DOCTRINE OF CONSIDERATION -

FACETS

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 TABLE OF CONTENTS

1 INTODUCTION…………………………………………………4

2 HISTORICAL DEVELOPMENT OF THE DOCTRINE OF

CONSIDERATION…….…5

3 THE DOCTRINE OF CONSIDERATION………....................6

4 CONSIDERATION - A FUNDAMENTAL PREREQUISITE

IN COMMON LAW……………7
5 CAUSA IN CIVIL LAW……………………………………..….8

6 THE PURPOSE OF CONSIDERATION……………………..10

7 CONSIDERATION IN PRACTISE…………...………………12

8 ABOLISHING CONSIDERATION AS A

REQUIREMENT……….15

9 CONCLUSION………………………………………………….16

INTRODUCTION
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“It is thus clear that even at common law, consideration cannot be regarded as the conclusive test
of a deliberate mind to contract: whether there is such a mind must always be the decisive and
overriding question. In any system of law, consideration may be introduced as evidence of that
deliberate mind; but it cannot, even under the common law, be decisive: the only question is
whether it can be put on a pedestal as the “sole” test.” – Lord Wright1.

The doctrine of consideration is one of the most debated aspects of the law of contracts in
Common Law jurisdictions. Consideration emerged during the sixteenth century as an element of
actions in assumpsit.2 Originally consideration was closely related to the causa of the civil law -
it provided a motive for contracting and a motive for why the arrangement should be enforced.
With the shift away from motive to the notion of a quid pro quo, consideration assumed an
appearance more recognisable to the law of today. But the doctrine has suffered criticism from
3 4 5
judges, academics and the English Law Revision Committee alike. But despite its
controversial status, it remains as an essential requirement for the formation of contracts. 6
Through the doctrine of consideration, contract is largely restricted to the realm of bargains
involving an exchange of value between two parties. This is not the only possible approach to
contract; in fact, it is unique to Common Law systems. Other systems such as Civil law system
and the mixed legal systems of Scotland and South Africa do not require consideration for
contract formation.

This paper traces the historical development of doctrine of consideration and its application in
common law. The paper also addresses the practical implications of the consideration and
examines consideration requirements in other legal systems.

1
L Wright, Ought the Doctrine of Consideration to be abolished from the Common Law? 49 HLR 1225, 1229
(1936)
2
V D Ricks, The Sophisticated Doctrine of Consideration, 9 GMLR 99, 102 (2000)
3
Supra 1, at 1225
4
See Charles Fried, Contract as Promise: A Theory of Contractual Obligation (Harvard University Press,
Cambridge, 1981).
5
English Law Revision Committee, The Statute of Frauds and the Doctrine of Consideration, 15 Can Bar Rev 585
(1937)

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 HISTORICAL DEVELOPMENT OF THE
DOCTRINE OF CONSIDERATION
The doctrine of consideration has of course its roots in the early common law. A study of its
history would reveal that the personal actions of covenant and debt are the two aspects which
have helped the evolution of the doctrine. The action of covenant was the action which was
brought upon instruments which are enforceable by the virtue of their form. In the action of debt,
the defendant was conceived of as having in his possession, something belonging to the plaintiff
whom he might not rightfully keep, but ought to surrender. The action of debt therefore was the
appropriate action by which many of the commonest classes of contracts could be enforced,
provided that one of the parties to the contract could prove some “quid pro quo”, for the
defendants promise7.

In Henry VI reign, it was taken to be settled law. Thus the conception of quid pro quo had been
shifted from the notion of doing something for or giving a physical something to the defendant,
to the doing something for or giving something to another at his request, which could be
regarded as benefit to him8. In the 16th and 17th centuries, this view seems to have prevailed.

