LAW202 – Law of Contract
Consideration
Session 3
©NU 2020
Objectives
Correctly define and state the function of consideration
Explain the meaning of executory, executed and past
consideration
Explain the judicial rule that consideration must move from
the promisee
Distinguish between adequacy and sufficiency of
consideration
What is Consideration?
Consideration is based upon the idea of ‘reciprocity’.
A promisee should not be able to enforce a promise unless he
has given or promised to give something in exchange for the
promise or unless the promisor has obtained or been
promised something in return.
A simple contract is only enforceable as a contract if it is
supported by consideration.
Consideration is defined as something of value in the eyes of
the law, promised or given by one party to the contract which
makes the other party’s promise enforceable as a contract.
Currie v. Misa (1875) LR 10 Ex 153
Lush j. Stated that: “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”.
The benefit or detriment interchange represents the
traditional idea of contract as being an exchange based upon
reciprocal obligation.
Eleanor Thomas v. Benjamin Thomas (1842) 2 Q.B.
851,
Consideration need only be legally not economically adequate.
Facts:
Before he died, Mr Thomas said he wished for his wife to have the house they lived
in for the rest of her life. However, this was not written into his will. After he died,
his executors, ‘in consideration of such promise’, agreed with Mrs Thomas that she
would pay a peppercorn rent of £1 per year in return for being allowed to live in the
house. They later tried to dispossess her.
Issues:
A valid contract must be supported by consideration. That is, the promisee must
promise to do something in return for the promise of the other party. It was argued
that there was no contract because Mrs Thomas, the promise, provided inadequate
consideration as the rent was nothing like a commercial rent for the property. Mrs
Thomas argued that her promise to pay rent and keep the house in repair was good
consideration.
Eleanor Thomas v. Benjamin Thomas (1842) 2 Q.B.
851,
Held:
The executors statement did not create a contract as it only expressed
their motive for entering into the agreement. However, the £1 rent was
recognized as good consideration. Patteson J said (at 859):
Motive is not the same thing as consideration. Consideration means
something which is of some value in the eye of the law, moving from the
plaintiff:
Without consideration the transaction was merely a voluntary gift.
However, by agreeing to pay rent in return for being allowed to stay in
the property, Mrs Thomas had provided consideration, even though it
was not economically adequate or anything like a commercial rent for
the building. Therefore, the contract was enforceable.
Eleanor Thomas v. Benjamin Thomas (1842) 2 Q.B.
851,
Patteson J. stated that consideration meant “something which
is of some value in the eyes of the law, moving from the
plaintiff: it may be of some detriment to the plaintiff or some
benefit to the defendant; but at all events it must be moving
from the plaintiff”.
TYPES OF CONSIDERATION
There are two types of consideration:
Executory consideration: This type of consideration is formed when
there has been an exchange of promises between parties otherwise
known as a bilateral contract.
Executed consideration: This type of consideration is found in
unilateral contract where one party makes a promise in exchange
for an act or conduct to be performed by another party. When this
performance occurs the consideration is considered executed.
TYPES OF CONSIDERATION
Remember:
Executory consideration is yet to be executed, unlike
executed consideration only promises of said consideration
have been exchanged.
EXECUTED CONSIDERATION
Performance of the requested act in the case of general offers
is executed consideration. E.g Carlill v Carbolic Smoke Ball
Where the act constituting the consideration is completely
performed, the consideration is said to be executed.
For example, Kaluba receives K500 from chongo when he
promises to deliver a computer to Chongo. The money
Kaluba receives constitutes an executed promise by Chongo
in return for Kaluba’s promise to deliver the computer.
THE REQUIREMENTS OF CONSIDERATION
There are a number of things to remember with consideration,
namely the most important are:
Consideration does not need to be adequate.
Consideration must have economic value.
CONSIDERATION NEED NOT BE ADEQUATE
Consideration does not need to be adequate. You may be asking
yourself what this means. Essentially it means that the
consideration provided by either party does not need to be
equivalent to the other party’s consideration. Sometimes this
means that situations arise where the consideration provided by
both parties is vastly dissimilar.
