CONSIDERATION (LAWS202)

Consideration meaning

The price of a promise; what each party gives in exchange for another party’s promise; quid pro quo exchange

Consideration as essential element

Without consideration, agreement is usually unenforceable as a contract; may be a “naked agreement” (nudum pactum)

Three functions of consideration

Price of enforcement; risk allocation between parties; evidence of intention to be legally bound

Quid pro quo

Mutual exchange of benefit and detriment; each party gains something and gives something up

Consideration and intention commercial vs social

Commercial agreements presumed intended to be binding; social/domestic agreements presumed not intended to be binding

Executed contract meaning

Contract performed at or immediately after formation; strict rules of consideration apply; bargain is “locked in”

Executory contract meaning

Exchange of promises for future performance; flexible consideration rules before performance occurs

Partially executed contract meaning

One party has performed; contract becomes “locked in”; strict consideration rules apply

Relational contract meaning

Long

Currie v Misa definition of consideration

Consideration = benefit to promisor OR detriment to promisee; right, interest, profit or loss suffered

Consideration must move from promisee

Only a party who provides consideration can enforce the contract; third parties generally cannot enforce

Exceptions to privity/consideration movement

Promises by deed; third party providing consideration in limited circumstances

Consideration need not be adequate but must be sufficient

Courts do not assess fairness of value; only require something of legal value (Chappell v Nestlé)

Sufficiency of consideration meaning

Must have legal value; cannot be illusory or meaningless, but can be small or nominal

Pre

existing duty rule

Stilk v Myrick rule

No extra payment for doing same job already contractually required; sailors already bound to face voyage risks

Exception Hartley v Ponsonby

If performance becomes radically different or more burdensome, extra consideration may exist

South Yorkshire Police case

Extra payment allowed where performance goes beyond original scope; substantial additional duties undertaken

Pre

existing duty owed to third party exception

Consideration must be past

Past acts generally not valid consideration; must be given in exchange for the promise (Re McArdle)

Past consideration exception Re Casey Patents

Past act may be valid if requested and payment expected; implies obligation to pay

Consideration must not be illusory

Must be real and enforceable; vague promises like “be my companion” may fail (Ashton v Pratt issue)

Hamer v Sidway

Promise to give up smoking/drinking is valid consideration; forbearance can be sufficient detriment

Consideration direction rule

Consideration can move to third party; does not need to go directly to promisor

Pre

existing debt rule Pinnel’s Case

Foakes v Beer

Agreement to accept instalments does not remove obligation to pay full debt including interest

Pinnel’s rule rationale

Prevents creditors being pressured into unfair debt reduction agreements

Williams v Roffey Bros

Extra payment valid where practical benefit gained and no duress; flexible approach in relational contracts

Practical benefit meaning

Avoiding penalty, delay, or additional cost can count as consideration

Re Selectmove

Williams v Roffey does NOT apply to debt reduction cases; debt rule remains strict

Rule in executory vs executed debt

Once partially performed, stricter consideration rules apply to prevent renegotiation abuse

Promissory estoppel meaning

Equitable doctrine preventing strict enforcement of rights where promise of concession relied upon (High Trees)

High Trees case

Rent reduction during war enforced; landlord estopped from claiming full rent for that period

Promissory estoppel requirements

Clear promise + reliance + inequity if promise withdrawn

Effect of promissory estoppel

Can suspend rights or permanently extinguish them depending on context

Promissory estoppel limitation

Does not create new cause of action; operates as a shield not a sword

Accord and satisfaction meaning

Contractual agreement to accept different performance in discharge of debt

Accord meaning

Agreement to accept alternative performance in settlement of obligation

Satisfaction meaning

Actual performance of agreed alternative obligation

Accord and satisfaction requirement

Clear agreement + consideration (often part payment plus additional benefit or dispute)

D&C Builders v Rees

No valid accord where debtor used pressure; inequitable to enforce reduced payment agreement

Part payment plus additional benefit

May be valid consideration if combined with something extra (earlier payment, chattel, etc.)

Disputed debt rule

If debt amount is genuinely disputed, part payment can discharge full liability

Unliquidated debt rule

Where amount is uncertain, agreed payment can be valid settlement

Composition payment

Agreement between multiple creditors/debtors to accept reduced collective payment binding if agreed

Third party payment rule

Payment by third party can discharge debt even without extra consideration from debtor

Consideration must be prospective

Must relate to future bargain, not past acts (prevents retrospective reward claims)

Request

based past consideration exception

Relational contract flexibility

Courts more willing to accept variation without strict consideration if genuine commercial agreement exists

Variation of contract rule

Contract variation generally requires fresh consideration unless estoppel or relational contract principles apply

Pinnel + Foakes strictness

Debt obligations cannot be reduced by mere agreement without consideration or exception

Economic duress limit

Variations will be invalid if obtained under pressure or coercion

Consideration as risk allocation

Once bargain is struck, parties bear risk of changes in circumstances unless new consideration is provided

Consideration and intention evidence role

Presence of consideration helps show parties intended legal relations

Promisor vs promisee flexibility

Roles can shift depending on who is performing and who is receiving performance