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The Doctrine of Consideration

j IN THIS CHAPTER Definition of Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Constitutes Consideration? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adequacy and Sufficiency of Consideration . . . . . . . . . . . . . . . . . . . . . . Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sufficiency of Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Public Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contractual Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part-payment of an Already Existing Debt: The Rule in Pinnel’s Case Acts of Forbearance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Rule Against Past Consideration . . . . . . . . . . . . . . . . . . . . . . . Consideration must move from the Promisee . . . . . . . . . . . . . . . . . .

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[202] [204] [207] [208] [210] [212] [215] [217] [219] [221] [224]

Bare promises are not, of themselves, enforceable unless they are made in a deed under seal. In order for a promise to be enforceable, it must be shown that the person to whom the promise was made has supplied something in return for that promise. That something is called consideration. McDermott defines consideration quite simply as ‘‘ . . . the mechanism that the common law uses to distinguish promises that are to be enforced from promises which are not to be enforced.’’1 Thus as well as having offer and acceptance, consideration is also required in order to make a contract enforceable. This rule of law is peculiar to common law systems.

[201]

j DEFINITION OF CONSIDERATION Consideration is not merely another term for the presence of a moral obligation to carry out a promise. In the case of Hawkes v Saunders [1782] Lord Mansfield declared that: Where a man is under a moral obligation, which no Court of Law or Equity can enforce, and promises, the honesty and rectitude of the thing is consideration . . . The ties of conscience upon an upright mind are of a sufficient consideration.

1

P.A. McDermott, Contract Law (Tottel Publishing, Dublin, 2005), 101.

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[202]


26 j Independent Colleges: Contract Law

[203]

Under this definition, consideration involved equating a moral obligation with a legal duty.

[204]

However, this approach was soon rejected in the case of Eastwood v Kenyon [1840], where Lord Denman noted that if the presence of a moral obligation was all that was required for a promise to be enforceable, then surely all promises should be enforceable, since to make a promise is to assume a moral obligation to carry out that promise. Thus, it was held that a mere moral obligation was not, of itself, good consideration.

j WHAT CONSTITUTES CONSIDERATION? [205]

Consideration is something of tangible value that is given or foreborne in exchange for a promise. In Thomas v Thomas [1842] it was held that: Consideration means something which is of value in the eyes of the law, moving from the plaintiff, it may be some detriment to the plaintiff or some benefit to the defendant.

[206]

An alternative definition was offered in Dunlop v Selfridge [1915], where consideration was defined as: An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.

j ADEQUACY AND SUFFICIENCY OF CONSIDERATION [207]

Under Irish law, consideration need not be adequate, but it must be sufficient.

Adequacy [208]

The courts are not concerned with whether or not the consideration is adequate, therefore they will not inquire into the economic value of the transaction. In Thomas v Thomas [1842] 2 QB 851 a widow paid rent of £1 per annum for the occupation of a house. Despite the fact that the market rental value was considerably higher than this nominal sum, the court was of the opinion that it still constituted consideration.

[209]

In Chappell & Co. Ltd v Nestle Co Ltd [1960] AC 87 the purchasers of a Nestle´ chocolate bar could avail of an offer to buy a record by sending Nestle´ 1 shilling and 6 pence together with three empty chocolate wrappers. The plaintiffs owned copyright of the record in question and sued Nestle´ for royalties arising from the promotion. Chappell argued that the monies made by Nestle´ should not only include the price paid for each record but also the cumulative value of the empty chocolate bar wrappers, which were also part of the promotion. Indeed, they argued that the chocolate wrappers formed part of the consideration to post the record. The House of Lords agreed with the plaintiffs and held that the wrappers did form part of the consideration as they had some tangible value, however nominal, and thus they were good consideration.

Sufficiency of Consideration [210]

The consideration provided must be sufficient, i.e. something of value in the eyes of the law. While acknowledging that ‘‘. . . the Irish courts have not yet ruled conclusively on sufficiency’’, Clark cites the Northern Ireland Court of Appeal case of O’Neill v Murphy [1936] NI 16 as being instructive in this regard. In this case a builder carried out work on buildings in a neighbouring parish in return for prayers being said for his intentions. It was

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alleged that the builder had been unduly influenced into doing the work by his religious advisor. In response to this allegation, the religious advisor claimed that this work was being carried out on the basis of a contract and that the prayers being said were sufficient consideration. The court held that prayers do not constitute sufficient consideration. Friel asserts that this case should be treated with care, particularly given that, at the time, members of the judiciary in Northern Ireland may have taken a more secular view of things and, indeed, prayers might be interpreted to constitute good consideration in the Republic of Ireland. There are four specific areas that help clarify what may be regarded by the Courts as sufficient consideration:

[211]

(1) The performance of an already existing public duty will not constitute sufficient consideration. (2) The performance of an already existing contractual duty will not constitute sufficient consideration. (3) Part-payment of an already existing debt will not constitute sufficient consideration. (4) Whether or not forbearance (giving up something) constitutes sufficient consideration.

