THE CONCEPT OF

CONSIDERATION
Should it be replaced with contractual intention?

SEPTEMBER 28, 2019

ERIKA JUDITH BIVERA
1432
 Contracts Project

The Concept of Consideration

Should Consideration be Replaced with Contractual Intention?

- Erika Judith Bivera (1432)

Introduction

Systems based on Roman law (including Germany and Scotland) do not require consideration,
and some commentators consider it unnecessary and have suggested that the doctrine of
consideration should be abandoned, and estoppel used to replace it as a basis for
contracts. However, legislation, rather than judicial development, has been touted as the only
way to remove this entrenched common law doctrine. Lord Justice Denning famously stated
that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind".

The reason that both exist in common law jurisdictions is thought by leading scholars to be the
result of the combining by 19th century judges of two distinct threads: first the consideration
requirement was at the heart of the action of assumpsit, which had grown up in medieval times
and remained the normal action for breach of a simple contract in England and Wales until
1884, when the old forms of action were abolished; secondly, the notion of agreement between
two or more parties as being the essential legal and moral foundation of contract in all legal
systems, was promoted by the 18th century French writer Pothier in his Traite des Obligations,
much read (especially after translation into English in 1805) by English judges and jurists. The
latter chimed well with the fashionable will theories of the time, especially John Stuart Mill's
influential ideas on free will, and got grafted on to the traditional common law requirement for
consideration to ground an action in assumpsit.

Sir Frederick Pollock defines consideration as an act or forbearance of one party, or the promise
thereof, if the price for which the promise of the other is bought, and the promise thus given
for value is enforceable.1 Therefore, consideration is essential to all contracts for the reason
that only with its presence does a contract have legal enforceability. However, the doctrine of
consideration has been disputed over the decades for being ‘outmoded and redundant’2 as held
in the ‘Coda on the Doctrine of Consideration’.3 Various case laws have preached and

1
Pollock, History of English Law, Vol. 8, p. 11; Lord Wright, Ought the Doctrine of Consideration to be
Abolished from the Common Law? (1935-6) 49 Harv L. Rev. 1225
2
Gay v. Loh [2009] 2 S.L.R. 332 (C.A.)
3
Ibid at para 92
 Contracts Project

propounded the flaws and inconsistencies of the doctrine of consideration and have declared
the same as unnecessary as can be seen in the cases of Sunny Metal & Engineering Pte Ltd v.
Ng Khim Ming Eric4 and Chwee Kin Keong v. Digilandmall.com Pte Ltd.5 Despite the existence
of abundant case laws and legal articles on why the doctrine of consideration must be
abolished, the implementation of the same has been rejected every time. Perhaps, the approach
towards the same needs to be altered as discussed by C.M. Boardman 6. If this doctrine is
scrapped it can be readily replaced by the doctrine of economic duress and the doctrine of
promissory estoppel. But, as decades of disputations have suggested, dilution or abolishment
of consideration will be subject to practical difficulties and loopholes. Consideration has been
used as an indispensable instrument, both in English and Indian Contract law to distinguish
enforceable and unenforceable contracts but this essay seeks to challenge its legitimacy and
applicability.

Consideration: A Contextual Background

In the case of Currie v. Misa7, Justice Lush J describes consideration as: “some right, interest,
profit or benefit, accruing to the one party, or some forbearance, detriment, loss or
responsibility, given, suffered or undertaken by the other.”8 This definition gave rise to the
concept that a promise cannot be enforced unless the promise has given or has promised to give
something in return, which came to be commonly known as the ‘reciprocity’ idea of
consideration. Consideration in the contemporary context functions on four independent rules:

a) Consideration Must Be Sufficient, But Need Not Be Adequate

Consideration need not be of the same market value as the promise for which it is given
in exchange but it must be of some value. It can be in the form of a simple token (such

4
Sunny Metal & Engineering Pte Ltd v. Ng Khim Ming Eric [2007] SGCA 36
5
Chwee Kin Keong v. Digilandmall.com Pte Ltd [2004] 2 SLR 594
6
Charlotte Mary Boardman, “Considering Consideration: A Critical And Comparative Analysis of the Doctrine
of Consideration in the Anglo-Canadian Common Law”

7
Currie v Misa (1875) LR 10 Ex 153
8
Supra note 7 at para 89
 Contracts Project

as a ‘peppercorn’9) or simply an amount of money. Other cases that deal with the same
are De La Bere v. Pearson Ltd.10, Thomas v. Thomas11 and White v. Bluett12.

b) Past Consideration is Not Good Consideration

Consideration must be executory or executed and should not be in the past, it must
either be a promise to carry out an act in the future or it must be actually done in
exchange for another’s promise.13 Any action that has already been performed is not
valid consideration. The same was observed in the case of In re McArdle14 and
Lampleigh v. Braithwaite15.