In Thomas v Thomas(1842) 2 QB 851 a situation arose where a
rental property was let for £1 consideration, said property’s
regular rent cost could have afforded much higher rates. The
courts affirmed in this case that adequate consideration is not
necessary, simply some consideration.
CONSIDERATION NEED NOT BE ADEQUATE
The reason the court affirmed this decision, is due to the fact
the court is unwilling to interfere with bad bargains, as parties
to a contract are typically free to bargain on whatever terms
they wish - Chappell & Co Ltd v Nestle Co Ltd [1960] AC 97.
CONSIDERATION MUST HAVE ECONOMIC VALUE
As mentioned earlier, Thomas v Thomas(1842) 2 QB 851 confirmed that
although consideration need not be sufficient, it must have economic
value.
To demonstrate this the case of White v Bluett(1853) 23 LJ Ex 36 will be
examined. In this case a father waived a debt owed to him by his son, in
return for his son to stop complaining about his will. When this situation
was reviewed by the court it was found that this was not valid
consideration. An agreement to not complain in this instance was viewed
as not having any economic value.
CONSIDERATION MUST HAVE ECONOMIC VALUE
In Chappell & Co Ltd v Nestle Co Ltd [1960] AC 97 it was found that
sweet wrappers being returned to Nestle in an attempt to win a
prize were considered to have economic value. In contrast however
in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 it was found that
casino chips did not suffice in having economic value.
The important thing to remember about the two above cases is the
recipient of the consideration. In Nestle, the goods were
considered by the Court to have economic value to Nestle. This
should be kept in mind when considering whether or not something
will be considered to have economic value.
CONSIDERATION MUST HAVE ECONOMIC VALUE
Limits of consideration
There are also numerous things that the Court have decided will not suffice to amount to
consideration.
Performance of an existing duty
There are three different circumstances that can arise if the consideration is the performance of an
existing duty.
Performance of legal obligation which are independent of any contract.
Collins v Godefroy(1831) 1 B & Ad 950 – Typically the performance of a legal obligation such as the
jobs of the public service e.g. fireman, will not provide adequate consideration for an agreement.
Exception - Glasbrook Bros v Glamorgan County Council [1925] AC 270 – If the obligation extends
beyond that which is beyond that of ordinary duties then the obligation can amount to valid
consideration. In this case a police force dedicated officers to an event for an entire day when they
didn’t have the resources in return for financial remuneration. Said obligation carried out by the
police force was considered sufficient for the purposes of consideration because it extended beyond
what was ordinary
PAST CONSIDERATION
If a person makes a promise subsequent to some act or
service rendered independent of any promise, the previous act
or service cannot be consideration for the promise being
made.
Anything which has already been done before a promise in
return is given, is called past consideration.
As a general rule, past consideration is not consideration to
make a promise legally binding.
PAST CONSIDERATION
For example, if Mwape provides assistance to Nyambe who
has been knocked down by a hit and run car, by taking him to
the hospital and paying all the medical expenses, Mwape
cannot later on demand compensation from Nyambe for the
help rendered
Rule No. 1
Consideration must move at the desire of the Promisor
An act constituting consideration must be done at the desire
or request of the promisor. If an act or abstinence is done at
the instance of a third party and or without the desire of the
promisor, it will not be good consideration.
Rule No. 2
Consideration Must not be Past
A party to the contract cannot use a past act as a basis for
consideration.
Therefore, if one party performs an act for another, and only
receives a promise of reward after the act is completed, the
general rule applies.
Roscorla v. Thomas (1842) 3 QBD 234
the seller of a horse, after the buyer had purchased it,
promised the buyer that the horse “did not exceed five years
old” and “was sound and free from vice”. In fact on the
contrary it was found by the Court that the horse was “vicious,
restive, ungovernable and ferocious” and the buyer sued for
breach of the promise. The action failed.
Past Consideration
The court held that the consideration provided by the buyer
was already past when the promise by the seller that the
horse was “free from vice” was made.