It is from the later years of Edward III’s reign onwards, the common law doctrine as to the
liability in tort had been extended and improved by the working of the action of trespass and
deceit. The particular kind of action of trespass or deceit which was brought in such cases
gradually came to be known as action of assumpsit. It is clear from certain decisions and dicta
that there was growing inclination among some of judges to hold that a mere non – feasanse in
breach of an undertaking gave a good cause of action in trespass or deceit on the case9.

Thus it was necessary to find a test which would enable a distinction to be made between those
agreements, the non – performance of which would give ground for an action, and those
agreements the non – performance of which would not give rise to an action. The test ultimately

7
John Wilson Tyford, The role of consideration in contract modification, available at
https://opus.lib.uts.edu.au/research/handle/2100/286, last seen on 19/10/2015
8
Ibid
9
A W P Simpson, A history of the common law of contract, chapter V (Clarendon Press oxford, 1987)

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reached was obtained by asking whether the damage resulting from the breach of the agreement
was caused solely by the breach of the agreement, or was caused not merely by the breach of the
agreement, but also by the change of position which the making of the agreement had induced10.
In the first case, mere non- feasanse in breach of an agreement was not actionable. In the second
case it was.

It was recognized that this was so, in two cases of Henry VIIIth reign. It was held in those cases
that if A said to B, “supply goods to C, and if he does not pay I will”, and B supplied the goods,
B could sue A. In “Doctor and Servant” we find it stated that “ if he to whom the promise is
made , have a charge by reason of the promise which he hath also performed, then in that case he
shall have an action for that thing that was promised, though he that made the promise have no
worldly profit by it”11. This was obviously a result very similar to that reached by the decision
that a benefit conferred on a third person at the defendants’ request could be regarded as a quid
pro quo; and some have thought that this sentence refers to the action of debt.

It would appear from the above mentioned facts that the plaintiff must have incurred ‘charge’
and that the charge must consist in the fact that the plaintiff had performed his side of the
agreement. This charge developed into the modern doctrine of consideration.

THE DOCTRINE OF CONSIDERATION

DEFINING CONSIDERATION
Initially, consideration was an essential element, but it was poorly defined by English law and it
was stated it could involved almost anything that showed some movement of benefit and
detriment. The classic definition has expressed in the following terms: ‘a valuable consideration,
in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the
one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by

10
Sir William Holdsworth, History of English Law (Metheun & Co. Ltd Sweeet & Maxwell, 1922)
11
Supra 7

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the other 12 ’. However, this conventional interpretation is challenged by Professor Patrick S.
Atiyah, he stated that ‘The truth is that the courts have never set out to create a doctrine of
consideration. They have been concerned with the much more practical problem of doctrine in
the course of litigation whether a particular promise in a particular case should be enforced ——
When the courts found a sufficient reason for enforcing a promise they enforced it; when they
found that for one reason or another it was undesirable to enforce a promise, they did not enforce
it. It seems highly probable that when the courts first used the word “consideration” they meant
no more than there was a “reason” for the enforcement of a promise. If the consideration was
“good”, this meant that the court found sufficient reason for enforcing the promise’13.

However, on the other hand, Professor Treitel counters attack on Atiyah’s thesis14. Treitel argues
that English law does, in fact, recognize the existence of a ‘complex and multifarious body of
rules known as “the doctrine of consideration”. Even he argued that in some cases the courts
have ‘invented’ consideration, that is to say the courts ‘have treated some act or forbearance as
consideration quite irrespective of the question whether the parties have so regarded it’.

CONSIDERATION AS A FUNDAMENTAL
PREREQUISITE IN COMMON LAW
For a promise to be enforceable as a contract in Common Law jurisdictions, it must either be
contained in a deed or supported by consideration. 15 Lord Dunedin defined consideration in
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd16: An act or forbearance of one party, or
the promise thereof, is the price for which the promise of the other is bought, and the promise
thus given for value is enforceable.

