Consideration

Question 1

Currie v Misa: what constitutes consideration?

Answer 1

“may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.”

Question 2

Consideration with detriment to the promisee sustained by virtue of the promise case

Answer 2

Allegheny College v Jamestown
Consideration with detriment to the promisee sustained by virtue of the promise is not sufficient.
The promise and the consideration must be the motive each for the other, in whole or at least in part.
If A promises B to make him a gift, consideration may be lacking, though B has renounced other opportunities for betterment in the faith that the promise will be kept.”

Question 3

A sells to B. B may sell to C but C must follow same terms as A asked of B. C does not. Can A sue C?
Case

Answer 3

Dunlop Pneumatic v Selfridge
No
Only a person who is a party to a contract can sue on it (privity of contract)
Consideration must have been given by A to C or to some other person at C’s request. Here the consideration was to be given by B on their own account, and was not in substance, any more than in form, an allowance made by A.

Question 4

History

D Ibbetson, A Historical Introduction to the Law of Obligations

Answer 4

“In medieval law informal contracts were enforceable only if they were reciprocal: the debtor must have received something in exchange, quid pro quo…In popular etymology this was the very essence of the idea of contract, actus contra actum”.

Question 5

A Rationale?

A promises to pay B £100, in return for B promising to pay A £1. Consideration?

Answer 5

Forde v Birmingham City Council

In such a case, there is no contract as “the apparent contract is in reality a gift of £99.”

Question 6

Promises by Deed

Answer 6

Need no consideration in a deed
The traditional requirements: “signed, sealed, delivered”; the modern equivalent: a deed complying with Law of Property (Miscellaneous Provisions) Act 1989

Question 7

L Fuller, “Consideration and Form”:

Answer 7

Consideration is functionally equivalent to formality, and so fulfils an evidentiary, cautionary, and channelling function; but
A promise made in a deed is binding even if B is unaware of A’s promise: Macedo v Stroud;
A unilateral, spontaneous mistake by A may suffice to allow A to set aside a deed

Question 8

A Rationale?
Consideration is a requirement of A’s coming under a contractual duty.
Its justification depends on the nature and operation of such a duty, and of the correlative right of B.
What advantages are gained by B?

Answer 8

I) The existence and terms of A’s duty are interpreted “objectively” (Smith v Hughes);
II) A unilateral mistake of A does not allow A to escape the duty;
III) A comes under an immediate legal duty to honour the agreement – “a contract, subject to the narrow doctrine of frustration, must be performed come what may” (per Hoffmann LJ in Walton v Walton) – A can be compelled to put B in the position that B would have been in had the contract been performed (expectation damages).

Question 9

The Details
Consideration need not be adequate
Doesn’t need to be of value to the reciever case

Answer 9

Chappell v Nestle Co Ltd per Lord Somervell
“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.”
Compare with White v Bluett

Question 10

The Details
Consideration need not be adequate
White v Bluett

Answer 10

A son’s promise to cease complaining to his father would not be consideration for a father’s alleged promise to release his son from a debt
Compare with Chapell v Nestle

Question 11

The Details
Consideration need not be adequate
Good reason v motive case

Answer 11

Thomas v Thomas
consideration cannot be found whenever there is “a good reason” for A’s promise
A’s desire to comply with the wishes of the deceased X does not constitute consideration for A’s promise to allow B (X’s widow) to live in the house that used to belong to X; but B’s promise to pay £1 per year towards rent and to maintain the property is consideration. Patteson J at 859: “Motive is not the same thing as consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff”.

Question 12

The Details
Consideration need not be adequate
Shadwell v Shadwell (1860)

Answer 12

note the importance of a request
B’s marriage to X seen as requested by A as the price of A’s promise to pay B £150 per year during A’s life; compare Combe v Combe

Question 13

The Details
Consideration need not be adequate
Combe v Combe per Denning LJ:

Answer 13

“Assuming, however, that she has suffered some detriment by her forbearance, nevertheless, as the forbearance is not at the husband’s request, it is no consideration.”

Question 14

The Details
Consideration need not be adequate
- Treitel (see E Peel, Treitel’s Law of Contract)

Answer 14

Identifies a category of “invented consideration”: where B’s action is not regarded as the “price for A’s promise” but is nonetheless said to constitute consideration – see eg Shadwell at 174 per Erle CJ: “[B] may have made a most material change in his position”

Question 15

The Details
Performance of a Pre-Existing Duty
1) A is under a contractual duty to B. A refuses to perform that duty unless C guarantees A against loss A may suffer through performance of the contractual duty to B. C provides the guarantee.

