04/02/19

Jehanzeb Jehangiri, The Institute of

Legal Studies, Lahore.

Consideration
Formation of the contract – Chapter # 3 – Contract law
subject guide. 1
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Concept of consideration
§  It is the principle way through which the courts decide
whether the agreement, which has resulted from offer and
acceptance is enforceable by the courts as a contract (legally
responsible).
§  It only happens when there is an element of mutuality, where
there is something given by both of the parties. Only then the
courts shall find the contract to be legally enforceable.
§  There are instances where the courts shall hold the contract
to be enforceable, where there is no consideration. This is
done under the principle of promissory estoppel, which shall
be dealt at the end of these lecture series.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

3.1.1 definition of consideration

§  Curie v. Misa
§  A valuable consideration, in the strict sense of law, may consist
either in some right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss of responsibility
given, suffered or undertaken by another.
§  You will see that it is based on the concept of benefit, which is
being made to the person making the promise, and detriment
being made to the promisee.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Wholly executory contracts

§  However, this seems rather unproblematic. In most of the
contract it is easy to see the benefit/detriment system. However,
the problem arises in situations, where the contract are wholly
executory (there are contracts, where the person in the contract
have made the promises, which neither of the party has
performed as of yet).
§  Dunlop Pneumatic Co. Ltd v. Selfridge: it was held that where
the contract is wholly executory, the consideration, will be found
by the fact that both of the parties have made a promise. It leads
to a circular argument, which means that there is no benefit/
detriment situation at all. So it is considered, that it is better to
see consideration as simply requiring mutuality rather than
seeing it only through the strict lens of benefit/detriment.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

The scope of the doctrine

1.  The consideration needs to be sufficient, it need not to be
adequate.
2.  Past consideration is not good consideration.
3.  The consideration must move from the promisee.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

3.1.2 consideration must be sufficient, but it need

not to be adequate
§  Sufficient – means that what is put forward must be
something which the courts will recognize or have recognized
as legally capable of constituting consideration.
§  The word adequate here means that what is being offered
over here does not mean that it has to match in the value. So
there is no need for proportionality.
§  Thus in Thomas v. Thomas: The promise to pay one pound
towards the ground rent was considered sufficient for the
right to remain in the house.
§  The price or value of the commercial value of the rent was
irrelevant.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Chappell v. nestle
§  Nestle made a sales promotion, where they said that in return
for wrappers of their chocolate, they will allow people to buy
music records.
§  The wrappers were in fact valid consideration, because even
though the wrappers were not of any value, they did allow
boost in sales, which means that there was a benefit to the
company after all.
§  Lord Sommerwell says that the party can choose
whatever consideration it wants. The courts will
not interfere to prevent a bad bargain.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

White v. Bluett
§  It is said that consideration will not be sufficient if it has no
value.
§  Here the son’s promise to his father to stop complaining in
return for his share in the will was considered to be not
enough or valid consideration. It was held that lack of
complaining or complaining does not contain any economic
value.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Compromise and forbearance to

sue
§  A promise not to enforce a valid claim is good consideration for
promise given in return, as is promise not to enforce a doubtful
claim.
§  However, a promise not to enforce an invalid claim is not a valid
consideration (Wade v. Simeon).
§  The difficult lies in the case of Cook v. Wright, the claimants in the
question thought that the claim is good in law, where it was invalid at
law.
§  The claimants honestly believed that the other party had to pay them
under statute. Once they threatened the other party for legislation, he
agreed to pay. Once the respondent realized that he has no duty to
pay he refused.
§  However, the courts said that even though there is no valid claim, the
promise was supplied by valid consideration and he has to pay.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

3.1.3 Existing obligations as good

consideration
§  There are three aspects to this topic, there are three types of
existing obligations which shall be discussed in detail.
1.  Obligations which arise under the law, independently of the
contract.
2.  Obligations which are owed under the contract with the third
party.
3.  Obligations to perform an existing obligation under a contract
to the same contracting party.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Obligations arising under the law

