Consideration is often seen as an integral part in the formation ofcontracts.
However, the abolishment of consideration is an ongoing debate assome judges and law practitioners believe that consideration is not a necessaryrequirement within contracts. This essay will explore the doctrine ofconsideration and whether courts still require contracts to be supported by it. Despite all the alternative doctrines available to replacethe need of consideration in the formation of contracts, the fundamental theoryof consideration deals with aspects of contracts that alternative conceptscannot adequately deal with.
This is supported by Denning LJ in Combe v Combe.1The case deals with promissory estoppel, where the claimant uses theconcept to enforce her husband’s promise. However, promissory estoppel couldonly be used as a defence in that case and Denning LJ stated that the principleshould not attempt to abolish consideration as it is ‘too firmly fixed’.2 To begin exploring the topic of consideration, a basic understandingof contract law is required.
A contract is an agreement which gives rise toobligations that are enforceable by law. Contracts can be bilateral whichinvolves two parties making contractual promises or be unilateral, whereofferor of a promise requires an act in return. However, contracts cannot beimposed by the law, they are undertaken by contracting parties. Contracts can be approached in two ways; contracts formed as a deedor contracts made through offer, acceptance, intention and consideration.
A promise made in a deed or given forconsideration is binding and enforceable by law. A deed is a document which is ‘signed, sealedand delivered’ however according to section 1 of the Law of Property Act 1989,deeds are no longer required to be sealed. If a promise is not in a deed, itcan only be binding if it is given for consideration from the promiser to thepromisee.
Most contracts are bargains which involves the process of offer andacceptance. The offer made by an individual must contain a promise however, insome cases it can be an invitation to treat, such as in the case of Gibson v Manchester City Council3in which the claimant assumed an advert was an offer however the court heldthat it was an invitation to treat. In order to determine whether there was anoffer present, the reasonable observer test is used, which looks at theintention of the offer as it appears to a reasonable person, not the actualintention of the offeror. Another component in the formation of a contract isintention to create legal relations which determines whether there wasintention to enter into a legally binding contract.
However, despite thepresence of an offer, acceptance of that offer and intention, a contract is notbinding in law unless there is consideration.McKendrick refersto consideration as a ‘badge of enforceability’4as it distinguishes between which promises are enforceable and which are not.The doctrine of consideration is offered many different definitions. Pollock5states that it is ‘an act or forbearance of one party, or the promise thereof,is the price for which the promise of the other is bought, and the promise thusgiven for value is enforceable’6which was accepted by the House of Lords in Dunlopv Selfridge.7Other definitions emphasise the benefit and detriment between two parties when exchangingpromises such as the definition held in Curriev Misa 8in which Lush J stated that ‘A valuable consideration, in the sense of the law, mayconsist either in some right, interest, profit, or benefit accruing to the onepart, or some forbearance, detriment, loss, or responsibility, given, suffered,or undertaken by the other’.9There are also numerous rules which govern the law ofconsideration. Firstly, past consideration does not amount to consideration asit occurred before the promise was made.
An example of this comes from Eastwood v Kenyon 10where the guardian of a young girl borrowed money in order to educate her whichwould increase her marriage prospect. She promised to pay the money back aftergetting married however her husband failed to pay him and as a result Eastwoodsued them. However, court held that it was just a promise and moral obligationsdoes not compose consideration and Eastwood carried out the acts that wouldhave constituted as consideration which was educating her.
However, pastconsideration can be valid consideration in some cases. For example, in Lampleigh v Braithwaite11, the defendant was sentenced to death and asked claimant to grant a pardonfrom the king which the claimant successfully achieved. The defendant thenpromised to pay claimant a sum but then went on to refuse to pay. The courtheld that claimant was entitled to the sum as his act representedconsideration.
