2. What you need to know
The function of Consideration
The definitions of Consideration
Kinds of Consideration
Adequacy of Consideration
Sufficiency of Consideration
Duties Imposed by General Law
Duties Imposed by a Contract with same Party
Duties owed to third party
Promissory Estoppel
3. Traditional view
English law will only enforce a promise which is:
made under seal-a deed (A deed is a document
which is signed and attested and indicates on its face
it is a deed)
or
which is supported by consideration.
4. What is Consideration?
Classic definition:
Lush J in Currie v Misa (1875)
“A valuable consideration in the eyes of the law may
consist either in some right, interest, profit or benefit
to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the
other.”
6. Modern Version
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co
Ltd:
An act or forbearance of the 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
8. Kinds of Consideration
Executory
- a promise to do something in the future
eg: mutual promises
Executed
- an act wholly performed at the time the contract
is made. (Carlill v CSB)
Past consideration
Something already completed before the promise is
made – this is NOT valid consideration in the eyes
of the law.
9. Examples of Past Consideration
Roscorla v Thomas (1842)
- def promised claimant that horse bought by claimant
was sound and free from vice.
- Held: promise made AFTER sale had been completed
there was no consideration
10. Re McArdle
A son and his wife lived in his mother’s house that on
her death would be inherited by her son and three
other children. The son’s wife paid for substantial
repairs and improvements to the property. The
mother then made her four children sign an
agreement to reimburse the daughter-in-law out of her
estate.
When she died and her children refused to keep this
promise, the daughter-in-law sued unsuccessfully. Her
consideration for their promise was past consideration.
It came before they signed the agreement to repay her
(promise made after the improvements had been
done).
11. Exception to the rule
1. Where a service was rendered at the request of the
promisor on the understanding that a payment
would be made – subsequent promise to pay a
certain sum will be enforced on the basis that it
merely identified the amount.
(Lampleigh v Braithwaite, (1615)
12. Lampleigh v Braithwaite (1615)
Braithwaite was accused of killing a man and asked
Lampleigh to get him a king’s pardon.
This Lampleigh achieved, at considerable expense to
himself, and Braithwaite, in gratitude, promised to pay him
£100, which he in fact never did.
Lampleigh claimed that there was a contract. He
succeeded.
Why? Because the service was requested even though no
price mentioned at the time, but clear that both parties
would have contemplated a payment.The later promise to
pay was evidence of this.
13. Quick Quiz
1. While I was away on holiday in Goa it was very hot at
home. My neighbour Alison noticed that some of my
flowers were dying and so she watered them everyday,
saving them. I was very pleased when I returned and
told her that I would give her $20 for all her trouble.
In fact, I have not given Alison the money and she
wondered if she is actually entitled to it.
14. Quiz
Last month I had to go to an exam board meeting
in Birmingham. My car would not start, so I asked
one of my students
Neera who has a car if she would take me there.
She quite happily agreed and gave me a lift, even
waited and brought me home.
When we returned, I gave Neera the money for
petrol and also promised to buy her a new copy of a law
text costing $58.50, that she had been saving hard for.
However, last week when Neera asked when she
could have the money for the book, I told her I no
longer intend to buy the book for her. Advise
Neera
15. Examples
Re Casey’s Patents (1892)
Joint owners of a patent wrote to claimant
- agreeing to give him one third share of the
patents in return for his services as manager of
their patents.
When claimant wished to enforce agreement, they
then claimed agreement actually was in respect of
past services and therefore unenforceable as past
consideration. He supplied no consideration for
the agreement.
16. Re Casey’s Patents (1892)
(con’t) Bowen LJ held:
There was an implied promise that in managing the
patents the claimant would be paid for his work.
The later agreement to pay was therefore enforceable.
It was an example of the exception in Lampleigh v
Braithwaite.
17. Lord Scarman in Pao On v Lau Yiu Long
(1980) laid down conditions
1. The act must have taken place at promisor’s request.
2. The parties must have understood that the act was to
be renumerated, either by payment, or the conferment
of some other benefit.
3. The payment or conferment of benefit must have
been legally binding.
18. Other Exceptions
2. Written acknowledgement of a statute barred debt
will revive the debt (Limitations Act 1980)
3. Negotiable instruments (Bills of Exchange Act
1882)
19. Consideration must move from
the promisee
Who is the promisee?
The person whom the promise is made.
Only a person who has provided consideration
for a promise can enforce a promise.
