Existence and formation of a contract - Consideration

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Overview

Consideration is a fundamental component of English contract law, acting as the legal adhesive that binds parties to agreements. It differentiates enforceable contracts from simple promises, ensuring agreements reflect genuine commitments backed by value. For SQE1 FLK1 candidates, understanding consideration is key, as it supports the formation and enforceability of contracts. This article offers a detailed analysis of consideration, covering its theoretical background, practical uses, and current challenges, providing students with essential knowledge for advanced legal analysis and exam success.

The Doctrine of Consideration

Historical Development and Theoretical Basis

The doctrine of consideration began in the 16th century to separate enforceable agreements from mere promises, reflecting a pragmatic approach to contract enforcement. It serves several purposes:

  1. Evidentiary: Provides proof of parties' intention to be bound.
  2. Cautionary: Encourages reflection before entering into agreements.
  3. Channelling: Differentiates commercial transactions from social arrangements.

Key Principles of Consideration

1. Must Move from the Promisee

As established in Tweddle v Atkinson (1861), only a party who has provided consideration can enforce a contract. This rule affects third-party rights and contract privity.

Example: In a contract between A and B, if C provides consideration, C cannot enforce it against A or B, as the consideration didn't move from C.

2. Past Consideration Is Not Valid

Consideration must be given in exchange for a promise, not precede it. This principle, shown in Roscorla v Thomas (1842), ensures obligations are based on current exchanges.

Case Analysis: In Re McArdle [1951], work done on a house before a promise of payment was deemed past consideration, insufficient for the contract.

3. Consideration Need Not Be Adequate, But Must Be Sufficient

Courts don't typically assess the adequacy of consideration, as seen in Thomas v Thomas (1842). However, it must hold some value legally.

Example: In Chappell & Co. Ltd. v. Nestle Co. Ltd. (1960), chocolate wrappers were considered sufficient consideration due to their marketing value.

4. Performance of Existing Duties

Performing an existing duty usually doesn't constitute new consideration, with exceptions:

  • Public Duty Rule: Going beyond a public duty can be consideration.
  • Duty to Third Party: Performing a duty owed to a third party can be consideration for a new promise, as in Shadwell v Shadwell (1860).
  • Practical Benefit: Following Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991], a practical benefit received can be valid consideration.

Example: A construction company promises to meet a deadline to avoid penalties, providing a benefit to the developer, hence valid consideration.

Exceptions and Modifications to the Doctrine

Part Payment of a Debt

In Pinnel's Case (1602) and Foakes v Beer (1884), part payment doesn't discharge the whole debt. Modifications include:

  1. Promissory Estoppel: As in Central London Property Trust Ltd v High Trees House Ltd [1947], this can prevent a creditor from retracting a promise.
  2. Practical Benefit: Similar to Williams v Roffey Bros, practical benefits can constitute consideration for more payment.

Promissory Estoppel

While not replacing consideration, this doctrine can prevent strict enforcement of rights. It requires:

  • A clear promise or representation
  • Reliance by the promisee
  • Suffered detriment due to reliance

Example: An employer promises a bonus for a completed project. The employee relies on this and works overtime, using promissory estoppel to enforce the promise if the employer reneges.

Modern Views and Criticisms

Academic Critiques

Scholars like Patrick Atiyah suggest that the focus should be on the intention to create legal relations. Critics argue:

  1. Doctrine's formality can overshadow substantive agreements.
  2. It may not reflect economic realities.
  3. Traditional principles may struggle with digital transactions.

Comparative Law

Civil law systems often don't require consideration. The UNIDROIT Principles and the Principles of European Contract Law focus on the intention to bind legally.

Reform Proposals

The UK Law Commission has suggested removing the consideration requirement for contract modifications, allowing more commercial flexibility.

Practical Applications and Exam Relevance

Understanding consideration is key for:

  1. Advising on contract formation and enforceability
  2. Drafting enforceable clauses
  3. Analyzing complex arrangements, especially contract variations

Consideration appears in everyday scenarios:

  • Employment Contracts: Salary for services.
  • Sales Contracts: Payment for goods.
  • Lease Agreements: Rent for property rights.
  • E-Commerce Agreements: Exchange of data for services.

Exam Example:

A software company promises a bonus for early completion of a project. The developer works overtime. Candidates should analyze:

  • If the promise is supported by fresh consideration
  • Applying Williams v Roffey Bros principles
  • Using promissory estoppel if the bonus is withdrawn

Conclusion

Consideration is essential in contract law, ensuring agreements are enforceable rather than empty promises. While its traditional framework is evolving, understanding its principles, exceptions, and modern interpretations is vital for SQE1 FLK1 candidates. This prepares aspiring solicitors to:

  1. Tackle complex contractual issues confidently
  2. Apply legal reasoning to various agreements
  3. Balance traditional analysis with modern developments

By thoroughly understanding consideration, candidates gain essential skills for both exams and future legal practice.