Consideration is one of the three main building blocks of a contract in English contract law.. Consideration can be anything of value (such as an item or service), which each law party to a legally-binding contract must agree to exchange ex change if the contract is to be valid. If only one party offers consideration, the agreement is not no t legally a binding contract. In its traditional form, consideration is expressed as the requirement that in order for parties to be able to enforce a promise, they must have given something for it (quid (quid pro quo): quo): something must be given or promised in exchange or return for the promise. A contract must be "met with" or "supported by" consideration to be enforceable; also, only a person who has provided consideration can enforce a contract. In other words, if an arrangement consist of a promise which is not supported suppo rted by consideration, then the arrangement is not a legally enforceable contract. Mutual promises constitute consideration for each other. ("I promise you to do X, in consideration for which promise you promise me to do Y").
In Australia Australia,, the bargain theory of consideration prevails, where the act or forebearance of one party or promise thereof is the price for which a promise is bought.
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1 De Defin finiti ition on 2 Consideration need not be adequate 3 Consideration must be sufficient 3.1 Past Consid Consideration eration o 3.2 Illusory Conside Consideration ration o 3.3 Cert Certain ainty ty o 3.4 Consideration Consider ation must move from the promisee o 3.5 Promised performance performa nce of existing duty o 3.6 To thir third d par party ty o 3.7 Forbearing Forbearin g to sue and compro compromising mising o 4 Est Estop oppe pell 5 De Deed edss 6 Se Seee al also so 7 No Note tess
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8 Exte Externa rnall link linkss
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[edit edit]] Definition Consideration for a particular promise exists where some right , interest , profit or benefit accrues (or will accrue) to the promisor as a direct result of some forbearance, detriment , loss or responsibility that has been given, suffered or undertaken by the promisee. The consideration must be executory or executed , but not past.
Consideration is executory when a promise to do something in the future is given in exchange for another promise to be done in the future. Consideration is executed when a promise is actually executed, in exchange for another promise to be executed in the future. Consideration is past when a promise has been given or executed before and independently of the other promise. For example, I promised to take you to lunch, and then when we got there I said "you must pay, because I have given you the benefit of my company" This is past consideration and therefore NO consideration. Consideration can be anything of value (such as an item or service), which each party to a legally-binding contract must agree to exchange if the contract is to be valid. v alid. If only one party offers consideration, the agreement is not legally a binding contract. In its traditional form, consideration is expressed as the requirement that in order for parties to be able to enforce a promise, they must have given something for it (quid pro quo): something must be given or promised in exchange or return for the promise. A contract must be "met with" or "supported by" consideration to be enforceable; also, only a person who has provided consideration can enforce a contract. In other words, if an arrangement consist of a promise which is not supported suppo rted by consideration, then the arrangement is not a legally enforceable contract. Mutual promises constitute consideration for each other. ("I promise you to do X, in consideration for which promise you promise me to do Y"). In Australia, the bargain theory of consideration prevails, where the act or forebearance of one party or promise thereof is the price for which a promise is bought.
• •
Dyer's case Currie v. Misa (1875) LR 10 Ex 153, 162
[edit edit]] Consideration need not be adequate For consideration to be good consideration, it must be of some value, even e ven if it is minimal value. There is no requirement that the consideration be commensurate in economic terms to the original promise. Nominal consideration will suffice as good consideration for a contract, Courts will not measure the adequacy of the consideration as it is up to the parties to decide the subjective worth of each promise. Thus consideration can come in any forms, A hawk, a horse or a robe.* Even a peppercorn would be sufficient • •
Chappell & Co Ltd v. Nestle Co Ltd [1960] AC 87 "Pinnels Case"
[edit edit]] Consideration must be sufficient
[edit] Past Consideration A promise cannot be based upon consideration that was provided before the promise was made. For example, if X promises to reward Y for an act that Y had already performed, the performance of that act, while good consideration for the promise to be rewarded for it, is past consideration and therefore not good consideration. In Eastwood v Kenyon, the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise as taking out the loan to raise and educate the girl was past consideration, because it was completed before the husband promised to repay it. Furthermore, where a contract exists between two parties and one party, subsequent to formation, promises to confer an additional benefit on the other party to the contract, that promise is not binding because the promisee's consideration, which is his entry into the original contract, had already been completed (or "used") at the time the next promise is made. In Roscorla v Thomas, Roscorla and Thomas contracted to buy a horse for £30. After the sale, Thomas promised Roscorla that the horse was sound; the horse turned out to be vicious. It was held that Roscorla could not enforce the promise, as the consideration given for entering into the contract to buy the horse had been completed by the time the promise was made; in a sense, the consideration was "used up". The rule that past consideration is not good consideration is subject to the exception discussed by the Privy Council in Pau On v Lau Yiu Long . In that case, their Lordships held that past consideration can be good consideration where: 1. The promisee performed the original act at the request of the promisor; 2. It was clearly understood or implied between the parties that the promisee would be rewarded for the performance of the act; 3. The actual promise made, if made before the promisee provided the consideration, must be capable of being enforced, in other words giving rise to a legally binding contract. • •
Lampleigh v Brathwait (1615) Hobart 105; 80 ER 255 Pao On v Lau Yiu Long [1980] AC 614
[edit] Illusory Consideration There must be some kind of connection between a promise and the consideration offered to support the promise. It is no consideration to "refrain from a course of conduct which it was never intended to pursue" ( Arrale v. Costain Civil Engineering Ltd [1976] 1 Lloyd's Rep 98). The consideration must have been at least an inducement to enter into the promise.
This requirement also imposes a restriction on conditional gifts. This test is an objective test - whether a reasonable person in the position of the offeree would perceive it as a gift as opposed to an offer. For example, the payment of $10,000 for the switching of a television channel is not met with consideration.
