Contract Law

Topic: Consideration

Prepared By
Sadman Sumit
Founder of The Future Barristers
Senior lecturer, Newcastle Law Academy
Former lecturer, Bhuiyan Academy & BAC International Study Centre
Contact number: 01302251412
Email: [email protected]
 Consideration
In order to form a valid contract, apart from offer, acceptance and intention to create legal
relationship, there must be some sort of consideration. This is based upon the idea of ‘reciprocity’;
that means a promisee should not be able to enforce a promise unless he has given or promised to
give something in exchange for the promise. The classic definition of consideration was expressed in
Currie v Misa (1875):
“A valuable consideration, in the sense of the law, may consist either in
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 modern definition of consideration is the one approved by Sir Frederick Pollock and provided by
the House of Lords in Dunlop v Selfridge (1915):
“An act of 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 rules of consideration: There are mainly three rules that govern the doctrine of
consideration:
1. Consideration must be sufficient but need not be adequate
2. Past consideration is not a good consideration and
3. Consideration must move from the promisee.

Consideration must be sufficient but need not be adequate: The courts will not enforce
a promise unless something of value is given in return for the promise. This is what is meant by
saying that consideration must be ‘sufficient’. On the other hand, the courts do not ask whether
adequate value has been given in return for the promise. This is what is meant by saying that
consideration need not be ‘adequate’. So, if a house worth £250,000 is sold for just £1, that is
sufficient consideration even though it is obviously inadequate.
A contracting party can stipulate what consideration he chooses (Midland Bank v Green). Thus,
very trivial acts may constitute consideration (Chappell v Nestle).
Consideration must have some economic value (White v Bluett). In this case, a son’s promise not to
bore his father with complaints was held not to be good consideration for the fathers promise not to
sue his son for a debt owed by the son to his father.

Some examples of valuable consideration:

Forbearance to sue may constitute a sufficient consideration (Pitt v PHH Asset Management).
By restricting his own lawful freedom of action, promisee may give sufficient consideration (Hamer
v Sidway). In this case, refraining from drinking liquor was held to constitute a valid consideration.

Past consideration is not a good consideration: Where a party makes a promise

subsequent to some actions carried out by the other party, that promise may constitute a past
consideration (Roscorla v Thomas). By past consideration, it is meant that the consideration was
already completed before the promise was made. So, the promisee has not given anything new in
return for the promise.
Exceptions: Where the act of the promisee was performed at the request of the promisor and,
subsequent to the performance of the act by the promisee, the promisor promises to pay for it, then
such a promise may be enforceable (Lampleigh v Brathwait).
A promise made after the acts constituting the consideration will be enforceable if the act has been
done at the promisor’s request and the parties must have understood that the work was to be paid for
in either by money or some other benefit (Pao On v Lau Yiu Long)
Three conditions must be satisfied by a promisee who wishes to invoke the doctrine of implied
assumpsit (Pao On v Lau Yiu Long):
1. The promisee must have performed the original act at the request of the
promisor.
2. It must have been clearly understood or implied between the parties when
the act was originally requested that the promisee would be rewarded for
doing the act.
3. The contents of the promise must have been legally enforceable had it
been promised in advance.

Consideration must move from the promisee: A person to whom the promise is made can
only enforce the promise if he himself provides consideration for that promise. However, there is no
requirement that it must move to the promisor. Thus, the promisee can provide consideration by
conferring a benefit on a third party at the request of the promisor (Bolton v Madden).

Performance of an existing legal duty: Performance of an existing duty imposed by law is

not a good consideration (Collins v Godefroy).
Exception: If the public officials do more than their stipulated job on the request of the promisor,
their performance may be treated as a good consideration (Glasbrook Bros v Glamorgan County
Council).

Performance of a contractual duty owed to the promisor : Performance of a contractual

duty owed to the promisor is not sufficient consideration (Stilk v Myrick).

Exception: Where new situations entitled the employees to refuse to carry out the contract and the
employer promises some extra payment, the employees may be entitled to enforce the employers
promise for continuing the contract (Hartley v Ponsonby).
Moreover, where the promisee has done, on the request of promisor, more than he was obliged to do
under his contract, then he can enforce the promise (Hanson v Royden).
If the performance of an existing contractual duty confers a practical benefit on the other party, this
can constitute a valid consideration (Williams v Roffey Bros). In order for this rule to apply, certain
conditions must be proved:

1. A has a contract to employ B for work.

 2. Before it is done, A has reason to doubt whether B will, or be able to complete his side of the
bargain
3. A promises B to pay more.
4. A 'obtains in practice a benefit, or obviates a disbenefit' by giving the promise.
5. There is no economic duress or fraud.
The practical benefit of timely completion, even though a pre-existing duty, constitutes good
consideration.