Answer 15

Pao On (see above) per Lord Scarman at 632: “A promise to perform, or the performance of, a pre-existing contractual obligation to a third party can be valid consideration.” – note that, on the facts of the case, no economic duress was exercised by B on A

Question 16

The Details
Consideration must not be past
Eastwood v Kenyon per Lord Denman CJ:

Answer 16

“In holding this declaration bad because it states no consideration but a past benefit not conferred at the request of the defendant, we conceive that we are justified by the old common law of England”.

Question 17

The Details
Consideration must not be past
Pao On v Lau Yiu Long per Lord Scarman:

Answer 17

Consideration can sometimes be past if done at the promisor’s request, understood by the parties as to be remunerated, and the renumeration must have been legally enforceable had it been promised in advance.

Question 18

The Details

Consideration must move from the Promisee

Answer 18

• Dunlop Pneumatic [1915] AC 847 (HL) at 853 per Viscount Haldane LC (see above)

Joint promisees: Coulls v Bagot’s Executor & Trustee Co Ltd [1967] ALR 385 (High Ct Australia)

Note now Contract (Rights of Third Parties) Act 1999, s 1

Question 19

The Details
Performance of a Pre-Existing Duty
A is under a contractual duty to B. A refuses to perform that duty unless C guarantees A against loss A may suffer through performance of the contractual duty to B. C provides the guarantee.

Answer 19

Pao On (see above) per Lord Scarman at 632: “A promise to perform, or the performance of, a pre-existing contractual obligation to a third party can be valid consideration.” – note that, on the facts of the case, no economic duress was exercised by B on A

Question 20

The Details
Performance of a Pre-Existing Duty
B is under a public duty to provide particular services of benefit to A. A promises to pay B for providing those services.
Glasbrook Brothers Ltd v Glamorgan CC [1925] per Lord Shaw at 290:

Answer 20

“I clearly am of the opinion that no charge can be exacted from a private citizen for the performance of a public duty…first, it is against public policy that the performance of a public duty shall be a matter of private purchase, and, second, a promise or agreement to pay, accepted from a citizen in times of nervous alarm or anxiety, fails in legality on the ground of duress” – see now s25(1) Police Act 1996

Question 21

The Details
Performance of a Pre-Existing Duty
B is under a public duty to provide particular services of benefit to A. A promises to pay B for providing those services.
Denning LJ in Ward v Byham [1956]:

Answer 21

challenges Glasbrook v Glasmorgan
“I approach the case, therefore, on the footing that, in looking after the child, the mother 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.”

Question 22

The Details
Performance of a Pre-Existing Duty
B is under a contractual duty to pay A £1000. B is struggling to make the payment and A promises B that A will accept £800 in full discharge of B’s debt.
B is under a contractual duty to A to provide services at a fixed price. B is struggling to complete the work in time and A offers B a bonus payment if the work is completed on time.

Answer 22

Formerly well-established rule: promise to perform, or performance of, existing duty owed by B to A, does not constitute consideration.

Question 23

The Details
Performance of a Pre-Existing Duty
2) B is under a public duty to provide particular services of benefit to A. A promises to pay B for providing those services.
Glasbrook Brothers Ltd v Glamorgan CC [1925] per Lord Shaw at 290:

Answer 23

“I clearly am of the opinion that no charge can be exacted from a private citizen for the performance of a public duty…first, it is against public policy that the performance of a public duty shall be a matter of private purchase, and, second, a promise or agreement to pay, accepted from a citizen in times of nervous alarm or anxiety, fails in legality on the ground of duress” – see now s25(1) Police Act 1996

Question 24

The Details
Performance of a Pre-Existing Duty
2) B is under a public duty to provide particular services of benefit to A. A promises to pay B for providing those services.
Denning LJ in Ward v Byham [1956]:

Answer 24

challenges Glasbrook v Glasmorgan
“I approach the case, therefore, on the footing that, in looking after the child, the mother 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.”

Question 25

The Details
Performance of a Pre-Existing Duty
3a and 3b the rule

Answer 25

Formerly well-established rule: promise to perform, or performance of, existing duty owed by B to A, does not constitute consideration.

Question 26

3a) B is under a contractual duty to pay A £1000. B is struggling to make the payment and A promises B that A will accept £800 in full discharge of B’s debt.

