Consideration

Intro
• Contracts that are made by “deed” do NOT require consideration to be valid.
• Only contracts that are NOT made by “deed” require consideration. Such contracts
are called “simple” or “parol” contracts. Such contracts may be oral or in writing or
partly oral and partly in writing.
• The doctrine is a distinguishing feature of English contract law and other common
law jurisdictions (including Malaysian law).
• There is no requirement for consideration in civil law jurisdictions.

*Deed: an action that is performed intentionally or consciously

1.1 Origins Of The Doctrine

• Rann v Hughes (1778) 4 Bro Parl Cas 27
• is said to be the first decided English case making consideration a requirement for a
valid contract.
• Per Skynner LCB: English Law “supplies no means nor affords any remedy, to compel
the performance of an agreement made without sufficient consideration; such
agreement is nudum pactum” .
• Nudum pactum – an empty pact (an empty agreement).

1.2 The Bargain Theory Of Contracts – the traditional view

• Consideration is about reciprocity or bargains [getting something in return for
something; quid pro quo].
• Reciprocity means both parties (A and B) to a contract should receive a legal benefit
and incur a legal detriment. This benefit or detriment is called the consideration.
• Any benefit A gives to B, is a detriment to A. And any benefit B gives to A is a
detriment to B. This way both A and B have provided consideration to one another.
• Thus, in essence, consideration is the price paid by the promisee for the promise
made by the promisor.
• Other than contracts made by deed, only agreements that are bargains are
enforceable as contracts.
• Thus, promises to make gifts are unenforceable because promisor gets nothing in
return from the promisee. But, if the promise to make a gift is by deed, it would be
enforceable.

* Nevertheless, Atiyah recognises that presence of a bargain is “normally a good reason for
enforcing a promise”.
*Treitel disagrees with Atiyah BUT concedes that in many cases English courts have
“invented consideration” simply to enforce a promise as a contract
1.3 The Will Theory of Contracts (Rejected By English Law)
• The “Will Theory” argues that contracts are enforceable simply because promises
have been made
• that it is enough that parties have exercised their free will to agree on something
• therefore, consideration is not required as the courts are merely enforcing the “will”
of the parties.

1.4 The Reliance Theory of Contracts

The “Reliance Theory” argues that liability in contract arises simply because the plaintiff has
relied on the defendant’s promise and because of that reliance either
(i) plaintiff has suffered some detriment, or
(ii) the defendant has received benefits
• Therefore, consideration is not required since the courts are merely compensating
the plaintiff for the detriment he has suffered or to ensure that the defendant is not
unjustly enriched.
• This theory is generally NOT applied by English courts, but its application can be
seen in situations of promissory estoppel.

WHAT IS CONSIDERATION
Currie v Misa [1875]
“A valuable consideration, in the sense of the law, may consist of
— 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
[as a result of a promise made by one party to the other party].”

Dunlop Pneumatic Tyre Co v Selfridge & Co [1915]

Per Lord Dunedin:
• Consideration is "An act or forbearance of one party, or the promise thereof, [which]
is the price for which the promise of the other is bought, and the promise thus given
for value is enforceable”

*In Bilateral contracts, A’s promise to B and B’s promise to A comprises the consideration
that both A and B have provided one another. (Promise in exchange for a promise.)
*In Unilateral contracts, A’s promise to B is the consideration A is providing to B, and B’s
performance is the consideration that B is providing to A. (Promise in exchange for
performance.)

General rules or principles of consideration

(1) Consideration must be sufficient; it need not be adequate.
(2) Past consideration is not good consideration.
(3) A promise to perform or actual performance of a pre-existing duty is not good
consideration.
(4) Consideration must move from the promisee to the promisor and not from a third
party to the promisor.
(5) Consideration is a necessary ingredient for (a) the formation of a valid contract, and
(b) generally, for the variation of an existing valid contract.
Consideration must be “sufficient” but need not be adequate(acceptable).
1. “Sufficient” does not mean that consideration must be adequate, simply that it must be
regarded by the court as “legally” sufficient.
2. Thus, the benefit received by one party need not be equivalent in value to the detriment
incurred by the other party
3. fairness of the bargain or adequacy of the consideration is irrelevant with regard to
formation of the contract.
4. Several cases show that “something” trifling or apparently insignificant can amount to
sufficient consideration for the purposes of satisfying the requirement of consideration.
5. This is because it is not the function of the courts to decide for the parties what is
sufficient consideration if that “something” has some value.

