Consideration

Consideration is what passes from one contractual party to another, each party in a contract must give something of value, and consideration is traditionally thought of as money, goods and services.

Consideration need not be adequate but must be sufficient. Adequacy of consideration means whether something is of equivalent value or comparable in price. Sufficiency of consideration means when the consideration is real, tangible and has some value.

Consideration must be a mutual exchange of promises. If one party carries out an act voluntarily and the second party later promises to pay for or contribute, this is called ‘past consideration’. Past consideration is no consideration. This is shown in the case of ReMcardle which states that a promise to pay for work done voluntarily after the work has been done is not consideration as it is for consideration that is past.  

However there is an exception to this rule. The exception is if there is a request for a service from another, and if the promise of payment can be implied into the request. This is shown in the case of Lampleigh V Braithwaite. This involves a man guilty of murder who was to be hanged. He asked his friend Lampleigh to obtain a pardon from the king, of which he did. Braithwaite promised to pay him £100 for his services but he did not pay. The courts decided that there was enough evidence for valid consideration to be there as the service that was requested was so important.

Pinnel’s rule states that part payment of a debt in place of the whole debt gives no consideration. This rule also states that a creditor is able to claim the remainder of a debt, even if they already agreed that part payment will clear the debt.

An exception to this rule comes from the case of Foakes V Beer which says that agreeing to pay an existing debt by instalments without further consideration means the full debt remains repayable at once.

Accord & Satisfaction means that early payments and cash instead of cheque is good consideration. Agreeing to accept something other than money is good consideration even if not comparable in value to the debt.

Promissory estoppels means that  If one of the parties to a contract promises to vary the terms for the other party’s benefit and the other party relies on that promise, then the promisor cannot go back on that promise, he/she is stopped from breaking the promise. A case example is Central London Property Trust Ltd V High Trees House Ltd.

If a contractual party performs an existing duty then the performance cannot be consideration for a new contract. However in some situations the courts will allow what appears to be an existing duty to be classed as valid consideration:

1.       If what is given is more than was originally expected (Hartley V Ponsonby)

2.       If performance of the existing duty gives the other party a ‘benefit’ as seen in (Williams)