The case of Pao On v LauYiu Long12adds to the idea of past consideration by providing three conditions that mustbe satisfied if acts performed in the past can form consideration. This outlinesthat courts still require contracts to be supported by consideration. Complexdisputes arise from similar situation and in terms of past consideration, someare enforceable and some are not however the doctrine of consideration isfundamental in solving difference in contract law cases as it provides clarityand takes into account the context surrounding the specific case. Another rule which governs consideration is thatconsideration does not need to be adequate but must be sufficient. This ishighlighted in the case of Chappell vNestle13where the court has to decide if sweet wrapper amounted to good considerationand held it was, as sweet wrappers are evidence that Nestle was gaining aconsiderable amount of money even though the competition involved collecting anitem with very little value, it did form part of consideration. In addition, whenan individual refrained from doing something that they had no right to do, itdoes not amount to sufficient consideration.14Furthermore, if a court establishes that there was blackmail involved whichthen acted as consideration, it is not enforceable.
This demonstrates whycourts still require contracts to be supported by consideration. If the conceptof sufficient consideration was not in existence, parties within a contractcould exploit the law and cause sufficient detriment to one another.The notion that consideration must move from the promisee isanother rule governs the doctrine of consideration.
If consideration isprovided by a third party and not the promisee, then they are unable to enforcethe agreement. This concept is demonstrated in the case of Tweddle v Atkinson15whereby father of the bride and father of the groom entered into anagreement to pay the couple a sum of money however, the father of the bridepassed away. Before he could sue, the father of the groom also passed away.When the groom tried to make a claim against the executor of the will, courtheld that he was not a party involved directly in the agreement and theconsideration did not come from him therefore he could not enforce thecontract.
This rule is a main reason why courts still require contracts to besupported by consideration. Within a contract, a third-party involvement cancreate issues and complex scenarios that case law and statutes cannot provideremedies for however, as a result consideration, the involvement of a thirdperson who is not the promisor or promisee within a contractual setting is verylimited. Another rule of consideration is that existing contractualduty will not be accepted as good consideration. If the duty was already owed, it cannot amountto consideration for a promise.
The case of Stilkv Myrrick16outlines this rule as the claimants, seamen, were promised that their wageswould increase, as a few of the other seamen had deserted and the captain hadto return to London and could not do it without their help. Upon their return,the captain refused to pay the extra amount promised and the seamen sued. Thecourt held that the claimants were under an existing duty to perform and didnot provide consideration for the extra money as they were only doing theirjob, their existing contractual duty. On the other hand, the similar case of Hartley v Ponsonby17had a different outcome.
This case also involved the promise of extra money dueto deserted crew members however the number of deserters were substantiallyhigher which increased the work load of others considerably. The captain’srefusal to pay was not accepted by court as a new contract had been formedbetween the captain and crew as the voyage had become increasingly dangerouswhich rescinded the existing agreement. They provided consideration by workingon the ship therefore they were entitled to the extra payment.
The differencebetween the judgement in these two cases despite being similar in numerous waysaccounts to the fact that consideration is required by courts to supportcontracts. It stops the exploitation of workers but also stops the exploitationof employers, simply by determining if there is good consideration. The issues with consideration includes the uncertainty andopenness of the doctrine which almost undermines the rule of law. The case of Williams v Roffey Bros18does not tie into the judgement in Stilkv Myrrick.19The defendants are building contractors who agreed to refurbish a block of flatand hired claimants to undertake the carpentry work. However, six months aftercommencing their work, they realise that they do not have enough money tocomplete the job required and asked for more from the defendant.
The defendant promisesan extra sum but does not pay the full amount and as a result, the claimantruns out of money and refuses to complete the job until the payment isreceived. The defendant employed another carpenter as the claimant did notprovide consideration, but carried on with their existing contractualobligation which they undertook. The courts however held that as the defendantbenefited by the claimant continual work which was avoiding the penalty hewould receive for not completing the flats on time, consideration was providedand defendant was liable to provide the extra sum. Whilst judges claim that thedecision in Williams v Roffey Bros20 is compatible with the judgement madein Stilk v Myrrick21,it’s grounds for doubting the doctrine of consideration as defendants in bothcases can be seen as benefitting from the action of the claimant however, thecaptain was not asked to pay the extra sum. It creates considerable doubtaround the status principle of Stilk vMyrrick.22As a result, if the doctrine of consideration is flawed in some instances,courts must not require all contracts to be supported by consideration.
