Consideration

Introduction

Consideration is a key doctrine in English contract law that requires each party to provide something of value for a contract to be legally binding. It distinguishes enforceable contracts from gratuitous promises by ensuring that mutual obligations exist between the contracting parties. The core principles of consideration include the necessity that it must move from the promisee, must not be past, and must be sufficient but need not be adequate. These principles establish the essential requirements for the formation and enforceability of contracts, serving as a fundamental component in legal analyses and judicial decisions.

The Doctrine of Consideration

Historical Development and Theoretical Basis

Originating in the 16th century, the doctrine of consideration emerged to delineate enforceable agreements from mere promises. It embodies a pragmatic approach to contract enforcement, fulfilling several important functions:

1. Evidentiary Function: Provides proof of the parties' intent to enter into a legally binding agreement.
2. Cautionary Function: Encourages deliberate commitments by highlighting the legal consequences.
3. Channelling Function: Distinguishes commercial contracts from social or domestic arrangements, which typically lack legal enforceability.

Key Principles of Consideration

1. Consideration Must Move from the Promisee

   Only a party who has provided consideration can enforce a contract. This principle was established in Tweddle v Atkinson (1861), where the court held that a person cannot sue on a promise unless they have furnished consideration for it.

   For instance, if Company X promises a financial reward to employees who complete a training program, only those who participate and fulfill the requirements—thereby providing consideration—can claim the reward.

2. Past Consideration Is Not Valid Consideration

   An act done before a promise is made cannot serve as consideration for that promise. This rule is illustrated in Roscorla v Thomas (1842), where assurances given after the sale of a horse were not enforceable because they were not part of the original agreement.

   However, an exception exists if the prior act was performed at the promisor's request with an understanding of future payment, as seen in Lampleigh v Brathwait (1615).

3. Consideration Must Be Sufficient but Need Not Be Adequate

   The law does not require the consideration to be equivalent in value to the promise received; it only needs to be something of legal value. This principle is demonstrated in Thomas v Thomas (1842), where payment of £1 per year was deemed sufficient consideration for a lease.

   In contrast, in White v Bluett (1853), a son's promise to stop complaining to his father was considered insufficient because it lacked tangible legal value.

4. Performance of Existing Duties

   Performing an existing legal or contractual duty generally does not amount to valid consideration for a new promise. Exceptions to this rule include:

   • Exceeding Public Duty: If a party goes beyond their public duty, such as in Glasbrook Bros Ltd v Glamorgan County Council (1925), where additional police services were provided for payment.
   • Contractual Duty Owed to a Third Party: Performing an obligation owed to a third party can be valid consideration, as in Scotson v Pegg (1861), where delivering coal as contracted with another party was sufficient.
   • Practical Benefit: Recognized in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991], if the promisor gains a practical benefit or avoids a detriment, the performance may constitute valid consideration.

Exceptions and Modifications to the Doctrine

Part Payment of a Debt

Under the rule in Pinnel's Case (1602) and affirmed in Foakes v Beer (1884), part payment of a debt on the due date does not discharge the entire debt unless additional consideration is provided.

Exceptions include:

• Accord and Satisfaction: The creditor agrees to accept something different (e.g., early payment or goods instead of money), which provides new consideration.
• Promissory Estoppel: As established in Central London Property Trust Ltd v High Trees House Ltd [1947], if a creditor makes a clear promise to accept less and the debtor relies on it, the creditor may be prevented (estopped) from claiming the remainder.

Promissory Estoppel

Promissory estoppel operates to prevent a party from going back on a promise not supported by consideration when it would be unjust to do so. Key elements include:

• Clear and Unequivocal Promise: The promisor must have made a definite assurance.

• Reliance: The promisee must have acted on the promise.

• Inequity: It must be unfair for the promisor to renege on the promise.

Promissory estoppel serves as a shield rather than a sword; it does not create new causes of action but can modify existing obligations where enforcing strict rights would be unjust.

Modern Views and Criticisms

Academic Critiques

Legal scholars have critiqued the doctrine of consideration for its rigidity and potential to invalidate genuine agreements due to technicalities. Critics argue that:

• Lack of Flexibility: The doctrine may not accommodate modern commercial practices where formal exchanges are not explicitly articulated.
• Emphasis on Form over Substance: The focus on consideration might overshadow the true intent of the parties to create legal relations.

Professor Atiyah, for example, advocates for an approach that prioritizes the parties' intentions and reliance over the traditional requirement of consideration.

Comparative Law

In many civil law jurisdictions, the concept of consideration is absent. Instead, the emphasis is on the mutual intent to create legal obligations. International instruments like the UNIDROIT Principles and the Principles of European Contract Law reflect this approach, focusing on consent and reasonable reliance.

Reform Proposals

The UK Law Commission has proposed reforms to address the shortcomings of the consideration doctrine, particularly concerning contract modifications. Suggestions include:

• Abolishing the Requirement of Consideration for Contract Variations: To better reflect commercial realities and facilitate contractual flexibility.
• Implementing a Requirement of Intent and Reliance: Focusing on whether parties intended to be bound and whether there was reliance on promises made.

Practical Applications

An understanding of consideration is essential in various contractual contexts:

• Contract Formation: Determining whether an agreement constitutes a legally enforceable contract.

• Contract Variations: Assessing the validity of modifications to existing contracts, especially when one party seeks additional benefits without providing new consideration.

• Third-Party Rights: Clarifying who has the standing to enforce contractual promises.

Example Scenarios:

• Employment Agreements: An employer promises additional compensation for increased responsibilities. If the employee undertakes extra duties beyond their contractual obligations, this may constitute valid consideration.

• Service Contracts: A contractor agrees to complete a project earlier than agreed. The client's promise of a bonus for early completion is enforceable if the contractor provides consideration by accelerating work.

• Debt Settlements: A creditor agrees to accept a lower sum in full satisfaction of a debt. Unless additional consideration is provided, or promissory estoppel applies, the creditor may still claim the balance.

Conclusion

The doctrine of consideration remains key in English contract law, intricately linking the enforceability of agreements to the exchange of value between parties. The interplay between traditional principles, such as the requirement that consideration must move from the promisee, and modern developments like the recognition of practical benefits, shapes the contractual framework. Cases like Williams v Roffey Bros illustrate how the courts balance these principles, acknowledging practical realities while upholding legal foundations.

Understanding the complexities of consideration is essential for addressing contractual relationships. Legal practitioners must adeptly apply these principles, considering exceptions and evolving interpretations, to ensure that agreements are both legally sound and reflective of the parties' intentions. The continuing debates and proposed reforms highlight the doctrine's dynamic nature and its central role in contract law development.