Chappell & Co Ltd v The Nestle Co Ltd [1960]

CCL owned the copyright of a musical work. N manufactured gramophone records of CCL’s
musical work for sale to the public.
• S.8 of the Copyright Act 1956 permitted anyone to manufacture and sell records of
copyright musical works if
(i) the manufacturer gives prior notice to the copyright owner of its intention to sell the
manufactured records and
(ii) agrees to pay the copyright owner royalty of 6.25% of the ‘ordinary retail selling
price’.
(iii) N duly notified CCL that it would be selling the records with CCL’s musical work at a
fixed price of 1s 6d (“the Agreed Price”) and agreed to pay CCL royalty of 6.25% on
the sale price.
(iv) However, N’s offer to the public stated that it would sell the records at the Agreed
Price only if the customer also presented “three wrappers from Nestle’s 6d milk
chocolate bars” together with the Agreed Price.
(v) CCL sought an injunction to stop N from selling on grounds that N was infringing its
copyright.
(vi) N sought to rely on S.8 Copyright Act 1956 as a defence.
(vii) CCL argued that N’s notice did not satisfy the requirements of S. 8 because in fact N’s
retail price of the records was more than the Agreed Price.

Issue: Was the consideration (price) that the public paid to N for the records the Agreed
Price or was it more because of having to submit the 3 wrappers? In other words, did the
wrappers form part of the consideration paid by customers for purchasing CCL’s records
from N?
Held By 3:2 Majority
• The sending of the 3 wrappers together with the Agreed Price by the public was not
simply a condition to be fulfilled before a copy of the record could be obtained.
• The 3 wrappers formed part of the consideration for the sale of the records by
Nestle to the public.

— Nestle had therefore breached the Copyright Act and CCL was entitled to the
injunction.
Per Lord Reid
• the main intention of the offer [by Nestle to the public] was to induce people
interested in this kind of music to buy…[Nestle’s] chocolates which otherwise would
not have been bought.
• if a person accepts an offer to supply goods if he (a) does something of value to the
supplier and (b) pays money: the consideration is both (a) and (b).
• the notice [given by Nestle to CCL] that the ordinary retail selling price was 1s. 6d.
was invalid…
[Nestle’s] operations were not within the ambit of section 8. They were therefore
infringements of [CCL’s] copyright…

**Parties Decide Whether Consideration Is Adequate, Not the Court

• Per Lord Somervell:
“It is said that…the wrappers are of no value to Nestles. This [is] …irrelevant. A contracting
party can stipulate for what consideration he chooses. A peppercorn does not cease to be
good consideration [even] if it is established that the promisee does not like pepper and will
throw it away”

Ward v Byham [1956]

Agreeing to keep the child ‘happy’ was sufficient consideration
1. The unmarried parents of a child separated.
2. The mother (M) became a housekeeper to a man who was ready to let the child live
with them.
3. The child’s father (F) promised to pay M £ 1 a week if “you can prove that she will be
well looked after and happy”.
4. After some time, F stopped making payments, and M brought an action for breach of
contract against F.
Issue: what consideration had M provided for F’s promise?
Held:
F Liable; Sufficient Consideration Provided
• It was M’s statutory duty to maintain the child. Thus, M was merely performing an
existing legal duty and, prima facie, merely looking after the child would not amount
to good consideration for F’s promise.
• However, M’s looking after the child in accordance with the agreement with F [i.e.
keeping the child happy] was sufficient consideration for his promise to pay.

Bainbridge v Firmstone (1838)

— D, borrowed P’s boilers and promised P to return them in the same condition.
— However, D took them to pieces and could not put them together again.
— P sued D for damages for breach of contract.
— D contended P had not provided consideration for D’s promise to restore the boilers
to same condition.
Held:
• “The consideration is, that …there is a detriment to the plaintiff from his parting with
the possession for even so short a time.”
Pitt v PHH Asset Management Ltd [1994]
Facts:
• P offered, subject to contract, to buy D’s land for £200,000, which D ‘accepted’.
• Before P and D could make a concluded contract, D received an offer from B to buy
his land for £210,000 whereupon D revoked his ‘acceptance’ to P.
• P threatened (i) to take an` injunction against D to stop him from selling to B and (ii)
to inform B that since D was willing to accept P’s offer of £200,000, B should offer
less to D.
• As a result of the threats, D agreed not to sell the land to anyone else IF the formal
contract with P were signed within 2 weeks. (the “lock-out” agreement).
• But, in breach of the lock-out agreement, D nevertheless went ahead and finalised
the sale with B within the lock-out period of 2 weeks.
• P sued for damages for breach of the lock-out agreement.
• D contended that there was no consideration for the lock-out agreement.
• P contended that he had provided consideration by forbearing to take out the
injunction and to cause “trouble” by informing B that B could in fact offer a lower
price to D.

