Law of Contract I

Consideration – Summary Notes

These notes are to be used in conjunction with your personal notes taken during lectures.

It has been said that, “one of the most puzzling aspects of the English law of contract is the ancient requirement
that generally in order for a contract to be binding it must be supported by consideration. As a result the basic
principle is that a promise is not binding as a promise unless it is made by deed or it is supported by
consideration.

The easiest way to understand consideration is to think of it as the price of a promise – what one
contracting party is getting, in return for his promise from the other party.

Consideration has also been defined as occurring where the person receiving it benefits or where the person
who provides the consideration suffers a detriment. In some circumstances both elements of detriment &
benefit are present. It can be seen as being a detriment to promissee or a benefit to the promisor.

Consideration is required when a contract is formed and when the parties wish to vary or discharge their
contract.

Midland Bank & Trust Co. Ltd [1981] AC 513

Williams v. Persaud 12 WIR 261

Consideration is seen as being something of value in the eyes of the law.

See: Currie v. Misa (1875) LR 10 EX 153

Thomas v. Thomas (1842) 2 QB 851

The cases below illustrate that over time the approach to determining what constitutes valuable consideration
has changed somewhat so that it is merely necessary that what was asked for in exchange for the promise has
been provided even if from an objective basis it does not amount to a detriment or benefit to either party.

Chappel v. Nestle [1960] AC 87

Shanklin Pier Ltd v. Detel Products Ltd. [1951] 2AER 471

As a result it has been said that consideration need not be adequate as long as it is sufficient. These labels have
however been deemed to be confusing. The statement however, seeks to explain that the law is not concerned if
a party appears not to be getting “value for money” once what is received is good consideration in the eyes of
the law.

The concept of price for the promise suggests that something is being requested by the other party. To
this end one must differentiate between a request which constitutes good consideration and a mere conditional
gift.

Requests: If you are asking for something from somebody that will be the consideration for the promise. It
is for this reason that the Courts are willing to imply a request for the most trivial of things as consideration.

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In some instances, the Courts seem willing to imply a request where it is deemed necessary. However, this will
only be done where that was a reasonable way of understanding what was said – a request will not be implied
out of nowhere. See: Combe v. Combe where the Courts refused to turn a gratuitous promise into a binding
promise by implying a request.

Please note that conditional gifts are treated differently. If Abi promises to pay Tami $2000 if she cleans her
windows, that can be interpreted as an offer which is supported by consideration, namely to promise to or act of
cleaning the windows. However, If Abi promises to pay Ben, her ex-boyfriend, $100,000: if he is unfortunate
enough to break his leg, she is not asking him to break his leg and as such this is likely to be interpreted merely
as an offer of a gift subject to a condition. In other words, breaking his leg is not consideration for the promise
to pay. This does not necessarily mean however, that the mere fact someone requests something is an
indication that they desire the result.

One author speaks of invented consideration, in the sense that it need not be adequate so that there is no
doctrinal difficulty in holding that a piece of paper or some act of forbearance if very small value constitutes
consideration.

Despite skepticism expressed by some academics the basic principle that remains is that In order for a contract
to be enforceable there must have been an exchange of value for a promise.

The definition of consideration relates to the promise and not just to the contract. As such the first question that
should be asked is always what the consideration for the promise is and not what the consideration for the
contract is. A contract is binding once something is promised in exchange for the promise even though
payment may not have been made as yet.

It is sufficient if either detriment or benefit is present so a promissee who has suffered some detriment may be
said to have furnished sufficient consideration in law withstanding the promisor does not benefit.

O’Sullivan v. Management Agency Music Ltd [1985] QB 428

For benefit or detriment to amount to consideration in the eyes of the law it must be an act of forebearance
which is not legally due from the promisee. The generally principle is that where what is offered is already due
this without more cannot constitute good consideration in exchange for the promise

Stilk v. Myrick 170 ER 1168

But see: Williams v. Roffey Bros & Nicholas Contractors Ltd [1991] 1 QB 1 – a case that established an
important exception.