Economic duress: To prove economic duress, two questions will be asked:

1. Whether the promisee threatened to discontinue the contract?
2. Whether the promisor has any alternative?

If the promisee has threatened and the promisor made the promise to pay extra because he had no
alternative, there will be economic duress. A contract/promise made through economic duress is
voidable (Atlas v Kafco). However, if the promise to pay extra was made even though there was
alternative, no duress will be proved.

Part payment of debt: A promise to accept part payment of debt in discharge of the entire debt
is not supported by consideration (Pinnel’s Case).

Exceptions: There are several exceptions of the part payment of debt rule:
1. The creditor will be bound by such a promise if the debtor has given consideration in the
form of gift/something that has economic value.
2. If the part payment was made at the request of the creditor at an earlier date or other place
than is contractually required, this can provide a valid consideration to discharge the whole
debt.
3. If a group of creditors make an arrangement with the debtor whereby each agrees to accept a
stated percentage of his debt in full satisfaction (Wood v Robarts).
4. Part payment of debt by cheque is not a good consideration even if it is made at the request of
the creditor (D & C Builders v Rees).

The doctrine of Promissory estoppel: Relying on a promise made by the landlord, if the
tenant did not pay the full rent during a particular period and afterwards the landlord tries to recover
the part of the rent which had not been paid during the period, that claim would be failed. The
doctrine of promissory estoppel will come into force and the landlord will be estopped by the court
(Central London Property Trust Ltd v High Trees).

Conditions for promissory estoppel:

The promisee must fulfill some conditions in order to rely upon the doctrine of promissory estoppel:
1. Contractual/legal relationship: There must be a contractual or legal relationship between the
parties before the promise was made.
2. Promise: There must be a clear and unambiguous promise, either by words or by conduct
(Woodhouse v Nigerian Produce Marketing Co)
3. Reliance: The promise must have been relied upon by the promisee to his detriment (Ajayi v
Briscoe)
4. Inequitable: It must be inequitable for the promisor to go back to his promise.
5. Works as shield not sword: The doctrine may only be raised as a defence. So, it will work as a
shield not as a sword (Combe v Combe).
However, the promissory estoppel is a suspensory doctrine. So, the creditor may resume his strict
rights by giving notice that he wishes to be paid the full amount and then allowing a reasonable time
for the debtor to comply (Tool Metal Manufacturing Co. v Tungsten Electricity Co. Ltd.)

Performance of a contractual duty owed to third party: There are two contrasting views
on this point. The most accepted view is that the performance of a contractual duty owed to a third
party can constitute a good consideration (Shadwell v Shadwell). Another view is that a promise to
perform a contractual duty owed to a third party does not constitute consideration (Jones v Waite)

Sample answer: The provided question discussion on the principles of the doctrine of consideration
about the variation of contractual terms and promissory estoppel to advise Peter accordingly.
Consideration is ”..an act or forbearance of one party, or the promise thereof, is the price for which
the promise of the other is brought, and the promise thus given for value is enforceable.” (Pneumatic
Tyre v Selfridge) There are three conditions for a valid consideration: 1) Must be sufficient; need not
to be adequate, 2) must not be past and 3) Must move from the promisee. The discussion will outline
whether the promise of Simon to pay additional 500 pounds to cover costs of extra work, additional
1000 pounds to complete the work on time and promise of Peter to accept 5,000 pounds in full
settlement of the accounts will be enforceable or not.
In between Simone (S) and Peter (P):
S agreed to pay an additional 500 pounds to P when the work becomes more difficult than
anticipated due to the age of the houses. Terms of a contract can be varied but consideration must be
provided for any new promise or it will be unenforceable (Stilk v Myrick). The promise will be
enforceable if it was supported by a sufficient consideration. Generally, performance of an existing
contractual duty is not a good consideration (Stilk v Myrick). S might argue that P has not provided
any consideration against his fresh promise of additional payment and so, the promise will not be
enforceable. However, if the promisee has done something extra than his contractual duty then it will
be counted as a sufficient consideration (Hartley v Ponsonby). It was held that the remaining
crewmen had provided sufficient consideration by completing the work of half of the sailing crew
who had deserted as the old contract was terminated and a new one created as the terms and
conditions were so different to those originally contracted for. P could argue that he has done more
than his existing contractual duties by completing rewiring of the houses under difficult
circumstances (house being aged). In this case, S will be entitled to pay the extra 500 pounds which
he had promised.

