Class 3 - Consideration and estoppel

Meaning and Requirements of Consideration

1) Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87

Consideration need not have economic value.

Facts
The defendants, Nestlé, contracted with a company manufacturing gramophone records to buy several
recordings of music. The plaintiffs, Chappell & Co, held the copyright in these recordings. Nestlé offered
to sell these records at a discount price to anyone presenting three wrappers from their chocolate bars.
The wrappers themselves were worthless and were thrown away by Nestle. The plaintiffs sought an
injunction restraining the manufacture and sale of the records because they breached copyright.

Issues
The Copyright Act 1956, s.8 allowed for the manufacture of records for retail sale provided that a royalty
of 6 ¼ percent was paid to the copyright holder. The question was whether the sale was a ‘retail sale’.
The defendants argued that the wrappers were part of the consideration and this was not covered by
s.8, which only applied to monetary sales. Consequently, the issue was whether the wrappers were
consideration for the sale of records or whether they were merely a qualification for buying the records.

Decision/Outcome
The House of Lords held that the wrappers did form part of the consideration for the sale of records
despite the fact that they had no intrinsic economic value in themselves.

Lord Somervell said (at 114):

‘A contracting party can stipulate what consideration he chooses. A peppercorn does not cease to be
good consideration if it is established that the promisee does not like pepper and will throw away the
corn.’

Therefore, as the wrappers had no monetary value, the sale was not covered by s.8 of the 1956 Act, and
the Lords found in favour of the defendants.

2) Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23

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Past Consideration does not count

1) Roscorla v Thomas (1842) 3 QB 234

Consideration is a contracting party bargains for and gives in exchange for the return promise or
performance of the other party. It is mean that both parties must have the consideration to exchange
the value, and the both parties value must be equal, however if the both parties agree the value, then it
can work.

Case of consideration
In the case Roscorla v. Thomas, (1842) 3 QB 234; Roscorla purchased a horse from Thomas. Thomas then
promised the horse was sound. The horse was in fact not sound and Roscorla sued for breach of
contract.

The court said he had no case; the only consideration he had given was past by the time the promise was
made, and the contract was merely that Thomas would deliver the horse on request.

2) Re McArdle [1951] Ch 669

Past consideration is no consideration.

Facts
William McArdle left a house to his five children in equal shares, subject to a life interest for his widow.
The wife of one of these sons, Mrs Marjorie McArdle, carried out improvements to the house amounting
to £488. She also bore the cost of these repairs. After the repairs had been carried out, she got all the
five children of McArdle to sign a document in which they promised to repay Mrs McArdle the £488 out
of the estate when it was eventually distributed. After the testator’s widow died, Mrs McArdle asked for
payment. However, the other four sons refused to pay her. She tried to enforce her interest in the
property in court.

Issues
Ms McArdle argued that the document was an equitable assignment of a portion of each of the five
sons’ interest in the property amounting to £488 out of the testator’s estate. However, the other sons
argued that the promise was merely a gift, as Mrs McArdle had provided no consideration for it. As she
was a mere volunteer, the equitable maxim ‘Equity will not assist a volunteer’ applied and, therefore, the
promise to pay could not be enforced.

Decision/Outcome
The Court of Appeal held that the transaction had not been completed and was imperfect. Therefore, it
was only a promise to pay and not a gift. Mrs McArdle had already performed the work before she asked
for payment. Her consideration was in the past. Past consideration is not good consideration. Therefore,
the agreement was unenforceable.

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3) Lam pleigh v Brathwait (1615) Hob 105

When past consideration may be good consideration.

Facts
The defendant, Braithwaite, killed a man. He asked the plaintiff, Lampleigh to secure him a pardon from
the king. The plaintiff spent many days doing this, riding and journeying at his own cost across the
country to where the King was and back again. Afterwards, the defendant promised to pay the plaintiff
£100 in gratitude. He later failed to pay the money. The plaintiff sued.

Issues
The defendant argued that the plaintiff had acted before any promise to pay was given by the defendant.
Therefore, he had only provided past consideration for a promise given in the future. The court
considered whether this past consideration was sufficient to create a valid contract.

Decision/Outcome
The court found in favour of the plaintiff. The promise was indeed given after the plaintiff had acted.
However, the plaintiff had acted upon a request made by the defendant. The court considered that the
original request by the defendant contained an implied promise to pay the plaintiff for his efforts. Bowen
LJ said:

‘A mere voluntary courtesie will not have a consideration to uphold an assumpsit. But if that courtiesie
were moved by a suit or request of the party that gives the assumpsit, it will bind’.

Consequently, the court held that if A does something for B at their request and afterward B promises to
pay A for their trouble, then that promise is good consideration. The later promise was considered to be
part of the same single transaction and was, therefore, enforceable.

