Consideration Lecture
Consideration Lecture
Consideration Lecture
Revision objectives
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Chapter Map
Consideration
Executed Executory
Privity of contract
Performance of
Past
existing public
consideration
duty
Performance
Part payment
of existing
of a debt
contractual duty
Pinnel’s Case
Promissory
estoppel
No Shield not
Criteria:
consideration sword
Promise or Combe v
assurance Combe
Reliance
The High
Trees Case
34 Optimize Contract Law
Consideration
Consideration is an essential ingredient within a contract. Quite simply, if there is
no consideration, there is no contract. The law requires that, for an agreement to
be binding, the promisee must provide some kind of payment for the promise they
have received. Thus, a gratuitous promise is generally not enforceable. The term
‘payment’ is used widely here. Payment need not be of monetary value; whilst
some ‘detriment’ on behalf of the promisee is required, the detriment can take the
form of giving something up, for example, stopping smoking. The promisor need
not receive any tangible part, so a promisee made by the offeror to pay an over-
weight associate a sum of money upon losing a specified amount of weight would
be enforceable.
Put simply, consideration is what one party is giving or promising, in exchange for
what is being given or promised by the other party to the contact. The best-known
definition originates from Currie v Misa (1875) LR 10 Ex 153:
Example: If Jayne sells her iPad to Ellie for £240, Ellie will receive the benefit of the
iPad and her detriment will be the surrender of £240 of her cash to Jayne.
Executory Executed
consideration consideration
Example:
Example:
David pays Roberto £150 to perform a
Jane promises to deliver a turkey to James
magic show at his son’s birthday party
on Christmas Eve. Payment on delivery.
next Saturday.
Consideration 35
Consideration
Example: If David (promisor) asks Robert (promisee) to pay Carole a sum of money
as consideration for David’s promise to Robert, that will be good consideration.
However, if David (promisor) asks Carole to provide a payment as consideration for
David’s promise to Robert, that will not constitute good consideration (there is no
detriment to David in such a case).
Example: Rosie agrees to sell her horse to Jim for £10. In the eyes of the law,
there is valid consideration. The agreement to pay £10 will be sufficient considera-
tion. The fact that it is not adequate does not matter, there is some economic
value.
36 Optimize Contract Law
In Thomas v Thomas (1842), a promise made by the deceased, whereby his wife
could remain in their house upon his death if she paid £1 per year in ground rent,
was enforced. The amount of money involved, whilst disproportionate to the
benefit gained, was nevertheless of some economic value and accorded good
consideration. Similarly in Ward v Byham [1956], a promise to keep a child happy
was held as good consideration. Conversely, in White v Bluett (1853), a promise
made by a father to his son not to enforce a promissory note against his son if he
stopped complaining was not enforceable as the son had not provided sufficient
consideration.
Past consideration
Past consideration will not constitute good consideration:
BUT SEE:
PAST Lampleigh v Braithwaite IS NOT GOOD
CONSIDERATION Re Casey’s Patents CONSIDERATION
Pao On v Lau Yiu Long
Consideration must arise at the time of the contract or after a contract has
been agreed. Remember consideration is the price for the promise. Consideration
provided before an agreement has been reached can never be regarded as part
of the price for the promise and consequently will be construed as a gratuity
or gift.
Consideration 37
Scenario A: Scenario B:
In scenario B above, the contract cannot be enforced because the promise was
made after the work had been done.
In Re McArdle (1951) a father left his property to his adult children. Prior to the sale
of the property one of the sons had been living in the property and had under-
taken improvements. After the work had been carried out, his siblings agreed to
contribute to the payment for the work out of their share of the proceeds of the
property sale. The agreement was unenforceable as it was secured after the work
had been carried out, thus amounting to past consideration. Again in Roscorla v
Thomas (1842) the sale of a horse was negotiated. After agreement had been
reached, the claimant was assured by the defendant that the horse was ‘sound
and free from vice’. This turned out to be false. The claimant was unsuccessful in
his claim, again because the consideration was past.
Principle: Whilst payment had not been discussed at the time of the request, it
was clear that both of the parties would have anticipated payment for the
activity. The court held that Braithwaite’s request constituted an implied
promise of payment.