[edit] Certainty Consideration is sufficient where it amounts to something that is capable of expression in economic terms. In White v. Bluett , Bluett, when sued by his father’s executors for an outstanding debt to his father, claimed that his father had promised to discharge him from it in return for him stopping complaining about property distribution. The Court held that the cessation of complaints was of no economic value; thus, Bluett’s father had received no real consideration for the promise, and the debt was unenforceable at law. •
White v. Bluett (1853) 23 LJ Ex 36
[edit] Consideration must move from the promisee A promise is enforceable if it is supported by consideration, that is, where consideration has moved from the promisee. For example, in the case of Tweddle v. Atkinson, John Tweddle promised William Guy that he would pay a sum of money to the child of William Guy, and likewise William Guy promised John Tweddle that he would pay a sum of money to the child of John Tweddle, upon the marriage of the two children to each other. However, William Guy failed to pay the son of John Tweddle, who then sued his executors for the amount promised. It was held that the son could not enforce the promise made to his father, as he himself had not actually given consideration for it - it was his father who had done so instead. This particular rule of consideration forms the basis of the doctrine of privity of a contract, that is, only a party to a contract is permitted to sue upon that contract's terms. (Note that the doctrine of privity has been somewhat altered in the Contracts (Rights of Third Parties) Act 1999 in Full.) Therefore consideration from the promisee was indulgent of the claim. Although consideration must move from the promisee, it does not necessarily have to move to the promisor. The promisee may provide consideration to a third party, if this is agreed at the time the parties contracted (see Bolton v. Madden). •
Tweddle v. Atkinson (1861) 1 B&S 393; 121 ER 762
The offeree must provide consideration, although the consideration does not have to flow to the offeror. For example, it is good consideration for person A to pay person C in return for services rendered by person B. If there are joint promisees, then consideration need only to move from one of the promisees. (see Price v Easton)
[edit] Promised performance of existing duty Public duty
If the promisee provides what he was required by public law to do in any event in return for a promise, this is not good consideration. In Collins v. Godefrey[1] Godefrey promised to pay Collins for his giving of evidence. It was held that Collins could not enforce the promise as he was under a statutory duty to give evidence in any event. However, if the promisee provides more than what public duty imposes on him, then this is good consideration. In Ward v. Byham a mother was under a statutory duty to look after her child. The ex-husband promised to pay her £1 a week if she ensured that the child was well looked after and happy. It was held that notwithstanding the statutory duty imposed on the mother, she could enforce the promise since the act of keeping the baby 'happy' provided additional consideration. •
Glasbrook Ltd v. Glamorgan County Council [1925] AC 270
Duty to the contracting party Promising to perform a pre-existing duty owed to one's contracting party also fails to make good consideration. However this rule has been considerably narrowed by recent case law. The general rule is that if a creditor promises to discharge a debt in return for a fraction of payment, in paying the agreed fraction, the promisee is not providing consideration for the promise, as this is merely part performance of a contractual duty already owed (see Pinnel's Case; confirmed by Foakes v. Beer [2]). Consequently, the debtor is still liable for the whole amount, as he cannot force the promisor to accept less. A leading example is in Stilk v. Myrick .[3] Stilk, a seaman, agreed with Myrick to sail his boat to the Baltic Sea and back for £5 per month. During the voyage, two men deserted. Myrick promised he would increase Stilk's wages if Stilk agreed to honour his contract in light of the desertions. Stilk agreed and on return to port, Myrick refused to pay him the extra wages. It was held that Myrick's fresh promise was not enforceable as the consideration Stilk had provided for it, the performance of a duty he already owed to Myrick under contract, was not good consideration for Myrick's promise to increase his wages. Initially, there were only two exceptions to this rule: •
•
Hanson v. Royden, the promisee has done, or has promised to do, more than he was obliged to do under his contract. Hartley v. Ponsonby, before the fresh promise was made, circumstances had arisen which would have entitled the promisee to refuse to carry out his obligations under his contract.
However, the strictness of this rule was severely limited in Williams v. Roffey Bros & Nicholls (Contractors) Ltd .[4] The Roffey Brothers entered into a contract to refurbish a block of flats for a fixed price of £20,000. They sub-contracted carpentry work to Williams. It became apparent that Williams was threatened by financial difficulties and would not be able to complete his work on time. This would have breached a term in the main contract, incurring a penalty. Roffey Brothers offered to pa y Williams an additional
£575 for each flat completed. Williams continued to work on this basis, but soon it became apparent that Roffey Brothers were not going to pay the additional money. He ceased work and sued Roffey Brothers for the extra money, for the eight flats he h ad completed after the promise of additional payment. The Court of Appeal held that Roffey Brothers must pay Williams the extra money, as they had enjoyed practical benefits from the promise they had made to Williams. The benefits they received from it include: Having the work completed on time, not having to spend money and time seeking another carpenter and not having to pay the penalty. In the circumstances, these benefits were sufficient to provide consideration for the promise made to Williams of additional payment. It now seems that the performance of an existing duty may constitute consideration for a new promise, in the circumstances where no duress or fraud are found and where the practical benefits are to the promisor. The performance of an existing contractual duty owed to the promisor is not good consideration for a fresh promise given by the promisor. However, performance of an existing contractual duty owed to a third party can be good consideration, see further below. According to the Court of Appeal, it is unlikely that either avoiding a breach of contract with a third party, avoiding the trouble and expense of engaging a third party to carry out work or avoiding a penalty clause in a third party contract will be a "practical benefit". In Simon Container Machinery Ltd v. Emba Machinery AB, the practical benefit was held to be the avoiding of a breach of contract, which was clearly not an extension of the principle. This is true unless the debtor provided fresh consideration for the promise. The following, mentioned in Pinnel's Case itself and confirmed by Sibree v. Tripp, may amount to fresh consideration: 1. If the promisee offers part payment earlier than full payment was due, and this is of benefit to the creditor; 2. If the promisee offers part payment at a different place than where full payment was due, and this is of benefit to the creditor; or, 3. If the promisee pays the debt in part by another chattel (note, however, that part payment by cheque, where full payment was due by another means, is not consideration (see D & C Builders Ltd v. Rees)). Another exception is that part payment of the debt by a third party as consideration for a promise to discharge the creditor from the full sum, preven ts the creditor then suing the debtor for full payment (see Welby v Drake). The Court of Appeal, in Re Selectmove Ltd [5] stated that the practical benefit doctrine arising from Williams v Roffey cannot be used as an additional exception to the rule. In that case, it was held that the doctrine only applies where the original promise was a promise to pay extra and not to pay less. It should be noted, however, that the Court of Appeal in Re Selectmove were unable to distinguish Foakes v. Beer (a House of Lords decision), in order to apply Williams v Roffey (Court of Appeal). It therefore remains to
be seen whether the House of Lords would decide this point differently. In any event, the equitable principle of promissory estoppel may provide the debtor with relief. •
Atlas Express Ltd v. Kafco [1989] QB 833
[edit] To third party Consideration for a promise can be the performance of a contractual duty owed to someone other than the promisor (see Shadwell v Shadwell ; confirmed by The Eurymedon). In Shadwell , Shadwell was under a contractual duty with a third party to marry. Shadwell’s uncle promised to pay him £150 per year after he was married. It was held that Shadwell marrying was good consideration, notwithstanding that he was obliged by a contract with a third party to marry in any event. A promise to perform a pre-existing contractual duty owed to a third party (as opposed to the performance of that duty) may also amount to consideration ( Pau On v Lau Yiu Long ).