The warranty was not given in return for the promise of
payment made for the horse and, being made after the sale,
was gratuitous and therefore insufficient consideration. The
seller’s promise was therefore not enforceable as it was not
supported by new or fresh consideration.
Eastwood v. Kenyon (1840) 11 A & E 438,
The plaintiff had become the guardian of Sarah, a young
heiress, on the death of Sarah’s father. He spent money on
improving her estate, and on her education, and he had to
borrow 140 pounds in order to do so. When she came of age,
she promised to pay the plaintiff the amount of the loan. After
her marriage to the defendant (her husband), he repeated this
promise of reimbursement to the plaintiff.
Eastwood v. Kenyon
The Court held that the plaintiff was unable to enforce this promise because the consideration
which he had provided, which was bringing up and financing Sarah, was past.
The plaintiff’s acts were gratuitous
A similar decision was also reached in the case of Re McArdle [1951] Ch 669, [1951] 1 All ER
905: Re McArdle (1951) Ch 669 Court of Appeal
Majorie McArdle carried out certain improvements and repairs on a bungalow. The bungalow
formed part of the estate of her husband's father who had died leaving the property to his wife
for life and then on trust for Majorie's husband and his four siblings. After the work had been
carried out the brothers and sisters signed a document stating in consideration of you carrying
out the repairs we agree that the executors pay you £480 from the proceeds of sale. However,
the payment was never made.
Eastwood v. Kenyon
Held:
The promise to make payment came after the consideration
had been performed therefore the promise to make payment
was not binding. Past consideration is not valid.
The beneficiaries’ agreement for the repayment to her of the
488 pounds out of the estate was a nudum panctum (a bare
promise), a promise with no consideration to support it.
Exception to the Rule that Consideration Must not
be Past
The first exception is where the work has been performed in
circumstances which carry an implication of a promise to pay.
Exception to the Rule of Past consideration (1)
In Lampleigh v. Brathwait (1615) Hob 105: Thomas Brathwait had
killed Patrick Mahume and then asked Anthony Lampleigh to do
all he could to get a pardon for him from the king. Lampleigh did
as requested, which involved making journeys at his own
expense, and obtained a pardon for Brathwait. Afterwards,
Brathwait promised to pay him 100 pounds for his endeavours.
He then failed to pay Lampleigh and was sued by him.
Brathwait’s defence was that the act had been performed before
the promise of a reward was made.
The Court found in favour of Lampleigh and rejected the
argument that the consideration was past.
Pao On v. Lau Yiu Long [1979] 3 ALL ER 65 at p.
74; [1980] AC 614 at p. 629 (1)
Lord Scarman in the Privy Council decision summarised the
position as follows:
“An act done before the giving of a promise to make a
payment or to confer some other benefit can sometimes be
consideration for the promise. The act must have been done
at the promisor’s request, the parties must have understood
that the act was done to be remunerated further by a payment
or the conferment of some other benefit, and payment, or the
conferment of a benefit must have been legally enforceable
had it been promised in advance”.
Consideration must move from the Promisee (R.3)
In Tweddle v. Atkinson (1861) 1 B & S 393, John Tweddle,
father of William Tweddle, agreed with William Guy to pay
William Tweddle £100 after marrying his daughter. The
written agreement contained a clause which specifically
granted William Tweddle the power to sue for enforcement of
the agreement. William Guy died, and the estate would not
pay and William Tweddle sued.
The action failed as the son did not provide any consideration
for his father-in-law’s promise.
Consideration need not be Adequate but must
have some Value (R.4)
In Mountford v. Scott [1975] Ch 258:
The plaintiff paid £1 for option to buy the defendant's house for
£10000, within six months
The issue was can Defendant revoke offer within the six months?
It was held that the offer was irrevocable within six month period
becuase the Plaintiff had given consideration (paying nominal £1)
for the Defendant's promise to keep offer open
Consideration need not be Adequate but must
have some Value (R.4)
The Court held that this option agreement was enforceable
against the defendant and that it was irrelevant that the
consideration provided by the plaintiff could be described as a
token payment.
