“The notion of consideration has now become so convoluted that it has no meaning or relevance anymore in the English Law of Contract. It should no longer be regarded as a necessary element in a legal contract.” Critically discuss this statement.
A contract involves promises exchanged between parties which are legally enforceable. Contracts are prevalent in day-to-day life, and almost everyone enters into various contracts every day such as when a person purchases a product from the supermarket or other retail outlets, employment contract and business contract. Sometimes promises are exchanged through words of the mouth while at other times the parties reduce promises into writing. The promises which are legally enforceable must meet specific requirements known as elements of a contract. The elements of contract such as offer, acceptance of the offer, consideration, capacity to contract and willingness to be legally bound are essential for a valid contract. Consideration is essential elements without which the contract cannot be legally enforced even if there were an offer and its acceptance. The doctrine of consideration has been discussed in various institutions, books and case laws for a long time yet it remains controversial and most difficult to understand. While there are many promises exchanged between individuals every day, not all promises constitute a legally binding agreement. Consideration is taken as a confirmation that parties have negotiated those terms of a contract and settled on a common ground hence the court takes it seriously. Only those promises backed by consideration constitute a contract which is enforceable in a court of law. This document examines the meaning of “consideration,” how its interpretation has changed over time, and its significance as an element of a contract based on the current meaning.
Consideration is defined as something of value each party to a valid contract agrees to exchange with the other party as an affirmation of their willingness to enter into a legally binding relationship. It is referred as “quid pro quo” implying that both parties must give something of value in exchange for the promises by the other party to perform their contractual obligation. Consideration makes both parties to a contract equal and confers each party rights to enforce the promises through court, and each party can sue the other party for failure to discharge their contractual obligations. Consideration posits contract as an agreement which parties consciously and voluntarily agrees to be bound by its terms through a fairly negotiated process. Each party is a promisor and promisee with the potential of receiving benefits or suffering detriment.
The law perceives consideration as an adequate price for which each party to the contract has bought the promises of the other party. The doctrine of consideration as a legal requirement for a legal contract is based on the assumption that parties have equal bargaining power and no party can take advantage of the other party. Parties must exercise freedom of negotiation and ensure they have adequate knowledge of what they are taking as a consideration because their promises will bind them. The court has no duty to a lousy bargain better for the parties, but the implement the wishes of both parties stated in the promises or agreement. Nevertheless, there is no legal definition of the value of the consideration for a valid contract.
Various concepts have been used to define the meaning of consideration. As determined in the case of Currie v Misa (1875), consideration is perceived as a profit, right, benefits or interest amassing to one party as a result of promises by the other party to perform their contractual obligations. Other studies define consideration as detriment, loss or responsibility born by one party due to promises was given by another party to perform specific requirements of the relationship. A party must demonstrate that they suffer loss or detriments from the reliance on promises made by the other party which they did not perform as expected. Also, a party can enforce a contract legally if they can demonstrate that the performance of their promises accrues some interests, benefits or profits to the other party.
There is a legal requirement that consideration must be something of value exchanged between parties in a contract if the parties have to establish a valid contract. In White v Bluett (1853), the court held that the promise by the son to stop making noise in exchange for clearance of the debt he owed his father did not have economic value and so it was not adequate consideration. As determined in the case of Chappell & Co Ltd v Nestle Co Ltd, consideration must be adequate, but not sufficient. The court does not focus on the economic value of consideration, but legal value. This means a party can give something of lesser value to what they expect to receive and will constitute a consideration.
Determining the value of consideration has raised complication over time with courts issuing varying decisions of what constitutes adequate value for consideration. As established in the case of Thomas v Thomas (1842), the promise to pay £1 per year was adequate consideration for the widow to continue living in her house after the death of her husband. The court observed that consideration need to be legally adequate and not economically adequate. However, in some instances, the court has applied the doctrine of consideration differently to prevent one party from acting unfairly and taking advantage of another party. In the case of Harding v Harding (1972), the court ruled that the husband was taking advantage of his wife’s lack of knowledge to own her shares in the house and so the payment for $5 was not a valid consideration. This decision contradicts the earlier ruling in Thomas v Thomas (1842). It appears the court’s intention in the application of consideration is focused on achieving fairness. Lack of consistency of application of court cases involving considerations has created complications and unpredictability of the doctrine.
Also, the law prohibits the use of past performance to be used as consideration for new promises as stated in Re McArdle (1951) Ch 669. The claimant had made some renovations on a house before the defendant made a promise to pay the claimant a sum of £480 from the sale of the house if he made some repairs. However, the defendant never paid them anything, but the court stated that the promise was not binding because it was made after the claimant had already made repairs. However, in some instances, the court has regarded past consideration as constituting a valid contract. In Lampleigh v Braithwaite , the defendant was accused of a murder which was punishable by hung. However, the defendant convinced the claimant to seek pardon from the king on his behalf which the claimant managed to secure. The defendant promised to pay the claimant £100 which he never paid. Although the promise was past consideration having come after the claimant had already performed the requirement, the court held that the past consideration in the case was valid since it was preceded by a plea from the defendant. The court’s decisions over effects of past consideration are complex and do not carry an open meaning of what constitutes past consideration.
Another requirement of consideration is that it must come from the promisee. The contract is about promises exchanged between the parties. Each party is bound by the promises, and no one can be forced to deliver something they did not promise. In Tweddle v Atkinson , the parents of the bride and bridegroom had promised to offer a certain amount to the couple, but both died before they could fulfil their promises. The groom raised a claim against the executors of the will demanding the payment of the amount offered. The court dismissed the case stating that such consideration was not valid since it did not come from the executor of the will. Although a person can enter into a contract on behalf of another person as is the case of principal and agent, the law does not require one to take responsibility of an agreement they were not part of or knew nothing about. Even that person representing a person who was a party to a contract as is the case of the property owner and the executor of the will. Therefore, is not very clear when a party can act on behalf of another party since even an executor of the will is legally acting on behalf of the estate owner.
