Introduction
For a simple contract to be legally binding in England and Wales, certain elements must be present. These include an offer, acceptance, the intention to create legal relations, and consideration. Consideration is a fundamental concept, often described as the 'price of the promise'. It is what each party gives, does, or promises in exchange for the other party's promise. Without consideration, a promise is generally unenforceable, being merely a gratuitous promise or a gift. This essay will explain the different types of consideration recognised by English law. It will cover the distinction between executed, executory, and past consideration, and will also explain the important legal principle that consideration must be sufficient but need not be adequate. The rules relating to the performance of existing duties will also be examined. These principles will be illustrated using key case law.
The Meaning of Consideration
The classic definition of consideration was provided in the case of Currie v Misa (1875) LR 10 Ex 153. In that case, Lush J defined consideration as consisting of either a benefit to one party or a detriment to the other. He stated: "A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other" (p. 162). This definition highlights the idea of reciprocity; each party must provide something of value to the other to make the agreement a bargain, which the law will then enforce. This principle ensures that the law does not enforce casual promises or gifts, but only serious transactions where both sides have committed something to the deal.
Executed and Executory Consideration
Consideration can be categorised as either 'executory' or 'executed'. Both are recognised as valid forms of consideration.
Executory consideration is found in bilateral contracts, where the agreement consists of an exchange of promises. At the time the contract is formed, neither party has yet performed their side of the bargain. For example, if A promises to sell their car to B for £5,000 and B promises to pay £5,000 for the car, the consideration is executory. Both A's promise to transfer the car and B's promise to pay the money are valid consideration for each other. The contract is binding from the moment the promises are exchanged.
Executed consideration, by contrast, arises when one party performs an act in exchange for the other party's promise. This is typical of unilateral contracts. The leading example is Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The company promised to pay £100 to anyone who used their smoke ball as directed and still caught influenza. Mrs Carlill bought the product, used it, and caught influenza. Her act of using the smoke ball as specified was the executed consideration for the company's promise to pay the £100. The contract was formed when she completed the required act, and the company was then bound to fulfil its promise. Her performance was the price she paid for the promise.
Past Consideration
In contrast to executed and executory consideration, the general rule is that 'past consideration is no consideration'. This means that if a promise is made after an act has already been performed voluntarily, that act cannot be used as consideration for the new promise. The act was not done in exchange for the promise, so there is no bargain.
A clear illustration of this rule is the case of Re McArdle [1951] Ch 669. A woman made improvements to a house that was part of her deceased father-in-law's estate. After the work was completed, the beneficiaries of the estate signed a document promising to pay her £488 for her work. When they later refused to pay, the court held that their promise was unenforceable. The improvements she had made were 'past consideration' because the work was finished before the promise to pay was made. The promise was a gratuitous one, made out of gratitude, not as part of a bargain.
However, there is an important exception to this rule. If a service is performed at the request of the promisor, and it was understood at the time that the service would be paid for, a later promise to pay a specific amount will be legally binding. This exception, originating from the old case of Lampleigh v Brathwait (1615) Hob 105, was modernised in Pao On v Lau Yiu Long [1980] AC 614. Lord Scarman set out three conditions for the exception to apply:
- The act must have been done at the promisor’s request.
- The parties must have understood that the act was to be remunerated, either by a payment or the conferment of some other benefit.
- The payment or benefit must have been legally enforceable had it been promised in advance.
If these conditions are met, the past act and the later promise are treated as part of the same transaction.
Sufficiency versus Adequacy
A core principle of consideration is that it must be 'sufficient' but it need not be 'adequate'. 'Sufficiency' means that the consideration must be something of value in the eyes of the law. 'Adequacy' refers to the commercial value of the consideration. The courts are not concerned with whether a party has made a good or bad bargain; they will not interfere simply because one party's promise seems to be worth much more than the other's.
The case of Thomas v Thomas (1842) 2 QB 851 provides a classic example. After a man's death, his executors promised to let his widow live in his house for the rest of her life in return for her paying £1 per year towards the ground rent. The executors later tried to evict her, arguing that the £1 rent was not adequate consideration. The court held that the promise was enforceable. The £1 rent was clearly not a commercial or adequate rent, but it was something of value in the eyes of the law and was therefore sufficient consideration.
