principle of unjust enrichment, and that an award of restitution is subject to a defence of change of position. This secured unjust enrichment as the third pillar in English law of the law of obligations, along with contract and tort. It has been called a landmark decision.

<span class="mw-page-title-main">Baltic Shipping Company v Dillon</span> Judgement of the High Court of Australia

Baltic Shipping Company v Dillon, the Mikhail Lermontov case, is a leading Australian contract law case, on the incorporation of exclusion clauses and damages for breach of contract or restitution for unjust enrichment.

The English law of Restitution is the law of gain-based recovery. Its precise scope and underlying principles remain a matter of significant academic and judicial controversy. Broadly speaking, the law of restitution concerns actions in which one person claims an entitlement in respect of a gain acquired by another, rather than compensation for a loss.

<span class="mw-page-title-main">Law Reform (Frustrated Contracts) Act 1943</span> United Kingdom legislation

The Law Reform Act 1943 is an Act of the Parliament of the United Kingdom which establishes the rights and liabilities of parties involved in frustrated contracts. It amends previous common law rules on the complete or partial return of pre-payments, where a contract is deemed to be frustrated, as well as introducing a concept that valuable benefits – other than financial benefits – may also be returned. It applies only to contracts governed by English law.

BP Exploration Co (Libya) v Hunt [1983] 2 AC 352 is an English contract and unjust enrichment case, concerning the frustration of an agreement.

<i>Westdeutsche Landesbank Girozentrale v Islington LBC</i> English legal case

Westdeutsche Landesbank Girozentrale v Islington LBC[1996] UKHL 12, [1996] AC 669 is a leading English trusts law case concerning the circumstances under which a resulting trust arises. It held that such a trust must be intended, or must be able to be presumed to have been intended. In the view of the majority of the House of Lords, presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.

<i>Foskett v McKeown</i>

Foskett v McKeown[2000] UKHL 29 is a leading case on the English law of trusts, concerning tracing and the availability of proprietary relief following a breach of trust.

An action for money had and received to the plaintiff's use is the name for a common law claim derived from the form of action known as indebitatus assumpsit. The action enabled one person to recover money which has been received by another: for example, where a plaintiff paid money to the defendant while labouring under a mistake of fact or where there was a total failure of consideration. The action was a personal action only available in respect of money, rather than other benefits. Where the benefit received by the defendant was services or goods, the appropriate action was a quantum meruit or a quantum valebant, respectively.

Test Claimants in the Franked Investment Income Group Litigation v IRC [2012] UKSC 19 is an English unjust enrichment law case, concerning liability for overpaid tax, and limitation of claims. The Supreme Court made a reference to the European Court of Justice (ECJ).

Relfo Ltd v Varsani [2014] EWCA Civ 360 is an English unjust enrichment law case, concerning to what extent enrichment of the defendant must be at the expense of the claimant.

<i>Haugesund Kommune v DEPFA ACS Bank</i>

Haugesund Kommune v DEPFA ACS Bank[2010] EWCA Civ 579 and the subsequent decision in Haugesund Kommune v DEPFA ACS Bank [2011] EWCA Civ 33 were decisions of the English Court of Appeal relating to the consequences of certain swap transactions which had been entered into between the Irish bank and the Norwegian kommune, but were held to be beyond the powers of the kommune.

<i>Goss v Chilcott</i>

Goss v Chilcott[1996] UKPC 17 is a decision of the Privy Council on appeal from New Zealand relating to the law of restitution, and in particular the requirements of total failure of consideration in relation to loans where some repayments had been made, and the defence of change of position.

References

  1. Camp T. "Restitution on a Partial Failure of Basis". (2016) 28 Bond Law Review 21.
  2. Coshott v Lenin [2007] NSWCA 153 , Court of Appeal (NSW,Australia).
  3. Tarrant, J. "Total Failure of Consideration" (PDF). (2006) 33(1) University of Western Australia Law Review 132.
  4. Case Brief: Rowland v. Divall (1922), accessed 22 October 2016 Archived 22 October 2016 at the Wayback Machine
  5. Swarbrick, D, D O Ferguson and Associates v M Sohl: CA 1992, updated 4 May 2022, accessed 2 December 2022
  6. Goss v Chilcott [1996] UKPC 17 , Privy Council (on appeal from New Zealand).
  7. Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373(QB) , High Court (England and Wales).