4) Re Casey's Patents [1892] 1 Ch 104

When past consideration can be good consideration.

Facts
The defendant, Casey, managed some patents owned by the plaintiffs, Stewart and Charlton. The
plaintiffs later signed a document that read: ‘In consideration of your services… we hereby agree to give
you one-third share of the patents’. This payment was in return for work Casey had already done. When
Casey registered this document on the patent register in order to claim his 1/3 interest in the patents,
the plaintiffs applied to have the document expunged from the register.

Issues
The plaintiffs stated that the document was not a deed and therefore was required to be supported by
consideration before it became a valid agreement. The issue was whether what Casey had already done
was past consideration, in which case it would not be good consideration, and the agreement to give him
an interest in the patents would be void.

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Decision / Outcome
The Court of Appeal held that Casey must have assumed his work was to be paid for in some way. The
work done was not just a matter of goodwill but something a manager would have expected to have
been paid for. The promise to pay was, therefore, just a crystallization of this reasonable expectation.
Bowen LJ said (ay 116):

‘a past service raises an implication that at the time it was entered it was to be paid for, and… when you
get in the subsequent document a promise to pay that promise may be treated… as an admission
which… fixes the amount of that reasonable remuneration’.

Therefore, Casey’s past work was good consideration and the agreement was enforceable.

5) Pao On v Lau Yiu Long [1980] AC 614

When past consideration is good consideration.

Facts
The plaintiffs (P) owned the shares of a private company which owned a building that the defendants (D)
wanted to buy. The defendants were majority shareholders in a public company. P agreed to sell their
shares in the private company to D so that D could acquire the building. In return P would get shares in
the public company. Fearing a drop in share value of the public company would result, P and D made
another agreement that P would not sell their shares for a while. However, P realized that D might profit
from this agreement and demanded that this second agreement be replaced with one in which P was
indemnified for any fall in share value but might also benefit from any rise in share value. Fearing that
not agreeing to this would delay the main contract, D agreed. The share value did drop, and P sought to
rely on the indemnity contract. D refused to comply with this, and the case reached the Privy Council.

Issues
The defendants claimed that the consideration for the indemnity agreement was past consideration and
had only been agreed to under duress.

Decision/Outcome
The court found for the plaintiffs. Applying the exception to the doctrine of past consideration in
Lampleigh v Braithwaite (1615) Hob 105 Lord Scarman said that an act done before a promise was made
was good consideration for that promise if it was done at the promisor’s request and the parties
understood the act was to be paid for at a later date, and the payment or benefit would have been
enforceable had it been promised in advance.

6) L & D Associates v Chan Man Chon Madalena [1987] 2 HKC 237

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Pao On v Lau Yiu Long [1979]
HKLR 225, [1980] AC 614
(PC, HK).
The doctrine of implied
assumpsit as reformulated in
Pao On operates to transform a
past act or promise into
consideration supporting a
subsequent promise where three
conditions are met.
• First, the act must be done at
the promisor’s request.

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• Second, the parties must
have understood that the act
was to be remunerated
either by a payment or the
conferment of some other
benefit. This is an
objective test, and the standard
is the familiar common law one
of
reasonableness.
• Third, the subsequently
promised payment or
conferment of benefit must have

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been legally enforceable had it
been promised in advance (L &
D Associates v
Chan Man Chon Madalena
[1987] 2 HKC 237 (HKCA)).
Pao On v Lau Yiu Long [1979]
HKLR 225, [1980] AC 614
(PC, HK).
The doctrine of implied
assumpsit as reformulated in
Pao On operates to transform a
past act or promise into
consideration supporting a
subsequent promise where three
conditions are met.
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• First, the act must be done at
the promisor’s request.
• Second, the parties must
have understood that the act
was to be remunerated
either by a payment or the
conferment of some other
benefit. This is an
objective test, and the standard
is the familiar common law one
of
reasonableness.
• Third, the subsequently
promised payment or
conferment of benefit must have
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been legally enforceable had it
been promised in advance (L &
D Associates v
Chan Man Chon Madalena
[1987] 2 HKC 237 (HKCA)).
The doctrine of implied assumpsit as reformulated in Pao On operates to transform a past act or promise
into consideration supporting a subsequent promise where three conditions are met.

 First, the act must be done at the promisor’s request.

 Second, the parties must have understood that the act was to be remunerated either by a
payment or the conferment of some other benefit. This is an objective test, and the standard is
the familiar common law one of reasonableness.
 Third, the subsequently promised payment or conferment of benefit must have been legally
enforceable had it been promised in advance (L & D Associates v Chan Man Chon Madalena
[1987] 2 HKC 237 (HKCA)).

Rainforest Trading Ltd v State Bank of India Singapore [2012] SGCA 21