Application: Three exceptions to the rule on past consideration flow from this
case. In similar instances you should consider whether these conditions apply.
If they do, it is likely that an exception to the general rule on past considera-
tion will be upheld.
The three conditions that must be met for an exception to the past consideration
rule to apply are:
❖ The act must have been carried out at the promisor’s request.
❖ The parties must have understood that the act would be rewarded in
some way.
❖ The payment must have been capable of legal enforcement had it been
promised beforehand.
The rules in Lampleigh v Braithwaite (1615) were later re-stated by Lord Scarman in
Pao On v Lau Yiu Long [1979].
Aim Higher
Alex sees his neighbour Paul in the local pub. Alex is aware that Paul operates
an airport shuttle service. Alex asks Paul if he can take him and his wife to the
airport next Thursday. At the airport he promises to pay Paul £25 upon his
return from Marbella. Can Paul enforce the payment?
A witness was
promised a payment Held: There was no
for attending court. consideration for the
In Collins v Godefroy She was already promise as the
(1831) 109 ER 1040 legally obliged witness was bound
to attend court. by law to attend
The payment could the court hearing.
not be enforced.
If the promise goes beyond the existing legal duty, the courts can enforce
payment. This was illustrated in Glasbrook Bros v Glamorgan CC [1925] which con-
cerned an agreement between the mine owners and the police. The mine owners
agreed to pay a sum of money for extra protection during a strike. The House of
Lords confirmed that the police had provided services over and above their
statutory requirement and payment was enforced. This approach was followed in
Harris v Sheffield United FC [1987].
Aim Higher
If statute provided that every child in the borough of Greenfields was entitled
to a free school meal and the school then attempted to charge each parent £1
towards the cost of its additional fuel bill to enable them to cook the extra
food, would the payment be enforceable?
Example: Donna’s hairdresser Sarah agrees to put extensions in Donna’s hair for
£150 using a new technique. The consideration here is clear. The work is taking far
longer than Sarah had anticipated but she promises to finish the extensions if
Donna agrees to pay an extra £75. You will hopefully conclude that Sarah cannot
enforce the additional payment as she is already contractually obliged to complete
the hairdressing task.
Facts: During a voyage, two crew members deserted their ship. The remaining
crew were promised extra wages to staff the ship back to London. The captain
later refused to pay the extra money.
Principle: The court held that there had been no consideration for the captain’s
promise of extra wages. The sailors had done no more than they had initially
been contracted to do; i.e. to sail the ship for the complete voyage. No fresh con-
sideration had been given for the promise.
A different approach was taken in Hartley v Ponsonby (1857) when around half of
the crew deserted ship. The captain promised extra wages to the remaining crew.
The outcome was different here, as the voyage was regarded as something alto-
gether different to the original mission. Consequently, the agreement to pay extra
wages was enforced on the basis that it was a fresh contract; the initial contract
having become frustrated.
The position is more complex when we consider Williams v Roffey Bros & Nicholls
(Contractors) (1990). The case concerned a contract to refurbish some flats. The con-
tractor, Roffey, subcontracted the carpentry work to Williams at an agreed price. Due
to financial difficulties, it appeared unlikely that Williams would complete the work in
time. There was a penalty clause in the main contract for late completion and to avoid
this, Roffey agreed to pay an additional amount to Williams per flat completed. Roffey
later refused to pay the additional sum for the completed flats. The issue for the Court
of Appeal hinged upon whether there had been consideration for the promise of addi-
tional payments, on the basis that the subcontractor already owed an obligation to
the contractor to complete the flats. It held that there was a contract and considera-
tion had been provided. The new benefit achieved by the contractors was that they
would avoid the detriment of being sued under the penalty clause for late completion
Consideration 41
and that they would not have to find new sub-contractors at short notice. In the
words of Glidewell LJ, referring to the giving of a promise to the provider of the goods
or services: ‘as a result of giving his promise B obtains in practice a benefit, or obviates
a disbenefit, and B’s promise is not given as a result of economic duress or fraud . . .
then the benefit to B is capable of being consideration for B’s promise’.
