Consideration under English law - Definition and Overview

Introduction

Under English law, a promise made under contract is not enforceable unless it is met with consideration; ergo a contract as it relates to promises contained within it but which are unsupported by consideration is void ab initio. Consideration for a particular promise exists where some right, interest, profit or benefit accrues (or will accrue) to the promisor, as a direct result of some forbearance, detriment, loss or responsibility given, suffered or undertaken by the promisee (Currie v Misa). Key to the doctrine of consideration is thus reciprocity. That is, a promisee should not be able to enforce a promise unless he has given or promised to give something in exchange for the promise which benefits the promisor. There are a number of complicated rules governing consideration – all of which have exceptions. Each rule, and its exceptions, is dealt with below. In summary, the rules covered in this article are:  Consideration must move from the promisee but not necessarily to the promisor;

 Consideration need not be adequate but must be sufficient;

 Consideration cannot be past;

 Performance of an existing obligation under a contract owed to the promisor is not consideration for a promise;

 Part payment of a debt is not consideration for a promise to discharge the whole sum;

 Performance of a public law duty is not consideration for a promise; and,

 Performance of a contractual obligation owed to a third party does amount to consideration for a promise;

Consideration must move from the promisee

A promise is only supported by consideration – and thus enforceable – where consideration has moved from the promisee: Tweedle v Atkinson. In that case John Tweedle and William Guy mutually promised that they would pay to each others’ child a sum of money upon them marrying the other. William Guy failed to pay John Tweedle’s son, who sued his executors for the amount promised (to his father). It was held that the son could not enforce his wife’s father’s promise as he himself had not actually given consideration for it; it was his father who had done so instead. Whilst consideration must move from the promise, it must not necessarily move to the promisor. The promisee may provide consideration to a third party, as opposed to the promisor himself, if this is agreed at the time the parties contracted (Bolton v Madden).

Consideration need not be adequate but must be sufficient

For consideration to be good consideration it must be sufficient. Consideration is sufficient where it amounts to something that is capable of expression in economic terms: White v Bluett. In that case Bluett, when sued by his father’s executors for an outstanding debt to his father, claimed his father had promised to discharge him from it in return for him stopping complaining about property distribution. The Court held that to stop complaining was of no economic value, and thus Bluett’s father had received no real consideration for the promise, and hence the debt was unenforceable at law. There is no requirement that to be sufficient, consideration must be adequate, in the sense of being commensurate in economic terms to the original promise (Chappell & Co v Nestle Co Ltd).

Past consideration is not good consideration

Past consideration is consideration for a promise, but which was provided by the promisee before the promise was ever made to him. For example, If X promises to reward Y for an act which Y has already performed, the performance of that act, whilst it may be consideration for the promise to be rewarded for it, is past consideration. Past consideration is not good consideration: Eastwood v Kenyon. In that case the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise as taking out the loan to raise and educate the girl was past consideration, in that it was completed before the husband promised to repay it. Thus where two parties have already made a binding contract and one of them subsequently promises to confer an additional benefit on the other party to the contract, that promise is not binding because the promisee’s consideration, which is his entry into the original contract, has already been completed at the time the next promise is made: Roscorla v Thomas. In that case, R and T contracted to buy a horse for £30. Subsequently, and after the sale, T promised R that the horse was sound. The horse turned out to be vicious. It was held that R could not enforce the promise, as the consideration given – entering into the contract to buy the horse - had been completed at the time the promise was made. The rule that past consideration is not good consideration is subject to the exception discussed by the Privy Council in Pau On v Lau Yiu Long. In that case their Lordships held that past consideration can be good consideration where: (1) the promisee must have performed the original act at the request of the promisor;

(2) it was clearly understood or implied between the parties that the promisee would be rewarded for doing the act; and,

(3) the actual promise made, if made before the promisee provided the consideration, must be capable of being enforced – i.e. of giving rise to a legally binding contract.

Performance of an obligation owed to the promisor under contract is not good consideration for the promisor’s promise

The general rule is that performance of an existing contractual duty owed to the promisor is not consideration for a fresh promise given by that promisor (Stilk v Myrick). In that case, Stilk, a seaman, agreed with Myrick to sale his boat to the Baltic and back for £5 per month. During the voyage two men deserted. Myrick promised he would increase Stilk’s wages if Stilk would agree to honour his contract in light of the desertions. Stilk agreed and on return to port, Myrick refused to pay him the extra. It was held that Myrick’s fresh promise was not enforceable as the consideration Stilk had provided for it, namely to perform a duty he already owed to Myrick under contract, was not good consideration for Myrick’s promise to increase his wages. Initially there was only two exceptions to this rule, namely that performance of an existing contractual obligation owed to the promisor may amount to consideration for a fresh promise given to that promisor where: (1) the promisee has done, or has promised to do, more than he was obliged to do under his contract (Hanson v Royden); and,

