Formation of Contract (5) – Consideration

What is Consideration?

Definition and Basic Principles

Consideration is one of the essential requirements for the formation of a binding contract in English law. Without it, a promise is generally unenforceable. The classic definition, adopted from Sir Frederick Pollock and approved in Currie v Misa [1875], describes consideration as "some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other." In essence, consideration should either constitute a benefit to the party receiving it or a detriment to the party giving it. Frequently both elements are present simultaneously, but this is not strictly necessary.

A practical way to understand consideration is as the "price" one party pays for the other party's promise — the thing that makes a promise legally binding rather than a mere gratuitous undertaking.

Sufficiency and Adequacy

A fundamental principle is that consideration must be sufficient but need not be adequate. Sufficiency means that consideration must have some economic or legal value recognisable in the eyes of the law. Adequacy, by contrast, refers to the fairness of the exchange — and the courts will not concern themselves with whether the parties struck a good bargain.

Chappell v Nestlé [1960] illustrates this principle vividly. The House of Lords held that used chocolate bar wrappers could form part of the consideration for a contract, even though they were of trivial commercial value. The court's role is not to police the adequacy of the exchange but only to ensure that some legally recognised consideration exists.

Examples of What Cannot Constitute Consideration

Certain acts or promises are not recognised as sufficient consideration.

In White v Bluett [1853], a son argued that his promise to stop complaining to his father amounted to consideration in exchange for the father's promise not to enforce a debt. The court rejected this. Permitting such vague and intangible acts to count as consideration would open the floodgates to litigation and provide no reliable basis for contractual enforcement.

Hamer v Sidway [1891] is a United States case sometimes cited illustratively in this context. It is worth noting that the actual holding of that case was the opposite of what students sometimes assume: the American court held that a nephew's promise to refrain from drinking, smoking, and gambling did constitute good consideration, because refraining from lawful activities amounted to a legal detriment. However, the case is occasionally referenced in English academic materials to highlight the debate around whether activities that are primarily beneficial to the promisor themselves can be characterised as a detriment capable of supporting a contract. In any event, the underlying analytical point — that an act which confers only a personal benefit on the party performing it, rather than a genuine legal detriment, may be insufficient — remains a useful illustration of the boundaries of consideration.

A further limitation arises where consideration is based on love and affection alone. Conducting an act called for in a unilateral contract without any knowledge of the offer also fails to provide consideration, and therefore no binding contract arises — as demonstrated by R v Clarke (1927), where the defendant gave information to police without being aware of a reward offer. Similarly, in Balfour v Balfour [1919] the lack of contractual intention in a domestic arrangement may equally be understood as reflecting an absence of genuine consideration.

Past Consideration

The Principle: Past Consideration is No Consideration

Past consideration arises where a party seeks to rely upon an act already performed before any promise was made in exchange for it. The general rule is clear: past consideration is no consideration.

Roscorla v Thomas [1842] provides the leading authority. After the sale of a horse had already been completed, the seller made a subsequent promise that the horse was sound and free from vice. The court held that this later promise was unenforceable: the purchase price had already been paid before the promise was made and therefore could not serve as consideration for it.

The Exception: Three Conditions Must All Be Satisfied

There is a recognised exception to the rule against past consideration. The exception was established in Lampleigh v Brathwait [1615] and confirmed in Re Casey's Patents [1892]. For a past act to amount to good consideration for a later promise, all three of the following conditions must be satisfied:

1. The act must have been performed at the promisor's request.
2. The parties must have mutually understood from the outset that the act was to be rewarded in some way.
3. The payment or conferment of benefit must have been legally enforceable had it been promised in advance.

Where these three conditions are met, the law treats the prior act and the later promise as forming part of a single transaction, and the promise becomes enforceable.

Performance of Existing Duties

Performance of a Legal or Public Duty

Where a party is already under a duty imposed by law or an existing public duty, performance of that duty cannot amount to good consideration for a separate promise. In Collins v Godefroy [1831], a witness who had been subpoenaed to attend court claimed payment for his attendance. The court held that, since attendance was already a legal obligation, performing it could not constitute consideration.

However, there is an important exception: if a claimant exceeds his public duty, that additional performance will generally amount to good consideration. Glasbrook Bros Ltd v Glamorgan County Council [1925] illustrates this. A colliery owner requested a greater number of police officers than the police thought necessary. The court held that providing more protection than was strictly required as a matter of public duty amounted to good consideration for the colliery owner's promise to pay.

Performance of an Existing Contractual Duty Owed to a Third Party

Where the existing contractual duty is owed not to the contracting party but to a third party, performance of that duty will amount to good consideration. Scotson v Pegg [1861] established this principle. A carrier who was already contractually bound to deliver coal to a third party was held to have provided good consideration to the defendant by actually delivering it, even though the carrier was merely fulfilling a pre-existing obligation.

Performance of an Existing Contractual Duty Owed to the Other Contracting Party

The more problematic situation arises where a party promises to perform — or actually performs — a duty that is already owed to the same contracting party. The general rule, as established in Stilk v Myrick [1809], is that such performance cannot constitute consideration.

