INTRODUCTION TO CONTRACT AND

TORT LAW
LSC0144

WEEK 5:
Formation of a Valid Contract:
Consideration

Department of Legal Studies

Sem 2 (21/22)
 CONTENT:

1. Definition of consideration.
2. Types of consideration.
3. Rules of consideration.
4. Performance of an existing duty.
 INTRODUCTION

❖ An agreement needs to be supported by consideration to be legally enforceable.

❖ Consideration means something which is of some value in the eyes of the law - it is
the price for which the promise of the other is bought.

DEFINITION

❖ In Currie v Misa (1875), consideration was defined 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”

❖ Sir Fredrick Pollock defined it as: “An act or forbearance of one party, or the promise
thereof, is the price for which the promise of the other is bought, and the promise thus
given for value is enforceable”
 What is Consideration?

• Consideration means that each party must give something in

return for what is gained from the other party.

• Example, if Ally wished to enforce Emy’s promise made to him,

he must prove that he gave something in return for that
promise.

• Consideration is usually described as being something which

represents either some benefit to the person making a promise
(the promisor) or some detriment to the person to whom the
promise is made (the promisee), or both.

• In Dunlop v Selfridge (1915), the House of Lords explained

consideration in terms of purchase and sale, the plaintiff must
show that he or she has bought the defendant’s promise, by
doing, giving or promising something in return for it.
A promise not supported by consideration is considered as a gratuitous
promise and it is not usually enforceable in law.

Example, A promises to give B a car without requiring anything in

return.
 Executory consideration is where something is to be done in the future after the
contract has been formed.

Executory consideration exists when the contracting parties make promises to each
other because they are promising something for the future, after the contract has
been made
Executory Consideration

Executory consideration normally occurs in bilateral contract.

Types of Consideration

Example, a contract was formed between Mimi and Lana whereby Mimi undertakes to
supply certain goods to Lana and in return Lana promises to pay the price of the
goods when they arrive.

Executed consideration is where at the time of the formation of the contract the
consideration has already been performed.

Executed Consideration Executed consideration usually occurs in unilateral contracts.

Example, if I promise to give $100 to anyone who finds my lost handbag, returning the
bag is both acceptance of my offer and executed consideration for my promise.
 Rules of consideration

1. Consideration must not be past

2. Consideration need not benefit the promisor

3. Consideration must be sufficient

4. Consideration must be of economic value

5. Consideration can be a promise not to sue

6. Performance of an existing duty will not amount to valid

consideration.
 1. Consideration must not be past
Consideration must be given in return for the promise or act of the other party.

Something done, given or promised for another reason will not count as consideration.

If one party has completed performance before the other offered consideration, then as a
matter of fact it is unlikely that the earlier performance was done in return for that
consideration.

For example, Betty looks after Kelly’s cat while Kelly is on holiday in Thailand for 10 days.
When Kelly returns she promises to give Betty $200. However, the payment had never been
made. In this situation Betty cannot enforce the promise as she did not look after the cat in
return for the payment of $200. In fact, she had already looked after the cat before the
promise was made.
 Roscorla v. Thomas (1842)

Fact:
The defendant sold the plaintiff a horse. After the sale was
completed, the defendant told the plaintiff that the animal
was ‘sound and free from any vice.’ This turned out to be
rather far from the truth, and the plaintiff sued.

Held:
The court held that the defendant’s promise was
unenforceable, because it was made after the sale. If the
promise about the horse’s condition had been made before,
the plaintiff would have provided consideration for it by
buying the horse. As it was made after the sale, the
consideration was past, for it had not been given in return for
the promise.
 Re McArdle (1951) Ch 669 Court of Appeal

Fact:
A widow had been left the family home in her husband’s will. The will allowed her to
live in it for the rest of her life, and/or upon her death it was to be inherited to their
five children equally. During the mother’s lifetime, one of her sons and his wife lived
with her in the house and the daughter-in-law paid for some home improvements.
When these were finished, the other four children signed a document which
promised to pay her £488 for the work, ‘in consideration of (her) carrying out
certain alteration and improvements to the property. After the mother died, the
daughter-in-law tried to claim the money, but her husband’s brothers and sisters
refused to pay.

Held:
The Court of Appeal held that although the wording of the document suggested
that the payment related to work to be done in the future, the facts of the case
made it clear that the promise was given in return for something already done; it
was therefore past consideration, and the promise was not binding.
 Can past consideration be a good consideration?

