Learning Outcomes
This article explains the doctrine of consideration as a requirement for the formation of a legally binding contract in England and Wales. It details the essential rules governing valid consideration, including the requirement for sufficiency, the concept of past consideration, and the performance of existing duties. You will learn to identify valid consideration in problem scenarios and understand exceptions like the practical benefit rule and promissory estoppel, enabling you to apply these principles to SQE1-style questions.
SQE1 Syllabus
For SQE1, a firm understanding of consideration is fundamental to understanding contract formation. You will be assessed on your ability to identify whether consideration exists and whether it meets the legal requirements.
Remember to focus your revision on:
- the definition and purpose of consideration in forming a contract
- the rule that consideration must be sufficient but need not be adequate
- the rule that consideration must not be past
- the rules relating to performance of existing duties as consideration
- the concept of practical benefit originating from Williams v Roffey
- the rule regarding part payment of a debt (Pinnel's Case and Foakes v Beer)
- the equitable doctrine of promissory estoppel and its requirements.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which of the following best describes the requirement for consideration to be 'sufficient'?
- The value exchanged must be equal to the value of the promise received.
- The consideration must have some recognisable economic value in the eyes of the law.
- The consideration must be substantial and significant.
- The consideration must genuinely benefit the promisor.
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Builder B agrees to renovate Shop S for £20,000. Mid-project, B realises they underquoted and cannot finish without more funds. S promises an extra £3,000 if B finishes on time, as S needs to open for the Christmas rush. B finishes on time. Can B enforce S's promise for the extra £3,000?
- No, B was already contractually obliged to finish the renovation.
- No, because B's financial difficulty is their own problem.
- Yes, because S obtained a practical benefit by ensuring completion on time.
- Yes, but only if the promise was made in writing.
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Anya cleans Ben's windows. Afterwards, Ben is so pleased he says, "That was brilliant! I'll give you an extra £10 next week." Is Ben's promise legally binding?
- Yes, because Anya performed the cleaning service.
- Yes, because Ben expressed clear intention to pay.
- No, because the promise was made after the cleaning was completed (past consideration).
- No, because £10 is not adequate payment for window cleaning.
Introduction
For an agreement to be legally enforceable as a contract (assuming other formation elements like offer, acceptance, and intention to create legal relations are present), the doctrine of consideration generally requires that each party must provide something of value. It is the 'price' for which the promise of the other is bought. This distinguishes legally binding bargains from gratuitous promises (gifts), which are typically not enforceable in contract law. Understanding the rules of consideration is essential for advising on contract validity.
Key Term: Consideration
Something of value in the eyes of the law, given in exchange for another party's promise. It can be a benefit to the promisor or a detriment incurred by the promisee.
CORE PRINCIPLES OF CONSIDERATION
Several key rules determine whether valid consideration exists. For SQE1, you must be able to apply these rules to factual scenarios.
Consideration Must Move from the Promisee
The person wishing to enforce the promise (the promisee) must be the one who has provided the consideration. A person who has not provided consideration generally cannot sue on the contract (Tweddle v Atkinson (1861)). Note that this rule is related to, but distinct from, the doctrine of privity of contract (which determines who can sue and be sued under a contract).
Consideration Must Not Be Past
Consideration must be given in return for the promise. If the act claimed as consideration was performed before the promise was made, it is generally considered past consideration and is not valid.
Key Term: Past Consideration
An act or forbearance that took place before the promise was made, and therefore cannot be legally sufficient consideration to support that promise.
In Roscorla v Thomas (1842), a promise made about the soundness of a horse after the sale contract was completed was held unenforceable for lack of consideration.
However, there is an exception where a past act was done at the promisor's request, and it was understood (explicitly or implicitly) that the act would be paid for or rewarded later (Lampleigh v Brathwait (1615); Pao On v Lau Yiu Long [1980]).
Worked Example 1.1
David helps his neighbour, Emily, move heavy furniture into her new flat. The next day, Emily gratefully promises to pay David £50 for his help. Can David legally enforce Emily's promise?
Answer: No. David's act of helping was completed before Emily made the promise to pay. This is past consideration and generally not valid to support the promise. The exception is unlikely to apply unless it was implicitly understood at the time of the help that payment would follow (e.g., if David was a professional mover acting at Emily's request).
Consideration Must Be Sufficient but Need Not Be Adequate
Consideration must have some value in the eyes of the law (be sufficient), but it does not need to be economically equivalent to the promise received (it need not be adequate). The courts do not generally inquire into the fairness of the bargain.
Key Term: Sufficient Consideration
Consideration that has some value recognised by the law, even if it is minimal. It must be real, tangible, and possess some economic value.Key Term: Adequacy
The comparative value of the consideration provided in relation to the promise received. The law does not require consideration to be adequate (i.e., fair market value).
In Thomas v Thomas (1842), a promise to pay £1 per year rent was held to be sufficient consideration for the right to occupy a house. However, things with no legal value, like promising to stop complaining (White v Bluett (1853)), are insufficient.
Worked Example 1.2
A vintage car enthusiast agrees to sell his rare car, worth £50,000, to his friend for £1,000. Is there valid consideration for the promise to sell the car?
Answer: Yes. Although £1,000 is clearly not adequate value for the car, it has some economic value and is therefore legally sufficient consideration. The court will not intervene simply because it appears to be a bad bargain.