12
Currie v. Misa, (1875) LR 10 Ex 153
13
P.S. Atiyah, Essays on Contract, 179 (Oxford: Clarendon Press, 1986)
14
S R Ferdous, Consideration of contract in English Law & Law of Bangladesh: A Comparative study, 31 Asian
Affairs 19, 38 (2009)
15
Moschi v Lep Air Services Ltd, [1973] AC 331 at 346
16
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd, [1915] AC 847 at 855

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The consideration must be given in response to the promise,17 or, if given prior to the promise, at
the promisor’s request and in such a manner that it can be reasonably understood as forming part
of the same transaction. 18 A new promise that is not supported by new consideration is
unenforceable; past consideration is insufficient.19

Through the doctrine of consideration, the Common Law purportedly requires a “mutual
exchange”20to form a contract. This reflects the fact that the Common Law models its concept of
contract on commercial transactions, in contrast to legal systems such as France and Scotland,
which have a broader understanding of the place of contract in society.21 The Common Law
courts will not, however, inquire into the adequacy of the consideration. The ‘exchange’ needs
not be of equivalents. In Mountford v Scott, 22 an option to purchase land granted in return for
payment of £1 was held to be binding, although “the £1 consideration for Mr. Scott's option was
merely a token payment to clinch the bargain and did not in any real sense represent a purchase
price for the grant of the option.23”

CAUSA IN CIVIL LAW

The common law doctrine of “consideration”, as an essential component of the validity of a

contract, is not prevalent in civil law, as a general rule. In the Roman Dutch law and in most
continental systems based or in the civil law, the simple requirement of just causa suffices. In
civil law a contract cannot exist without a lawful cause (causa). Cause is the reason why a party
enters a contract and undertakes to perform contractual obligations. It means the ground, reason
or object of a promise, giving such promise a binding effect in law. It has a much wider meaning
than the English term “consideration” and comprises the motive or reason for the promise and

17
Attorney-General for England and Wales v R [2002] 2 NZLR 91 at [94]
18
Pao On v Lau Yiu-Long [1979] HKLR 225 at 234
19
Mc Ardle Re, (1951) 1 All ER 905 ; Bob Guiness v Salomonsen [1948] 2 KB 42
20
Supra 17
21
Donald Harris and Dennis Tallon, Contract Law Today: Anglo-French Comparisons 386 (Clarendon Press,
Oxford, 1989).
22
Mountford v Scott [1975] Ch 258
23
Ibid at 261

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also purely moral consideration24. This is in contrast with the common law; where as a general
rule an existing moral obligation does not constitute a good consideration. Cause is different
from consideration as the reason why a party binds himself need not be to obtain something in
return.25 For example, a party may enter a gratuitous contract which may bind him to perform an
obligation for the benefit of the other party without obtaining any benefit in return. One of the
major practical consequences of the difference between consideration and cause is that common
law does not recognize the contracts in the favour of third party beneficiary as only a person who
has given consideration may enforce a contract.

It has been said by a very high authority that moral obligation is essentially subjective, while
consideration as known to the common law is essentially objective.26 It would seem that legal
systems all over the world may be classified into the following four categories in this regard27:–

(a) Countries requiring “consideration” for the validity of contract. Most countries in the
common law fold belong to this group.

(b) Countries insisting on causa, but without a statutory requirement to that effect. Sri Lanka and
South Africa belongs to this category.

(c) Countries where causa is expressly and by statute required, for the validity of a contract.
Dutch Civil Code of 1838, article 1356, Italian Civil Code of 1865 and Quebec Civil Code of
1858 are examples.

(d) Countries where the Civil Code requires causa but the requirement is not enforced in practice.
French Civil Code, articles 1108, 1131 and 1135 are examples.

24
Lipton v. Buchanan, (1904) 8 NLR 49
25
C Larroumet, Detrimental Reliance and Promissory Estoppel as the Cause of Contracts in Louisiana and
Comparative Law, 60 Tul L Rev 1209(1986).
26
Lord Wright, “Ought the Doctrine of Consideration to be Abolished from the Common Law” (1936) 49 Harvard
Law Review 1225, 1235
27
Supra7.

