#16126 - Consideration - Contract Law

Introductory Ideas 3

I – Consideration 3

Currie v Misa (1875) LR 10 Ex 153 (definition) 3

A - Something of value (consideration must be sufficient but need not be adequate) 3

1 - Where the consideration is promise to pay money for a service/product nominal consideration (usually) sufficient 3

2 - Where the consideration is promise to provide some non-monetary benefit more complex 3

Chappell v Nestlé [1960] AC 87 4

Lord Wedderburn (1959, CLJ) 4

Thomas v Thomas (1842) per Patteson J 4

Hamer v Sidway (1891, NY) per Parker J 4

Atiyah, “Consideration in Contracts: A Fundamental Restatement” (1971) 5

Smith, The Law of Contract – Alive or Dead? 5

B - Past consideration 5

Eastwood v Kenyon (1840) (past consideration is not good consideration) 5

NOTE Atiyah (The Rise and Fall of Freedom of Contract, 1979) 5

PaO On v Lau Yiu [1980] AC 614 (exceptions to the rule that past consideration is not good consideration) 6

C - Pre-existing Duty Rule (Good consideration to promise to do something you’re already bound to do?) 6

1 - Performance of a contractual duty owed to a third party good consideration 6

Shadwell v Shadwell (1860) (performance of a contract with third party is good consideration) 6

New Zealand Shipping v Satterthwaite, The Eurymedon [1975] AC 154 (ibid.) 7

Pao On v Lau Yiu [1980] AC 614 (promise to perform a contract with third party is good consideration) 7

2 - Performance of a contractual duty owed to the promisor not clear 7

Stilk v Myrick (1809) 2 Camp 317 (not good consideration) 7

Williams v Roffey [1990] 1 All ER 512 (may be good consideration if practical benefit and no economic duress or fraud) 7

Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (New Zealand) 9

NOTE Coote (2003) 120 LQR 19 9

3 - Performance of a duty imposed by law probably not, except Lord Denning who says yes 9

Ward v Byham [1956] 1 WLR 496 (might be good consideration) 9

Williams v Williams [1957] 1 WLR 148 10

Glasbrook Bros v Glamorgan CC [1925] AC 270 10

4 - Part Payment of a Debt 11

Foakes v Beer (1884) 9 App Cas 605 11

NOTE Treitel, Some Landmarks of Twentieth Century Contract Law 11

D & C Builders v Reees [1966] 2 QB 617 (rejection to protect creditors) 12

Re Selectmove [1995] 2 All ER 531 (rejection because Foakes is HL precedent) 12

Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723, 747 (New South Wales test inspired by Williams v Roffey) 13

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 (not part payment of a debt?) 14

O’Sullivan, “In Defence of Foakes v Beer” (1996) 14

Treitel, Some Landmarks of Twentieth Century Contract Law (2002) 14

D – Consideration must move from the promisee (not from third party) 14

E – Necessary Link Between Consideration and Promise 14

Combe v Combe [1951] 2 KB 215 15

NOTE Goodhart (1951) 15

NOTE Atiyah (Consideration: A Restatement) 15

F – The future of consideration 15

Gay Choon v Loh Sze [2009] SGCA 3 (Singapore Court of Appeal, suggesting alternatives) 15

II - Promissory Estoppel 17

A – Scope of Estoppel Error! Bookmark not defined.

1 – Definition of estoppel 18

Cooke, The Modern Law of Estoppel (2000) 18

Birks (Equity in the Modern Law) 18

2 – Foundational Cases 18

Hughes v Metropolitan Rly (1877) 2 App Cas 439 18

Central London Property v High Trees House [1947] KB 130 18

Treitel (Some Landmarks of Twentieth Century Contract Law) 19

3 – The ingredients of promissory estoppel 19

Ajari v R T Briscoe (1964) 19

Collier v Wright Holdings [2007] EWCA civ 1329, [2008] 1 WLR 643 (part payment of debt) 19

a - Clear and unequivocal promise 20

Woodhouse AC Ltd v Nigerian Produce Ltd [1972] AC 741 20

b – The promisee has altered his position to the extent that it would be inequitable to allow the promisor to go back on the promise (though not necessarily to his detriment) 20

Société Italo-Belge v Palm and Vegetable Oils (1982) “The Palm Chaser” 20

c – Inequitable for the promisor to go back on his promise 20

D and C Builders v Rees [1965] 3 All ER 837 20

d – Generally of suspensory effect as to obligations for the future, but can be extinctive of past obligations 21

