There are many assertion is suggesting that the element of consideration merely only complicate matters and should no longer be a requirement to be proven before a case to should be allowed to be brought into a court of law. It is submitted that this would go contrary to the definition of a valid and binding contract of L. Wilberforce in the Eurymedon where his lordship had indicated that there is a need for the element of consideration.

It is submitted that the reason for such an assertion could be due to the fact that there are so many changes to the rules of consideration where it is seem to suggest that consideration is now redundant. Although the assertion would be partially correct i.e. that it complicate matters, it is submitted humbly that the requirements of consideration should not done away with.

Q: What are the changes that would render consideration redundant?

Intention to create legal relations (ITCLR)

In Europe according to Art 2.101 Principles Of European Contract Law 2000, Sec 1 (a) and (b) state that so long as the parties inteded to be legally bound and they reach a sufficient agreement it is enforceable without any further agreement.

Where else, under Art 3.1 of the Unidroit Statement of Principles for International Commerial Contract 1994 a contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirement. This shows a trend on the continent that intention of the parties seems to be the paramount consideration in determining the enforceability of a contract rather than consideration.

With such elements, it seems to suggest that there isn’t a need for the elements of consideration today. However, one should not be too quick to conclude that there is no longer a need for consideration.

One should first consider the case of Jones V Paddavattan. here, Mrs. Jones wanted her daughter to read law in England and become a barrister. She offered her daughter a monthly allowance while she read for the Bar. The daughter reluctantly accepted the offer [she initially wanted a higher allowance] and went to England in 1962. Mrs. Jones bought a house in London and she requested the daughter live with her child in part of it. The daughter accepted. The rest of the house was let to tenants where the rent collected covered expenses and the daughter's maintenance.

Mrs. Jones and her daughter quarreled and Mrs. Jones wanted the house back. She issued a summons claiming possession of the house. The daughter counter-claimed for the monthly allowance. At the time of the hearing, the daughter had only passed a portion of Part I of the Bar examinations.

It was held that on the facts of this case that the daughter could not sue Mrs Jones as the daughter could not show that there was an ITCLR between Mrs Jones and her.

However, what is important on the facts is that it could be shown that there was consideration that was provided by the daughter by studying (as she did not intend to do so initially).

The conclusion that could be drawn from the facts of Jones v Paddavattan is that the elements of both consideration and ITCLR is both distinct elements and both elements needs to be in existence before a case were to succeed.

Another case that should be taken into consideration is the case of Carlill v Carbolic Smokeball Co. here, the defendant Company, advertised that they offered to pay €100 “reward” to anyone who caught influenza after having used the smoke ball three times a day for two weeks, as per the printed directions supplied with each ball. Furthermore, the defendant Company further deposited €1000 in the bank to show their sincerity.

The plaintiff used the ball as prescribed and then successfully caught influenza. She sued for the reward of £100.

In this case it was found that the Plaintiff had provided consideration by contracting influenza. It further found that there was ITCLR by the defendant as they had actually published that they deposited €1000 to show their sincerity.

The question now arise is whether Mrs Carlill would be able to claim in the event that she had not contracted influenza? It is submitted that she would not. This is because that she would have not provided any consideration.

Therefore, by looking into the 2 cases discussed above, one would be able to come to a conclusion that in the event that the contracting party could shown ITCLR but not Consideration, a claim would fail and vice versa. Hence , consideration and ITCLR are both distinct elements and would be needed to successfully sue under a contract.

Contract (Rights of Third Parties) Act 1999

The Contract (Rights of Third Parties) Act 1999 had seem to have brought a new light into the doctrine of consideration and privity of contract. This is because the case of Tweedle v Atkinson and Dunlop Pneumatic Tyres v Selfridge dictated that a stranger to a contract would not be able to enforce a contract due to the fact that the stranger would not have provided consideration.

Although there are exceptions towards the doctrine of privity, one has to realise that there is still a need for the existence of the element of consideration e.g. collateral contract (Shanklin Pier v Detel Products) and the concept of agency (NZ Shipping Co. v AM Satterwaith).

After the enactment of the 1999 Act, one would realise that under S 1(1) of the Act, once a person could satisfy that he either falls within S 1(1)(a) i.e. one that is identified to be able to enforce the contract or S 1(1)(b) i.e. a peson that would benefit from the contract, that said person would now be entitled to enforce the contract even though consideration was not provided.