A summary of the Williams v Roffey principles can be seen below:
Key Principles flowing from Williams v Roffey Bros & Nicholls (Contractors) Ltd
[1990] 1 All ER 512 (1990):
Where party A and B have a contract for the provision of goods and
services, and it becomes apparent that the provider of the goods/services
is unable to satisfy their commitment, an extra payment to complete the
contract will be enforceable in the following instances:
Williams v Roffey (1990) represents a significant shift in the scope of the limits of
consideration. A promise to perform an existing contractual duty can now consti-
tute good consideration if it falls within the Roffey guidelines. It is important to
remember that there must be no evidence of economic duress. Williams v Roffey
was followed in Attrill v Dresdner Kleinwort Ltd (2011 and 2013) where an employer
promised to set up a bonus pool for certain staff but later tried to retract the
agreement due to lack of consideration. The bonus was to retain staff during a fin-
ancial crisis. The Court of Appeal accepted that the continued work of the
employee was sufficient consideration for the creation of a bonus pool.
Common Pitfall
Consideration is a very popular exam topic and you will often come across a
problem question that contains a variety of issues relating to whether or not
there is valid consideration. Owing to the fact that there are a variety of prin-
ciples to be aware of within the doctrine, students often grasp some of the
issues but overlook others and do not gain the full range of marks available.
Remember to carefully scrutinise the question and pinpoint all of the issues
before putting pen to paper!
42 Optimize Contract Law
No If consideration is
Does the consideration arise at the time of given before a contract
the contract or after a contract has been agreed? is established, it will be
past consideration
and not valid.
Yes
No
No
Does the offeree already have a contractual duty There will be valid
to carry out the task? consideration.
Yes
Yes
Aim Higher
Using the flowchart above try to provide a reasoned solution to the following
problem:
Ellie owned a 1926 Barker Salamanca Rolls Royce and, in order to raise a
deposit for her new house, she decided to sell it to Sam, a mechanic, for
£50,000. As part of the deal, Ellie agreed to have it restored for Sam. Ellie
asked Richard, a vintage car restorer, to carry out the work within eight
weeks for £8,000. One month later, Ellie was worried that Richard would not
meet the deadline and, eventually offered him an extra £2,000 if the restora-
tion was completed on time. Sam was anxious to have the car on time as he
was going to sell it on and had a purchaser for it, so he offered to give
Richard £500 for doing the work. Richard completed the restoration on time
but Ellie has refused to pay him the extra £2,000, arguing that Richard was
already obliged to complete the work for £8,000. Furthermore, Sam has told
Richard that he can only give him £100, which Richard has reluctantly agreed
to accept.
Can Richard insist on the full payments promised by Ellie and Sam?
Example: David borrowed £1,000 from Masood last August. An agreement was
made that David would pay the money back on 31 October. That date has now
passed and David has significant financial problems. He promises to pay Masood
£700 provided that he agrees to waive the remaining balance. Hopefully you will
have applied the rule outlined above and concluded that Masood can pursue the
remainder of the debt on the premise that a promise to make part-payment of a
debt in settlement of the whole sum cannot constitute good consideration.
It is clear that a practical benefit could have been obtained by Beer, but the ‘prac-
tical benefit’ rule is not applicable in debt cases. The difference in approach is
important and signifies that a different rule must be followed when dealing with
agreements relating to debts (Foakes v Beer (1884)) and agreements relating to
other types of contractual commitments (Williams v Roffey (1990)).
As mentioned above, Pinnel’s Case (1602) permits an exception to the rule where
an agreement is supported by a ‘new consideration or deed’. The diagram below
outlines the accepted exceptions:
Creditor requests early payment and agrees to waive the remaining debt
Early payment
Consideration 45
‘The gift of a horse, hawk, or robe in satisfaction is good. For it shall be intended that a horse, hawk, or robe,
might be more beneficial to the plaintiff than the money’ Pinnel’s Case.
Acceptance of something else towards the outstanding debt. For example, the creditor may accept the
defendant’s car in lieu of payment
Where several creditors are owed money by a debtor, they can accept a percentage of the full amount as full
settlement of the whole amount owed
Composition agreements
Privity of contract
Privity of contract is a small, yet important area on the contract law syllabus. It
rarely appears on an exam paper as a full question, but often crops up as an issue
within a larger themed problem, so you need to understand the key principles.
