Existence and formation of a contract - Consideration

Learning Outcomes

This article explains the doctrine of consideration as a requirement for the formation of a legally binding contract in England and Wales, focusing on how to identify valid consideration in SQE1-style problem scenarios. It outlines the rules on sufficiency and adequacy, the prohibition on past consideration, and the treatment of executed and executory consideration. It examines when performance of existing public, contractual, and third-party duties can amount to consideration, and contrasts the traditional approach in Stilk v Myrick with the practical benefit analysis in Williams v Roffey. It analyzes how consideration interacts with privity and statutory third-party rights under the Contracts (Rights of Third Parties) Act 1999, and how these principles apply to variations of existing agreements. It reviews the common law rule on part payment of debts (Pinnel’s Case; Foakes v Beer), recognised exceptions, and the limiting role of economic duress in enforcing variations. It also discusses the equitable doctrine of promissory estoppel, including its requirements, its “shield not a sword” function, and its impact on debt arrangements, enabling precise application of both common law and equitable responses in examination problem questions.

SQE1 Syllabus

For SQE1, you are required to understand consideration as a fundamental element of contract formation and to identify whether consideration exists and whether it meets the legal requirements, with a focus on the following syllabus points:

• 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
• executed vs executory consideration and how they appear in bilateral and unilateral contracts
• the rule that consideration must move from the promisee and its relationship to privity (with reference to the Contracts (Rights of Third Parties) Act 1999)
• 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), including recognised exceptions
• the equitable doctrine of promissory estoppel and its requirements
• the interaction between promissory estoppel and part-payment of debts (e.g., D & C Builders v Rees; Collier v Wright)
• the effect of economic duress on variations and the practical benefit rule.

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.

1. Which of the following best describes the requirement for consideration to be 'sufficient'?
   1. The value exchanged must be equal to the value of the promise received.
   2. The consideration must have some recognisable economic value in the eyes of the law.
   3. The consideration must be substantial and significant.
   4. The consideration must genuinely benefit the promisor.
2. 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?
   1. No, B was already contractually obliged to finish the renovation.
   2. No, because B's financial difficulty is their own problem.
   3. Yes, because S obtained a practical benefit by ensuring completion on time.
   4. Yes, but only if the promise was made in writing.
3. 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?
   1. Yes, because Anya performed the cleaning service.
   2. Yes, because Ben expressed clear intention to pay.
   3. No, because the promise was made after the cleaning was completed (past consideration).
   4. 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 and on variations of existing agreements.

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.

Foundational definitions, often cited by examiners, emphasise this exchange element. In Currie v Misa, consideration was defined as a “right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other.” The House of Lords endorsed Pollock’s formulation (approved in Dunlop v Selfridge): “An act or forbearance, or the promise thereof, is the price for which the other’s promise is bought.”

Consideration can be executory (promises exchanged to be performed later) or executed (performance given in response to an offer, common in unilateral contracts).

Key Term: Executory Consideration
Consideration consisting of a promise to do something in the future (e.g., a bilateral exchange of promises).

Key Term: Executed Consideration
Consideration consisting of performance of the requested act (e.g., providing information in response to a reward offer).

Most contracts are supported by consideration, but a promise made by deed (Law of Property (Miscellaneous Provisions) Act 1989, section 1) is enforceable without consideration. In practice, reliance on deeds is limited; an understanding of consideration remains essential.

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). The Contracts (Rights of Third Parties) Act 1999 (CRTPA) modifies the privity rule in limited circumstances, allowing specified third parties to enforce a term if the contract expressly confers that benefit or if the term purports to benefit them and they are identified by name, class, or description. Under the CRTPA, the third party can enforce without having provided consideration themselves; however, the original promisee must have supplied consideration.

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. Similarly, in Re McArdle (1951), a promise to pay for home improvements already completed was invalid.