This 1999 Act was said to have given the final blow towards consideration. However, one has to note that the 1999 Act is a statutory provision. Basing it on the concept of parliamentary supremacy, the courts would never question the integrity of a statute. Hence, if parliament were to change the law, it would be accepted without further question.

The concept of economic duress

In the case of Stilk v Myrick, the ship after reaching it’s destination and is about to return to England, there was a few men who had jumped the ship. At such, the existing members did not want to continue with the journey unless they were paid extra. The ship Captain actually said that he would divide the wages of those that had jumped the ship to the existing members.

When the ship finally arrive at the English port and when the members demanded for the extra wages, the ship captain turned around and said that he would not pay them the extra.

It was held in this case that the seamen wasn’t allowed to claim the extra and was said that they had not provided valuable consideration for that promise because the crew members were under a contractual duty to perform the act of taking the ship back to England. This was the decision found in the Campbell Report which was later followed in the case North Ocean Shipping v Hyundai Construction.

However, the Espinasse Report found that the decision was based on public policy. This is because the law needs to protect the promisors from extortion. This reasoning was not followed as Espinasse was not a known law reporter.

It would be irrelevant if the promisor can actually show that there was duress by the promisee no matter how minimal (The Atlantic Baron). In short, what this really means is that the promisee can only claim for the extra sum if he could prove that the promise was made at the free will of the promisor in the absence of duress.(Pao On v Lau Yiu Long) Nonetheless, it was held that the promise couldn’t be impugned that the refusal amounted to an abuse by the promisee of a dominant bargaining position.

One has to look into the case of Stilk in light of the case of Williams v Roffrey Bros. & Nicholls (Contractors) Ltd. Here, the Defendant (D) engaged the plaintiff (P) as a carpentry sub contractor for the purposes of performing a contract between D and X to refurbish a number of flats. The amount payable to P under the sub contract was $20,000, but the D later promised to make an extra payment to the P, who undertook no additional obligation in return.

The D made this new promise because the D’s own surveyor recognised that the originally agreed sum of $20,000 was too low, as well as being worried that the P would not be able to complete the work on time exposing the D to penalties for delay under the contract between D and X. The P was at that time in financial difficulties.

It was held in this case that the D’s promise to make extra payments to the P was supported by consideration in the shape of “practical benefits” obtained by the D from the P’s performance of his duties under the original contract between them. This is due to the fact that there was no allegation of duress on the P; the promise to pay extra could not be avoided. Moreover, it was alleged that there has been no threat by the P to break the original contract and the initiative for the agreement to extra payment has came from the D.

In this case, the point is that the D had obtained a practical benefit by not infringing the time penalty clause, looking for another contractor and it would ensure that the P would not stop and in breach. Doesn’t this benefit was created by the courts? Although this is true, but isn’t this the same for the case of Stilk v Myrick?

The reasoning is that that at the time that Stilk was decided, there is no such vitiating factor that was recognised as economic duress. However, this argument would hold much weight today due to the fact that duress is now a recognised defence.

The is no uniformed rules towards consideration

It had always been argued that the courts had departed so much from the original rules of consideration that it had rendered the rules of consideration redundant.

e.g.
The rule of consideration must be sufficient and need not be adequate
In the case of Chappell v Nestle Co. Ltd., the chocolate manufacturers sold gramophone records for 1s6d plus 3 wrappers of their 6d chocolate. The issue was to whether the wrappers would amount to consideration because even though the Nestle Co. was to take the wrappers back, they would only throw the wrappers away and it is entirely worthless (“rubbish”). However, it was held in this case that the wrappers actually constitute valuable consideration.

If chocolate wrappers, which are worthless, would constitute valuable consideration, consider this case of Lipkin Gorman v Karpnale. The issue in this case, the issue was whether the gaming chips supplied by the gaming club to one of its members was valuable consideration. It was held in this case that it does not constitute consideration for the money paid to them.

Why is this? These chips that was bought or “exchanged” was said to be worthless because it is said that it was mere plastic. However, it actually carry some value doesn’t it because the chips are actually valued for the some paid for and the chips could be exchanged back for cash. But, if we were to say that they are worthless, wouldn’t it be the same with regards to the chocolate wrappers in Chappell’s case?

The other reason that was given was that the chips remained the possession of the gaming club. This is because the chips are worthless outside the club, but this cannot be said to be conclusive, this is because the member would have paid good money for it and upon payment, the chips would have been transferred to the member. Therefore, the transfer of possession would clearly constitute good consideration.

