The classic definition of consideration

“It is sufficient 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 conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor…”

Applying the definition of consideration Lush J offered in Currie v Misa, the facts appear to fit easily.  Curtailing ones legal right can be construed as forbearance, and on the other side a benefit ensuing on the uncle for the good health of his nephew.  Poole J comments, ‘it is difficult to see how this consideration could be classified as having ‘economic value’. The decision may rest on policy….’

Law recognises forfeiture of suing as good consideration.  This forbearance could be said to have economic value as the court could potentially award a monetary sum.  Interestingly consideration is good even though the outcome of the forbearance is uncertain.  

Whilst English courts look for some ‘economic value’, it does no have to be adequate or commensurate to the promise, so long as the parties are of equal bargaining power and there is no duress.  

In Thomas v Thomas (1842) a promise to convey a house to a widow on her promise to pay £1 per year rent and keep the house in repair was binding; the promise to pay £1 per year and keep the house in repair was valuable (sufficient) consideration whilst evidently not adequate.  Therefore the question has to be, if consideration need not be adequate why need consideration at all.  The answer seems to be, consideration is a tool used to limit the scope of liability and distinguish between legal and moral principle how the courts see fit.

In Chappell & Co Ltd v Nestle Co Ltd [1960], the court held that chocolate bar wrappers collected by the claimant in purchase of gramophone records was good consideration.  This was even though they were to be thrown away by the defendant company.  In this case the defendants received a benefit by increasing their sales whilst the claimants’ detriment was a reduction in his disposable assets.

Sufficiency has another thread.  In addition to economic value the court will consider whether a duty imposed at law or under an existing contract can negative an agreement being sued upon.  Collins v Godefroy (1831) established where a party is ‘already’ under a legal obligation, then his act or promise cannot be good consideration.  Therefore even though an act or promise may be a benefit or detriment, if one is already required to perform at law, performance will not be valid consideration.  This appears to be sound law.  Consider the potential perjury and other acts of deceit and treason if one could lawfully enter into a contract that competes with the requirement of law.

Glasbrook Bros. v Glamorgan County Council [1925] is authority for the proposition that where one exceeds their statutory duty, their performance or promise may be sufficient consideration.  This rule was reaffirmed recently in Harris v Sheffield United FC 1988 where the defendant football club refused to pay for police presence at home matches.  Sheffield United claimed the police owed a statutory duty at law.  The court held the police performed over and above their statutory duty, in particular the defendants created the risk by attracting large crowds.  It is apparent police presence is a benefit to the club whilst being a detriment to the police force by reducing their ability to deploy elsewhere and incurring the burden of remuneration.  

However in Ward v Byham [1956] the court was able to find that a fathers promise to pay the mother of his child £1 per week in exchange for proof of sound care and the conferment of agency unto their daughter that she decide whether or not she lives with her mother was good consideration.  ‘The fathers main argument was that the mother, in looking after their daughter, was doing no more than performing her statutory duty under the National Assistance Act 1948.’  Lord Denning said:

“I approach the case,…on the footing that the mother, in looking after the child, is only doing what she is legally bound to do.  Even so, I think that there was sufficient consideration to support the promise.  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.”

There are further inconsistencies where there is a pre existing contractual relationship, and the act or promise is no more than the parties are already obliged to do; consideration is insufficient.  

Stilk v Myrick (1809) – ‘A ship’s crew contracted for a voyage from London to the Baltic, returning to London.  Two of the crew deserted in Cronstad.  The captain promised to divide up deserters’ wages if remaining crew took the ship back to London shorthanded.  On arrival the owners refused to pay’.  The court held that the remaining crews were doing no more than they were contractually obliged to do.  It would be of no surprise if recorded that the claimants argued a ‘practical benefit’ conferred unto the defendant.  That is, if the claimant deserted the defendant would have been stranded.  There are two major reasons why Stilk appears to be good law.  That is one; the parties were not of equal bargaining capacity and two, as Glidewell LJ said: “this concept may provide another answer in law to the question of policy which has troubled the courts since before Stilk v Myrick, and no doubt led at the date of that decision to a rigid adherence to the doctrine of consideration.”

In contrast Hartley v Ponsonby (1857) in similar circumstance supported the claimant crew who remained on a partly deserted ship after negotiating a higher wage.  The fundamental difference here is, so many of the original crew deserted the ship that it put the remaining crew members in a position of danger and that was over and above their original contract.  The consideration here is the detriment to the remaining crew having to perform over and above their contractual duty and putting them in a position of increased danger.  The benefit to the ship owner was the attempt and indeed safe return of the vessel.

Then came a crashing wave that not only appeared to rubbish Stilk v Myrick, but also recognised so called ‘practical benefits’ as good consideration.    

