Analysing the Doctrine of Consideration in Law

Lord Goff described contract law in England as being ‘hampered’ by the ‘unnecessary doctrine of consideration’. White v Jones [1995] 2 AC 207 at p263.

Discuss the role of consideration in English law and assess whether it is ‘unnecessary’.

Introduction

The doctrine of consideration has probably been regarded as one of the most controversial issues in the English Law of contract. Never the less it plays a very central role in English Law. To create a legally enforceable contract, consideration must be present. However, when a contract is made by deed, consideration is not a requirement. In the absence of consideration an agreement not made in deed is not binding. This is known as “nundum pactum” (promise made with no agreement to support it). Some people such as Lord Goff argue that consideration is unnecessary whereas others, claim that it is central in determining whether a contract exists or not. Whether consideration is really ‘unnecessary’ or not will be discussed throughout the essay. In contractual terms the meaning of consideration is much different to that in real life. There are many definitions for consideration. Consideration is the ‘agreed equivalent and inducing cause of the promise (pg 119, contract law purple book). It is the price for which the promise of the other is bought (law of contract, pg 60). Traditionally, the doctrine of consideration has been defined as either a detriment to the promisee or a benefit to the promisor.

Currie v Misa (1875) define it as, ‘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.’ (at162)(maybe find journal or reference business law james marson). The rule that‘consideration must move from the promisee’, means that detriment to the promisee will be present in nearly all cases and benefit to the promisor is often merely a by-product of this detriment, but either one is sufficient. A number of different features complicate this simple definition. This matter will be discussed further in the essay. A more recent definition suggests that both parties must contribute to the bargain. The house of lords defined consideration in the case of Dunlop v Selfridge (1915) AC 847( journal or lecture notes) as: ‘An act of forbearance of 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.’ In the case of Thomas v Thomas (1842) consideration was defined as ‘something of value in the eyes of the law, moving from the claimant, it may be some detriment to the claimant or some benefit to the defendant’ (reference notes). The definitions themselves suggest that consideration has come under fire due to its somewhat obdurate nature and inconsistencies. However, as the essay shall discuss later some of these past ill effects have been mitigated through developments of the law in promissory estoppels. à consideration- basic rule which promises should be enforced and which are to be regarded as gratuitous.

Gives bargains a legal privilege over gifts (gratuitous promises).

Is consideration necessary?

The instability in the definition and scope of consideration gives courts considerable freedom in determining the enforceability of any promise. This has provoked criticisms of the doctrine.

42 P.S. Atiyah, Consideration in Contracts: a Fundamental Restatement (Australian National University. Press, 1971), p9

Atiyah’s, Essays in Contract (Clarendon Press, 1986) 179, Professor Atiyah argues on the basis of the law actually applied in the courts that consideration is used in a broader much wider sense than simply bargain:

‘when the courts found a sufficient reason for enforcing a promise they enforced it; and when they found that for one reason or another it was undesirable to enforce a promise, they did not enforce it. It seems highly probable that when the courts first used the word ‘consideration’ they meant no more than that there was a ‘reason’ for the enforcement of a promise.’ .

This interpretation of consideration admits that the courts have always, though variably, adopted a functional approach to the findings of bargain consideration. Basically, they manipulate the rules or resort to avoidance devices to achieve just results. The main criticism is that the finding of consideration merely signifies the conclusion, rather than explaining why, a promise is enforceable. The doctrine of promissory estoppel is the promisors unconscionable inducement of the promisee’s reliance; the logical response is to avoid the promisee’s detriment although courts have enforced the promise. (pg 180 contract law new bk) It seeks to attract some enforcement of undertakings which aren’t supported by consideration nor contained in a deed. Atiyah however, regards promissory estoppel which protects reasonable reliance on a promise, not as an exception to consideration, but as another ‘consideration’ supporting enforcement.

Invented consideration: In consideration: A critical Analysis of Professor Atiyah’s Fundamental restatement’ (1976) treital argues in favour of the traditional view of bargain consideration. However, he still emphasises the flexibility of bargain consideration. He also suggests that there could be a possibility that the English courts could ‘invent’ consideration. This is because they could treat an act or forbearance as valid consideration, even though it was not the promisor’s purpose to obtain it (chappell v Nestle 1960). Secondly, although there is no prejudice to the promisee (Shadwell)

The doctrine is narrower in the US ‘nothing is consideration that is not regarded as such by both parties (philpots v Gruniger 1872). When compared to the US law, the English definition of consideration seems more accurate. The US law needs a wider doctrine of promissory estoppel.

