Past Consideration & Credit Hire

Past consideration arguments in credit hire involves an everyday and common situation. In this situation, the claimant receives a hire car before s/he has received and/or signed the hire agreement. Usually there is a telephone conversation prior to the hire between the claimant and a hire representative or an agent of the hire representative, in which the details of the hire are explained. The hire agreement is then sent to the claimant, though s/he has received the hire vehicle before the written hire agreement is received and/or before s/he has signed the agreement.

In these circumstances, the defence may argue that the claimant is not entitled to recover the hire charges, as “past consideration is not good consideration” - this concept will be explained later in this article.

I will deal with this article as follows: (1) what does “past consideration is not good consideration” actually mean? (2) brief summary of some reported cases dealing with past consideration in credit hire; (3) implications of the cases for credit hire and (4) conclusion.

What does “past consideration is not good consideration” actually mean?

In the never-ending “credit hire wars”, both the claimant and defendant solicitors will always look to potential weaknesses in the other sides case. A common scenario is that a vehicle is provided to the claimant before s/he has received and/or signed any hire agreement. The defence may argue that the hire charges are not recoverable in these circumstances. The rationale is that “past consideration” is not good consideration. However, what does this actually mean?

To understand “past consideration” one must understand what “consideration” is first. In Chitty on Contract (34th edition) paragraph 6-001 consideration is referred to in the following terms: “A party must provide something in exchange for a promise in order to be able to enforce that promise. That “something” is called “consideration” and may itself be a promise”.

In simple terms, consideration is this: in order to get something, you have to give something back. Or in other words, you scratch my back, and I will scratch yours!

For past consideration, in Chitty on Contract (34th edition) in paragraph 6-029, it is stated that: “The consideration for a promise must be given in return for the promise. If the act or forbearance alleged to constitute the consideration has already been done before, and independently of, the giving of the promise, it is said to amount to “past consideration”; and such past acts or forbearances do not in law amount to consideration for the promise.”

However, what does this actually mean? Past consideration can be readily understood from an old case, namely Dent v Bennett (1839) 4 Mylne & Craig 269 41 E.R. 105. A man had treatment in 1827 and paid £30 for this. However, an agreement was signed in 1829, whereby the Claimant agreed to pay £25,000 for the treatment which took place in 1827. Whilst there were other reasons for the dismissal of the claim (for example fraud), Lord Chancellor (Cottenham) was clearly concerned as the“...agreement, however, professes to be founded not only upon the consideration of the future services so secured, but upon the gratitude and respect of the testator to the Defendant for past services, for having saved his life when in the greatest danger.” - underline is my emphasis.

In other words: in Dent v Bennett, services were provided for an agreed price of £30. Two years later an agreement was signed whereby a much higher sum (namely £25,000) was agreed as payment for that service. However, the service had already been utilised in the past as consideration for the transaction and could not be used again for consideration.

Brief summary of reported cases dealing with past consideration in credit hire

In Carson v Tazaki Foods Ltd [2005] 8 WLUK 299 (Queens Bench Division) A vehicle was hired for a period of three days from the 18th of December 2003 to the 20th of December 2003. Prior to this there was a phone call between the hire representative and the Claimant. The written agreement was received by the 19th or the 20th of December 2003 – that is during the hire period. The agreement was signed and returned only in April 2004, well after the hire had ceased. The district judge's decision to dismiss the hire charges was overturned on appeal. The contract was entered over the telephone, subject to an understanding that standard terms would follow which was a standard practice. Alternatively, the court held no concluded agreement had been reached over the phone, and the contract had been concluded when the agreement arrived. Performance had commenced in advance of the contract, which was acceptable.

In Borely v Reed [2005] 10 WLUK 922. On the 2nd of October 2003 the hire started following a phone call on the same day. The hire agreement however was signed and started on the 9th of October 2003 which was after the hire had commenced. The district judge found that the written agreement was not supported by consideration, as the hire had been governed by an earlier oral agreement 7 days prior over the telephone. Indeed, the written agreement was not governing the contract at all, as it was governed by the earlier oral agreement over the phone. This was rejected by the Circuit judge for a number of reasons: (a) there was not sufficient evidence that there was a free standing and complete agreement over the phone; (b) even if there was some preliminary agreement over the phone, there was no evidence that it was for credit; (c) in any event the written agreement replaced any oral agreement as it contained “an entire agreement clause” - in other words the written agreement stated that it replaced any earlier agreement. Clearly in this case the Circuit Judge found no difficulty that the hire agreement was signed after the hire commenced.

