07 - Formation 06 (Consideration - Consideration Must Be Sufficient but Need not Be Adequate) PDF

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Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION Consideration must Be Sufficient, but it Need not Be Adequate The terminology of this rule can be confusing. 

Indeed, students might frequently switch the words ‘sufficient’ and ‘adequate’.



This is not a huge problem. o Try to remember the appropriate phrasing, but do not worry if you muddle the label.

What is vital is to remember the substance of the rule.

Fortunately, this is quite simple: 

What the rules means is that, in order to amount to consideration for A’s promise, B’s promise or act must be something of value (in the eyes of the law), but it need not be equal (or even roughly equal) to the value of A’s promise.

For example, a promise to pay £1 for a large mansion with a market value of £10M is valid consideration.

What is the reason for this rule?

If the law required roughly equal value to be given, courts would need to place a value on every item and every act, and this, simply, cannot be done at times. 

Reasonable people will reasonably differ as to the true value of an item or an act.

Additionally, even if it can be done in a given case, courts would have to struggle to draw the line to determine when value is roughly equal.

This explains why the law does not require roughly equal value to be given, but why does it require anything to be given?

First, because of the idea of reciprocity: 

Contracts are bargains, exchanges of promises/goods/services.



Consideration ensures reciprocity, an exchange of goods or services (or promises of such). 1

Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION When dealing with nominal consideration (e.g., £1 for the £10M mansion), however, the exchange seems illusory.

Nominal consideration can, though, serve the purpose of being evidence of intention to create legal relations. 

It is evidence that the parties knew something had to be given in return to render the promise legally enforceable and that this is why they agreed to give nominal consideration (even though it does not represent a true exchange).

Note, however, that proof of intention to create legal relations does not dispense with the need to prove consideration.

This rule that consideration must be sufficient, but need not be adequate, is normally illustrated by the notion of nominal, or peppercorn, consideration.

Chappell & Co. v. Nestlé [1960] AC 87, HL 

Nestlé entered into a promotion by which it would provide a musical record to customers who sent in 1s 6d (old UK currency) and three wrappers from Nestlé chocolate bars



The issue in the case actually related to alleged copyright infringement



We need not concern ourselves in detail with the alleged infringement1



Essentially, the issue was whether the wrappers formed part of the contractual consideration o If they did, Nestlé was in breach of copyright law o If they did not, Nestlé was not in breach



Nestlé proved that, once received, the wrappers were merely thrown in the bin



The majority nonetheless held that the wrappers did form part of the contractual consideration (i.e., the price paid for the records)

1 S.8 Copyright Act 1956 created a defence to alleged copyright infringement if, inter alia, the party putatively in breach paid 6.25% of the ‘ordinary retail selling price’ of the record sold. HL held that ‘ordinary retail selling price’ required a purely monetary sale. As the wrappers were deemed to be part of the contractual consideration, the defence did not apply and Nestlé therefore did not fall within the protection of s.8.

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Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION This case arguably highlights the general proposition that any tangible item will likely normally be regarded as valid consideration, probably in part because it will have some (at least potential) economic and/or practical value.

However, as McKendrick notes, Nestlé had sound commercial reasons for requesting the wrappers, beyond the potential economic and/or practical value the wrappers might have possessed: 

The need for three wrappers to be sent in with the 1s 6d helped to promote sales of Nestlé chocolate.2

Nonetheless, it is widely accepted that English law applies the doctrine of nominal consideration. 

Indeed, there can be little doubt that the example given above of paying £1 for a £10M mansion would be regarded as sufficient consideration.

Moreover, the classic example of the peppercorn rent is frequently cited: 

Giving one peppercorn in return for a lease on a plot of land would be regarded as good consideration.

Finally, the majority in HL did not stress that the underlying commercial rationale (a promotion to increase sales of Nestlé chocolate bars) was a necessary element in finding that the wrappers amounted to valid consideration

As such, nominal consideration surely does not require payment of legal currency.

It is, therefore, contended that Chappell & Co. v. Nestlé is authority for the contention that something as seemingly trivial as used chocolate bar wrappers can be valid consideration for significant purchases.

[As we will see, if one seeks the remedy of specific performance (to be discussed in the remedies lectures; for now, it is sufficient to know that specific performance is an order by the court requiring one to perform one’s contract, under threat of contempt of court), one 2

E. McKendrick, Contract Law: Text, Cases, and Materials (OUP, 8th edn., 2018), 150.

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Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION must have given valuable (i.e., not nominal) consideration, but that is not required for formation purposes.]

However, note that, as Chen-Wishart points out, in Lipkin Gorman v. Karpnale [1991] 2 AC 548, HL held that the provision of plastic gambling tokens in a casino did not amount to consideration.