Answer 26

See eg Pinnel’s Case (1603) 5 Co Rep 117a; Sibree v Tripp (1846) 15 M & W 23 per Alderson B: “It is undoubtedly true that payment of a portion of a liquidated demand, in the same manner as the whole liquidated demand which ought to be paid, is payment only in part, because it is not one bargain, but two: payment of part, and an agreement without consideration to give up the residue. The Courts might very well have held the contrary, and left the matter to the agreement of the parties, but undoubtedly the law is so settled”; Foakes v Beer (1884) 9 App Cas 605 (HL).

Question 27

3b) B is under a contractual duty to A to provide services at a fixed price. B is struggling to complete the work in time and A offers B a bonus payment if the work is completed on time.

Answer 27

see eg Stilk v Myrick (1809) 2 Camp 317 per Lord Ellenborough: “the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed.”

Question 28

Pre Existing obligation

Important exception::

Answer 28

Williams v Roffey Bros [1991]

1. A contract with B to supply goods or services;
2. B Has reason to doubt that A will, or will be able to complete his obligations
3. B promise to pay A extra to complete on time
4. B obtain a practical benefits or obviates a disbelief
5. B’a promise was not given as a result of fried or duress.

Question 29

The Details
Performance of a Pre-Existing Duty
3a and 3b
Reaction to Roffey Bros:

Answer 29

(i) In England, held not to apply to case 10a: In re Selectmove [1995] 1 WLR 474 (CA) per Peter Gibson LJ at 481: “When a creditor and a debtor who are at arm’s length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v Beer yet held not to constitute good consideration in law. Foakes was not even referred to in Roffey Bros, and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of Roffey Bros to any circumstances governed by the principle of Foakes.”

Question 30

The Details
Performance of a Pre-Existing Duty
3a and 3b
Reaction to Roffey Bros:

Answer 30

(i) In England, held not to apply to case 10a: In re Selectmove [1995] 1 WLR 474 (CA) per Peter Gibson LJ at 481: “When a creditor and a debtor who are at arm’s length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v Beer yet held not to constitute good consideration in law. Foakes was not even referred to in Roffey Bros, and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of Roffey Bros to any circumstances governed by the principle of Foakes.”

Question 31

The Details
Performance of a Pre-Existing Duty
3a and 3b
compare Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 (Supreme Court of New South Wales), applying Roffey Bros to a promise by A to accept a lower rent from B:

Answer 31

Santow J stated that: “there has been a continuing trend to side-step the artificial results of a strict doctrine of consideration…conceptually it can make no difference whether [A] promises [B] an additional payment for [B’s] promise of performance or grants [B] the equivalent concession of promising a reduction in [B’s] payment obligations, where these pre-exist.”

Question 32

The Details
Performance of a Pre-Existing Duty
3a and 3b
(ii) Some reluctance to apply Roffey Bros even to case 10b:
South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm) per Colman J at [108]:

Answer 32

“But for the fact that Roffey Bros was a decision of the Court of Appeal, I would not have followed it. The decision is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promisee. The judgment of Glidewell LJ was substantially based on Pao On in which the Privy Council had held a promise by A to B to perform a contractual obligation owed by A to X could be sufficient consideration as against B…But in the former case by the additional promise to B, consideration has moved from A because he has made himself liable to an additional party, whereas in the latter case he has not undertaken anything that he was not already obliged to do for the benefit of the same party.”

Question 33

The Details
Performance of a Pre-Existing Duty
3a and 3b
(iii) Some academic support for Roffey Bros:

Answer 33

M Chen-Wishart, “A Bird in the Hand: Consideration and Contract Modifications” in A Burrows & E Peel (ed) Contract Formation and Parties (OUP, 2010) 89.

Question 34

The Details
Performance of a Pre-Existing Duty
3a and 3b
(iv) Earlier judicial support for the Roffey Bros approach: eg Denning LJ in Ward v Byham (see above); Hobhouse J in The Alev [1989] 1 Lloyds Rep 138 at 147:

Answer 34

“now there is a properly developed doctrine of the avoidance of contracts on the grounds of economic duress, there is no warrant for the Court to fail to recognise the existence of some consideration even though it may be insignificant and even though there may have been no mutual bargain in any realistic use of that phrase.”

