The Doctrine of Consideration; A Fiction?

What is the doctrine of consideration? Why do I call it a fiction? First of all, we need to consider what is this doctrine of consideration that we always say that plays such an important part under the law of contract. Later on in this essay, I would proceed to consider the various changes in the law that took place and comparing it with the definitions given by various judges and authors at the same time considering as to whether the reasoning are justifiable.

In the case of Butler v Ex-Cell-O Corp., the courts stressed that the existence of an offer as well as an acceptance is vital, in order to be a contract. Although this is true but what other elements is needed for a contract? A contract should consist of an expression of an offer that has been accepted, and be bound by the terms of the contact where in which the parties would have provided consideration to enforce such promise in the absence of any vitiating factors.

Why do we need to provide consideration? The emergence of the doctrine of consideration is really somewhat due to the Statute of Frauds 1677 where it was stated that any transfer of property would actually need to be done so by a deed. However, if one has supported his promise with consideration, then he would be able to enforce such promise under the law.

If we were to consider as to whether there is intention to create legal relations following cases like Edwards v Skyways1 and Merritt v Merritt2, how do we actually ascertain that there is an intention? If the facts are clear that they intent to have legal relations, than everything would be fine. But what if there is no clear intention on the facts? Then if there were consideration that has been provided, then we would be able to imply that there is intention to create legal relations.
How then do we ascertain the existence of consideration? Various academics and judges had tried to give us a definition for the doctrine of consideration. However, there is only 2 person that really standout i.e. Lush LJ as well as Prof. Atiyah.

Lush LJ in Currie v Misa (1875):
" A valuable consideration in the eyes 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..."
Atiyah on the other hand had rigorously attacked the benefit detriment analysis in his work Consideration in Contract and have defined consideration in a most liberal manner when he said that:
" The truth is that the courts never set out to create a doctrine of consideration. They have been concerned with the much more practical problem of deciding in the course of litigation whether a particular promise in a particular case should be enforced ...

When the courts found a sufficient reason for enforcing a promise they enforce it; and when they found that for one reason or another it was undesirable to enforce a promise, they did not enforce it. It seems highly probable that when the courts first used the word "consideration" they meant no more than that there was a "reason" for the enforcement of the promise. If the consideration was "good", this meant that the court found sufficient reason for enforcing the promise."

What Prof. Atiyah actually meant by that statement is that valuable consideration is one that is merely legal i.e. a conduct that is not illegal in nature and does not mean there must be a benefit or a detriment before it can be said to be a valuable consideration. He further argues that at times, the courts actually bend their backs to enforce a contract and say that there is a valid consideration.

The reason in which I argue at the title itself, stating that the doctrine of consideration is merely a fiction is that because I share the same opinion as Prof. Atiyah i.e. in that the courts would actually enforce the promise stating that there is a consideration by taking in to account the surrounding circumstances.
It is often been argued that the 4 rules to consideration have the determining factor to the existence to the doctrine of consideration. But, do you actually think that these factors are actually useful today taking into account the changes of the law and the time that the cases had first been decided?

Taking each factor one by one, one could best see the relevance and the accuracy of such factors today. The first rule is that the consideration must move from the promisee. This is to say that in order a person would want to enforce a promise; the promisee would have to provide consideration for it. In the case of Thomas v Thomas, it was held that the wife was not allowed to enforce the promise because she did not want to pay the minimum sum of $1 in order to stay in the house3.

It is in my opinion that this rule of consideration is the only rule that is the most accurately stated out because the person who wants to enforce a promise must always provide something in order enforce a promise. However, I would like you to consider this example; would a contractor be able to enforce a payment when the workers are carrying out the construction work? Technically, wouldn’t the contractor be barred for claiming the payment because he did not do the job?

Although the law has always been acclaimed by the layperson that the law is always technical and tedious, the law is not really that hard at heart. In such a situation, the law would actually say that the promisee need not provide the whole consideration for the promise; thus the promisee can enforce the promise if he can show that consideration was provided partly by him and partly by his agent, partner or some other co-promisee (workers).

The second rule, which is by all means, is of without dispute is that the consideration need not move to the promisor. The case of Carlill v Carbolic Smokeball Co. Ltd. would best illustrate this. Here when Mrs. Carlill had used the smokeball in the stipulated manner and contracted influenza, then she would be entitled to the $100 “reward”. If we were to say that consideration must move to the promisor, then what benefit did the Carbolic Smokeball Co. benefited from Mrs. Carlill contracting influenza? Therefore, it is submitted that this rule is undisputed.

The other rule of consideration that is in contention is that the consideration must be sufficient and need not be adequate. As we always say, the distinction between these 2 words is hard to be drawn in a layman’s term for it would mean the same. However, under the law, this would actually mean that such consideration must have a bearing of value no matter how minimal it is and cannot be compared to the normal value.