Another well-known case is Chappell & Co v Nestle Co Ltd [1960] AC 87. Nestle offered to sell records to the public for a low price plus three chocolate bar wrappers. The question was whether the wrappers formed part of the consideration. The House of Lords held that they did. Even though Nestle threw the wrappers away upon receipt, they were part of the price requested. As Lord Somervell noted, "A peppercorn does not cease to be good consideration if it is established that the promisor does not like pepper and will throw away the corn". This confirms that as long as the consideration has some value, however trivial, it will be deemed sufficient.
Performance of an Existing Duty
The law on whether performing an existing duty can amount to good consideration is more complex and is divided into three situations.
First, performance of an existing public duty imposed by law is not good consideration. In Collins v Godefroy (1831) 1 B & Ad 950, a lawyer was promised payment for giving evidence in court. As he was already legally required to attend court because of a subpoena, his attendance was not valid consideration for the promise to pay. However, if a party does more than their public duty requires, this can be good consideration. In Glasbrook Bros v Glamorgan County Council [1925] AC 270, a coal mine requested a police presence on-site during a strike, which was more than the police thought was necessary. The House of Lords held that the police had gone beyond their public duty, and this extra service was good consideration for the mine's promise to pay for it.
Second, the performance of an existing contractual duty owed to a third party is good consideration for a promise from a new party. In Scotson v Pegg (1861) 6 H&N 295, Scotson was already contractually bound to a third party to deliver coal to Pegg. Pegg separately promised Scotson he would unload the coal at a fixed rate if Scotson delivered it to him. When Scotson delivered the coal, the court held that this was good consideration for Pegg's promise, even though Scotson was already obliged to deliver it under another contract. The benefit to Pegg was the direct delivery of the coal.
Third, and most debated, is the performance of an existing contractual duty owed to the same promisor. The traditional rule, from Stilk v Myrick (1809) 2 Camp 317, is that this is not good consideration. In that case, two sailors deserted a ship, and the captain promised the remaining crew extra wages to sail the ship home. The court held the promise was unenforceable because the crew were already contracted to work the ship home and had not provided any new consideration for the promise of extra pay. However, this rule was significantly modified by Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1. Here, a main contractor promised a subcontractor extra money to finish work on time, as the main contractor would incur a penalty if the project was late. The Court of Appeal held that the subcontractor's promise to complete the work on time was good consideration because the main contractor obtained a 'practical benefit' (or avoided a disbenefit), such as avoiding the penalty clause and the trouble of finding a new subcontractor. This 'practical benefit' test has been seen as a more flexible approach, but its relationship with the traditional rule in Stilk v Myrick is still debated by academics (McKendrick, 2022).
Conclusion
In summary, consideration is an essential element for the formation of a binding contract in English law, representing the bargain element of the agreement. The law recognises both executory and executed consideration as valid forms, allowing for promises to be exchanged for other promises or for acts. However, it generally refuses to enforce promises made in return for a past act, with a limited exception for acts performed at the promisor's request. Furthermore, the courts insist that consideration must be legally sufficient, meaning it has some value, but do not inquire into its adequacy, preserving freedom of contract. The rules concerning the performance of existing duties show how the courts have adapted traditional principles to different factual situations, most notably with the development of the 'practical benefit' concept in Williams v Roffey. These different types and rules of consideration, developed through centuries of case law, remain a cornerstone of modern contract law.
References
- Chen-Wishart, M. (2022) Contract Law. 7th edn. Oxford University Press.
- McKendrick, E. (2022) Contract Law: Text, Cases, and Materials. 10th edn. Oxford University Press.
Case Law
- Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
- Chappell & Co v Nestle Co Ltd [1960] AC 87
- Collins v Godefroy (1831) 1 B & Ad 950
- Currie v Misa (1875) LR 10 Ex 153
- Glasbrook Bros v Glamorgan County Council [1925] AC 270
- Lampleigh v Brathwait (1615) Hob 105
- Pao On v Lau Yiu Long [1980] AC 614
- Re McArdle [1951] Ch 669
- Scotson v Pegg (1861) 6 H&N 295
- Stilk v Myrick (1809) 2 Camp 317
- Thomas v Thomas (1842) 2 QB 851
- Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