Lipkin Gorman v. Karpnale [1991] 2 AC 548, HL 

[The case can be a little complicated, but the key facts, for our purposes, can be summarised]



A stole money from his firm’s clients and gambled it at B’s casino



If B were deemed to have given consideration for A’s bets, it (B) would be a bona fide purchaser for valuable consideration without notice and the victims of A would be unable to recover their money from B



[A would, of course, be personally liable, but he was bankrupt and thus would be unable to pay]



“Contracts” of wager (i.e., gambling) were void at the time, so there was no consideration in allowing the bet to be placed



B argued that, although the gambling agreement itself was not a valid contract, provision of the tokens in exchange for the money was o I.e., B argued that A purchased the tokens, which he then used to place the bets o Therefore, B claimed, consideration had been provided



HL rejected the argument, as the tokens had no real value

How do we reconcile the cases?

If one compares this case to the Nestlé case, the different outcomes seem strange. 

Why do the wrappers have value but the tokens do not?



Of course, the wrappers represented sales, which provided a benefit to Nestlé.



But the tokens are the means by which a bet can be placed, so they represented a benefit to B.

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Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION It seems arguable (as Chen-Wishart also notes) that consideration was used by the courts as the tool to achieve what they felt were the just results in each case. 

That is to say, the court felt it would have been unjust to allow Nestlé to take the benefit of increased sales provided by its promotional offer without having to pay any money to the holders of the copyrights in the records.



Conversely, the court felt in Lipkin Gorman that it would have been unjust not to allow the victims of A’s fraud to get their money back, so they held that the tokens were not consideration.

As such, it seems that the rules of consideration have, at least in part, been formed by cases in other areas of the law, potentially causing conflict and problems for contract law.

Compromise and Forbearance to Sue An interesting question is whether a promise not to sue can amount to valid consideration. 

I.e., is it sufficient?

There is no doubt that giving up a valid legal right amounts to consideration. 

This is the very basis of compromise/settlement agreements.



Indeed, such agreements clearly establish that a promise to give up a doubtful claim can amount to valid consideration.

More difficult is the promise to give up what turns out to be a worthless claim.

It is generally accepted that, provided that one acts bona fide (that is, provided one believes that the claim has merit), a promise not to enforce the claim is good consideration, even if it turns out that the claim was actually worthless.

Cook v. Wright (1861) 1 B&S 559 

A occupied a house



B was carrying out public works on the street on which the house was situated and sought contribution from A



A denied any liability to contribute, but B, honestly believing A to be obliged to pay, threatened to sue if A did not contribute 5

Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION 

A agreed to contribute in 3 instalments, in return for B promising not to sue



However, after payment of one instalment, A refused to pay any further sums



B sued but A denied that he was contractually liable to pay the remaining instalments



The court held that he was liable o Although it turned out that A had not originally been liable to contribute (i.e., B’s original claim was worthless), B had bona fide believed that A was obliged o Giving up a worthless claim which one bona fide believes to be valid is good consideration o A was, therefore, contractually obliged to pay

The rule only applies if B bona fide believes his claim is valid: 

See, e.g., Wade v. Simeon (1846) 2 CB 548, in which the court held that B knew that he had no valid claim against A.

Does Performance of (or a Promise to Perform) a Pre-existing Legal Duty Amount to Valid Consideration? Difficult issues arise when determining whether a promise to perform a pre-existing legal duty amounts to consideration. 

I.e., is performance (or the promise of performance) of a pre-existing legal duty sufficient?

In order to answer this question, we must break this class of case down into three subcategories: 

A promise to perform a pre-existing non-contractual legal duty.



A promise to perform a pre-existing contractual duty owed to someone other than the promisor.



A promise to perform a pre-existing contractual duty owed to the promisor.

Pre-existing Non-contractual Legal Duties If A promises, for example, to pay B £100 if B performs a non-contractual legal duty that she, B, is already obliged to perform, is B’s performance (or promise of performance) of that legal duty valid consideration? 6

Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION E.g., if A’s house is on fire and he promises to pay the fire service (B) £100 if it attempts to put out the fire, is he obliged to pay B if it properly attempts to fight the fire?

The short answer is ‘no’: 

If B does no more than perform (or promise to perform) its pre-existing noncontractual legal duty, it has not provided valid consideration.

Collins v. Godefroy (1831) 1 B&Ad 950 

B was subpoenaed to give evidence at trial



As such, he was legally obliged to attend and give the evidence



A promised to pay a sum of money to B per day for B’s attendance



Court held that B could not enforce the promise, as he was legally obliged to attend and give the evidence

If, however, B goes (or promises to go) beyond her basic non-contractual legal duty, she will be deemed to have provided valid consideration.

