The Mere Fact of Agreement

Introduction

The mere fact of agreement alone does not make a contract. Both parties to the contract must provide consideration if they wish to sue on the contract. This means that each side must promise to give or do something for the other. (Note: if a contract is made by deed, then consideration is not needed.)

For example, if one party, A (the promisor) promises to mow the lawn of another, B (the promisee), A’s promise will only be enforceable by B as a contract if B has provided consideration. The consideration from B might normally take the form of a payment of money but could consist of some other service to which A might agree. Further, the promise of a money payment or service in the future is just as sufficient a consideration as payment itself or the actual rendering of the service. Thus the promisee has to give something in return for the promise of the promisor in order to convert a bare promise made in his favour into a binding contract.

Definition

Lush J. in Currie v Misa (1875) LR 10 Exch 153 refered to consideration as consisting of a detriment to the promisee or a benefit to the promisor:

“… some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other.”

The definition given by Sir Frederick Pollock, approved by Lord Dunedin in Dunlop v Selfridge Ltd [1915] AC 847, is as follows:

“An act or forebearance 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.”

Types Of Consideration

1. Executory Consideration

Consideration is called “executory” where there is an exchange of promises to perform acts in the future, eg a bilateral contract for the supply of goods whereby A promises to deliver goods to B at a future date and B promises to pay on delivery. If A does not deliver them, this is a breach of contract and B can sue. If A delivers the goods his consideration then becomes executed.

2. Executed Consideration`

If one party makes a promise in exchange for an act by the other party, when that act is completed, it is executed consideration, eg in a unilateral contract where A offers £50 reward for the return of her lost handbag, if B finds the bag and returns it, B’s consideration is executed.

Rules Governing Consideration

1. Consideration Must Not Be Past

If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past. The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A gives B a lift home in his car. On arrival B promises to give A £5 towards the petrol. A cannot enforce this promise as his consideration, giving B a lift, is past. See:

Re McArdle [1951] 1 All ER 905.

Exceptions To This Rule:

(A) Previous Request

If the promisor has previously asked the other party to provide goods or services, then a promise made after they are provided will be treated as binding. See:

Lampleigh v Braithwait (1615) Hob 105.

(B) Business Situations

If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid. See:

Re Casey’s Patents [1892] 1 Ch 104.

Note: The principles in Lampleigh v Braithwait as interpreted in Re Casey’s Patents were applied by the Privy Council in:

Pao On v Lau Yiu Long [1980] AC 614

(C) The Bills Of Exchange Act 1882

Under s27(1) it is provided that any antecedent debt or liability is valid consideration for a bill of exchange. For example, A mows B’s lawn and a week later B gives A a cheque for £10. A’s work is valid consideration in exchange for the cheque.

2. Consideration Must Be Sufficient

But Need Not Be Adequate

Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is recognised by the law as having some value, it is described as “real” or “sufficient” consideration. The courts will not investigate contracts to see if the parties have got equal value. See:

Chappell & Co Ltd v Nestle Co Ltd [1959] 2 All ER 701.

3. Consideration Must Move From The Promisee

The person who wishes to enforce the contract must show that they provided consideration; it is not enough to show that someone else provided consideration. The promisee must show that consideration “moved from” (ie, was provided by) him. The consideration does not have to move to the promisor. If there are three parties involved, problems may arise. See:

Price v Easton (1833) 4 B & Ad 433

4. Forebearance To Sue

If one person has a valid claim against another (in contract or tort) but promises to forbear from enforcing it, that will constitute valid consideration if made in return for a promise by the other to settle the claim. See:

Alliance Bank v Broom (1864) 2 Dr & Sm 289.

5. Existing Public Duty

If someone is under a public duty to do a particular task, then agreeing to do that task is not sufficient consideration for a contract. See:

Collins v Godefroy (1831) 1 B & Ad 950.

If someone exceeds their public duty, then this may be valid consideration. See:

Glassbrooke Bros v Glamorgan County Council [1925] AC 270.

6. Existing Contractual Duty

If someone promises to do something they are already bound to do under a contract, that is not valid consideration. Contrast:

Stilk v Myrick (1809) 2 Camp 317.

Hartley v Ponsonby (1857) 7 E & B 872.

The principle set out in Stilk v Myrick was amended by the following case. Now, if the performance of an existing contractual duty confers a practical benefit on the other party this can constitute valid consideration. See:

Williams v Roffey Bros Ltd [1990] 1 All ER 512.

7. Existing Contractual Duty Owed To A Third Party

If a party promises to do something for a second party, but is already bound by a contract to do this for a third party, this is good consideration. See:

Scotson v Pegg (1861) 6 H & N 295.

8. PART PAYMENT OF A DEBT

See next handout for details.

Re McArdle (1951)

A wife and her three grown-up children lived together in a house. The wife of one of the children did some decorating and later the children promised to pay her £488 and they signed a document to this effect.

It was held that the promise was unenforceable as all the work had been done before the promise was made and was therefore past consideration.

Lampleigh v Braithwait (1615)

Braithwait killed someone and then asked Lampleigh to get him a pardon. Lampleigh got the pardon and gave it to Braithwait who promised to pay Lampleigh £100 for his trouble.

