In English law consideration is one of the main building blocks of a contract; consideration can be anything of value (e.
g. a product or service), which each party to a legally binding contract must agree to exchange if the contract is to hold any validity. Some people such as Lord Goff argue that consideration is unnecessary whereas others like Mindy Chen-Wishart, describe its importance as being vital in deciding whether a contract exists or not. This essay will discuss the main legal and moral issues surrounding the topic and conclude whether or not consideration is still a necessary element in a legal contract and any evaluating the potential success of alternatives. Has this two hundred year old element finally peaked? Consideration may not be regarded as a necessary element in a legal contract – contractual intention is ordinarily going to be presumed in cases involving commercial agreements; however, in cases involving social and domestic situations there is a presumption that the party does not intend to create legal relations. For example, in the case of Balfour v. Balfour, the agreement between husband and wife did not become legally enforceable, even though there was what would be deemed as consideration on both parts. Lord Atkin stated in the judgement of this case that although the mutual promises may seen to abide by the rules of consideration, these are not legally binding contracts because “the parties did not intend that they be followed by legal consequences”.
This demonstrates how consideration is not always purposeful in domestic and social disputes; the main point of consideration is to make a contract legally enforceable, yet while having consideration it is dependent on whether or not there is intention to create legal relation –often the case in a vast majority of social/family agreements, there is no intention. This exhibits that the meaning of consideration has indeed become rather convoluted because it’s purpose has become uncertain as to whether it makes an agreement enforceable by law. Additionally, value in consideration is essentially a subjective matter, there is no specific definition which lays out the meaning, something of value could differ from something of value in the eyes of the law. Consideration must be sufficient but need not be adequate; see Thomas v. Thomas.
However the law in certain cases refused to recognise the value of acts or promises which might well be regarded as valuable by a reasonable person. The concept that consideration must be suffient but need not be adequate has lead to trifling acts being held to amount to consideration. In Chappell and CO. Ltd. V Nestle Co. Ltd was disputed whether or not chocolate wrappers, which where essentially worthless, could form a part of consideration.
The court may refuse to enforce a contract by arguing that the consideration was inadequate, even though the parties must have thought otherwise. It can be seen that the courts adopt an inconsistent approach to the identification of a benefit or detriment. In Foakes v Beer the court ignored an obvious factual benefit to the creditors. Yet in Cook v Wright the court found the existence of consideration on the lightest bit of evidence. This shows how unsolid the element may be due to the uncertainty about whether it is present or not. Parties may think it is there, thus making their contract legally enforceable, however the courts might decide it is not present meaning the parties are not protected under English law.
Following on from the previous point, there has also been a certain degree of confliction in decisiding what consideration is, for example in Williams v Roffey brothers and Nicholls there was the issue of whether consideration had been provided for Roffey’s Brothers to pay extra, as in the earlier case of Stilk v Myrick there is no consideration in extra payment for carrying out an existing duty. This creates a level of uncertainty in law, the inconsistency may be down to the English courts having built their own theory of consideration upon the foundations of benefit and detriment. In the judgement of Russell LJ in William v Roffey Brothers, he stated: “the courts nowadays should be more ready to find existence of consideration so as to reflect the intention of the parties.”. Meaning the courts need to look deeper to establish if the parties actually intention to create legal relations when entering into the contract; this would benefit them as they will be able to distinguish binding contracts from social agreements, saving the courts time as social disputes could be resolved using alternative dispute resolution methods, such as mediation. Moreover, whole idea of consideration is to bring a level of fairness to contracts, however this is cancelled out if there is inequality of bargaining power. For example, In the case of Lloyds bank v Bundy there was conflict of interests in Mr Bundy’s authorisation of the final guarantee and legal charge as he could lose his assets to the bank. Furthermore, Mr Bundy received no independent legal advice meaning Lloyds’ duty of care was breached.
Consequently, the final guarantee and charge were set aside grounded on undue influence. The main issue here is that consideration is never going to be exactly even on both parts; the bigger, more influencial party is always going to be more likely to get a better deal from the contract which may be achieved by decieving the smaller party into agreeing. This is where law and morality conflict – legally it may be correct, however, it could be argued that morally its unjust to manipulate the smaller party who is going to be more vulnerable. A possible solution to this could be to introduce legislation to decrease unequal bargaining power, e.g. providing guidelines to how much an individual should be able to entitled to get based on the value of what they’re giving.