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 THE PURPOSE OF CONSIDERATION
a) The Bargain Theory
The orthodox view is that the consideration requirement recognises that the law of contract in
Common Law jurisdictions is only concerned with bargains.28 The bargain theory is particularly
prevalent in the United States, where the Restatement (Second) of Contracts specifies that
consideration must be “bargained for”, that is, “sought by the promisor in exchange for his
promise and… given by the promisee in exchange for that promise.”29 The consideration and the
promise must be mutually inducing.30

Prima facie, it might appear that the bargain theory is an accurate description of contract law. But
closer inspection reveals that the law of contract is not concerned only with bargains. Some
contracts that are generally accepted as enforceable do not involve any true exchange or mutual
inducement. In the case of unilateral contracts, although the act which constitutes consideration
is requested by the promisor, the promise is made with no guarantee that the requested act will be
performed. It cannot be said that the promise is made in exchange for the act or is induced by
it.31 The sufficiency of nominal consideration is also inconsistent with the bargain theory. In a
strict sense, something is still given for the promise. But again, the promise is not induced by the
exchange of nominal consideration. If the law permitted it, the promise would be made without
any consideration being given in return32. Accordingly, the bargain theory is inconsistent with
the current law of contract in Common law jurisdictions.

b)Consideration as a Formality
In 1765, Lord Mansfield already viewed consideration as no more than evidence that the parties
intended to be bound, and thought it was not necessary in contracts reduced to writing or

28
K O Shatwell, The Doctrine of Consideration in the Modern Law, 1 Syd LR (1954)
29
Restatement (Second) of Contracts, at 71
30
Ibid
31
Stephen A Smith, Contract Theory, 222 (Oxford University Press, New York, 2004)
32
Bruce MacDougall, Consideration and Estoppel: Problem and Panacea, 15 Dalhousie LJ 265, 268 (1992)

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commercial in nature. 33 This approach was overruled by the House of Lords in Rann v
Hughes.34 However in Antons Trawling Co Ltd v Smith, it was stated, 35 “the importance of
consideration is as a valuable signal that the parties intend to be bound by their agreement, rather
than an end in itself.” It must be asked, however, whether consideration actually fulfills a formal
function. However, for a number of reasons, the current approach of the courts is incompatible
with the theory that the purpose of consideration is entirely formal. Consideration does not
always fulfill a formal function. It does not provide conclusive evidence of intention to be bound;
people often exchange informal promises or acts impulsively or without intending to enter into a
contract.36 Thus it would be appropriate, if consideration is abolished as a separate requirement
for contract formation, to retain it as one form of evidence that the parties intended to be bound.
But any formal function that consideration fulfills cannot explain its application as a necessary
requirement for all contracts.

c) The Realist Interpretation

Prof. Atiyah suggests that consideration originally developed, and is still best understood, as a
requirement that there be a ‘reason’ to enforce a contract.37 The problem with this view is that it
provides no guidance as to what ‘reasons’ suffice to enforce a contract, a matter on which
judges’ opinions legitimately differ. If judges were permitted to enforce whichever promises they
deemed worthy of enforcement, the result would be a complete lack of certainty. If it can be
shown that the consideration requirement as currently applied does not produce fair results, then
it can no longer be defended on the basis that it allows the courts to enforce contracts where there
is good reason to do so.

The consideration requirement does not have a strong justification. Neither the bargain theory
nor the formal function of consideration provides an adequate basis for its continued application
as an essential requirement for contract formation. The next step is to consider whether the
consideration requirement produces unfair results in practice.

