Contents:

➢ Introduction
➢ Definition and Importance of Consideration
➢ Key Elements of Consideration
➢ Types of Consideration
➢ The Role of Consideration in Promises and Contracts
➢ Exceptions to the Consideration Rule
➢ Criticism
➢ Conclusion
➢ References
Introduction1

Consideration is a fundamental element of contract law that plays a pivotal role in ensuring the
enforceability of agreements. It is a critical concept that differentiates legally binding contracts
from mere promises. This paper examines the concept of consideration in contract law, exploring
its definition, types, essential elements, and exceptions. The paper also evaluates the role of
consideration in ensuring fairness and justice in contractual agreements, with reference to key
case law and academic commentary. The discussion is supported by sources cited using the
OSCOLA 4th edition referencing style. Defining consideration in terms of detriment and benefit is
very much a 19thcentury concept and one which is not popular today. It is arguably preferable to think
in terms of a claimant buying a defendant’s promise by performing some act in return for it or by the
claimant making a counter promise (an exchange). The definition of consideration given by Sir Frederick
Pollock, approved by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915], 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 thus given for value is enforceable.” An easy way to think of consideration is as
“the price paid for the promise”, or alternatively the quid pro quo element of the contract. Subject to
certain exceptions outlined in this chapter, all contractual promises must be supported by some
consideration. The consideration must be of sufficient value – this means that it must have some legal
worth. It does not need to have economic value. Why? Because courts have historically been more
concerned with enforcing people’s bargains, rather than regulating the fairness of their bargains. This is
why you may have heard that a promise can be enforced for the price of a peppercorn or a pound –
consideration is symbolic of the legal value of your promises. Commonly the consideration in a contract
is the promise of performance, rather than performance itself. This means that a contract has legal
effect from the moment it is agreed, and that it can be enforced even if that party is not yet due to pay
or perform.

1. Definition and Importance of Consideration

Consideration is often defined as something of value that is exchanged between parties to a

contract, typically in the form of a promise, act, or forbearance. It is the benefit or detriment that
each party must give or receive to form a valid and enforceable contract. As Lord Denning in
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 (HL) explained,
consideration is essential because it “distinguishes a contract from a gift.” Without consideration,
a promise is usually unenforceable, as it lacks the necessary legal binding force.

The principle of consideration serves multiple purposes in contract law. It ensures that a contract
reflects a bargained-for exchange and prevents the enforcement of non-serious promises.
Additionally, it provides a clear test for enforceability, offering certainty and predictability in
contractual relationships.

Consideration is governed by several key principles that dictate its validity in contract law.

• 111
Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 (HL).
 [Link] Elements of Consideration2

Mutual Exchange: For a contract to be enforceable, there must be a mutual exchange of

consideration between the parties. This is the foundation of what is known as a "bargain."
The courts have consistently emphasized the need for both parties to exchange something of
value. In Currie v Misa (1875) LR 10 Ex 153, Lush J defined consideration as “a right,
interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or
responsibility given, suffered, or undertaken by the other.”

• Sufficiency, Not Adequacy: Consideration must be sufficient but does not need to be
adequate. This means that the law will not scrutinize whether the consideration
exchanged is equal in value, as long as something of value is exchanged. As established
in Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 (HL), even if the consideration
appears nominal (such as a chocolate wrapper), it can still be sufficient to constitute valid
consideration, provided it holds some value in the eyes of the law.
• Past Consideration: A promise made based on past consideration is generally not
enforceable. This is because, for consideration to be valid, it must be given in exchange
for the promise at the time the contract is made, not before. As seen in Roscorla v
Thomas (1842) 3 QB 234, the court held that a promise made after the sale of a horse,
based on a past event (the horse's condition), was not enforceable, as it lacked
contemporaneous consideration.
• Pre-existing Duty Rule: A promise to perform an existing duty cannot constitute valid
consideration. The rule is designed to prevent parties from using existing contractual
obligations as consideration for new promises. This principle is illustrated in Stilk v
Myrick (1809) 2 Camp 317, where a sailor’s promise to sail back to port for a new
payment was deemed unenforceable because the sailor was already obligated to perform
the same task under the original contract.

3. Types of Consideration

Consideration can take various forms, each fulfilling the requirement of providing something of
value in exchange for a promise.

Monetary Consideration: This is the most common form of consideration, typically involving
the exchange of money. A simple example would be the payment for goods or services, such as
the sale of a car for a specified sum. The adequacy of the sum, however, is not typically
scrutinized unless it is grossly inadequate Generally, courts do not inquire whether the deal
between two parties was monetarily fair—merely that each party passed some legal obligation or
duty to the other party.[31][32] The dispositive issue is the presence of consideration, not the
adequacy of the consideration. The values between consideration passed by each party to a
contract need not be comparable.