Facts: Dunlop sold tyres to a wholesaler, Dew & Co, who expressly agreed in
the contract that Dunlop could fix the minimum price for which the tyres
could be sold and that they (Dew & Co) would not sell below that price. Dew &
Co also agreed that the same terms would be replicated within customer con-
tracts when they resold the tyres. Dew & Co sold some tyres to Selfridge under
an agreement that incorporated the agreed terms on price, but Selfridge broke
the agreement and re-sold the tyres for a price below the minimum amount.
Dunlop sued Selfridge.
Principle: The court action against Selfridge failed. Dunlop had a contract with
Dew & Co, but Selfridge was not a party to this contract.
The basic common law rule on privity of contract is that only parties to a contract
can sue, or be sued under an agreement. The rule can produce harsh results, par-
ticularly where a contract purports to confer a benefit on a third party. In Tweddle
v Atkinson (1861), which concerned an agreement for marriage consideration, the
claimant was unsuccessful in an action to claim a payment of £300, that had been
agreed between his father and father-in-law, as he himself had provided no con-
sideration. The fact that the contract had been made for his benefit was not
relevant.
Over the years a number of exceptions to the rule have developed. See below:
Bills of
Exchange Act
1882 – third
party can sue
on a cheque.
Consideration 47
Due to the issues with the strict rule of privity, and following the recognition
of various exceptions to the rule, the Contracts (Rights of Third Parties) Act 1999
was introduced. See the diagram below for a summary of the main effects of
the Act.
Section 1(1)(a) Third party can enforce where the contract expressly states that
he may, or
Section 1(1)(b) where a term of the contract purports to confer a benefit on the
third party.
Section 1(2) A benefit will not be conferred on the third party if it appears,
upon construction of the contract, that the parties did not intend the
term to be enforceable by the third party.
Section 1(3) The third party must be expressly identified in the con-
tract by name, as a member of a class or answering a particular
description. The party need not exist when the contract is agreed.
There are a few exceptions to the rules contained within the Act. The main excep-
tions are bills of exchange, promissory notes and negotiable instruments, con-
tracts involving the carriage of goods by sea, certain partnership documents and
contracts of employment.
A third party is entitled to any remedy that would have been available to him for
breach of contract, if he had been a party to the contract.
Promissory estoppel
The equitable doctrine of promissory estoppel can sometimes be used to enforce
an agreement that might otherwise fail due to a lack of consideration. In simple
terms, estoppel prevents party A from withdrawing a promise made to party B, if
party B has reasonably relied on that promise. See the definition in Combe v Combe
(1951) below:
48 Optimize Contract Law
Lord Denning:
‘Where one party has, by his words or conduct, made to the other a promise or
assurance which was intended to affect the legal relations between them and
to be acted on accordingly, then, once the other party has taken him at his
word and acted upon it, the one who gave the promise or assurance cannot
afterwards be allowed to revert to the previous legal relations as if no such
promise or assurance had been made by him.’
Example: Jody hires a barge to Billy for a six-month period at a rent of £300 per
week. Billy loses his job and Jody agrees to accept £100 for a set period of time,
which is paid on time, each week by Billy. Jody could not later insist upon payment
of the higher sum for the period of the agreement.
The doctrine was initially developed in the case of Hughes v Metropolitan Railway
Company (1877):
Perhaps the most famous case came 70 years later when Lord Denning revisited
the doctrine in Central London Property Trust Ltd v High Trees House Ltd [1947]:
Case precedent – Central London Property Trust Ltd v High Trees House Ltd
[1947] KB 130
Facts: The owners of a block of flats in London rented the block to the defend-
ants for a sum per annum. As a result of the war, the defendants were unable
to find sufficient tenants to populate the flats. The plaintiffs agreed to reduce
Consideration 49
the rent by 50%. The agreement continued until the end of the war. The plain-
tiffs then gave notice to revert to full rent and also queried whether they could
claim the full rent for the war period as there had been no consideration for
the promise for a lesser payment.
Principle: The plaintiffs were estopped from going back on their promise,
but could revert back to the full rent after the war ended. Lord Denning
drew on the equitable principle: ‘A promise intended to be binding, intended
to be acted upon, and in fact acted on, is binding so far as its terms properly
apply.’