The third reason is that the parties did not regard the transaction of transferring the chips as a contract but merely a convenient mechanism to facilitate gambling. The case is regarded as one in which the court refused to invent consideration even though this course was technically open. They said that this is what the parties have intended, is this so? Intention of the parties is always subjective and we cannot actually say conclusively that this was the intention of the parties, the gaming club would of course argue that they did not enter into a contract. For the courts to say conclusively that this is what the parties have intended would be artificial.

The refusal appears to be based on the context in which the question arose. The issue was not whether the club enforce any promise made by the member or vice versa. The issue arose because the money paid by the member to the club had been stolen and the club, which had been received the money in good faith, argued that they had given valuable consideration for it so as to defeat the owner’s claim for the return of the money.

At such, one would realise that the courts seem to have differed in their view when there is merely small differences. This no wonder that had let to academics to argue that the doctrine of consideration to create unnecessary complication to contract law.

Other examples of depart
Roscorla v Thomas. Here, after the sale of the horse, the seller gave an extra warranty that the horse is free from vice. However, in this case, it was held that the plaintiff could not enforce the warranty because the consideration for the warranty has passed. It is submitted that the point of distinction is that whether the term or warranty was given before the completion of the contract.

In the case of Re Casey’s Patent, it was held that a past act could be consideration for a promise only if 3 conditions are satisfied. First of all, the act must be done by the request of the promisor. The second is that it must be understood that payment would be made and finally, that the payment if it is promised in advance, must be legally enforceable. This rule was also seen in the case of Pao On v Lau Yiu Long.

The question that now arise is why that the courts should create so many exceptions towards the rule? If they intend to look into the exceptions, they should have recognised it as the rule at the first place.

Promissory Estoppel

It had always been argued that Promissory Estoppel goes directly against the rules of consideration laid down in Foakes v Beer. Here, Mrs. Beer had obtained a judgement against Dr. Foakes for the sum of £2090 19s. Some 16 months later, Dr. Foakes finding it hard to pay up the debt, asked for some time extension. There upon, the parties entered into a written agreement. Under this agreement, Mrs. Beer would undertake not to take “any proceeding whatsoever” on the judgement in consideration of the immediate payment by Dr. Foakes of £500 and on condition of his paying specified instalments “until the whole sum of £2090 19s shall have been paid and satisfied.

About 5 years later, when Dr. Foakes had paid the £2090 19s, Mrs. Beer claimed £360 for interest on the judgement debt. The House of Lords held that it seems that Mrs. Beer intended only to give Dr. Foakes time to pay and not to forgive the interest, therefore upholding Mrs. Beer’s claim.

However, the doctrine of promissory estoppel had seem to evade the rule in totality. It all started of in the case of Central London Properties v High Trees Housing. Here, the plaintiff let out a block of flats in the London to the defendant, on a 99-year lease at annual rent of the £2500. In 1940 the defendant discovered that as a result of the outbreak of the war, and the evacuation of people from London, they were unable to let out the flats.

The plaintiff then agreed to reduce the rent to £1250. The promise to accept the lesser rent was unsupported by consideration. At the end of the war in 1945, the property market returned to normal and the flats were fully let. The plaintiff then demanded that the defendant resumed payments of the entitled rent from 1945 but the defendant refused to pay. It was held that the agreement in 1940 was intended to be temporary and ceased to operate in 1945. Therefore, the plaintiff, were entitled to the full £2500 from 1945 onwards.

However, the significance of this case lies in Denning J’s (as he then was) opinion that he had the plaintiff claimed for the period of 1940 to 1945. The promisor would be estopped from going back on his words even though the promisee had not provided consideration for it.

This rule totally evade the rules of the common law of Foakes v Beer. However one has to note that this a rule of equity where the courts would only invoke such a doctrine for one of justice.

Conclusion

From the discussion above, one would come to a conclusion that consideration seem to have created unnecessary complication and should be done away with. However, one has to realise that there are arguments against the other reforms such as ITCLR and the 1999 Act.

The rest of complication is that the courts does not seem to provide us with a uniformed rules against consideration. However, the problems is only the uniformed rules. This does not mean that consideration is an unnecessary element. Perhaps the better approach to consideration is to get it placed into a statutory form.

At the end of the day, it is submitted that consideration should not be done away with. One of this reason is that in the event an aggrieved party to a contract wants to show that he had suffered loss for the breach, how can he prove loss when he did not provide consideration?