c) Performance of a duty enforced by law does not constitute good consideration

Generally, where the party has a pre-existing duty to perform an act, a promise to
perform that duty is not considered good consideration. The same is seen in the case of
Collins v. Godefroy16, which held that an attorney could not use his attendance in court
as a consideration for a promise of payment by his client simply because it was his
public duty to attend court. Futhermore, it is also seen in the cases of Sashannnah Chetty
v. Ramaswamy Chetti17 and Glasbrook Brothers v. Glamorgan County Council18.

d) Part-payment of a debt is not good consideration, but part-performance of an existing

contractual duty is good consideration.
The Pinnel’s case19 laid down the above-mentioned rule that added that part-payment
is not acceptable except where the promisor requests it and where it is made before the
date on which the payment of the original sum is due, where the payment is made to

9
See, Chappell & Co Ltd v. Nestle Co Ltd [1960] AC 87 in which it was held that the wrappers from chocolate
bars were good consideration in light of the fact that they had been given value because they were part of a sales
promotion
10
De La Bere v. Pearson Ltd, [1908] 1 KB 280
11
Thomas v. Thomas, (1842) 2 QB 851
12
White v. Bluett, (1853) 23 LJ Ex 36
13
Michael H Whincup, Contract Law and Practice: The English System with Scottish, Commonwealth and
Continental Comparisons, 5th Revised ed, (Alphen aan den Rijn: Kluwer Law International, 2006) at 1
14
In re McArdle, [1951] Ch 669
15
Lampleigh v. Braithwaite, [1615] EWHC KB J 17
16
Collins v Godefroy [1831] EWHC 02 (KB)
17
Sashannnah Chetty v. Ramaswamy Chetti (1868) 4, 7 (Madras High Court)
18
lasbrook Brothers Ltd. v Glamorgan County Council [1924] UKHL 3
19
Pinnel’s Case (1602) 5 Co Rep 117
 Contracts Project

someone or somewhere other than originally specified or where it is made with a

chattel.

Difficulties with Reconciling the Case law of Consideration

There exists a need for reform in the doctrine of consideration. Many a scholar has propounded
their own theory for the need for consideration, such as the reciprocity theory20, the
benefit/detriment theory21, the bargain theory22, the theories of Fuller, Benson and then
Professor Atiyah23 but these theories like all theories are not fool-proof. Hence the very need
for consideration in Contract law is being questioned. The difficulties of the same will be
addressed through the adequacy/sufficiency argument and using the distinction between legal
and factual benefit. Moreover, the intention to create legal relations will be discussed along
with promissory estoppel.
Vitiating factors within contract law aim to limit contracting parties exercising economic
power. In terms of consideration, economic duress has evolved to take on some of its functions,
with some support for the adoption of the doctrine of unconscionability to oversee the fair
execution of contracts.
It is argued that the original purpose of consideration has been eroded by the inclusion of
promissory estoppel. The gatekeeping function of the doctrine of consideration can actually be
performed by more developed doctrines such as economic duress and intention to create legal
relations.24 Others demonstrate that the consideration doctrine can be used to disguise the fact
that a judgment has been made on the basis of fairness, policy25 or morality26, and that it is used
to justify favour of a certain party27. Moreover, it is also contested that the use of the doctrine

20
Fehr, Ernst, et al. “Reciprocity as a Contract Enforcement Device: Experimental Evidence.” Econometrica, vol.
65, no. 4, 1997, pp. 833–860. JSTOR, www.jstor.org/stable/2171941
21
“Prove Me Wrong” Cases and Consideration Theory, available at, http://www.georgemasonlawreview.org/wp-
content/uploads/OGorman_231.pdf
22
Supra 12, page 198
23
Fuller identifies both formal and substantive aspects of the doctrine of consideration. He argues that we do not
enforce promises lacking consideration because of their informal nature. Benson argues against Fuller’s thesis
that the doctrine of consideration performs a similar function to that of a formality. Atiyah argues that, in its
present state, consideration cannot be reduced to a single set of rules. Instead he says that it is more accurate to
describe the doctrine of consideration, not as a single entity but as a collection of rules which fall under the heading
of consideration.
24
For example, Chloros advocates the complete abolition of the doctrine of consideration in AG Chloros, “The
Doctrine of Consideration and the Reform of the Law of Contract” (1968) 17:1 Int'l & Comp. L.Q. 137 at 165
25
Mark B Wessman, “Should We Fire the Gatekeeper? An Examination of the Doctrine of Consideration” (1993)
48:1 U. Miami L. Rev. 45 at 86-93
26
Ibid, at 93
27
Supra Note 20 at page 86
 Contracts Project

of consideration is teetering on obsolescence and does not reflect a progressing trend towards
the global harmonization of contract law.

