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Consideration

Contract law (University of London)

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Consideration
As defined in Currie v Misa, consideration must consist in either some right, interest, profit, or
benefit accruing to one party, or some forbearance, detriment, loss or responsibility given,
suffered, or undertaken by the other.
A promise to make a gift will not be legally binding, but the presence of consideration that
makes a promise binding as a contract.
Consideration is known as the badge of enforceability in agreements. There are two types of
consideration – executed (already performed) and executory (yet to be performed)
consideration.
In a wholly executory contract, making of a promise by both parties can be considered as
consideration (Dunlop Pneumatic Tyre v Selfridge). It is better to consider mutuality.

Consideration must move from the promisee:

From Bolton v Madden and Tweddle v Atkinson, it is established that consideration must move
from the promise but not necessarily to the promisor.
Exception: In Williams v Roffey Bros, consideration moved from the promisor. Colman J
expressed his doubt on the correctness of this case in SCT v Trafigura Beeher BV.

Consideration must be sufficient, need not be adequate:

a) Courts will not look into the adequacy of the contract but rather if there is sufficient
consideration (Thomas v Thomas).
b) Courts will not involve themselves in whether the parties got into a bad bargain – parties can
choose what consideration they deem fit, it just has to have some (economic) value in the
eyes of the law (Chappel v Nestle).
c) Consideration must not usually be intangible (White v Bluett).
d) If the consideration is intangible, it should be of some economic value (Bainbridge v
Firmstone, Edmonds v Lawson).
e) Compromise and forbearance to sue is good consideration (Alliance Bank v Broom).

Existing Obligations as Good Consideration

Obligations arising under the law, independent of any contract
Public Duty
- Performance of duty imposed by law cannot be good consideration (Collins v Godefroy,
Leeds United FC v Chief Constable of West Yorkshire).
- If the performance done is more than that required by the existing duty, then the promise
to be paid can be enforced (Glassbrook Bros Ltd v Glamorgan CC).
Legal Duty
- Existing legal duty can be held to be good consideration (Ward v Byham).

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Obligations owed under a contract with the contracting parties

- Performance of existing contractual duty with the contracting party cannot be good
consideration (Stilk v Myrick).
- Exception: where the performance is over and beyond the existing contractual duty, it can
amount to good consideration (Hartley v Ponsonby).
- Exception: Rule does not apply where promisor gains a practical benefit (Williams v Roffey
Bros). The distinction between this case and Stilk v Myrick is that no pressure was put on
Roffey Bros to make the additional payment, they themselves did to avoid an overall loss.
The rules of practical benefit set up from Williams v Roffey Bros B are as follows:
1) The contract was for supply of goods or service.
2) A was unable to perform as promised (can include economic duress).
3) B agreed to pay more.
4) B obtained a practical benefit.
5) There was not any fraud or duress.
6) If all of the above are satisfied, then consideration is found.
Obligations owed under a contract with third party
- Existing obligations owed to a third party can be considered as good consideration for a fresh
promise (Shadwell v Shadwell, The Eurymedon). This is later confirmed in Pao On.

Part Payment of Debt

- Part payment of debt cannot be good consideration for a promise to not sue for the remaining
amount (Pinnel’s Case). However, if something else (not monetary) is given as agreed by the
promisor besides the part payment, it could amount to good consideration for forbearing to
sue.
- This is affirmed in Foakes v Beer and Re Selectmove.
- Exception: If there is a different contract in order to forbear suing, part payment will be good
consideration (Hirachand Punamchand v Temple).
- Exception: Part payment can be good consideration if there is a practical benefit (MWB
Business Exchange Ltd v Rock Advertising Ltd).

Past Consideration
- Generally, past consideration is not good consideration (Re McArdle, Roscorla v Thomas).
- Exception: It will be good consideration if the 3 stage test set in Pao On is fulfilled:
a) The act/service was done at the promisor’s request (Lampleigh v Braithwaite).
b) An implication of the act being paid for later by either money or some benefit (Lampleigh v
Braithwaite, Re Casey’s Patents). An objective approach taken to determine this step.
c) The promise would have been enforceable had it been made prior to the acts of
consideration.

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Promissory Estoppel
Promissory estoppel allows for, in certain circumstances, promises to accept a modified
performance of a contract to be binding despite the absence of consideration.
Established in Hughes v Metropolitan Railways, widely developed in Central London Property
Trust Ltd v High Trees House Ltd.
Arden LJ, in Collier commended the development of the law by Denning J in High Trees as
‘brilliant’.
Clearly defined limits summarized by Kitchin LJ in MWB Business Exchange Ltd.

The five elements of promissory estoppel are:

1. Presence of a clear and unequivocal promise that the promisor will not insist on his strict
legal rights against the promisee. It maybe express (High Trees) or by conduct (Hughes).
In cases where the statements considered as a basis to establish a promissory estoppel is
vague, clarification must be sought (Kim v Chasewood Park Residents).
2. Need for reliance on the promise by the promisee (High Trees). This reliance need not be
detrimental, just relying on the promise will suffice (Alan v El Nasr).
3. It would be inequitable for the promisor to go back on his word (D & C Builders v Rees).
However, it would not be inequitable if the promise was withdrawn so quickly that it did not
result in a detriment suffered by the promise by relying on it. (The Post Chaser).
4. It can be used as a shield rather than a sword. Lord Denning, in Combe v Combe held that
promissory estoppel cannot be used as a basis for course of action.
5. It is generally suspensory. After a certain period of time, after the special circumstances have
passed, the original terms of the contract can be continued (High Trees). The promisor can
also give reasonable notice terminating or withdrawing the promise (Tool Metal
Manufacturing Co Ltd v Tungsten Electric Co Ltd).

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