CONSIDERATION

FORM

English law will enforce

promises which are
contained in a deed

RECIPROCITY
BADGE OF
ENFORCEABILITY Consideration

RELIANCE

Lord Denning tried to

introduce reliance as a
basis for enforcing
promises through the
doctrine of promissory
estoppel

Definition: Currie v. Misa [1875]

“A benefit to one party or a detriment to the other.”

KINDS OF CONSIDERATION

EXECUTORY
EXECUTED CONSIDERATION
CONSIDERATION PAST CONSIDERATION
At the time of formation of the
A promise to do something in Some already completed
contract the consideration has
the future after the contract before the promise is made.
already been performed
has been formed
Roscorla v. Thomas
UNILATERAL
BILATERAL
Key terms:

Promisor: the person who makes the offer or promise. (Benefits)

Promisee: the person carrying out the act to accept the promise/offer. (Forebears)

Consideration can be:

1. A benefit to one party or detriment to another.

2. The price paid for a promise.
3. The element of exchange.

N.B The claimant is usually the promisee while the defendant is usually the promisor.

Past Consideration:
Roscorla v. Thomas,
D sold a horse to P for £30. After sale he promised that the horse was free from vice, which turned out
not to be true. Held, P could not be sued on the promise as he had already agreed to pay for the horse
when the promise was made.

Re McArdle, a promise was made to pay money in return for past services. Held, this was past
consideration and therefore, not valid.

Exceptions to the Past Consideration rule:

Where a service is rendered at the request of the promisor, on the understanding that payment will be
made, a subsequent promise to pay a certain sum will be enforced.

Lampleigh v. Braithwait
After killing a man D asked C to do all he could for him to get pardon from the king. C did this at great
trouble and expense, when he claimed the amount promised, D said his actions were past consideration.
Held, C was entitled to his money, as he acted on his request and it as clear at the time D asked him for
help that he would be paid for his trouble.
Where a service is rendered in a business context on the understanding by both sides that it will be paid
for, the past consideration rule will not be applied. See Re Casey’s Patents.
Pao On v. Lau Yiu Long
The Privy Council laid down three conditions which must be satisfied to invoke the doctrine of
Lampleigh v Braithwait:
1. The act must have been done at the request of the promisor.
2. requested.
3. The contract (had it been made in the normal way) must have been a legally enforceable one.

Consideration is the cornerstone of contracts at common law. Some argue that it should be abandoned
since the requirement of intention to create legal relations already distinguishes enforceable from
unenforceable agreements.

Rules Governing Consideration

▪ Consideration must move from the promisee [Privity]

Only a person who has provided consideration for a promise can enforce that promise.

Tweddle v. Atkinson

Tweddle promised William Guy that he would pay a sum of money to his child upon marriage of the
two children to each other. However, Guy failed to pay the son of Tweddle, who sued his executor for
the amount promised.

Held, the son could not enforce the promise made to his father, as he himself did not give consideration
for it, it was his father who had done this instead.

Although consideration must move from the promisee, it does not necessarily have to move to the
promisor. The promisee may provide consideration to a third party, if it is agreed at the time the parties
contracted (Bolton v. Madden).

Dunlop v. Selfridge

An act or forbearance of one party, or the promise thereof, is the price of which the promise of the other
is bought, and the promise thus given for value is enforceable.

▪ Consideration need not be adequate

Adequacy is a question of fact. The consideration provided by one party need not equal in value the
consideration provided by the other party. It is for the parties themselves to make their own bargain:

Chappel Co. v. Nestle Co

It was held that even the most worthless item can be good consideration. A contracting party can
stipulate for what consideration he chooses.

▪ Consideration must be sufficient

Sufficiency is a question of law. Consideration must have some value in the eyes of the law.

Traditionally, the following have no value in the eyes of the law:

● A promise to perform a duty imposed by law:

Collins v. Godefroy

Godefroy promised Collins a certain sum of money to come to court after he was subpoenaed to attend.

Held, Collins was bound to attend court anyway and he had not furnished consideration by doing so.

Doing more than is required by the law however, furnishes consideration.

Glasbrook Bros v. Glamorgan

During a miners’ strike, James, the manager, requested the police superintendent to provide extra forces
to protect the working men against strikers. The superintendent thought the men were adequately
protected, but on James’ insistence an additional 70 men were provided. The owners were sent a bill for
the services rendered by the additional police men, which they refused to pay on the ground that the
police officers were only performing their legal duty to protect the public.

It was held that although police cannot accept extra money for doing their normal statutory duty, when
special services are required beyond the normal call of their duty, they are entitled to be recompensed.

Ward v. Byham
The Father of the child promised to pay the mother provided that she could prove the child was well
looked after and happy. The mother claimed.

Held, the mother was entitled to sum promised as she had acted over and above public duty of just
feeding, maintaining and clothing the child she had to demonstrate that child was happy.

