Consideration

Consideration is known as 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 the other.

Something of value to which a party is not already entitled, given to the party in exchange
for contractual promises. Consideration can take various forms, including a:
 Monetary payment.
 Promise to do something.
 Promise to refrain from doing something.

Consideration is essentially an element about identifying an enforceable promise in the

Consideration is about tracing the purpose and motivation behind one’s decision to enter
into a legally binding contract.

Bargain Theory/ Approaches towards the consideration

• Bargain as a form of an exchange that is motivated by self-interest or something that

Chappell and Co v Nestle Ltd (Consideration does not have to be vaulable)

Facts
The defendants, Nestlé, contracted with a company manufacturing gramophone records to
buy several recordings of music. The plaintiffs, Chappell & Co, held the copyright in these
recordings. Nestlé offered to sell these records at a discount price to anyone presenting
three wrappers from their chocolate bars. The wrappers themselves were worthless and
were thrown away by Nestle. The plaintiffs sought an injunction restraining the manufacture
and sale of the records because they breached copyright.

Issues
The Copyright Act 1956, s.8 allowed for the manufacture of records for retail sale provided
that a royalty of 6 ¼ percent was paid to the copyright holder. The question was whether
the sale was a ‘retail sale’. The defendants argued that the wrappers were part of the
consideration and this was not covered by s.8, which only applied to monetary sales.
Consequently, the issue was whether the wrappers were consideration for the sale of
records or whether they were merely a qualification for buying the records.
Decision/Outcome
The House of Lords held that the wrappers did form part of the consideration for the sale of
records despite the fact that they had no intrinsic economic value in themselves.

Lord Somervell said (at 114):

‘A contracting party can stipulate what consideration he chooses. A peppercorn does not
cease to be good consideration if it is established that the promisee does not like pepper
and will throw away the corn.’

Therefore, as the wrappers had no monetary value, the sale was not covered by s.8 of
the 1956 Act, and the Lords found in favour of the defendants.

Hamer v Sidway (nephew’s card game and no intention to get into the contract)

Rule

Only a valuable consideration upholds an executory contract. The consideration must be

Facts

The testator and his nephew, William E. Story were attending the golden wedding of the
father of the testator, when he said to William: "Willie, I am going to make you a
proposition. If you will not drink any liquor, will not smoke, will not play cards or billiards
until you are 21, I will give you $ 5,000 that day. Of course, if you want to play for fun, that I
don't consider playing cards." William agreed. When the testator passed, his nephew sought
to claim the $ 5,000. The circuit court held that the testator's inter vivos promise to give his
nephew money for abstaining from enumerated bad habits until he became an adult
constituted a binding contract, and that the nephew was entitled her to those funds. On
appeal, appellant beneficiary argued that there had been simply a promise by the testator
to make his nephew a gift of the sum of $ 5,000 when he became 21 years of age and had
refrained from the activities.

Issue

Did the proposition between a testator and his nephew, where the latter agreed to refrain
from tobacco and alcohol, form a legal and binding contract between the parties sufficient
to uphold the recovery by the nephew?
Decision

The Supreme Court of New York reversed that judgment and granted a new trial, finding
that what occurred between the parties was not intended as a legal and binding
contract. The court reasoned that the testator merely promised to "give" his nephew the
money in return for abstaining from bad habits, and that the record did not show that the
nephew provided sufficient consideration to allow the claimant to enforce that promise. The
court also held that the correspondence between the testator and the nephew showed that
the testator did not consider the promise to have created a legal liability, and that the
failure to deliver that gift invalidated it. The court also found that no trust existed because
none was ever declared.

White v Bluett

Facts
Bluett Sr. lent his son, the respondent in this case, a sum of money and died before his son
had repaid this to him. Bluett Sr. and Jr. had agreed on this and completed a promissory
note to this effect. Bluett’s will was executed by White. In the course of executing the will,
White sued Bluett’s son for the outstanding payment. The son argued, as a defence, that
Bluett Sr. had stated that repayment was not necessary to render the promissory note
ineffective if the son stopped complaining about the manner in which Bluett Sr. spread his
estate among the other members of the family.

Issue
The court was required to define whether the son’s promise to stop complaining about his
father’s plans would satisfy the requirement of consideration in constructing a contract. If
this could be proven, then it would be likely that Bluett’s son would be released from the
requirement to repay the debt owed to his father’s estate.