20. Dunlop Pneumatic Tyre Co v
Selfridge(1915)
Dunlop sold tyres to Day who resold them to
Selfridge.
Day on the request of Dunlop, inserted a term
prohibiting Selfridge from re-selling the tyres
below list price.
Selfridge broke the term.
Dunlop sued for breach of contract
Held: even if Day had acted as agents for
Dunlop, Dunlop could not enforce the
contract as they had not provided any
consideration for the promise by Selfridge.
21. Consideration need not be
adequate
Element of mutuality – most important in doctrine of
consideration
“Adequacy” – Means whether consideration provided
corresponds with the value
“Sufficient” – Means whether some consideration is
provided for the value of the subject matter
What is the difference?
22. Thomas v Thomas (1842)
Facts
Mr T before death expressed his wish that his wife
should for the rest of her life have the house in which
they lived
After his death, his executors made agreement with
Mrs T to the abovementioned effect with obligation
that she pay £ 1 per year and to keep the house in
repair
It was argued that Mrs T did not provide good
consideration
23. Thomas v Thomas (1842)
Held
Payment of £ 1 and keeping the house in repair was
good consideration
This was held although, the amount paid was not
“adequate” to the commercial rent of the property.
24. Other Examples
Mountford v Scott (1975)
$1 was paid for an option to purchase a house
Good consideration
Chappell v Nestle (1960)
Three wrappers from the defendant’s chocolate were
found to be good consideration
25. Consideration can be a promise not to sue
Withdrawal of threatened legal proceedings will
amount to good consideration even though claim later
found to have no legal basis, provided, claimant
believed in good faith that he was giving up something
of value.
26. Alliance Bank v Broome (1864)
Forebearance to sue = good consideration
Def owed $22 000 to his bank
Bank pressed for him to provide security
He promised and therefore bank forebore to sue
Held: there was consideration
27. De La Bere v Pearson (1908)
Def owned a newspaper.
Invited readers to apply by letter for free financial
advice.
Letters and advice published.
Advice given to Plaintiff was negligent and he lost
money.
Held:
Plaintiff given consideration by writing a letter which
could be published.
28. White v Bluett (1853)
No good consideration here where promises are vague
‘stop being a nuisance to father’
Father promised not to enforce a promissory note
against the son if the son stopped complaining about
the way in which the father distributed his porperty.
Pollock’s analysis of the case:
The son had no right to complain as the father could do
what he wanted with his property. So the son abstaining
from what he had no right to do can be no consideration.
29. Courts not consistent with the ratio
in White v Bluett
Hamer v Sidway (American case)
A promise not to drink alcohol, smoke tobacco, and
swear was held to be good consideration .
Ward v Byham (1956)(UK)
It was suggested that a promise to ensure that a child
was happy could be good consideration.
30. Other examples of invented
consideration
Chappell & Co v Nestle Co Ltd (1960)
Facts
Case arose out of a special offer of a familiar kind, from
Nestle , under which a person who sent in three
wrappers from bars of their chocolate could buy a
record, Rockin Shoes, at a special price
For the purpose of copyright law, it was important to
decide whether the chocolate wrappers were part of the
consideration in the contract to buy the record
31. Other examples of invented
consideration
Chappell & Co v Nestle Co Ltd (1960)
Held
The House of Lords decided that the wrappers were part
of the consideration
Despite the fact that it was established that they were
thrown away by Nestle and were thus of no direct value
to them
32. Other examples of invented
consideration
Lipkin Gorman v Karpnale Ltd [1992]
Facts
Gambling chips given in exchange for money was not
good consideration
Customer had given mistakenly £153, 693 in exchange for
gambling chips
He sought to recover this from the club
33. Other examples of invented
consideration
Lipkin Gorman v Karpnale Ltd [1992]
Held
If good consideration for the money had been given
then there was no claim
But what was given at the club were plastic chips which
could be used for gambling or buy refreshments at the
club
Any chips not lost or spent could be converted into cash
This was not considered as consideration for the money
given
34. Other examples of invented
consideration
Edmonds v Lawson (2000)
Facts:
Whether there was a contract between a pupil
barrister and her chambers in relation to pupilage
The problem was to identify what benefit the pupil
would supply to her pupil master or to chambers
during the pupilage
35. Other examples of invented
consideration
Edmonds v Lawson (2000)
Analysis
Whether there was a contract between a pupil
barrister and her chambers in relation to pupilage
The problem was to identify what benefit the pupil
would supply to her pupil master or to chambers
during the pupilage
36. Other examples of invented
consideration
Edmonds v Lawson (2000)
Facts:
The court noted that that the pupil was not obliged to
do anything which was not conducive to her own
professional development.