Furthermore, the performance of existing public duty will not amount to valid consideration. A party cannot rely on the performance of an existing public duty a valid consideration for a new promise unless that person has done something beyond their duty. In Collins v Godefrey (1831), the claimant (Collins) was given the subpoena to attend court proceedings in another case involving Collins and his attorney. In that other case, Collins was required to be on standby for six days in case he was required to give witness though it never happened. When the trial ended Collins demanded payment from Godefrey as a compensation for the time spent in the court. However, Collins opened a case against Godefrey to enforce payment. However, the court dismissed the case stating that Collins did not deserve payment from Godefrey because he had an existing public duty to attend court proceedings as a result of a subpoena. Performing an existing public duty could not be used as a consideration for a new promise.
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However, if a person performs beyond the requirement of a legal duty, the additional responsibility can be used as a consideration for a new promise as the court stated in the case of Ward v Byham . In this case, the party had a child outside the wedlock. After five years they separated, and the lady married another man. She decided to keep the child they had outside wedlock, and the father offered to pay £1 per week for the mother to ensure the child was well looked after and kept happily. When the mother of the child got a job, the father of the child stopped paying the agreed amount claiming that the mother had an existing during to take care of the child hence the promise to pay £1 was not a valid consideration. Nonetheless, the court held that the father’s demand requiring the child to be well-looked after and live happy life was beyond the mother’s existing legal duty to ensure the upkeep of the child. Therefore, the father should provide consideration for the new promise by continuing the payment to the mother. This decision was contrary to the ruling in Collins v Godefrey.
There is a requirement that performance of an existing duty does not amount to valid consideration. When a person performs the existing contractual obligations, the performance cannot be used as consideration for a new contract. In the case of Stilk v Myrrick , some of the cabin crew members deserted the ship on a voyage from London. The seaman promised the remaining crew members that he would divide the wages of the deserted crew members if they manage the ship back to London. However, the seaman never paid the additional wages. The court stated that the claimant had an existing duty to work the ship back to London and so there was no consideration provided given in the promise of extra wages. However, there is a contrary decision that if the party performs beyond contractual duty, such performance can establish a valid consideration. Such decisions were in the case of Hartley v Ponsonby , or when the performance confers an additional benefit to the promise as was in the case of Williams v Roffey Bros , such performance is used as consideration for the new promise.
The business environment is dynamic, and the parties may have to vary terms of the contract to achieve the desired outcome or ensure the contract performance deliver value to the parties. However, the doctrine of consideration imposes limitations on the parties intending to vary the conditions of a contract. For instance, in Williams v Roffey Bros & Nicholls (Contractors) Ltd , the doctrine of consideration confines parties to the original promises with a slim chance of varying the terms to match the changing conditions. The uncertainty of what constitutes valid consideration for a new promise may compel the parties to resist changes and miss the benefit that would accrue from the new promises.
Also, part payment of a debt is not valid consideration for a promise to forego the balance. The contract law prohibits any party from making a party payment of a debt and uses that payment as consideration for the promise to treat the whole debt paid. The view of the court was that wen party offer to pay part of the debt as consideration for payment of the entire debt; the creditor has nothing to gain from unilateral consideration, but the debtor benefits from paying a lesser amount in place of more significant debt. Nevertheless, the courts have modified this requirement by imposing an exception to the doctrine as held by Lord Denning in the case of Central London Property Trust Ltd v High Trees House Ltd . The exception introduces promissory estoppel which requires the promisor to implement their promises and not to avoid doing what they have willingly promised to do.
Consideration is not a rule or principle, but rather a doctrine which has developed over time as a result of various court decisions. With each court decision adding a surface on the doctrine of consideration, this has led to a great deal of elasticity of the doctrine and consideration has also become exceedingly intricate. Some critics of this doctrine have argued that the doctrine is overly complicated and lacks clear definition or purpose hence should discard the contract. For instance, in his ruling in Pillans & Rose v Van Mierop & Hopkins (1765), Lord Mansfield observed that the doctrine of consideration imposed unnecessary conditions in determining of cases of contracts and should not be included in the elements of a contract. There have been several suggestions that once a contract has satisfied other requirements consideration should be taken as a necessity for a valid contract.
Many scholars of law have argued that consideration should be applied by the judges to create flexibility in the decision making. The judges tend to apply this doctrine to avoid making absurd decisions or mistreat the parties in a conflict involving a contractual relationship where ruling otherwise would create unfairness and injustice. In Pillans & Rose v Van Mierop & Hopkins, Lord Mansfield stated that consideration was an unnecessary requirement in the business contract because it discouraged parties from engaging in fair trade.
Although the doctrine of consideration intended to determine between valid and invalid contract, there are many modifications or exceptions to the doctrine which have made the rule over complex and altered the initial intention of the doctrine. Also, there have several new developments such as economic duress and requirement of the willingness of parties to form a legal agreement which seems to play the roles played by the doctrine of consideration.
In conclusion, consideration plays a significant role in determining the validity of the contract. It demonstrates the parties have agreed to the terms of a contract consciously and voluntarily. Considerations must come from the promisee and should relate to specific agreement hence past performance cannot be used as consideration for new promises. There is no requirement that consideration should be sufficient, but it should be something of value and adequate. The interpretation of what constitutes consideration and rulings in various court cases have resulted in the complexity of the understanding of consideration. Nevertheless, parties should be aware of the terms of the contract and circumstances in which performance can create a valid consideration.
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- Lampleigh v Braithwaite  EWHC KB J17.
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