Introduction

• consideration: can be a promise in return for an act (executed consideration in unilateral contracts) or a promise for a promise (executory consideration in bilateral contracts)
• general rule: consideration performed before a promise (past consideration) is not sufficient

  Re McArdle [1951] Ch 669

  Facts:

  • plaintiff (P) carried out imporvements/repairs on a bungalow, which had been left in trust to her husband and his siblings
  • after work was carried out the siblings signed a document stating P should get £488 from proceeds of sale, payment was not made

  Issue:

  • could work carried out prior to the promise be valid consideration?

  Held:

  • promise not binding, past consideration is no consideration

Exceptions

• a past promise or act may suffice as good consideration, in certain circumstances

  Lampleigh v Brathwait (1615) Hob 105

  Facts:

  • defendant (D) asked P to seek a royal pardon for him, P wortked hard to do so
  • afterwards, D promised to pay P £100, D did not pay

  Issue:

  • could past consideration be good consideration?

  Held:

  • was good consideration: P acted upon D's request, promise to pay £100 part of the same transaction and was enforceable

  Re Casey's Patents [1892] 1 Ch 104

  Facts:

  • P was asked to promote some patents
  • after P completed most of the work, patent owners stated: In consideration of your services as practical manager in working our patents, we hereby agree to give you one-third share of the patents...

  Issue:

  • can past consideration form good consideration?

  Held:

  • past consideration was sufficient
  • Bowen LJ: .. the fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in the subsequent document a promise to pay, that promise may be treated either as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered...

  Pao On v Lau Yiu Long [1980] AC 614 PC

  Facts:

  • parties agreed to exchange shares in their companies, P agreed not to sell 60% of shares for a year (to avoid depressing their value) and D would protect P from any losses (due to fall in value of shares)
  • subsidary agreement made: P would sell D 60% of shares back at $2.50 within the year, P realised they would lose out if the share price rose above $2.50 so requested D give a guarantee by way of indemnity (only to buy back the shares if the fell below $2.50), D signed in consideration of P having already promised not to sell the shares for a year

  Issue:

  • was there any consideration for the indemnity?

  Held:

  • P's promise not to sell the shares for a year was valid consideration, Privy Council applied Re Casey's Patents [1892]
  • Lord Scarman: .. an act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors' request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance. All three features are present in this case...

Criteria

Promisor's request

• act was carried out at promisor's request

Reward

• parties understood act was to be rewarded in some way, either by payment or benefit

Legally enforceable

• payment or benefit must have been legally enforceable if had been promised in advance of consideration: must have been agreement, consideration and contractual intention