Componentes relevantes

There are two situations in which the law regards a promised consideration as being past and therefore the person to whom it has been promised cannot sue to enforce it.

The first example of past consideration is where one party to a contract makes an additional promise to the other party which is not part of the promises which form the offer and acceptance.

Roscorla v Thomas (1842)

The plaintiff paid the defendant £30 for a horse. After the contract was made, the defendant promised that the horse was sound and free from vice. The plaintiff sued on this promise. Held: because the promise came after the sale, the consideration for the promise was past.

However, the mere fact that a promise is to be performed at a future date does not make it past consideration. It is quite customary to make promises which are to be carried out in the future and, providing the promise forms part of the offer and acceptance, it is regarded as having been given for a valid consideration.

Similarly, if both parties were to make a further promise, each promise would be regarded as consideration for the other and therefore the parties would have validly varied their original contract.

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The second situation in which past consideration arises is where one party does an act voluntarily and subsequently the person who has benefited from the act promises to pay for it.

Re McArdle (1951)

A person voluntarily carried out improvements to a house. After she had done the improvements, the owners signed a paper promising to reimburse her for the work. When she sued on the promise she failed because the consideration on which she relied was past.

Exceptions to the rule

There are three exceptions to the rule that past consideration is no consideration. These are:

(a) Where an act or service is performed, and a subsequent promise to pay for it or confer some other benefit on the promisee is made, the subsequent promise is enforceable if:

(i) the act or service was performed at the request of the other party;

(ii) it was assumed from the outset by both parties that the act or service was to be paid for; and

(iii) the promise would have been legally enforceable if it had been promised in advance.

The first of these conditions was laid down in the old case of Lampleigh v Braithwaite (1615).

Lampleigh v Braithwaite (1615)

B, having killed a man, asked L to try to obtain a pardon for him. L did so, riding to Royston to see the King. In consideration of this, B agreed to pay L

£100. L sued for the money and B pleaded past consideration. Held: a ‘mere voluntary courtesy’ (for example, if L had volunteered to ride to see the King) would not amount to a consideration, but consideration was present here because the act in question was performed at the request of the defendant.

The second condition was emphasised in Re Casey’s Patents.

Re Casey’s Patents (1892)

Patents were granted to Stewart and Charlton in respect of an invention.

Casey agreed with S that he would ‘push’ the invention. Later, Stewart wrote to Casey saying: ‘…in consideration of your services as the practical manager in working…our patents…we hereby agree to give you one third share of the patents…’

The patents were later transferred to Casey and, after the death of Stewart, S’s executors wrote asking for the return of the patent. C refused to return it,

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claiming that he was entitled to a one-third share. One of the questions which arose in the Court of Appeal was whether C had given consideration for the assignment of the one third share, or whether his alleged consideration was past. Held: the rendering of the service by C raised the implication that it would be paid for. Normally, the court would fix a reasonable amount of remuneration for the service (a quantum meruit). However, as the parties had themselves fixed an amount, that is, a one third share of the patent, the court would accept that as being a reasonable remuneration.

Pao On v Lau Yiu Long is a more complex example.

Pao On v Lau Yiu Long (1980)

PO owned shares in a company called Shing On. The main asset of the company was a building which was under construction. LYL were shareholders in a company called Fu Chip, which wished to acquire the building. In February 1973, PO agreed to sell to Fu Chip their shares in Shing On. (This would make Fu Chip the owner of the building Fu Chip wished to acquire.) The price of the shares was to be the issue to PO of shares in Fu Chip. By selling these shares, PO would get the required price for the building. The value of each share was, at the time, $2.50. PO agreed to retain 60% of the shares allotted to them until after 30 April 1974. (Presumably if they had been allowed to sell all the shares at once, the market in the shares would have become depressed to the detriment of the remaining shareholders in Fu Chip.) However, a difficulty with this agreement from PO’s point of view was that the value of the shares might fall between the date of the contract and 30 April 1974, with the result that PO would not get as much as they had expected from the deal. To guard against this, PO and LYL entered into a subsidiary agreement whereby LYL agreed to buy 60% of the allotted shares from PO on or before 30 April at $2.50 per share. Thus, PO was guaranteed a price of $2.50.

In April 1973, after the agreements had been made but before the main agreement had been carried out, PO realised that the subsidiary agreement did not give them the opportunity of any profit, should the shares rise in price before 30 April 1974. Therefore, PO refused to complete the main agreement with Fu Chip unless LYL agreed to cancel the subsidiary agreement and replace it with a different agreement which would not require LYL to buy the shares but would require LYL to indemnify PO should the value of the shares fall below $2.50. The sale of the building under the main agreement then took place. PO retained 60% of the shares in Fu Chip as agreed, until 30 April 1974, at which date the share value was below $2.50. LYL refused to indemnify PO, arguing, among other things, that the consideration for their promise was past. Held by the Privy Council: PO’s promise not to sell the shares until 30 April 1974 was a sufficient consideration for LYL’s subsequent promise since:

(i) the promise not to sell was at the request of LYL; and (ii) the parties understood at the time the main agreement was made that the restriction on

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selling the shares must be compensated for by the benefit of a guarantee against a drop in price; and (iii) such a guarantee was legally enforceable.

