Should Consideration Be Abolished?

I: Introduction

Enforceability of contracts is of fundamental importance in ensuring legal certainty and fairness for all parties. For a long time consideration has been the instrument used in English contract law to differentiate between enforceable and unenforceable contracts. However recently the legitimacy and applicability of consideration has been questioned, which has led some to suggest it should be abolished. This essay will seek to explore the functions currently performed by the doctrine and examine the alternatives.

II: Consideration: A Contextual Background

The origins of the modern doctrine of consideration are to be found in the judgment of Lush J in Currie v Misa ((1875) LR 10 Ex 153), where he described consideration as:

'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.'

This definition gave birth to the orthodox 'reciprocity' idea of consideration - that a promise cannot be enforced unless the promisee has given or promised to give something in return . Consideration now has four distinct rules:

a) Consideration Must Be Sufficient, But Need Not Be Adequate

This rule was originally conceived in Pinnel's Case and affirmed in Chappell & Co. Ltd v Nestle Co. Ltd , where three chocolate wrappers were considered good consideration, despite their low economic value.

b) Past Consideration is Not Good Consideration.

In Roscorla v Thomas , a promise that a horse was of sound health was held unenforceable since it had been given after the original contract had been concluded.

c) Performance of a duty enforced by law does not constitute good consideration (Collins v Godefroy) .

However where the individual does more than legally required this can be sufficient consideration (Ward v Byham) .

d) Part-payment of a debt is not good consideration, but part-performance of an existing contractual duty is good consideration.

In Pinnel's Case it was held paying a smaller sum of an entire debt was not good consideration since the debtor was only doing what he was already legally entitled to do. This rule was resurrected in Foakes v Beer , and reaffirmed once more in Re Selectmove Ltd . In the seminal case of Williams v Roffey Brothers & Nicholls (Contractors) Ltd the Court of Appeal held that part-performance of an existing contractual obligation was sufficient consideration for a promise to pay more for its completion.

III: Difficulties with Reconciling the Case law of Consideration

a. The Adequacy/Sufficiency Argument.

Particular scrutiny has been paid to the rule that consideration must be sufficient, but need not be adequate. This is particularly apparent if one contrasts the decisions in the Chappel case and Ward v Byham, where the court held that three chocolate wrappers and a promise to keep a child happy respectively were deemed sufficient consideration, with the decision in White v Bluett , where a promise to refrain from complaining was not deemed sufficient consideration. The problem is that if 'practical benefit' is now recognised then this was ignored in White v Bluett. Even if this case is viewed from a benefit/detriment analysis, then arguably the son did incur a detriment in not complaining.

b. The distinction between a legal and factual benefit.

Another considerable difficulty is the identification of a practical benefit in Williams v Roffey Bros, not a legal benefit. Although Stilk v Myrick was not overruled, the judges did suggest there had been a shift in emphasis in judging consideration, and that more specifically courts 'should be more ready to find its existence so as to reflect the intention of the parties to the contract' .

This did not sit easily with the well-established principle of legal benefit. As many, notably Phang LJ have pointed out, if a practical benefit existed with a promise to give more then logically this could be extended to promises to accept less . This reasoning contradicts the rule in Foakes v Beer, yet this case was not cited in Williams, even though the Court of Appeal was effectively overruling it. The complexity of this scenario was subsequently deepened when the Court of Appeal in Re Selectmove applied Foakes v Beer rather than Williams v Roffey, whilst identifying a factual benefit and desiring to follow Williams v Roffey Bros .

IV: Consideration Under Pressure?

The dissatisfaction with the function and scope of consideration in light of the Williams v Roffey Bros decision has led many to consider whether this doctrine should be replaced, in particular with either intention to create legal relations or promissory estoppel.

a) Intention to Create Legal Relations

The basis of the doctrine of intention to create legal relations is to (objectively) reflect the true intentions of the parties when they enter a contract. The principle seeks to differentiate between social agreements (where there is a rebuttable presumption that there is no intention to create legal relations) and business agreements (where there the presumption is the opposite). The approach of Russel LJ in Williams v Roffey Bros seems to support the idea that consideration could become a part of (or be replaced by) intention to create legal relations . Yet if consideration were retained Williams v Roffey Bros could still be considered either a duress case or example of where promissory estoppel can be used as a cause of action. The main advantage of adopting intention to create legal relations to enforce contracts would be legal certainty (evidenced by the social/business distinction), however Mindy Chen-Wishart has noted that there are several difficulties with using this doctrine in the same manner as consideration, namely the problem concerning the enforcement of gratuitous promises and the her belief that replacing consideration with intention to create legal relations would 'simply to require the courts to begin all over again the task of deciding what promises are to be enforceable' .

b) Promissory Estoppel

In our jurisdiction the promissory estoppel enforces a promise in the absence of consideration. First used in Hughes v Metropolitan Railway , it was later defined by Denning J as where an unambiguous representation was made to one party who then relied on it to his detriment .

