Consideration is Essential to Validity

In the Oxford Dictionary of Law, consideration is defined as ‘An act, forbearance, or promise by one party to a contract that constitutes the price for which he buys the promise of the other. Consideration is essential to the validity of any contract other than one made by deed. Without consideration an agreement not made by deed is not binding; it is a nudum pactum (naked agreement), governed by the maxim ex nudo pacto non oritur action (a right of action does not arise out of a naked agreement).’ Without consideration, it is very hard to prove that a contract has been form, as it is an important element. [1] In the English Legal System requires that a promise must be legally binding. Whether this must be either contained in a deed, or a simple contract, consideration must have been given in order for a contract to be valid.

The doctrine of consideration has developed over many centuries. Originally the doctrine of consideration was only based on a moral obligation. This theory can be seen in the case of Stone v. Withpool (1588), where the judge said, “every consideration that doth charge the defendant in an assumpsit must be to the benefit of the defendant or charge of the plaintiff, and no case can be put out of this rule.” [2] However in the Eighteenth Century, Lord Mansfield took an open-minded attitude towards the topic of consideration as an essential requirement. In the case of Rann v Hughes (1778), he ‘argued that a previous moral obligation was sufficient consideration for a future gratuitous promise.’ [3] Then, in the case of Hawkes v. Saunders (1782), Lord Mansfield said, “when a man is under a moral obligation, which no court of Law or Equity can enforce, and promises, the honesty and rectitude of the thing is consideration… The ties of conscience upon an uptight mind are a sufficient consideration.” [4] Things really developed in the Nineteenth Century, in the case of Eastwood v Kenyon (1840), where the moral obligation caused the promise to be insufficient. Later the idea of detriment and benefit and was drawn into the doctrine, along with the idea of consideration being something of value in the judgment of the law, in the mid- nineteenth century. This final doctrine of consideration was described in Thomas v Thomas (1842), “Consideration means something which is of some value in the eye of the law, moving from the plaintiff; it may be some detriment to the plaintiff or some benefit to the defendant, but at all events it must be moving from the plaintiff.” [5]

In order for a contract to be legally binding, there must be offer and acceptance, intention to create legal relation and consideration, which is a major element which the courts have to consider. On the other hand however, in family and social arrangements, it is not uncommon for people to make promises seeking nothing in return- so it is called gratuitous promises. ‘The doctrine of consideration seems to mean that gratuitous promises are not enforceable unless they are made by deed.’ [6] This means that the law will enforce bargains not promises, because there are certain elements which are part of consideration in order for it to be sufficient consideration. There must be some sort of exchange, where there is benefit and detriment on from the plaintiff and defendant, as seen in Currie v. Misa (1875), where the Judge said, “A valuable consideration, in the sense of the law, 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.” [7] The exchange must have a value in the eyes of the law, which is either trivial or nominal consideration. Trivial consideration is seen in the case of Thomas v. Thomas (1842), where the courts decided that a promise of a gift can be rendered enforceable and courts may be able to discover consideration in an essentially gratuitous situation. An example of nominal value can be seen in the case of Chappel v. Nestle (1960), where it was found that chocolate wrappers were acceptable values of consideration. The judge in this case said, “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.” [8] This case illustrates one of the important rules of consideration, where it must be sufficient but need not be adequate.

There are some stipulations about consideration. One is that past consideration is not good consideration. This is because the notion of contract as a bargain means that consideration must be generally requested at the time of the disputed promise. In the case of re McArdle (1951), because the family signed a document saying, “In consideration of your carrying out…” [9] consideration was found to be past. The only exception to this rule is when an act is done at the promisor’s request or when a promise to pay a pre-existing debt or obligation is enforceable. [10] When a promisee would be bound by law to do something, (for example, wear a seatbelt when driving), would mean this would be insufficient consideration. In Hamer v. Sidway (1891), it was found that there was sufficient consideration, because the nephew wasn’t bound by law not to drink or smoke, it was his own right. If someone is under a public duty to do a particular task, then agreeing to do that task is not sufficient consideration for a contract. However, if someone exceeds their public duty, then this may be valid consideration [11] , as seen in the case of Glassbrooke Bros v Glamorgan County Council (1925). Finally, the doctrine of privity of contract means that Judges will only consider who the parties to the agreement are and whether they have provided consideration. It was said by Lord Haldane in 1915, that “certain principles are fundamental. One is that only a person who is a party to a contract can sue on it…A second principle is that, if a person with whom a contract not under seal has been made is to be able to enforce it, consideration must or to some other person at the promisor’s request… A third proposition is that a principal not named in the contract may sue upon it if the promise really contracted as his agent. But again, in order to entitle him to sue, he must have given consideration either personally or through the promise, acting as his agent in giving it.” [12]

Consideration is a useful doctrine for Judges to determining whether promises are enforceable. Consideration provides a vital element for a contract, in order for it to be enforceable. Normally the rules of consideration are called the badge of enforceability because ‘under classical contract theory, consideration is required for a contract to be enforceable.’ [13]

There have been many criticisms over the years about the doctrine of consideration, by Judges and professors. One criticism is that the doctrine is too narrow and fails to give effect to the promised that ought to have legal effect. It has also been said that the doctrine has become extremely technical. As it the doctrine is divorced from commercial reality, the law does not look in the adequacy. Many have argued that the doctrine is too old fashioned and it is difficult to reconcile the doctrine with modern contract law, which asks the question if the promise is based on the will of the parties, why insist on consideration? Lord Goff once said, “our law of contract is widely seen as deficient in the sense that it is perceived to be to be hampered by the presence of an unnecessary doctrine of consideration.” [14]

Many judges and professors have given their opinion on the future of the doctrine of consideration and therefore generated controversy about the desirability of consideration as the chief criterion of enforceability. Chen-Wishart explains in her book that there are four alternatives for the doctrine. The first is to replace consideration with the test of intention to bound, in which promises are unenforceable in a contract. The second is to replace consideration in modifications with the test of intention to be bound. The third is where ‘consideration’ means a good reason for enforcement. This means that the concept of consideration will include reliance, unjust enrichment and other good reasons, e.g. serious promises. The final alternative is to retain bargain promises in consideration but give recognition to non-contractual sources of liability remedies where it is appropriate. [15] However, if consideration was not the chief criterion of enforceability it would be much easier for a contract to be class as legally binding. Chen-Wishart argues that ‘intention to create’ and ‘duress’ would work much better as guidance on enforceability. [16] If this was put into practice, there would be no would for consideration, meaning that its history and related case law would become invalid. Therefore, consideration is only part of contract law, which is important, but not the chief criterion of enforceability of promises.