What purpose the doctrine serves in English contract law?
Consideration is one of the elements needed when formulating contracts. In the case of Currie v Misa (1875) LR 10 Ex 153, it defines consideration as ‘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.’ In simple terms, it means there must be an exchange between both parties or quid pro quo. Sub-principles which compromise the doctrine as we know it today are the following:
‘1. Consideration may be executed or executory but not past.
2. Consideration must move from the promisee but not necessarily to the promisor.
3. Consideration must be sufficient though not necessarily adequate’
Firstly, how can we decide whether consideration is executed or executory? How is this relevant in determining consideration? This method reflects the form of consideration which ‘arises by way of a promise by the defendant in return for a promise by the claimant’. The only difference is that executed consideration is when an act has already been performed and completed whereas executory consideration is when a promise will be acted upon in the future.
Secondly, let’s tackle how we can determine whether a promise does indeed move from the Promisee to the Promisor or a third-party? And in what instances can a third party enforce a contract? In the case of Price v Easton (1833) 4B & Ad 433, Price had owed a sum of money to the Plaintiff. Price agreed to work for the Defendant on the grounds that the Defendant would promise to pay Price’s wages to the Plaintiff. It was held that Price had fulfilled his part of the agreement, however, Defendant failed to fulfil his part of the agreement causing the Plaintiff to sue the Defendant to recover the sum of money. It was held that the Plaintiff could not recover the sum agreed to be paid by the Defendant for the work completed by Price as the Plaintiff was a stranger to the contract. Though the Plaintiff would benefit from the contract, he could not enforce the contract as there was no consideration or promise moving from the Plaintiff to the Defendant. Due to the lack of consideration present, the Plaintiff’s claim failed. Similarly, in Tweddle v Atkinson (1861) 1 B&S 393, the Plaintiff could not enforce the contract that was made between his father and his respective father-in-law as he was considered a ‘stranger to the consideration’ . As a result, the court held that he had not furnished any consideration which meant that he could not sue the executors for the money. Both of the cases stated above reinforces the importance of the doctrine of consideration within English law and the its purpose to limit the ability of those within the contract to sue.
Thirdly, the last sub-principle which helps to determine whether consideration is, indeed, present is the requirement that the promise must be sufficient though not necessarily adequate . To simplify this principle, it means that the consideration must be of some value, not necessarily economic value, but of benefit to the other party. An example of where this principle was used is in the case of Chappell & Co. Ltd v Nestlé Co. Ltd [1960] AC 87 whereby Nestle offered to give away a piece of music in exchange for three wrappers of Nestlé’s 6D chocolate bars and 1s 6d. The Plaintiff’s had sued the Defendants for a breach of copyright under Section 8 of the Copyright Act 1956 which stated that ‘the manufacturer pays the owner of the copyright … a royalty of an amount’ . Chappell said that to be able to satisfy Section 8 of the Act Nestle must pay the amount calculated on the amount of 1s 6d plus the cost of the three chocolate wrappers. Though the Defendants did not agree and refused to consider the wrappers as good consideration, in a 3:2 decision, Lord Somervill of Harrow was in the opinion that ‘they are part of the consideration’ . In conclusion, since the wrappers were of benefit in increasing the sales and popularity of this record shows thus resulting for good consideration.
Its relationship with the other requirements of ‘agreement’ and ‘intention to create legal relations’
Though consideration may be present it does not immediately mean that a contract is legally binding. Aside from consideration, elements such as agreement and intention to create legal relations will help establish whether contracts are indeed valid or invalid. Cases to create legal relations can fall into two categories: social and domestic agreements and commercial agreements. These elements of agreement and intention to create legal intentions enable us to have a pragmatic approach when it comes to problem-solving on the basis whether parties to be bound into a contract. Throughout the development of modern contract law, contracts were formulated based on the will of the parties.
In most instances, social and domestic arrangements don’t have the intention to create legal intentions thus these arrangements wont amount to binding contracts. However, judgements regarding agreements made within these areas are made on a case-to-case basis. Examples of where social and domestic agreements are those made between a family (husband and wife, child and parent etc.). It is highly possible that the ‘presumption will only be rebutted if the promises are made when the parties have decided to separate or if the promise is sufficiently certain it its terms’. The most notable case to touch on is Balfour v Balfour [1919] 2 KB 571 where a husband promised his wife, before returning back to Ceylon (now Sri Lanka), that he would pay her a monthly allowance of £30 ‘in consideration of her agreeing to support herself’. The husband failed to pay the allowance and she sued. Her claim failed on the basis that there was no consideration present and that it was not an enforceable contract. This judgement was held in a similar case between parent and child in Jones v Padavatton where a mother’s promise to her daughter was too vague therefore the contract was not enforceable.
Commercial agreements, on the other hand, have the presumption of intending to create legally binding relations between the parties involved. In Bowerman v Association of British Travel Agents Ltd (ABTA) it was held that if ABTA wanted to be free from any legal relations it should have explicitly said so. Hobhouse LJ used Carlill v Carbolic Smoke Ball Co. as a leading authority to support that this was an enforceable contract – ‘It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it?’ Therefore, this commercial agreement did result in a contract between ABTA and its clients.