This is to say that if I were to sell you my house for $1, there would be consideration provided if you were to pay me the $1 and it is irrelevant that the house actually worth $1,000,000.

What if the consideration does not bear any economic value? Would there be consideration then? In the case of Chappell v Nestle Co. Ltd., the chocolate manufacturers sold gramophone records for 1s6d plus 3 wrappers of their 6d chocolate. The issue arise as to whether the wrappers would amount to consideration because even though the Nestle Co. was to take the wrappers back, they would only throw the wrappers away and it is entirely worthless (“rubbish”). However, it was held in this case that the wrappers actually constitute valuable consideration.
If chocolate wrappers, which are worthless, would constitute valuable consideration, consider this case of Lipkin Gorman v Karpnale. Although the decision of this case is based under the law of trusts, the issue about the doctrine of consideration was considered. The issue in this case, the issue was whether the gaming chips supplied by the gaming club to one of its members was valuable consideration. It was held in this case that it does not constitute consideration for the money paid to them.

Why is this? These chips that was bought or “exchanged” was said to be worthless because it is said that it was mere plastic. However, it actually carry some value doesn’t it because the chips are actually valued for the some paid for and the chips could be exchanged back for cash. But, if we were to say that they are worthless, wouldn’t it be the same with regards to the chocolate wrappers in Chappell’s case?
The other reason that was given was that the chips remained the possession of the gaming club. This is because the chips are worthless outside the club, but this cannot be said to be conclusive, this is because the member would have paid good money for it and upon payment, the chips would have been transferred to the member. Therefore, the transfer of possession would clearly constitute good consideration.
The third reason is that the parties did not regard the transaction of transferring the chips as a contract but merely a convenient mechanism to facilitate gambling. The
case is regarded as one in which the court refused to invent consideration even though this course was technically open. They said that this is what the parties have intended, is this so? Intention of the parties is always subjective and we cannot actually say conclusively that this was the intention of the parties, the gaming club would of course argue that they did not enter into a contract. For the courts to say conclusively that this is what the parties have intended would be artificial.

The refusal appears to be based on the context in which the question arose. The issue was not whether the club could the member on any promise made by the member. The issue arose because the money paid by the member to the club had been stolen and the club, which had been received the money in good faith, argued that they had given valuable consideration for it so as to defeat the owner’s claim for the return of the money.

L. Goff lend some support based on a hypothetical case of tokens supplied by a departmental store in exchange for cash. This hypothetical situation is something like what we get locally from credit card companies and departmental stores where in which one could collect points when purchasing products from them and when a certain amount of points had been collected, the will then award you with cash vouchers etc.
In such a situation, L. Goff stated that “by receiving the money in these circumstances, the store does not for the present purposes give valuable consideration for it”. Yet in such circumstances, they had also accepted that an independent contract is made for the chips when the customer originally obtains them from the cash desk.

If we were to compare this situation in Lipkin, we are able to realise that the situation in Lipkin and the one that was given by L. Goff is somewhat similar and yet the courts would have decided the case differently.It is submitted that this case had caused made me argue that the doctrine of consideration is merely a fiction. Why is this? This is because it will seem that it the existence of the doctrine would be depended on whether it concerns the enforceability of a promise where in which the courts would take a broad approach; or on the other hand, the consideration is concerned with the enforcement the rights of a third party, then the courts would then take a narrow approach.

This point would be to justify Prof. Atiyah’s argument that the courts would actually bend backwards to justify a case.The third rule is one of the rules that I actually find that it is made quite redundant today losing the original idea of this rule, or it shouldn’t be there at the first place i.e. the performance of an existing duty. I would not be considering the issue of legal performance but on the issue of contractual duty.

The rule started off with the case where the seamen was not allowed to claim for the extra wages “promised” because they had not paid valuable consideration for it. This was seen in the case of Stilk v Myrick. The facts of this case is, in brief, is that the ship after reaching it’s destination and is about to return to England, there was a few men who had jumped the ship. At such, the existing members did not want to
continue with the journey unless they were paid extra. The ship Captain actually said that he would divide the wages of those that had jumped the ship to the existing members.

When the ship finally arrive at the English port and when the members demanded for the extra wages, the ship captain turned around and said that he would not pay them the extra. It was held in this case that the seamen wasn’t allowed to claim the extra and was said that they had not provided valuable consideration for that promise because the crew members were under a contractual duty to perform the act of taking the ship back to England.

