Consideration

Consideration is essential for every valid contract because contract law requires a bargain and not a gift. This means that both parties to a contract must give something by way of exchange.

Key Terms

  • Promisor: A person who makes a promise to another person (the promisee).

  • Promisee: The person to whom a promise is made.

    • Example: If Mr. A promises to pay Mr. B £500, then A is the promisor and B is the promisee.

    • Contract law determines if the promisor (A) is liable for breaking the promise.

Rules of Consideration

  1. Consideration does not need to be adequate, but must be sufficient.

    • Thomas v Thomas: A man wished for his wife to stay in their house after his death, stated that she could pay a nominal rent of £1 per year. This was considered sufficient consideration, despite the inadequate amount.

    • Chappell v Nestle Co Ltd (1960): Nestle customers could claim a song recording by sending in chocolate wrappers. The wrappers constituted valid consideration, even though they had only nominal value.

  2. Consideration must move from the promisee.

    • In a bilateral contract, both parties are promisors and promisees. In a unilateral contract, one party makes a promise while the other performs an act.

    • Example (Bilateral): A sells a house to B for money. Both parties make a promise.

    • Example (Unilateral): C offers a £100 reward for a lost dog; D finds the dog and returns it, fulfilling the promise without being obligated to do so.

    • Tweddle v Atkinson: The husband could not claim money from the estate as he did not provide consideration himself.

  3. Past consideration is not consideration.

    • Where consideration has already been performed before the agreement, it holds no value.

    • Re McArdle: Work done on a bungalow before an agreement to pay was considered past consideration and thus unenforceable.

    • Exceptions apply if there’s an implied request for a task and an understanding it would be paid for.

      • Re Casey’s Patent (1892): Although the promise came after the work done, the claimant was owed payment due to the implied understanding of compensation.

      • Lampleigh v Braithwaite (1892): Actions taken at the request of the promisor (to obtain a pardon) were valid consideration, despite occurring prior to the promise of payment.

  4. Performing an existing duty is not consideration for a new contract.

    • A pre-existing duty cannot serve as valid consideration.

    • Collins v Godefroy (1831): A policeman could not charge for attending court, as it was his public duty.

    • Stilk v Myrick: A seaman was denied extra payment for working due to crew desertion, as he was already obliged to do his job.

    • Exceptions:

      • If additional elements are added (beyond the duty), such as Glasbrook Bros v Glamorgan County Council, extra protection led to valid consideration.

      • Hartley v Ponsonby: Crew members received extra pay as circumstances changed significantly, creating valid consideration.

      • More recently, achieving a practical advantage can constitute consideration, as seen in Williams v Roffey Bros and Nicholls.

  5. A promise to accept part payment of an existing debt instead of the whole debt is not valid consideration.

    • This principle stems from Pinnel’s Case (1602), which ruled that paying a lesser sum does not discharge the higher amount owed.

    • Foakes v Beer: The agreement to pay in installments was still considered part-payment without validity to eliminate interest owed.

    • Exceptions include accepting a different form of payment or the doctrine of promissory estoppel, which prevents a party from retracting reliance on a non-binding promise if efforts have been made to rely on it.

Promissory Estoppel

  • Promissory (Equitable) Estoppel: A legal principle preventing the promisor from going back on a promise when the promisee has relied on that promise.

    • Promissory: Relates to a promise to accept less than owed.

    • Equitable: Ensures fairness by not allowing a party to retract on a promise if it would be unfair to do so.

Central London Property Trust v High Trees House (1947)

  • Facts: CLPT owned a block of flats rented to HTH. Initially, the ground rent was £2500 per year. During wartime, HTH struggled to let rooms and CLPT voluntarily reduced the ground rent to £1250.

  • Issue: Could the ground rent revert to £2500 after the war?

  • Decision: Yes, the rent could revert because the abnormal situation (war) had ended.

  • Reasoning (Denning J):

    • Technically, the full rent was always owed (following Pinnel's case – part payment does not satisfy the whole debt).

