3 Consideration

3.1 Identifying consideration 22

3.2 Contractual variations 24
3.3 Alteration promises to pay more 24
3.4 Alteration promises to accept less 26

SQE1 syllabus
This chapter will enable you to achieve the SQE1 assessment specification in relation
to functioning legal knowledge of the core principles of consideration in the context of
contract formation and variation. Consideration is one of the three essential elements
for a contract and any contractual variation. The other two elements needed are
agreement (Chapter 1) and intention to create legal relations (Chapter 2).
Note that, for SQE1, candidates are not usually required to recall specific case
names or cite statutory or regulatory authorities. Cases are provided for illustrative
purposes only.

Learning outcomes
By the end of this chapter you will be able to apply relevant core legal principles
and rules appropriately and effectively, at the level of a competent newly qualified
solicitor in practice, to realistic client-​based and ethical problems and situations in the
following areas:
• identifying consideration in relation to the formation and variation of contracts;
• alteration promises to pay more; and
• alteration promises to accept less.

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3.1 Identifying consideration

The need for consideration is the idea that, in order to be able to hold the other party to
a promise, you must have agreed to provide ‘something in return’ for that promise: it is this
‘something in return’ that lawyers call ‘consideration’.
The ‘something in return’ may be a promise (called executory consideration) or an act
(executed consideration). Bilateral contracts by their nature involve an exchange of promises;
whereas a unilateral contract comprises a promise in return for an act (Chapter 1).
So in order to sue for breach of a promise, a party must be able to show they gave
consideration for that promise.

Example
I agree to buy a laptop off you for £500. I can hold you to the deal because I have
agreed to pay for it. I have ‘provided consideration’ for your promise to sell me the
laptop. The consideration would be my promise to pay £500 for it: that is a benefit to you
and a detriment to me.
Equally, you could hold me to the deal: you agreed to hand over the laptop in return for
getting my £500. That is a detriment to you and a corresponding benefit to me. Indeed,
one of the well-​established definitions of consideration is ‘benefit OR detriment’. It
need not be both; although as you have just seen, there will often be both benefit and
detriment.
There are two other key issues. One of them, contract lawyers call ‘adequacy of
consideration’; the other, they call ‘sufficiency of consideration’. They sound similar, but lawyers
mean different things by them.

3.1.1 Consideration need not be adequate

Think of ‘adequacy’ as concerned with the amount or value of the ‘something in return’. The
law is not concerned whether what is provided in return is of the same value as the promise
for which it is given. It simply has to have some value. For example, payment of £1 would
be good consideration for an Aston Martin car. £1 would be sufficient because it is of some
value. The fact that it is not equivalent in value to the car (ie not adequate consideration) does
not matter. Contracts are voluntarily entered into, and the law takes the view that, by and
large, people should be free to strike the deals they want.
The fact that consideration must have some value has traditionally been interpreted to mean
that it must have some economic value, albeit nominal. Nowadays, however, the need for
‘economic value’ does not seem to be a strict one.

3.1.2 Consideration must be sufficient

Sufficiency is concerned not with the amount of the consideration, but with the sort of
thing it is.
What is provided in return must be the sort of thing the law regards as being appropriate
subject matter for a bargain. As far as the formation of a contract is concerned, it is very clear
in most cases. Such things as money, goods and services are provided in exchange for the
other party’s commitment. These are definitely the right sort of thing –​they are at the heart of
what contracts are all about.
In fact, there are very few cases where the law has not regarded consideration as the right
‘sort’ of thing –​one case was where a promise was made ‘in consideration of natural love
and affection’; another where what was promised in exchange was ‘to stop complaining
about being disinherited’. The law has not regarded such things as the proper subject matter
of true ‘exchanges’.

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 Consideration

But what about a promise to stop swearing, gambling, drinking alcohol and smoking tobacco?
Do you think that would be appropriate subject matter for a bargain? Where is the detriment
in promising not to smoke tobacco? Smoking tobacco is bad for one’s health and so refraining
from doing so would actually benefit the promisor. What if the promisor had never smoked,
gambled, sworn or drank alcohol and had no intention of doing so? Where would the benefit
or detriment be then? These were all questions considered by an American court. People
have a right to swear, drink alcohol etc and as a matter of public policy should be positively
encouraged not to do so: hence, a promise to refrain from doing them was held to be
sufficient consideration.
Do not be surprised; public policy quite often plays a significant part in the decision making
of our courts. For example, it no doubt explains why performance of a public duty is not
regarded as sufficient or good consideration, whereas exceeding a public duty is regarded
as sufficient consideration for a promise.

