The requirement of consideration in Contract Law

The requirement of consideration in Contract Law

Ordinarily, consideration is one of the three essential elements of a valid contract. Thus, a promise which is made without consideration may not be sued upon in the law of contract, for it is merely a bare promise [1] on which no such action will lie [2]. In the case of a contract which is divisible into two parts, for only one of which there is valuable consideration, that part only gives rise to a cause of action [3].

Consideration is not necessary, however, in respect of a promise made by deed [4]; and the rules of consideration have been modified in relation to bailments and negotiable instruments. Moreover, it seems that where a promise is given without consideration but is intended by the promisor to affect an existing contract between him and the promisee, and is intended to be acted upon by the promisee and is in fact so acted upon, such a promise may be set up by the promisee as a defence to an action by the promisor to enforce the existing contract; but it cannot be sued upon as a separate contractual cause of action by the promisee.

On the other hand, a promise made without consideration may give rise to liability in the tort of negligence. It has also been questioned for how long the principles of consideration and privity of contract will continue to be maintained [5]: already, much of the work of the doctrine of consideration could be undertaken by the principles of intention to create legal relations; once such an intention is shown, there is almost a presumption that consideration exists [6], as witness the apparent acceptance of benefit in fact as consideration. The doctrine of consideration may be separating from the privity rule.

[1] Ie a nudum pactum: see eg Four Oaks Estate Ltd v Hadley (1986) Times, 2 July, CA.

[2] Rann v Hughes (1778) 7 Term Rep 350n, HL; Davis v Dodd (1812) 4 Taunt 602 (promise to pay amount of lost bill of exchange); Williams v Stern (1879) 5 QBD 409, CA (promise to give time for payment of instalment under bill of sale); Haigh v Brooks (1839) 10 Ad & El 309; affd sub nom Brooks v Haigh (1840) 10 Ad & El 323, Ex Ch (guarantee for past debt); Clay v Willis (1823) 1 B & C 364 (promise to pay person not entitled to receive payment); Brealey v Andrew (1837) 7 Ad & El 108 (promise to pay debt for which promisor not liable); Payne v New South Wales Coal and Intercolonial Steam Navigation Co (1854) 10 Exch 283 (promise to employ person, with no obligation on the promisee to act); Guthrie v Lister (1866) 11 Moo Ind App 129, PC (voluntary payment of higher rate of interest than legally due); McManus v Bark (1870) LR 5 Exch 65 (agreement to give time for payment); Wilkinson & Co v Unwin (1881) 7 QBD 636, CA (indorsement of bill as surety); Sanderson v Workington Borough Council (1918) 34 TLR 386 (resolution by education authority to pay salary during war service to mobilised territorial officer); Balfour v Balfour [1919] 2 KB 571, CA (agreement by husband to make allowance to wife in consideration of her agreeing to support herself); Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 223, CA (variation in method of paying debt solely for convenience of plaintiff; held, no consideration as no benefit accrued to defendant); Gaisberg v Storr [1950] 1 KB 107, [1949] 2 All ER 411, CA (wife’s promise not to claim maintenance after decree nisi held no consideration as her promise did not preclude her from so claiming); Roberts v J & F Stone Lighting and Radio Ltd (1945) 172 LT 240 (no consideration; alleged promise to give evidence); Wyatt v Kreglinger and Fernau [1933] 1 KB 793, CA (grant of pension); Argy Trading Development Co Ltd v Lapid Developments Ltd [1977] 3 All ER 785, [1977] 1 WLR 444 (failure to continue insurance; for other points see para 608 note 6 ante, and note 11 infra). See also BR Meadows & Sons v Rockman’s General Store Pty Ltd [1959] VR 68 (promise not to sue for debt); Saltzberg and Rubin v Hollis Securities Ltd (1964) 48 DLR (2d) 344 (NS) (person receiving three identical tenders promised to accept highest of new offers by 3 pm); Gilbert Steel Ltd v University Construction Ltd (1976) 12 OR (2d) 19, Ont CA.

[3] Wood v Benson (1831) 2 Cr & J 94 (guarantee to pay for all gas to be supplied to a theatre, and also to pay for all arrears which might be then due; void as to the arrears for want of consideration, but divisible, and valid as to gas consumed after the date of the guarantee).

[4] In earlier times, this was rationalised by saying that, as between the parties, the (then required) seal imported its own consideration: see Fitzherbert’s Grand Abridgment, Barre 37; and DEEDS AND OTHER INSTRUMENTS vol 13 (2007 Reissue) para 59. Most deeds no longer require a seal: see para 616 ante.

[5] See The Pioneer Container [1994] 2 AC 324 at 335, sub nom The Pioneer Container, KH Enterprises (Cargo Owners) v Pioneer Container (Owners) [1994] 2 All ER 250 at 255–256, PC, per Lord Goff of Chieveley.

[6] See New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154 at 167, [1974] 1 All ER 1015 at 1019–1020, PC, per Lord Wilberforce (delivering the majority judgment).

Taken from Halsbury’s Laws of England