Glasbrook Brothers Ltd. v. Glamorgan City Council [1925] AC 270, HL 

The owner of a coal mine asked the police for extra police presence and protection at the mine



The police chief stated that he believed the additional police presence was unnecessary



He believed that the force could adequately protect the mine and staff by undertaking its normal police duties o E.g., normal public rounds and responding to emergency calls



The owner of the mine, however, persisted in his requests



The parties agreed that the police force would post seventy police officers to the mine in return for payment for the officers’ time by the mine owner



The owner later refused to pay, claiming that he was not contractually obliged to do so, as the police had a legal duty to keep the peace

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Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION 

The court, however, held that the police force had gone beyond its basic duty in providing the additional police presence and was, therefore, entitled to the promised payment

Ward v. Byham [1956] 1 WLR 496, CA 

A and B had a child together



After they separated and A evicted B from the former family home, A placed the child in childcare at the cost of £1 per week



After B secured accommodation for herself, A promised to pay her £1 per week if she allowed the child to live with her



B did so



When B remarried, A ceased making the payments, claiming that the promise was not supported by consideration



CA disagreed



The majority held that B, the child’s mother, had actually gone beyond her legal duty to care for the child o Although B had a legal duty to ‘maintain’ the child, Morris and Parker LJJ held that B had gone beyond this legal duty o She had promised to ensure that the child was well looked after and happy and to give the child the option to choose whether to live with her mother or her father

[Note that Lord Denning LJ agreed with the result of the majority but did so on the basis that performance (or the promise of performance) of a pre-existing non-contractual legal duty is valid consideration, provided there are no policy reasons against this.]

Williams v. Williams [1957] 1 WLR 148 

W left H



H promised to pay W 30s per week in return for W promising to maintain herself and not to seek credit in H’s name



W sued for arrears in the payment but H refused to pay, claiming that W had provided no consideration



The majority of CA held that W had provided consideration, as she had gone beyond her legal duty 8

Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION o As she had deserted her husband, W had an obligation to support herself and not to seek credit in H’s name o This obligation, however, persisted only as long as she maintained her desertion 

If she made a genuine offer to return to H, H would be obliged to maintain her

o According to Hodson and Morris LJJ, W was, therefore, going beyond her legal duty in promising to support herself and not to seek credit in H’s name in perpetuity, rather than merely whilst in desertion

[Note that Denning LJ reiterated his position from Ward v. Byham that performance (or the promise of performance) of a pre-existing non-contractual legal duty is valid consideration, provided there are no policy reasons against this.]

[It should be noted that, whilst they illustrate the legal principle, both Ward v. Byham and Williams v. Williams are based on outdated family law principles.]

It is submitted that the rule with regards to pre-existing non-contractual legal duties can be neatly explained by a benefit/detriment analysis: 

When B does, and promises, no more than that which she is already legally obliged to do, she suffers no legal detriment.



Moreover, A, already being legally entitled to B’s performance, attains no legal benefit.



If, however, B gores beyond her/his legal duty, s/he suffers a legal detriment

Pre-existing Contractual Duties Owed to a Third Party Performance (or the promise of performance) of an existing contractual duty to a third party is good consideration. 

There is no need to go beyond the basic obligation which already exists.

Shadwell v. Shadwell (1860) 9 CB (NS) 159 

A was engaged to marry X

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Contract Law – LAW-4006B & LAW-5024B – Dr. Gareth Spark, Senior Lecturer in Law, UEA Law School

FORMATION OF CONTRACTS III: CONSIDERATION 

B, A’s uncle, approved of the match and promised to pay a yearly sum of money to A if he went through with the marriage



After B’s death, A sued B’s estate for arrears in the payment



The estate argued that the promise was not enforceable, as it was not supported by consideration



By a majority, the court held that performance of the existing contractual duty to marry X (at the time, such promises were contractually enforceable) amounted to valuable consideration3

The majority gave two main reasons for the decision, both of which can be somewhat problematic.

First, it was suggested that fulfilling his obligation to marry could amount to a detriment to A. 

It was suggested by Erle CJ that A ‘may have made a most material change in his position’ in response to the promise.4

There is, however, no suggestion that A incurred any additional liability in reliance upon the promise. 

A would not be in breach of contract to B if he failed to go through with the marriage, as A’s promise was unilateral: o B would pay A the money if he went through w/the marriage.



It is, thus, difficult to see where the additional burden arises.

Second, it was suggested that B obtained the benefit of having his ne...