Question 35

The Details
Acknowledged Exceptions
(i) Bills of exchange: e.g. X owes money to B – X gives to B a bill drawn on A – A agrees to pay B – if A does not pay:

Answer 35

By the end of 17th century, clear that the “custom of merchants” means that A is liable to B, even if no consideration provided: see eg Pillans v van Mierop (1765) 3 Burr 1663
- see now Bills of Exchange Act 1882, s 27(1)(b): valuable consideration for a bill of exchange can be constituted by an “antecedent debt or liability”

Question 36

The Details
Acknowledged Exceptions
(ii) Letters of credit: e.g. B wishes to sell goods to X, but does not want to ship them until payment secure – X instructs its bank (A) to promise to pay price to B when B presents bank with the necessary documents – A makes that promise thus opening a letter of credit for B – the letter of credit is said to be “irrevocable” even though the consideration provided by B is not obvious
Lord Steyn, “Contract Law: Fulfilling the Reasonable Expectations of Honest Men” (1997) 113 LQR 433 at 437:

Answer 36

“Once a serious intention to enter into legal relations and a concluded agreement is demonstrated in a commercial context there is virtually a presumption of consideration which will almost invariably prevail without a detailed search for some technical consideration…in recent times the courts have shown a readiness to hold that the rigidity of the doctrine of consideration must yield to practical justice and the needs of modern commerce.”

Question 37

The Details
Acknowledged Exceptions
(ii) Letters of credit: e.g…
See too Lord Mansfield in Pillans v van Mierop (1765) 3 Burr 1663, 1669:

Answer 37

“In commercial cases amongst merchants, the want of consideration is not an objection.” – although compare Rann v Hughes (1778) 4 Bro PC 27 (HL), rejecting the idea that any written agreement can bind without consideration

Question 38

CONSIDERATION: CRITICISMS
Inconsistency with Promissory Morality/ Will Theory of Contract
- see eg C Fried, Contract as Promise (Harvard, 1981), ch 3, eg at 35:

Answer 38

“I conclude that the standard doctrine of consideration…does not pose a challenge to my conception of contract law as rooted in promise, for the simple reason that that doctrine is too internally inconsistent to offer an alternative at all…by limiting the class of arrangements to bargains, [it] holds that individual self-determination is not a sufficient ground of legal obligation, and so implies that collective policies may after all override individual judgments, frustrating the projects of promisees after the fact and the potential projects of promisors.”

Question 39

CONSIDERATION: CRITICISMS
Distraction from the Real Basis of Liability
- see eg P Atiyah, “Consideration: A Restatement” in Essays on Contract (OUP, 1986) 179 at 181-3:

Answer 39

“It seems highly probable that when the courts first used the word ‘consideration’ they meant no more than that there was good ‘reason’ for the enforcement of a promise…I would today wish to qualify the suggestion that consideration ‘means’ a reason for the enforcement of a promise. It now seems to me more accurate to suggest that consideration really was and is a reason for the recognition of an obligation, rather than a reason for the enforcement of a promise. Given that (as argued in Essay 2) reliance and benefit are often themselves good reasons for the recognition of obligations in law – that we have many non-promissory cases in which the obligation is based upon an element of detrimental reliance or an element of benefit rendered or obtained – and given also that many cases in contract law are based on implied promises which seem more or less fictitious, the wider formulation of the function of consideration seems more accurate.”

Question 40

CONSIDERATION: CRITICISMS
Lack of Success in Meeting its Supposed Goal
- see eg AT Denning, “Recent Developments in the Doctrine of Consideration” (1952) 15 MLR 1 at 1:

Answer 40

“The purpose of this article is to suggest that, both in the formation and in the discharge of contract, while keeping the doctrine of consideration, we are tending to regard any act done on the faith of a promise as sufficient consideration to support it, even though the act done is no benefit to the promisor and no detriment to the promisee.”

Question 41

Foakes v Beer

Answer 41

part payment of debt is not good consideration for a full payment of debt

Question 42

What is consideration?

Answer 42

It’s what’s make a contract legally binding

Question 43

Case reference for ‘past’ consideration:

Answer 43

Eastwood v Kenyon

(Mr Eastwood promised he would pay the debt but later changed his mind”

Roscorla v Thomas

Sale of the horse and seller promised horse wasn’t vicious.

Question 44

Not good consideration - general rule case ref:

Answer 44

Stilk V Myrick

Question 45

If you go over and above your existing obligations…..

Answer 45

Is consider good consideration

Question 46

Part payment by 3rd party is good consideration

Answer 46

Case ref: Welby v Drake