§  Where a public official agrees to carry out his duties in return
for a promise of payment from a member of public.
§  In this situation, the promise of payment, will generally not
be enforceable.
§  This is because of two reasons:
§  Because there is no consideration, because the officer is doing
only his job.
§  To prevent extortion of money.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  Where the officer does more than what is being required by their
job, then only then the promise to pay may be enforceable:
§  Glasbrook Bros Ltd v. Glamorgan:
§  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.
§  Decision
§  In providing additional officers to that required, the police had gone beyond their
existing duty. They were therefore entitled to payment.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Obligations which are owed under

a contract to the third party.
§  The position over here is straight forward. The courts have
consistently taken the view that promise to perform existing
obligations to a third party will constitute a valid
consideration.
§  Shadwell v. Shadwell
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Shadwell v. Shawell
§  Facts:
§  The defendant was the plaintiff’s uncle. The uncle promised to pay
his nephew £150 a year until the nephew’s income reached 600
guineas provided the nephew married his fiancée. The uncle paid 12
instalments but then died, and the payments stopped. The nephew
sued his uncle’s estate for the remaining payments.
§  Issues:
§  A marriage contract was legally enforceable at the time. However, the
marriage contract was between the nephew and his fiancée, and was
not mad with the uncle. The defendants claimed that as a result the
nephew had provided no consideration for the uncle’s promise to pay
him. This was a voluntary gift and could not be enforced. The nephew
argued that his going through with the marriage was consideration.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  Held:
§  Erle CJ said that performance of the marriage contract was
consideration, even though the contract was made with a third
party to the agreement, as the uncle’s promise was an
inducement to the nephew to perform this contract. He said that
the plaintiff had, by getting married, made a material change in
his position and had induced his wife to do the same. They may
have incurred pecuniary liabilities that would be a loss to them if
the promised income was withheld. He recognised that marriage
could be a benefit to interested relatives, and so the uncle did
derive a benefit from the marriage. Therefore, the marriage was
good consideration. 
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Obligations to perform and existing

obligation under a contract to the same
contracting party
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Existing obligation
§  Stilk v. Myrick
§  Facts:
§  The claimant was a seaman on a voyage from London to the Baltic
and back. He was to be paid £5 per month. During the voyage two of
the 12 crew deserted. The captain promised the remaining crew
members that if they worked the ship undermanned as it was back to
London he would divide the wages due to the deserters between
them. The claimant agreed. The captain never made the extra
payment promised.
§  Held:
§  The claimant was under an existing duty to work the ship back to
London and undertook to submit to all the emergencies that entailed.
Therefore he had not provided any consideration for the promise for
extra money. Consequently he was entitled to nothing.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  Stilk v Myrick was long accepted as establishing the principle that the
performance of an existing contractual obligation could never be good
consideration for a fresh promise, to pay more in this case, from the person
to whom the obligation was owed.
§  The sailors’ contract obliged them to sail the ship back home. Thus in
bringing the ship back to London they were doing nothing more than they
were already obliged to do under their original contract.
§  This could not be good consideration for a promise of additional wages. Only
if the sailors had done something over and beyond their existing obligation
could the variation (the promise of extra payment)
become enforceable, their extra work constituting fresh
consideration for the promise to pay extra (Hartley v
Ponsonby).
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Williams v. Roffey Brothers

§  Facts
§  The defendants were building contractors who entered an agreement with Shepherds Bush
Housing Association to refurbish a block of 27 flats. This contract was subject to a liquidated
damages clause if they did not complete the contract on time. The defendants engaged the
claimant to do the carpentry work for an agreed price of £20,000. 6 months after commencing the
work, the claimant realized he had priced the job too low and would be unable to complete at the
originally agreed price. He approached the defendant who had recognized that the price was
particularly low and was concerned about completing the contract on time. The defendant agreed
to pay the claimant an additional £575 per flat. The claimant continued work on the flats for a
further 6 weeks but only received an additional £500. He then ran out of money and refused to
continue unless payment was made. The defendant engaged another carpenter to complete the
contract and refused to pay the claimant the further sums promised arguing that the claimant had
not provided any consideration as he was already under an existing contractual duty to complete
the work.
§  Held:
§  Consideration was provided by the claimant conferring a benefit on the defendant by helping them
to avoid the penalty clause. Therefore the defendant was liable to make the extra payments
promised.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  Yet the Court of Appeal held that the plaintiffs should be able to
recover the promised extra payments for the flats which they had
completed. The Court came to this conclusion by giving
consideration a wider meaning than had previously been
thought appropriate. In particular, Glidewell LJ pointed to the
‘practical benefits’ that would be likely to accrue to the
defendants from their promise of the additional money. They
would be:
§  Ensuring the contractors completed the work and did not leave the
contract uncompleted.
§  Avoiding a penalty clause which the defendants would have had to
pay under their contract with the owners of the block of flats.
§  Avoiding the trouble and expense of finding other carpenters to
complete the work.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