Consideration Considered How English Law Identifies Valid Contracts
Barbara Lisá
No legal system allows all contracts to be enforced. In every legal system,
therefore,
rules
exist
to
identify
which
contracts
are
enforceable at law and which are not. In English law this function is
performed mainly by the doctrine of consideration. The doctrine of consideration establishes consideration as an element for the valid formation of contracts and requires that consideration be given for a contract to exist: if there is no consideration, there is no contract. The requirement of consideration is, in part, what distinguishes contracts from gratuitous legal acts, such as gifts.
What is meant by the term consideration? Consideration is the price paid for the other party's obligation. It means that a promise by one party to do something for another party will not become binding unless the other party promises something in exchange. Consideration is "an act, forbearance, or promise by one party to a contract that constitutes the price for which he buys the promise of the other". [1]
It is based on the idea of reciprocity .
An act without consideration is not legally binding; it is a so-called naked act , which does not give rise to a right of action. The leading case of Curie v Misa [2] sets out the definition
of
consideration
that
is
still
used
today:
"Valuable
consideration …[is]…some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."
The
doctrine
of
consideration
sets
out
four
requirements
for
consideration to be valid. The first is that the consideration must be valuable. Secondly, the consideration must be sufficient, but it does not need to be adequate. The third condition is that the consideration must move from the promisee - the person to whom the promise is made. Finally, the consideration may be executory or executed, but past consideration cannot be used to support a promise. While these four conditions are simple to state, this paper will demonstrate how complex and cumbersome they can be in their application.
The first requirement, that the consideration should be valuable, is particularly difficult as it has not been consistently defined by the courts. It is derived from the definition quoted above and some boundaries have been clearly established. For example, natural love and affection or the performance of a moral duty is not enough to render a promise enforceable as a contract. This is illustrated by the case of White v Bluett .[3]
The court
found a son's promise not to complain to his father about how the father's property was distributed among his children not to be good consideration for his father's promise not to sue his son for a debt
owed to him. Judge Pollock held that the son had not provided good consideration as he had no legal right to complain. Thus, in promising not to complain, the son did not forbear or give up anything of value in exchange for his father's promise.
This decision can be attacked on two grounds. Firstly, it ignores the "practical benefit" the father obtained in being free of his son's complaints. This argument is supported by the recent case of Pitt v PHH
Asset
Management
Ltd .[4]
Secondly, Judge Pollock's finding that there was no right to complain can be disputed. It could be argued that, since there is no express prohibition of complaining to one's father, the son did have a right to complain and in promising to abstain from doing so he had given valuable consideration. A contemporary of the White decision, the American case of Hamer v Sidway ,[5]
!supportFootnotes]-->[6][7]
v
Myrick .[8]
Nicholls The
(Contractors)
defendant
building
Ltd .
is in the interest of both parties". Furthermore,
Glidewell LJ held that, while "the defendants may have derived...a practical
benefit [10]
from
their
agreement to pay the bonus, they derive no benefit in law, since the plaintiff promised no more than he was already bound to do by his sub-contract". This means that the performance of an existing contractual
duty
owed
to
the
promisor
could
constitute
good
consideration. It remains to be seen how Williams can be reconciled with Stilk , which was not expressly overruled.
The nature of the value requirement becomes less certain in noncommercial settings as is illustrated by the case of Ward v Byham.[11]
In that case, the father of an
illegitimate child promised to pay its mother one pound per week provided that the child was well looked after and happy. When he stopped making payments, the mother brought suit. The father argued that the contract was unenforceable as the mother had not provided consideration because it was her existing legal duty to ensure that the child was well looked after and happy. Lord Denning held that the father did benefit from the mother's promise to look after the child and characterized the father's promise as a unilateral contract - a promise made in exchange for an act.
