Consideration in Contract Law

Consideration is an essential element to the creation of a valid contract.

The consideration must be of some value that can be objectively determined. Consideration is often defined as a benefit or detriment. A person will be found to have provided consideration if he can show he has conferred a benefit on the other party in return for that party’s promise or that he has incurred a detriment for which the other party’s promise was intended to compensate.

The case of Currie v Misa (1875) offers a defination of consideration as –

“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.”

There are three types of consideration:

1. executory,
2. executed,
3. and past consideration.

Past Consideration is some act carried out before a promise is made. Past consideration does not amount to sufficient consideration. See Roscorla v Thomas (1842) 3 QB 234.

The Common Law takes the view that not all promises are enforceable. For a promise to be enforceable it must be shown that the person to whom the promise is made has given something in return for the promise i.e a quid pro quo.

One exception to the general rule is that a promise contained in a deed under seal does not require consideration.

If there is no consideration a promise will be unenforceable at Law.

In Aga Khan v Firestone and Firestone (1992) Morris J found that a promise of first refusal on the sale of a property was unenforceable for want of consideration.

Also see Allied Irish Bank v Fagan (1995) – A company called Greendale had given an undertaking to Taafe & Co solicitors to pay legal fees due to them out of proceeds of the sale of a named property. Costello J held that the undertaking was unenforceable against Greendale because Greendale had given no consideration for it.

Consideration in a Contract must not be illegal.

It is a basic principle of Contract Law that while consideration must be sufficient it need not be adequate.

Adequacy means the value of the consideration provided in the context of the economic value of the transaction.

However this is not something that can affect the validity of the consideration. The only legal requirement is that the consideration involves a minimum economic value. The Courts presume that the parties to the contract are the best judges of their own interests.

In Kennedy v Kennedy (1984) Ellis J stated

“once there is consideration its adequacy in this sort of case is irrelevant to its validity and enforceability if the agreement itself has been proved”

The effect of this rule is that worthless consideration will not be regarded as insufficient merely because it is worthless.

In Haugh v Brooks (1839) the defendant received, as per his request , a worthless piece of paper in return for a promise made by him to pay £10,000. It was held to be sufficient consideration.

Whilst the adequacy of the consideration is not relevant to whether it is a valid consideration, the requirement that consideration be sufficient means that it must be something of value in the eyes of the law (Furmston & others, The Law of Contract (1999) para 2.42).

Sufficiency means that the consideration is of a type recognised by the law as effective to enforce a promise given in return.

O’Neill v Murphy (1936) N.I 16.

The plaintiff builder sued the defendant a canon, for payment in respect of works done to the parish buildings. The defendant claimed that a contract existed between the parties whereby the defendant would offer prayers for the benefit of the plaintiff in return for the work done on the buildings. The N I Court of Appeal found that saying prayers could not be said to be sufficient consideration.

In Re Wilson (1933) IR 729 Johnston J held there was no agreement for valuable consideration where a father made over a property to a son ‘for natural love and affection’ and then promised an allowance to the son to assist in maintaining the property.

The performance of a duty already owned cannot constitute consideration.

In Stilk v Myrick (1809) – two seamen deserted on a voyage, the Captain agreed with the rest of the crew that if they worked to get the ship back to London without the two seamen being replaced that he would divide the two extra wages with the crew. On arrival the extra pay was refused. The Court held that there was no consideration for the extra pay promised.

Also in Collins v Godefroy ( 1831) 1B & A.950

The court held that the court held that the plaintiff was merely fulfilling a duty already owned by him and therefore it was not sufficient consideration.

However an agreement to do something over and above the call of duty can amount to consideration.

In Glasbrook Brothers v Ganmorgan County Council (1925) A.C 270

The owners of a coal mine requested static police protection for their mine during a strike. However the police authority took the view that the mine could be adequately protected by patrolling the area. The static police presence was agreed in return for payment of the extra cost involved. The owners refused arguing that the police were under a public duty to provide the protection. The House of Lords rejected this argument and held that the police providing more protection than they deemed necessary was capable of amounting to consideration.

An exception under which performance of an existing contractual duty can amount to consideration can be seen in the Rule in Pinnels case.

If a liquidated sum is owed by A to B, a promise by B to take a lesser sum in full satisfaction of the larger debt will not bind B.

There are a number of exceptions to this rule summarised below.

Introduction of a new element

Additional payment to get work completed – see Williams v Roffery Brothers & Nichols Ltd ( 1990) 1 All E.R 512

Promissory Estoppel – When one person makes a promise to another and that person acts of the foot of that promise the person who made the promise will be prevented or estopped from denying the truth of that promise.

See – Central Bank Trust v High Trees House ( 1947) KB 130

Partial payment of a debt by a third party – when a creditor accepts partial payment of a debt from a third party in full settlement, the debt is discharged and an action cannot succeed against the original debtor for the balance. See Welby v Drake ( 1825) 1 Car & P557

The doctrine of consideration is expansive and the rules and examples quoted above would be only a brief analysis of the topic.