In certain situations, an act done before a promise to confer some

benefit in exchange for it can be good consideration for that promise
if:

1. The act was done at the promisor’s request.

2. The parties understood that the act was to be remunerated by
the conferring of a benefit (such as subsequent payment) in
exchange for it.
3. The payment (benefit), if it had been promised in advance, would
have been legally recoverable.
 Re Casey’s Patents [1892] 1 Ch 104

Facts:
The defendant, Casey, managed some patents owned by the plaintiffs, Stewart and Charlton. The plaintiffs later signed a
document that read: ‘In consideration of your services… we hereby agree to give you one-third share of the patents’. This
payment was in return for work Casey had already done. When Casey registered this document on the patent register in
order to claim his 1/3 interest in the patents, the plaintiffs applied to have the document expunged from the register.

Issues:
The plaintiffs stated that the document was not a deed and therefore was required to be supported by consideration before
it became a valid agreement. The issue was whether what Casey had already done was past consideration, in which case it
would not be good consideration, and the agreement to give him an interest in the patents would be void.

Held:
The Court of Appeal held that Casey must have assumed his work was to be paid for in some way. The work done was not
just a matter of goodwill but something a manager would have expected to have been paid for. The promise to pay was,
therefore, just a crystallization of this reasonable expectation. Bowen LJ said,
‘a past service raises an implication that at the time it was entered it was to be paid for, and… when you get in the
subsequent document a promise to pay that promise may be treated… as an admission which… fixes the amount of that
reasonable remuneration’. Therefore, Casey’s past work was good consideration, and the agreement was enforceable.
 2. Consideration need not necessarily benefit the
promisor
• Consideration need not benefit the promisor. Thus, there can be
consideration where the promisee suffers some detriment at the
promisor’s request, but this gives no particular benefit to the promisor.

• In Jones v Padavatton, the daughter’s giving up her job would be

consideration for the mother providing an allowance, even though it did
not directly benefit the mother (though as we have seen, the mother’s
promise was not binding because there was no intention to create legal
relations).

• Cathy promises to pay Dave if he gives her daughter driving lesson. Dave
will be able to enforce this promise although he has given no direct
benefit to Cathy. He has suffered some detriment in that he has provided
the lessons.
 3. Consideration must be sufficient
• Although consideration must provide some benefit to the promisor
or detriment to the promisee, these do not have to amount to a
great deal, as consideration must be sufficient but need not be
adequate.

• It means that the court will not inquire into the adequacy of
consideration, so long as there is some, as the parties should be
allowed to make the bargains that suit them, without interference
from court (freedom of contract).

• For example, A promises to sell B her acoustic guitar for $5. The
consideration paid by B clearly provides very little benefit to A, and
amounts to only a small loss to B, but nevertheless, the transaction
will be binding because some consideration has been provided by
both sides.
 Thomas v. Thomas (1842)

The plaintiff was a widow whose husband had stated that

if he died before his wife, she should be allowed to live in
his house for the rest of her life, after which it was to pass
to his sons. When the man died, the defendant, who was
his executor, agreed that the widow could continue to
occupy the house in return for a promise that she would
pay £1 a year and keep the house in good repair. Despite
this, some time later, the defendants tried to evict the
widow, so she sued them for breach of contract. The
defendants claimed that their promise was not binding
due to lack of consideration.

The court held that the widow’s promise to pay £1 and

keep up the repairs was sufficient consideration to make
the owner’s promise binding.
 Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 97

Facts:
Nestle ran a special offer involving a record of a song called ‘Rockin’ Shoes’ - customers could get a
copy of the record by sending in 1s 6d and three wrappers from Nestle bars of chocolate. The
copyright holder for the record brought an action Nestle, which among others claimed that royalties
should be paid on the price of the record. To calculate the royalties due, it was necessary to establish
what price Nestle was charging for the record, and the copyright holder alleged that this price
(which was the consideration for the promise to send the record) included the three wrappers.
Nestle, on the other hand, contended that the consideration was only 1 s 6d and that they threw
away the wrappers they received.
 Held:
The House of Lords held that the wrappers did form part of the consideration for
the sale of records even though they had no intrinsic economic value in
themselves.