CONSIDERATION POSITIVE

There are many criticism against the doctrine of consideration however, it we mus consider the positive aspects too. The doctrine of consideration protects the promisee’s reliance, eg forbearance to sue. This is where X has a claim against Y, X provides consideration for Y’s promise if X: forbears from suing on his claim, compromises his claim. For example, where X’s claim is doubtful in law, his compromise or forbearance is still good consideration (haigh v Brooks 1839) Haigh (Plaintiff) sold cotton to Lees on credit. Brooks (Defendant) agreed to guarantee his debt to Plaintiff. The agreement did not satisfy the Statute of Frauds. Lee did not pay his debt on time. Plaintiff sued Defendant that denies the debt failure to follow the Statue of Frauds and lack of consideration.

When a party to a contract does something that they do not have to do or does not do something they have the right to do, no matter how small, that act can constitute consideration and bind the other party.

‘Value’ is essentially a subjective matter, that is, a thing has value if the parties

attribute value to it. See:

• Haigh v Brooks (1839).

It also helps in Preventing the promisors enrichment at the promisees expense (eg the exception to the past consideration rule. Although past consideration is not good consideration there are exceptions to this rule as sometimes the exact order of events is not decisive if the court is satisfied that the promisor’s promise and the promisee’s past actions are, in fact, part of the same overall transaction. This is the gist of the major exception to the past consideration rule, the doctrine of implied assumpsit. Lampleigh v Brathwait (1615), where B (sentenced to death) asked L to obtain a pardon from King James I. L was successful. B’s subsequent promise to pay £1000 was held enforceable.

Pau On v Lau Yiu Long (1980)

It Encourages finality in dispute resolution ( forbearance and compromises- where x’s claim is valid in law (pg 137)) where the duration of forbearance is not unspecified , an implication of reasonable time will be made ( payne v Wilson 1827)

Imposing responsibility otherwise regarded as just (eg. Ward v byham (134))

Consideration requires at least the form of a present or future exchange. The promisors mere wish to confer a benefit is unenforceable, since nothing comes back the other way in exchange for it. Thus mere motive is not good consideration, it is merely motive for the promise. Thomas v Thomas (1842), a testator expressed his intention to let his widow have his house for the rest of her life. After his death, the executors promised to carry out the testators desire if the widow paid £1 per annum towards the ground rent and kept the house in repair. The court held that the testators wish merely the motive for the transaction and that only the widows promise to pay and make repairs were of value in the eye of the law as good consideration for the executors promise.

AGAINST

recognising performance actually bargained for (ie desired) when there is some technical obstacle to its qualifying as consideration (eg. Nominal or invented consideration in Chappell v Nestle, and ‘practical benefit’ in Williams v roffey brothers) This case (Chappell and Co Ltd v Nestlé [1960] AC 87 House of Lords) demonstrates that the consideration (see: Consideration) in a contract (see: Contract) may be very, very close to non-existent at yet still be sufficient to uphold the agreement. Nestle offered a record to customers who sent a certain number of chocolate bar wrappers. Although the wrappers were simply thrown away, it was sufficient consideration to support the agreement.

Nestle v Chappell a promisee supplied three wrappers from the promisors chocolate bars, in exchange for a promised gramophone record. This case suggests that factual benefit to the promisor and detriment to the promisee are doubtful. Atiyah concludes that the promise in Nestle was enforceable without consideration in the bargain sense since: ‘it would be ridiculous to assert that the sending or the receipt of the wrappers necessarily involved an actual detriment to the sender or a benefit to the defendants.’ (PS Atiyah, ‘Consideration: A restatement’ in Atiyah’s Essays on Contract (Clarendon Press, 1986) 193.

Indeed the promisor insisted that the wrappers were worthless and thrown away on receipt. Trietal bridges the gap with his concept of ‘invented consideration and by emphasising that consideration need not be adequate; there is ‘ no doctrinal difficulty in holding that a piece of paper or some act of forbearance of very small value can constitute consideration.’(pg 132 reference contract law)

Recognising the subjectivity of values and respecting the parties intention nominal consideration

Consideration need not be adequate

Another issue which must be addressed is that of part payments of debt. The law currently refuses to recognise a partial payment of a debt as valid consideration for a promise to clear the entire debt.

This was decided in Foakes v Beer. In this case the claimant said she would not take legal action if the defendant gave her £500 immediately and paid the remaining in instalments. The agreement did not mention interest however. After Dr Foakes had paid the debt Mrs Beer asked for the interest but he refused, relying on their agreement. She sued claiming there was no consideration for the agreement, the House of Lords upheld her claim. This rule was re-confirmed in Re Selectmove. This can be justified along the lines of protecting creditors from unfair pressure and upholding the principal that consideration must consist of some form of benefit to the promisor or detriment to the promisee. Much controversy surrounds Williams v Roffey Brothers, which qualifies by finding valid consideration in the performance or promise to perform an existing contractual duty where it has added to the criticisms of the consideration doctrine, particularly as it only validates one sided contract modifications involving ‘the same for more’, but not ‘less for the same’ modification (foackes v beer, confirmed by Re Selectmove).

