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Grade: A-C | £0.00.
Consideration is a necessary element for the formation of a valid simple contract. Consideration is not needed in the case of speciality contracts ( i.e. by deed).
A bare promise (nudum pactum) is not a legally binding contract. A promise without consideration is a gift; one made for consideration is a bargain.
For many years the English legal system sought to provide a clear definition for the contractual element of consideration. In Currie v Misa (1875) the term valuable consideration was defined as 'some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other'. It is the price for which the promise of the other is bought. Currie v. Misa declared the “benefit gained and detriment suffered” principle in consideration. This case precedent remains extremely important in the law of contract.
In Dunlop v Selfridge (1915) the judges took the opportunity to define consideration in the context of a process of exchange and adopted Sir Frederick Pollock's definition in Principles of Contract: 'An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable'.
The law of contract is about providing a mechanism whereby contractual disputes can be resolved and remedies enforced, not just for private transactions but to facilitate confidence in commercial activity. The law places great importance in scrutinising the formalities of entering into a contract and the essential elements of it, most likely due to the consequences for breach. The law does not dwell upon any issues to do with whether the parties have struck a good bargain or not. This is to do with the long standing principle that the parties are free to enter into a contract upon such terms as they wish (i.e. freedom of contract). The common law and Parliament does not interfere unless it sees a very good reason to do so.
All that the courts can do is satisfy themselves that the consideration is real or genuine but consideration need not be adequate in the normal sense of the word.
The issue arose in the case of Thomas v Thomas (1842) when, just before his death, John Thomas made a verbal wish, in front of witnesses, for his wife to have one of the houses he owned as her home for the rest of her life. After John's death his brother and John's wife drafted a written agreement and she remained in the family home agreeing to maintain it and to make a payment of £1 per annum towards the ground rent. This continued for several years until the death of John's brother when his executors attempted to evict her from the property. The trial court found in favour of the wife and the surviving co-executor appealed but this was lost and the court reasoned that it was not appropriate to examine the adequacy of the consideration.
The other rule provides that consideration must be sufficient. In this respect the word sufficient is not, as one might expect, given its ordinary meaning as is the position with the word adequate. The courts have established a number of approaches to help them determine whether the consideration is 'sufficient'.
The courts will not enforce vague or sham promises, or promises in which there is no benefit at all, or where no detriment is imposed on the parties. In the rather unusual case of White v Bluett (1853) an assurance by a son 'to cease complaining that he was not as well treated as his brother' was held insufficient consideration and was nothing more than a promise 'not to bore' his father. The 'consideration was found not to be real and therefore not sufficient.
In the case of Ward v Byham (1956) the father of an illegitimate child promised £1 a week to the mother provided that 'the child will be well looked after and happy'. It was held that the promise was binding since the mother's undertaking amounted to something more than her legal obligations to the child.
In contrast to White v Bluett(1853), the consideration here was found to be tangible and therefore sufficient.
The consideration also needs to have some discernible value. In Chappell & Co Ltd v Nestle Ltd (1960) in an action for infringement of copyright, the claimant company sought to have included in the assessment of the copyright payment the value of some Nestle chocolate bar wrappers which were required in a promotion. The matter eventually reached the House of Lords and the House decided that the wrappers were part of the consideration. Promotions involving the collection of tokens and wrappers still appear up to this day so presumably the rule still applies if the question were to arise.
In Edmonds v Lawson (2000) consideration was found to exist in the case of a pupil training as a barrister by virtue of the special relationship which benefited the trainee during pupillage. The contract was either of employment or for personal services and so was covered.
In Alliance Bank v Broom (1864) consideration was found in the form of forbearance and this was held to amount to consideration on the Bank's part therefore the court held that the agreement on the part of the defendant in the case to provide security for a debt was binding.
Performing a public duty is not seen as consideration unless the party goes beyond what is normally required. Presumably the reason for this rule is that the party is already obliged to carry out the work as part of their job. Any promise therefore is not real as they are already under a responsibility to carry out the public duty and therefore they have not undertaken any responsibility as such.
This principle was applied in Collins v Godefroy (1831) in which Collins was required to attend a civil trial as he had been subpoenaed. The subpeona gave rise to a public duty and as such his attendance could not form the basis of a consideration i.e. he could not claim payment. This principle was followed in Glasbrook v Glamorgan County County (1925) where the police claimed payment for protection work provided during strike at the defendant's colliery. The outcome here was different to Godefroy and the House of Lords allowed the claim as they held that the police had gone beyond their duty.
The performance of an existing contractual duty is not seen as having value unless the performance goes beyond the original duty or gains some practical benefit to the party making the promise. In Pao on v Lau Yiu Long (1979) this principle was applied to a contract for the sale of shares and the enforcement of a guarantee. The Privy council rejected the claim that there had been economic duress.
The former decision seems to be inconsistent with the court's view in Williams v Roffey Bros (1990), the defendants won a contract to restore a block of flats and had sub-contracted the carpentry work to Williams. Unfortunately for Roffey, Williams was in financial difficulties and he had also misjudged the cost of the work. Roffey became concerned that if the work was not completed on time he would incur penalties under the main contract. Roffey agreed to pay Williams an extra sum per flat if he finished the work. Williams did complete more work but did not receive payment and he sued for his money. The court held that even though he was already contractually bound Roffey stood to gain by the additional agreement by making sure that Williams carried on with the work and avoiding paying penalties under the main contract. This benefit amounted to a consideration.
