Consideration

Dr Nuhu Yidana
 CONSIDERATION

Outline

• Recap
• Introduction
• Identifying Consideration
• Rules of consideration

2
 Consideration
Definitions
How Is Consideration Defined?
Mutual Exchange: Benefit and Detriment to each party
Currie v Misa (1875)
Lush J: ‘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.’
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915)
Lord Dunedin: ‘An act or forbearance of the 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.’
Stone & Devenney states that: Consideration ‘refers to what one party to an agree ment
is giving, or prom ising, in exchange for what is being given or prom ised from the other
side.’

3
 Definition
Not just actual exchanges but also exchanges of promises
Difference between Executed and Executory consideration
Treitel “A person who makes a commercial promise expects to
have to perform it, and one who receives such a promise expects
it to be kept. These expectations are based on a commercial
reality and can properly be called a detriment and a benefit;
Hence, they satisfy the requirements of consideration in the
case of mutual promises.”
If there is no reciprocity, then you can always use a Deed
A Deed also has the advantage of a longer limitation period (12
years instead of 6).
Still very important in major complex transactions (eg
construction/energy)
Benefit/Detriment can be to a third party.

4
 Identifying consideration

Was the promise broken a formation promise, or was it an alteration promise?

Formation promises
Consideration is whatever is asked for and given in exchange for the promise
(Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co.
Ltd (1915): the price for which the other’s promise is bought).

•In the case of a bilateral contract, each party’s promise is the consideration to
support the promise given by the other. Therefore, parties to a bilateral
contract are bound on the exchange of promises although neither has yet
undertaken any performance of those promises.’

In the case of a unilateral contract, consideration is the performance of the act

requested to earn the promised reward. The promise is only capable of being
enforced once the act is completed.
5
 ‘Rules’ of consideration

1. Consideration must move from the promise.

2. Consideration need not be adequate

3. Past consideration is no consideration.

4. Pre-existing duties is no consideration exceptions

• Exceptions do exist, however.

6
Consideration must move from the
promise/privity
Tweddle v Atkinson (1861): A groom tried to claim payment for £300
promised by his father-in-law to his father in exchange for him marrying
the daughter; he could not do so as he was merely a third party to the
agreement.

Dunlop v Selfridge (1915): Dunlop tried to claim compensation from

Selfridge for Selfridge selling its tyres below a minimum agreed price, but
as that price was agreed in a contract with Dunlop’s wholesaler (Dew &
Co), Dunlop could not establish that consideration had moved directly
from them to Selfridge

A party cannot sue or be sued under a contract

unless s/he has provided consideration

HOWEVER, must take into account the Contracts

(Rights of Third Parties) Act 1999
7
Consideration must be requested
by the promisor
✓Consideration, broadly defined as conferring a benefit or obviating a disbenefit (or
detriment), must be given in return for (ie in order to ‘buy’) the promise to be enforced.

✗There is no consideration if the promisee incurs a detriment or confers a benefit

merely in reliance on the promise if it was not requested by the promisee.
✗In Combe v Combe (1951), a husband promised to pay his wife £100 a year on
their divorce. The wife sought to enforce the promise, arguing that she gave
consideration for it by not applying for maintenance.
The Court of Appeal rejected this because the husband did not request her to do this.
Her forbearance resulted from his promise to pay but was not given in return for it.

✗Similarly, in Ashia Centur Ltd v Barker Gillette LLP (2011), an agreement by

solicitors not to charge for work done after a certain date was not enforceable although
the client did not instruct new solicitors and this was ‘a thing of value’ to the solicitors.

✓However, the court can imply a request in finding consideration.

In Alliance Bank v Broom (1864), B promised to provide some security for its debt to
A. When A sued to enforce this, B argued that A gave no consideration for it.
The court enforced B’s undertaking because, while B did not expressly ask A to forbear 8
from suing B to recover the debt, the court implied such a request.
Consideration need not be adequate
but must have some economic value

Consideration must have some economic value.

