Contract: Consideration

Consideration

What is Consideration?

Consideration is the third requirement of contract formation. It is defined as any ‘right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other [party]’: Currie v Misa (1874) LR 10 Ex 153.

Legal Value
legal value, receipt

The consideration provided must have legal or economic value: abstract promises of love or emotional satisfaction cannot be consideration: Thomas v Thomas (1842) 2 QB 851.

No Need for Adequacy
adequacy, coin, money

There is no need for the consideration provided to be adequate or proportionate to what was provided by the other party: Mountford v Scott [1975] Ch 258; Chappell v Nestle [1960] AC 87.

Forbearance to Sue Is Consideration
law suit, court room

Promising not to bring legal action to enforce a claim is a valid form of consideration: Horton v Horton (No 2) [1961] 1 QB 215.

Consideration Moves From the Promisee
consideration, contract

The person who is receiving the promise must provide consideration from themselves. It cannot come from a third-party: Tweddle v Atkinson [1861] EWHC QB J57. 

Consideration Must Not be Past

Something which the promisee has already done prior to the agreement cannot be consideration for that agreement: Re McArdle (1951) Ch 669.

There is an exception to the rule against past consideration where the act the promisee is relying on was specifically requested by the promissor: Lampleigh v Braithwaite [1615] EWHC KB J17.

Consideration Cannot be an Existing Duty

Promises to perform existing legal duties cannot be consideration. This applies to both contractual duties (Stilk v Myrrick [1809] EWHC KB J58; Roscorla v Thomas (1842) 3 QBR 234) and public duties (Collins v Godefroy (1831) 1 B & Ad 950). 

Exception 1: Going Beyond the Duty

If a party promises to go above and beyond their existing contractual or public obligation, this can be good consideration: Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270. For example:

In Hartley v Ponsonby [1857] 7 EB 872, the claimants were contracted for ship work, but went beyond by agreeing to work when half the crew deserted, making the job very unsafe.

In Ward v Byham [1956] 1 WLR 496 the claimant was under a public duty to provide for her child, but she gave valid consideration by promising to make the child happy and well-looked after.

Note that Hartley v Ponsonby is sometimes interpreted as the original contract having been frustrated. If the contract was frustrated, the claimants were no longer under a contractual duty to work. This means that they could provide new consideration by agreeing to work regardless.

Exception 2: Practical Benefits

Where a contractual duty is owed to the claimant, another promise to perform that duty can be valid consideration if it confers on the claimant a ‘practical benefit’: Williams v Roffey Bros [1990] 2 WLR 1153. This is particularly important where the promisee seeks to vary the original contract. 

It is not clear what counts as a ‘practical benefit’. Some argue that an increased chance of securing performance is enough. The Court of Appeal in MWB Business Exchange Ltd v Rock Advertising Ltd [2018] 2 WLR 1603 argued that this was wrong, and that the benefit had to be an additional benefit to performance (or the chance of obtaining such a benefit). This would fit the facts of Williams v Roffey Bros. In that case, the promissor gained the chance of avoiding liability under a penalty clause with a third-party. However, the Court of Appeal decision in MWB Business Exchange was overruled by the Supreme Court on a different point. As such, the law is unclear. 

Exception: Duties Owed to Third-Parties

A party can use a promise to perform duties owed to a third-party as consideration: Shadwell v Shadwell (1860) 9 CB NS 159; Scotson v Pegg (1861) 6 Hurl & Norm 295. If they fail to perform, they will be liable both to the third-party and the promisor. 

Part-Payment of a Debt is Not Consideration

A person cannot provide consideration by paying part of a debt that they already owe: Pinnel’s Case (1602) 5 Rep 117; Foakes v Beer (1883-84) LR 9 App Cas 605.

Exceptions

There are more limited exceptions to the rule that part-payment of a debt is not consideration: 

Paying the debt using something different such as a chattel: Pinnel’s Case (1602) 5 Rep 117.

