An agreement is not usually binding unless it is supported by consideration. This means that each party must give something in return for what is gained from the other party.
Consideration
What is consideration? Consideration may be a thing or a service. It is usually described as being something which represents either some benefit to the person making a promise (the promisor) or some detriment to the person to whom the promise is made (the promisee), or both.
Promisor and promisee
In most contracts, two promises will be exchanged, so each party is both a promisor and a promisee.
Consideration need not benefit the promisor
Consideration need not benefit the promisor – so there can be consideration where the promisee suffers some detriment at the promisor’s request, but this gives no particular benefit to the promisor.
‘Executory’ and ‘executed’ consideration
Executory consideration is where something is to be done in the future after the contract has been formed. Executed consideration is where at the time of the formation of the contract the consideration has already been performed. Executed consideration usually occurs in unilateral contracts.
Consideration must not be past
Lawyers often say that consideration must not be past, but this is slightly confusing because the emphasis is not really about the time that the consideration was given, but rather about whether the consideration was given in exchange for the other party’s consideration. Consideration must be given in return for the promise or act of the other party
Roscorla v Thomas (1842)
The defendant in Roscorla v Thomas (1842) sold the claimant a horse. After the sale was completed, the defendant told the claimant that the animal was ‘sound and free from any vice’. This turned out to be rather far from the truth, and the claimant sued. The court held that the defendant’s promise was unenforceable, because it was made after the sale. If the promise about the horse’s condition had been made before, the claimant would have provided consideration for it by buying the horse. As it was made after the sale, the consideration was past, for it had not been given in return for the promise.
Legal Principle
Consideration must be given in return for the promise of the other party.
Exceptions to the rule that past consideration is no consideration
Where the past consideration was provided at the promisor’s request, and it was understood that payment would be made in return.
Lampleigh v Brathwait (1615)
In Lampleigh v Brathwait (1615) Thomas Brathwait had been convicted of killing a man, and he asked Anthony Lampleigh to obtain a pardon for him from the King. After considerable trouble and expense, Lampleigh managed to do so. In the excitement of getting his pardon, Brathwait promised to pay Lampleigh £100, but later refused to hand over the money, so Lampleigh sued. It might appear that Lampleigh’s consideration was past, since he had secured the pardon before the promise to pay was made. In fact, the court upheld Lampleigh’s claim. It reasoned that Lampleigh had obtained the pardon at Brathwait’s own request, and this request carried with it the unspoken understanding that the service would be paid for. Lampleigh obtained the pardon after, and in return for, this implied promise to pay, and so obtaining the pardon was good consideration for the promise to pay. The later promise, specifying that £100 would be paid, was said to be merely confirmation of the original, unspoken one. This reasoning seems less odd when we consider that today there are many requests which carry with them unsaid promises to pay – when we ask a taxi driver to take us somewhere, or ask the milkman to leave an extra pint, we do not actually say that we will pay for those goods and services, but clearly it is understood by both parties that we will. It may well be that requests to secure royal pardons had the same well-understood effect in 1615. Legal Principle Past consideration is sufficient when it is provided at the promisor’s request and it is understood that payment will be made in return.
Consideration must be sufficient
Consideration must be sufficient but need not be adequate; the courts will not inquire into the adequacy of consideration, so long as there is some
Thomas v Thomas (1842)
In Thomas v Thomas (1842) the claimant was a widow whose husband had stated that if he died before his wife, she should be allowed to live in his house for the rest of her life, after which it was to pass to his sons. When the man died, the defendant, who was his executor, agreed that the widow could continue to occupy the house in return for a promise that she would pay £1 a year and keep the house in good repair. Despite this, sometime later, the defendant tried to evict the widow, so she sued for breach of contract. The defendant claimed that the earlier promise was not binding because of lack of consideration. However, the court held that the widow’s promise to pay £1 and keep up the repairs was sufficient consideration to make the owner’s promise binding.
Legal Principle
Consideration must be sufficient but need not be adequate.
Consideration must be of economic value
Consideration must have some physical value, rather than just an emotional or sentimental one: White v Bluett (1853), a father promised not to make his son repay money he had borrowed, if the son promised not to keep boring him with complaints. The court held that the son’s promise was not sufficient consideration to make his father’s promise binding, because it had no economic value.
Consideration can be a promise not to sue
If one party has a possible civil claim against the other, a promise not to enforce that claim is good consideration for a promise given in return
Alliance Bank Ltd v Broom (1864) Broom had an overdraft of £22,000 with the bank, and they asked him to provide some security. Mr Broom promised to do so, but never did, and as a result the bank sued him. Mr Broom argued that there was no consideration for his promise to provide security, but the court held that the consideration was provided by the bank’s implied promise not to sue for a while, giving Mr Broom time to provide security, even though they did sue fairly shortly afterwards.
Performance of an existing duty
Where a promisee already owes the promisor a legal duty, then in theory performing that duty should not in itself be consideration.
Existing duties can be divided into three main categories:
- public duties
- contractual duties to the promisor
- Contractual duties to a third party.