Examples
You are summoned to appear as a witness in a criminal trial. The defendant promises to
pay you £50 for doing so but afterwards refuses to pay. You could not enforce the promise
because you were legally obliged to give evidence and so had not given consideration.
If you had exceeded a legal (public) duty, though, that would have been different; that
would have been consideration.

3.1.3 Past consideration

The need for an exchange and something given in return explains why performance of a
gratuitous act or promise is not deemed to be consideration for a later promise of payment.
What was done or promised was not done or promised in return for anything at all. It had
been gratuitous.

Example
As a favour, Helen looks after Carl’s cat while Carl is on holiday. When Carl returns he
promises to give Helen £30. Helen would not be able to enforce that promise because
she did not look after Carl’s cat in return for payment. Carl promised £30 afterwards. She
had looked after the cat purely and simply as a favour.
From this we get the phrase ‘past consideration is not good consideration’; although, like with
most general principles in contract law, it is not an absolute rule and there is an exception
provided the following conditions are satisfied:
(a) the past act/​promise was done at the promisor’s request;
(b) there was a mutual understanding between the parties that the act/​promise would be
compensated for in some way; and
(c) had the promise been made in advance it would have been legally enforceable. This last
condition often hinges on whether, or not, there would have been the necessary intention
to create legal relations (see Chapter 2).

A case in which all the above conditions were satisfied was Re Casey’s Patents [1892] 1
Ch 669. A manager was asked to promote a particular invention for the owner of the
patent rights for a two-​year period. Afterwards the owners promised him a share in those
rights in consideration for what he had done. It was alleged that the promise was
unenforceable as being supported only by past consideration. In finding the promise to
be enforceable the court said there was an implied promise to pay in the circumstances
and that the manager must always have assumed that he would be rewarded in some
way for what he had done. The later promise simply crystallised what he would get.

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3.1.4 Consideration –​ summary

Figure 3.1 summarises the key points we have considered. In the big scheme of things, the
requirement for consideration rarely causes a problem at the point of formation of a contract.
The law relating to sufficiency of consideration is of greater consequence in relation to the
later variation of contracts.

Figure 3.1 Consideration requirements

Consideration may be a
Consideration must not
promise or an act given
be past
in return

Consideration

Consideration need not Consideration must be

be adequate sufficient

3.2 Contractual variations

When parties enter into a long term contract they should anticipate that circumstances may
change and that at some future date one or both parties may wish to vary the contract. This
might be for any number of reasons, for example an economic recession, an increase in the
value of raw materials, or because of a change in the exchange rate.
So what then must parties do if they wish to vary a contract and ensure that the variation will
be binding? Well just as you need agreement, consideration and intention to create legal
relations to form a contract you need the same three things in order to make a contractual
variation binding. Often the stumbling block is consideration. The parties have agreed the
change and intend it to be legally binding but, for some reason or another, the variation is
one-​sided. Only one of the parties is suffering a detriment, or otherwise conferring a benefit
on the other party.

Example
An employer has genuine cause for concern that a contractor may not be able to finish
a job on the agreed completion date and so promises them extra money if they will do
so. What, if anything, have they given in return for the promise of the extra money? They
have simply performed an existing contractual duty owed to the employer. Where is the
detriment in that to the contractor, or the benefit to the employer? It is these so-​called
‘upward’ variations that we are going to focus on next.

3.3 Alteration promises to pay more

Not surprisingly, the general rule is that simply performing an existing contractual duty owed
to the other party will not be consideration in exchange for a promise by the other party to
pay more money.

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 Consideration

But what if a party exceeds a contractual obligation owed to the other party in return for a
promise of extra money? Then there is clearly a detriment to the promisee and a benefit to
the promisor; so it will be consideration for the promise of the extra cash.

Example
You are asked by your employer to work non-​compulsory overtime. You would naturally
expect, and would be entitled to be paid, extra money for the additional hours you have
worked, as you will have conferred a benefit on your employer and suffered a detriment
in the bargain.

The general rule, however, was modified by the decision in Williams v Roffey Bros &
Nicholls [1991] 1 QB 1. The case concerned a contract to refurbish a block of flats. The
defendants were the main contractors, and they subcontracted the carpentry work to the
claimants for £20,000. Part way through the work the claimants realised they had
underestimated the cost and told the defendants of their financial difficulty. The
defendants (mindful of the fact that if the work was not completed on time they
themselves would be liable to pay compensation under the main contract) promised to
pay the claimants extra money (ie £575 per flat) to complete on time. On this basis the
claimants continued to work on the flats but in the event were not paid the extra money
promised by the defendants and sued. The main issue before the Court of Appeal was
what, if any, consideration the claimants had given in return for the promise of additional
money. Whilst it was conceded by the defendants that they had secured practical benefits
(ie avoiding liability under the compensation clause in the main contract and the cost and
expense of finding other carpenters to finish the job), the defendants argued that there
was no legal benefit. The court held on the facts that the practical benefit per se was
consideration.

