The doctrine of consideration has long been a fundamental concept in contract law, with it being defined as “the price tag on the promise”, or something that is exchanged in order for the other party to fulfil their promise. Recently however, there has been much debate on whether consideration is indeed as necessary as previously stated by the courts, with the rise of doctrines such as promissory estoppel and intention to create legal relations. Many have highlighted the faults in the doctrine and called for its abolishment such as Andrew Burrows who writes, “The law would be rendered more intelligible and clear if the need for consideration were abolished”1. This essay will detail the flaws and benefits of consideration whilst also exploring the possibility of other doctrines replacing consideration as a whole.
One of the reasons of why the doctrine has been so fundamental in contract law is that it has protected people from being exploited by the other party. One example of this is the Stilk v Myrick2 case, in which two member of a captain’s crew deserted during a voyage. Subsequently, he promised the remaining crew to divide the deserters’ wages between them provided they fulfilled the duties of the deserters as well as their own, however he did not do so. The courts held that as the crew had already been on an existing contract to work the ship to its destination, they were not entitled to extra wages, as that was already part of their duty. Lord Ellenborough stated, “Those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port”3 . Had this not been the decision of the court, it may have encouraged other employees to blackmail their employers for larger wages if the other employees leave the job before its completion. This protects employers from this possible situation, showing the benefit of the doctrine for employers.
However, consideration has many discrepancies such as in its rule that consideration must be sufficient but is not required to be adequate. In Chappell & Co Ltd V Nestlé Co Ltd4, Nestle were giving away records at a discount price to anyone who presented three wrappers from their chocolates. The plaintiffs, who held the copyright for the records, argued that Nestle’s actions were in breach of the copyright. The court deliberated as to whether the wrappers presented were part of consideration, despite them being later thrown away and of no real economic value. It was held that they were part of consideration confirming that consideration does not need to be adequate but merely sufficient. This is also upheld in Ward v Byham5 in which the promise to keep a child “well looked after and happy”6 was deemed as sufficient consideration despite it being of no economic value. This however was contrasted by the decision in White v Bluett7. The courts had to decide whether a son ceasing to complain about his father’s plans could be deemed as sufficient consideration. As seen in previous cases, the courts had supported the view that consideration need not be of economic value as long as it is sufficient, however the courts in this case went against this and deemed the promise made by the son to be insufficient. The case also highlights another inconsistency of the courts concerning consideration, regarding the benefit and detriment rule of consideration. The courts in many instances reaffirmed that consideration must be a benefit to the promiser or a detriment to the promisee. This has been supported by Lush J, who in the case Currie v Misa8 stated, “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other”9. In White, however the courts rules there was no consideration despite there being a detriment to the son, which he suffered as a result of not complaining. This shows the dilemma of the courts when it comes to judging whether something is of “sufficient” value or whether there is a benefit or detriment to a party which highlights the flaws of consideration.
The case of Williams v Roffey Bros10 also raised the issue of discrepancy as the decision taken by the courts went against the previous stance on consideration in the Stilk. As stated previously, the case affirmed the point that if a party already has an existing contract for an act, then the act in question cannot be used as consideration for a new contract. In Williams, the claimant had realised his work would require a larger sum than what he had agreed to, to which the defendant agreed to pay the extra sum. The defendant however failed to pay the full amount and argued that he was not entitled to pay as the claimant didn’t have consideration as he was already in an existing contract. Previous cases would find the claimant to be right, however the courts held that the defendant was liable to pay the extra payments he had previously promised as there was consideration provided by the claimant to the defendant in the form of helping them avoid the penalty clause that would occur if the work was not completed in time. Despite there being no extra legal benefits to the defendant, the courts decided there was a factual benefit referring to the avoidance of the penalty charge. Rajah JC in Chwee Kin Keong v Digilandmall.com Pte Ltd11 , states that the introduction of factual benefit by this case has led to the doctrine of consideration being made redundant.12 This decision was significant as it saw a departure from the existing rule of consideration seen in Stilk. The Journal of Business Law commented on the courts stance on consideration in this case, stating, “By classifying due performance as sufficient consideration for a further promise to pay… the Court of Appeal has seemingly abolished the doctrine of consideration”13. The case drew much controversy as it dismantled the courts’ previous positions on the doctrine and raised questions as to whether consideration was still an appropriate tool in the formation of contracts. Rajah JC also commented on this stating, “Indeed, in difficult cases, the courts in several common law jurisdictions have gone to extraordinary lengths to conjure up consideration”14 using Williams to illustrate this.
One rule of the doctrine states that part payment of a debt is not good consideration, which prevents parties being denied of their full entitlement. This rule was upheld in the case of Pinnel’s Case15 in which the courts agreed that the part payment of a debt the claimant was due was not good consideration as the claimant was still entitled the full payment. This was supported by the decision of the court in Foakes v Beer16, in which the courts held that the claimant was entitled to the interest that had been acquired, despite the initial loan already been paid by the defendant. This was again upheld by the decision in Re Selectmove Ltd17 in which the courts held that there was no sufficient consideration in the partial payment of a debt for it to be a binding contract. This is a very positive attribute of consideration as it prevents exploitation of the parties. The cases also demonstrate consistency which means that as well as the courts, the general public can rely on precedence when looking at contracts.