33
Pillans v Van Mierop (1765) 3 Burr 1663
34
Rann v Hughes (1778) 7 TR 350
35
Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23
36
Mindy Chen-Wishart, Consideration and Serious Intention, SJLS 434, 441 (2009)
37
Supra 13 at 181

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 CONSIDERATION IN PRACTISE
This section will examine how the courts currently apply the doctrine, to determine whether its
continued existence, though theoretically incoherent, can be justified on the basis that the courts
reach fair results in practice. The following discussion focuses on gratuitous promises, firm
offers and contract modifications. These are just some examples of promises which may lack
consideration, but should give some idea of the practical problems presented by the doctrine.

a) Gratuitous Promises
One consequence of the consideration requirement is that gratuitous promises are unenforceable
unless contained in a deed. In some sense, all promises which are not supported by consideration
may be viewed as gratuitous. Unlike in French law, where a donor’s intention to make a gift is
sufficient ‘cause’ to support a contract,38 at Common Law the promisor’s altruistic motives are
not consideration.39

This point is illustrated by Chambers v Commissioner of Stamp Duties.40 The plaintiff’s mother
held a mortgage over his property. She attempted to forgive some of the interest owing over a
number of years, recording forgiveness in writing. Blair J held that, although the mother had
clearly intended to forgive the debt that intention had not been carried out in law. A gift can only
be made by deed or actual delivery.41 Though the forgiveness was recorded in writing, it was not
a deed, and the thing being gifted a chose in action was not capable of delivery. Blair J’s finding
was upheld in the Court of Appeal. The Court confirmed that “a mere intention to forgive, which
remains in an unperfected state, is, in itself, of no effect either at law or in equity.”42

If contract is based on the objectively manifested intention of the promisor to be bound and the
reasonable expectations induced by the promise, then gratuitous promises are as deserving of
enforcement as onerous promises. The effect of the consideration requirement in Chambers was
to defeat both the intention of the promisor and the expectation of the promisee.

38
Barry Nicholas French Law of Contract, 118 (Butterworths, London, 1982)
39
Thomas v Thomas, (1842) 114 ER 330
40
Chambers v Commissioner of Stamp Duties, [1943] NZLR 504
41
Ibid at 527
42
Ibid at 530

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 b)Firm Offers
In addition to gratuitous promises made for purely altruistic motives, there are a number of
commercially valuable arrangements which are collateral to an exchange, but do not ordinarily
involve consideration. One example is a promise to keep an offer open for a specified period.43
Although the promisee may spend considerable time and expense in reliance on the promise,
unless some consideration is given by the promisee or the promise is contained in a deed, it will
not be enforceable.44

In Dickinson v Dodds, 45 Mr. Dodds promised to keep an offer to sell property to Mr Dickinson
open until Friday at 9 am. He proceeded to sell the property to a third party before the offer had
expired. The Court held that the promise was unenforceable because Mr Dickinson gave no
consideration for it.46While both parties probably thought that the offer could not be withdrawn,
it was “one of the clearest principles of law, that this promise, being a mere nudum pactum, was
not binding, and that at any moment before a complete acceptance by Dickinson of the offer,
Dodds was as free as Dickinson himself.”

Recent case law does not reveal any real problem with the unenforceability of bare promises to
keep offers open. In order to create an enforceable option, the offeror makes a promise “framed
as a contract, supported by consideration, to keep the offer open until the date prescribed.”47

c) Contract Modifications and the Pre-Existing Duty Rule

Another example of promise collateral to an exchange is a modification of one party’s rights or
obligations under an existing contract. Such promises do not involve any consideration in the
traditional sense, and until relatively recently were unenforceable. The English case of Stilk v
Myrick 48 concerned a voyage from London to the Baltic, during which two crew members
deserted. The captain promised the remaining crew that he would split the wages of the deserters

43
Others include contract variations, requirements contracts, and guarantees of existing debt.
44
English Law Revision Committee, The Statute of Frauds and the Doctrine of Consideration, 15 Can Bar Rev 585
(1937).
45
Dickinson v Dodds, (1876) LR 2 Ch D 463
46
Ibid at 472
47
Supra 7 at 18
48
Stilk v Myrick, (1809) 2 Campbell 317

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between them if they would work the ship back to London. Upon return to London the extra
wages were not paid, and the crew sued to recover them. Lord Ellenborough held that the
captain’s promise was unenforceable, as the crew members were already bound under their
employment contract to do all that they could to bring the ship safely back to London.