Existing public duty
Where a promisee is under a public duty, but does something which goes beyond what they are bound to do under that duty, that extra act can amount to consideration
In Glasbrook Brothers Ltd v Glamorgan County Council (1925),Glasbrook Brothers were the owners of a coal mine in South Wales. Their employees went on strike and Glasbrook Brothers asked the police to place a guard at the coal mine during the strike. The police refused to do this as they considered that regular checks by a mobile police patrol would be sufficient to protect the mine. The mine owners therefore offered to pay the police £2,200 to cover the extra cost of having the police stationed at the mine full-time during the strike. When the strike was over, the mine owners refused to pay. They argued that the police had an existing duty to protect the mine and therefore had provided no consideration for their promise to pay. The House of Lords held that the police had provided an extra service which did amount to consideration. The police were merely under a public duty to maintain law and order and could choose how they achieved this. Viscount Cave LC said: If in the judgement of the police authorities, formed reasonably and in good faith, the garrison was necessary for the protection of life and property, then they were not entitled to make a charge for it. As on the facts this was not the case, they were entitled to charge for the extra service.
Existing contractual duty to the promisor
In the past, the rule was that performance of an existing contractual duty owed to a promisor was not consideration
Stilk v Myrick (1809)
In Stilk v Myrick (1809) two sailors deserted a ship during a voyage and the captain was unable to find replacements for them. The eight remaining crew members were promised extra wages for sailing the ship back home shorthanded, but when they arrived back in London, the captain refused to pay the extra money. The sailors sued for it, but the court held that there was no consideration for the captain’s promise; the sailors had already contracted to sail to their destination and back, and that was all they had done.
Legal Principle
Performance of an existing contractual duty owed to a promisor is not normally consideration.
Williams v Roffey (1990)
In Williams v Roffey (1991) these principles were reconsidered by the Court of Appeal. Roffey were a building firm with a contract to refurbish a block of flats. They subcontracted the carpentry work on the project to Williams, agreeing to pay him £20,000 for the work. But before the work was finished, it became obvious that Williams had financial problems, which would prevent him finishing the work on time. Roffey’s agreement with the owners of the flats contained a penalty clause, which meant Roffey would lose out if the complete project was not finished on time. Roffey agreed that the original contract price had been too low, and their representative approached Williams, offering an extra £10,300 on top of the agreed price of £20,000 in return for finishing the job on schedule. The agreement also included changes to the working arrangements: instead of Williams working on several flats at once, he would finish one at a time, so allowing other contractors doing different work to come in after him. When the carpentry work was done, Roffey refused to honour their promise to pay the extra £10,300, so Williams sued for breach of contract. The Court of Appeal found that Roffey’s promise to pay extra was supported by valuable consideration: in return for Williams finishing the job on time, Roffey would avoid losing money under the penalty clause in their contract with the building’s owners, and the cost and inconvenience of finding another contractor to finish the job, and had also benefited from the altered working arrangements. Even though Williams was only doing what he had originally contracted to do, Roffey was receiving extra benefit. As a result of Williams v Roffey , the law now seems to be that if one party’s promise to perform an existing contractual duty to supply goods or services confers an additional practical benefit on the other party, then, providing that no duress is involved, it will be sufficient consideration to make a promise given in return binding, even though in legal terms they are only agreeing to carry out their existing contractual duty.
Legal Principle
If one party’s promise to perform an existing contractual duty to supply goods or services confers an additional practical benefit on the other party, then, providing that no duress is involved, it will be sufficient consideration to make a promise given in return binding.
Contractual duties to supply goods or services
As a result of Williams v Roffey, the law now seems to be that if one party’s promise to perform an existing contractual duty to supply goods or services confers an additional practical benefit on the other party, then, providing that no duress is involved, it will be sufficient consideration to make a promise given in return binding, even though in legal terms they are only agreeing to carry out their existing contractual duty.
Contractual duties to pay debts
Special rules apply to contractual duties regarding debts. Where someone owes another money and cannot pay the full amount, they will sometimes offer to pay a smaller sum, on condition that the creditor promises to accept it as full settlement for the debt – in other words, agrees not to sue later for the full amount. Even if such an agreement is made, it is only binding if the debtor provides some consideration for it by adding some extra element
Pinnel’s Case (1602)
In Pinnel’s Case (1602) Pinnel sued Cole for £8 10s, which Cole owed on a bond (a promise under seal to pay money). The debt had become due on 11 November. Cole argued that at Pinnel’s request, he had given him £5 2s 6d on 1 October, which Pinnel had accepted in full settlement of the debt. Pinnel actually won the case on a technicality, but the court made it clear that had it not been for that technicality, they would have found in favour of Cole, because of the fact that he had made payment earlier than the due date, and this amounted to fresh consideration for the promise to accept less than the full amount. The court stated: ‘Payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction for the whole but a change in time or mode of payment, or the addition by the debtor of a tomtit, or canary or the like will suffice to constitute consideration for the [creditor’s promise to forgo his debt].’ In other words, if the debtor pays early, or in a more convenient place, or gives something else as well as the part-payment, the creditor is receiving some benefit and the debtor some detriment, and this is fresh consideration for the creditor’s new promise to accept part-payment and not insist on getting the whole amount. Suppose, for example, Ann lends Ben £100, and they agree that Ben will pay the money back in one month’s time. If Ann arrives on the appointed date, to find that Ben only has £40, and will only hand over that amount if Ann agrees that it is in full settlement for the debt, Ann can agree to this, and still sue Ben for the other £60 later – Ben has given no consideration for Ann’s promise to accept the part-payment, and so the promise is not binding. If, however, Ben pays the £40 before the month is up, or offers Ann £40 and a book, then if in either of these circumstances Ann agrees to accept the part-payment as full settlement, that promise will be binding because Ben has given consideration for it.