Williams & Roffey Bros v Nicholls (Contractors) Ltd is authority that:

‘Where one party to a contract agrees to make a payment to the other party to the contract over and above the contract price in order to secure completion of the contract by the other party on time, thereby gaining an advantage such as the avoidance of a penalty payable if the contract is not complete on time, the obtaining of that benefit can amount to consideration for the extra payment provided the threat of failure to complete does not amount to economic duress or fraud’.

Whilst at first blush it seems that Williams contravenes the principle in Stilk v Myrick, there are a number of distinct differences. In fact Mr Evans for the claimants outlined the benefits as: (i) ensuring the claimants did not stop in breach of the sub-contract; (ii) avoiding the penalty for delay; (iii) avoiding the trouble and expense of engaging other people…’

Although the courts appear more liberal in finding consideration, they are no so willing to do so in debt situations.  In Re Selectmove the practical benefit argument failed.  Gibson LJ said:

“…if the principle of Williams v Roffey is to be extended to an obligation to make payment, it would leave the principle in Foakes v Beer without any application.  …the creditor will no doubt always see a practical benefit to himself in doing so.”

Once again, apparently the court is selective with its application.  On one hand a practical benefit for a promise to pay more is good consideration and on the other a practical benefit to pay less is not.

However the courts are willing to recognise part payment of debts through finding consideration by falling within three situations defined in Hirachand v Temple.

If consideration is past then it is not good consideration. ‘Any act carried out before a promise is made’ is past consideration ‘because it is not carried out in exchange of the promise’.  Lord Scarman in Pau On v Lau Yiu Long stated three conditions that need to be satisfied for an act performed prior to a promise to be good consideration.  Namely ‘(a) the act must have been done at the request of the promisor; (b) it must have been understood that payment would be made; (c) the payment if promised in advance, must have been legally recoverable’ Thus if A calls B a plumber to an emergency, B would be forbearing other work and his time on implicit payment.  Even though the exact price may not be negotiated up front A could not argue latent negotiation is past consideration.

The Doctrine of Privity of Contract is based on the foundation that consideration must move from the promisee.  Even though the contract may be made for the benefit of a third party, a third party cannot sue upon that contract not withstanding the Contracts (Rights of Third Parties) Act 1999.  Privity supports consideration and vice versa.  That is, a third person cannot normally bring themselves within the two definitions of consideration earlier stated and therefore have not supplied consideration to benefit from contractual rights.  Without the doctrine of privity or at least its establishment, a general right of third parties to sue upon a contract made on their behalf would undermine the doctrine of consideration.  In some cases collateral contracts may be found to exist for which a third party has given consideration for.    

The final exception arises in equity - promissory estoppel.  ‘The basic concept of estoppel is that a person is precluded from retracting a statement upon which another has relied.’  However estoppel may only be used as a ‘shield and not a sword’.  The only requirements are, (a) there must be a pre existing contractual relationship; (b) there must be a clear and unambiguous promise or representation; (c) the promisor must have waived his strict legal rights and (d) the promisee must have altered his position to his detriment in reliance on the waiver.  This doctrine has been seen as an undermining of the doctrine of consideration; instead of a promise being binding when a reciprocal promise is given, it would be binding when the other party relies on the promise.

The French law of contract places far more importance on what is agreed per se rather than want of consideration.  As a general rule in France, any contract which is not contrary to ordre public  is an enforceable contract, provided that, in the case of a donation it satisfies or circumvents the requirement of notarisation.’ 

As for English Law, the decisions of the courts are hard to reconcile.  This has left the law in a misty and untraceable state.  As Gibson LJ suggested, reform in consideration should be left to Parliament and the Law Commission.  Attiya has suggested that consideration and indeed the formation of contract follows the American suit of codification.  Only time will tell its fate, however it is unlikely that the common law will extend or contract the current position and as Treitel states: ‘consideration is illusory…’  

Bibliography

Adams and Brownwood, ‘Contract, Consideration and the Critical Path’ (1990) 53 MLR 536

Hutcheson,P, ‘Williams & Roffey Bros v Nicholls (Contractors) Ltd’, 1989 Vol. 139 No. 6436, New Law Journal, Page 1712

http://atlantis.ncl.ac.uk/modules/LAW154/lectures/ho6.htm

McKendrick, Contract Law, Text, Cases and Materials, 2003, Oxford, Oxford University Press

Mitchell,P, Phillips, J, ‘The Contractual Nexus: Is Reliance Essential?’, 2002 Vol.22, Oxford Journal of Legal Studies,115

Nicholas,B, The French Law of Contract, 1992, Oxford, Oxford University Press

Palmer, P, ‘The legal nature of the NHBS’s Buildmark warranty’, 1989 Vol 86 No 36, Law Society Gazette, 19

Poole,J, Casebook on Contract Law, 6th Ed., 2003, Oxford, Oxford University Press, Page 108

Poole,J, Contract Law, 6th Ed., 2001, London, Blackstone Press

Semple Piggot Rochez, Formation of Contract: Consideration and Estoppel, Chapter 4

Upex,R, Davies on Contract, 1995, London, Sweet & Maxwell

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