Tool Metal v Tungsten Electric [1955] 1 WLR 761 (H.L.) 21

e – Estoppel cannot act as a cause of action 21

Combe v Combe [1951] 2 KB 215 21

Halson, “The Offensive Limits of Promissory Estoppel” (1999) 21

4 – The different types of estoppel 23

Amalgamated Investment v Texas Commerce Int. Bank [1981] 3 All ER 577 22

Baird Textile Holdings Ltd v Marks and Spencer Plc [2002] 1 All ER (Comm) 737 23

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 20

Crabb v Arun D.C. [1976] Ch 179 24

Commonwealth of Australia v Verwayen (1990) 64 ALJR 540, (1990) 170 CLR 394 26

Walton Stores v Maher (1988) 62 ALJR 110, (1988) 164 CLR 387 25

III - Commentary 27

Atiyah (Introduction to the Law of Contract) 68-9, 106-130 17

Atiyah, “Consideration in Contracts: A Fundamental Restatement” (1971) pp. 27-34, reprinted (with slight revision) as Essay 8, Essays on Contract (1986) pp. 206-214, 179 16

Treitel, “Consideration: A Critical Analysis of Professor Atiyah’s Fundamental Restatement” (1976) 50 ALJ 439 16

Atiyah, “When is an Enforceable Agreement not a Contract? Answer: When it is an Equity” (1976) 92 LQR 174 24

Millett, “Crabb v Arun DC – A Riposte” (1976) 92 LQR 342 24

Burrows, “Contract, Tort & Restitution – A Satisfactory Division or Not?” (1983) 99 LQR 217, 239-244 27

Peel, “Part Payment of a Debt is no Consideration” (1994) 100 LQR 353 13

Chen-Wishart, “A Bird in the Hand: Consideration and Promissory Estoppel” 28

Chen-Wishart, “In Defence of Consideration” (2013) 13 OUCJL 209 17

Cooke, “Estoppel and the Protection of Expectations” (1997) 17 Legal Studies 258 28

Chen-Wishart, “Reform of Consideration: No Greener Grass” in S Degeling, J Edelman and J Goudkamp (eds) 28

• Orthodox view = consideration is about reciprocity or bargains (in order to be entitled to enforce a promise, a promisee must have given something in return) a bargain is enforceable, whereas a promise to make a gift is not unless under deed.

• Criticisms of the doctrine:

  • It is too narrow in scope so fails to give effect to promises that ought to have legal effect (Dawson)

  • It is too technical

  • It is divorced from commercial reality (but this question usually isn’t at issue in commercial transactions because lawyers can relatively easily ensure that consideration is provided, and the law does not (in general) inquire into the adequacy of consideration) or just use a deed)

  • It is difficult to reconcile with any modern theoretical model of contract law

  • It is over-broad and its function can more effectively be achieved by more specific doctrines like duress/unconscionability/intention to create legal relations

• Support of the doctrine (Chen-Wishart):

  • It expresses our deep instinct for reciprocity which enhances cooperation and division of labour while preserving social equilibrium

  • It represents the terms of engagement between equals deserving of respect – it keeps the state away from the private domain (where external coercion would distort the practice of gift-giving and so destroy much which is valuable about it)

• “a valuable consideration, in the sense of the law, may consist 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.”

What purpose is served by consideration?

• Ensure that only bargains are enforced?

  • Why are bargains more deserving of enforcement?

  • Why can token benefits be enforced?

  • Why are unilateral contracts enforced (where the person who performs an act is not involved in any exchange)?

• Identifies situations where one party gained a benefit or the other suffered a detriment or both?

  • But why are executory contracts binding from the moment of formation, where no party has received a benefit yet?

Indeed consideration doesn’t fulfil any single function – as its historical development shows:

• Medieval times: [Stopped at 108]

Who decides whether consideration is sufficient?

Nominal consideration is “just about the clearest possible indication that the promisor intended his promise seriously and intended to give the promisee a legally enforceable right” (Atiyah) because the person was probably instructed by a lawyer to do it (and if he were coerced other doctrines (duress) would vitiate it)

• Facts: D, Nestlé, offered to supply records to anyone sending in a postal order for 1s 6d with three Nestlé wrappers. The question was whether the sending in of the wrappers was part of the consideration (YES) or merely a condition of purchase.

• Viscount Simonds (DISSENTING): the wrappers are valueless and thrown away, and the purchase of the chocolate bars is not necessarily part of the same transaction as the subsequent purchase of a record (because the “purchaser” could have acquired the wrapper through another, through a retail store… not necessarily through Nestlé itself)

• Lord Reid: to determine the nature of a contract one must find the intention of the parties as shown by what they said...