Prior to Williams v. Roffey it is unlikely that the court would have approached the problem from that point of
view since A had suffered no further detriment in the sense of undertaking to do a further act. There would
have been no consideration furnished on him upon which he could enforce the new schedule of payment.

Some examples as to what counts as consideration

Performance of a Pre-existing duty

Existing Duty Imposed by Law

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There is a general rule that the promise to perform or the performance of an existing public duty is no
consideration for a reciprocal promise.
Collins v. Godefroy (1831) 1 B&Ald 950

However where the performance extends beyond the normal scope of duty that may amount to good
consideration.

Glasbrook Bros. v. Glamorgan CC

Ward v. Byham
Harris v Sheffield Old FC [1987] 2AER 38

Pre-existing duty owed to a third party

Consideration which consists only of the performance/promise to perform an existing contractual duty owed to
a third party is regarded as valuable consideration.

Shadwell v. Shadwell
Scotson v. Pegg (1861) 6 H & N 295
Pao On v. Lau Yiu Long (1950)

Pre-existing duties owed to the other party

The general principle that a pre-existing duty owed to the same party cannot amount to good consideration for
another promise except where a practical benefit is obtained.

See Stilk v. Myrick

Williams v. Roffey Bros

Variation of Contracts
The concept of waiver of legal rights under a contract does exist Hartley v. Hymans [1920] 3 KB 475

However if a right is waived it can be revived. Charles Richards ltd. v. Oppenheim [1950] 1AER 420

Agreements to end contractual rights

If both parties release each other from outstanding obligations, this amounts to good consideration.

Collin v. Duke of Westminster

In some cases where there is a radical shift in the scope of the contractual duty the old contract could be treated
as being discharged and a new contract formed.

Watkins & Sons Inc. Carrig (1941) 21 A& D 591

Stilk v. Myrick

Where in the performance of a contractual duty considerably more duties are assigned this could amount to
good consideration.

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Hartley v. Ponsonby (1857) 7 E&B 872
Hanson v. Royden (1867-68) LR 3 CP 47

Mutual promises

Mutual promises can be consideration for each other. For example when a vendor promises to deliver goods
in3 months time & the purchaser promises to pay on delivery there is immediately a building contract from
which either party can withdraw.

Thoresen Car Ferries Ltd. v. Weymouth Portland B.C. [1977] 2 Lloyds Rep 614

The Courts do not generally enquire whether adequate value has been given as consideration for a promise. As
a consequence a peppercorn can suffice the purposes of allowing the creation of an enforceable promise.

Past Consideration

The consideration for a promise must be given in return for that promise so that where Harry gives a car to
Tom. Thirty seconds later Tom promised to pay Harry $100,000 for the car. In these circumstances there is no
consideration for his promises because Harry did not give his car to Tom in return for a promise to pay. Harry’s
provision of value in these circumstances is said to amount to past consideration

Dent v. Bennett (1839) 4 My & Cr 269

Eastwood v. Kenyon (1840) 11 A&E 438

British Guiana and Trinidad Mutual Life Insurance Co Ltd. v. Harry

The question whether consideration is adequate is one of fact and must be determined but the wording of the
agreement is not conclusive

Re McArdle [1951] Ch 697

Goldshede v. Swan (1874) 1 Ex 154

In this case a promise made in consideration of you having today advanced 750 pounds was held binding on
proof that the advance was made at the same time as the promise.

In McArdle however, although the promise to pay was made “in consideration of your carrying out certain work
it was deemed to be gratuitous since the work was already completed.

An act done before a promise can constitute consideration provided the following conditions are satisfied:
(1) The act must have been done at the request of the promisor
Lampleigh v. Brathwait (1615) Hob 105

(2) It was made in circumstances that it was understood that the act was to be remunerated either by a
payment of the conferment of some other benefit.