Is this really so? If we are to consider it as a unilateral contract, where in which one would be paid in return of an act done, then it easily justifiable isn’t it? But what is the reasoning behind it? One of the reasoning given for this case is that the law needs to protect the promisors from extortion. This reasoning is so because at the time that this case was decided, there is no such vitiating factor that was recognised as economic duress. However, this argument would hold much weight today due to the fact that duress is now a recognised defence. Thus at that time, the courts would have say that there was no consideration to support the promise.
What if the promisee has done work that is over and above his normal duties4? However, it would be irrelevant if the promisor can actually show that there was duress by the promisee no matter how minimal.5 In short, what this really means is that the promisee can only claim for the extra sum if he could prove that the promise was made at the free will of the promisor in the absence of duress.6 Nonetheless, it was held that the promise couldn’t be impugned that the refusal amounted to an abuse by the promisee of a dominant bargaining position.
The other reason that was given is that the promisee has suffered no legal detriment in performing what was already due to him; nor the promisor received any legal benefit in receiving what was already due to him.

It is submitted that these reasons “prima facie” seem to carry weight. But examples can be given where in which the courts seemed to depart. The first example would be the case of Ward v Byham (1956). On the facts of this case, a father of an illegitimate child promised to pay its mother $1 per week providing you she prove that the child is well looked after and happy, also that the child is allowed to decide for herself whether or not she wishes to come and live with the mother. Since then, the mother started to look after the child. It was held in this case that the mother could enforce the father’s promise.

Why should the mother be entitled to claim the money? She did not provide any consideration for the promise. This is so because the mother is already under a statutory duty to take care of the child isn’t is? A mother is always bound to ensure that their child is well taken care of isn’t it? Put it this way, recently in August 2002

where the was an abandoned child in Malaysia by the name of Ming Hong and this has led to a public outcry about the attitude of the mother who is irresponsible. Does this now justify my argument that the mother should not be able to claim for the $1?
However, one of the bases of this decision is that the mother had provided consideration by showing that she had made the child happy. L. Denning was of the view that although the she was merely performing her legal duty to support the child, there are no grounds of public policy for refusing to enforce the promise.
Although I do feel for what L. Denning has to propound, but I’m not of the opinion that the law should not create consideration as they like. This is what I meant by the doctrine consideration is a fiction and the courts are bending their backs to justify their means.

The issue about the promisor has not benefited from the promise can be “flawed” if were to consider the case of Williams v Roffrey Bros. & Nicholls (Contractors) Ltd.7 Here, the Defendant (D) engaged the plaintiff (P) as a carpentry sub contractor for the purposes of performing a contract between D and X to refurbish a number of flats. The amount payable to P under the sub contract was $20,000, but the D later promised to make an extra payment to the P, who undertook no additional obligation in return.

The D made this new promise because the D’s own surveyor recognised that the originally agreed sum of $20,000 was too low, as well as being worried that the P would not be able to complete the work on time exposing the D to penalties for delay under the contract between D and X. The P was at that time in financial difficulties.
It was held in this case that the D’s promise to make extra payments to the P was supported by consideration in the shape of “practical benefits” obtained by the D from the P’s performance of his duties under the original contract between them. This is due to the fact that there was no allegation of duress on the P; the promise to pay extra could not be avoided. Moreover, it was alleged that there has been no threat by the P to break the original contract and the initiative for the agreement to extra payment has came from the D.

In this case, the point is that the D had obtained a practical benefit by not infringing the time penalty clause, looking for another contractor and it would ensure that the P would not stop and in breach. Doesn’t this benefit was created by the courts? Although this is true, but isn’t this the same for the case of Stilk v Myrick? The only distinction that can be drawn is that there may be an element of duress in the former case.

It is submitted that the courts do not actually lay down well define guide as to when would there be consideration and when there isn’t; the courts seems to be taking the case at a ad hoc basis. The case of Williams seems to infringe the final rule as well i.e. past consideration is not good consideration following the case of Roscorla v Thomas.7 (1991) 1 QB 1

Here, after the sale of the horse, the seller gave an extra warranty that the horse is free from vice. However, in this case, it was held that the plaintiff could not enforce the warranty because the consideration for the warranty has passed. It is submitted that the point of distinction is that whether the term or warranty was given before the completion of the contract. It is further submitted that this is the same in Williams.

In the case of Re Casey’s Patent,8 it was held that a past act could be consideration for a promise only if 3 conditions are satisfied. First of all, the act must be done by the request of the promisor.9 The second is that it must be understood that payment would be made and finally, that the payment if it is promised in advance, must be legally enforceable.

To illustrate this, imagine yourself as an employee in a company and your boss has stated to you that he would give you a “bonus” for the hard work you have performed. Applying the principle of Roscorla, the promise for the bonus had come after you have already entered into your contract of employment and thus would not have provided consideration for it. Would you then be able to enforce the promise? However, if we were to follow the principle in Re Casey’s Patent then you would be able to enforce that promise.

Thus, as we can see from the cases discussed, that the doctrine of consideration has departed from it’s initial rules and creating a situation where in which it looks as if the courts are bending backwards to justifying their means to decide a case. This has therefore, made the doctrine of consideration a fiction!!!