Held:
• Both the threat of an injunction and the threat of causing trouble with B had a
nuisance value only.
• Nevertheless, that nuisance was something which D was freed from when P agreed
to make the lock out agreement so that there was consideration.

White v Bluett (1853)

• A father (F) lent money to his son (S) which S failed to repay during F’s lifetime. After
F’s death his estate sought to recover the money from S.
• S defended the action on grounds that F, when alive, had agreed to discharge S from
liability to repay the loan if S agreed to stop complaining about F’s proposed
distribution of F’s estate.
Issue:
had S provided any consideration for F’s promise to release him from liability to repay
the loan?
Held:
(per Pollock CB): “In reality, there was no consideration whatever. The son had no right
to complain, for the father might make whatever distribution of his property he liked,
and the son’s abstaining from doing what he had no right to do can be no consideration
Past Consideration is Not Good Consideration
• It refers to something of value the promisee has given to the promisor before the
promisor makes the promise that the promisee seeks to enforce.
• Thus, the promisee does not give anything new of value in return for the promisor’s
promise. Whatever benefit or value he has given to the promisor was in the past.

Eastwood v Kenyon (1840)

• Eastwood, as executor of a deceased person’s estate, borrowed £140 from B for the
upkeep of the estate and the maintenance of the sole beneficiary, S (a minor).
— Upon reaching the age of majority, S married Kenyon who promised to repay
Eastwood the money he had borrowed in the past.
— Kenyon failed to honour his promise, and Eastwood sued him.
Held:
(per Lord Denman CJ)
a) “…consideration for [Kenyon’s promise] was past and executed long before,
b) [it was] not…[given] at the request of [Kenyon]
c) …the [case] really discloses nothing but a benefit voluntarily conferred by [Eastwood]
and received by [S]…”
d) [In reaching this conclusion] we are justified by the old common law of England.”

Roscorla v Thomas (1842)

• After P bought D’s horse, D orally warranted (guaranteed) that the horse was “sound
and free from vice” when, in fact, it was not.
• P brought an action for breach of the oral warranty.
Held:
• The oral warranty was unenforceable due to lack of consideration.
• Per Lord Denman CJ: ““[The] general rule, subject to exceptions not applicable to this
case, [is] that the promise must be coextensive with the consideration…The
precedent sale, without a warranty…imposes no other duty or obligation upon [the
defendant].”

Re McArdle [1951] Ch 669

• M was one of 5 beneficiaries of the estate of a deceased person.
• In 1943 Mrs. M paid for some improvement works on some estate property.
— In 1945 the other 4 beneficiaries signed a document stating that “in consideration”
of Mrs. M carrying out the works they agreed that the estate would repay Mrs. M
the sum spent.
• Issue: Had Mrs. M provided consideration for the promise that she would be
repaid?
Held:
a) Since the works had all been completed before the execution of the document the
consideration for the agreement was a wholly past consideration
b) Accordingly, the agreement for repayment was a nudum pactum (naked promise)
and not enforceable as a contract.
** If the past consideration was provided at the promisor’s request, it is regarded as
good consideration for the promise.
Lampleigh v Brathwait (1615)
Facts:
• D had killed someone.
• He requested P to get him a King’s pardon.
• P put in time and expense and got D the pardon.
• After P got him the pardon, D promised to give P £100 for his services but then failed
to make payment.
• P brought an action to enforce D’s promise.
Held:
although consideration given by P was past, it was still good consideration since it had
been provided at D’s request

Re Casey’s Patents [1892]

Facts:
• Two joint-owners of certain patents promised their manager, Casey, “In
consideration of your services… we hereby agree to give you one-third share of the
patents”.
• The services had been provided at the request of the joint-owners. Subsequently,
Casey sought to enforce this promise.
Issue:
whether Casey had provided any consideration for their promise since he had provided the
services in the past before the promise was made to him.
Held:
When Casey provided the services, it was implied that he would be paid for the services. The
subsequent promise to pay was simply to fix a reasonable amount for his past services.