(3) Payment must be of the kind that would be legally enforceable had it been promised in advanced.

Re Cassey’s Patents Steward v. Cassey [1891] 1 Xh 104

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 In such cases the promisee is usually entitled to quantum merit for his services in any event and the
subsequent promise is regarded as merely fixing the amount of the quantum merit.

Kennedy v. Broun (1863) 13 C.B. (N.S.) 667

In this case it was emphasized that for a past service performed at the request of the promisor it can only
amount to consideration if it was implied at the time of the request that the service was ultimately to be paid
for.

Pao On v. Lau Yiu Long (1980)

Rondel v. Worshley

The promissee may also be regarded as receiving consideration of the promisee’s releasing his claim for
such a payment. There is a general principle that an antecedent debt does not usually amount to
consideration

Consideration must move from the promisee

The general rule in the law of contract is that consideration must move from the promisee. In essence this
means that only the person to whom a promise is made can enforce it.

Pollway Ltd. v. Abdullah [1974] 1 WLR 493

Tweddle v. Atkinson (1861) 1 B&S 393
Thomas v. Thomas (1842) 2 QB 851

As indicated earlier, consideration need not move to the promisor so that the requirement for consideration
is satisfied once the promisee suffers some detriment at the promisor’s request notwithstanding that no
corresponding benefit is conferred on the promisor.

Jones v. Padvatton [1969] 1 WLR 628

Tanner v. Tanner [1975] 1 WLR 1346
Horrocks v. Forray [1976] 1 WLR 230

An act of forebearance or promise of same in order to amount to consideration of the kind the law would
recognize must have some economical value. As a consequence natural law and affection and such similar
sentimental motives for making promises will not generally constitute consideration

Thomas v. Thomas (1842) 2 QB 851

White v. Bluett (1853) 23 LJ Ex 36

In this case money was leant to son and a promissory note was executed. The father’s executor sought to
recover the money alleged to be due & owing. It was submitted in response that subsequent to the loan and
the execution of the promissory note that the son had complained to the father that he had not received
favourable treatment with the father’s other children. It was alleged that the father agreed that these
complaints were untrue and agreed that in consideration of the son ceasing his complaints and also out of
natural love and affection he would discharge the son from all liabilities in respect of the loan and
promissory note.

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 Pollock C.B. said:

“The son had no right to complain for the father might make what distribution of his property he liked
and the son abstaining from what he had no right to do can be no consideration”

But see the American case of Hamer v. Sidway (1891)

In this case an uncle promised his nephew that if he nephew would refrain from drinking liquor , using tobacco,
swearing and playing cards of billiards for money’ until reaching 21, the uncle would pay him $%00 in return.
The nephew fully performed his side of the bargain and the uncle refused to pay asserting that there was no
consideration to support the promise since the nephew suffered no detriment but actually benefited from leading
a clean life in his youth. While the uncle himself obtained no benefit from the nephew’s performance, the court
ruled in favour of the nephew.

The Court said that:

“It is sufficient that that he restricted his lawful freedom of action within certain prescribed limits upon
the faith of his uncle’s agreement, and now, having fully performed the condition, it is of no moment
whether such performance actually proved a benefit to the promisor and the court will not inquire into
it.”

Agreeing to drop or compromise a legal claim will amount to good consideration, even where the claim is a
hopeless or worthless one, provided the party making the claim is acting in good faith and believes the claim to
be valid.

See: Cook v. Wright (1861) 1 B&S 559

Contrast with

Wade v. Simeon (1846) 2 CB 548

Forbearance need not only involve legal proceedings

See: R v. Her Majesty’s Attorney General (2003)

Part Payment of a debt.

At common law a creditor is not bound by an undertaking to accept part payment in full settlement of a
debt. Payment of part of a debt generally is not good consideration for its discharge.

Rule in Pinnel’s case (1602) 5 Co. Rep 117.