● Performing an existing contractual duty owed to the other party:

A request for extra payment

In Stilk v. Myrick [1809] performing an existing contractual duty was not good consideration for a
promise made to do anything needed in the voyage regardless of emergencies, (emergencies did arise
but the men were under an existing duty as promised to do anything needed in the voyage). After the
ship docked, two men deserted, and after failing to find replacement, the captain promised the crew the
wages of those two men divided between them if they fulfilled the duties of the missing crewmen as
well as their own. After returning home the captain refused to pay the crew the money he had promised
them.

Their decision was argued on the basis of Harris v. Watson, where it was decided that, “no action would
lay at suit of a sailor on a promise of a captain to pay him extra wages, in consideration of his doing
more than the ordinary share of duty in navigating the ship; and his lordship said, that if such a promise
could be enforced, sailors would in many cases suffer a ship to sink unless the captain would accede to
any extravagant demand they might think proper to make.”

Hartley v. Pensonby
A ship left England for Bombay with a crew of 36. By the time it arrived, only 19 remained of whom
only 5 were able seamen. The captain promised the remaining able seamen an extra £40 for completing
the voyage. It was held that the seamen had provided good consideration as what they were now being
asked to do was different to what they had agreed to do when there was a full crew.

Modern commentators say that the decision by the judge not to award the money to the plaintiff was
based at least partly on public policy; should he have done so it would have created a precedent that
would risk crew members blackmailing captains into giving them more money. It is accepted that the
decision was likely to be different had it been made in modern times; because of the doctrine of
economic duress it would be difficult for such blackmail to be enforced in court. In Hartley v. Personby,
where it was ruled that although Stilk v. Myrick, was still valid, they would be due the money if the
situation created by the desertion of the crew changed their duties to an extent that they would not be
bound to continue under the existing contract. Another (albeit controversial) exception is in Williams v.
Roffey Bros & Nicholls, in varying a contract, the court will be quick to find consideration if “practical
benefits” are given from one party to another.

Exceptions to the Rule in Stilk v. Myrick

Factual advantages obtained by the promisor

In Williams v. Roffey Bros & Nicholls, Roffey Bros was contracted by Shepherds Bush Housing
Association to refurbish 27 flats. They subcontracted carpentry to Williams for £20,000 payable in
instalments. Some work was done and £ 16,200 was paid. Then Williams ran into financial difficulty
because the price was too low. Roffey Bros was going to be liable under the late penalty clause for
completion, so they promised an extra £575 per flat for on time completion. Williams did eight flats and
stopped because he only got £1500. Williams claimed the sum promised.

Held: Williams had provided good consideration even though he was merely performing a pre-existing
duty. The concept of economic duress provided an answer to Stilk’s old problem. The test for
understanding whether a contract would legitimately be varied was set out as follows:

i) If A has a contract with B for work.

ii) Before it is done, A has reason to believe B may not be able to complete
iii) A promises B more to finish on time
iv) A ‘obtains a practical benefit, or obviates a disbenefit’ from giving the promise
v) There is no an economic duress or fraud… then the practical benefit constitutes good
consideration.

In commenting on the earlier case of Stilk v. Myrick Glidewell LJ said, “It is not in my view surprising
that the principle enunciated in relation to the rigours of seafaring life during the Napoleonic wars
should be subjected during the succeeding 180 years to a process of refinement and limitation in its
application to present day.

A request to avoid part-payment of a debt

The basic rule is that payment of a smaller sum will not discharge a duty to pay a higher sum.

Pinnel’s Case

It was opined that a part payment of a debt could not extinguish the obligation to pay the whole. The
rule is that payment of a lesser sum on the day, in satisfaction of a greater cannot be any satisfaction for
the whole; it appears to the judges that by no possibility, a lesser sum can be a satisfaction to the
plaintiff for a greater sum. The rule is obiter dicta.

In Pinnel’s case, Cole owed Pinnel £8.50 which was due on 11 November. At Pinnel’s request Cole paid
£5.11 on 1 October, which Pinnel accepted in full settlement of the debt. Pinnel sued Cole for the
amount owed.

It was held that part-payment in itself was not good consideration. However, it was also held that
agreement to accept part-payment would be binding if the debtor, at the creditor’s request provided
some fresh consideration. Consideration might be provided if the creditor agrees to accept:

i) Part-payment on an earlier date than the due date (i.e. as in Pinnel’s case itself) of the
creditor’s request.
ii) Chattel instead of money (a horse, hawk or robe maybe more beneficial than money) D & C
Builders v. Rees
iii) Part-payment in a different place from that originally specified.