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]). Pao On clarifies three conditions:

• the act was done at the promisor’s request
• there was an understanding at the time that the act would be remunerated
• the subsequent promise would have been enforceable had it been made before or at the time of the request.

This “previous request” device ensures that, in commercial settings, work done at a party’s request with the implicit expectation of remuneration can support a later promise fixing the amount.

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. Trivial items can be sufficient if stipulated as part of the bargain (Chappell & Co v Nestlé [1960] – chocolate bar wrappers counted as consideration). Conversely, some things have no legal value: agreeing to “stop complaining” was insufficient (White v Bluett (1853)). Courts sometimes recognise intangible or practical benefits where appropriate, but wholly illusory promises or vague undertakings (e.g., a promise lacking any substance) will fail.

In commercial contexts, shifting control or risk can count as a benefit. For instance, permitting access to weigh boilers (Bainbridge v Firmstone (1838)) created a benefit for the promisor and a detriment to the promisee (temporary loss of possession), sufficient to support a promise to return them intact.

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 (Collins v Godefroy (1831)). 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).

A complex example is Ward v Byham [1956], where a father promised money to the mother to keep their child “well looked after and happy”. The court found consideration because keeping a child “happy” went beyond mere legal obligations and the promise provided a practical benefit to the father (assurance of the child’s welfare).

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).

Williams v Roffey anchors this approach in commercial reality: avoiding liquidated damages or additional procurement costs, stabilising scheduling, or improving payment mechanisms can be practical benefits. It is critical to ensure the promise was not extracted by illegitimate pressure. If a party threatens breach to force extra payment, economic duress may render the variation voidable (e.g., Atlas Express v Kafco (1989); North Ocean Shipping v Hyundai (The Atlantic Baron) [1979]).

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]). Courts recognise that a renewed commitment or performance can carry distinct value to the promisor, even if the promisee is already obliged to a third party.

Worked Example 1.3

Supplier S contracts with Retailer R to deliver 100 units per week. Midway, R discovers S is struggling and offers an extra £2,000 if S will prioritise R’s orders to avoid late-delivery penalties under R’s own upstream contract. S agrees, increases staffing, and deliveries resume on time. Later, R refuses to pay. Is the extra £2,000 enforceable?

Answer:
Likely yes, provided no duress. R’s promise to pay more was supported by a practical benefit: avoiding upstream penalties and securing continuity of supply (Williams v Roffey). If S threatened breach to extract the payment, the variation could be voidable for economic duress.

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.

Recognised exceptions include:

• payment before due date at the creditor’s request (a benefit to the creditor)
• payment at a different place at the creditor’s request
• payment in a different form (e.g., goods instead of money) which the creditor values more
• composition with creditors (where multiple creditors agree to accept a percentage)
• payment by a third party at the creditor’s request (which can discharge the debtor’s liability).

Attempts to use “practical benefit” to uphold part-payment without further consideration have failed at Court of Appeal level (Re Selectmove [1995]). In MWB v Rock [2016] CA, a “practical benefit” analysis was accepted for a rescheduling that retained a licensee and improved prospects of recovery; however, the Supreme Court disposed of the appeal on a “no oral modification” clause, leaving the consideration point undecided. Foakes v Beer remains authoritative that practical benefit alone does not convert part-payment into full satisfaction of a debt.

Worked Example 1.4

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.

Worked Example 1.5

Company C owes Supplier D £20,000. C arranges for a third party investor to pay D £15,000 immediately if D will accept that sum in full and final settlement, and D agrees. Can D later claim the remaining £5,000 from C?

Answer:
No. Payment by a third party at the creditor’s request can discharge the debt if accepted in full and final settlement. The creditor’s separate promise to accept the lesser sum from a third party is supported by consideration and bars recovery of the balance from the debtor.