Figure 3.2 Alteration promises to pay more

Performance of an existing contractual duty owed to the other party

is NOT good consideration.

Did promisee exceed their contractual duty?

Yes. Good consideration. No. Did promisee confer a

Variation is binding. practical benefit?

No. Variation not Yes. Consideration.

binding.

Duress?

No. Variation Yes. Variation

binding. voidable.

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In practice, finding a practical benefit may not be difficult. Why would a business offer to pay
extra money for something if it did not see a practical benefit in so doing? The only reason
might be if the promise had been made under duress, in which case the variation may be
avoided (covered in Chapter 12). However, all we are interested in at the moment is being
able to identify when, and to what extent, performance of an existing contractual duty owed
to the other party may be regarded as sufficient consideration for a promise of extra payment
(see Figure 3.2).

3.3.1 Alteration promises to pay more –​summary

• As a general rule, performance of an existing contractual duty owed to the other party is
not consideration for a promise of extra payment.
• Exceeding a contractual duty is consideration.
• Performance of an existing contractual duty owed to the other party will be consideration
for a promise of extra payment if it confers a practical benefit; however, if the promise to
pay more was made under duress the promise may be set aside (see Chapter 12).

3.4 Alteration promises to accept less

3.4.1 Rule in Pinnel’s Case
In the case of an undisputed debt, at common law, an agreement between a creditor and a
debtor that the creditor will simply accept part payment in full and final settlement of the full
amount is not binding on the creditor. This is the so-​called ‘rule in Pinnel’s Case’.

We will return to Pinnel’s Case itself in a moment, but first we are going to look at the
leading case in this area, namely Foakes v Beer (1884) 9 App Cas 605.
Dr Foakes owed Mrs Beer a fixed sum of money on which she was legally entitled to be
paid interest. They then entered into an agreement concerning how Dr Foakes was going
to pay Mrs Beer what he owed. In consideration of Dr Foakes paying off the capital by
instalments, Mrs Beer agreed to forgo the interest. She later changed her mind though
and sued for it. The question for the court was, had Dr Foakes given any consideration for
her promise to forgo the interest? The answer was ‘no’ because no new consideration had
been given by Dr Foakes for her promise to let him off the interest. Payment of the capital
in instalments was only satisfying part of his debt, so Mrs Beer was entitled to change her
mind and sue him for the interest.

3.4.1.1 Common law exception to the rule in Pinnel’s Case

Remember the rule –​consideration must be sufficient, but need not be adequate. Provided a
debtor gives the creditor something (other than just part payment) in return for the creditor’s
promise to forgo the balance of the debt then that something different will be consideration.
In Pinnel’s Case, for example, the creditor agreed to accept part payment because it was
paid in advance of the due date (which was a benefit to the creditor). The court in Pinnel’s
Case also spoke in terms of a ‘horse, hawk or robe’ being consideration for a creditor’s
promise to accept part payment. Whatever a ‘horse, hawk or robe’ might be worth, they each
have some value, and if a creditor is happy to accept one, or other, in return for part (or no
payment) so be it.
So at common law, unless there is some consideration for the concession, a debtor is at risk of
the creditor changing their mind. This is where the equitable doctrine of promissory estoppel
comes in.

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 Consideration

3.4.2 Promissory estoppel

Under this doctrine, a creditor may be prevented (‘estopped’) from going back on a promise
to accept part payment (even if the promise is not supported by consideration) if in all the
circumstances it would be unfair for the creditor to do so.
Promissory estoppel is simply the idea that
• if you have made a promise not to enforce your legal rights; and
• someone has relied on that promise, even though they have not provided anything in
return; then
• if you try to enforce your legal rights you will be ‘estopped’ (prevented from going back
on your promise) if it would be inequitable (unfair) in all the circumstances to do so.

The doctrine of promissory estoppel is founded on the judgment of Denning J in the well-​
known case of Central London Property Trust v High Trees House [1947] KB 130 (generally
referred to as ‘High Trees’). The basic facts of the case were:
Lease entered into in 1937 –​annual ground rent of £2,500 (payable quarterly).
January 1940 –​agreement by landlord to accept £1,250 per annum (due to very low
level of letting, arising from wartime conditions).
The defendants paid the reduced rent throughout the war.
By June 1945 all the flats were fully let.
In 1946 the landlord sought to recover back rent for the last two quarters of 1945 and
full rent for the future.