The complexity of the doctrine of consideration

The function of this doctrine was intended to be reciprocal thus making its main function,
distinguishing between binding and non-binding promises. As a result of the many exceptions
that have been formulated, this doctrine has become a complex web of rules that lack any real
meaning.

The practical benefit rule is specifically relevant as stated originally in the Pinnel’s case28. This
very rule was reconsidered in the case of Williams v. Roffey29 and the current position is that
where there is a practical benefit to the performance of an existing duty, this benefit may act
as good consideration (provided there is no economic duress). Secondly, part payments of debts
became an exception in the decision of Lord Denning30 and this led to the beginning of the
equitable doctrine of promissory estoppel. Thus, if one party agrees to accept a smaller amount
for a service and the other relies on that promise, it is a valid agreement even in the absence of
added consideration.

Consideration is used to disguise the true reasons surrounding judicial decision making on the
basis of policy, morality and fairness as argued by Professor Atiyah. Professor Treitel argues
that the courts have started to ‘invent’ good consideration where they see suitable despite the
fact that neither party actually intended on providing the same. Thus, the actions of parties are
being falsely interpreted by the court to mean something they do not. Judges are not wholly
transparent in their decision-making and the doctrine of consideration only facilitates such non-
disclosure of true judgement. In the case of Harding v Harding31 , the doctrine of consideration
is demonstrated as a way of “policing the fairness of a contract’. This case, along with the cases
of Thomas v Thomas show that a court can apply the doctrine of consideration to various cases
in different ways to enable a fair result. This brings about a lack of transparency and
uncertainty.

28
Supra Note 12
29
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5
30
Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 13
31
Harding v Harding (1972), 28 DLR (3d) 358 (B.C.S.C.)
 Contracts Project

With regard to decisions made on the basis of policy, the English case of Stilk v Myrick32
demonstrated that the court may be willing to ignore valid consideration for the preservation
of policy. In the above-mentioned case, the public policy ground was employed and subsequent
cases took the same stand when sailors refused to perform their duties which they had agreed
to unless they were given extra pay. The same ground was applied in Vanbergen v St. Edmunds
Properties Ltd.33

There have been several attempts to create a system of contract law which harmonizes the laws
across countries, for instance the Principles of European Contract Law34. The PECL is a set of
general standards which aim to bring clarity to contract law and the rules surrounding it. The
United Nations Convention on Contracts for the International Sale of Goods (CISG) and the
UNIDROIT Principles of International Commercial Contracts35 are other similar projects.
Attempts have been made by several law revision committees in England and Canada at the
wholesale reform of the doctrine of consideration and partial reform has resulted with different
success rates. For instance, the 1937 proposals made the Law Revision Committee provide
suggestions with respect to the need for written confirmation of agreements and the 1987
Ontario Law Reform Commission published a report on the Amendment of Contract, that
revolved around reforms in the area of consideration.36

The significance of the doctrine of consideration is that it is considered to be the gate-keeper

against the enforceability of gratuitous promises. This term was founded by M.B. Wessman in
his famous book, “Should we Fire the Gatekeeper: An Examination of the Doctrine of
Consideration”37. The most popular suggestion for a replacement of the doctrine of
consideration in the past decade has been doctrine of economic duress. In the New Brunswick
Court of Appeal case NAV Canada v. Greater Fredericton Airport Authority Inc.38 it was
decided that where there was agreement between the parties and no economic duress, a contract

32
Stilk v Myrick [1809] EWHC KB J58
33
Vanbergen v St. Edmunds Properties Ltd [1933] 2 K.B. 223
34
See, Commission on European Contract Law, eds Ole Lando & Hugh Beale, Principles of European Contract
Law. Parts I and II (The Hague: Kluwer Law International, 2000) and Commission on European Contract Law,
eds Ole Lando & Hugh Beale, Principles of European Contract Law. Part III
35
United Nations Convention on Contracts for the International Sale of Goods (1980) for the full text see
http://www.osgoode.yorku.ca/cisg/full-text-english (Last viewed 27/08/2019)
36
Ontario Law Reform Commission, Report on Amendment of the Law of Contract: Report by Ontario Law
Reform Commission, (Ontario: Ministry of the Attorney General, 1987) Online at
http://archive.org/stream/reportonamendmen00onta#page/14/mode/2up (Last viewed 27/09/2019)
37
Supra note 20
38
New Brunswick Court of Appeal case NAV Canada v. Greater Fredericton Airport Authority Inc 2008 NBCA
28 (CanLII)
 Contracts Project

could be modified without consideration. This decision is an odd one and it marks a deviation
from the traditional rule adopted by the Canadian courts which came from the English case of
Williams v Roffey39. There seem to be both advantages and disadvantages to the adoption of
such a replacement for the doctrine of consideration.

