Formation: consideration

For there to be a legally binding agreement there needs to be consideration: an act or a promise given by one party, in exchange for the act or a promise given by another party: ‘if you sell me your car, I will give you £1,000’.

Consideration must be sufficient – quality

Most acts or promises are capable of being ‘consideration’ in the sense that the law recognises them as having the right quality i.e. they will be sufficient to be treated as ‘consideration’. But not all acts or promises have this sufficient quality. These examples fell on the wrong side of the line (for public policy reasons), namely a promise:

  • to provide ‘natural love and affection’ (undesirable, if not impossible, for the law to enforce such matters),
  • ‘to stop complaining about being disinherited’ (as above),
  • to perform a public or legal duty (one is expected to do this without the duty having legal force). However, going beyond the strict confines of a public or legal duty may constitute consideration. (1)

Consideration need not be adequate – quantity

The law of contract is not concerned with whether X has struck a good or bad deal with Y. In other words, the amount or quantity of consideration is irrelevant to contract formation. The principle behind this common law approach is that contracts are voluntarily entered into and that this freedom to act should be respected and given legal force. (2)

With some contracts the consideration is said to be a peppercorn as in ‘a peppercorn rent’: a consideration that has almost no economic value.

Past consideration is not good consideration

Good consideration: X agrees to mow Y’s lawn whilst he is away in August – for £50.

Past consideration: X agrees to mow Y’s lawn whilst he is away in August – without charge, but simply because they are good friends. However, on returning from holiday Y agrees to pay X £50.

In the former case there is good consideration in the sense that X performed the act for consideration (£50). X can sue Y if he does not pay him £50. In the latter case there is past consideration in the sense that X performed the act gratuitously (because they are good friends) and Y’s agreement is not legally binding, because X did not give good consideration for it.

(1) Ward v Byham [1956] 1 WLR 496 and Williams v Williams [1957] 1 WLR 148 where Lord Denning’s view that mere performance of a legal obligation (to look after a child) was good consideration, was not accepted by the majority. However, the majority had little difficulty that the mother in each case had agreed to do more than the legal obligations and hence that there was good consideration. See discussion in Williams v Roffey [1989] EWCA Civ 5.

(2) Chappell v Nestle [1960] AC 87, HL.