The application of the rule was

held to apply when:
1.  The was contract of goods and services.
2.  A was unable to perform as promised.
3.  B agreed to pay more
4.  B obtained a practical benefit from that promise
5.  There was no fraud or duress to obtain an extra payment.
6.  If all of the above is found then consideration is found.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Part payment of debt

§  A close relation to the old rule, that performance of an
existing contractual duty owed to the promisor does not
constitute consideration is the rule that a promise to accept
part payment of debt in discharge of an entire debt is not
supported by consideration.
§  Foakes v. Beer
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Foakes v. Beer
§  Dr Foakes owed Mrs. Beer £2,000 after she had obtained
judgment against him in an earlier case. Dr Foakes offered to
pay £500 immediately and the rest by installments, Mrs Beer
agreed to this and agreed she would not seek enforcement of the
payment provided he kept up the installments. No mention was
made in this agreement of interest although judgment debts
generally incurred interest. Dr Foakes paid all the installments
as agreed and Mrs Beer then brought an action for the interest.
§  Held:
§  Dr Foakes was liable to pay the interest. The agreement reached amounted
to part payment of a debt this was not good consideration for a promise not
to enforce the full amount due.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

MWB Exchange Centers Ltd v.

Rock Advertising Limited
§  In this case it was rejected that part payment of debt
amounted to a practical benefit. However, if apart from part
payment, if the part payment includes some other form of
benefit then it is enough to consider it as consideration.
§  Page 88 – Contract law of Ewan McKendrick
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Past consideration
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  A further rule about the sufficiency of consideration states

that generally the consideration must be given after the
promise for which it is given to make it enforceable. A
promise which is given only when the alleged consideration
has been completed is unenforceable.
§  he case of Re McArdle (1951) provides a good example. The
plaintiff had carried out work refurbishing a house in which
his brothers and sister had a beneficial interest. He then
asked them to contribute towards the costs, which they
agreed to do. It was held that this agreement was
unenforceable, because the promise to pay was unsupported
by consideration.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  As with many rules relating to consideration, there is an

exception to the rule about past consideration. The
circumstances in which a promise made after the acts
constituting the consideration will be enforceable were
thoroughly considered in Pao On v Lau Yiu Long (1979).
Lord Scarman laid down three conditions which must be
satisfied if the exception is to operate.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

1.  The act constituting the consideration must have been

done at the promisor’s request. (See, for example,
Lampleigh v Braithwaite (1615).)

2.  The parties must have understood that the work was to be
paid for in some way, either by money or some other
benefit. (See, for example, Re Casey’s Patents (1892).)

3.  The promise would be legally enforceable had it been made

prior to the acts constituting the consideration.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Lampleigh v Braithwaite
§  The defendant had killed a man and was due to be hung for
murder. He asked the claimant to do everything in his power
to obtain a pardon from the King. The claimant went to great
efforts and managed to get the pardon requested. The
defendant then promised to pay him £100 for his efforts but
never paid up.
§  Held:
§  Whilst the promise to make payment came after the performance and
was thus past consideration, the consideration was proceeded by a
request from the defendant which meant the consideration was valid.
The defendant was obliged to pay the claimant £100.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Promissory estoppel
§  The doctrine of promissory estoppel is concerned with the modification
of existing contracts. The position under the classical common law of
contract was that such modification would only be binding if
consideration was supplied and a new contract formed.
§  Thus in a contract to supply 50 tons of grain per month at £100 per ton
for 5 years, if the buyer wanted to negotiate a reduction in the price to
£90 per ton, because of falling grain prices, this could only be made
binding if the buyer gave something in exchange (for example, agreeing
to contribute to the costs of transportation). Alternatively the two
parties could agree to terminate their original agreement entirely, and
enter into a new one. The giving up of rights under the first agreement
by both sides would have sufficient mutuality about it to satisfy the
doctrine of consideration.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Problem with old rule