Despite the courts consistency in this area of consideration, the decision in Re Selectmove, deterred from the decision taken in Williams. The court in Williams decided that a practical benefit was sufficient. This broader definition of consideration was however abandoned in Re Selectmove. Contrary to Williams, the courts decided that a practical benefit was not sufficient enough for consideration with Peter Gibson LJ stating, “It is clear that the House of Lords decided that a practical benefit of that nature is not good consideration in law”18. This shows that despite Re Selectmove showing consistency in relation to previous cases such as Pinnel’s Case and Foaks v Beer, it doesn’t follow the courts position on factual and practical benefit as shown by Williams, showing that the case may not have been significant as previously thought. This also shows that instability of the courts position on the doctrine of consideration, again showing that the doctrine may no longer be appropriate or needed when it comes to the formation of a contract.
Due to the criticism against consideration, courts have started considering alternative doctrines which could replace consideration. One of these alternatives is promissory estoppel, which prevents someone going back on their promise in the absence of consideration. The doctrine was developed by Lord Denning in the case, Central London Property Trust Ltd v High Trees House Ltd 19. The case concerned the lease of a block of flats for £2500/year. However both parties agreed to decrease this sum due to the conditions caused by WWII which meant that occupancy rates were very low but by 1945 the flats were at full occupancy. The claimant sought payment for the original rent from 1945 onwards. The court held that full rent could be only be claimed back from 1945 only and could not claim arrears acquired during the war years due to the promise made by both the parties regarding the decreased rent. This promise would not have held any substantial value under consideration, however promissory estoppel prevents the claimant going back on their promise. Lord Denning stated the need for the doctrine, commenting, “In my opinion, the time has now come for the validity of such a promise to be recognised. The logical consequence, no doubt is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration”20. In the absence of consideration, promissory estoppel prevents parties from being exploited, demonstrating how this could potentially replace consideration in the formation of a contract. In the case of Tool Metal Manufacturing v Tungsten21, the courts reaffirmed the existence of promissory estoppel. This demonstrates that the courts are stable of their position on promissory estoppel, more so than they are on consideration as previously shown in the essay. Although promissory estoppel could act in the absence of consideration, one point to be noted is that it can only be used “as a shield not a sword”, meaning that you would not be able to sue someone based on estoppel but could only use it as a defence. This is problematic as it can only be used in specific conditions unlike consideration, which can be used in a wider range of circumstances. The case of Combe v Combe22 demonstrates exactly this. The case concerned the failure of wife to sue her husband for making payments for which he had promised to do so. Due to the restrictions on the doctrine, the wife could not use promissory estoppel as a “sword”, which exposed the need for the consideration as a vital part in the formation of a contract. Lord Denning identified this issue stating, “Seeing that the principle never stands alone as giving a cause of action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action.”23. He carries on stating, “Its ill-effects have been largely mitigated of late, but it still remains a cardinal necessity of the formation of a contract”24.
The intention to legal relations may solve the uncertainties consideration brings to the courts and has already been a vital element in the formation of a contract. The presumption of the law, there is no intention to create legal relations in domestic and social situations, as shown in Balfour v Balfour25. The case involved a man agreeing to pay his wife a monthly allowance. This was however not seen as intention to create legal relations by the court despite arguably there being consideration in the form of the wife accepting her husband’s payments. This rule was supported by Jones v Padavatton 26, in which the courts applied the same instruction. The presumption is different however for commercial agreements in which the opposite is assumed. In Edwards v Skyways27, the courts decided that Edwards was entitled to the agreed payment by Skyways as the agreement had taken place in a business environment therefore there was an intention to create legal relations. This demonstrates the stability of the courts when it comes to this doctrine, which may prove the intention to create intentions a better tool in the formation of creating a contract. However there are concerns that it would not act in the same way as consideration. Mindy Chen-Wishart argues that the intention to create legal intentions would cause the difficulties as consideration writing, “courts impute intentions that are reasonable on other grounds… Thus this test would be no less susceptible to judicial manipulation than that of consideration”28.
As outlined above, it is clear that consideration has many failings and discrepancies leading to the doctrine becoming more and more meaningless. Promissory estoppel and intention to create legal intentions, as well as economic duress have become possible alternatives, however they do not completely replace the role of consideration in a contract. Peter Benson writes, “No doctrine of the common law of contract has been longer settled or more carefully developed than consideration”29, with similar statements coming from Patrick Atiyah who states, to abolish the doctrine of consideration, therefore, is simply to require the courts to begin all over again the task of deciding what promises are to be enforceable30. The role of consideration still remains vital in the formation of a contract, and it does not seem that the courts are willing to completely the abandon the requirement of the doctrine in contracts, despite its flaws. It is possible, that with new developments in contract law, courts begin to rely less on consideration and more on its alternatives.
1 Andrew Burrows, “Improving Contract and Tort, Understanding the Law of Obligations” (1998) Hart Publications 164.
2 1809 170 ER 1168.
4 1960 AC 87.
5 1956 1 WLR 496
7 (1853) 23 LJ Ex 36.
8 (1875) LR 10 Ex 153.
10 1989 EWCA Civ 5.
11 2004 2 SLR 594.
13 Journal of Business Law, “The death of consideration” 1990 3-5.
14 Chwee Kin Keong (n 11).
15 1602 5 Co. Rep. 117a.
16 1884 UKHL 1.
171993 EWCA Civ 8.
19 1947 KB 130.
21 1955 2 All ER 657.
22 1951 2 KB 215.
25 1919 2 KB 571.
26 1968 EWCA Civ 4.
27 1964 1 WLR 349.
28 Mindy Chen-Wishart, “In Defence of Consideration”, (2013) Oxford Commonwealth Law Journal Vol. 3
29 Peter Benson, “The Idea of Consideration” (2011) University of Toronto Law Journal 241.
30 P.S. Atiyah, “Consideration: A Restatement. In Essays on Contract”, (Oxford University Press 1990) 241.