Pao On v Lau Yiu Long [1980]

Facts:
• P (seller) and D (buyer) had a valid, concluded sale of shares agreement.
• Subsequently, P threatened not to go through with the transaction unless D signed a
further guarantee agreement.
• D could have sued P for breach of contract, but to avoid litigation, D signed the
guarantee.
• When P sought to enforce the guarantee, D argued that it was NOT enforceable
because it was:
i. not supported by any consideration from P; and
ii. obtained by duress [to be discussed under ‘Duress’ in Semester 2].
Held:
• The guarantee was enforceable because P had provided consideration and there
was no duress.
• “An act done before the giving of a promise [i.e. past consideration] could be valid
consideration for that promise if
• the act had been done at the promisor's request,
 • the parties had understood that the act was to be remunerated either by
payment or conferment of a benefit, and
• the payment or conferment of a benefit would have been enforceable had it
been promised in advance.”
Performance of Pre-existing duties owed by Promisee
• Issue: if X already owes a duty to Y, and Y then promises to pay X to perform that
very same duty, is Y’s promise binding?
• To put it another way, if X performs that pre-existing duty owed to Y, can it be said
that X has given consideration to Y so that Y’s fresh promise is binding?
• The general rule is that performance of the pre-existing duty by X is not good
consideration for Y’s promise, i.e. generally Y’s promise will not be binding because
X’s performance is not good consideration.
• X must promise or perform something over and above the pre-existing duty in order
to provide good consideration for Y promise.

There are 4 different situations when this issue can arise

1. Pre-existing duty imposed by the general law
2. Pre-existing CONTRACTUAL duty owed to PROMISOR
3. Pre-existing duty to repay a DEBT
4. Pre-existing CONTRACTUAL duty owed to a THIRD PARTY

When The Pre-existing Duty Owed By X To Y Is A Duty Imposed By Law

Collins v Godefroy (1831)
• An attorney was subpoenaed to attend court as a witness.
• The party who had subpoenaed him promised to pay him a fee for attending court as
witness.
• The attorney attended court and then sued for the promised fee.
Held: claim dismissed.
a) The agreement was unenforceable for lack of consideration.
b) “…if it be a duty imposed by law upon a party regularly subpoenaed, to attend…to
give his evidence, then a promise to give him any remuneration for loss of time…is a
promise without consideration…an action does not lie for a compensation to a
witness for loss of time in attendance under a subpoena.”

Glassbrook Bros Ltd v Glamorgan CC [1925]

Facts:
• There was a strike at GBL’s colliery.
• GBL’s Manager applied for police protection for the colliery requesting the police to
temporarily place a police force at the colliery.
• The police superintendent’s opinion was that protection by a mobile police force was
adequate but agreed to provide such protection if the manager agreed to pay the
police for it.
• Subsequently, the police brought an action to recover the payment promised for the
extra protection provided by the police.
Issue:
had the police provided any consideration for the promise made by the manager?
Held By A 3:2 Majority
• Generally, the police are duty-bound to provide sufficient protection to life and
property without payment.
• However, if in particular circumstances, at the request of an individual, they provide
a special form of protection outside the scope of their public duty they may require
payment for it.
• Hence, in this case, the police were entitled to claim the promised fee from GBL for
the extra protection they had provided.
Dissenting judgment
• 2 judges in HOL did not think that, on the facts, the police protection given was over
and above that which was necessary, and held, therefore, there was no
consideration for the promise to pay special remuneration.

When Y promises to pay more to X for performing a pre-existing contractual duty that X
owes Y
1. The general rule in such cases is that X’s performance of his pre-existing contractual
duty owed to Y is not good consideration, and Y’s fresh promise to pay more is not
binding: Stilk v Myrick (1809) 2 Camp 318

2. However, if X’s performance of that pre-existing contractual duty brings practical

benefits to Y, then X’s performance is regarded as good consideration, and Y’s fresh
promise to pay more is binding: Williams v Roffey Bros [1991] 1 QB 1, CA.

Stilk v Myrick (1809)

Facts:
• During a ship’s voyage some of the seamen deserted.
• The captain was unable to find replacements, so he promised to pay the remainder
of the crew more than originally agreed to complete the very same voyage.
• The seamen brought an action to recover the extra remuneration promised to them.
Held:
a) The captain’s promise to pay more to the seamen was not enforceable because of
lack of consideration.
b) The seamen had not provided any consideration for this promise.
c) By completing the voyage, they had merely performed a contractual duty that they
already owed to the captain.