2
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 WLR 639
For instance, if A offers B $200 to buy B's mansion, luxury sports car, and private jet, there is
still consideration on both sides. A's consideration is $200, and B's consideration is the mansion,
car, and jet. Courts in the United States generally leave parties to their own contracts and do not
intervene. The old English rule of consideration questioned whether a party gave the value of
a peppercorn to the other party. As a result, contracts in the United States have sometimes have
had one party pass nominal amounts of consideration, typically citing $1. Thus, licensing
contracts that do not involve any money at all often cite as consideration, "for the sum of $1 and
other good and valuable consideration."

However, some courts in the United States may take issue with nominal consideration, or
consideration with virtually no value. Some courts have since thought this was a sham. Since
contract disputes are typically resolved in state court, some state courts have found that merely
providing $1 to another is not a sufficiently legal duty, and therefore no legal consideration
passes in these kinds of deals, and consequently, no contract is formed. However, this is a
minority position.[3

• .
• Non-Monetary Consideration: Consideration can also take the form of an act or
forbearance. A promise to do something, such as delivering goods or services, can serve
as consideration. For example, a promise to refrain from doing something (such as
competing in a particular market) constitutes forbearance and can be valid consideration.
• Nominal Consideration: Sometimes, the consideration exchanged is not of significant
monetary value but may still be sufficient to satisfy the requirement of consideration.
This is particularly common in situations involving family agreements or contracts where
the consideration is symbolic, as illustrated in Chappell & Co Ltd v Nestlé Co Ltd.
• Forbearance: Forbearance refers to the act of refraining from exercising a legal right.
This can be a valid form of consideration. For example, a promise to not initiate a lawsuit
constitutes forbearance, which can be accepted as consideration in a contract.

4. The Role of Consideration in Promises and Contracts3

Consideration is essential not only for creating enforceable contracts but also in maintaining
fairness within contract law. By requiring consideration, the law ensures that each party has a
stake in the agreement and that there is a mutual exchange. The requirement serves to avoid
situations where one party is bound by a promise without receiving anything in return, which
could lead to unjust or one-sided agreements.

However, the principle of consideration also reflects a balancing act. While it prevents gratuitous
promises, it also recognizes that not all promises should require a strict exchange of goods or
services. As seen in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 WLR 639, the
courts may allow modifications to contracts without fresh consideration if it benefits both parties
and is done in good faith. In this case, the court found that a promise to pay extra for completing
a job on time was enforceable, despite the lack of new consideration, because it ensured practical
performance of the contract.

3
Stilk v Myrick (1809), 2 Camp 317
5. Exceptions to the Consideration Rule 4

While consideration is generally required for a contract to be enforceable, there are several
exceptions where a promise may be enforceable without consideration:

• Contracts under Seal: In some jurisdictions, a contract executed under seal (a formal
mark placed on a document) may be enforceable even without consideration. This
exception has its roots in common law and is particularly significant in formal
agreements such as deeds or land transactions.
• Promissory Estoppel: The doctrine of promissory estoppel allows a promise to be
enforced even in the absence of consideration if one party has reasonably relied on the
promise to their detriment. This is often seen in cases where the promisee takes action
based on the promise, such as in Central London Property Trust Ltd v High Trees House
Ltd [1947] KB 130 (HL), where a promise to reduce rent during wartime was enforced
despite the lack of consideration.
• Partial Payment of Debt: Under the rule of Foakes v Beer (1884) 9 App Cas 605, the
payment of a lesser sum of money in satisfaction of a larger debt is not valid
consideration, and the creditor can claim the remainder. However, some exceptions exist,
particularly where a third party provides consideration or there is a practical benefit to
one of the parties, as seen in Williams v Roffey Bros & Nicholls (Contractors) Ltd.
• Statutory Exceptions: Some statutory frameworks modify the common law rules of
consideration. For example, under the Contracts (Rights of Third Parties) Act 1999 (UK),
a third party may benefit from a contract even if they did not provide consideration,
provided the contract expressly allows for such an arrangement.

[Link]
•
• The primary criticism of the doctrine of consideration is that, in its present form, it is
purely a formality that merely serves to complicate commerce and create legal
uncertainty by opening up otherwise simple contracts to scrutiny as to whether the
consideration purportedly tendered satisfies the requirements of the law. While the
purpose of the doctrine was ostensibly to protect parties seeking to void oppressive
contracts, this is currently accomplished through the use of a sophisticated variety
of defences available to the party seeking to void a contract. In practice, the doctrine of
consideration has resulted in a phenomenon similar to that of Ḥiyal in Islamic contracts,
whereby parties to a contract use technicalities to satisfy requirements while in actual fact
circumventing them in practice. Typically, this is often described in the form