It was held that although Lampleigh’s consideration was past (he had got the pardon) Braithwaite’s promise to pay could be linked to Braithwaite’s earlier request and treated as one agreement, so it could be implied at the time of the request that Lampleigh would be paid.

Re Casey’s Patent (1892)

A and B owned a patent and C was the manager who had worked on it for two years. A and B then promised C a one-third share in the invention for his help in developing it. The patents were transferred to C but A and B then claimed their return.

It was held that C could rely on the agreement. Even though C’s consideration was in the past, it had been done in a business situation, at the request of A and B and it was understood by both sides that C would be paid and the subsequent promise to pay merely fixed the amount.

Pao On v Lau Yiu Long (1980)

Lord Scarman said:

“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.”

Chapple v Nestle (1959)

Nestle were running a special offer whereby members of the public could obtain a music record by sending off three wrappers from Nestle’s chocolate bars plus some money. The copyright to the records was owned by Chapple, who claimed that there had been breaches of their copyright. The case turned round whether the three wrappers were part of the consideration. It was held that they were, even though they were then thrown away when received.

Price v Easton (1833)

Easton made a contract with X that in return for X doing work for him, Easton would pay Price £19. X did the work but Easton did not pay, so Price sued. It was held that Price’s claim must fail, as he had not provided consideration.

Alliance Bank v Broom (1864)

The defendant owed an unsecured debt to the plaintiffs. When the plaintiffs asked for some security, the defendant promised to provide some goods but never produced them. When the plaintiffs tried to enforce the agreement for the security, the defendant argued that the plaintiffs had not provided any consideration.

It was held that normally in such a case, the bank would promise not to enforce the debt, but this was not done here. By not suing, however, the bank had shown forbearance and this was valid consideration, so the agreement to provide security was binding.

Collins v Godefroy (1831)

Godefroy promised to pay Collins if Collins would attend court and give evidence for Godefroy. Collins had been served with a subpoena (ie, a court order telling someone they must attend). Collins sued for payment. It was held that as Collins was under a legal duty to attend court he had not provided consideration. His action therefore failed.

Glassbrooke v GCC (1925)

The police were under a duty to protect a coal mine during a strike, and proposed mobile units. The mine owner promised to pay for police to be stationed on the premises. The police complied with this request but when they claimed the money, the mine owner refused to pay saying that the police had simply carried out their public duty.

It was held that although the police were bound to provide protection, they had a discretion as to the form it should take. As they believed mobile police were sufficient, they had acted over their normal duties. The extra protection was good consideration for the promise by the mine owner to pay for it and so the police were entitled to payment.

Stilk v Myrick (1809)

Two out of eleven sailors deserted a ship. The captain promised to pay the remaining crew extra money if they sailed the ship back, but later refused to pay.

It was held that as the sailors were already bound by their contract to sail back and to meet such emergencies of the voyage, promising to sail back was not valid consideration. Thus the captain did not have to pay the extra money.

Hartley v Ponsonby (1857)

When nineteen out of thirty-six crew of a ship deserted, the captain promised to pay the remaining crew extra money to sail back, but later refused to pay saying that they were only doing their normal jobs. In this case, however, the ship was so seriously undermanned that the rest of the journey had become extremely hazardous.

It was held that sailing the ship back in such dangerous conditions was over and above their normal duties. It discharged the sailors from their existing contract and left them free to enter into a new contract for the rest of the voyage. They were therefore entitled to the money.

Williams v Roffey (1990)

Roffey had a contract to refurbish a block of flats and had sub-contracted the carpentry work to Williams. After the work had begun, it became apparent that Williams had underestimated the cost of the work and was in financial difficulties. Roffey, concerned that the work would not be completed on time and that as a result they would fall foul of a penalty clause in their main contract with the owner, agreed to pay Williams an extra payment per flat. Williams completed the work on more flats but did not receive full payment. He stopped work and brought an action for damages. In the Court of Appeal, Roffey argued that Williams was only doing what he was contractually bound to do and so had not provided consideration.

It was held that where a party to an existing contract later agrees to pay an extra “bonus” in order to ensure that the other party performs his obligations under the contract, then that agreement is binding if the party agreeing to pay the bonus has thereby obtained some new practical advantage or avoided a disadvantage. In the present case there were benefits to Roffey including (a) making sure Williams continued his work, (b) avoiding payment under a damages clause of the main contract if Williams was late, and (c) avoiding the expense and trouble of getting someone else. Therefore, Williams was entitled to payment.

Scotson v Pegg (1861)

Scotson contracted to deliver coal to X, or to X’s order. X sold the coal to Pegg and ordered Scotson to deliver the coal to Pegg. Then Pegg promised Scotson that he would unload it at a fixed rate. In an action by Scotson to enforce Pegg’s promise, Pegg argued that the promise was not binding because Scotson had not provided consideration as Scotson was bound by his contract with X (a third party) to deliver the coal.

It was held that Scotson’s delivery of coal (the performance of an existing contractual duty to a third party, X) was a benefit to Pegg and was valid consideration. It could also been seen as a detriment to Scotson, as they could have broken their contract with X and paid damages.