There has been a long standing rule that past consideration is not consideration. This is because something performed in the past is not seen as good consideration and therefore of no value unless there was already an understanding that there would be payment. In Re McArdle (1951) a woman and her three adult children lived together in a house. A partner of one of the children carried out some decoration and the children agreed to pay for the work and signed a contract to this effect. It was held that as all the work had been done before the agreement was made it amounted to past consideration.
In Lampleigh v Braithwait (1615) Braithwait killed someone and then later asked Lampleigh to get a pardon for him. Lampleigh got the pardon and handed this to Braithwait who then promised to pay him £100. The sum promised was linked to the earlier request and was treated as good consideration.
Part payment of a debt is not normally seen as good consideration but there are exceptions to this rule. Re Selectmove Ltd (1995) entered into negotiations with the Inland Revenue concerning the payment of taxes owed. During the negotiations the company offered to pay its tax debts by instalments. This was accepted but then the IR claimed that the arrears should be paid straight away. The Court of Appeal held that the agreement to pay by instalments did not contain any practical benefit and therefore the case was distinguishable from Williams v Roffey Bros and no contract was found.
The courts have established guidance as to what may be considered sufficient consideration through a number of rulings. However, some argue that if judges wish to enforce an agreement, they will find consideration to be present to enable them to do so. This may be why the approaches taken give rise to an apparent inconsistency with other rules on consideration. In the case of Williams v Roffey Bros, for example, the ruling seems to be inconsistent with the approach taken regarding past consideration and consideration for existing obligations taken in the case of Stilk v Myrick (1809) where some sailors deserted leaving the remaining crew on a ship. The captain promised the remaining sailors extra pay if they sailed the ship home. In view of the sailors existing obligations to sail the ship back and deal with such emergencies as may arise, the promise regarding additional payment could not amount to valid consideration and the men failed in their action for payment.
Some argue that such inconsistency may go further and that the courts are too creative at times. One such case that has been criticised is Chappell & Co Ltd v Nestle Ltd (1960) where the House of Lords did find that the wrappers in dispute formed part of the consideration. The consideration came from their value as a tool for increasing sales. Some argue that the wrappers had little value in themselves and that to hold them as being of benefit was only acknowledging their potential to increase sales which was a consequence of the promotion and their use.
The case of Ward v Byham (1956) is another example of where there may be room for a judge to find a contract if he wished to find one. This 'hair splitting' approach could be seen as the courts' willingness to be flexible but it does little for consistency and our legal system places a lot of importance on consistency and is largely based on the principles of judicial precedence.
Leading academics do not always agree on the subject of consideration. Treitel, for example, usually saw consideration in terms of benefit/detriment and merely the same thing but from different points of view. This is seen as the traditional approach for analysing consideration which can lead to technical and artificial issues some of which we have already commented upon.
This technical approach seems to be no more apparent than in the case of Shadwell v Shadwell (1860) in which an uncle agreed to pay a sum of money each year to give his nephew a start in life following his wedding. The uncle subsequently died and the nephew claimed the money from the estate. The Court of Common Pleas held that the pre-existing duty (from marriage) could amount to consideration as it was for the third party (uncle) so therefore 'present' consideration so far as the uncle was concerned. By adopting this traditional approach this gives rise to the notion of 'invented' consideration as in such cases as Chappell.
On the other hand Atiyah argues that consideration stems from there being ‘good reasons' for the enforcement of certain contracts. Consideration is seen by Atiyah as just a label that the courts use and that courts, in effect, look for enforceability and then turn there attention to consideration. This view of the courts approach seems to support the view that judges arrive at a view about enforceability and then use this to justify the requirement for consideration. If there is weakness with Atiyah's views it is that, if it is tested to destruction then the theory leads one to think that there is no clear doctrine of consideration at all.
In conclusion, it can be said that this pragmatic approach by the courts can be said to lead to inconsistency at times. This may make proceeding with commercial endeavours and predicting outcomes more difficult than they should be. Many see the prompt enforceability of the law of contract to be absolutely necessary for businesses to have confidence in our legal system, so any unnecessary problems about consideration are unfortunate.
If there are problems over securing judgement and enforceability in the courts then this would have serious consequences and may discourage commercial activity. In reality businesses need contract law for a whole host of reasons including to guard against a party changing its mind and not honouring their obligations. Pragmatism may be another way of saying that the courts need to move with the times and the concept of value or the requirement of consideration is part of that process.
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Chappell & Co Ltd v Nestle Co Ltd (BAILII:  UKHL 1 )
Ward v Byham (BAILII:  EWCA Civ 1 ) 1 WLR 496;  2 All ER 318
Collins v Godefroy (BAILII:  EWHC KB J18 ) 109 ER 1040, (1831) 1 B & Ad 950
Pao On v Law Yiu Long (BAILII:  UKPC 2 )  AC 614
Williams v Roffey Bros & Nicholls (Contractors) Ltd (BAILII:  EWCA Civ 5 )
Selectmove Ltd, Re (BAILII:  EWCA Civ 8 )
Stilk v Myrick (BAILII:  EWHC KB J58 )
Shadwell v Shadwell (BAILII:  EWHC CP J88
Youtube: Contract Law - Consideration Part 1
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