The rule regarding past consideration means, for example, that if after having negotiated a contract, one party promises an increase in price (unless, of course, the contract itself contains an appropriate price variation clause), the promise to pay the additional amount is unenforceable, since it has been given without a matching consideration. However, although the courts have upheld this principle in theory, in practice, in the interests of commercial expediency, they have proved willing to circumvent this rule and hold that the promise to pay the additional amount is enforceable (see, for example, Williams v Roffey Bros below).

(b) Section 25 of the Limitation Act 1980

This provides that no action may be brought on a simple contract beyond six years from the date when the cause of action arose. The action is said to be

‘statute-barred’. However, s 29 of the Act provides for an extension of the ordinary time limit where the cause of action is a debt on a contract. In such a case, if the debtor acknowledges the debt in writing (or if he part-pays the debt), the six years’ limitation begins to run again from the date of the acknowledgment (or part-payment). The debtor cannot argue that the consideration for his written acknowledgment is past (note that neither a written acknowledgment nor a part-payment can revive a debt once it has become statute-barred).

(c) Section 27 of the Bills of Exchange Act 1882

In relation to the payment of debts by way of a bill of exchange (of which a cheque is the most common example), s 27 of the Bills of Exchange Act 1882 provides that:

…valuable consideration for a bill may be constituted by:

(i) any consideration sufficient to support a simple contract;

(ii) any antecedent debt or liability.

It is often said that (ii) means that consideration for a bill of exchange may be past consideration. With respect, this view is difficult to support since any antecedent debt or liability created by a past consideration is not a debt or liability. The true effect of the provision seems to be that if a cheque is given in settlement of a statute-barred debt, the antecedent debt is sufficient consideration to allow the payee to sue on the cheque.

Price-variation clauses

Where the parties are entering into a contract which is going to be performed at a date significantly into the future, it is a wise precaution for the supplier

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to build a price-variation clause into the contract. A properly drafted clause can operate to increase the contract price in the event of inflation, or an unexpected increase in the price of labour or materials, or (in the case of an international contract) a devaluation of the currency in which the contract price is to be paid. If such a clause is not inserted, and one of the events we have mentioned above materialises, the seller may be faced with the dilemma of either completing the contract at a reduced profit (or even at a loss) or refusing to continue with the contract and be confronted with a claim for damages for breach of contract.

Existing obligations as consideration

Sometimes a party will rely on an existing legal or contractual duty as his consideration for the promise of the other party. This is the case where one party asks for an increase in price from the other party because he has underpriced the contract. If a price variation clause has been inserted in the original contract, there will be no difficulty in raising the price in accordance with the terms of the clause. If there is no price variation clause, the problem of consideration arises.

For example, Rex agrees to build an extension to Sarah’s hotel for a price of £200,000. Because of an increase in the price of materials, Rex requires a further payment of £20,000 if he is to make a reasonable profit on the deal.

In such a case, Sarah is legally entitled to refuse to make any additional payment. However, if Rex’s response to Sarah’s refusal is to say that he will do no further work on the extension, this may place Sarah in difficulties. On the one hand, she would succeed in an action against Rex for breach of contract. On the other hand, bringing the action would be costly, stressful and timeconsuming and there is no guarantee that, at the conclusion of the case, Rex would have the financial ability to pay any award of damages.

There is the further problem that Sarah would have to hire a different contractor to finish the job. This would inevitably lead to delay and additional cost. Although in theory this would be borne by Rex, in practice the plaintiff never recovers entirely what the breach of contract has cost him, even assuming the defendant can afford to pay.

The most practical way out will normally be for Sarah to accede to Rex’s request for the additional £20,000. However, in such a case the classical law of contract would regard Rex as having provided no consideration. Because he is already contractually bound to do what he is promising to do as his consideration (that is, build the extension), he is really providing nothing in return for Sarah’s promise to pay the additional £20,000. He therefore would not be able to enforce Sarah’s promise to pay the additional £20,000.

Although the attitude of the classical law is logical, it does not, as we have seen, accord with commercial realities. However, as we shall see, the attitude of the law towards this strict view of consideration appears to be changing.

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The reason for the attitude of the classical law seems to be partly related to public policy: that is, it is contrary to public policy to allow an existing legal duty or an existing contractual duty to be used as a base for further bargaining between the parties, since it might lead to one party imposing undue pressure on the other.