The discussion in the preceding paragraphs shows how complicated the case law relating to the seemingly simple requirement that the consideration should be valuable has become. A similar situation exists for the other requirements of the doctrine of consideration. A classic illustration
of how
the second requirement of the doctrine
of
consideration (i.e. that it be sufficient, although it need not be adequate) applies is provided by the case of Chappell and Co. v Nestle.[12]
Nestle
offered
gramophone records for sale in return for 1s 6d plus three wrappers from their chocolate bars. The House of Lords held that though the wrappers
were
trivial
in
value,
they
were
nonetheless
valid
consideration. Lord Somerville found that, "a contracting party can stipulate what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn". Thus, the term adequate means "to have economic value" but does not require that it be precisely quantified. Consideration does not need to constitute a realistic price for the promise it buys as long as it has some economic value.[13]
The third principle of the doctrine is that the consideration must move from the promisee - the person to whom the promise is made. This is another way of stating the privity rule: consideration must be provided by the promisee who is a party to the contract. This rule is shown in the case of Tweddle v Atkinson.[14]
Mr Tweddle, Jr married Ms Guy. After the marriage their fathers made a contract in which Mr Tweddle, Sr promised to give one hundred pounds to his son and Mr Guy promised to give his daughter two hundred pounds. But Mr Guy died before he could give the money to
his daughter, so his consideration of two hundred pounds never moved. The executor of his estate refused to pay the money to Mr Tweddle, Jr on the ground that there was no contract between Mr Tweddle, Jr, Mr Tweddle, Sr and Mr Guy as Mr Tweddle, Jr had not provided any consideration; rather the contract was only between Mr Tweedle, Sr and Mr Guy. This rule was much criticised by judges over the years and was finally abolished by Parliament in 1999 by the passing of the Contract (Rights of Third Parties) Act.
The final principle of the doctrine of consideration is that the consideration may be executory or executed but not past. A bilateral contract is binding
from
the
moment
when the promises
are
exchanged. This form of consideration is executory because at the time the promises are given, neither party has yet undertaken performance, but both are contractually bound to perform the contract. Consideration in a unilateral contract is executed because the promise is in exchange for a performed act. Past consideration is consideration that was already provided before the promise was even made as, for example, in Stilk v Myrick cited above; in such a case there is no reciprocity.
Roscola v Thomas [15] illustrates the problem of past consideration. The defendant agreed to sell a horse and shortly afterwards added the promise that he would give a warranty as to the fitness of the horse. The horse was later found to be unhealthy and the plaintiff sued for breach of the warranty. The court held the defendant's promise unenforceable because the only consideration the plaintiff had provided was his entry into the original contract of sale. This occurred before the promise of fitness was made and so it was past consideration.
This paper has attempted to illustrate some of the difficulties associated with the doctrine of consideration, particularly with the concept of value. Recently, the doctrine has come under attack from legal scholars and some advocate its abolition. As we have seen, Parliament has just abolished one of its four requirements. Even the courts seem to be becoming critical of the doctrine, and after the decision of the Court of Appeal in Williams
!supportFootnotes]--
its future in English contract law is very uncertain.
While the court did not attempt to throw out the doctrine, it significantly limited the rule in Stilk v Myrick
!supportFootnotes]--
by emphasizing the need to identify a practical rather
than a legal benefit. Courts will now be more willing to find consideration valid where doing so would reflect the intentions of the parties. This approach brings the doctrine of consideration closer to the doctrine of legal relation. If the doctrine of consideration is to be abolished, then it is for those who support such a development to formulate some other mechanism by which the boundaries of English contract law can be established
Contract Law - Doctrine of Consideration The doctrine of consideration has been a source of much discussion over the years. In 1937, the doctrine of consideration was under review by the English Law Revision Committee. They suggested that "the inconvenience and possible injustice resulting from the doctrine of consideration raise the question whether it presents countervailing disadvantages which justify its retention." Furthermore they acknowledged that the French Civil Code finds 'cause' as the important component in a contract. In Germany, the law looks at the 'intention' of the parties that make up the contract. Both societies do not recognise the doctrine of consideration, yet they are both highly developed legal systems, and they operate without the difficulties that our society experiences with the doctrine of consideration. They also acknowledged that, even though there was much support for the abolition of this doctrine, it was "so deeply embedded in...law that any measure which proposed to do away with it altogether would almost certainly arouse suspicion and hostility." The English Law Revision Committee therefore suggested amending the doctrine to eliminate those aspects which may cause both hardship and unnecessary inconvenience. The committee bel
In this case Trident General Insurance Co Ltd (Trident) had issued a public liability policy in favour of the owner of a building site (Blue Circle). In this case Roffey Bros, who had been contracted to refurbish a block of flats, subcontracted the carpentry work to Williams. When Roffey Bros failed to pay Williams the amount owing, Williams sued Roffey Bros. The recommendations made by the committee were not enacted by the Parliament of the United Kingdom. The court held in this case that Musumeci a small fruit and vegetable business, had provided Winadell (the shopping centre from which Musumeci leased premises) a practical benefit by continuing the lease. THE ACTION OF THE COURTSOne principle of consideration is that a promise to perform an existing duty is no consideration. This practical benefit was sufficient consideration to make their agreement for rent reduction binding. CONCLUSIONThe decisions in the previously discussed cases of Williams v Roffey Bros, Trident General Insurance Co Ltd v McNiece Bros, and Waltons Stores v Maher, have resulted in a more flexible and useful doctrine of consideration. Walton's solicitors had responded that Waltons had verbally agreed, but that they were waiting to receive formal instructions. The
matter was heard before court which ruled in favour of Myrick. The courts decided that performance of an existing duty did not result in lack of consideration in this case, hence setting precedent that performance of an existing duty alone, is not sufficient to result in no consideration. The court found on both first instance and on appeal in favour of Maher on the basis of common law estoppel. It is my view that when the courts experience cases, such as those previously discussed, whereby a strict application of the doctrine of consideration may cause any hardship or unnecessary inconvenience, the courts will be flexible in its application. " They also stated however that they are not going to abandon the doctrine of privity, and the extent of this judgement would only be limited to the insurance industry.