The same rationale underlies the rule which originated in Pinnel’s Case49 where the claimant
was owed £8 10 shillings. The defendant paid £5 2 shillings and 2p. The claimant sued for the
amount outstanding. Here the court held that the claimant was entitled to the full amount even if
they agreed to accept less. Part payment of a debt is not valid consideration for a promise to
forebear the balance unless at the promisor's request part payment is made either:
before the due date or with chattel or to a different destination. Here the gift of a horse, hawk or
robe, etc in satisfaction was held good.

The decision in Pinnel’s case was confirmed in Foakes v Beer.50 Dr. Foakes was ordered by a
judgement decree to pay £2000 to Mrs. Beers. Dr. Foakes was not being able to pay at once,
made an agreement with her under which he paid £200 immediately and agreed to pay the
balance by installments and she in her return agreed not to enforce the judgement. When the
balance was fully paid she sued the doctor to recover interest. It was held that the acceptance by
a creditor of a lesser sum in satisfaction of a whole debt is unenforceable.51 She was entitled to
the payment of the judgement debt and interest to the date of final payment. The common law
courts still adhere to this rule, despite the fact that the creditor may receive a practical benefit
from accepting part payment in satisfaction of a whole debt.

It was shown that, given the more flexible approach to the consideration requirement now
adopted by the courts, there are few cases in which an agreement is unenforceable solely on the
grounds that it lacks consideration. However, this is probably a reflection of how ingrained the
doctrine is in common law legal system rather than of its utility.

49
Pinnel’s Case, (1602) 5 Co Rep 117
50
Foakes v Beer, (1883-84) LR 9 App CAS 605
51
Ibid at 612

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 ABOLISHING CONSIDERATION AS A
REQUIREMENT
The continued application of consideration as a necessary requirement for contract formation
cannot be justified. To the extent that the consideration requirement restricts contract to bargains,
that result is undesirable. Enforcing unilateral promises is economically beneficial, and reflects
the reasonable expectations of the promisee induced by the promisor’s manifestation of intention
to be bound. Consideration is valuable as one form of evidence that the parties intend to be
bound. If consideration is abolished as an absolute requirement for contract formation, a
fundamental change in our understanding of the nature of contract will result. Any promise made
in a manner showing an intention to be bound will be enforceable, provided some clear evidence
of that intention can be produced. Judges have been calling for the abolition of the consideration
52 53 54
requirement for centuries. More recently, the courts in New Zealand, England,
Australia55and Singapore56 have placed increasing emphasis on the intention of the parties to be
bound, and less on technicalities and form. The time has come to overturn the unhelpful and
outdated rule that consideration is essential for a valid contract.

52
Supra 26
53
Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 at [93]
54
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 at 18
55
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 740
56
Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR 594 at [139]

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 CONCLUSION
The doctrine of consideration has a long, though by no means uncontroversial, history in the
Common Law. The continued existence of the requirement is a result of its embedded status,
combined with the relative lack of unjust results produced by the doctrine in the courts. The
latter aspect is primarily attributable to the increasingly flexible approach of judges, who ‘find’
consideration in the form of a practical benefit to the promisor. However, the fact remains that
the consideration requirement has undesirable consequences. This is true in practice, due to the
unenforceability of gratuitous promises unless in a deed form. It is even more true in theory;
consideration is unjustified both as a tool for restricting contract to the realm of bargains, and as
a formal requirement. It is capable of defeating the legitimate intentions of parties who wish to
undertake legally binding obligations. Consideration should be relegated to the status of one
form of evidence that a promisor intended to be bound. The court’s foremost inquiry should be
into the objectively manifested intention of the promisor.

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