§  These procedures are a cumbersome way of dealing with the
not uncommon situation where the parties to a continuing
contract wish to modify their obligations in the light of
changed circumstances. It is not surprising, therefore, that
the equitable doctrine of promissory estoppel has developed
to supplement the common law rules.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  The origin of the modern doctrine of promissory estoppel is

found in older cases such as Hughes v Metropolitan
Railways but was more widely developed in the judgment of
Denning J (as he then was) in the case of Central London
Property Trust Ltd v High Trees House Ltd (1947).
§  The facts of the case concerned the modification of the rent
payable on a block of flats during the Second World War.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

High Trees Case

§  High Trees leased a block of flats from CLP at a ground rent
of £2,500. It was a new block of flats at the time the lease was
taken out in 1937. The defendant had difficulty in getting
tenants for all the flats and the ground rent left High Trees
with no profit. In 1940 many of the flats were still unoccupied
and with the conditions of the war prevailing, it did not look
as if there was to be any change to this situation in the near
future. CLP agreed to reduce the rent to £1,250 during the
war years. The agreement was put in writing and High Trees
paid the reduced rent from 1941. When the war was over the
flats became fully occupied and the claimant sought to return
to the originally agreed rent.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  The rent would be returned to the originally agreed price for the future
only. CLP could not claim back the arrears accrued during the war years.
This case is important as Denning J (as he then was) established the
doctrine of promissory estoppel. Promissory estoppel prevented CLP
going back on their promise to accept a lower rent despite the fact that
the promise was unsupported by consideration.

Denning J
"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"
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Limitation on promissory
Estoppel
35
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  The doctrine of estoppel has been considered in a number of reported

cases since 1947 and now has fairly clearly defined limits. A most
valuable summary of the general effect of these cases was provided by
Kitchin LJ in MWB Business Exchange Ltd v Rock Advertising Ltd
(2016):
Drawing the threads together, it seems to me that all of these
cases are best understood as illustrations of the broad
principle that if one party to a contract makes a promise to the
other that his legal rights under the contract will not be
enforced or will be suspended and the other party in some way
relies upon that promise, whether by altering his position or in
any other way, then the party who might otherwise have
enforced those rights will not be permitted to do so where it
would be inequitable having regard to all of the circumstances.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Need for existing legal relationship

§  It is generally, though not universally, accepted that
promissory estoppel operates
to modify existing legal relationships, rather than to create
new ones. The main proponent of the opposite view was Lord
Denning himself who, in Evenden v Guildford City FC (1975),
held that promissory estoppel could apply in a situation
where there appeared to be no existing legal relationship at
all between the parties.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

§  Combe v. Combe
§  Evenden v. Guilford
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Need for reliance

§  At the heart of estoppel is that the promisee has relied on the
promise.
§  It is the principal justification for the promise.
§  High Trees Case
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

A shield not a sword

§  Combe v. Combe
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Must be inequitable for the

promisor to go back on the
promise
§  The doctrine of promissory estoppel has its origins in equitable
‘waiver’. It is thus regarded as an equitable doctrine. The
importance of this is that a judge is not obliged to apply the
principle automatically, as soon as it is proved that there was a
promise modifying an existing contract which has been relied
on.
§  There is a residual discretion whereby the judge can decide
whether it is fair to allow the promise to be enforced. The way
that this is usually stated is that it must be inequitable for the
promisor to withdraw the promise. What does ‘inequitable’
mean? It will cover situations where the promisee has extracted
the promise by taking advantage of the promisor.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

A clear and unambiguous promise

§  Woodhouse A.C. Israel Cocoa Ltd v Nigerian Product Marketing
Co Ltd [1972] AC 741
§  A contract for the sale of some coffee beans was agreed to be payable in
pound sterling. The sellers mistakenly sent an invoice stating price was
payable in Kenyan Shillings. At the time the value of pound sterling and
Kenyan shillings was equal. The buyers accepted the delivery and invoice
with out objection. Subsequently the value of the pound fell quite
dramatically in relation to Kenyan shillings. The buyers then sought to revert
to pound sterling as stated in the contract.
§  Held:
§  The buyers conduct in accepting the invoice unquestionably amounted to an implied clear and
unambiguous promise to accept on those terms.
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Jehanzeb Jehangiri, The Institute of
Legal Studies, Lahore.

Change of position