In the case of Foakes v. Beer (1884) 9 AC 605 the rule was applied in the harshest of circumstances
D.C. Building Ltd. v. Rees [1966] 2 QB 617

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 The deft owed the plaintiff 482 pounds. After having delayed payment for several months he offered 300
pounds stating that they must accept it or take nothing. Being in financial difficulties they accepted it.
Based on Pinnel’s case they could recover the balance of the debt. The defendants took an unfair advantage
of the financial situation of the plaintiff.
See also: Re Selectmove [1995] 2 AER 531

Limitations of the rule at common law.

(a) Where the claim or the amount of the claim is in dispute the debtor provides good consideration
notwithstanding that he pays less than that claimed.
Cooper v. Parker (1885) 15 CB 822

(b) Where the claim is an unliquidated one e.g. a case of a claim for reasonable remuneration for services
rendered a payment of a sum which in all probability is less than that recoverable under the claim – the
payment is good consideration.
Wilkinson v. Byers (1834) 1 A&E 106

(c) Payment of a smaller sum at the request of the creditor at an earlier date/time or at a different place can
be considered for the repayment of a debt.
Pinnel’s case
Place – Vanbergen v. St Edmunds Properties Ltd [1933] 2 KB 233

(d) Where there is a Composition agreement with creditors where all creditors agree to accept less, this will
constitute a binding and enforceable agreement.

Good v. Chessman (1831) 2 B & Ad 328

(d) Part payment by a third party if accepted by the creditor in full settlement of the debtor’s liability
discharges the debtor from the obligations.
Welby v. Drake (1825) 1 C&P 557
The defendant owed 18 pounds to the plaintiff on a bill of exchange. The defendant’s father made an
agreement with the plaintiff whereby he promised to pay the plan 9 pounds in return for the plaintiff’s
promise to accept it in full satisfaction of his claim. The money was duly paid but the plaintiff still sued the
defendant for the balance.

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 It was held that the plaintiff could not recover the balance from the defendant, became by suing the son, he
commits a fraud on the father whom he induced to advance him money on the faith of such advance being a
discharge of his son from further liability.
Hirachand Punamchand v. Temple [1911] KB 330 In this case a son settled his father’s debt on a
promissory note and paid less than the sum actually owed as part of the settlement.
Fletcher Moulton LJ said:
“If a third person steps in and gives a consideration for the discharge of the debtor, it does not matter
whether he does it in meal or in malt, or what proportion the amount bears to the amount of the debt.
Here the money was paid by a third person and I have no doubt that upon the acceptance of that money
by the plaintiffs with full knowledge of their terms on which it was offered, the debt was absolutely
extinguished.”

Note that if payment is accepted by a different mode but this is under duress, this will not discharge the debt

D&C Builders v. Rees [1965] 3 AER 837

Equitable Limitations on the Rule

Central London Property Trust Ltd. v. High Trees House Ltd [1947] KB 130

Promissory Estoppel and the Part Payment of Debts.

Although the issue is not entirely settled it does not appear that the doctrine has any application to the part
payment of debts. Gibson LJ in Re Selectmove:

“Foakes v. Beer was not even referred to in Williams’ case, and it is in my judgment impossible,
consistently with the doctrine of precedent, for this court to extend the principle of Williams case to any
circumstances governed by the principles of Foakes v. Beer. If that extension is to be made it must be
by the House of Lords or perhaps even more appropriately, by Parliament …”

Promissory Estoppel
In the case of Hughes v. Metropolitan Ry (1877) AC 439 a landlord gave his tenant notice requiring him to do
repairs within 6 months. During the 6 months he began to negotiate with the tenet for the purchase of his lease
and when the negotiations broke down he immediately claimed his right to forfeit the lease on the ground that
the tenant had not done the repairs. The claim was rejected by use of the principle of equitable waiver. It was
said:
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 “If one party led the other to suppose that the strict rights arising under the contract will not be enforced
or will be kept in suspense or held in abeyance the person who otherwise might have enforced those
rights will not be allowed to enforce them where it would be in equitable having regard to the dealing
which have just taken place between the parties.”
It was held that the landlord by conduct led the tenant to believe that during the negotiations he would not
enforce his right to forfeit. Hence he could not forfeit immediately upon the negations breaking down. He had
to give the tenant a reasonable time from that date to do the necessary repair.