The esoteric argument put forth in Foakes v Beer is that a partial payment cannot ever be seen as a benefit over a legal right to the full sum. This, it is submitted is a rather short sighted view, as it doesn’t take account of the surrounding circumstances which could result in a massive practical benefit for the promisor, for example if the debtor owed multiple debts and was on the verge of default and the bird in the hand argument.

It also appears to be one which is in conflict with the laws development in Williams v Roffey as it could be suggested that the two obligations are simply mirror images of each other, paying more for the same is roughly equivalent to accepting less. Also again the argument must be raised that if a peppercorn or something equally useless can be considered a benefit, why not a sum of money? These arguments would seem to suggest that the doctrine of consideration is unsatisfactory in dealing with such situations and it would indeed be so if it weren’t for the development of the doctrine of promissory estoppel, an entirely separate concept from consideration but one that has a resounding effect upon consideration’s impact upon the law.

The instability of the consideration doctrine is reinforced by the rule that consideration need not be adequate (although it must be sufficient). This allows courts to recognise as valid consideration: nominal consideration, compromises of claims or forbearances to sue and certain intangible benefits. However, consideration must be sufficient, ie of value in ‘the eye of the law.’ This allows courts to exclude as invalid consideration: motive, conditional gifts, certain intangible benefits, illusory benefits, and bad faith compromises of forbearance.

Main criticisms are that it is- over inclusive in enforcing non- bargains

Under- inclusive in failing to enforce some promises worthy of enforcement

And internally incoherent in making artificial distinctions.

Other country laws

Other jurisdictions enforce substantially all agr

English law and French law have rules which may results in enforcement of only those contracts which are bargains. (‘cause and consideration: a study paralled, Markesinis (1978) 37 cambridge lane journal 53)

Consideration must represent a detriment to the person who contribute it, it must have some real value. However, it does not need to be adequate. This principle has given rise to some peculiar decisions, eg. That chocolate bar wrappers were capable of being consideration (chapel v Nestle 1959) the need to consider whether the wrappers could constitute consideration arose from copyright law. Forbearing to sue someone can be consideration if the action was honestly thought to be valuable. But carrying out an existing duty is not consideration, though doing something more may be. This approach applies whether the duty is a public one….. or a contractual one. Eg in stilk v myrick 1809 a captain of a ship promised extra money to hsi crew id they would bring the ship home following two desrtations. The crew could not sue for the money as they were already contractually bound to bring the ship home. But in Hartley v ponsonby 1857 extra money promised for bringing a ship home could be claimed, because the number of desertations was so great as to release the remaining crew from their contractual duties.

But the attitude of the courts here is changing. An agreement to perform an obligation already owed to a third party may amount to consideration. Also, Considering the definitions mentioned earlier it seems that the requirement for a benefit has moved from the need to show a legal benefit, to a practical benefit. The case of The Eurymedon [1974] shows this. In this case there was a difficulty in establishing how a third party stevedore could benefit from an exemption of liability clause which was part of the contract between the shipper and the carrier. It was held that the practical benefit which was having the goods unloaded provided consideration for a collateral contract between the stevedore and the shipper. This is because it enabled the stevedore to benefit from the exemption. This illustrates that the ill effects of the doctrine of consideration have been alleviated by the courts willingness to find consideration, even minimal and already legally obligated benefit, in a commercial context.

. And in Williams v Roffey brothers, a promise by building contractors to pay a further sum to subcontractors in financial difficulties was held to be enforceable in the absence of economic duress or fraud.

Consideration must not have taken place in the past it may be present (or executed) as with Carlill v Carbolic Smoke Ball Company 1893, and the reward cases, where the act which constitutes acceptance is also the consideration; or it may be future (executory). But if it was merely done in the past before any express or implied promise was made, then it is not consideration. In roscorla v Thomas 1842 a promise to pay more for a horse which had been bought it is proved satisfactory was unenforceable. In re mcardle 1951 a widow who only had a life interst in a house (ie she was entitled to the use of or income from it during her lifetime) carried out some improvements to it. Her children, who were to inherit it after her death, subsequently promised to pay her for the work. This promise was unenforceable, because the consideration for it was past.

It may however be arguable that there was an implied promise at the time that the act allegedly constituting consideration would be rewarded in some way, and the sum was fixed later. Eg lampleigh v Braithwaite 1615 in this case the defendant asked the plantiff to obtain a royal pardon for him. When the pardon was obtained, the defendant promised to pay the plantiff £100. The plantiff could claim this sum.

Some from the person to whom the promise in question is made, ie the promisee

Be legal