#3507 - Consideration Theory - Contract Law

Classical Definition

• Orthodox consideration is about reciprocity or bargains (fundamental distinction w/promise to make a gift) – former is enforceable whereas latter isn’t unless made in a deed

• Ibbetson: evolution - from fairly strict quid pro quo to a negative requirement. Originally based on exchange theory. In 19th C, Will Theory arrives from the continent (test of liability is ‘meeting of minds’) – O + A model imposed, but never supplants it led to problems

• Currie vMisa [1875] – “some right, interest profit of benefit accruing from one party or some forbearance, detriment or loss or responsibility given, suffered or undertaken by the other.”

• Treitel: usually, benefit & detriment are merely the same thing looked at from different POVs.

• Smith: language of benefit & detriment is out of date. All that’s necessary is for D to ask, expressly or impliedly, for something in return for his promise (act/promise). Though lip service has been paid to both notions, neither has substantive meaning b/c court won’t enquire into adequacy.

Rationale

• Evidence of intention to be bound (doubtful - e.g. nominal consideration)

• Justice of exchange

• Facilitative institution to support valuable activity of contract

Criticism

1. Scope is too narrow, fails to give effect to promises that should have legal effect(ProfessorDawson)

2. Overly technical, artificial, internally incoherent, and sometimes inconsistent with parties’ intention

3. Divorced from commercial reality – no enquiry into adequacy

• Easy for lawyers to satisfy b/c usually – e.g. Independent sold for 1.

• Where there’s doubt, lawyers will use a deed.

4. Extremely difficult to reconcile w/modern theoretical models of contract law(Smith)

• E.g. if contract is based upon the promise principle or will of the parties, why insist upon the presence of consideration in order to render the promise enforceable?

5. Too broad (enforces some non bargains as bargains)

6. Its work could be done more effectively by specific doctrines, i.e. duress, intent to create legal relations which can target w/greater precision the reason for law’s refusal to give effect to the promise made

Challenge to orthodox view + defence

1. Atiyah’s challenge: just a label courts use for ‘good reason to enforce’. Courts never set out to create the doctrine, but were instead concerned w/ more practical problem of enforceability – whenever found it enforceable, said there was cons. Not based on reciprocity benefit/detriment is normally a good reason to enforce, but not alwayssufficientone;equally, there may be other good reasons for enforcing, so not always necessary reason. Conclusion =no doctrine of consideration

• good point, but pushed too far: serious assault at overall coherence of contract law

2. Treitel’s defence: agreed w/defects (not a single doctrine, there are other reasons to enforce) but consideration = expression of reciprocity [benefit/detriment] + some findings of contracts irrespective of parties’ intent: e.g. ‘invented consideration’ inNestle v Chappell. A restatement which cured these defects would be welcome but Atiyah’sonedoesn’t b/c doesn’t say when courts will find a ‘good reason’ to enforce, so not a principled approach& won’t lead to an improvement of current situation! Not so much a restatement as negation of current elements of the doctrine.

• Atiyah: Treitel has himself invented the concept of an invented consideration because he finds it the only way in which he is able to reconcile many decisions with what he takes be ‘true’ or ‘real’ doctrine.

Practical Benefit

• Stilk v Myrick[1809] - 2 ship deserters, crew promised extra pay if got the ship back safely. But task already in their contracts no consideration = promise of extra wages unenforceable.… unless it’s a promise to perform existing contractual duty where promisor receivesa ‘practical benefit’

• Williams v Roffey[1990] - D sub-contracted to C carpenter to lay carpetin 27 flats they were building for aclient for 20K, C under-quoted, ran into financial difficulties; D would have to pay clients for delay, so promised C additional 10,3K for on time completion, then failed to pay over half, C sued successfully b/c D gained a practical benefit.

• 4 practical benefits

1. continued performance; i.e. didn’t break the contract (Purchas LJ)

2. no trouble/expense to find other carpenter

3. avoided penalty from the client

• Criticisms

1. conferred nothing more than what was promised under original contract

2. intangible benefits - i.e. reassurance of performance, e.g. love + affection good considerationcollapses the doctrine b/c if promisor’s self-generated feelings are enough to make a promise enforceable, then doctrine loses all meaning as criterion of enforceability – even works for gratuitous promises, since promisor gets satisfaction from giving!