Under English law, for a simple contract (see: Contract) to be valid (whether express or implied, written or oral), there must be `consideration' from the p arty accepting the offer (see: AcceptanceOfOffer ). This requirement is contested by many authorities, and not all jurisdictions require it. Increasingly judges are being encouraged to `find' consideration is cases; this is so that contractual claims can be assessed on the basis of the real intentions of the contacting parties to one another, rather than a strict, narrow interpretation of case law. Consideration is only at issue in a SimpleContract; courts often have to `find' consideration to be able to infer that a contract exists. In a ContractByDeed consideration is unnecessary, as it clear what is due from whom. In addition, where the traditional narrow view of consideration may lead to harsh results, courts may accept a request for equitable Estoppel.
Overview The legal meaning of `consideration' is not very different from the everyday use of term. For example, if I say ``for a small consideration I will...'' I am probably offering to do something for money. However, in English law consideration need not be monetary. It need not even be a benefit. For example, if my next-door neighbours offer me money to desist from practising playing the saxophone in the evenings, the consideration is my desisting, it is not the offer of money. Valid consideration has the following features: •
•
•
•
consideration must `move from' the offeree to the offerer, that is, the person making the offer must be expecting something in return, and it may be something of value (however nugatory) to the offerer, or something of detriment to the offeree (viz. the saxophone example), and consideration must be sufficient in law, but need not be sensible in fact. For example, if I offer to sell you my house for £1, this is valid consideration. If I offer to give you my house for nothing, there is no consideration and this agreement could not be enforced, and it must usually impose an obligation in the future; it is not usually adequate to base an offer on some consideration that was gained in the past.
If no consideration is present, then the contact may not be enforceable, even if it contains a clause to the effect that it should be enforceable. For example, in Tweddle v Atkinson (1861) the absence of consideration prevented Tweddle implying a contract between himself and Atkinson (see: TweddleVAtkinson1861). That case also demonstrates how consideration need not be a benefit given by the person seeking to enforce the contract, but could be a detriment taking upon himself. It is very clear in law that consideration may be meagre or even negligible, it just has to exist. For example, in Chappell and Co v Nestle (1960) the consideration was held to be chocolate bar wrappers. However, in this extreme case the consideration was so negligible that it could almost be regarded as non-existent; hence it required the House of Lords to settle the matter.
Inadequate consideration Certain things are not considered adequate consideration, although they may appear at first sight to comply with the above. For example: •
•
•
•
the person accepting the offer must provide a consideration that is in excess of a statutory duty (e.g., see see: CollinsVGodefroy1831). Merely agreeing to carry out an existing legal obligation, however, onerous, is not valuable consideration.However (see below) it has been ruled that carrying out a legal obligation above andbeyond the call of duty may be consideration; it is not sufficient merely to agree to carry out some action for which there is already a contractual obligation. This is highly contentious, and there are conflicting case reports (see below); case law has established that part-payment of a debt is not sufficient consideration. Suppose I owe you £1000 but, being short of money, I offer you £500 to clear the debt. You agree, but later change your mind. Can I enforce the agreement? Traditionally the answer is `no', and this continues to be held by the courts (see below). an offer to withhold legal action may be held as consideration, but only if the legal claim is valid (see below).
There are, as might be expected, many `borderline' cases.
Legal obligations fulfilled above and beyond the call of duty As described above, performance of a statutory duty, however onerous, does not constitute consideration. The standard case is see: CollinsVGodefroy1831. However, if one offers to carry out a duty of law to a degree beyond strictly required, this may be consideration. In the case of Glasbrook Bros v Glamorgan CC (1925) a police authority provided protection in excess of what their statutory duty was felt to require; it was held that the police were entitled to claim payment for this (see: GlasbrookBrosLtdVGlamorganCC1925). Similarly, in Ward v Byham (1956), courts held
that a mother's duty to care for her child was not consideration for an agreement, but to do so in a particular way was (see: WardVByham1956). There have been repeated calls for this principle to be overturned, because it can lead to unfairness. It is important to understand that an agreement means exactly that: a coincidence of views of both sides. If I offer you £100 to fill in your Income Tax returns on time, and you accept, why should we not have a binding agreement? The traditional answer is that to allow this sort of thing is contrary to p ublic policy, that is, it sets a bad example to the community.
Performance of existing contract is not consideration -- or is it? As described above, the traditional view is that it is not sufficient merely to agree to carry out some action for which there is already a contractual obligation. This is highly contentious, and there are conflicting case reports. First, there is the matter of `gratuitous promise'. In Stilk v Myrick (1809) sailors negotiated to work in more difficult conditions (two crew desertions) for extra pay. When the captain refused to pay them, the court upheld his decision on the grounds that Stilk et al. had not offered adequate consideration. The fact that their work had been made more difficult did not mean that they were no longer contractually bound. It did not discharge their agreement (see: StilkVMyrick1809) In effect, Stilk had made a `gratuitous' promise: an offer to do something he already had to do. (In contrast, in Hartly v Ponsonby (1857) the facts seem superficially similar but the number of desertions -- 31 out of 36 -- made a fundamental change to the contractual situation; thus the captain's offer of extra money was construed as a new agreement, and Stilk v Myrick (1809) was immaterial (see: HartleyVPonsonby1857). Second, there is the matter of `practical benefit', and its action to negate a charge of `gratuitous promise'. In Williams v Roffey Bros (1991), the Court of Appeal ruled that although Williams were only agreeing to do something already part of a contract, Roffey was nevertheless getting a `practical benefit' from Williams, and this was enough to support the contract (see: WilliamsVRoffeyBros1991). The Court of Appeal claimed that the `practical benefit' in this claim meant that Williams's promise was not gratuitous, and the decision in Stilk should stand. Indeed, it was claimed that the facts of this case were materially different from Stilk , which could be considered as a re-negotiation of contract owing to economic distress. As a matter of public policy, it is said, it should not be admissible to force a person to re-negotiate a contract by forcing that person into economic duress, which is what the sailors were doing. In Williams v Roffey it was the claimant, not the the defendants that were suffering the greater economic duress. This ruling on practical benefit has not always been accepted subsequently, and the courts have generally followed Stilk and the related case of Foakes v Beer(1884), discussed below. Third, and this is even more contentious, it has sometimes been ruled that a benefit to a person not a party to the contract (a `third party') could be taken as consideration. For
example, in The Eurymedon (1975) it was held that a firm of stevedors who had a contractual duty to a marine carrier could use the performance of that duty as the consideration in an implied contract with the owner of the goods being transported (see: TheEurymedon1975. Fourth, it has been held that work done in excess of a contractual obligation may represent consideration.