So there were basically three ‘periods’ the court considered:

• Period 1: unclaimed rent from the beginning of the war until the flats were fully let.
• Period 2: unclaimed rent for last two quarters of 1945 after the war had ended.
• Period 3: claiming reinstatement of full rent for the future.

The court said obiter that the unclaimed rent for period 1 (the war period) was not
recoverable, but held that as the concession had come to an end by early 1945 the
unclaimed rent for the other two periods when the war had ended was recoverable.
So promissory estoppel may apply to prevent the enforcement of strict legal rights in
circumstances where it would be unfair (inequitable) to do so. Note, however, the following
limitations to the doctrine:
(a) It can only be used as a defence when a party brings an action at common law to
enforce their legal rights.
(b) There must have been a promise to waive strict legal rights.
(c) The promisee (usually a debtor) must have acted on the promise but not necessarily to
their detriment. For example the debtor in High Trees simply paid half rent.
(d) With ongoing payments such as rent, the doctrine operates to suspend the strict legal
right, which means the creditor can resume their right to full payment going forward by
giving reasonable notice. What the creditor cannot do is claim any back payments for
the concessionary period. Hence why in High Trees the landlord could claim full rent for
the future (it was deemed reasonable notice had been given) but could not claim arrears
during the war period.
(e) To use any equitable doctrine a party must have ‘clean hands’. So in a case where the
debtor sought to take advantage of the creditor’s financial difficulties, the debtor was

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unable to use promissory estoppel as a defence to the creditor’s common law action for
the balance owed.
In relation to (d) above it is not known exactly what the position is in relation to part payment
of a one-​off debt. The consensus of academic opinion is that the doctrine operates to merely
suspend the creditor’s right to the balance owed, which can be resumed provided reasonable
notice is given. What amounts to reasonable notice will depend very much on the facts.

3.4.3 Alteration promises to accept less –​summary

• Part payment of a debt is not consideration for a promise to accept less.
• A common law exception? If so, the agreed variation is binding.
• If not, can promissory estoppel be raised as a defence?
Figure 3.3 shows how these points work together.

Figure 3.3 Alteration promises to pay less

Promise to waive a strict legal right eg to accept part payment

Any different consideration?

Yes. Binding No. Can promissory estoppel be used as a

variation defence? Check the conditions are satisfied

Act in reliance

Must be inequitable or impossible to resume

strict legal right

Summary
• For a contract and contractual variation to be binding there must be agreement, intention
to create legal relations and consideration.
• Consideration is something given in return for a promise. It is often a promise to do
something (executory consideration) although with unilateral contracts the consideration
will be the specified act (executed consideration).
• Consideration must be sufficient in the eyes of the law. It need not adequately reflect the
value of the promise for which it is given.
• Consideration must not be past, although if certain conditions are satisfied a past act/​
promise may be consideration.
• Performance of an existing public duty is not consideration. Exceeding a public duty is
consideration.
• Performance of an existing duty owed to the other party is not consideration unless it
confers a real practical benefit. If it confers a practical benefit the promise to pay more
will be binding unless it was obtained by duress (see Chapter 12).

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 Consideration

• Exceeding a contractual duty owed to the other party is consideration.

• Part payment of a debt is not consideration for a promise to accept less. If a new element
is given in addition to part payment (eg payment early) that will be consideration. In any
event query whether promissory estoppel can be raised as a defence. Check the relevant
conditions are satisfied.

Sample questions

Question 1
A client decided to set up his own wine bar. He employed a builder to fit out the kitchen
for £10,000.
The builder did most of the work, but then told the client he had seriously underestimated
the cost of materials and could not afford to complete the job. The client told him not to
worry and offered an extra £700 if it would help. The builder said it would, and went on to
complete the work. As a result the client was able to open the wine bar on schedule.
Which of the following statements best describes the client’s legal position in relation to
the builder?
A The client is obliged to pay the builder £10,700 as the promise to pay more conferred a
practical benefit.
B The client is not obliged to pay the builder the extra £700 as the builder gave no
consideration for it.
C The client is not obliged to honour the alteration promise to pay more as it was the
builder’s responsibility to properly cost the work in the first place.
D The client is obliged to pay the builder £10,700 as all contractual variations are binding
in the absence of extortion.
E The client is obliged to pay the builder only £10,000 because as a matter of public policy
the builder should not be allowed to demand extra money for what he contracted to do.

