In English Contract Law, a contract is based on an exchange of promises—and in order for a promise to be enforceable, it must hold consideration. Consideration is thus something of value that is given by both parties to a contract that induces them into the agreement to exchange mutual performance. (Thomas v Thomas) Consideration can either be a benefit or some form of forbearance or loss suffered or undertaken by the other party. Further, consideration must be a complete bargain as English law does not enforce gifts.
Consideration must be sufficient but need not be adequate. Meaning, the benefit or detriment must be legally sufficient. White v Bluett. All that is required is some sort of economic value. Courts are not concerned with whether or not consideration represents a “good deal” even if the consideration holds economic value. If there is some value to the agreement, it is legally enforceable. Thomas v Thomas.
Consideration must move from the promisee to the promisor. The Promisee must provide the consideration either by incurring some detriment or conferring a practical benefit. Once consideration has been given, the agreement between the two parties can be enforced. Tweddle v Atkinson
Past consideration is not good consideration. It refers to a time before the making of a promise. (Re McArdle) For example, in McArdle, the plaintiff took it upon herself to do renovations before an agreement was made. She then sued to have the promise by the owners that they would pay, once completed. The court denied the claim because the renovations were done before there was a promise to pay. The only exception to past consideration is if the act was performed at the request of the other party and payment was implied. (Lampleigh v Braithwait)
Consideration and the Performance of Existing Duties:
Performance of an existing public duty is not good consideration
The rule: a party does something for which he is already legally bound to do.
Three categories of duty situations:
- Existing non contractual duty imposed by law
- Existing contractual duty owed to a 3rd party
- Existing duty owed to the same promisor (generally not good consideration)
- Existing non contractual duty imposed by the law:
Collins v Godefrey: If you are under a legal duty, a person promising payment so that you do that duty will not amount to good consideration for the promise.
Ward v Byham: If you are under a legal duty to do something, if you go above and beyond your duty and a person made a promise which you are already legally obliged to do, going above it can constitute good consideration for that promise.
- Existing contractual duty owed to a 3rd party:
The Eurymedon: Even if the 3rd party isn’t a party to a contract, but the contract stipulates that a contractual duty is owed to them—they can enforce the contractual duty promised to them if they perform their obligations under the initial contract.
- Existing duty owed to the same promisor:
Stilk v Myrick: A promise of extra payment under something you’re already obliged to do is not good consideration, as you do not provide anything in return unless you confer a benefit or incur a detriment. However, in Hartley v Ponsonby there was consideration because the claimant was doing more than he was already contractually bound to do.
Exception: (Practical benefit principle):
Williams’s v Roffey Bros: A practical benefit can constitute good consideration if the consideration is of economic value and confers an extra benefit. This case was distinguished from Stilk v Myrick but there seems to be a little difference – Williams was only doing what he was contractually bound to do and the extra benefit, even though it may have commercial value, appears neither real nor tangible.
Part payment of debt or a lesser sum
This is known as “Pinnel’s Rule”. Where there is an agreement to accept part payment of a debt, it never satisfies full payment of a debt. If the promise to accept a smaller sum in discharge of a larger debt is acted upon, the part payment of debt is binding, notwithstanding the absence of consideration (Central London Property Trust v High Trees House Ltd)
D & C Builders v Rees
Foakes v Beer
Gratuitous promises are unenforceable unless supported by some consideration or executed by a deed. Combe v Combe.