Part payment of a debt is not consideration -- or is it? If I owe you £1000 and say I can't pay, but offer you £500, and you accept, can you revoke your acceptance and sue for the full amount? The conventional answer is `yes'. If I am legally bound to pay the original amount, then there is no consideration on my part that would support a new agreement. In effect, I am asking you to give me something for nothing. The archetypal cases are PinnelsCase1602 and FoakesVBeer1884. However, it could be argued that when I offer you £500 rather that £1000, I am offering you an opportunity to avoid litigation, which is valuable consideration.
Past consideration is not consideration -- or is it? In general, an act carried out in the past cannot be taken as consideration on a new agreement, however valuable that act. For example, in Re McArdle the occupants of a house carried out certain improvements during their tenancy, and were offered payment. They were unable to claim, however, because the consideration was past (see: ReMcArdle1951). However, the principle of ImplicitAssumpsit may be invoked if the claimants can show that consideration, although past, arose at the request of the plaintiff. In effect, this principle `assumes' the past consideration into the new agreement (see: LampleighVBraithwaite1615).
Forbearance from litigation is consideration -- or is it? Suppose one of my neighbours persistently parks his car in the parking space if front of my house -- which is annoying but hardly illegal -- and one day, in a fit of pique, I kick his car and dent it. Foolishly, I do this in front of 20 witnesses of excellent character. Clearly, the neighbour has a case against me and could sue for Damages. I may also be criminally liable, but that's a different matter. The neighbour, being a forgiving fellow, offers not to sue if I make good the damage myself. Do we have a contract? The orthodox view is that we do, if the neighbour's legal case is a valid one. Clearly in this case it is. However, if an agreement is made on the basis of an invalid case, then it is void. Where do things stand if we make an agreement on the basis of a forbearance from prosecution of an invalid case which we think is valid ?
Estoppel and consideration
If one party reneges on an agreement, and claims that there was no consideration that would allow the other party to claim that the agreement was a contract, then the injured party may ask a court to support the contract on the grounds that PromissoryEstoppel has occurred. The landmark case of this sort was High Trees House, in which a landowner agreed to reduce the cost of leasing a block of flats, and then attempting to back out of the agreement on the basis of insufficient consideration. However, courts have been at pains to stress that this case does not give warrant to force a party to renegotiate a contract on less favourable terms and then prevent that party making a claim for damages. The phrase often used is ``a shield, not a sword'' (see: CentralLondonPropertyTrustLtdVHighTreesLtd1947). For example, in Combe v Combe a woman tried to use the High Trees House judgement to enforce an agreement made by her ex-husband to pay maintenance after their divorce. The attempt failed, because the Court of Appeal ruled that the High Trees case does not create new causes of action where none exist before (see: CombeVCombe1951).
Consideration under English law Consideration under English law means a promise that has been made under contract. A contract is not enforceable under English law unless it is met with consideration. In other words, if a contract contains promises that are unsupported by consideration, then the contract is void ab initio. Consideration is sometimes found baffling to students new to the field of contract. Definitions have been offered through judgements in common law, however it is most easily exemplified as a 'thing' (for want of a better word) which is exchanged under the contract which buys the other party's 'thing' or promise. [hide] Contents 1 Examples of consideration 1.1 Exceptions to the rule 1.2 Consideration must be given 1.3 Definition of consideration 1.4 No past consideration 1.5 Performance of an obligation 1.6 Part payment of a debt 1.7 Performance of a public law duty 1.8 Third party obligation
Examples of consideration Consideration for a particular promise exists where some right , interest , profit or benefit accrues (or will accrue) to the promisor as a direct result of some forbearance, detriment , loss or responsibility that has been given, suffered or undertaken by the promisee (Currie v Misa).
The key to understanding the doctrine of consideration is reciprocity. That is, a promisee should not be able to enforce a promise unless he or she has given (or promised to give) something in exchange for the promise which will benefit the promisor.
Exceptions to the rule There are a number of complicated rules governing consideration, all of which have exceptions. Each rule, and its exception is dealt with below:
1. Consideration must move from the promisee - but not necessarily to the 2. 3. 4. 5. 6. 7.
promisor ; Consideration need not be adequate - but must be sufficient ; Consideration must be current - it cannot be past ; Performance of an existing obligation under a contract owed to the promisor - is not consideration for a promise; Part payment of a debt - is not consideration for a promise to discharge the whole sum; Performance of a public law duty - is not consideration for a promise; Performance of a contractual obligation owed to a third party - does amount to consideration for a promise.
Consideration must be given A promise is only supported by consideration and thus enforceable, where consideration has moved from the promisee. For example: In the case of Tweddle v Atkinson , John Tweddle promised William Guy that he would pay a sum of money to the child of William Guy, and likewise William Guy promised John Tweddle that he would pay a sum of money to the child of John Tweddle, upon the marriage of the two children to each other. However, William Guy failed to pay the son of John Tweddle who then sued his executors for the amount promised to his father. It was held that the son could not enforce his wife’s father’s promise - as he himself had not actually given consideration for it - it was his father who had done so instead . This particular rule of consideration forms the basis of the doctrine of privity of a contract (ie only a party to a contract is permitted to sue upon that contract's terms) Whilst consideration must move from the promisee - it must not necessarily move to the promisor . The promisee may provide consideration to a third party, as opposed to the promisor himself - if this is agreed at the time the parties contracted . (See: Bolton v Madden.)