Denning LJ argued that in cases where no issues of public policy arise, agreement to perform an existing duty should be valid consideration because it confers a benefit on the promisee: see Williams v Williams (1957). The subsequent Court of Appeal decision in Williams v Roffey Bros (1990) (see below) appears to have gone a substantial way towards adopting the view of Denning LJ. The case has far-reaching implications. It appears to decide that where an additional promise is exacted from one party subsequent to the original contract, as an additional price for the carrying out of the original obligation, this may constitute a consideration sufficient to allow the promisee to sue on the promise.

It remains to be seen what effect the decision in Williams v Roffey Bros will have in the longer term and it is, therefore, necessary to place the case in the context of the pre-existing law.

Duties laid down by law and duties laid down by contract

An existing obligation may take the form of a duty laid down by law or a duty laid down by contract.

Duty laid down by law

If the plaintiff has promised to do a duty which he is bound by law to do, he is not regarded as having provided consideration.

Collins v Godfroy (1831)

G promised C that he would reimburse him for his loss of time while acting as a witness at a trial involving G. G subpoenaed C as a witness. C attended for six days but wasn’t called. He sued G upon his promise to pay. Held: C had given no consideration for G’s promise to pay since he was bound by law to act as a witness when he was subpoenaed to do so. (Note that nowadays, a subpoenaed witness is entitled to payment.)

Duty under a contract

Where the promisee is already bound by contract to the promisor to carry out his promise, the law doesn’t regard him as having given good consideration for the promise.

Stilk v Myrick (1809)

The plaintiff, a seaman, had agreed to sail with a ship to the Baltic and back at a wage of £5 per month. During the course of the voyage, two of the seamen

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had deserted. The captain, having vainly tried to fill the jobs of the two deserters at Cronstadt, agreed with the remainder of his crew that they should split the wages of the two deserters between them should they be unable to fill the vacancies at Gothenberg. The vacancies remained unfilled and the ship sailed home short-handed. The plaintiff sued for his share of the deserters’ wages.

Held: there was no consideration for the captain’s promise (in that the seamen were only agreeing to do what they were already bound to do).

Exceptions to the above rules

(a) If the promisee promises to do more than the duty imposed upon him by law, or by contract, he will have supplied sufficient consideration for the other party’s promise.

Glasbrook Bros v Glamorgan CC (1925)

Glasbrook owned a colliery near Swansea. The mine’s employees were on strike and, following a hostile demonstration by 500 to 600 of the workers, the colliery manager was informed that the strikers were going to get the safety men out on strike. Unless the safety men went into work, the mine would quickly be flooded. The colliery manager then asked the local police to billet 100 men on colliery premises in order to protect the safety men.

Otherwise, the safety men wouldn’t come in to work as they were frightened.

The police superintendent was of the opinion that it would be sufficient to keep a mobile force at the ready. They would be able to respond quickly enough if the apprehended danger to the safety men materialised. However, if police were to be billeted at the colliery, a force of 70 would be sufficient.

The colliery manager agreed to have 70 men billeted at the colliery and to pay the police authority specified rates per day for the services of the men, plus travelling expenses. The colliery also agreed to feed them and to provide sleeping accommodation. The total bill came to around £2,000. Glasbrook refused to pay on the ground that the police were bound by law to provide protection. The police authority sued for the money. Glasbrook counterclaimed for around £1,300, this being the cost of feeding and housing the policemen who guarded the colliery. Held, by the House of Lords: although the police were under a duty to provide protection, they had a discretion as to what form the protection should take. In this case they thought that a mobile force would be sufficient. Since the respondents had insisted on a resident garrison, the police, in agreeing to provide it, had given consideration sufficient to support Glasbrook’s promise to pay.

In relation to contractual duties, the case of Hartley v Ponsonby (1857) is illustrative of a promise to perform more than the original contract required and, therefore, to provide consideration.

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Hartley v Ponsonby (1857)

A ship had left England with a crew of 36, but on arrival in Port Phillip a number of the crew deserted, leaving only 19, of whom only four or five were able seamen. The captain tried to recruit fresh crewmen but failed. He therefore promised the plaintiff, an able seaman, and the rest of the able seamen, a remuneration of £40 if they would assist in sailing the ship from Port Phillip to Bombay with a crew of 19 hands. The ship reached Bombay safely, the plaintiff having carried out his duty. On arrival in Liverpool, he was paid his normal remuneration but was refused the extra £40. Held:

because the ship was unseaworthy being sailed by only 19 men, the plaintiff would have been within his rights to refuse to sail from Port Phillip to Bombay.

He was, therefore, able to make that voyage the subject of a fresh contract between himself and the ship’s captain.

Modern willingness to find consideration

In modern cases, the willingness to find a consideration moving from the promisee in circumstances where a consideration consisted of an existing legal or contractual duty began to become quite pronounced, particularly in a Court of Appeal influenced by Lord Denning MR (as he became).

Ward v Byham (1956)

Ward v Byham (1956)