The doctrine of consideration performs other functions as well as an evidentiary one and
replacing it with the doctrine of intention to create legal relations could leave gaps in the law.
Not only this, but, though the replacement of consideration with intention to create legal
relations “would be relatively easy to operate in the commercial context, it is not at all obvious
that the question whether the parties had an intention to contract will be any easier to answer
than the question whether or not there was consideration (in the bargain sense) to support the
agreement”.40 This is therefore something that must be considered when advocating the
implementation of such a reform. Thus, the case for the reform of the doctrine of consideration
in both the English and Canadian law is very strong and there is much evidence to suggest that
both legal systems would benefit from its abolition. However, it is also apparent given the fact
that the doctrine of consideration continues to be applied by the courts, that the suggestions for
reform put forward by the various law reform committees and the criticisms raised by the
academics have made little difference to the actions of the judges in the courtrooms. Though
on some occasions, these law revision committees and academics have considered looking to
other legal systems for inspiration, few have looked towards the German system which offers
some interesting possibilities for the reform of the doctrine of consideration.
While it may seem necessary to substitute consideration with another doctrine, be it contractual
intention, promissory estoppel or economic duress, Phang J.A. rightly warns against
substituting one already troublesome doctrine with another. Lord Steyn expresses the
prevailing attitude when he says, “I have no radical proposals for the wholesale review of the
doctrine of consideration. I am not persuaded that it is necessary. And great legal changes
should only be embarked on when they are truly necessary.”41 On the other hand, as it has been
argued: Serious intention to be bound is a necessary but not sufficient condition of legal
enforcement. Not all seriously intended promises are or should be enforced. The consideration
doctrine does not simply perform the functions of formality; it is not simply a proxy for serious

39
Williams v Roffey, 1 All ER 512
40
Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 Ibid 90

41
Lord Johan Steyn 'Contract Law: Fulfilling the Reasonable Expectations of Honest Men" (1997)
113 L.Q.R. 433 at 437.
 Contracts Project

intention to be bound. The consideration doctrine cannot be replaced by the vitiating factors of
duress, undue influence and unconscionability. The suggestion that it can, is based on two
incorrect assumptions: that consideration is just evidence of serious intention to be bound, and
that the vitiating factors relate to the negation of this serious intention. Moreover, Phang J. A.
said, undue influence and unconscionability will rarely apply to commercial contracts.
Likewise, promissory estoppel cannot substitute for consideration because it concerns a
distinctive head of liability (induced reliance rather than purchased expectation) although it
arises in the context of contracting. The consideration doctrine expresses the appropriate
boundary of state involvement by drawing the line between enforceable promises which are
explicitly conditioned on reciprocation, and unenforceable one-sided promises. The former
supports cooperation and coordination between strangers who would not otherwise transact.
The latter expresses the concern not to subvert valuable domestic and social relationships,
which is the natural home of gratuitous promises. Transactions in the social domain are
presumed to be unenforceable even in the presence of consideration. The major sources of
discontent with the consideration doctrine (uncertainty and apparent inconsistency in the
conception of ‘value’ and the uneven application of consideration as ‘practical benefit’) are
surmountable by “modification of the present rather rigid view of what kind of benefit
constitutes a sufficient consideration”.42 Recognition of this in the context of contract
formation, contract modification, and elsewhere43 would inject a much needed dose of realism
without deviating from the core idea of contract as the exchange.

Recent case laws dealing with consideration

There have been numerous case laws that have dealt with consideration, since the status quo is
such that consideration is still a sine qua non of any valid agreement. The most recent cases on
the same are the case of Ramesh Parsram Malani v. The State of Telngana and Ors.44

Conclusion

The most critical part in establishing a contract is the parties’ mutual intention to create a legal
relationship. Apart from social and domestic agreements, other agreements such as the
common commercial contracts are established with the basic thinking that it will be legally
binding, and it is up to both parties to come up with a reasonable agreement that will benefit

42
Patrick Atiyah, Essays on Contract (Oxford: Clarendon Press, 1986).
43
For example, option agreements.
44
 Contracts Project

both sides. In all certainty, especially in the current era, parties will only enter into contracts
when they have ample knowledge and understand fully what they will be bound to. Hence,
under normal circumstances, any reasonable man will not sign a contract that will only benefit
the other party. In this case, the doctrine of consideration can be considered as outmoded and
redundant.