Consideration

Definition

'Consideration is an act or forbearance (or the promise of it) on the part of one party to a contract as the price of the promise made to him by the other party to the contract': Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd (1915).

'Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other': Currie v Misa (1875).

The basic rule

Every simple contract must be supported by consideration from each party. 

Types of consideration

• Executory consideration is given where there is an exchange of promises to do something in the future.
• Executed consideration means that the consideration is in the form of an act carried out at the time the contract is made.

Sufficient consideration

Consideration must be sufficient but need not be adequate. Sufficient means that:

• there must be some monetary value to the consideration
• it must be capable in law of amounting to consideration.

The following are NOT considered to be sufficient consideration:

• Past consideration - consideration is past if the consideration is an act which has been wholly performed before the other party gives his promise.
• Performance of an existing duty - As a general rule is not sufficient consideration although there are exceptions to this rule.
• Illegal acts

The part-payment problem

The problem - if A accepts £400 from B in full and final settlement of a debt of £500, can A sue for the remaining £100?

General rule - the rule in Pinnel's case (1602) states that payment of a smaller sum does not discharge a debt of a greater amount. This has been affirmed in Foakes v Beer (1884).

Exceptions

There are four exceptions to the rule in Pinnel's case:

• Where the part payment is made by a third party
• composition with creditors (i.e. the creditors all agree to accept a sum which is less than they are owed)
• accord and satisfaction (accord means that both the parties agree; satisfaction might be payment at an earlier date, payment at a different place, payment in a different currency, etc)
• the equitable doctrine of promissory estoppel.

Promissory estoppel

The doctrine of promissory estoppel is based on the principles of fairness and justice. It prevents a person going back on his/her promise to accept a lesser amount. The principle was established in Central London Property Trust v High Trees House (1947).

Central London Property Trust v High Trees House (1947)

Facts: Claimants let a block of flats to the defendants in 1937 at an annual rent of £2,500 pa. The defendants were then going to sublet the flats. Due to the bombing during World War II some of the flats became difficult to sublet. In addition the existing tenants had their rents reduced. The claimants agreed to accept half the rent for the rest of the war.

Held: The full rent was payable from the end of the war. The doctrine of promissory estoppel would stop the claimants from recovering the full rent foregone during the war years.

The principle is subject to the following conditions:

• There must be an existing contract between the parties.
• The claimants must voluntarily waive their rights under the contract.
• There must be an intention that the defendants should rely on the waiver.
• The defendants must alter their legal position because of the waiver.

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Tags:	Promissory Estoppel