Decision/Outcome
The court held that there was no consideration given by the son which would absolve him of
having to repay the debt to his father’s estate. The court also believed that the son had no
right to complain as the father was free to distribute his property as he wished. As a result,
ceasing from complaining was not consideration and was ultimately an intangible promise.
Pollock, CB was clear in his summing up of the decision: ‘…the argument…is pressed to an
absurdity, as a bubble is blown until it bursts’.
Pan On v Lau Yi Long
Facts
The plaintiffs (P) owned the shares of a private company which owned a building that the
defendants (D) wanted to buy. The defendants were majority shareholders in a public
company. P agreed to sell their shares in the private company to D so that D could acquire
the building. In return P would get shares in the public company. Fearing a drop in share
value of the public company would result, P and D made another agreement that P would
not sell their shares for a while. However, P realized that D might profit from this agreement
and demanded that this second agreement be replaced with one in which P was
indemnified for any fall in share value but might also benefit from any rise in share value.
Fearing that not agreeing to this would delay the main contract, D agreed. The share value
did drop, and P sought to rely on the indemnity contract. D refused to comply with this, and
the case reached the Privy Council.

Issues
The defendants claimed that the consideration for the indemnity agreement was past
consideration and had only been agreed to under duress.

Decision/Outcome
The court found for the plaintiffs. Applying the exception to the doctrine of past
consideration in Lampleigh v Braithwaite (1615) Hob 105 Lord Scarman said that an act
done before a promise was made was good consideration for that promise if it was done at
the promisor’s request and the parties understood the act was to be paid for at a later date,
and the payment or benefit would have been enforceable had it been promised in advance.

Past Consideration is good only when:

• The act was done at the promisor’s request

Re Casey’s Patents

Facts

The defendant, Casey, managed some patents owned by the plaintiffs, Stewart and
Charlton. The plaintiffs later signed a document that read: ‘In consideration of your
services… we hereby agree to give you one-third share of the patents’. This payment was in
return for work Casey had already done. When Casey registered this document on the
patent register in order to claim his 1/3 interest in the patents, the plaintiffs applied to have
the document expunged from the register.
Issues
The plaintiffs stated that the document was not a deed and therefore was required to be
supported by consideration before it became a valid agreement. The issue was whether
what Casey had already done was past consideration, in which case it would not be good
consideration, and the agreement to give him an interest in the patents would be void.

Decision / Outcome
The Court of Appeal held that Casey must have assumed his work was to be paid for in some
way. The work done was not just a matter of goodwill but something a manager would have
expected to have been paid for. The promise to pay was, therefore, just a crystallization of
this reasonable expectation. Bowen LJ said (ay 116):

‘a past service raises an implication that at the time it was entered it was to be paid for,
and… when you get in the subsequent document a promise to pay that promise may be
treated… as an admission which… fixes the amount of that reasonable remuneration’.

Therefore, Casey’s past work was good consideration and the agreement was enforceable.

Re McArdle
Facts
William McArdle left a house to his five children in equal shares, subject to a life interest for
his widow. The wife of one of these sons, Mrs Marjorie McArdle, carried out improvements
to the house amounting to £488. She also bore the cost of these repairs. After the repairs
had been carried out, she got all the five children of McArdle to sign a document in which
they promised to repay Mrs McArdle the £488 out of the estate when it was eventually
distributed. After the testator’s widow died, Mrs McArdle asked for payment. However, the
other four sons refused to pay her. She tried to enforce her interest in the property in court.

Issues
Ms McArdle argued that the document was an equitable assignment of a portion of each of
the five sons’ interest in the property amounting to £488 out of the testator’s estate.
However, the other sons argued that the promise was merely a gift, as Mrs McArdle had
provided no consideration for it. As she was a mere volunteer, the equitable maxim ‘Equity
will not assist a volunteer’ applied and, therefore, the promise to pay could not be
enforced.

Decision/Outcome
The Court of Appeal held that the transaction had not been completed and was imperfect.
Therefore, it was only a promise to pay and not a gift. Mrs McArdle had already performed
the work before she asked for payment. Her consideration was in the past. Past
consideration is not good consideration. Therefore, the agreement was unenforceable.