#16745 - Consideration Pq Notes - Contract Law

There are three ways in which a promise can be enforced in English law.

a) Deed (formality)

b) Consideration (element of bargain): Encompasses not only the formation of contracts but their variation and discharge by agreement

c) Induced but unrequested reliance (requires resort to proprietary estoppel)

S. 1(2)(3) of the Law of Property (Miscellaneous Provisions) Act 1989: a deed must have 1) been signed by the covenantor (the promisor), 2) this signature is witnessed by a third party (‘attestation’), and (3) the document is then activated by delivery (normally involves the document’s physical transfer to the covenantee or his representative).

A deed is exceptional because it creates a binding promise without “consideration”.

Shah v Shah (2001): If there has been a purported witnessing of the covenantor’s signature, but the witness did not duly attest because he was absent at the crucial moment of signature, the deed is still binding.

Deeds give rise to the possibility of the following common law remedies: Debt and damages (compensation for failure to carry out promise). Deeds, which are inherently gratuitous promises, do not give rise equitable relief, such as “specific performance”.

Definition: a promise made for a promise of something done at the request of the promisor. Its function is to differentiate gratuitous promises from binding contracts.

Contracts provided by good consideration alone are not enforceable per se. Other requirements, such as intent to create legal relations, sufficient certainty, et cetera must be present too.

Carlill v Carbolic Smoke Ball: Consideration is grounded in the exchange of promises between D and C (D being the promisor, C being the promisee): C promises something in return.

A good illustration is Combe v Combe (1951). Facts: Husband promised to pay wife a certain sum of money. He didn’t request her not to apply for her maintenance. She relies on this promise and does not get money from anywhere else. This action was not done in exchange to the husband’s promise, it was done in reliance. Verdict: Unsuccessful. The request can be “express or implied” – the fact that C’s conduct was carried out or promised in exchange for D’s promise (and thus at D’s implied request) can be clear from the relevant context. But what the wife did was neither expressly nor impliedly requested.

Bolton v Madden (1873): Consideration must move from the promisee, but it need not move to the promisor. Facts: X promised to vote for charities nominated by Y if Y voted for charities nominated by X. X then complied. But Y did not perform.Verdict: Y’s promise was supported by consideration because it is enough that X had acted at Y’s request in conferring a benefit on a third party nominated by Y. Nor is there any testing of the adequacy of consideration. Furthermore, this arrangement was not contrary to public policy

Eastwood v Kenyon: Consideration must be of value. For e.g., if D promises to pay C X should C love D, that is not consideration.

Chappell v Nestle (1959): There is no testing of the adequacy of consideration. Nominal consideration is valid. Facts: D ran a special offer whereby members of the public could obtain a music record by sending off three chocolate bar wrappers with some money. C owned the copyright to the records and claimed that there had been copyright breaches. The issue was whether the three wrappers constituted partial consideration for the records.Verdict: They were. Although the wrappers were of trivial economic value, they were part of the consideration; in the offer, the wrappers were described as capable of helping the public secure the records. This confirms the traditional doctrine that consideration need not be adequate.

Examples of consideration apply the following analogously:

• Carlill v Carbolic Smoke Ball (1892): In the case of a unilateral contract, there was consideration because the people who took up the offer incurred a distinct detriment at the behest of the company and more people buying smoke balls by relying on the advertisement was a clear benefit to the company.

• Barry v Davies (2000): Once a bid is made at auction, consideration is supplied by the bidder in the form of detriment to the bidder, since his bid can be accepted unless and until it is withdrawn, and benefit to the auctioneer since the bidding is driven up.

• Attrill v Dresdner Kleinwort (2013): Upon promising a minimum bonus pool of 400m, consideration stemmed from the general benefit obtained by incentivising staff to work profitably and detriment incurred by individual employees who refrained from resigning.

Eastwood v Kenyon: A promise made in gratitude for a previous and unrequested service is regarded as gratuitous, lacking in consideration and therefore unenforceable. Facts: J died and his estate was administered by C. C was guardian of J’s daughter and he expended money on estate renovations and education for her benefit. The daughter promised to reimburse C but failed to do so. D, the daughter’s husband, made the same promise, but again failed to pay. Verdict: Unsuccessful. D had a valid defence because his promise to reimburse P was not supported by consideration. The promise involved ‘past consideration’, which did not count. A promise made in gratitude for a previous and unrequested service is regarded as gratuitous, lacking in consideration and therefore unenforceable.

This comes with an exception. Pao On v Lau Yiu Long (1980): The past consideration rule does not apply if the promisor had earlier requested the benefit which he is now recognising. C can enforce D’s promise in respect of C’s earlier performance if: 1) the relevant act was done in expectation of remuneration, 2) D requested C’s performance, 3) D later promised to reward C, 4) the exchange of promises is not contrary to public policy. These requirements were all met here. Note: In Eastwood, the second element of request was missing.

Consideration is absent if the promised act is already legally obligatory, for two reasons: firstly, it will not involve fresh detriment, and secondly, there is no real legal benefit to the performance. As a result, consideration will be found only if the promised performance outstrips the demands of the public duty.

• Glasbrook Bros v Glamorgan County Council (1925)

Facts: A mine-owner promised to pay local police to protect his property. The police formed a garrison and were billeted at the property. The police then sought to enforce the promise.

Verdict: Successful. The promise to pay the police was enforceable if the level of policing provided (and this heightened level was requested) exceeded that required in the ordinary course of performance of the police’s duty. In other words, if the service provided exceeds that required by a pre-existing statutory or public duty, payment is required.

• Ward v Byham (1956)

Facts: The father promised the mother to pay 1/week as child support. The mother had a statutory duty to be the sole person to take care of the children. The father stopped paying on the basis that she was already performing a statutory duty, and the mother sought to enforce the promise.

Verdict: Successful. There was consideration as the mother was not just agreeing to take care of the child but she also promised to make the baby happy, therefore she has exceeded her statutory duty.

Where D contracts with C and E to do the same thing, D’s simultaneous performance of the first and second promises will supply consideration for both contracts. Performance of a contractual duty owed to a third party constitutes consideration.

• The Eurymedon (1975)

• Pao On v Lau Yin Long (1980): Lord Scarman affirmed that the second promise (ie. even before performance) supplies consideration.

As a basic rule, variation of contractual terms needs to be supported by consideration in the absence of a deed. There are two main types of pacts: increasing pacts and decreasing pacts.

Definition: D promises C to pay more for C’s services or work. Under English law, this variation is a species of contract itself—it must be formalised by deed or supported by fresh consideration.

Stilk v Myrick: An increasing pact must be supported by fresh consideration. On the facts, a shipmaster had promised to pay extra wages to the remaining members of his crew, after two deserted, if they would help to bring the ship back to England. The promise was unenforceable. The crew members were contractually bound to do their utmost to bring the ship safely to port, and so had provided no good consideration by performing what they were already contractually bound to do.

However, cf. Hartley v Ponsonby: A similar promise was made to pay extra wages to the remaining members of a crew, after a large proportion of them had deserted or perished, if they would continue with the voyage. The promise was enforceable. Because the remaining crew’s task had become radically different, fresh consideration was provided in their continuance of the voyage when they were lawfully entitled not to do so.

But see the expansion in Williams v Roffey Bros & Nicholls Ltd. Glidewell LJ: “(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 B thereupon promises A an additional...