Hartley v Ponsonby (1857)

• The facts are similar to Stilk v Myrick.
• Some crew members deserted a ship during a voyage.
• The remaining ones were promised extra wages if they completed the voyage.
 • However, on the facts, the jury found that it would have been unsafe and dangerous
for the ship to have continued the voyage with so few hands.
• The court held that as a result the original contract had come to an end.
The seaman had made a new contract and were therefore entitled to recover the extra
wages
Per Lord Campbell CJ
• “…for the ship to go to sea with so few hands was dangerous to life. If so, it was not
incumbent on the plaintiff to perform the work; and he was in the condition of a
free man. There was therefore a consideration for the contract; and the captain
made it without coercion. This is therefore a voluntary agreement upon sufficient
consideration.”

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991]

1. W contracted with RB to do carpentry works for the refurbishment of 27 flats for
£20,000.
2. Separately, RB had agreed to deliver the refurbished flats to the Housing Association by a
particular date, failing which RB would pay a penalty to the Housing Association for late
delivery.
3. W had been paid £16,200 after refurbishing 9 flats when he ran into financial difficulties,
and it became clear that W could not complete the refurbishment in time for RB to deliver
the refurbished flats to the Housing Association.
4. RB recognised that the original contract price awarded to W was too low, and, so, on their
own volition, promised W an additional £575 per completed refurbished flat.
5. W refurbished 8 more flats but was paid only additional £1,500. He stopped work and
sued RB for the difference.
6. RB contended that they were not liable for the extra payment as W had not given any
consideration for their fresh promise to pay the additional sum.

Held
• W had provided consideration for RB’s promise for payment of the additional sum
and was therefore entitled to be paid the additional sum for refurbishment of the 8
flats.
• In deciding that W had provided consideration, the Court of Appeal focused on the
“practical benefit” (as opposed to legal benefit) that RB would get by reason of W
performing his pre-existing contractual obligation to RB.
• The practical benefit to RB was treated as sufficient consideration provided by W for
RB’s promise to pay the additional sum.

Per Glidewell LJ
“…the present state of the law on this subject may be expressed in the following proposition:
(i) if A has entered into a contract with B to do work for, or to supply goods or services
to, B in return for payment by B; and
(ii) at some stage before A has completely performed his obligations under the contract
B has reason to doubt whether A will, or will be able to, complete his side of the
bargain; and
(iii) B thereupon promises A an additional payment in return for A's promise to perform
his contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a
disbenefit; and
(v) B's promise is not given as a result of economic duress or fraud on the part of A; then
(vi) the benefit to B is capable of being consideration for B's promise, so that the promise
will be legally binding.”
Per Glidewell LJ (Cont’d)
• “There is no finding, and no suggestion, that in this case the promise was given as a
result of fraud or duress.
• …the propositions above [do not] contravene the principle in Stilk v Myrick…they
refine and limit the application of that principle.
• …[the Stilk v Myrick principle] enunciated in relation to the rigours of seafaring life
during the Napoleonic wars should be subjected during the succeeding 180 years to
refinement and limitation.”

Practical Benefits To Roffey Bros (Promisor) Identified By Glidewell LJ

i. ensuring W would continue work and not stop in breach of contract;
ii. avoiding the penalty for delay;
iii. avoiding the trouble and expense of engaging other people to complete the work;
iv. replacing a “rather haphazard method of payment” with a “more formalised scheme
involving the payment of a specified sum on the completion of each flat”;
v. by directing W to complete one flat at a time, RB “were able to direct their other
trades to do work in the completed flats which otherwise would have been held up
until the claimant had completed his work.

Scope Of The Williams V Roffey Bros Exception

(1) Basis for finding existence of consideration: practical benefit rather than legal benefit
arising from agreeing to pay more for performance of an existing contractual duty.
(2) Did not overrule Stilk v Myrick.
(3) Role of duress – promise to pay additional sum would be unenforceable if made under
duress.
(4) Estoppel was touched upon, but there was no need to proceed with it since Williams
managed to establish consideration.
(5) The Court of Appeal relied on cases of performance of duty imposed by law and
performance of contractual duty owed to 3rd party in reaching its decision.
(6) However, the ‘practical benefits’ approach of Williams v Roffey Bros apply to part-
payment of debts.
When the pre-existing duty owed by X to Y is a debt owed by X, and Y promises to accept a
smaller sum in full satisfaction of the whole debt.
1. The general rule is that payment of a smaller sum by X does not amount to good
consideration, and Y’s promise is not binding: Pinnel’s Case (1602) 5 Co Rep 117a.
Thus, Y will be able to sue X to recover the full amount. (Read Pinnel’s Case for
possible exceptions.)