Also noted that if there was work of real value done by
the pupil whether for the pupil master or anyone else,
there was a professional obligation to pay
On this basis, the court was led to the conclusion that
there was no contract between the parties
37. Other examples of invented consideration
Edmonds v Lawson (2000)
Held:
The court however looked to the relationship created by
the parties in chambers
Chambers have an incentive to attract talented pupils to
compete for a place in chambers
Even if they do not remain at the chambers, there may be
advantages in the relationships that have been created in
future (networking)
Hence the pupil did provide good consideration where the
pupil by accepting the offer made by the chambers would
be able to provide general benefits for the work done at
chambers
38. Consideration must be sufficient
Consideration must have value in the eyes of the
law.
Traditionally, doing something which one is legally
bound to do cannot amount to consideration.
39. Consideration must be Sufficient
Duty Imposed by General Law
Duties imposed by general law include not taking
part in a crime or promising to appear in court
after being subpoenaed.
Collins v Godefroy (1831)-If the promisee performs
a legal duty and nothing more this is not sufficient
consideration.
40. Duty imposed by the general law
Glasbrook Bros v Glamorgan CC (1925)-
If promisee exceeds his legal duty, he provides
consideration.
( Facts: council-as police authority, sued on an agreement to pay for
police protection during a strike. In the opinion of a senior police
officer, a garrison was unnecessary to preserve the peace, a mobile force
would have been adequate. On insistence of colliery manager, he
agreed to provide a garrison in return for a promise of payment.
Held: the decision as to what measures were necessary
is the responsibility of senior police officer on the
spot, and provided it was made in good faith, and
reasonable, court would NOT interfere. Thus police
had DONE MORE than they were obliged to do and
were entitled to be paid.)
41. Duty imposed by general law (con’t) Ward v Byham
(1956)
Facts: father of an illegitimate child wrote to
mother from whom he was separated, saying that
she could have the child and an allowance of £1
per week if she proved that the child was ‘well-
looked after and happy’.
Held : mother was entitled to enforce the promise
because in undertaking to see that the child was
‘well-looked after and happy’, she was doing
more than her legal obligation.
42. Ward v Byham (1956) (con’t)
Lord Denning,however, based his decision on the ground
that the mother provided consideration by performing
her legal duty to maintain the child.
Treitel agrees with Denning that performance of a duty
imposed by the law can be consideration for a promise. He
argues that it is public policy which accounts for refusal of
the law in certain circumstances to enforce promises to
perform existing duties.
He claims where there are no grounds of public policy
involved, then a promise given in consideration of a public
duty can be enforced.
43. He cites:
1. promises to pay rewards for information
leading to the arrest of felons See Skyes v DPP
(1961)- House of Lords held that citizens had a
duty to reveal felonies known to them and to give
what information they had.
2. Ward v Byham (above)
44. Sufficiency of consideration
Duty imposed by a contract with same party
General rule: If promisee performs
existing contractual duty owed to
promisor this is not sufficient
consideration.
45. A request for extra payment for doing the same work
Stilk v Myrick – two sailors deserted ship, captain
promised the rest of crew extra wages if they sail ship
back home. Held: crew already bound by contract to
meet normal emergencies of voyage and were doing no
more than their original contractual duty in working
ship home.
Hartley v Ponsonby – nearly half the crew left.
Sailors exceeded their existing contractual duty.
46. Williams v Roffey Bros & Nicholls Contractors (1990)-
an exception to the Stilk v Myrick rule
A n exception to the basic rule occurs where the party making the
promise to pay extra receives an extra benefit from the other party’s
agreement to complete what he was already bound to do under an
existing arrangement.
47. FACTS
Roffey Bros builders sub-contracted the carpentry on a
no, of flats they were building to Williams for £20 000.
Williams had under quoted for the work and ran into
financial difficulties.
Because there was a delay clause in Roffey’s building,
meaning they would have to pay money to the client if
the flats were not built on time, they promised to pay
Williams another £10 300 if he would complete the
carpentry on time.
When Williams completed the work and Roffeys
failed to pay extra, his claim to the money succeeded.
48. Williams v Roffey Bros (con’t)
Even though Williams was only doing what he was already
contractually bound to do, Roffeys were gaining the extra
benefit of not having to pay the money for the delay to
client.
Williams was providing consideration for the work
merely by completing his existing obligations.