Definition of consideration For consideration to be good consideration - it must be sufficient . Consideration is sufficient where it amounts to something that is capable of expression in economic terms. See: White v Bluett . In that case, Bluett, when sued by his father’s executors for an outstanding debt to his father - claimed that his father had promised to discharge him from it in return for him stopping complaining about property distribution. The Court held that to stop complaining was of no economic value, and thus Bluett’s father had received no real consideration for the promise, and hence the debt was unenforceable at law .
There is no requirement that to be sufficient, consideration must be adequate, in the sense of being commensurate in economic terms to the original promise. (See:Chappell & Co v Nestle Co Ltd .)
No past consideration A promise cannot be be based upon consideration that was provided before the promise was made. For example: If X promises to reward Y for an act which Y has already performed, the performance of that act, whilst it may be consideration for the promise to be rewarded for it, is past consideration and therefore past consideration is not good consideration. In Eastwood v Kenyon the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise as taking out the loan to raise and educate the girl was past consideration - in that it was completed before the husband promised to repay it . Where two parties have already made a binding contract and one of them subsequently promises to confer an additional benefit on the other party to the contract - that promise is not binding because the promisee’s consideration, which is his entry into the original contract, had already been completed at the time the next promise is made. In Roscorla v Thomas R and T contracted to buy a horse for £30. Subsequently, and after the sale, T promised R that the horse was sound. The horse turned out to be vicious. It was held that R could not enforce the promise, as the consideration given (entering into the contract to buy the horse), had been completed at the time the promise was made. The rule that past consideration is not good consideration is subject to the exception discussed by the Privy Council in Pau On v Lau Yiu Long. In that case their Lordships held that past consideration can be good consideration where: 1. The promisee must have performed the original act at the request of the promisor; 2. It was clearly understood or implied between the parties that the promisee would be rewarded for doing the act; 3. The actual promise made, if made before the promisee provided the consideration, must be capable of being enforced, in other words giving rise to a legally binding contract.
Performance of an obligation Performance of an obligation owed to the promisor under contract - is not good consideration for the promisor's promise. The general rule is that performance of an existing contractual duty owed to the promisor is not consideration for a fresh promise given by that promisor. In Stilk v Myrick Stilk, a seaman, agreed with Myrick to sale his boat to the Baltic and back for £5 per month. During the voyage two men deserted. Myrick promised he would increase Stilk's wages if Stilk would agree to honour his contract in light of the desertions. Stilk agreed and on return to port, Myrick refused to pay him the extra. It was held that Myrick's fresh promise was not enforceable as the consideration Stilk had
provided for it, namely to perform a duty he already owed to Myrick under contract, was not good consideration for Myrick's promise to increase his wages. Initially there were only two exceptions to the rule that performance of an existing contractual obligation owed to the promisor - may amount to consideration for a fresh promise given to that promisor where:
1. The promisee has done, or has promised to do, more than he was obliged to do 2.
under his contract. (See: Hanson v Royden); Before the fresh promise was made, circumstances had arisen which would have entitled the promisee to refuse to carry out his obligations under his contract. (See: Hartley v Ponsonby .)
The seminal case of Williams v Roffey Brothers & Nicholls (Contractors) Ltd added another exception to the rule. There it was held that performance of an existing contractual obligation will be good consideration where: 1. The original contract is one for goods and services; and 2. X doubted that Y would perform his obligations under the contract; so 3. X promised to pay Y extra in return for a promise from Y that he would in fact perform; and 4. as a result X received (or was set to receive) a practical benefit; but 5. did not make the promise to pay more under duress from Y. The following, as per the Court of Appeal in Williams v Roffey , is highly likely to constitute a practical benefit: 1. avoiding breaching a contract with a third party; 2. avoiding the trouble and expense of engaging a third party to carry out the work; and/or 3. avoiding incurring a penalty clause incorporated into a contract with a third party. Some commentators argue that practical benefit can amount to anything capable of expression in economic terms. This, however, remains to be seen. The law reports contain only one case in which Williams v Roffey was applied. In Simon Container Machinery Ltd v Ember Machinery AB the practical benefit was held to be the avoiding of a breach of contract, which was clearly not an extension of the principle.
Part payment of a debt At common law, the general rule is that if a creditor promises to discharge a debt in return for a fraction of payment, in paying the agreed fraction the promisee is not providing consideration for the promise, as this is merely part performance of a contractual duty already owed. (See: Pinnel's Case; confirmed by Foakes v Beer .) Consequently the debtor is still liable for the whole amount, as he cannot enforce the promisor to accept less. This is true unless the debtor provided fresh consideration for the promise. The following, mentioned in Pinnel's Case itself and then confirmed by Sibree v Tripp, may amount to this: 1. If the promisee offers part payment earlier than full payment was due, and this is of benefit to the creditor; 2. If the promisee offers part payment at a different place than where full payment was due, and this is of benefit to the creditor; or,
3. If the promisee pays the debt in part by another chattel (note, however, that part payment by cheque, where full payment was due by another means, is not consideration (D & C Builders v Rees.) Another exception is that part payment of the debt by a third party as consideration for a promise to discharge the creditor from the full sum, prevents the creditor then suing the debtor for full payment (Welby v Drake.) According to the Court of Appeal in Re Selectmove Ltd , the practical benefit doctrine arising from Williams v Roffey , cannot be used as an additional exception to the rule. There it was held that the doctrine only applies where the original promise was a promise to pay extra and not to pay less. It should be noted, however, that the Court of Appeal in Re Selectmove were unable to distinguish Foakes v Beer (a House of Lords decision), in order to apply Williams v Roffey (Court of Appeal.) It therefore remains to be seen whether the House of Lords would decide this point differently. In any event, the equitable principle of promissory estoppel may provide the debtor with relief.