Public Duty The general rule is that the performance of an already existing public duty will not be regarded as sufficient consideration. Indeed, this principle has been highlighted by a number of cases. For example, in Collins v Godefroy [1831) 1 B & Ad 950, Godefroy promised to pay Collins 6 guineas if Collins would attend court and give evidence for Godefroy. However, Collins had been issued with a subpoena, which meant he was under a legal duty to attend court on that day. Nonetheless, Collins sued for the money Godefroy had promised to him. The Court rejected his claim on the basis that there was insufficient consideration*Collins had done nothing over and above what he was already legally bound to do. However, in the case of England v Davidson [1840] 11 Ad and El 856, the defendant offered a reward to anyone who gave information that would lead to the capture of a felon. The plaintiff was a police constable who provided information and claimed the award. The defendant refused to pay on the basis that there was no contract as the police constable was doing nothing over and above what he was already publicly bound to do and had not provided any consideration for this reward. Moreover, he argued that it was void as being against public policy. The Court rejected both of these arguments. In relation to the issue of consideration, the Court was of the opinion that there are certain services a police officer is not required to render and that these services can indeed amount to sufficient consideration under the proper circumstances. The court also asserted that they were reluctant to find a contract contrary to public policy.

[212]

The courts have found that anything over and above the performance of that duty will be regarded as sufficient consideration. Essentially the question that must be addressed is whether or not the promisee would have to carry out the relevant tasks regardless of the alleged contract. If the promisee does something over and above that which he/she would already be obliged to do, whether by virtue of contract or public duty, then this may be regarded as being sufficient consideration. The leading English case in this area is Glasbrook Bros v Glamorgan County Council [1925] AC 270. In this case the Welsh police had been

[213]

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28 j Independent Colleges: Contract Law requested to maintain a presence around a mine during a workers’ strike. The police initially offered to pay the occasional visit to the mine during the course of the strike. However, the mine-owners felt that a permanent police presence would be merited, given the nature of the strike. They agreed to pay the police £2,200 for this extra service. But when the police sought payment for services rendered, the mine-owners refused to pay on the basis that the police were already obliged to provide this protection. The police subsequently sued for payment. The House of Lords was of the opinion that in maintaining a permanent police presence around the mine at the relevant time, the policemen were doing something over and above what they were publicly obliged to do, therefore the provision of this service was deemed to be sufficient consideration and the mine-owners ought to have paid the money. A similar conclusion was reached in the case of Harris v Sheffield United FC [1988] QB 77. Here, the Court of Appeal had to consider the possible liability of a professional football club for the payment of internal and external policing of their stadium. At the time, crowd misbehaviour at soccer matches was quite prevalent and on this basis the football club claimed that the possible risk to property and the public made the provision of police protection an essential requirement. Nonetheless, the Court of Appeal rejected this argument and was of the opinion that a privately organised football match put a strain on already scarce resources. Moreover, this meant that if the police were called upon to deliver services over and above what they normally provided, these expenses should be recoverable from the football club. [214]

The Irish case of McKerring v Minister for Agriculture [1989] ILRM 82 highlights the approach of the Irish courts to this issue. In this case a dispute arose between the Minister for Agriculture and a farmer in respect of grant payments under the TB Eradication Scheme. The plaintiff had not been paid under the scheme because he had failed to comply with the rules and regulations. In determining whether the scheme was discretionary or in fact one in which payment was made under contract, O’Hanlon J. proceeded to inquire into whether or not the statutory requirement to comply with the scheme could constitute consideration moving from the plaintiff. The Court found that the plaintiff had provided sufficient consideration through strict compliance with all the conditions ‘‘. . . even though some of them may be a matter of legal obligation as well’’.