Another reason why consideration could be disregarded is because it allows people who make promises to not suffer any legal consequences. Surely there should be a moral duty for the promisor to keep their word, especially if the promisee has reasonably relied on a promise to his or her detriment. This is where the doctrine of promissory estoppel could come in, as the role of estoppel is to give effect to a promise that would otherwise be unenforceable. It could be suggested that estoppel may be a supplement to the doctrine of consideration. Combe v Combe 1951 describes Estoppel as a “shield not a sword” this indicates that Promissory Estoppel can only be used as a defence, not a cause of action. In 1937, the Law Revision Committee made some recommendations, e.g. it was proposed that a promise in writing should be enforceable even if it is not supported by consideration.
This could enhance the English legal system by making one-way agreements more legitimate, as the promisor should feel more inclinded to carry out what they promised due to the fact it could be followed up with legal consequences.Moving to a theoretical perspective, starting with the marxist theory that suggests that people in a society should give the most they are capable of without expecting anything in back in return. Incorportating ideas of social responsibility – feeling that a person has an obligation to act in such a way that benefits society. From this we interpret that the concept of consideration is essentially greedy by demanding that you must get something back to do something, and that things cannot be done without anything in return. If one party agrees to contractually help another, the other party should not be legally required to return something. The concept of consideration may not be as beneficial to society as the law intended; it is debatable whether contracts one way are unfair, or a way for the rich to become richer as they may not need anything in return in order to give.These points demonstrate the main disadvantages of the element of consideration and the main flaws it brings within the legal system.
A slightly drastic option would be to abolish the doctrine of consideration. Support for a step of this mature might be found by looking outside of English law. For example, there is no doctorine of consideration in the principles of European Contract Law. Article 2.101 states:(1) A contract is concluded if:(a) The parties intend to be leagally bound; and(b) They reach a sufficient agreement without any further requirement.
(2) A contract need not be concluded or evidenced in writing nor is it subject to any other requirement as to form. The contract may be proved by any means, including witnesses. Should we follow the many legal systems in the world that do not use consideration as a precondition, but instead, distinguish cases but assessing whether the parties had intention to create legal relations.
Now moving to arguments supporting the element of consideration. The whole concept is to bring a level of fairness to a contract; exchanging something of value in order to burden both parties. If there is no consideration then the party who has made the promise and broken his promise (breach of contract) then the other party will not be able to sue successfully as they gave no consideration. This is known as a bare promise and is not enforceable under English law; shown in the case of Rose and Frank Co v Crompton Bros where the contract contained an honourable pledge clause which stated the agreement was not a formal or legal agreement and shall therefore not be subject to the jurisdicition of the courts in England or the US. The honour clause is a good solution for social or family agreements as it’s a lot softer than producing a legally binding contract. However in commercial cases and more serious disputes the element of consideration is indispensable – if both parties are willing to exchange things of value then it’s only fair that they can sue in situations where the other party don’t uphold part of their end of the deal.
This argument supports the idea that consideration is still necessary depending on how serious the case is and if there is intention to create legal relations. Factors that may convince a court to hold that the presumption has been rebutted include the context in which the agreement was made, e.g. if it was a business agreement, and if there was any reliance which has been placed upon the agreement in question.Another reason why consideration is of use in English contract law is due to the flexibility of it.
Having no definition can be used to the courts advantage due to the fact that they have the judicial discretion to apply law how they see fit – which is clearly being done well as Parliament have never tried to intervene on this matter. The element of consideration has been around for hundreds of years, making it an imprinted and traditional part of our legal system; which raises the question of how well the law of contract would function without consideration. How would the courts decide whether a contract holds any validity if it holds no consideration? Just because it has become slightly convoluted does not mean that it is no longer relavent. Furthermore, consideration should not be abolished because it is evidence of voluntary intention to create legal relations.
Its critical role in the formation of a contract, and the uncertainty of the alternatives, have lead me to agree with Mindy Chen-Wishart in her certainty it still has a role in contract law. It also helps establish a relationship with the person you’re becoming legally bound with meaning the parties are more likely to have a clearer understating of their duties that need to be followed out. Giving consideration in a contract shows that you voluntarily want to be legally bound; making it easier on the courts to know whether the claimants should suffer legal consequences.All in all, consideration may have a few faults, however, this does not mean the whole element should be abandoned. Alternativley, the UK could follow the line of reasoning taken by the Court of Appeal in Williams v Roffey Bros: ‘limit and refine’ the doctrine, identifying a practical benefit rather than a legal one.
Moreover, the English legal system could shadow the example of Australia, in accepting promissory estoppel as a cause of action, working with, not against, consideration. Consequently consideration would seek to ensure contracts hold enforceability, whilst promissory estoppel would ensure that remedies are available where contracts are not performed justly. This suggestion would work to uptain a stronger and fairer legal system, ensuring that the promisee can have justice and rememdies such as award of damages.