Performance of a public law duty If the promisee provides what he was required by public law to do in any event in return for a promise - this is not good consideration. In Collins v Godfrey , G promised to pay C for his giving of evidence. It was held that C could not enforce the promise as he was under a statutory duty to give evidence in any event. However, if the promisee provides more than the public duty imposed on him compels, then this is good consideration: Ward v Byham. There, a mother was under a statutory duty to look after her child. The ex-husband promised to pay her £1 a week if she cared for the child in a certain way. It was held that notwithstanding the statutory duty imposed on the mother, she could enforce the promise as she did in return more than would otherwise have been r equired. It remains to be seen whether Williams v Roffey has any application to this rule. For example if X promises to pay Y to perform precisely, what would be r equired from him under statute? Thus following Collins v Godfrey , Y's performance does not amount to consideration - but X receives a practical benefit from Y actually performing that duty .
Third party obligation Consideration for a promise can be the performance of a contractual duty owed to someone other than the promisor. (See: Shadwell v Shadwell as confirmed by The Eurymedon.) In Shadwell , S was under a contractual duty with a third party to marry. S’s uncle promised to pay S £150 per year after he was married. It was held that S marrying was good consideration, notwithstanding that he was obliged by a contract with a third party to marry in any event. A promise to perform a pre-existing contractual duty owed to a third party (as opposed to the performance of that duty), may also amount to consideration (Pau On V Lau Yui Long.)
Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance, the performance is consideration for the promise, while the promise is consideration for the performance. Consideration must have a value that can be objectively determined. A promise, for example, to make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise. Traditionally, courts have distinguished between unilateral and bilateral contracts by determining whether one or both parties provided consideration and at what point they provided the consideration. Bilateral contracts were said to bind both parties the minute the parties exchanged promises, as each promise was deemed sufficient consideration in itself. Unilateral contracts were said to bind only the promisor and did not bind the promisee unless the promisee accepted by performing the obligations specified in the promisor's offer. Until the promisee performed, he or she had provided no consideration under the law. For example, if someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a Bilateral Contract would be formed binding both of you once you provided consideration by accepting those terms. But if that same person offered to pay you $10 each day you drove him to work, a unilateral contract would be formed, binding only upon the promisor until you provided consideration by driving him to work on a particular day. Modern courts have de-emphasized the distinction between unilateral and bilateral contracts. These courts have found that an offer may be accepted either by a promise to perform or by actual performance. An increasing number of courts have concluded that the traditional distinction between unilateral and bilateral contracts fails to significantly advance legal analysis in a growing number of cases where performance is provided over an extended period of time. Suppose you promise to pay someone $500.00 to paint your house. The promise sounds like an offer to enter a unilateral contract that binds only you until the promisee accepts by painting your house. But what constitutes lawful performance under these circumstances? The act of beginning to paint your house or completely finishing the job to your satisfaction? Most courts would rule that the act of beginning performance under these circumstances converts a unilateral contract into a bilateral contract, requiring both parties to fulfill the obligations contemplated by the contract. However, other courts would analyze the facts of each case so as not to frustrate the reasonable expectations of the parties. In neither of these cases are the legal rights of the parties ultimately determined by courts by applying the concepts of unilateral and bilateral contracts. In still other jurisdictions, courts have simply expressed a preference for interpreting contracts as creating bilateral obligations in all cases where no clear evidence suggests that a unilateral contract was intended. The rule has been stated that in case of doubt an offer will be presumed to invite the formation of a bilateral contract by a promise to perform what the offer requests, rather than the formation of a unilateral contract commencing at the time of actual performance. The bottom line across most jurisdictions is that as courts have been confronted by a growing variety of fact patterns involving complicated contract disputes, courts have turned away from rigidly applying the concepts of unilateral and bilateral contracts and moved towards a more ad hoc approach.
Cross-references Contracts; Performance; Promise. West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
consideration n. 1) payment or money. 2) a vital element in the law of contracts, consideration is a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act (forbearance) can be consideration, such as "I will pay you $1,000 not to build a road next to my fence." Sometimes consideration is "nominal," meaning it is stated for form only, such as "$10 as consideration for conveyance of title," which is used to hide the true amount being paid. Contracts may become unenforceable or rescindable (undone by rescission) for "failure of consideration" when the intended consideration is found to worth less than expected, is damaged or destroyed, or performance is not made properly (as when the mechanic does not make the car run properly). Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts. Examples: prostitution, gambling where outlawed, hiring someone to break a skater's knee o r inducing someone to breach an agreement (talk someone into backing out of a promise.)
Valuable consideration has been defined as some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other at his request1. It is not necessary that the promisor should benefit by the consideration. It is sufficient if the promisee does some act from which a third person benefits, and which he would not have done but for the promise2. Thus, consideration for a promise may consist in either3 some benefit conferred on the promisor4, or detriment suffered by the promisee5, or both6. On the other hand, that benefit or detriment can only amount to consideration sufficient to support a binding promise where it is causally linked to that promise7. Furthermore, consideration must be distinguished from both a motive and a condition8. Consideration may be executed or executory9, but it may not be past10; it need not be adequate11, but it must be of some value12; and it must move from the promisee13.
consideration, n a valued commodity exchanged between two parties in a legal agreement with one another,
such as money, services, and so forth. Jonas: Mosby's Dictionary of Complementary and Alternative Medicine. (c) 2005, Elsevier.
consideration, n inducement to make a contract. It may be a benefit to the promisor or a loss or detriment to the
promisee. Consideration must be regarded as such by both parties.