Sufficient consideration means recognised in law
used as a policy tool
Collins v Godefroy (1831)
cannot contract to give evidence as a witness
White v Bluett (1853)
The father agreed to discharge the debts of his son if he
stopped complaining out of natural love and affection.
After the father died, executor sued
Held: no consideration

9
Consideration need not be adequate
but must have some value

Adequate should mean equal in value to what is exchanged but English courts do NOT
look into real value (cf French Civil law and imprevision)
£1 can be adequate consideration for house worth £1m
Thomas v Thomas (1842)
executors made agreement with widow that she could live in house for life in
return for £1pa and keep house in repair “in consideration of deceased husband’s
wishes”
Contract? Consideration NOT wishes but £1 and repairs (either)
Chappell & Co v Nestle Co Ltd (1960)
special offer: buy record if sent 3 chocolate bar wrappers were the wrappers part of
consideration?
HL (3-2): yes, even though thrown away indirectly represented sales of chocolate
bars
Lord Somervell: “It is said that when received the wrappers are of no value to
Nestlé’s. This I would have thought irrelevant. A contracting party can stipulate
for 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”

10
Examples of legally insufficient consideration

Past Consideration is no consideration.

Consideration must be given at the time of the contract
Roscorla v Thomas (1842) 3 QB 234
T sold a horse to R for £30. After the sale, T said the horse was “sound and free from
vice”. The horse was not as T said, and R sued to rescind the contract
Held: sale complete; promise came too late and was unsupported by consideration

Re McArdle (1951) 1 All ER 905

A man left the house to sons and daughter. One of the sons lived in the house with his
Wife.
They improved the house, and the wife got each sibling to sign a document agreeing to
contribute to the refurbishment costs.
Held: no contract as work already done/past consideration

However, the law takes a sensible approach if one works expecting to be paid, but the exact
amount was not decided.
In Lampleigh v Braithwaite (1615)
B (sentenced to death) asked L to obtain a pardon from King James I. L was successful. B’s
subsequent promise to pay L £100 was enforceable.
• Held: good consideration because L did it expecting to be paid 11
Past Consideration is no consideration -
EXCEPTIONS
Pao On v Lau You Ling (1980) PC
Lord Scarmen: “An act done before the giving of a promise to make a payment or to
confer some other benefit can sometimes be a consideration for the promise.
The act must have been done at the promisor’s request
the parties must have understood that the act was to be remunerated either by a
payment or the conferment of some other benefit, and payment, or the conferment of
the benefit, must have been legally enforceable had it been promised in advance”
Similar to where goods and services are provided without the exact price being
specified
Key Case: Pao On v Lau Yiu Long (1980) AC 614 [PC]
Past Consideration can potentially constitute valid consideration
IF it satisfies THREE conditions:
A) act must have been done at the promisor’s request [Lampleigh v Braithwaite
(1615)];
B) both parties must have understood that the act was to be rewarded either by
payment or the conferment of some benefit [Re Casey’s Patents (1892)];
C) the payment or benefit must have been legally enforceable had it been promised
12 in

advance.
 Consideration: Existing Duties

Can the performance of, or the promise to perform, an act that a person is
already under a legal obligation to carry out ever amount to consideration?
PUBLIC DUTIES/DUTIES IMPOSED BY LAW
Collins v Godefroy (1831) G’s promise to pay if C gave evidence at G’s
trial was unenforceable, since C had already been subpoenaed to give
evidence at the trial.
However, see
Ward v Byham [1952]
The Father of an illegitimate child agreed to pay the mother
maintenance if the child “will be well looked after and happy.”
Held (2-1): contract; majority held there was a promise to perform
more than the existing non-contractual duty
Lord Denning: “I have always thought that a promise to perform an
existing duty or the performance of it should be regarded as good
consideration because it is a benefit to the person to whom it is given.”
13
Consideration: Existing Public Duties
Exceeding a Public Duty/Duty Imposed By Law

Glasbrook Bros v Glamorgan CC (1925)

Strike at mine. Mine owners asked for more protection than police
thought necessary.
Police provided it: then sued for payment.
Mine owners alleged that police were bound to provide protection;
therefore, there was no consideration.

Held: Police were only obliged to provide reasonably necessary

protection;
extra protection was a valid consideration, so an enforceable contract
arose, and mine owners had to pay.

In Harris v Sheffield [1987], the Court of Appeal held that if a football

club decided to hold matches and requested a police presence, this would
constitute ‘special police services’ that should be paid for, though not14
beyond what is necessary to maintain peace.
Consideration: Existing Public Duties

Exceeding a Public Duty/Duty Imposed By Law

but now 25(1) of the Police Act 1996 states:

‘The chief officer of police of a police force may provide, at the request of
any person, special police services at any premises or in any locality in the
police area for which the force is maintained, subject to the payment to the
local policing body of charges on such scales as may be determined by that
body.’

Applied in West Yorkshire Police Authority v Reading Festival Ltd

(2006) and Leeds United FC Ltd v Chief Constable of West
Yorkshire Police (2013).