Making the payment at an earlier date than required: Pinnel’s Case (1602) 5 Rep 117.

Part-payment of the debt by a third-party: Hirachand Punamchand v Temple [1911] 2 KB 330.

However, note that a promise to accept only part of a debt might give rise to promissory estoppel.

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Contract Formation Quiz

Test yourself on the principles which determine when a contract is formed.

1 / 42

Dennis owes Maureen £1000, and is obligated to pay by the 1st of June. He asks her if she will discharge the debt for £600, if he pays by the 1st of May. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?

2 / 42

Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by telephone if he accepts. Tom sends Kayleigh a letter accepting the tomatoes. Is this a valid acceptance?

 

3 / 42

Frederick is Manuel's employee. One day, Frederick is told by Manuel that he needs him to take on some work which goes beyond his employment duties. Frederick is reluctant, but Manuel tells him that if he does it, Manuel will pay Frederick double. Frederick accepts. Has Frederick provided consideration for the extra payment?

 

4 / 42

Clarence offers to sell Pam a table and chairs set for $300. He adds that if Pam does not respond to him within the week, he will assume that she has accepted. Pam does not respond within the week, nor does she positively indicate acceptance in any other way. Has Pam accepted the offer?

 

5 / 42

Fatima is looking to sell an antique doll, which is worth £3000. Paul offers to buy it for £5. Fatima accepts, as she is in a hurry to get rid of the doll as it spooks her. Have both parties provided consideration?

6 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Taking pity on him, Maureen agrees. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?

7 / 42

Kayleigh offers to sell Tom a crate of tomatoes. She asks him to respond by letter with his signature if he accepts. Tom sends Kayleigh a letter accepting the tomatoes, but does not sign it. Is this a valid acceptance?

 

8 / 42

In what four circumstances is an offer terminated without the offeror having to withdraw it?

9 / 42

Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, sends him a letter containing £50, saying that she will buy Bianca. However, she puts the wrong address on the envelope and the letter never arrives. Has Liz accepted Jubedul's offer?

 

10 / 42

Bob offers to sell a wedding dress to Arthur for $400. Arthur says he is willing to buy the dress for $400, but only if Bob also includes a veil. Has Arthur accepted Bob's offer?

11 / 42

Sean offers to sell his collection of nerdy T-Shirts to Chris, for £40. Chris accepts, saying that his father will provide the money. Have Sean and Chris both provided consideration?

 

12 / 42

When can an offer be revoked?

13 / 42

How can an offeror validly withdraw their offer?

14 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he pays her £500. Maureen agrees, because she needs the money to avoid being liable to a third-party and therefore thinks the arrangement is practically beneficial. Has Dennis provided consideration for Maureen's promise to accept the lesser amount?

15 / 42

Dennis owes Maureen £1000. He asks her if she will discharge the debt if he gives her his car, which is worth £800. Maureen agrees because she loves the car. Has Dennis provided consideration for Maureen's promise to discharge the debt?

16 / 42

Bob offers to sell Arthur a wedding dress for $400. Arthur responds by asking if the veil is included for that price. What is the legal nature of Arthur's response?

17 / 42

Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, agreeing. The two draw up a written agreement, which includes a clause saying that it is binding in honour only. Is this agreement a valid contract?

 

18 / 42

Phil makes a contract with Ingrid for his old shed to be torn down in exchange for £200. His next-door neighbour Andrew, who thinks the shed is an eye-sore, says he will pay Ingrid an extra £100 for taking down Phil's shed. Ingrid accepts and takes down the shed. Has Ingrid provided consideration for Andrew's promise?

19 / 42

Julie offers to pay Ophelia a £1000 allowance in exchange for her continued affection. Ophelia agrees. Have both parties provided consideration?

 

20 / 42

Specific proof is required to demonstrate intention to be legally bound where the parties have a family or social relationship. True or false?