Contractual Duty [215]

The performance of an already existing contractual duty will be not be regarded as sufficient consideration. This was highlighted in the classic case of Stilk v Myrick [1809] 2 Camp. 317, involving the crew of a ship on a voyage between London and the Baltic. Two sailors deserted the rest of the crew on the way to the Baltic. The captain made an agreement with the rest of the crew that he would divide the pay of the two sailors amongst them if they sailed the ship back to London without the sailors being replaced. Upon arrival in London, the Captain refused to pay the extra money to the sailors and the plaintiffs took an action to recover the monies promised to them. Lord Ellenborough C.J. asserted that as the sailors were already contracted to undertake the voyage to the Baltic and back, they assumed the risk of any emergencies that might arise. Indeed, they did nothing over and above what they were already contractually bound to do, and thus had not provided consideration for payment of the extra money. McDermott recognises the logic behind the rule in Stilk v Myrick, which is ‘‘ . . . to prevent the prospect of ships

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being held to ransom by crews who demanded more money half way through the voyage.’’2 Subsequent case law has cast doubt on the principle of Stilk v Myrick, a principle ‘‘ . . . enunciated in relation to the rigours of seafaring life during the Napoleonic wars’’, which appeared to be confined to the times during which it was decided. In particular, Denning L. has consistently appeared to be a proponent of the idea that the performance of an already existing duty may constitute sufficient consideration. In the context of a dispute between a husband and wife, he asserted that ‘‘ . . . a promise to perform an existing duty is . . . sufficient consideration to support a promise, so long as there is nothing in the transaction which is contrary to the public interest.’’3 Despite this, however, the Court in the case of North Ocean Shipping v Hyundai [1978] 3 ALL ER 1170 reaffirmed the decision of the court in Stilk v Myrick, i.e. that the performance of an already existing public duty does not constitute sufficient consideration.

[216]

Part-payment of an Already Existing Debt: The Rule in Pinnel’s Case A contract for the partial payment of an already existing debt must be supported by fresh consideration. Part-payment of a debt will also not constitute sufficient consideration for an agreement to forego the remainder of the debt unless something additional is given in consideration for the agreement. This rule is reflected in Pinnel’s case [1602] 5 Co. Rep. 117a, where the English Court of Common Pleas held that a promise by a person to whom a debt is owed (creditor) to take a lesser sum from a debtor in full satisfaction of a larger debt will not bind that person. The promise of the creditor is unenforceable for lack of consideration. In the case of Foakes v Beer [1884] 9 App. Cas.605, this principle was strongly reaffirmed. Here, the plaintiff owed the defendant £2,090 plus interest. The defendant agreed that if the plaintiff paid £500 immediately and the balance by way of instalments, then she would not issue any proceedings. However, the latter agreement was deemed unenforceable as there was insufficient consideration. Clark describes this decision as ‘‘ . . . a harsh and somewhat mechanical one and it fails to meet commercial expectations and commercial practice.’’4

[217]

The case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 ALL ER 512 has been described as ‘‘a decision that has thrown this entire area of law into confusion’’.5 The defendant building contractors hired the plaintiff, who was a carpenter, to carry out work in the refurbishment of a number of flats. The initial fee agreed was £20,000. However, a couple of months after this fee was agreed between the parties, the plaintiff discovered himself to be in financial difficulty. This was not only as a result of the contract price being much too low to start with but also because the plaintiff had failed to supervise his workmen properly. As a result of this development, the defendants became extremely concerned because there was a

[218]

2

ibid, 111. A different approach was adopted in the case of Hartley v Ponsonby [1857] 7 E. & B. 872, where, under similar circumstances, a promise was made to a crew of sailors after a number of their work colleagues deserted. In view of the large number of sailors who deserted, the court was of the opinion that the remaining sailors assumed a much greater risk of danger and therefore were required to undertake work over and above what they were already contractually bound to do. In light of such circumstances, the sailors were entitled to recover the extra money promised. 3 [1957] 1 WLR 148, 15051. 4 R. Clark, Contract Law in Ireland (Thomson, Roundhall, Dublin, 2004), 70. 5 ibid, 56.