Up For Debate
How can the decision in High Trees (1947), that effectively enforced an agree-
ment for half payment of a rent for no consideration, be reconciled with cases
such as Foakes v Beer (1884), which held that part payment of a debt could
never constitute good satisfaction for the whole?
The rather wide construction adopted by Lord Denning in the High Trees case has
been narrowed somewhat in later decisions. The four main limitations to the rule
are highlighted below:
Must be reliance
❖ The party seeking to enforce a promise must have taken some action as a
result of the promise
Must be inequitable
❖ There must be no undue pressure on the promisor
for the promisor
to assert strict
❖ D and C Builders v Rees [1966]
legal rights ❖ Collier v P & M J Wright (Holdings) Ltd (2007)
50 Optimize Contract Law
Scope of estoppel
In some circumstances promisory estoppel will be only suspensory. For example, in
Hughes v Metropolitan Railway (1877), the obligation to repair was reinstated after
the sale negotiations broke down. Likewise in High Trees, the obligation to pay full
rent was restored after the war. However, the effect of estoppel can extend to
extinguish some rights altogether. Looking at High Trees again, we observe that
the right to receive full rent during the war period was extinguished. To further
illustrate this point let us review the case of Tool Metal Manufacturing Co v Tung-
sten Electric Co [1955]:
Summary
Consideration is what one
Consideration is a
party is giving or promising,
necessary ingredient in Consideration can be
in exchange for what is
the construction of an executed or executory.
being given or promised
enforceable contract.
by another.
Promissory estoppel –
exception to strict rule
of consideration.
The High Trees Case
(note the limitations).
Consideration 51
Bob is a builder. Last year he renovated three cottages in his local village. The cot-
tages are called Sunnyside, Cloverleaf and Mistletoe.
Bob lives next door to Sunnyside, which is owned by Ruth. Ruth has had problems
with her wood burner and a few weeks ago she asked Bob to take a look. Bob
called round and repaired the wood burner. Ruth was so impressed with Bob’s
work that she promised to give him £100 for the work he had done. She is now
refusing to pay.
Jackie, an antique dealer, owed Bob £12,000 for fitting a new kitchen in Cloverleaf.
Unable to pay Bob the full amount by the date agreed, she consented at his
request to pay him £7,000 and to give him an antique bronze statue of an African
white rhinoceros. Bob has now decided that the bronze statue looks mismatched
in his lounge and he wishes to receive the outstanding amount on the debt.
Bob renovated Mistletoe for Sam last summer. Bob has recently received a letter
from the Local Authority informing him that the joists within the roof are not of the
required specification and are in breach of building regulations. The Local Authority
has informed him that he has three months to remedy the defects. Sam who has
had sleepless nights worrying about the roof collapsing agrees to pay Bob £800 to
complete the work. Bob completed the work, but Sam is now refusing to pay.
Bob also owns some retail units in the nearby town of Padsville. Mohammed, one
of the tenants occupying No 62 The Parade (the shop), is causing him immense
aggravation. In April 2007, the shop had a long lease of 12 years left to run. The
annual rent had become higher than the annual profits of the shop and there
were onerous repairing covenants. Bob had told Mohammed that if he would
perform certain specified repairs, he would be satisfied with only half of the rent
for the remainder of the lease and would further make Mohammed an interest-
free loan of £4,000 so that he could install central heating. Mohammed duly per-
formed the specified repairs and Bob accepted one-half of the rent.
In December 2012, Bob gave notice to Mohammed that he would require full rent
in future, and he claimed repayment of the arrears from April 2007. He has con-
sistently refused to make the promised loan of £4,000 for the central heating.
Bob is eager to recover as much money as he can from his customers and his
tenant. Advise Bob on whether he can recover the money that he believes is owed
him by Ruth, Jackie, Sam and Mohammed.
52 Optimize Contract Law
Jackie
❖ Issue – will Bob succeed in an action to recover the £5,000 he believes Jackie
still owes him?
❖ Identify the issue as part-payment of debt. State and explain the rule in
Pinnel’s Case (1602): part-payment of a debt is not satisfaction for the whole
debt even if the creditor accepts the part-payment. The creditor may still
recover the balance of the debt.