2. Although Pinnel’s Case has been criticised it has been upheld (i) by the House of
Lords in Foakes v Beer (1884) 9 App Cas 605, HL and (ii) by the UK Supreme Court in
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119, UKSC.

3. Further, in Re Selectmove [1995] 1 WLR 474, CA the Court of Appeal held that the
‘practical benefits’ exception of Williams v Roffey did not apply to part-payment of
debts.

Fresh Promise To Pay More vs Fresh Promise To Accept Less

• Stilk v Myrick, Hartley v Ponsonby, Williams v Roffey Bros
• all involved situations where promisor makes a fresh promise to pay the promisee
MORE than what has been originally agreed simply for doing what the promisee had
originally agreed.
• Debt: a sum of money that is owed by a person (the debtor) to another (the
creditor).
• Part-payment of a debt: debtor pays the creditor less than what is owed i.e. there is
still a balance sum owed by the debtor.
• If the creditor (promisor) makes a fresh promise to accept LESS from the debtor
(promisee) than originally agreed as a full discharge of the debt owed, does that
mean that the debtor is discharged from further liability to pay off the balance?
Issue in such cases:
• Is the promise binding? What is the consideration given by the debtor to the
creditor for the creditor’s promise to accept a smaller sum?

The Rule in Pinnel’s Case

• Generally, a part-payment of a debt (which is accepted by the creditor) does NOT
amount to a discharge of the whole debt. i.e. a promise by the creditor to accept a
sum smaller than that which is owed is not enforceable by the debtor because the
debtor has NOT provided any consideration for the creditor’s promise to accept a
smaller sum.
• Note: The Rule is in fact derived from obiter dicta in the judgement and NOT from
the ratio decidendi of the case.
• Note: The Rule is subject to many common law limitations, and has been further
eroded by Equity (e.g. Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ
1329)
Pinnel’s Case (1602)
Facts:
• D owed P £8 10s.
• This debt was due to be paid on 11 November 1600.
• However, P requested D to pay him a smaller sum at an earlier date.
• Accordingly, D paid him £5 2s 2d on 1 October 1600 (i.e. earlier than the due date)
which P accepted in full satisfaction of the amount owed to him.
• P subsequently sued D for the recovery of the balance sum.
Held:
• D was NOT liable to P because by paying the smaller sum, at P’s request, at an earlier
date than when the debt was due, D had provided sufficient consideration to P.
• Payment, and acceptance, of a smaller before the due day in satisfaction of the
whole, would be a good satisfaction.
• This is because part-payment on an earlier date would be more beneficial to the
creditor than the whole sum on the due date.
• Further, the amount of such part-payment, if accepted by the creditor, is not
material.
Obiter Dicta:
• The gift of something else (e.g. a horse, hawk or robe, etc,) in satisfaction of the debt
is good, for it might be more beneficial to the plaintiff than the money or otherwise
the plaintiff would not have accepted it in satisfaction.
• Payment of a lesser sum at a different place may also be good satisfaction.
• But payment of a lesser sum on the due day in satisfaction of a greater, cannot be
any satisfaction for the whole.

Foakes v Beer (1884)

Facts :
• B obtained a judgment against F so that F owed B a judgment debt of a principal sum
plus interest on that sum.
• At F’s request, B agreed not to enforce the judgment debt if F paid only the principal
judgment sum.
• F paid the principal sum as agreed, but B then sought to recover the interest.
• F denied liability on grounds that B had agreed to accept the lesser sum.

The House of Lords expressed reluctance to overturn Pinnel’s Case which at that stage had
been the law for 280 years and HELD as follows:
a) Part-payment of a debt is not good consideration for a creditor’s promise to
relinquish the residue of the debt.
b) The agreement to accept a lesser sum must be supported by some fresh
consideration.
 c) The benefit which a creditor may derive from getting part-payment from a debtor
who might otherwise keep him at arm’s length, or possibly become insolvent, is not
good consideration.
d) Any benefit must be some other independent benefit of a kind which might in law be
a good and valuable consideration.