In that case, two sailors deserted during a voyage. The ship's captain promised the remaining crew additional wages if they would sail the ship home. The court refused to enforce the promise: the sailors were already contractually obliged to meet the ordinary emergencies of the voyage, and their continued performance was nothing more than what they had already agreed to do.

Exception — exceeding the existing duty: If the claimant goes beyond what his existing contractual duty requires, that additional performance will ordinarily amount to good consideration. Hartley v Ponsonby [1857] is the relevant authority. Where a significantly larger number of sailors deserted, leaving the ship dangerously undermanned, the remaining crew's agreement to continue the voyage in such hazardous circumstances went beyond their original contractual obligation, and the court held their performance amounted to sufficient consideration for the promise of additional pay.

The Williams v Roffey Bros Modification and the Glidewell Guidelines

A significant modification to the rule in Stilk v Myrick was introduced in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991]. The Court of Appeal held that performance of an existing contractual duty owed to the other contracting party will constitute good consideration if two conditions are satisfied: (i) the other party receives a practical or commercial benefit from the performance; and (ii) there is no duress or fraud on the part of the party seeking to rely on the additional promise.

In that case, a building contractor engaged a carpenter to carry out work on a block of flats. When it became clear the carpenter would not complete on time (which would have exposed the contractor to penalty clauses), the contractor promised additional payments. The Court of Appeal found that the contractor received a real practical benefit — avoiding penalty clause liability and the inconvenience of finding a replacement — and held the promise to pay more to be enforceable, even though the carpenter was doing nothing beyond his original contractual obligation.

The Court of Appeal set out five specific conditions — known as the Glidewell Guidelines — that must be satisfied in order for the Williams v Roffey Bros principle to apply:

1. There must be a binding contract between A and B under which A does work for B or supplies goods to B, and B promises to pay a sum of money for that work or those goods.
2. B must have reason to doubt whether A will, or will be able to, complete his obligation on time.
3. B must promise A additional payment in return for A's promise to perform his existing contractual obligation on time.
4. As a result of giving that promise of extra payment, B must obtain some practical benefit or obviation of disbenefit.
5. There must be no economic duress or fraud on A's part that induced B to give the promise of extra payment.

Important limitations on Williams v Roffey Bros: The decision is confined to situations where one party promises to pay more money for the performance of an existing duty. Crucially, the principle cannot be extended to the converse situation — namely, part payment of a debt. In Re Selectmove Ltd [1995], the Court of Appeal declined to apply Williams v Roffey Bros to a debtor's promise to pay a lesser sum in full satisfaction of a debt, holding that to do so would effectively circumvent the long-established rule in Foakes v Beer [1884] and the doctrine of Pinnel's Case [1602].

Part Payment of Undisputed Debts

The Principle: Foakes v Beer

A creditor who agrees to accept part payment of a debt in full satisfaction of the entire sum cannot later be held to that agreement, as the debtor has provided no consideration for the creditor's promise to forgo the balance. The debtor is already obliged to pay the full debt; agreeing to pay only part of it does not constitute any fresh detriment.

This principle was affirmed by the House of Lords in Foakes v Beer [1884], which confirmed the earlier authority of Pinnel's Case [1602]. The rule states that part payment of an undisputed debt is not sufficient consideration for a promise to discharge the whole.

Exception 1: Payment in a Different Form or Early Payment

Where the debtor provides something different from simple part payment of the debt — for example, delivering goods rather than cash, or paying the lesser sum earlier than the date on which the full debt would otherwise fall due — the rule in Pinnel's Case does not apply and the arrangement may be enforceable. The courts will not enquire into the adequacy of what is given in substitution; even goods of negligible value may suffice.

Exception 2: Part Payment by a Third Party

Where the part payment is made by a third party rather than the debtor personally, the creditor's promise to accept that lesser sum in full satisfaction will be binding. The reasoning is one of fraud prevention: were the creditor permitted to accept a third party's payment in settlement and then pursue the debtor for the balance, it would amount to a fraud upon the third party who made the payment in good faith.

Exception 3: Promissory Estoppel

The equitable doctrine of promissory estoppel provides the third and most flexible exception to the rule in Foakes v Beer. Where a creditor makes a clear and unequivocal promise to accept a lesser sum in settlement of a debt, and the debtor acts in reliance upon that promise, equity may prevent the creditor from going back on his word — even in the absence of fresh consideration from the debtor.

The foundation for this equitable exception lies in Central London Property Trust Ltd v High Trees House Ltd [1947] and the earlier principles articulated in Hughes v Metropolitan Railway Co [1877]. The doctrine is, however, subject to important qualifications: it operates as a shield, not a sword (as confirmed in Combe v Combe [1951]), it is generally suspensory rather than extinctive in effect, and it may not be relied upon by a party who has acted inequitably — as illustrated by D & C Builders Ltd v Rees [1965], where a creditor who had been pressured into accepting a lesser sum was permitted to recover the balance.