Likewise in Chappell & Co v. Nestle Co [1960] AC 87 The
House of Lords decided in favour of the plaintiff holding that
wrappers were part of consideration. It was irrelevant that the
wrappers were of no intrinsic value to the company.
Rule No. 4
The adequacy is not determined solely by economic criteria. It is
enough, for example, that the promise is a promise to refrain from
doing something which the promisor is legally entitled to do. In Pitt v.
PHH Asset Management Ltd [1993]: The Court held that a lock out
agreement negotiated by a vendor and a prospective purchaser of
property constituted a binding contract.
In Shadwell v. Shadwell (1860) 9 C.B.N.S. 159; An uncle promised to pay
his nephew a yearly sum in consideration of the nephew getting
married. The nephew married, but the annuity fell into arrears. On his
uncle’s death the nephew brought an action against the executors of
the estate. They were held bound since, inter alia, the nephew’s
marriage was something of interest to the uncle.
Consideration must be Legal (R.5)
There are two classes of illegal contract, those existing under
the common law and those made illegal by Statute.
Sufficiency of Consideration
Consideration is said to be insufficient in the following
circumstances, namely:
(1) Where a performance of a duty is imposed by law;
(2) Where a performance of contractual duty is owed to the
promisor;
(3) Where a performance of a duty is owed to a third party
Sufficiency of Consideration
In Collins v. Godefroy (1831) 1 AD 950 the plaintiff was
subpoenaed to give evidence on defendant’s behalf at a trial
in which the defendant was involved. The plaintiff claimed
that the defendant promised him 1.05 pounds per day for
attending court.
The court held that there was no consideration for this
promise as the plaintiff was under a legal duty to attend court
and give evidence.
Sufficiency of Consideration
In Glasbrook Brothers Ltd v. Glamorgan County Council [1925] AC 270 The
defendant owners of a colliery asked the police to provide protection during
a miner's strike. The police provided the protection as requested and
provided the man power as directed by the defendants although they
disputed the level of protection required to keep the peace. At the end of the
strike the police submitted an invoice to cover the extra costs of providing
the protection. The defendants refused to pay arguing that the police were
under an existing public duty to provide protection and keep the peace.
Held 3:2 decision:
In providing additional officers to that required, the police had gone beyond
their existing duty. They were therefore entitled to payment.
Sufficiency of Consideration
Similarly, in Harris v. Sheffield United Football Club Ltd [1987]
2 All E.R. 838, The football club was found liable to pay for
the services rendered by the Police authority.
PART PAYMENT OF A DEBT IS NOT SUFFICIENT
CONSIDERATION
In Couldery v. Bartrum (1881) 19 Ch. 394 at p. 399, Jessel
M.R. Stated that: “a creditor might accept anything in
satisfaction of his debt except a less amount of money. Lesser
amount was nudum pactum.
This rule was demonstrated in the case of Foakes v. Beer
(1884) 9 App Cas. 605: The defendant John Weston Foakes,
owed Julia Beer a sum of 2,090 pounds on a judgment debt.
The court held that there was no consideration.
Performance of a Contractual Duty Owed to the
Promisor
In Stilk v. Myrick (1809) 2 Camp 317, 170 E.R. 1168 The Court
found that their existing contracts bound them to work the ship
home in circumstances, therefore they provided no new
consideration to support the promise of extra wages.
However, the decision in Stilk v. Myrick was reconsidered by the
Court of Appeal in the case of Williams v. Roffey Brothers &
Nicholls (Contractors) Ltd [1901] 1 All ER 512:
Also in Hartley v. Ponsonby (1857) 7 EL & BL 872, When almost
half of the crew of a ship disserted, the captain offered those
remaining 40 pounds extra to complete the voyage.
Performance of a Duty Owed to a Third Party
Performance of a contractual duty owed to a third party is
good consideration.
Re: Shadwell v. Shadwell