D&C Builders v Rees [1966]

Here Court of Appeal applied the rule in Pinnel’s Case to protect the creditor from an
unscrupulous debtor.
Facts:
• DCB did building works for R and ran into “desperate straits”.
• DCB requested R for payment of balance due to DCB.
• Mrs. R, knowing of DCB’s difficulty, offered to pay a lesser sum (by cheque) telling
DCB that it was “better than nothing”.
• DCB accepted the lesser sum but later sued R for the balance.
• R argued that DCB’s claim had been fully settled.
Issue:
• was there a binding settlement of DCB’s claim?
Held:
• There was no binding settlement of DCB’s claim, who could recover the full amount
of the debt owed to them.

 Accord = a new or varied agreement. It replaces the original agreement. Accord must
be supported by consideration
 Satisfaction = performance of the accord
 Result : accord + satisfaction = original agreement is discharged

Re Selectmove Ltd [1995]

Facts:
• SL owed Inland Revenue arrears of tax and during a meeting offered to pay by
instalments.
• IR said they would let SL know if that proposal was acceptable.
• SL heard nothing further from the IR but nevertheless paid some instalments which
the IR accepted.
• Later IR threatened winding-up proceedings if the balance of the debt was not paid
in full immediately.
• SL sought to rely on the principle of accord and satisfaction to resist the winding up
and argued that the practical benefit of agreeing to accept the small was good
consideration given to the Inland Revenue.
Held:
a) No agreement to accept payment by instalments was ever reached since the IR’s
silence regarding SL’s offer did not amount to acceptance.
 b) Even if an agreement had been reached, there was no consideration provided by SL
for such agreement.
c) The Court of Appeal was unwilling to apply the Williams v Roffey Bros ‘practical
benefits’ approach to a promise to receive less because that would require
disregarding Foakes v Beer, a HL decision.

Per Peter Gibson LJ

a) “…if the principle of Williams v Roffey Bros…is to be extended to an obligation to
make payment, it would in effect leave the principle in Foakes v Beer without any
application.
b) When a creditor and a debtor who are at arm’s length reach agreement on the
payment of the debt by instalments to accommodate the debtor, the creditor will no
doubt always see a practical benefit to himself in so doing.
c) Thus “In the absence of authority there would be much to be said for the
enforcement of such a contract. But that was a matter expressly considered in
Foakes v Beer and yet held not to constitute good consideration
d) It is impossible, consistently with the doctrine of precedent for this court to extend
the principle of the Williams case to any circumstances governed by the principle of
Foakes v Beer…”

Exceptions to the Rule in Pinnel’s Case

1. Promise made by deed to accept a smaller is enforceable.
2. Accord and satisfaction e.g. making payment at an earlier time, at a different place,
different method (but payment by cheque is not different from payment by cash),
giving something other than money (e.g. hawk, horse, etc) provided this is
acceptable to the creditor
3. If the original claim is not for a fixed sum or for an amount disputed in good faith, it
can be validly settled for a lower sum.
4. A payment of a smaller sum accompanied by additional benefit is good
consideration.
5. Composition agreements with the creditors of a debtor are enforceable.

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019]

• A 5-member panel of the UKSC doubted the correctness of Foakes v Beer in this case.
However, the UKSC chose NOT to overrule Foakes v Beer, since the case could be
(and was) decided on another point of law.
• Lord Sumption expressed the view of the UKSC as follows: “The reality is that any
decision on this point is likely to involve a re-examination of the decision in Foakes v
Beer. It is probably ripe for re-examination. But if it is to be overruled or its effect
substantially modified, it should be before an enlarged panel of the court and in a
case where the decision would be more than obiter dictum.”
When the pre-existing contractual duty is owed to a 3rd Party
• The scenario here is that X owes a pre-existing contractual duty to Z (not Y), but Y
promises to pay X if he (X) performs that duty owed to Z.
• Here the general rule does not apply.
• X’s performance is regarded as good consideration for Y’s promise, and Y’s promise
is binding: Scotson v Pegg (1861) 6 H&N 295; Shadwell v Shadwell [1860] 9 CB (NS)
159; The ‘Eurymedon’ [1975] AC 154, PC.