❖ Identify and explain the relevant exception to the rule in Pinnel’s Case:
provision of some other consideration by the debtor, at the request of the
creditor, will prevent the creditor from recovering the balance – see
Pinnel’s Case.
❖ Apply the law to the facts of the problem. Jackie has agreed, at Bob’s request,
part-payment of the debt together with an antique statue.
❖ The court will look to form not value: consideration need not be adequate
(Chappell v Nestlé [1960]). Jackie will not fail on that point. The issue, however,
is: is this sufficient consideration for valid part-payment? The additional
consideration was provided at the request of Bob. See Pinnel’s Case – the rule
here is that part-payment of a debt on its due date will not discharge the full
debt, unless it is supported by a new consideration or deed. The bronze statue
will constitute new consideration so Bob will be unable to recover the balance
of money owing.
Consideration 53
Sam
❖ Issue – whether consideration has been provided for the promise. Sam offered
to pay Bob to remedy the defects. A contract had already been agreed in the
previous year for the renovation of Mistletoe.
❖ It appears that the defects are in breach of building regulations. It is likely that
Bob already has an existing legal duty to remedy the defects as his previous
work is in breach of building regulations.
❖ Where a legal duty exists, an agreement to carry out the same activity for
reward cannot constitute good consideration (Collins v Godefroy (1831)). It is
unlikely that Bob will be able to enforce the payment of £800 against Sam.
Mohammed
Bob has promised:
❖ That he will be satisfied with half of the rent if Mohammed performs specified
parts of repairing covenants – Bob is claiming arrears of rent and future rent
payments. He also promised that he will lend Mohammed £4,000 if he
performs specified parts of repairing covenants. Is this promise binding
regarding the arrears? Has Mohammed given any consideration? No: he has
covenanted to do the repairs and in doing any of them, he is performing
existing contractual obligations (Stilk v Myrick (1809)) – no consideration.
Can Mohammed rely on the doctrine of promissory estoppel?
State criteria and apply:
❖ Existing contractual relationship between the parties? Yes. There must be a
clear and unequivocal promise that the promisor will not insist on his strict
legal rights: yes, Bob has promised. It must be inequitable to allow the
promisor go back on his promise. Yes: Mohammed has performed all of Bob’s
requests. Defendant must have acted in reliance on promise: Mohammed has
relied upon the promise. Case law – High Trees (1947), Hughes v MRB (1877),
Combe v Combe (1951) – formulated requirements. If Bob tries to claim
repayment of arrears, Mohammed can use promissory estoppel as defence
and will probably be successful. How about future full rent?: may be able to
claim estoppel but note, it can be suspensory in nature – Tool Metal
Manufacturing Co v Tungsten Electric Co (1955). Central heating loan of
£4,000? – Mohammed has given no consideration for loan: can he rely on
estoppel to claim it? Note – estoppel can only be used as shield, not sword
(Combe v Combe (1951)): Mohammed cannot enforce the loan as he has given
no consideration, he cannot rely on estoppel as a cause of action.
54 Optimize Contract Law
The answer can be shown diagrammatically. This is a useful way to plan answers:
Jackie
Ruth Issue: Part-payment of debt not
Define consideration good consideration – Pinnel’s case (1602)
Past consideration
Exceptions to rule
Re McArdle [1951]
Statue: fresh consideration at creditor’s request
Exceptions: Lampleigh v Braithwaite [1615]
Likely to recover Consideration = sufficient – Chappell v Nestle
[1960]
Bob unikely to recover the monetary balance
claim
Bob’s
Mohammed
Sam Can Mohammed rely upon estoppel?
Promise to provide something where Criteria for estoppel:
a legal duty already exists = not Existing contractual relationship – yes
good consideration – Collins v Godefroy (1831) Clear and unequivocal promise that the promisor
Bob in breach of building regulations: statutory will not insist on his strict legal rights – yes
duty to carry out work to certain Must be inequitable to allow the promisor
standard – not performed go back on his promise – yes
Bob cannot charge Sam as he already has Defendant must have acted in reliance
existing duty to perform this act on promise – yes
Caselaw: High Trees; Hughes v MRB
Shield not sword? Yes, but not for loan
Consideration 55