Consideration

Is the doctrine of consideration obsolete and unnecessary? - Justin Santiago

The doctrine of consideration is facing attack from various angles. Academics have argued that the doctrine is merely an invented concept. Several judgements have also shown clear exceptions to the doctrine and it would appear that the importance of the doctrine of consideration has decreased especially in contracts which have been modified halfway through their execution. The courts have taken a view that in such cases it would be better to supplant consideration with some other doctrine rather than abandon the contract altogether for want of consideration. The doctrine of consideration while it has been watered nevertheless remains a vital part of contract law in a majority of cases.

The traditional view of the law of contract requires that certain conditions be met before a contract could be legally enforceable. One of these was consideration. The requirement for consideration to give enforceability to a contract developed out of the rejection of formalities normally associated with gratuitous promises. Gratuitous promises unsupported by consideration are unenforceable.

The orthodox interpretation of consideration is based upon the idea of ‘reciprocity’, that a benefit received by the promisor in exchange for the benefit that he promises must co-exist with a detriment suffered by him which was expressed by Lush, J in Currie v Missa as some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

The benefit-detriment theory & bargain theory supported the notion of consideration. The "benefit-detriment theory", in which a contract must be either to the benefit of the promisor or to the detriment of the promisee to constitute consideration.

The “bargain theory" states that the parties subjectively view the contract to be the product of an exchange or bargain. Proof of this exchange will lend enforceability to the contract.

There are three main purposes cited for the consideration requirement :-

The first is the cautionary requirement - parties are more likely to look before they leap when making a bargain than when making an off-the-cuff promise of a gift.

The second is the evidentiary requirement - parties are more likely to commemorate, or at least remember, a promise made due to a bargaining process.

The third is the channeling requirement - parties are more likely to coherently stipulate their specific desires when they are forced to bargain for them. Each of these rationales ensure that contracts are made by serious parties and are not made in error.

However the very notion of consideration has been undermined. Professor Atiyah argues that consideration is merely a label slapped on whenever the courts wanted to find a sufficient reason to enforce the promise. And this sufficient reason is usually the presence of a benefit or detriment. Treitel on the other hand argues that the courts have invented consideration by treating some act or forbearance as consideration irrespective or whether the parties have so regarded it. In Antons Trawling Co. Ltd v Smith, a New Zealand case, the doctrine of consideration was only seen as evidence that the parties intended to be bound by their agreement rather than as an end in itself. The more important requirement was the intention to create legal relations.

Notwithstanding these views, the doctrine of consideration was further developed along with several rules such as consideration must be sufficient but it need not be adequate, past consideration is not good consideration and consideration must move from the promisee.

Court decisions are beginning to show that these rules have their exceptions and there are ambiguities in these rules. For example what constitutes valuable consideration is subjective. In Chapple & Co v Nestle, sweet wrappers, although of trivial value, were good enough to be sufficient consideration. But does consideration have to have economic value? The cases of White v Bluett and the Amercan case of Hamer v Sidway demonstrate that consideration need not be looked at from the economic value angle alone. This may open the floodgates to how the value of consideration is measured.

In Pao On v Lau Yiu Long, it was decide that past consideration would still qualify as good consideration if the act constituting the consideration was done at the promisor’s request, the parties understood that the work was to be paid for in some way and that the promise would be legally enforceable had it been made prior to the acts constituting the consideration.

The doctrine of consideration has also been unevenly applied with regard to different cases especially in situations where the parties to a continuing contract wish to modify their obligations in the light of changed circumstances. In the case of Stilk v Myrick, the the notion of reciprocity was strictly applied in determining whether there was valid consideration. The sailors failed in their bid to enforce the promise of extra money for doing additional work due to the desertion of some of the crew as it was decided that the performance of an existing contractual obligation did not constitute valid consideration. There was no conferring of benefit on the shipowneres.

Similiarly in a long line of cases such as Pinnel’s Case and Foakes v Beer, the courts have never recognised part payments of debts as being valid consideration as the payment of a smaller sum that is owed does not constitute valid consideration as there is no added benefit to the creditor.

However in Williams v Roffey Brothers the need for reciprocity was put on hold. In this particular case the parties to a continuing contract wished to modify their obligations in the light of changed circumstances. The courts allowed the promisee to enforce the promise even though there were performing existing contractual obligations as the promisor had obtained a practical benefit and obviated a disbenefit by not having to switch contractors midway through the project. This would have the effect of rewarding parties who through some fault of their own had to renegotiate for the sake of avoiding a breakdown in the contract.

It would seem that in such cases the courts would be more inclined to look for additional benefits or further detriments on either party such as in Glasbrook Ltd v Glamorgan C.C. where a promise to do more than what one is legally obliged to do is good consideration or in Ward v Byham where it was decided that a mother by promising to keep a child ‘happy’ was more than a legal duty to merely keep the child was good consideration. The courts have however stopped short of recognizing the promise to perform a duty imposed by law as good consideration : Collins v Godefrey. The courts have also not applied the practical benefit debt situations where a promise to alter a contract for the acceptance of a lesser amount than promised : Re Selectmove.

The courts have also enforced promises despite the absence of consideration under the equitable remedy of promissory estoppel which stems from the doctrine of waiver which gives effect to a promise to forego rights. In Hughes v Metropolitan Railway and later confirmed in Central London Property Ltd v High Trees House it was stated that where by words or conduct a person makes an unambiguous representation as to his future conduct and intending that representation to be relied on and it has been relied on, the person will not be allowed to go back on his promise even though the promise was not supported by consideration. This is an equitable concept that has clearly defined limits and would apply to limited cases.

It would seem that the doctrine of consideration has been watered down in instances where parties renegotiate their obligations halfway through the contract. However we cannot turn away from the fact that in the majority of cases, consideration is determining factor in enforcing a contract. Abandoning consideration also abandons the essential idea of requiring performance as practical benefit in the words of Chen-Wishart in their article "Consideration, Practical Benefit and the Emperor’s New Clothes" is like the Emperor’s new clothes – illusory and open to ridicule. Ultimately consideration performs an important evidential function and is a valuable signal that the parties intend to be bound by their agreement rather than an end in itself : Antons Trawling Co Ltd v Smith.

In civil law jurisdictions, consideration is not a requirement for a contract at all. In France, an ordinary contract is said to form simply on the basis of a "meeting of the minds" or a "concurrence of wills".

Germany has a special approach to contracts, which ties into property law. Their 'abstraction principle' (Abstraktionsprinzip) means that the personal obligation of contract forms separately from the title of property being conferred. When contracts are invalidated for some reason ( e.g. a car buyer is so drunk that he lacks legal capacity to contract) the contractual obligation to pay can be invalidated separately from the proprietary title of the car. Unjust enrichment law, rather than contract law, is then used to restore title to the rightful owner.

Scottish contract law differs to the extent that there is no need for a party to receive consideration for their performance. This means that it is perfectly legitimate for a contract to compel an individual to perform and to receive nothing in return. Such agreements are known as gratuitous contracts. This rule also explains the existence of the law of promises as a branch of the law of obligations.