 

21 / 42

Jubedul lets his office know that he is selling his pet cat Bianca for £50, and that if anyone would like to buy her they should let him know. Liz, his co-worker, immediately calls his work phone and leaves a message on his answering machine saying she will buy the cat. Jubedul never listens to the message. An hour later, Micah tells Jubedul in person that she will buy the cat. Who has validly accepted Jubedul's offer to buy Bianca?

22 / 42

Stephen is struggling to find a venue for his up-coming book signing. Jameel decides to help him on his own initiative. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?

 

23 / 42

Dennis owes Maureen £1000. Dennis asks Maureen if she will discharge the debt if his sister Dee pays her £600. Maureen agrees. Has Dennis provided consideration for Maureen's promise to discharge the debt?

24 / 42

What four factors indicate that family members or friends intended to be legally bound by their agreements?

25 / 42

Rod advertises on a website saying he is looking to pay someone to look after his hamster for the weekend. Rosie responds, asking if they can meet up to negotiate terms. The two meet up and reach a written agreement, but the document states that it is 'subject to contract'. Is this agreement a valid contract?

 

26 / 42

The parties have reached an agreement, but have not agreed on an important term such as the price. Is the contract void for uncertainty?

27 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first member of the team that swims the English Channel. Ricardo, one of the team members, is not present. The next day he decides to swim the English Channel for fun, not knowing about Annabelle's offer. If he completes the challenge, is Annabelle bound to pay him the money?

 

28 / 42

Which four of the following scenarios normally involve an invitation to treat and not an offer?

29 / 42

Specific proof is required to demonstrate intention to be legally bound where the parties have a business or commercial relationship. True or false?

 

30 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo swims the English Channel the next day, and then calls Annabelle asking for the money. Is Annabelle obliged to pay him?

 

31 / 42

On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it does not arrive until Friday. Has Tyrone accepted the offer?

 

32 / 42

Shira is seriously injured as a result of Quen's negligence. She tells them that if they give her their car, she will not sue. Quen agrees. Have both parties provided consideration?

33 / 42

The parties in a case reached an agreement for the claimant to do some work, but that agreement was stated to be subject to contract. Despite a written contract never being signed, the parties have begun performing as if there were a contract. Do the terms of the 'subject to contract' agreement apply?

34 / 42

What two conditions must be met for an agreement to be sufficiently certain to form a contract?

35 / 42

Does the postal rule apply to cases where an offeror is seeking to withdraw his offer?

 

36 / 42

For the purposes of demonstrating consideration under the rule in Williams v Roffey Bros, which of the following constitute a practical benefit?

37 / 42

On Saturday, Roger offers to sell Tyrone a car. He asks him to respond by next Thursday if he accepts. Tyrone sends Roger a letter by post on Monday agreeing to the deal, but it is lost in the post and never arrives. Has Tyrone accepted the offer?

 

38 / 42

Stephen asks Jameel to help him find a venue for his up-coming book signing. Jameel finds the perfect place, and out of gratitude Stephen offers to give him £100 as a reward. He later changes his mind. Is Stephen bound to pay the money?

 

39 / 42

Which two of the following factors are relevant to whether a statement is an offer?

40 / 42

Annabelle tells the swim team she is coaching that she will give £500 to the first of them that swims the English Channel. Ricardo begins swimming the English Channel the next day, but before he can finish Annabelle changes her mind and says she will not pay. Has Annabelle revoked her unilateral offer?

 

41 / 42

John is a Government official who is under a duty to give a license to anyone who fills out the proper application form. Paul fills in the form and offers to give John £300 if he gets a license. John agrees. Have both parties provided consideration?

 

42 / 42

Erica is a software programmer who was contracted to develop systems for Herbert's business. She begins to have money troubles, and asks Herbert for the extra £100 she needs to complete the project on time. Herbert accepts, because if delivery is late he will be liable to pay damages to a third-party. Has Erica provided consideration for the extra money?

 

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