However, as stated before, presumptions can always be rebutted and in this case, it is through the use of honour clauses and agreements which can deny any sort of enforceability. Rose & Frank co. v J.R. Crompton & Bros Ltd. is the leading case which accepts the use of an honour clause which states ‘that the agreement was to be viewed as a definite expression of intention, but nor as a formal or legal agreement subject to the jurisdiction of the courts’.
The enforceability issue
Though consideration forms a big bulk of determining whether contracts can be enforceable or not, there are also other tests which help presently help us do so such as the Pinnel’s Case and Promissory Estoppel.
Issues may arise when discussing the sufficiency of consideration. A promise (though holding economic value) may not necessarily be adequate enough to be recognised as such by the law therefore it cannot be sufficient to form even a simple contract. When consideration is insufficient it will come under two categories:
‘1. Where there is a performance of an existing obligation; and
2. where there is a promise to pay a part of a debt.’
Where one is already expected or legally bound to perform a promise made, it cannot amount to good consideration as there is no detriment being undertaken nor is there any added benefit given to the other party. In Stilk v Myrick Myrick refused to pay any of the deserted crew members for not completing their voyage. It was argued that Stilk was under a promise based on an existing obligation thus without having had done extra work, he had not provided fresh consideration. On these grounds, Myrick was not obliged to pay Stilk the extra sum. On the contrary in the case of Hartley v Ponsonby the court held that they were free to enter into a new contract as they were discharged from their prior contractual duties under the grounds that the voyage was hazardous therefore it was not what they had agreed upon in the first place.
Pinnel’s Case was created to ensure that part-payment of a debt couldn’t be deemed satisfactory as a payment for the full debt owed but a ‘gift of a horse, hawk or robe’ would be. This case was affirmed in Foakes v Beer where it was held that Mrs Beer was entitled to claim the £360 interest as Dr Foakes partial-payment of £500 to forgo the debt in its entirety did not amount to sufficient consideration as a lesser sum can be of benefit to Mrs Beer. However, the enforceability of this consideration was criticised by virtue of that it is unfair to revoke a promise which was freely accepted and immediately fulfilled.
Promissory Estoppel is an equitable doctrine which alleviates the harshness of the Pinnel’s Case and suspends one’s rights in trying to force his strict legal rights after one promises not to force them in the first place. A prime example of when this principle was applied was Central London Property Trust Ltd v High Tees House Ltd where no consideration was present but to accommodate present wartime conditions, the plaintiff halved the defendant’s rent from £2000 to £1250 and resume the full payment of rent when the conditions improved. Therefore, it was held that the plaintiff was entitled to claim the full rent from the last two quarters of 1945 and resume full rent from that time onwards on the basis that the defendants were aware of the improved condition and that the variation no longer applied.
The past-consideration rule
Past consideration is normally deemed to be bad consideration on the basis that a party fulfils their obligation prior to the contract being made. This eliminates the idea of quid pro quo as an act fulfilled prior to a contract may be deemed or interpreted as an ‘expression of gratitude, a gift, and nothing more.’ It has been stated that ‘a person who seeks to enforce a promise made with respect to past services is in a fairly weak position.’ Two leading cases to illustrate the idea of the past-consideration rule would be Roscorla v Thomas and Re McArdle.
In Roscorla v Thomas , Roscorla purchased a horse from Thomas that he promised was in perfect condition but it turns out that this was not true. Roscorla sued Thomas, however the issue in this case was if this was supported by consideration or not. The reason why it is past consideration because the promise of the horse’s condition was made during the transaction. But once Roscorla obtained the horse that is why it is past consideration. The court held that this contract was supported by past consideration therefore the contract was invalid. Likewise, in Re McArdle the payment of £480 was not binding as this promise came after the repairs of the bungalow (the consideration) had been fulfilled.
However, there are exceptions to this rule which is outlined in Lampleigh v Braithwait where the defendant had killed another man and sought out the services of the claimant in exchange for £100. The defendant had promised him the sum of money after the claimant’s services had been fulfilled. Whilst it was deemed to be past consideration, Braithwait was still obliged to pay the £100 as ‘the subsequent promise were part of the same transaction.’ This principle was also held in Pao On v Lau Yiu Long as the promise (the platinffs retaining 60% of their share) was made before the plaintiffs were given indemnity as a form of protection. Thus, the plaintiff’s promise was considered good consideration as there was a link between the promises and a consensus ad idem or mutual understanding between both parties.
Aside from precedents and case law, there are certain legislation such as the Bills of Exchange Act 1882 which ensures that a transferee is able to enforce a ‘promise against the promisor free of any defences’. This means that any good or services paid for by cheque (A takes musical lesson from B. A then issues a cheque as the method of payment) will be good consideration as it is used as a method of payments to ‘satisfy an existing debt’. This rule makes certain that those paying via this method do not exploit the services of other people and also gives a certain security for those providing their services.