In addition, many seem to suggest that consideration isno longer a required necessity of contract law. Lord Goff described contractlaw in England as being ‘hampered’ by the ‘unnecessary doctrine ofconsideration’.23Due to the discontent with the function of consideration as a result ofdecisions made in Williams v Roffey Bros24,a common idea that the doctrine should be replaced is becomingincreasingly popular. There are many alternatives suggested, one of which is promissoryestoppel which prevents individuals from going back on a promise which was notsupported by consideration. It was developed by anobiter statement made by Denning J in CentralLondon Property Trust v High Trees Ltd25which was based on decision in Hughesv Metropolitan Railway.2627However, promissory estoppel cannot be used as a “sword” but rather a “shield” 28 soit cannot be used as it performs a different function to consideration.
Another alternative to consideration is intention to createlegal relations. This particular doctrine objectively tries to determine ifthere is a legal contract or not by looking at the intentions of the partiesinvolved. An advantage of replacing consideration with this doctrine is thatthere is legal certainty which attempts to enforce contracts. On the otherhand, the disadvantage of using this doctrine is the issues concerning theenforcement of gratuitous promises and the problems surrounding the area ofwhich promises are enforceable.
29Economic duress is anotheralternative for consideration. It is a defense, usedin contract law by a party to argue against the formation of a binding contractbetween two parties. In order to verify economic duress, a party must show thata continuous contract exists between the plaintiff and the defendant, thedefendant threatens to terminate the preexisting contract and the plaintiffunder this duress accepts the defendant’s terms and enters the contract.30Purchas LJ stated that ‘The modern cases tend to depend more upon the defenceof duress in a commercial context rather than lack of consideration’.31 Another alternativeis the Material Benefit Rule. It is an ‘alternativebasis for enforcement of promises in the absence of consideration.
In a handfulof cases, courts have chosen to enforce promises made in recognition of priorbenefits received’.32’A promise made in recognition of a benefit previously received by the promisorfrom the promisee is binding to the extent necessary to prevent injustice’.33 Despite all the choices presented, I believe that courtsshould require contracts to be supported by consideration. However, when facingdifficulties with the doctrine of consideration, it should be adapted andinclude other doctrines such as promissory estoppel which may define the futureof contract law.
1 1951 2 KB 2152 1951 2 KB 2153 1979 1 WLR 2944 Ewan McKendrick, Consideration and Form (3rd edn, Palgrave 1997)5 Sir Frederick Pollock, Principles of Contract: A Treatise on theGeneral Principles Concerning the Validity of Agreements in the Law of England (8thedn, Stevens and Sons 1911) 6 1915 1 AC 8477 1915 1 AC 8478 (1875) LR 10 Ex 153, 1629 (1875) LR 10 Ex 153, 16210 Eastwood v Kenyon (1840) 11 Ad&E 43811 Lampleigh v Braithwaite (1615) EWHC KB J1712 Pao Onv Lau Yiu Long 1979 3 ALL ER 6513 Chappell v Nestle 1960 AC 87 14 PaulS Davies, The Law of Contract (OUP2016)15 1861EWHC QB J5716 1809EWHC KB J58 17 18577 EB 87218 19902 WLR 115319 1809EWHC KB J5820 19902 WLR 115321 1809EWHC KB J5822 1809 EWHC KB J5823 White v Jones 1995 2 AC 207 24 1990 2 WLR 115325 1947 KB 130 26 (1877) 2 App Cas 43927 ‘Promissory Estoppel’