In Williams v Roffey Bros, the judges asserted a claim could have been for promissory estoppel, although McKendrick has suggested this would not have benefited the party seeking to rely (who would have obtained less compensation and because promissory estoppel is harder to invoke) .

A considerable problem with estoppel replacing consideration is the rule that it can only be used 'as a shield and not a sword'. A solution to this difficulty could be if the UK were to take the approach used in Australia, where in the seminal case of Waltons Stores (Interstate) Ltd v Maher the High Court of Australia affirmed that estoppel could be used as a cause of action. In doing so the court has implied that estoppel has a role to play with the formation of contracts, not just their modification, and could thus be a replacement for consideration . However Brennan J stated that despite allowing promissory estoppel as a cause of action it still performed a different function to consideration, since consideration protected the expectation interest of the contract whilst promissory estoppel was concerned with the reliance interest . Furthermore in the absence of a unified doctrine of estoppel in the English jurisdiction it is unlikely it can be a viable alternative to consideration in its own right.

V: Vitiating Factors

Vitiating factors within contract law aim to limit contracting parties exercising economic power . In terms of consideration, economic duress has evolved to take on some of its functions, with some support for the adoption of the doctrine of unconscionability to oversee the fair execution of contracts.

Economic duress involves a contracting party using their superior economic power illegitimately, which the courts initially interpreted meant the weaker party was coerced into contracting and had their consent vitiated . However this definition has now been refined, most illuminatingly by Lord Scarman, who instead saw duress as recognition of 'the victim's intentional submission arising from the realization that there is no practical choice open to him' .

The scope for duress to replace certain aspects of consideration has been entertained in light of the judges' comments in Williams v Roffey Bros, particularly Glidewell LJ who suggested that if Stilk v Myrick were re-decided now it would be an economic duress case, and Purchas LJ who commented that 'modern cases tend to depend more on the defence of duress in a commercial context rather than lack of consideration.' . The importance of duress replacing consideration is whereas an agreement without consideration is considered void, duress will render a contract voidable (and set aside). However McKendrick believes there is a balance to be made between consideration and duress, since consideration concerns the 'renegotiation of a contract and duress regulates the fairness of the renegotiation' .

With no doctrine of unconscionability in the English courts, some, notably Lord Denning in Lloyd's Bank v Bundy , have argued that English law does have scope to protect individuals from unconscionable conduct with others (namely Lord Scarman) emphasising it does not . The doctrine of unconscionability has however been adopted in the Australian jurisdiction during the landmark case of Commercial Bank of Australia v Amadio . Here the High Court of Australia streamlined contract law, combining duress, undue influence and some elements of mistake to create a new doctrine of unconscionability. John Philips has argued that this approach could be adopted in the United Kingdom with little judicial difficulty, that it would still allow parties to enforce the same rights they could under the old doctrines but under a clearer set of rules, and that the English courts have already intimated a move towards this line of reasoning in cases such as Bundy and Abbey National v Stringer .

However there is scope to suggest vitiating factors alone are insufficient to replace consideration. McKendrick has noted that duress is not concerned with the absence of consent but rather the wrongful nature of threats inducing consent , and thus has a different and separate role to consideration. Mindy Chen-Wishart has further suggested the doctrines considered above do not examine contractual intention in the same manner as consideration. They relate to contracts that have already been formed and are thus ill equipped to take on the role currently performed by consideration .

VI: Conclusion

In my opinion consideration should not be abolished. Its critical role in contract formation, and either the unsuitability or inefficiency of the alternatives, have lead me to agree with Mindy Chen-Wishart in her belief it still has a role in contract law. Having said this, I believe the UK should follow the line of reasoning taken by the Court of Appeal in Williams v Roffey Bros: 'limit and refine' the doctrine, recognising a practical benefit rather than a legal one. Furthermore I believe the English legal system should follow the example of Australia, first in allowing promissory estoppel as a cause of action (operating in tandem with, not against, consideration) and secondly in adopting a doctrine of unconscionability. Thus consideration would seek to ensure contracts had a 'badge of enforceability', whilst promissory estoppel and unconscionability would ensure that remedies are available where contracts are not exercised fairly.

VII: Bibliography

1. McKendrick, E, Contract Law, (first published 1990, Palgrave MacMillan 2011). 2. Poole, J, Casebook on Contract Law, (2010, Oxford University Press). 3. Chen-Wishart, M, 'Consideration and Serious Intention' (2004, Singapore Journal of Legal Studies). 4. Phillips, J, 'Protecting those in a Disadvantageous Negotiating Position: Unconscionable Bargains as a Unifying Doctrine' (2010, Wake Forest Law Review).