Introduction to Consideration
In our previous chapters, we looked at Offer and Acceptance and the Intention to Create Legal Relations. But even if you have an agreement and you intend it to be legal, English law usually requires one more ingredient to make a contract "official": Consideration.
Think of consideration as the "price" paid for a promise. It is what transforms a mere social promise (which isn't usually enforceable) into a legally binding contract. In simple terms, it’s the "What’s in it for me?" factor. If I promise to give you my car for free, that’s a gift, and you usually can’t sue me if I change my mind. If I promise to give you my car because you promised to pay me £5,000, we have a contract because there is consideration from both sides.
Don’t worry if this seems a bit technical at first! We are going to break down the specific rules the courts use to decide if consideration exists.
1. The Nature and Function of Consideration
The main function of consideration is to ensure that both parties are bringing something to the table. Lawyers often describe this using the terms benefit and detriment:
1. A benefit to the person making the promise (the promisor).
2. A detriment to the person receiving the promise (the promisee).
For example, if you buy a chocolate bar, the shop gets the benefit of your money, and you suffer the detriment of losing that money. In return, you get the benefit of the chocolate, and the shop suffers the detriment of losing its stock. It is a "quid pro quo" — something for something.
Key Takeaway: Consideration is the exchange of something of value between the parties. Without it, a simple promise is generally not a contract.
2. Sufficiency vs. Adequacy
This is one of the most important distinctions in contract law. You might think a "fair" deal means the values must match, but the law thinks differently.
Adequacy
The courts do not care if you have made a "good" deal or a "bad" deal. They will not interfere just because you sold a diamond ring for £1. This is known as the rule that consideration need not be adequate. As long as you agreed to it freely, the "price" is up to you.
Sufficiency
However, consideration must be sufficient. This means it must be something of some value in the eyes of the law. It must be real, legal, and have some physical or economic value.
Example: In a famous legal principle, even a "peppercorn" or empty chocolate wrappers can be sufficient consideration if the parties agree they are the price of the deal. They have value to the parties, even if they aren't worth much money. On the other hand, a promise to "stop being a nuisance" or a "promise based on love and affection" is often seen as too vague to be sufficient.
3. Past Consideration
The timing of the exchange matters. For consideration to be valid, it must be given in return for the promise. If you do something for someone and then they promise to pay you afterward, that is Past Consideration.
The Rule: Past consideration is no consideration. You cannot use something you already did in the past as "payment" for a new promise made today.
Example: Imagine you wash your neighbor's car while they are at work as a surprise. When they get home, they are so happy they say, "I'll give you £10 for doing that!" If they never pay you, you cannot sue them. Why? Because you didn't wash the car in exchange for the promise of £10. The work was already finished before the promise was made.
The Exception: If the person requested the service and both parties impliedly understood that payment would be made, the court might view it as a valid contract even if the exact price was decided later.
4. Performance of Existing Duties
Can you use something you are already required to do as consideration for a new promise? Usually, the answer is no.
A. Public Duties
If you have a legal duty to do something (like a police officer catching a criminal), you cannot demand extra money for doing that job. However, if you do more than your duty requires (e.g., providing extra security that wasn't strictly necessary), that "extra" bit is valid consideration.
B. Existing Contractual Duties
If you are already under a contract to do a job for someone, you cannot usually ask for more money to finish that same job.
Example: A builder agrees to finish a house for £50,000. Halfway through, he says he won't finish unless you pay an extra £5,000. If you agree, but then don't pay the extra, the builder usually can't sue you because he was already legally bound to finish the house for the original price.
Important "Practical Benefit" Exception: If your promise to pay extra helps you avoid a problem (like a penalty clause in another contract) or gives you a "practical benefit," the court might occasionally find that valid consideration exists. This is a complex area, but the focus is on whether the person paying extra actually got something "more" out of the deal than they originally expected.
C. Duties to Third Parties
If you are already contracted to do something for Person A, and then Person B promises to pay you to do that same thing, your performance is valid consideration for Person B's promise. You are taking on a new legal obligation to a new person!
5. Part Payment of Debt
This is a classic exam topic! If you owe someone £1,000 and you offer them £600 to "settle the debt," and they agree, can they later sue you for the remaining £400?
The Rule: Generally, part payment of a debt is not good consideration for a promise to waive the rest of the balance. The creditor (the person you owe) is already entitled to the full £1,000, so your payment of £600 gives them nothing "extra."
Exceptions (The "Something Different" Rule): The creditor is bound by the settlement if the debtor provides something extra or different, such as:
- Paying the smaller amount earlier than the due date.
- Paying in a different location at the creditor's request.
- Giving an item instead of money (e.g., "I'll give you £500 and my laptop to settle the £1,000 debt"). Even if the laptop is only worth £100, the law sees it as "something different," making it valid consideration.
6. Promissory Estoppel
This is a special rule of Equity (fairness) that acts as an exception to the rules above. It is often described as a "shield, not a sword."
What is it? Promissory Estoppel stops a person from going back on a promise if it would be unfair to do so, even if there is no consideration. It applies when:
1. There is an existing legal relationship (like a contract).
2. One party promises not to enforce their strict legal rights (e.g., a landlord agrees to accept half-rent during a war or crisis).
3. The other party relies on that promise and changes their behavior.
4. It would be unfair to allow the promisor to go back on their word.
Important Limit: You cannot use Promissory Estoppel to start a lawsuit (a sword). You can only use it to defend yourself if someone tries to sue you for breaking the original contract (a shield).
Quick Review:
- Adequacy: Courts don't care about the price.
- Sufficiency: It must have some value.
- Past Consideration: Usually doesn't count.
- Part Payment: Usually doesn't clear the debt unless "something extra" is added.
- Promissory Estoppel: The "fairness" backup plan.