What is the doctrine of consideration

In order for an agreement to become a legally binding contract, the common law position is that there must either be a formalised deed or some form of consideration between the parties. The doctrine of consideration is based upon the idea that a promisee must give or promise to give something in return for the promise or unless the promisor has obtained or been promised something in return. The traditional concept of consideration is an objective one as only the things the parties said and did are taken into account, rather than their actual intentions.

However, recent judgements have placed more emphasis on the intentions of the parties when deciding if consideration has occurred as can be seen by Lord Justice Russell’s statement. ‘The courts nowadays should be more ready to find its existence so as to reflect the intention of the parties’1 This does not reflect the traditional relationship between consideration and intention to create legal relations but Russell’s LJ view does illustrate the continuing debate surrounding the actual meaning and function of consideration within contract law in the twenty-first century.

Consideration must occur in the present and not in the past for a contract to have legal effect2, but the consideration does not need to be adequate3. The consideration offered must be sufficient and move from the promisee4 in order for the courts to conclude a promise had been made and as Professor Treitel states, it must have ‘some economical value’. Part payment of a debt however, does not constitute good consideration for the entire debt5. The conventional view within contract law is that the performance of a contractual duty can constitute consideration, but the performance of an existing legal duty and performance of an existing contractual duty owed to the promisor does not amount to consideration unless a ‘practical benefit’ to the promisor arises.

In the case of Williams v Roffey Bros & Nicholls Ltd6, the defendant argued that consideration was not evident so the agreement was unenforceable but the court ruled that additional benefit received by the promisor does amount to consideration, which does raise the question as to how this case differed from Foakes v Beer. The ruling in In Re Selectmove Ltd 7differed to that in Williams v Roffey Bros & Nicholls with the court referring to Fokes v Beer instead and concluding that fresh consideration must occur for every new agreement that is made between parties. These cases highlight the necessary requirements for consideration to exist, with Williams v Roffey being an extension of the doctrine of consideration and Re Selectmove offering no consideration because a whole new agreement was established, which amounts to a new offer which requires fresh acceptance.

The continuation of an existing public duty does not amount to consideration unless this duty has been exceeded8, whilst the continuation of an existing contractual duty does not constitute consideration9 unless it is to a third party10. Forbearance can however amount to consideration, such as offering someone �100 not to knock down a fence, whilst acts which are illegal or so immoral that they are against established public policy, such as prostitution, cannot serve as consideration for enforceable contracts.

Professor Atiyah has challenged the orthodox definition of consideration, arguing that ‘the courts have never set out to create a doctrine of consideration’11 Professor Treitel rejects Atiyah’s thesis by stating that the courts do recognise ‘a complex and multifarious body of rules known as “the doctrine of consideration”’12 There is no clear definition of ‘consideration’, but it is generally observed that it involves one party giving or promising something in exchange for the other parties performance or promise of performance and is used as an enforcement mechanism in order to impose certainty, which is essential within contract law.

If an individual is unaware that only contracts which involve a degree of bargaining, are enforceable and relies on the good faith of an agreement, the doctrine of consideration would seem to have an unfair effect upon this individual. Equitable rules have developed therefore to address this clear problem in the form of reliance, with promissory estoppel providing a means to which individuals can ensure they are not exploited when they offer no consideration. Promissory estoppel can be used

‘Where, by words or conduct, a person makes an unambiguous representation as to his future conduct, intending the representation to be relied on and to affect legal relations between the parties, and the representee alters his position in reliance on it, the representor will be unable to act inconsistently with the representation if by so doing the representee would be prejudiced’13

If someone relies on a false statement, which they treat as a promise, as was the case in Hughes v Metropolitan Railway Co14, promissory estoppel can be used when there is no consideration as protection. There must be a pre-existing legal relationship between the parties under which the promisor promises to give up some rights in order for estoppel to be used in this manner, in affect, as a shield. Promissory estoppel cannot however, be used as a cause of action (or a sword), as can be seen in Combe v Combe15, as this would amount to using promissory estoppel as a cause of action.

This differs from the view taken by the High Court of Australia in Waltons Stores Ltd v Maher16, which explored the relationship between the doctrine of consideration and the equitable doctrine of promissory estoppel in depth. The defendants argued that estoppel could not be used as a cause of action and as there was no pre-existing legal relationship between the parties, they were not bound by any promise. The court rejected this and ruled that promissory estoppel could be used as a cause of action in some cases, which is contrary to the common law which is in place within UK contract law.

Promissory estoppel does not require consideration and is used where legal consideration is lacking, in order to protect the reliance interest of the claimant and not the expected interest, as to prevent the promisor going back on his promise where the promisee has acted in reliance upon it. The doctrine of consideration provides a clear way of identifying an intention to create legal relations and it does not only protect a reliance interest. If an individual promises to give someone £1,000 and that person then spends £500 before he gets the money as he believes an agreement has been made, promissory estoppel could be used as a shield in order to recuperate the �500, whilst an expectant promise would recuperate £1,000, but this would require consideration, highlighting the main difference between the doctrines of consideration and promissory estoppel.