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30 j Independent Colleges: Contract Law penalty clause in the main contract in the event that they did not complete the flats on time. In view of this, the defendants promised to pay the plaintiffs a further £10,300. The question arose as to whether or not there was consideration for this promise. Glidewell L.J. was of the opinion that there was consideration for this promise, a view that was confirmed by Russell L.J. Indeed, the Court of Appeal adopted what was termed a pragmatic approach, reasoning that in spite of the fact that the plaintiffs were already obliged to finish the work, there was a real risk that the work would not be finished in the absence of further finance. The fact that the defendants would have been subject to a penalty clause meant that they were in fact gaining a benefit by the plaintiffs completing the work. This judgment has been subject to much criticism. Indeed, Friel has expressed the hope that subsequent cases will confine Williams to its peculiar facts.6

Acts of Forbearance [219]

The question as to whether or not forbearance may ever constitute sufficient consideration was dealt with in the early US case of Hamer v Sidway 124 NY 538 [1891], where an uncle offered to pay his nephew $5,000 if he refrained from alcohol, smoking and gambling until he was 21 years of age. When the uncle refused to pay the money, the nephew sued on the basis of this agreement. The uncle tried to argue that the agreement was unenforceable as there was no consideration provided. However, the Court was of the opinion that as the nephew gave up something that he was legally entitled to do, this constituted sufficient consideration under the circumstances.

[220]

The Irish Courts only grappled with this issue more recently, in the case of O’Keeffe v Ryanair Holdings [2003] 1 ILRM 14. In this case the plaintiff, Ms O’Keeffe, was the one-millionth passenger to fly with Ryanair. In recognition of this event, and in return for Ms O’Keefe participating in the surrounding publicity, she was promised free flights for life. When Ryanair attempted to renege on this agreement, Ms O’Keeffe sued for breach of contract. Ryanair maintained that there was no contract on the basis that there was insufficient consideration. Nonetheless, the High Court was of the opinion that by waiving her right to anonymity and participating in media campaigns, the plaintiff had provided sufficient consideration by way of conduct*through waiving her legal right to anonymity. Thus the court confirmed that forbearance may constitute sufficient consideration.

The Rule Against Past Consideration [221]

In order for consideration to be good consideration, it must have passed from the promisee prior to the contract coming into effect and not after a completed offer and acceptance has been made. In other words, a party cannot rely on a benefit already given as consideration for a promise that has been made subsequently. There are a number of cases that highlight this principle. In Roscorla v Thomas (1842) 3 QB 234 the defendant sold a horse to the plaintiff for £30. After the sale was complete, the defendant asserted that the horse was ‘‘sound and free from vice’’. The horse was subsequently discovered to be vicious and, thus, unsound. The plaintiff sued the defendant on the basis of the alleged warranty. The court rejected his claim on the basis that the warranty had been provided subsequent to the contract being formed and was thus unsupported by any fresh consideration. Past consideration is no consideration. This principle was reaffirmed in the case of Provincial Bank of Ireland v O’Donnell [1932] 67 ILTR 142, where a bank customer had managed to accumulate a considerable overdraft. The 6

J.R. Friel, The Law of Contract (Roundhall, Sweet & Maxwell, Dublin, 2000), 111.

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bank became concerned about his ability to pay off the overdraft, and as a result requested that his wife sign an agreement that provided security not only to the existing overdraft account but also for any future money the bank might advance to her husband. Upon the husband being unable to pay monies he owed to the bank, the bank sought to enforce the security assured by his wife. The wife refused to pay and the bank sued. The bank was unsuccessful in its claim on the basis that the agreement as to the current overdraft concerned past monies, for which no fresh consideration was provided (i.e. the bank had already loaned the money before the agreement was made with the wife) and furthermore that the agreement in relation to future monies was too vague. A more recent application of this principle is evident in the case of Law Society of Ireland v O’Malley [1999] 1 IR 162, where the respondent was supported by gifts from his wife’s family*the O’Conghaile family. The respondent was involved in a road traffic accident, after which he sued for damages for the injuries he sustained. It was believed that a settlement would be reached in these proceedings and the respondent instructed his solicitors to give an undertaking that any damages recovered in the settlement would be paid to his wife’s family. The question before the court was whether or not any consideration had been provided for this undertaking in order to make it legally enforceable. The court was of the opinion that even though the O’Conghaile family had provided support and maintenance, that was all past consideration, i.e. it had been provided before the undertaking had been made and no fresh consideration had passed that would make it legally enforceable. Thus, there was ‘‘ . . . no valuable consideration in law’’7 that could make the agreement legally enforceable. Exception to the Rule against Past Consideration According to McDermott, ‘‘[t]he essence of the rule is that where the fact of a past service raises an implication that at the time it was rendered it was to be paid for, then the service may be sufficient consideration for a subsequent promise to pay for it.’’8 This exception was established in the case of Lampleigh v Braithwait [1615] Hobart 105. In this case the defendant asked the plaintiff to travel to London in order to obtain a royal pardon for him. The plaintiff did so and upon his return, with the pardon, the defendant promised to pay the plaintiff £100. While the consideration had passed in this case (i.e. the plaintiff obtaining the pardon), the court found that the promise was still enforceable. As the defendant had asked the plaintiff to obtain the pardon and it was implied that he would be paid for it, the defendant was now bound to fulfil his promise. This was subsequently reaffirmed in the case of Bradford v Roulston (1858) IRCL 468. The leading modern case on this issue is Pao On v Lau Yiu Long [1980] AC 614, where Lord Scarman clearly articulated the conditions required to satisfy this exception. In this case, the defendant requested the plaintiff not to sell some shares for one year. The plaintiff agreed and promised to hold on to the relevant shares for one year. The defendant subsequently promised to indemnify the plaintiff if the price of the shares fell during the relevant year. When the share price did fall, the defendant refused to indemnify the plaintiff and the latter sued. Lord Scarman held that an act that is done before a promise is made to make payment or to confer some other benefit may sometimes constitute consideration for the promise if the following requirements are fulfilled:

7 8

As per Barron J., [1999] 1 IR 162, 168. supra, n.1, 12021.

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[222]


32 j Independent Colleges: Contract Law

(1) The act is done at the promisor’s request. (2) The parties understood that the act was to be paid for either through payment or the conferment of some other benefit. (3) The payment or conferment of benefit is legally enforceable, if it had been promised in advance. [223]

In the instant case, all three requirements were present and the plaintiff’s claim was upheld.

Consideration must move from the Promisee [224]

In order for a contract to be deemed legally enforceable, it must be shown that consideration moved from the promisee. Therefore, in order to be successful, the person to whom a promise is made must show that he/she personally provided consideration in return for the promise. A party may not rely on consideration provided by a third party. This requirement was the subject of discussion in Tweddle v Atkinson [1861] 1 B & S 393. In this case the plaintiff was engaged to a young lady and in anticipation of the couple’s wedding, the plaintiff’s father and father-in-law had promised each other that they would give money to the plaintiff, once the couple was married. Before the money was paid, the plaintiff’s father-in-law passed away. The plaintiff sued for the money promised, but as he had not provided any consideration for the promise, he was not entitled to claim the money. This rule was reaffirmed in the Irish case of McCoubray v Thompson (1868) 2 IRCL 226, where the owner of land agreed to donate his land to the defendant on the understanding that the defendant would pay the plaintiff a sum of money equal to half the value of the farm. The owner subsequently died, and the plaintiff tried to claim the money owed to him from the defendant. The defendant refused to pay and the plaintiff sued. However, ase the plaintiff did not provide any consideration for the agreement, he was unable to rely on the contract.

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Exam Focus Consideration is quite a popular exam question (Part-payment, Q3, March 2007; Q5, October 2006; Q5, April 2006; Q1, October 2004). Students should be able to explain the relationship between consideration and promissory estoppel. Students should also be very familiar with the concepts of adequacy and sufficiency of consideration, with supporting case law (Harris, Glasbrook, O’Keeffe, Stilk v Myrick) (Q1, October 2004; Q1, October 2007) (Q.3 April 2008). On occasion, consideration has been mixed in with other topics, including the related doctrine of promissory estoppel (Q5, October 2006) and areas such as Undue Influence (Q5, April 2006) and Offer and Acceptance (Q2, October 2005). Key Cases

Chappell & Co. Ltd v Nestle´ Co Ltd [1960] AC 87 O’Neill v Murphy [1936] [1936] NI 16 Collins v Godefroy [1831) 1 B & Ad 950 England v Davidson [1840] 11 Ad and El 856 Glasbrook Bros v Glamorgan County Council [1925] AC 270 Harris v Sheffield United FC [1988] QB 77 McKerring v Minister for Agriculture [1989] ILRM 82Stilk v Myrick [1809] 2 Camp. 317 Hartley v Ponsonby [1857] 7 E. & B. 872 North Ocean Shipping v Hyundai [1978] 3 ALL ER 1170 Pinnel’s case [1602] 5 Co. Rep. 117a Foakes v Beer [1884] 9 App. Cas.605 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 ALL ER 512 Hamer v Sidway 124 NY 538 [1891] O’Keeffe v Ryanair Holdings [2003] 1 ILRM 14 Roscorla v Thomas (1842) 3 QB 234 Tweddle v Atkinson [1861] 1 B & S 393

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