• Counter:promisor got a new promise – whether it was actual performance, or a better chance of actual performance, it’s better than the right to sue.

3. Restrictions on contractual remedies - damages often under-compensate, specific performance is rare, makes it commercially desirable/necessary to pay ‘more for the same’

• Counter:but widening the scope of allowable contract modifications increases the risk that contract-breaker will take unfair advantage of difficulties he will cause by not completing the work contract law should not recognise the practical benefit of avoiding contract law remedies as good consideration for the purchase of extra rights!

4. Extra paid on flat-for-flat basis gave W incentive for orderly work

• Counter: C should have had the incentive from the start what if deliberately under-priced the contract to get the work, leaving D w/no choice later on but to pay more?

• How far does practical benefit apply?

• Just contract modification, but no reason why shouldn’t be extended to formation (speculative!)

• Only ‘same for more’ situations (Roffey) –not ‘less for more’ (part payment of debt in Foakes v Beer) arbitrary, threatens internal coherence of doctrine

• In summary: concept threatens to dissolve the boundaries of consideration

• Chen Wishart: note C claimed 10K but got only 3.5 - damages calculated by ref to work done @ date of termination and C wasn’t awarded anything for loss of profit on flats he would have finished had D performed their obligations. So award based on reliance, not expectation, and on orthodox analysis the question shouldn’t be why C was treated so generously but rather why so mean. Suggestion = practical benefit imposes a lesser than expectation right on C. Describing such rights/liabilities as contractual threatens the concept of contract as an action enforcing expectations. Chen Wishart: You’re paying for the right to performance as opposed to the right to sue...

• Mckendrick – difficulties

1. Inelegant result is that there’s a bilateral contract supplemented by a no of offers to pay for completion of each flat = 18 separate unilateral offers!

2. Inconsistent w/intent of parties or reasoning of court but may be improvement on the reasoning

3. Difficulty re: acceptance of unilateral offer working out the point in time at which offer has been accepted

• But pragmatists like the decision as commercially realistic: public interest in bargaining out of tight spot.

• Chen Wishart (bird in hand) – argues

1. In favour of narrower concept of practical benefit

• If we accept that a bird in hand is worth two in the bush then the idea that receipt of even part performance confers a benefit over & above right of performance, and can be exchanged for something from recipient, is consistent w/core idea of consideration as a bargain

2. Implementing this by replacing bilateral contr. analysis in Roffey w/unilateral one (promisee is only bound if stipulated performance is actually received) and adopting a more nuanced approach to when revocation of this unilateral contract should be permitted prior to promisee’s actual completion

• Preferable to version of promissory estoppel in Colliers v Wright

• 3 alternative explanations:

1. Consideration isn’t required for contractual modification, only formation

• E.g. US Uniform Commercial Code – still not in English law but a sign it’s moving forward

2. Contract b/w parties was superseded by the new agreement, which was enforceable in giving up their rights to sue under original contract, they provided consideration for agreement to abandon that contract

3. Estoppel – referenced by all judges; Ds estopped from not paying the extra 10K to C

• The wider the doctrine of consideration, the less need for resorting to estoppel anyway

• Central issues postWilliams v Roffey

1. Relationship b/wRoffley, Stilkand Foakes- Roffey was CA decision, Foakes v Beer was HL, but CA didn’t even mention it!

2. Conception of benefit & detriment to which court ought to have regard– legal or practical (factual)?

• Legal benefit/detriment hard to find b/c can’t say when A benefited in law by way of performance to which he has already been entitled/equally w/B’s detriment, so ‘practical’ fits better.

• Cases can’t be reconciled in ReSelectmovecourt stated issue should be left to Parl. or HL.

3. Role of duress

• If duress is the rationale, should give effect to re-negotiations, if freely entered to. If it isn’t the rationale, courts should refuse to give effect to A’s promise to pay more full stop.

• In Williams, re economic duress, Glidewell LJ: clearly, if subcontractor had agreed to carry out the work and, b/f he completes it, refused to continue unless contractor agrees to pay more, subcontractor may be held guilty of securing that promise by taking unfair advantage of...