Contract | Formation
Consideration: Overview
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Introduction
The general principle is that an agreement alone does not make an enforceable contract. In order to make a claim for breach of contract a party must have given consideration in return for a promise. Consideration is not required if an agreement is made by deed.
Definition
The traditional approach is that consideration consists of a promise or act which is of detriment to the promisee or a benefit to the promisor and sometimes both will be present.
Currie v Misa (1875) LR 10 Ex 153
Lush J: A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other...
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Consideration can also be viewed as the price one party pays for the other party's promise.
Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd [1915] AC 847
Lord Dunedin adopted the definition given by Sir Frederick Pollock: 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...
(Pollock on Contracts).
Adequacy and sufficiency
Whether consideration is valid can be summarised by the phrase: consideration need not be adequate, but must be sufficient. Consideration does not have to reflect the value of the promise (need not be adequate). For example, a promise to buy an item for less than its actual value may be acceptable. However, the promise must be legally sufficient, which means it must be something that the law regards as being capable of amounting to valid consideration.
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Bret v JS (1600) Cro Eliz 756
Facts:
The defendant's late husband offered to pay the plaintiff to train her son as a servant and the defendant promised to continue paying, out of love for her son. The plaintiff sued for the money.
Issue:
Was love and affection capable of being valid consideration?
Held:
A parent who makes a promise in consideration of natural love and affection is not bound becuase it cannot amount to consideration.
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Thomas v Thomas (1842) 2 QB 851
Facts:
The plaintiff's late husband wished for her to have one of his houses for life, he stated this on the day he died in front of witnesses.
The defendant, an executor of his will, agreed
in consideration of John's desires
provided that the plaintiff paid £1 a year rent and maintain the house in good repair. Initially the agreement was adhered to but then the defendant refused to continue the arrangement.Issue:
Had consideration been provided for the executor's promise?
Held:
The husband's motive was the only motive for the agreement and a motive cannot amount to consideration. However, the plaintiff's promise to pay £1 and keep the house in good repair was sufficient consideration.
Patterson J :
Motive is not the same thing with consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff: it may be some benefit to the plaintiff or some detriment to the defendant; but at all events it must be moving from the plaintiff...
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Chappell & Co. Ltd v Nestle Co. Ltd [1960] AC 87
Facts:
The defendants ran a special promotional offer: members of the public could receive a music record by sending off three wrappers from the defendant's chocolate bars plus a postal order for 1s 6d. The defendants had manufactured the physical records for this purpose.
The copyright to the original music was owned by the plaintiffs, who claimed that there had been breaches of their copyright.
Issue:
Were the three wrappers part of the consideration?
Held:
The majority decision decided that the wrappers were part of the consideration, although they were of trivial economic value and thrown away by the defendants on receipt. This meant that there had been a breach of copyright.
Lord Somervell:
I think they are part of the consideration. They are so described in the offer. 'They', the wrappers, 'will help you to get smash-hit recordings'... This is not conclusive but, however described, they are, in my view, in law part of the consideration. It is said that when received the wrappers are of no value to Nestle's. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn...
.Lord Reid:
The purchaser of records had to send three wrappers for each record, so he had first to acquire them. The acquisition of wrappers by him was, at least in many cases, of direct benefit to the Nestle Co., and required expenditure by the acquirer which he might not otherwise have incurred...
.Viscount Simonds and Lord Keith dissented and argued that the wrappers were not consideration but merely a condition which had to be satisfied in order to qualify to buy a record at the discounted price. The offer was clearly motivated by the defendant's wish to promote chocolate but this did not mean that the sale of the chocolate should be regarded as part of the transaction to buy the music.
Lord Keith (dissenting):
To Nestle these pieces of paper are worthless. Nestle are no doubt pleased to see that somebody has been buying their chocolate. They would know that anyhow, without the production of chocolate wrappers, from the figures of their turnover. The wrappers represent a liability to Nestle rather than an extra consideration if it be assumed, as I think it must, that on presentation of the wrappers and the tender of 1s. 6d. Nestle are bound to sell the record. But that is because of the offer they have made accepted by a member of the public. If it be said that the sale of the record is of value to Nestle because it promotes the sale of their chocolate, the same can be said of advertising their chocolate in the Press or in a number of other ways. Such overheads, like other overheads, go to increase the cost of production and, unless compensated by increased sales, may go to increase the price of the chocolate. But the retail price of 6d., or whatever it is, is just the price of the chocolate and nothing else. In the present case there is no reason for assuming that the price paid by the purchaser is paid for anything but the chocolate. As the facts show, there is ample profit to Nestle in the sale of the record alone and no reason to attribute something extra in the sale of the chocolate...
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Forbearance
The courts have considered whether forbearance from legal activity can be given for consideration.
White v Bluett (1853) 23 LJ Ex 36
Facts:
The defendant owed his father money and had given him a promissory note. The plaintiff, the father's executor, sued for the money.
The defendant claimed that his father had promised to write off the debt if he stopped complaining about the father's distribution of his assets, which he had done.
Issue:
Is forbearance from permissible legal conduct (complaining) sufficient consideration to create an enforceable contract?
Held:
The defendant had not provided consideration. He had no legal right to complain, so not complaining was an intangible benefit.
Pollock CB: The plea is clearly bad. By the argument a principle is pressed to an absurdity, as a bubble is blown until it bursts... If such a plea as this could be supported, the following would be a binding promise: A man might complain that another person used the public highway more than he ought to do, and that other might say, do not complain, and I will give you five pounds. It is ridiculous to suppose that such promises could be binding... the son's abstaining from doing what he had no right to do can be no consideration...
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Hamer v Sidway (1891) 27 NE 256
Facts:
An American case, so it does not overrule White v Bluett (1853).
The plaintiff was promised $5000 by his uncle if he refrained from drinking liquor, using tobacco, swearing and playing cards or billiards for money until he should become 21 years of age...
. The plaintiff complied.
The defendant, the executor of the uncle's will, refused to pay.
Issue:
Is forbearance from permissible legal conduct sufficient consideration to create an enforceable contract?
Held:
The promise was enforceable as the plaintiff provided consideration by restricting his lawful activity.
Parker J: The defendant contends that the contract was without consideration to support it, and, therefore, invalid. He asserts that the promisee by refraining from the use of liquor and tobacco was not harmed but benefited; that that which he did was best for him to do independently of his uncle's promise, and insists that it follows that unless the promisor was benefited, the contract was without consideration. A contention, which if well founded, would seem to leave open for controversy in many cases whether that which the promisee did or omitted to do was, in fact, of such benefit to him as to leave no consideration to support the enforcement of the promisor's agreement. Such a rule could not be tolerated, and is without foundation in the law...
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Parker J: adopted the statement of Sir Frederick Pollock: Consideration means not so much that one party is profiting as that the other abandons some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first...
(Pollock on Contracts).