Lord Somervell said,

‘A contracting party can stipulate what consideration he chooses. A peppercorn
does not cease to be good consideration if it is established that the promisee
does not like pepper and will throw away the corn.’
 4. Consideration must be of economic
value

What this principle basically seems to

mean is that there must be some
physical/tangible value, rather than just
an emotional or sentimental one.
 White v Bluett (1853) LJ Ex 36

Facts
Bluett Sr. lent his son, the respondent in this case, a sum of
money and died before his son had repaid this to him. Bluett
Sr. and Jr. had agreed on this and completed a promissory
note to this effect. Bluett’s will was executed by White. In
the course of executing the will, White sued Bluett’s son for
the outstanding payment. The son argued, as a defence, that
Bluett Sr. had stated that repayment was not necessary to
render the promissory note ineffective if the son stopped
complaining about the way Bluett Sr. spread his estate
among the other members of the family.
 Issue
The court was required to define whether the son’s promise to stop
complaining about his father’s plans would satisfy the requirement of
consideration in constructing a contract. If this could be proven, then it
would be likely that Bluett’s son would be released from the requirement
to repay the debt owed to his father’s estate.

Held
The court held that there was no consideration given by the son which
would absolve him of having to repay the debt to his father’s estate. The
court also believed that the son had no right to complain as the father
was free to distribute his property as he wished. As a result, ceasing from
complaining was not consideration and was ultimately an intangible
promise.
5. Consideration can be a promise not to sue

• If one party has a possible civil claim against the

other, a promise not to enforce that claim is good
consideration for a promise given in return.
• If, for example, Ann crashes into Ben’s car, Ben might
agree that he will not sue Ann if Ann pays for the
damage and Ben’s promise not to sue will be
consideration for Ann’s promise to pay.
An act of forbearance to enforce legal claim can be a good consideration.

Alliance Bank Ltd v. Broom (1864)

Broom had an overdraft of £22,000 with the bank, and

they asked him to provide some security. Mr Broom promised to do so,
but never did, and as a result the bank sued him. Mr Broom argued that
there was no consideration for his promise to
provide security.

The court held that the consideration was provided by the bank’s
implied promise not to sue for a while, giving Mr Broom time to provide
security, even though they did sue shortly afterwards.
One party’s promise not to enforce an existing claim can only amount to consideration
if the promise given in return was induced by the promise not to enforce the claim.

Combe v. Combe (1951)

Fact
During the divorce process, a husband promised to pay his wife a sum of
£100 each year to represent a permanent maintenance payment. The wife
was aware that the husband was not in a good financial state and made no
claim to this payment. Several years later, she brought an action to claim
the arrears that were owed under their agreement. She argued that she had
given consideration for her husband promise by not exercising her right to
apply to the court for a maintenance order after divorce.
Issues
Whether the wife had given consideration in return for the husband’s
promise and whether the wife could claim for the sum of money that had
been promised previously, despite the fact she had not claimed for the
money for several years.
 Held
The court held that the wife could only enforce her agreement for the payment which was promised
by the husband if she had given consideration. The fact that she did not apply for a maintenance
order after divorce could not be consideration because her husband had not asked her not to apply
to the court, and therefore his promise had not been made in return for her promising not to do so.
The husband did not request the wife to refrain from asking for the maintenance payment and
therefore the wife could not claim for the £100 he promised.
 6. Performance of an existing duty will not amount to valid
consideration.
Where a promisee already owes the promisor a legal duty, then in theory
performing that duty should not in itself be consideration – if the
promisee does nothing more than they are already obliged to do, they are
suffering no detriment and the promisor is only getting a benefit to
which he or she was already entitled.

Where a person is merely carrying out duties, they are legally obliged to
perform, such as a police officer protecting citizens, doing that alone will
not be consideration.
 Case: Collins v Godefroy (1831)

Fact:
The claimant had been summoned to give evidence in a court action. The
defendant promised to give him six guineas for doing for doing so, but
later refused to pay. The claimant tried to enforce the promise.

Held:
Since he was legally obliged to give the evidence, doing so could not be
considered consideration for the promise. Clearly there are public policy
reasons, as well as technical legal ones, for this principle.
However, where a promisee is under a public duty, but does something which goes beyond what
they are bound to do under that duty, that extra act amount to consideration.

Case: Glasbrook Brothers Ltd v Glamorgan County Council (1925)

Glasbrook Brothers were the owners of a coal mine in South Wales. Their employees went on strike
and Glasbrook asked the police to place a guard at the coal mine during the strike. The police
refused to do this as they considered that regular checks by a mobile police patrol would be
sufficient to protect the mine. The mine owners therefore offered to pay the police $2,200 to cover
the extra cost of having the police stationed at the mine full time during the strike. When the strike
was over, the mine owners refused to pay. They argued that the police had an existing duty to
protect the mine and therefore had provided no consideration for their promise to pay.

Held:
The House of Lord held that the police had provided an extra service which did amount to
consideration. The police were merely under a public duty to maintain law and order and could
choose how they achieved this.