4
Newar Marble Industries Pvt. Ltd. Vs. Rajasthan State Electricity Board, Jaipur, 1993 Cr. L.J.
1191 at 1197, 1198 [Raj.]"
 of "peppercorn" consideration, i.e. consideration that is trivial but still satisfies the
requirements of law, although texts and commentators making such assertions do have a
credible basis for doing so.[g]
• The doctrine of consideration is expressly rejected by the UNIDROIT Principles of
International Commercial Contracts on the grounds that it yields uncertainty and
unnecessary litigation, thereby hindering international trade.[40] Similarly, the United
Nations Convention on Contracts for the International Sale of Goods similarly does not
require consideration for a contract to be valid, thereby excluding the doctrine with
regard to contracts covered by the convention even in common law jurisdictions where it
would otherwise apply. Consequently, the continued existence of the doctrine in common
law jurisdictions is controversial. Scots lawyer Harvey McGregor's "Contract Code",
a Law Commission-sponsored proposal to both unite and codify English and Scots Law,
proposed the abolition of consideration. Some commentators have suggested that
consideration be replaced by estoppel as a basis for contracts.[41] However, any change to

the doctrine of consideration in the jurisdictions in which it exists would need to

implemented by legislation.

7. Conclusion

Consideration is a cornerstone of contract law, ensuring that contracts are formed based on a
mutual exchange of value. Through various types of consideration—whether monetary,
forbearance, or performance—the law upholds the principle that contracts should not be based on
mere promises, but on a bargained-for exchange. While exceptions to the consideration rule
exist, they are tightly regulated to prevent abuse. As demonstrated in landmark cases,
consideration reflects the balance of fairness and justice within contractual relationships. Despite
its complexities and exceptions, the requirement for consideration remains a vital aspect of
ensuring the integrity and enforceability of contracts in both personal and commercial contexts.

References

• Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87 (HL).

• Currie v Misa (1875) LR 10 Ex 153.
• Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 (HL).
• Foakes v Beer (1884) 9 App Cas 605.
• Roscorla v Thomas (1842) 3 QB 234.
• Stilk v Myrick (1809) 2 Camp 317.
• Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 WLR 639.
• Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 (HL).
• Lampleigh v Braithwaite (1615) Hob 105
• ^ Kennedy v Broun (1863) 13 CB (NS) 677
• ^ Re Casey's Patents (aka Stewart v Casey) [1893] 1 Ch 104
• ^ Pao On v Lau Yiu Long [1980] AC 614 (PC)
• ^ Stilk v Myrick (1809), 2 Camp 317
• ^ Hartley v Ponsonby (1857) 7 E&B 872
• ^ Glasbrook Bros v Glamorgan CC [1925] AC 270
• ^ Williams v Roffey [1990] 2 WLR 1153
• ^ The Indian Contract Act 1872 s.2d
• ^ "Contract opposed to public policy can be repudiated by the court of law even if that
contract is beneficial for all of the parties to the contract. What considerations and objects
are lawful and what not – Newar Marble Industries Pvt. Ltd. Vs. Rajasthan State
Electricity Board, Jaipur, 1993 Cr. L.J. 1191 at 1197, 1198 [Raj.]"
• ^ German Civil Code § 311, accessed 15 July 2017
• ^ See: Harvey McGregor's Contract Code
• ^ e.g. P.S. Atiyah, 'Consideration: A Restatement' in Essays on Contract (1986) p.195,
Oxford University Press
• ^ Central London Property Trust Ltd. v. High Trees House Ltd. [1947] KB 130
• ^ For a detailed and authoritative account of this process, see A. W. B. Simpson, A
History of the Common Law of Contract: The Rise of the Action of Assumpsit, (Oxford
University Press: Oxford, 1975).
• ^ Austotel v Franklins (1989) 16 NSWLR 582
• ^ Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7, (1988) 164 CLR 387, High
Court (Australia).
• ^ Thomas v Thomas (1842)
• ^ Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20, (1954)
92 CLR 424, High Court (Australia).
• ^ "Supreme Court of Texas (1464-EIGHT, LTD. & MILLIS MANAGEMENT CORP, v.
GAIL ANN JOPPICH See section III)". Archived from the original on 2013-06-16.
Retrieved 2012-06-15.
• ^ Andrew Hennessey v Architectus Group Holdings Pty Ltd [2010] NSWSC
1390, Supreme Court (NSW, Australia)
• ^ Stilk v Myrick [1809] EWHC J58 (KB), (1809) 170 ER 1168.
• ^ Wigan v Edwards (1973) 1 ALR 497.
• ^ Hamer v Sidway |parallelcite=(1891) 124 NY 538
• ^ see Roscorla v Thomas [1842] EWHC J74, (1842) 114 ER 496.
• ^ Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701 in which the wrappers from
three chocolate bars was held to be part of the consideration for the sale and purchase of a
musical recording – although those referencing this case appear to ignore the significance
of the three wrappers in relation to Nestle's marketing strategy.
• ^ Uniform Principles of International Commercial Contracts, 2016
• ^ e.g. P.S. Atiyah, 'Consideration: A Restatement' in Essays on Contract (1986) p.195,
Oxford University Press
• ^ Central London Property Trust Ltd v High Trees House Ltd [2007] EWCA Civ 1329,
[1947] KB 130, Court of Appeal (England and Wales).
•