Answer
The correct statement is A.
The problem lies with the attempted variation. For a variation the general rule is that there
must be the same elements present as for making a contract. So D is wrong. C is wrong too
because if all essential elements are present the variation will be binding.
Question here is what consideration has the builder provided?
Here the builder has just performed his existing contractual duty, which generally is not
regarded as sufficient. If he had done something extra that would have been consideration.
Performance of an existing duty may be sufficient if it confers a practical/​commercial benefit
and there was no duress.
The client offered the money and arguably got a practical benefit by getting work finished
so that the wine bar could open on time (Williams v Roffey Bros.). There was no evidence of
duress (which you will look at in Chapter 12). Hence B is wrong.
No duress and so the client would most likely have to pay the extra £700.
E is wrong as it is not a public policy issue.

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Question 2
A client has been running a business for a while but it has been making a steady loss.
Two months ago with a view to making financial savings the client approached his landlord
and asked if he would reduce the rent ‘until things picked up’.
As a gesture of goodwill, the landlord agreed to reduce the rent by 25% (ie to £1,500
per month). So when the last two rent payments fell due the client only paid £1,500. Then
yesterday the landlord told the client he had changed his mind and would be expecting
the client to pay full rent in the future plus the arrears.
Which of the following statements best describes the legal position of the client with his
landlord?
A The client will have to pay £1,000 in arrears of rent and full rent in the future as he
gave no consideration for the landlord’s promise to reduce the rent.
B The landlord suspended his right to full rent but can now demand full rent going
forward even if things have not ‘picked up’.
C The client may raise promissory estoppel as a defence to any action brought by the
landlord and the landlord will have to give reasonable notice to resume his legal right
to receive full rent in the future.
D At common law the client is not obliged to pay the arrears but must pay full rent in
future.
E As the landlord’s promise was simply ‘a gesture of goodwill’ it would not be binding
and he can now demand all outstanding monies.

Answer
The correct statement is C.
The question is whether or not the variation is binding. To be binding there must be
agreement, consideration and contractual intention. Here the only issue is with consideration.
Part payment of a debt is not good consideration for a promise to forgo the balance (Pinnel’s
Case). On that basis the client has not given consideration for the landlord’s promise to
reduce the rent by 25% and so is bound to pay the arrears and full rent going forward. This
explains why D is wrong.
There are common law exceptions, such as different consideration, but there is nothing on the
facts to suggest that any of them apply. The landlord agreed to reduce the rent as a gesture
of goodwill, which reinforces the conclusion that no consideration was given for the promise to
accept less.
Consequently the client will have to try and rely on the equitable doctrine of promissory
estoppel as a defence if he is sued for the full rent.
There must have been a promise by the landlord to waive a strict legal right intending the
client to act on it. Here the landlord promised to waive his right to full rent and the client
altered his position by paying the reduced rent.
Looking at High Trees the doctrine operates to suspend legal rights as to the future provided
reasonable notice is given. In relation to the reduced rental payments made over the last two
months it would seem that the landlord’s right to the extra 25% will have been extinguished.
To use promissory estoppel the client would need to have ‘clean hands’. On the facts there is
nothing to suggest otherwise.
As the client may well be able to use promissory estoppel as a defence statements A, B and E
are all wrong.

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Question 3
A client decided to set up his own cafe. He took a lease of premises and asked his sister,
owner of ‘1st Choice Blinds’, to supply and fit a large awning at the back of the premises
to provide extra covered seating for customers. His sister agreed and made and fitted
the awning. The client was delighted with what she had done and said he would give her
£1,000 for her trouble.
Which of the following statements best describes the legal position of the client in
relation to his sister?
A The client is not obliged to pay his sister £1,000 as she gave no consideration for the
promise.
B The client is not obliged to pay his sister £1,000 as there was no intention to create
legal relations.
C Your client is legally obliged to pay his sister £1,000 because it was a business-​to-​
business arrangement.
D The client’s sister may have given sufficient consideration for the promise of £1,000 but
it is unclear on the facts.
E The client’s sister is entitled to £1,000 as she was asked to do the work and it was
mutually understood she would get paid for it.

Answer
D is correct.
On the face of it what the sister did looks like past consideration (which is not good
consideration) but the exception may apply (Re Casey’s Patents). The act was done at the
client’s request. Query whether it was mutually understood that she would get something for
what she did. It looks like a large job. Had the promise been made in advance would it have
been legally enforceable? This will hinge on contractual intention. With family arrangements
(eg between brother and sister) there is a rebuttable presumption the parties did not intend
to create legal relations; whereas in a commercial context (business-​to-​business), which it
looks like here, there is a very strong presumption the parties intended legal relations (see
Chapter 2).
This explains why D is correct and why the other statements, which categorically say the sister
is or is not entitled to £1,000, are inaccurate.

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