Further, S also agreed to pay extra 1000 pounds to P to complete the work by 15th September. Terms
of a contract may be varied but a new promise will be enforceable if it was supported by a promise
(Stilk v Myrick). S will be under obligation to fulfil his promise if P had provided a sufficient
consideration against his promise. Generally. Performance of an existing duty is not a good
consideration (Stilk v Myrick). S might argue that P has not provided any sufficient consideration by
completing the work on time as he was already contractually bound to do so and thus, his promise to
pay extra will not be enforceable. However, if the promisee has done something more than his
contractual duty then it will be a good consideration (Hartley v Ponsonby). P will not be able to rely
upon this exception as it is apparent that he has not done anything extra by completing the work on
time. His last resort to be relied upon is to show that S has received a practical benefit from his
promise even in absence of any consideration from P. This common law exception was established in
the leading case of William v Roffey Bros. Glidewell J established five requirements for the doctrine
to be applicable.
Firstly, there must be a contract of goods or service; there was a contract of service for rewiring
between S and P. So, the first requirement is met.
Secondly, there must be a doubt that the work will not be able to be completed on time; S may be
doubtful that the work will not be completed on time as the work becomes difficult due to age of
houses and P uses more material.
Thirdly, there must be a promise to pay an additional amount; S promises to pay an extra 1000
pounds to complete the work on time and the third requirement is satisfied.
Fourthly, one party will give a practical benefit or obviate a disadvantage to the others; S will receive
the practical benefit of being able to rent his houses on time to students and avoid the difficulty of
finding any other contractor.
Lastly, there must be no economic duress on the promisor; it is apparent from the facts that it was S’s
own idea to promise an extra amount of 1000 pounds after becoming anxious. So the last
requirement is met too.
From the above discussion it can be said that as all the requirements are fulfilled P will be able to
rely on the doctrine of practical benefit to claim the additional 1000 pounds which was promised by
S.

The last issue to discuss is the enforceability of P’s promise to accept 5000 pounds in full settlement
of her account. P will be under obligation to fulfil his promise if it was supported by a sufficient from
S’s side.

Part payment of debt is not considered as a good consideration (Pinnel’s case, reaffirmed in Foakes
v Beer). Part payment of debt in full settlement of the debt will not amount to a sufficient
consideration if it doesn’t fall under any of the exceptions in Pinnel’s case. However, S can rely on
the recent case of MWB Business v Rock which established that promise to accept change in
variation of payment terms will be enforceable if the promisor received a practical benefit from the
promise. In our case, P cannot be said to have received any practical promise.

P could move to the doctrine of promissory estoppel, which is an exception to the rule of Pinnel’s
case. The doctrine arises from the law of equity and prevents the promisor from going back on his
promise where it will be inequitable on the promisee. The limits and justification of the doctrine was
laid down in the seminal case of Central London Property v High Trees. Firstly, it must be used as a
shield not as a sword (Combe v Combe); S has satisfied the requirement as they were defending an
action by P to recover the full amount of the monies owed immediately. Then, it must be inequitable
for the promisor to go back on his promise. J. Goff stated that “...proof of detriment is evidential as
to the inequity of going back on a promise” (The Post Chaser). The question of reliance of promisee
on the fresh promise ties in with the prime issue concerning promissory estoppel as to whether or not
it would be inequitable for the promisor to go back on their promise (D & C Builders). This case
illustrates how the doctrine of promissory estoppel is a limited one and rests on the discretion of the
courts. The one seeking equity must do equity and come with clean hands. As S was not honest about
her financial problems so it is unlikely that she will be able to satisfy this requirement. Generally,
promissory estoppel will merely suspend legal rights rather than extinguishing them (Tool Metal Co
v Tungsten Electric Co). That is, a promisor can resume his full legal rights under the contract after
giving reasonable notice of his intention to do so. However, where periodic payments are involved
and a promise has been made to accept reduced payment because of adverse circumstances which are
not likely to persist, promissory estoppel can be used to extinguish legal rights. So, the requirement
is not met as the contract is not a continuing one in our case.
So, P owe a total of 6500 pounds to S, they have provided sufficient consideration against the
promise to pay additional 1500 pounds and S cannot depend on the doctrine of promissory estoppel
to resist P going back on their promise to accept 5000 pounds in full settlement of debt.