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] and Hughes v Metropolitan Railway [1877] include:

1. A clear and unambiguous promise or representation not to enforce strict legal rights.
2. Reliance by the promisee on the promise (a change of position; detriment is often found in the need to adjust when the promisor seeks to resile).
3. 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 (Combe v Combe [1951] – estoppel is a “shield not a sword”). In ongoing payment arrangements, courts have treated rights as suspended during the period it is inequitable to enforce strict rights (Tool Metal Manufacturing v Tungsten [1955]). In some part-payment contexts, estoppel can have a more permanent effect if the debtor has fully performed the revised obligation in reliance on a voluntary promise (e.g., Collier v Wright [2007] – court recognised an arguable estoppel extinguishing the balance where part-payment was made as promised and the creditor voluntarily agreed to accept a proportion).

Promissory estoppel is equitable. Conduct amounting to “sharp practice” or pressure may bar its use (D & C Builders v Rees [1966] – debtor’s coercion meant it was not inequitable for the creditor to claim the balance). Courts also consider reasonableness and prompt notice when a promisor seeks to resume strict rights (The Post Chaser [1981]; PM Project Services v Dairy Crest [2016]).

A parallel development concerns “no oral modification” clauses. The Supreme Court in MWB v Rock [2018] held such clauses generally effective; as a result, oral variations may fail absent a deed or compliance with the agreed formality. However, estoppel can still operate in appropriate cases to prevent reliance on the clause where inequitable.

Worked Example 1.6

Debtor D owes Creditor E £9,000. E sends a clear email stating: “Pay £3,000 now and a further £3,000 within three months; if you do so, I won’t pursue the rest.” D pays £6,000 as agreed. Six months later, E sues for the remaining £3,000. Can D resist?

Answer:
D may have a promissory estoppel defence. There was a clear promise; D relied by paying according to the revised schedule; and it may be inequitable to allow E to resile after D complied. Depending on the facts, the estoppel may extinguish E’s right to the balance (as suggested in Collier), particularly where D has fully performed the revised obligation and E’s promise was voluntary and clear.

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. Where oral variations are barred by “no oral modification” clauses, estoppel may still apply if inequity would otherwise result, but the bar for establishing it is high.

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 public duties is not usually consideration unless exceeded. Performing existing contractual duties generally isn’t consideration, but exceptions exist: practical benefit (Williams v Roffey) for promises of extra payment, and performing duties owed to third parties. The part payment rule (Pinnel’s Case; Foakes v Beer) prevents a smaller sum discharging a larger debt without extra consideration, although composition agreements or third-party payments can be effective. Promissory estoppel may provide equitable relief where a party has relied on a clear promise and it would be inequitable to allow strict rights to be enforced; its effect is often suspensory, but in some part-payment scenarios it may extinguish rights where reliance is complete and the promise was clear and voluntary. Economic duress remains an important constraint—if a variation is procured under illegitimate pressure, it will be voidable irrespective of practical benefit.

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; promises in a deed are enforceable without consideration.
• Consideration may be executed (performance) or executory (promise).
• Consideration must move from the promisee; statutory third-party rights under the CRTPA 1999 allow limited enforcement without consideration by the third party.
• 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; the “previous request” device may save a later promise if Pao On conditions are met.
• 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 or fraud.
• Performing an existing duty owed to a third party can be valid consideration (Scotson v Pegg; The Eurymedon).
• Part payment of a debt does not discharge the whole debt without additional consideration (Pinnel's Case; Foakes v Beer); exceptions include early payment, payment in a different form, composition agreements, and third-party payments.
• Promissory estoppel may prevent a promisor retracting a promise to waive legal rights if relied upon and if retraction would be inequitable; it is generally a 'shield, not a sword', and its effect is often suspensory but can be extinction in some completed reliance scenarios.

Key Terms and Concepts

• Consideration
• Executory Consideration
• Executed Consideration
• Past Consideration
• Sufficient Consideration
• Adequacy
• Practical Benefit
• Part Payment Rule
• Promissory Estoppel