Scotson v Pegg (1861)

• X was in the business of selling coal. S contracted with X to deliver coal to X’s clients.
• X sold their coal to D and instructed S to deliver the coal to D.
• D agreed with S that they would pay S for delivering the coal to them but D refused
to pay S after he had delivered the coal.
• S brought an action against D for breach of contract. D argued that there was no
consideration for their agreement with S since S was merely performing a pre-
existing contractual duty owed to X.
Held:
S’ performance of his duty owed to X (to deliver coal to D) was good consideration

Shadwell v Shadwell [1860]

Facts:
• An uncle (U) after finding out that his nephew (N) had been engaged to be married
to F, promised to pay N an annuity during U’s lifetime until N’s annual income
exceeded 600 guineas if N did in fact marry F.
• N married F, and later sued U for arrears of the promised annuity payments. U
contended there was no consideration for his promise of payment of annuity.
Held:
(Byles J dissenting holding that there was no ITCLR)
a) N was contractually bound to marry F when U made the promise. By in fact marrying F, N
had provided good consideration for U’s promise.
b) U’s promise was enforceable, and U was liable to N for the arrears of the annuity.

The ‘Eurymedon’ [1975]

Facts:
• Contract between carrier (C) and shipper of goods (P) had a limitation of liability
clause which extended its protection to C’s servants, agents and independent
contractors.
• D who were stevedores (i.e. C’s independent contractors) damaged P’s goods whilst
unloading them and sought to rely on the limitation clause when sued by P.
 • P argued that D could not rely on that clause as D had not provided any
consideration.
Held: (3:2 majority):
Performance by D of their contractual duty (owed to C) to unload the goods was good
consideration to P, and D could therefore rely on the limitation clause in defending P’s
claim.

Per Lord Wilberforce, Delivering the Majority Decision

• “The performance of these services [of unloading by D] for the benefit of the shipper
[P] was the consideration for the agreement by [P with C] that [D] should have the
benefit of the exemptions and limitations contained” in the contract.
• “…consideration may quite well be provided by [D]…even though (or if) it was already
under an obligation to discharge to the carrier [third party].”
• “An agreement to do an act which the promisor is under an existing obligation to a
third party to do, may quite well amount to valid consideration…the promisee
obtains the benefit of a direct obligation which he can enforce.”

Pao On V Lau Yiu Long [1980]

• PC held that even a promise to perform a contractual duty owed to a third party
does amount to good consideration. (Contrast The Eurymedon where the stevedores
did perform their duty owed to the shipper.)
• Per Lord Scarman (citing The Eurymedon): “a promise to perform, or the
performance of, a pre-existing contractual obligation to a third party can be valid
consideration”.

Must Consideration Move From the Promisee Only?

The General Rule is that consideration must move from the promisee, not a third party.

Tweddle v Atkinson (1861)

Facts:
• When P was going to getting married, his father and father-in-law to-be promised
one another to each give some money to P.
• After getting married, P brought a claim for £200 against his father-in-law for breach
of the promise he made to his father.
Held:
a) Claim dismissed.
b) Per Crompton J: consideration must move from the party entitled to sue upon the
contract.
c) Per Wightman J: at law no stranger to the consideration can take advantage of the
contract though made for his benefit (privity of contract argument)
Beswick v Beswick [1968]
Facts:
• An uncle (U) assigned his business to his nephew (N) in consideration of N agreeing
to pay U £6 per week during U’s lifetime and upon his death £5 per week to U’s
widow (W).
• When U died, N made one payment to W and then stopped making payments. W.
• W brought a claim for arrears due to her (i) in her personal capacity and (ii) as
administratrix of U’s estate.
Held:
• W could not sue N in her personal capacity because she had not provided any
consideration for N’s promise.
• However, in her capacity as administratrix of U’s estate, W could sue N for specific
performance of his promise to pay her the weekly sum of £5.
• Accordingly, W was allowed to claim the arrears due to her.

Criticisms of the Doctrine

(1) Narrowness of scope - failure to give effect to promises that ought to have legal
effect. What is wrong in enforcing gratuitous promises?
(2) Technicality – numerous rules, including rules relating to exceptions to the doctrine.
(3) Divorced from commercial reality. Why shouldn’t practical benefits suffice?
(4) Difficult to reconcile with modern theoretical models of contract law e.g. Reliance
theory, Will theory.
(5) Replaceable by other specific doctrines (e.g. ITCLR, promissory estoppel).