In Michael v Chief Constable of South Wales Police (2015), the

Supreme Court relied on Glasbrook in a tort case and held that the
police’s duty is owed to the public at large and cannot of itself generate an
15
affirmative duty of care to protect an individual claimant.
 Consideration: Existing Duties

EXISTING CONTRACTUAL DUTIES

Owed to third parties?
A bound to deliver goods to B
B using goods to fulfil a contract with C
C promises to pay A if he delivers on time
Enforceable Contract? Yes!

Shadwell v Shadwell (1860)

Uncle agreed to pay nephew annual sum of money on marriage
Uncle died after paying for 12 years
Could nephew enforce against estate? Yes
Marriage was detriment (at least financially!) to nephew and a
benefit to Uncle
16
strong dissent
 Consideration: Existing Duties

EXISTING CONTRACTUAL DUTIES

Stilk v Myrick (1809) 2 Camp 317 (Campbell); (1809) 6 Esp 129 (Espinasse) KB
S seaman on a voyage.
2 crew members deserted.
The ship's master promised to share the wages of deserters among the remaining
crew if they stayed on and sailed the ship home.
S asked for his extra money on return home, was refused.
Held: S is already bound by contract to stay on, so no consideration was given.

Only one report (Campbell) mentions consideration; Espinasse only mentions public
policy.
Lack of consideration is generally accepted in later cases as the reason for the
decision.

In Hartley v Ponsonby (1857), 36 crew members deserted the voyage, leaving only
19. Of these, only 4 – 5 were able seamen.
Thus, the voyage became dangerous and no longer bound by the original contract)

Also, they could have succeeded if shown to go beyond the existing duty.
17
 Consideration: Existing Duties

EXISTING CONTRACTUAL DUTIES

Williams v Roffey [1990] 1QB1 (CA)

R refurbishing flats (main contractor).
R engaged W as a carpentry sub-contractor.
W in financial trouble—contract price too low
R would have to pay a penalty under the main contract if work was not
finished on time; worried W would stop
R promised to pay an extra £575 per flat completed on time
W completed 8 and then stopped and sued for the extra money

Held: Enforceable contract existed.

A promise to do something already obliged to do was a valid
consideration IF the other party would obtain a “practical benefit” (such as
not having to pay a penalty).

18
 Consideration: Existing Duties
EXISTING CONTRACTUAL DUTIES
Williams v Roffey [1990] 1QB1 (CA)
Lord Glidewell
“ …the present state of the law on this subject can be expressed in the following
proposition:
(i) if A has entered into a contract with B to do work for, or to supply goods or
services to, B in return for payment by B and
(ii) at some stage before A has completely performed his obligations under the
contract B has reason to doubt whether A will, or will be able to, complete his side
of the bargain and
(iii) B thereupon promises A an additional payment in return for A’s promise to
perform his contractual obligations on time and
(iv) As a result of giving his promise, B obtains in practice a benefit or obviates a
disbenefit, and
(v) B’s promise is not given as a result of economic duress or fraud on the part of
A, then
(vi) the benefit to B is capable of being a consideration for B’s promise so that the
promise will be legally binding”
BUT also said Stilk v Myrick is still good law 19
 ALTERATION OF CONTRACT
TERMS
Williams v Roffey (1990)
What is a ‘Practical Benefit’?
Possible ‘Practical Benefits’
• W’s continued performance
• Avoiding a penalty for delay under the main contract
• Avoiding the trouble and expense of engaging others to
complete the carpentry
• And replacing a haphazard method of payment with a more
formalised scheme, which produced a more orderly
performance by W…

An alternative method of dealing with variation is

promissory estoppel

20
 PRACTICE

Sparks Electrics (SE) Ltd are working on constructing a housing

estate by Large Developments (LD) plc. LD is in the business of supplying
high-end flats in major metropolitan areas. The housing estate on which
Spark Electrics is involved is due to be marketed by the end of the year,
just in time to meet the increased demand that Large Developments
believes will ensue due to the payment of bankers’ bonuses.

In March, after having worked on the project for nearly 4 years, SE find
that they have underpriced the contract as the prices of materials have
increased markedly over the past year. They approach the client, LD, and
threaten to stop work unless LD agree to a 10% increase in the contract
price. With the end of the year approaching, LD reluctantly agrees. Upon
completion of the project, however, LD refuses to pay, arguing that no
consideration was given for the promise.

Advise SE 21
22