Legal Principle
If a debtor offers to pay a reduced sum back to the lender in full and final settlement and the lender agrees to accept it, this agreement will only be binding if the debtor provides some extra element that can be treated as consideration.
Exceptions to the rule in Pinnel’s Case
The rule in Pinnel’s Case does not apply if there is a genuine dispute about whether the debt is actually owed, or about the amount owed ( Cooper v Parker (1885)). The rule in Pinnel’s Case does not apply to unliquidated damages. Composition agreements are binding. A creditor who accepts part-payment from a third party, in full settlement of the debtor’s liability, cannot then sue for the outstanding amount. Promissory estoppel also constitutes an exception to the rule in Pinnel’s Case .
Existing contractual duty to a third party In some cases, two parties make a contract to provide a benefit to someone who is not a party to the contract, known as a third party. If one of them (X) makes a further promise to that third party, to provide the benefit they have already contracted to provide, that further promise can be good consideration for a promise made by the third party in return – even though nothing more than the contractual duty is being promised by X
Scotson v Pegg (1861)
In Scotson v Pegg (1861) Scotson contracted with A to supply a cargo of coal to A, or to anyone A nominated. Scotson was instructed by A to deliver the coal to Pegg who was a third party to the original contract between Scotson and A. Pegg promised to unload the coal at a stated rate of pay. He subsequently failed to do the agreed unloading. Scotson sued Pegg, claiming that their promise to deliver the coal to him was consideration for his promise to unload it. Pegg claimed this could not be consideration, since Scotson was already bound to supply the coal under the contract with A. The court upheld Scotson’s claim: delivery of the coal was consideration because it was a benefit to Pegg, and a detriment to Scotson in that it prevented them from having the option of breaking their contract with A (in which case they would just pay damages to A) and having no liability to Pegg. However, there is some suggestion that Scotson had done more than he was bound to do under the earlier contract, and so provided additional consideration, and this means that the case is not entirely conclusive on the point we are discussing here.
Legal Principle
If a contracting party promises to provide a benefit to a third party which they are already bound to provide under the contract, this promise can still be good consideration for a promise made by the third party.
Waiver and promissory estoppel
Waiver and promissory estoppel are both ways of making some kinds of promise binding even where there is no consideration. Promissory estoppel is a somewhat newer doctrine than waiver. It was developed by Lord Denning in Central London Property Trust Ltd v High Trees House Ltd (1947). The precise extent of the doctrine of promissory estoppel is still unclear. What is clear is that the following conditions must be fulfilled before the doctrine can be applied.
- A pre-existing contractual relationship
- A promise
- Inequitable to enforce strict legal rights.
- Future rights not destroyed.
- No new rights created.
Central London Property Trust Ltd v High Trees House Ltd
The claimant owned a block of flats. In September 1939, it had leased the block to the defendant, who planned to rent out the individual flats, use the income to cover the payments on the lease, and make a profit on top. Unfortunately, these plans were rather spoilt by the fact that the Second World War had just broken out, and many people left London, making it difficult to find tenants. As a result, many of the flats were left empty. The claimant therefore agreed that the defendant could pay just half the ground rent stipulated in the lease. By 1945, the flats were full again, and the claimant sought the full ground rent for the last two quarters of 1945. The claimant stated that the agreement was only ever intended to last until the war was over, or the flats fully let, whichever was the sooner. Both events had happened by the time payment for the last two quarters of 1945 were due, and so the company believed it was entitled to full payment for that period. The court accepted this argument, holding that the full rent was payable for the two quarters in question, and from then on. Of more importance is the fact that Denning J went on to state that the claimant would not have been entitled to recover the rent for the period 1940–45, even though there was no consideration for the promise to accept the reduced rent, because of the equitable principle laid down in Hughes . In fact, this reasoning (which was obiter , because the claimant was not actually seeking to recover all the past rent) went further than that put forward in Hughes . In the earlier case the landlord’s rights had effectively been only temporarily suspended, but in High Trees , Denning J declared that the landlord’s claim for its full contractual rights for the period 1940–45 had been destroyed – by accepting the reduced rent for the wartime period, it lost its right to claim for arrears of rent, rather than simply suspending this right until the tenant could afford to pay.
Legal Principle
Under the doctrine of promissory estoppel, a contracting party who promises not to enforce a contractual right will not be able to enforce that right later if it would be inequitable to do so, and the promise has been relied upon by the other party.
ILLUMINATION IAS 