Requirements For the Application of the Doctrine

(1) There must be a promise/assurance/representation in the nature of a promise. The promise may be
express or implied.
Collin v. Duke of Westminster (1985) QB 581
Which is intended to affect the existing relationship between the parties.
Spence v. Shell (1980) 256 EG 55
And which indicates that the promisor will not insist on his strict legal rights against the promisee.
The promise or representation may be express or implied as in Hughes v. Metro. Ry if express it must be
cleat and not wanting in certainty.
(2) Reliance
The promises must have altered his position in relation of the promise so that it will be inequitable to allow
the promisor to act inconsistently with it.
The Post Chaser [1981] 2 Lloyd Rep 695
Therefore if the promissee has forborne from taking steps to protect his legal position the requirement may
be satisfied.

It is important to note that detrimental reliance is not crucial, although if detrimental reliance is proved it
becomes easier to convince the court that it would be inequitable for the promisor to go back on his promise.
See: WJ Alan & Co v. El Nasr
(3) It must be inequitable for the promisor to reassert his strict legal rights. To satisfy the requirement the
promisee must have acted in reliance of the promise in such a manner that he cannot be restored to the
position in which he was before such action.
D& C Builders v. Rees [1965] 3 AER 837
Maharaj v. Chand [1986] 3 AER 107, AC 898

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In the case of the Post Chaser when the promisor reasserted his strict legal right a mere 2 days after the promise
had been made, it was held that this was not inequitable since the promised had not in this same people suffered
any such prejudice. He could be & restored to his same position as he was before the promise was made.

The following should be noted about promissory estoppel

 The effect of the doctrine is only suspensory

When the doctrine becomes operational it generally only restricts the promisor to reverting to his strict legal
right only after giving the promisee reasonable notice.
Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd [1955] 1 WLR 761

Subsequent events however or the passage of time may extinguish the promisor’s right to revert to the strict
contractual obligations after the expiry of a reasonable time.

Ogilvy v. Hope-Davies [1976] 1 AER 683

 Creates no new rights
Promissory estoppel operates as a shield and not as a sword.
Combe v. Combe [1951] 2 KB 215
It prevents existence of enforceable rights but does not create new rights or extend the scope of existing
ones.

In Jamaica Telephone Co. Ltd v. Robinson (1970) 16 WIR 774

It is arguable that the doctrine only applies to existing legal relationships but this areas of the law remains
unsettled and there are some contrary decisions.
See: Combe v. Combe
Durham Fancy Food Ltd. v. Michael Jackson (Fancy Goods) Ltd. [1968] 2 AER 987
Evenden v. Guildford City FC
Promissory Estoppel Consideration

Clear Promise Clear Promise

Reliance (or change of position) by Promisee must have given consideration

promissee; need not be requested but must which may include requested reliance.
be foreseeable by or known to promisor Promise enforceable without reliance

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Inequitable to resile (Based on 1 & 2 above Irrelevant except for vitiating factors
this must be the case (mistake, misrepresentation, frustration,
duress etc.)
Suspensory and not extinctive: i.e. not full Enforcement of full expectation i.e. can be
of expectation; the promisor can resume his extinctive
original rights on giving reasonable notice
to the extent that the promisee can resume
his original position.

Shield not sword: only operates as a Shield and sword: can operate as defence to
defence to enforce promises to reduce enforce promises to reduce existing
existing obligation. Cannot create or add obligations and to create or add new rights.
new rights.

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