PERFORMANCE OF EXISTING DUTIES
A recurring issue is whether performing, or promising to perform, something one is already obliged to do can count as valid consideration for a new promise.
Existing Public Duty
Performing a duty imposed by law (e.g., a duty to attend court as a witness) is generally not good consideration for a new promise. However, if the promisee does more than their public duty requires, this can be valid consideration (Glasbrook Bros v Glamorgan CC [1925] – police providing more protection than deemed necessary).
Existing Contractual Duty Owed to the Promisor
Traditionally, merely performing an existing contractual duty owed to the promisor was not good consideration for a promise of extra payment (Stilk v Myrick (1809)). However, the modern position, established in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991], allows performance of an existing duty to be consideration if the promisor obtains a practical benefit (or obviates a disbenefit) and the promise was not made under duress or fraud.
Key Term: Practical Benefit
A factual or commercial advantage obtained by the promisor from the promisee's performance of an existing contractual duty, which can constitute sufficient consideration for a promise of additional payment (as per Williams v Roffey).
Exam Warning
Be careful to apply Williams v Roffey only where appropriate. It applies to promises to pay more for the same contractual performance. It does not apply to promises to accept less in discharge of a debt (see Part Payment Rule below). Also, the absence of economic duress or fraud is a key condition.
Existing Contractual Duty Owed to a Third Party
Performing, or promising to perform, an existing contractual duty owed to a third party can be valid consideration for a promise made by the promisor (Scotson v Pegg (1861); The Eurymedon [1975]).
PART PAYMENT OF A DEBT
A common law rule, originating from Pinnel's Case (1602) and affirmed in Foakes v Beer (1884), states that paying a smaller sum on the due date cannot discharge a larger undisputed debt, unless something extra is provided (e.g., paying earlier, paying at a different place, giving goods instead of cash). The rationale is that the debtor provides no consideration for the creditor's promise to forgive the balance.
Key Term: Part Payment Rule
The common law principle that payment of a lesser sum on the day a debt is due cannot be satisfaction for the whole debt, unless there is additional consideration provided by the debtor.
Worked Example 1.3
Liam owes Maya £1,000 due on Friday. On Friday, Liam explains he can only afford £700. Maya agrees to accept £700 in full settlement. Can Maya later sue Liam for the remaining £300?
Answer: Yes, under the rule in Pinnel's Case / Foakes v Beer. Liam provided no consideration for Maya's promise to accept less. He was already obliged to pay the full £1,000. Had he offered the £700 early, or given Maya something else of value (even a 'horse, hawk, or robe'), that could have been consideration.
PROMISSORY ESTOPPEL
Equity provides a limited exception to the strict common law rule on part payment and the need for consideration in certain situations involving variations of existing contracts. Promissory estoppel can prevent a person (the promisor) from going back on a clear promise not to enforce their strict legal rights, if the other person (the promisee) has relied on that promise, and it would be inequitable for the promisor to renege.
Key Term: Promissory Estoppel
An equitable doctrine that can prevent a party from going back on a clear promise, intended to be acted upon and in fact acted upon by the promisee, where it would be unfair to allow the promisor to do so. It generally acts as a defence ('shield') rather than a cause of action ('sword').
Key requirements from Central London Property Trust v High Trees House Ltd [1947]:
- A clear and unambiguous promise or representation not to enforce strict legal rights.
- Reliance by the promisee on the promise.
- It must be inequitable (unfair) for the promisor to go back on the promise.
Promissory estoppel generally suspends, rather than extinguishes, rights. It cannot create a new cause of action where none existed before.
Revision Tip
Remember that promissory estoppel is an equitable doctrine and operates defensively. It cannot be used to force someone to fulfil a promise for which no consideration was given initially (it's a 'shield, not a sword'). It typically arises in the context of modifying existing obligations, particularly promises to accept less payment.
Summary
Consideration is an essential element for contract formation, representing the bargain element – something of legal value exchanged for a promise. Key rules dictate its validity: it must move from the promisee, be sufficient (though not necessarily adequate), and not be past. Performing existing duties generally isn't consideration, but exceptions exist, notably the practical benefit rule (Williams v Roffey) for promises of extra payment, and performing duties owed to third parties. The part payment rule (Pinnel's Case) prevents a smaller sum discharging a larger debt without extra consideration, though promissory estoppel may provide equitable relief in certain circumstances.
Key Point Checklist
This article has covered the following key knowledge points:
- Consideration is the 'price' paid for a promise, usually required for contract enforceability.
- Consideration must have legal value ('sufficiency') but need not match the value of the promise ('adequacy').
- Acts performed before a promise is made ('past consideration') are generally not valid consideration.
- Performing an existing public duty is not usually consideration unless exceeded.
- Performing an existing contractual duty owed to the promisor can be consideration if the promisor obtains a 'practical benefit' (Williams v Roffey) and there's no duress.
- Performing an existing duty owed to a third party can be valid consideration.
- Part payment of a debt does not discharge the whole debt without additional consideration (Pinnel's Case).
- Promissory estoppel may prevent a promisor retracting a promise to waive legal rights if relied upon and if retraction would be inequitable.
Key Terms and Concepts
- Consideration
- Past Consideration
- Sufficient Consideration
- Adequacy
- Practical Benefit
- Part Payment Rule
- Promissory Estoppel