    • However, if CLPT had sought unpaid rent, they would have failed since they made a promise expecting reliance from HTH, which did occur when HTH paid only £1250.

Principles from High Trees Case:

  1. Reliance on Promise: There must be reliance on the promise by the promisee.

  2. Defense Creation: CLPT v HTH only creates a defense in case of trying to enforce a promise without consideration.

  3. Inequity: It must be inequitable (unfair) to allow the promisor to retract their promise.

Further Cases Illustrating Estoppel:

  • Combe v Combe (1951):

    • Facts: Mr. C promised to pay Mrs. C £2 per week during separation. He failed to do so.

    • Issue: What consideration did Mrs. C give in return?

    • Decision: None.

    • Ratio: High Trees does not create new rights of action; it only provides a defense against claims for retraction of promises without consideration.

  • The Post Chaser (1982):

    • If a promise is revoked shortly after being made, the promisee may not have relied on it, hence allowing the promisor to go back on their promise can be fair.

Key Questions in Estoppel:

  1. Does it Suspend or Extinguish Rights?

    • In High Trees, it was determined that the promise to reduce rent merely suspended the right to reclaim full rent until the abnormal condition ended.

  2. Rent During War: The rent owed during wartime appears extinguished, unable to be claimed post-war.

Summary

  • For an agreement to be enforceable, sufficient consideration must exist and must move from the promisee.

  • Consideration does not need to be adequate but must not be past.

  • Performance of an existing duty cannot serve as consideration unless additional benefits are provided.

  • A promise to accept part payment instead of the whole debt is generally not valid consideration, except under the doctrine of promissory estoppel.

  • Important Note: The application of promissory estoppel cannot create new rights; it provides a shield against claims for retraction of relied-upon promises.

Key Cases

  1. Thomas v Thomas:

    • Principle: Consideration does not need to be adequate, but must be sufficient. A nominal rent of £1 was sufficient for Mrs. Thomas to live in her deceased husband's house.

  2. Chappell v Nestle Co Ltd (1960):

    • Principle: Consideration must have some value, even if nominal. Chocolate wrappers were valid consideration for a song recording.

  3. Tweddle v Atkinson:

    • Principle: Consideration must come from the promisee. The husband could not claim money from an estate as he provided no consideration.

  4. Re McArdle:

    • Principle: Past consideration is not consideration. Work completed before any agreement on payment holds no legal value.

  5. Re Casey’s Patent (1892):

    • Principle: If there’s an implied request for a task and an expectation of compensation, prior work may be considered valid consideration.

  6. Lampleigh v Braithwaite (1892):

    • Principle: Actions taken at the promisor's request before the promise can be valid consideration.

  7. Collins v Godefroy (1831):

    • Principle: Performing an existing duty cannot serve as consideration for a new contract; the policeman could not charge for attending court as it was his duty.

  8. Stilk v Myrick:

    • Principle: A seaman could not claim extra payment for work he was already obliged to undertake.

  9. Glasbrook Bros v Glamorgan County Council:

    • Principle: Additional protection provided to fulfill a public duty can lead to valid consideration.

  10. Hartley v Ponsonby:

    • Principle: Changes in circumstances that offer a practical advantage can lead to valid consideration.

  11. Williams v Roffey Bros and Nicholls:

    • Principle: Achieving a practical advantage can constitute valid consideration.

  12. Pinnel’s Case (1602):

    • Principle: A promise to accept part payment of an existing debt instead of the whole debt is not valid consideration.

  13. Foakes v Beer:

    • Principle: A payment in installments does not discharge the whole debt, thus is not valid consideration for eliminating interest.

  14. Central London Property Trust v High Trees House (1947):

    • Principle: In promissory estoppel, there must be reliance on the promise, and it must be inequitable to allow the promisor to retract the promise.

  15. Combe v Combe (1951):

    • Principle: High Trees does not create new rights; it provides a defense against attempts to retract promises without consideration.

  16. The Post Chaser (1982):

    • Principle: If a promise is revoked shortly after, it may be fair to allow retracing if the promisee did not rely on it.