NOTE:
Remember there was no attempt on Williams’ part to
extract the extra money by threats or coercion.
The rules of economic duress would in any case have
preventing him from succeeding if there was such findings
49. Williams v Roffey Bros (con’t)
Held:
3 benefits conferred on defendants by claimant :
1. claimant continued work;
2. avoided penalty;
3. avoided the trouble and expense of employing another
carpenter.
50. Williams v Roffey Bros (con’t)
Cases which applied William v Roffey Bros:
1. Anangel Atlas Compania Naviera SA v Ishikawajima-
Harima Heavy Industries Co Ltd (No 2) [1990] 2
Lloyd’s Rep 526
2. Simon Container Machinery Ltd v Emba Machinery
AB [1998] 2 Lloyd’s Rep 429
In both cases it was decided that avoidance of the other
party withdrawing from a contract was held to be
sufficient ‘practical benefit’ to provide consideration
for the new promise designed to keep them within the
contract
51. Sufficiency and existing contractual duty to
third party
Shadwell v Shadwell – fulfilling a contractual duty to a
third party is sufficient consideration.
New Zealand Shipping Co. v Satterthwaite – stevedores
provided consideration by performing an existing
contractual duty to a third party.
Scotson v Pegg (1861)-A agreed to deliver coal to B’s order.
B ordered A to deliver coal to C who promised A to unload
it. It was held that A could enforce C’s promise since A’s
delivery of the coal was good consideration,
notwithstanding that A was already bound to do so by
contract with B.
52. Shadwell v Shadwell (1860)
At a time when an action for breach of promise to
marry was still available in law, a young man
became engaged to marry.
His uncle wrote to him congratulating him, and
promising to pay him £150 per year until her
reached an income of £600 per year as a Chancery
barrister.
The young man did in fact marry and claimed the
money from his uncle when it remained unpaid.
53. Shadwell v Shadwell (1860) (con’t)
The court held:
even though the claimant was legally bound to marry,
doing so was good consideration for the uncle’s
promise and the promise was enforceable.
54. Shadwell v Shadwell :Comment:
We see in this case exception to the basic rule even
in apparently social arrangements,
where it is arguable whether it can in reality be
considered that there is also an intention to
create legal relations.
55. Sufficiency of consideration
and part payment of debts
The rule in Pinnel’s Case (1602):
Payment of a smaller sum will not discharge
the duty to pay a higher sum.
Thus if a creditor is owed £100 and agrees to
accept £90 in full settlement, he can later
insist on the remaining £ 10 being paid since
there is no consideration for his promise to
waive the £10
56. The rule in Pinnel’s case confirmed by House of Lords in
Foakes v Beers (1884)
Facts: Dr Foakes was indebted to Mrs Beers on a
judgment sum of £2 090.
It was agreed by Mrs Beers that if Foakes paid her £500
in cash and the balance of £1 590 in instalments, she
would not take ‘any proceedings whatsoever’ on the
judgment. Foakes paid the money exactly as requested
by Mrs Beers then proceeded to claim an additional
£360 as interest on the judgment debt.
57. Foakes v Beers (1884)(con’t)
Foakes refused and when sued pleaded his duty to pay
interest had been discharged by the promise not to
sue.
House of Lords held: There was no consideration
for the promise and that Foakes was still bound to
pay the additional sum
58. Exceptions to Pinnel’s case
Where the promise to accept a smaller sum in full
settlement is made by deed, or in return for
consideration
Disputed claims–where the debt & amount owed is
disputed.
Unliquidated claims–where the amount is uncertain.
59. Exceptions to Pinnel’s case
Accord and satisfaction : an agreement to accept
something other than the money from existing debt. Eg
Where debtor does something different, ie where
payment is made at the creditor’s request:
(a) at an earlier time;
(b) at a different place;
(c ) by a different method (held in D & C Builders v
Rees (1966)- payment by cheque is not paymnent by a
different method)
(d) where payment is accompanied by a benefit of some
kind.
Composition agreement–pay % to creditor in full
settlement.
Hirachand Punamchand v Temple (1911) -payment by
third party, accept lesser sum in settlement of full amount
owed.
60. In the case of composition agreement with creditors
and where payment is made by a third party (see
Hirachand)
It has been argued that to allow the creditor to sue for
the remaining debt would be a fraud on the third
parties in the above two cases.
61. Comments
It has been argued that to allow the creditor to sue for
the remaining debt would be a fraud on the third
parties in the above last two case.