Foakes v. Beer
This is a controversial application of the pre-existing duty rule and a leading case from the House of
Lords on the legal concept of consideration. It establishes the rule that prevents parties from discharging
an obligation by part performance, affirming Pinnel’s Case. Beer agreed that she would not take any
action against Foakes for the amount owed if he would sign an agreement promising to pay an initial
sum of £500 and pay £150 twice yearly until the whole agreement was paid back. Foakes was having
financial difficulty, and so Beer waived any interest on the amount owed. Foakes made the payment as
agreed without any interest.
The House of Lords held ruling in favour of Beer. The reasoning behind their judgement was that
though the agreement did not contemplate the interest owed, it could still be implied in an enforceable
agreement. However, the promise to pay a debt was deemed not to be sufficient consideration as there
was no additional benefit moving from Foakes to Beer that was not already owed to her. Even where the
creditor promised that he would not sue for money owed, he may still sue where there was part payment
of debt.

Exceptions to the Rule in Pinnel’s Case

Apart from the exceptions to the rule mentioned in Pinnel’s case itself, there are two others at common
law and one exception in equity.

a) Part payment of the debt by a third party

A promise to accept a smaller sum in full satisfaction will be binding on a creditor where the part
payment is made by a third party on the condition that the debtor is released from the obligation to
pay the full amount see Punamchand v. Temple. A father paid a smaller sum to a money lender to
pay off his son’s debts, which the money lender accepted in full settlement. Later, the money lender
sued for the balance. It was held that part payment was valid consideration.

b) Composition Agreements

The rule does not apply to composition agreements. This is an agreement between a debtor and
group of creditors, under which the creditors agree to accept a percentage of their debts in full
settlement. Despite the absence of consideration, the court will not allow an individual creditor to
sue the debtor for the balance (Wood v. Roberts). The reason usually advanced for this rule is that to
allow an individual creditor to claim the balance would amount to a fraud on the other creditors who
had all agreed to the percentage

c) Promissory Estoppel
The principal source of promissory estoppel is in the dicta of Denning J, in London Property Trust
v. High Trees. The equitable doctrine provides a means of making a promise binding, in certain
circumstances, in the absence of consideration. The principle is that if someone (promisor) makes a
promise, which another person acts on, the promisor is estopped from going back on his promise,
even though the other person did not provide consideration (in so far as it is inequitable to do so).
The creditor will be barred from exercising his legal rights where it is inequitable for him to enforce
it.
Certain circumstances must exist before promissory estoppel can be invoked.
Requirements of a Promissory Estoppel

The following elements must be present for the doctrine of promissory estoppel to be enforceable:

1. Promisor made a significant promise to cause the promisee to act on it

The first element of promissory estoppel is that the promise made to the promisee was significant
enough and that a reasonable person would ordinarily rely on it.

2. Promisee relied on the promise

The second element is that the promisee must have acted on the promise made by the promisor, even
though it was not supported by consideration.

3. Promisee suffered significant damage by relying on the promise

The third element is that the party relying on the promise suffered an actual detriment in the form of
an economic loss. The loss results from the promissor failing to deliver on the promise made at the start
of the relationship. In simple terms, the promisee is in a worse position for having acted on and relied on
the promise.

4. Fulfillment of the promise is the only way the promisee can be compensated

The fourth element is that the promise becomes enforceable if the court determines that the only way the
injustice committed to the promisee can be avoided is by enforcing the promise. However, the court has
discretion in choosing what to do in such a case. Ideally, it will take an action that relieves the promisee
of the detriment suffered.

Central London Property Trust Ltd v. High Trees House Ltd (1947) KB 130

The High Trees Case is a decision in English contract law that reaffirmed the concept of the promissory
estoppel. The case involved High Trees, the defendants, and Central London Property Trust, the

plaintiffs. The defendant leased a block of flats located in Clapham, London, from the plaintiff for a flat
rate of £2,500/year.

The outbreak of the Second World War in the 1940s drastically reduced the occupancy rates in the area.
As a result, the parties agreed to reduce the rent by half, without stipulating the duration of time over
which the new agreement would apply. The defendants continued paying the reduced rent and, by 1945,
the flats’ occupancy rate had normalized.

Issues

The plaintiff sued High Trees for the payment of the full rental rates that existed before the agreement to
revise the rates downward. The defendants argued that the agreement to pay a reduced rental cost
applied to the entire lease period and that Central London Property Trust erred in claiming a higher rent
after the end of the Second World War.

Decision

In making the judgment, Denning J relied on a past ruling of the House of Lords in the Hughes vs.
Metropolitan Railway Co (1877), which concluded that parties should be prevented from going back on
a promise. Denning J argued that there was a promise that the promisor knew was going to be acted
upon by the promisee, even though there was no consideration.

The judge reasoned that if one party leads another party to believe that the first party’s legal rights
would not be enforced, the courts would prevent that party from subsequently enforcing their rights. The
court found that the plaintiffs made a binding promise that only applied during the war.

The judge ruled that the defendants, High Trees, were obligated to pay the full rent once the flats
became fully occupied after the Second World War. However, had the plaintiffs attempted to claim the
full rent from 1940 onwards, the court would have prevented them from doing so.

Summary of the requirements of Promissory Estoppel-

Promise
Reliance
Inequitable to revert
Contractual/legal relationship
Extinctive or suspensive of rights?
Shield or sword?