In Company Call Centre Technology Ltd v Sheehan [2009] 2 WLUK 736, the District Judge dismissed the hire charges, when the agreement was sent 4 months after the hire had finished. There was no evidence of a phone call between the hire representative and the Claimant prior to the hire. The claimant's employee who was driving the car involved in the accident even went as far as to say that he agreed that the contract was “not enforceable”. The decision was upheld on the basis that there were “sufficient ambiguities”, “doubts” and “holes” as to the existence of an agreement between the claimant and hire company so the District Judge was not “wrong” in his decision. Indeed, the Circuit Judge stated in paragraph 34 of the decision that it may well be that a “different judge on a different judge” may come to a different conclusion, though it could not be said that the judge was “wrong”.

In Armstrong v Hussain [2015] 5 WLUK 745 the Claimant contacted a firm of solicitors who indicated that a hire company could provide a hire vehicle. A vehicle was provided on that same day. On the same day the solicitor's sent the hire agreement to the Claimant, however the agreement was not signed until one day after the hire ended. The Deputy District Judge made the finding that there was no contract at all between the claimant and the hire company. There was no oral communication between the claimant and the hire company and the arrangements for the hire were made by his solicitors. The hire charges were dismissed. The Circuit Judge referred to a “compelling argument” that at the moment the vehicle is delivered, a contract is formed (para 14) – this however was not the reason for him allowing the appeal. The Circuit Judge stated that the

Deputy District judge had made an “astonishing” finding (paragraph 9) that there was no contract, though he said no doubt the judge was influenced by hire agreement being signed a day after the hire period ended. The Circuit Judge did however find that the hire agreement was received during the first couple of days of the hire, though it had been signed after the hire had ended. The appeal was allowed.

Implications of the cases for credit hire

There seem to be a number of implications namely: (1) the courts recognise that its very usual for hire to commence before the hire agreement is received or signed. This represents the commercial reality of business. Performance commencing before the written agreement is signed or received is entirely acceptable: Carson v Tazaki Foods Ltd; (2) in a situation where the hire started before the hire agreement is received but the agreement was received during the period of hire, the courts will be very reluctant to dismiss the hire charges for “past consideration”, regardless that the agreement was signed after the hire period ended: Carson v Tazaki Foods Ltd (3) in a situation where the hire started before the agreement is received and the hire agreement is received after the period of hire, the court may be more willing to dismiss the hire charges for past consideration – in Company Call Centre Technology Ltd v Sheehan the District Judge was no doubt heavily influenced by this factor and he was not found to be “wrong” on appeal. In Armstrong v Hussain the Circuit Judge was at pains to point out that he found that the hire agreement was received during the hire period; (4) even when the hire agreement was sent after the hire was completed, there is an argument that the contract commences upon the vehicle being provided, as recognised in Armstrong v Hussain. It will however be a very brave credit hire company, which takes such a risk.

From my own experience, I recently had a high value credit hire case where I represented the claimant. The hire agreement was signed on the last day of the hire. The defence were running “past consideration” as one of their main points. The judge allowed the hire charges in full.

Conclusion

There is no need for hire companies to panic, just because a hire agreement is signed after the hire period starts, as long as the hire agreement is received during the hire, though the later it is sent and received during the hire period, the riskier it gets. There may also be not too much to worry about, even if the hire agreement is signed after the hire ends, if the hire agreement was sent during the hire - having said this, this is risky.

It is extremely problematic when the hire agreement is sent after the hire has ceased. This is what happened in Company Call Centre Technology Ltd v Sheehan. There may still be arguments to put forward that the hire is recoverable in those circumstances, as a vehicle has been provided, though it is plainly not worth taking this gamble!

It is clearly wise to send the hire agreement at the earliest possible time to avoid there being protracted litigation, as highlighted in the above cases. The above cases are largely non-binding, though they show what the legal landscape is like for “past consideration” in credit hire.

© Mohammed Azeem Ali 2024 10/07/2023