62. Re Selectmove (1995)
A company argued that it was entitled to pay its
debts to the inland revenue by instalments
The CA considered whether it could extend the
rule laid down in Williams v Roffey to part
payment of debts, ie whether a part payment could
provide an actual as distinct from legal benefit.
The court refused to apply the principle on the
basis that it would be in direct conflict with the
House of Lords ruling in Foakes v Beers and it was
only the House of Lords which could overule its
own decisions.
63. Equitable exceptions
Waiver
Where one party agrees not to enforce their strict
rights under the contract.
Hickman v Haynes – buyer’s request to deliver goods
later than originally agreed waived terms in the
contract.
64. The Doctrine of Promissory Estoppel
The doctrine act as a defence to a claim by a
creditor for the remainder of the debt where part
payment has been accepted.
Effect of doctrine: to prevent (estop) the
claimant from going back on the promise
because it would be unfair and inequitable to
do so.
Lord Denning in obiter statements developed the
doctrine from the older doctrine of waiver.
65. Promissory estoppel developed from:
Hughes v Metropolitan Railway Co.- it would be
inequitable to permit the creditor to go back on his
promise.
This was applied in Central London Property Trust
v High Trees House – lessor’s right to the balance
rent for the war years extinguished.
66. Central London Property Trust Ltd v High
Trees House Ltd (1947)
Facts
From 1937, the def leased from the claimants a block of flats
in Wimbledon which they sub-let to tenants.
When the war started, it was impossible to find tenants and
so the def were unable to pay the rent.
The claimants agreed to accept half rent, which the def
continue to pay.
By 1945 the flats were all let and the claimants wanted the
rent returned to its former level and sued for the higher
rent for the last two quarters.
They succeeded but Lord Denning stated, obiter, that had
they tried to sue for the extra rent for the whole period
of the war, they would have failed.
67. Central London Property Trust Ltd v High
Trees House Ltd (1947) (con’t)
Estoppel would prevent them from going back on the
promise on which the def. had relied so long as the
circumstances persisted.
As Lord Denning stated:
“A promise was made which was intended to create legal
relations and which to the knowledge of the person
making the promise was going to be acted upon by the
person to whom it was made, and which in fact was so
acted upon.
In such cases the courts have said the promise must be
honoured… the logical consequence, no doubt is that a
promise to accept a smaller sum in discharge of a
larger debt if acted upon, is binding
notwithstanding the absence of consideration.”
68. Conditions for promissory estoppel to
apply
1. There must be an existing contractual
relationship between the claimant & defendant
2. The claimant must have agreed to waive (give
up) some of his rights under the contract (the
amount of the debt that has been unpaid)
3. The claimant has waived these rights knowing
that the def. would rely on the promise in
determining his future conduct.
4. The defendant has in fact acted in reliance on
the promise to forgo some of the debt.
69. Conditions for promissory estoppel to
apply
5. Inequitable to enforce strict legal rights D&C
Builders v Rees (defendant took advantage of
claimants financial difficulties and offered part
payment -promise should be given voluntarily)
6. Future rights not destroyed
Tool Metal Mfg. Co. v Tungsten Electric Co.
7. No new rights created
Combe v Combe – ‘is a shield and not a sword’
70. Possible subsequent development of the
doctrine
Uncertain , esp. now that Lord Denning has died.
In Brikom Investments v Carr (1979), RoskillLJ stressed
that “it would be wrong to extend the doctrine of
promissory estoppel, whatever its precise limits at the
present day, to the extent of abolishing in this back-
handed way the doctrine of consideration.”
71. Certainly application of the principle of estoppel to the
area of part-payment of debt as an enforceable
replacement for the whole debt is likely to be rejected .
(See: Re Selectmove, (1995)
Attempts to apply the principle in Williams v Roffey to
situations involving promises to accept part payment
of debts in full satisfaction of whole debt has been
specifically rejected. (Re Selectmove)
72. Activity
Select the appropriate statement from the choices
which follow:
Dave, a builder, owes his supplier $50 000 for
materials. Dave has been unable to sell the house
he has recently built at a profit, due to a slump in
the property market, and has only $45,000.
The supplier agrees to accept the $45,000 to
prevent Dave from going out of business. Six
months later the supplier has learned that Dave
has just gained a building contract worth $5
million.
73. a) Dave will have to pay the remaining
$5 000 to the supplier immediately.
b) Dave can use the supplier’s promise as a defence to
a claim for the money.
c) The supplier can recover the material used by Dave.
d) Dave can sue the supplier.