(2) before the fresh promise was made, circumstances had arisen which would have entitled the promisee to refuse to carry out his obligations under his contract (Hartley v Ponsonby). The seminal case of Williams v Roffey Brothers & Nicholls (Contractors) Ltd added another exception to the rule. There it was held that performance of an existing contractual obligation will be good consideration where: (1) the original contract is one for goods and services; and,

(2) X doubted that Y would perform his obligations under the contract; so

(3) X promised to pay Y extra in return for a promise from Y that he would in fact perform; and

(4) as a result X received (or was set to receive) a practical benefit; but

(5) did not make the promise to pay more under duress from Y. The following, as per the Court of Appeal in Williams v Roffey, is highly likely to constitute a practical benefit: (1) avoiding breaching a contract with a third party;

(2) avoiding the trouble and expense of engaging a third party to carry out the work; and/or

(3) avoiding incurring a penalty clause incorporated into a contract with a third party. Some commentators argue that practical benefit can amount to anything capable of expression in economic terms. This, however, remains to be seen. The law reports contain only one case in which Williams v Roffey was applied – Simon Container Machinery Ltd v Ember Machinery AB – and in that case practical benefit was held to be the avoiding of a breach of contract, which was clearly not an extension of the principle.

Part payment of a debt is not consideration for a promise to discharge the whole sum

At common law, the general rule is that if a creditor promises to discharge a debt in return for a fraction of payment, in paying the agreed fraction the promisee is not providing consideration for the promise, as this is merely part performance of a contractual duty already owed (Pinnel’s Case; confirmed by Foakes v Beer). Consequently the debtor is still liable for the whole amount, as he cannot enforce the promisor to accept less. This is unless the debtor provided fresh consideration for the promise. The following, mentioned in Pinnel’s Case itself and then confirmed by Sibree v Tripp, may amount to this: (1) if the promisee offers part payment earlier than full payment was due, and this is of benefit to the creditor;

(2) if the promisee offers part payment at a different place than where full payment was due, and this is of benefit to the creditor; or,

(3) if the promisee pays the debt in part by another chattel (note, however, that part payment by cheque, where full payment was due by another means, is not consideration (D & C Builders v Rees)). Another exception is that part payment of the debt by a third party as consideration for a promise to discharge the creditor from the full sum, prevents the creditor then suing the debtor for full payment (Welby v Drake). According to the Court of Appeal in Re Selectmove Ltd, the ‘practical benefit doctrine’ arising from Williams v Roffey, above, cannot be used as an additional exception to the rule. There it was held that the doctrine only applies where the original promise was a promise to pay extra and not to pay less (it should be noted, however, that the Court of Appeal in Re Selectmove were unable to distinguish Foakes v Beer (a House of Lords decision) in order to apply Williams v Roffey (Court of Appeal). It therefore remains to be seen whether the House of Lords would decide this point differently). In any event, the equitable principle of promissory estoppel may provide the debtor with relief.

Performance of a public law duty is not good consideration for a promise

If the promisee provides what he was required by public law to do in any event in return for a promise, this is not good consideration: Collins v Godfrey. In that case, G promised to pay C for his giving of evidence. It was held that C could not enforce the promise as he was under a statutory duty to give evidence in any event. However, if the promisee provides more than the public duty imposed on him compels, then this is good consideration: Ward v Byham. There, a mother was under a statutory duty to look after her child. The ex-husband promised to pay her £1 a week if she cared for the child in a certain way. It was held that notwithstanding the statutory duty imposed on the mother, she could enforce the promise as she did in return more than would otherwise have been required. It remains to be seen whether Williams v Roffey has any application to this rule. For what if X promises to pay Y to perform precisely what would be required from him under statute – and thus following Collins v Godfrey Y’s performance does not amount to consideration – but X receives a practical benefit from Y actually performing that duty?

Performance of a contractual obligation owed to a third party is good consideration

Consideration for a promise can be the performance of a contractual duty owed to someone other than the promisor (Shadwell v Shadwell; confirmed by The Eurymedon). In Shadwell, S was under a contractual duty with a third party to marry. S’s uncle promised to pay S £150 per year after he was married. It was held that S marrying was good consideration, notwithstanding that he was obliged by a contract with a third party to marry in any event. A promise to perform a pre-existing contractual duty owed to a third party (as opposed to the performance of that duty), may also amount to consideration (Pau On V Lau Yui Long).