The doctrine of consideration

What is it?

Unless a promise is made in a deed, it will not be contractually binding (though it may still give rise to legal consequences under the law on promissory estoppel, or the law of tort, or public law) unless it is supported by consideration. This is the doctrine of consideration. Most contract textbooks will trot out the following definition of when a promise will be supported by consideration, taken from the case of Currie v Misa (1875):

‘A 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’ (per Lush J).

This is so wide as to be useless as a definition. For example, it won’t help you to determine whether or not the following promise is supported by consideration:

A is thinking of buying a car. B tells A ‘If you buy a car, I’ll give it a free servicing every year.’ A buys a car. B’s promise played some part in A’s decision to buy a car.

Whether or not A’s buying a car provided consideration for B’s promise, so as to make it contractually binding, depends crucially on whether B’s promise was made with the object of getting A to buy a car. If B was a car dealer, and A was on B’s car lot, and B made the promise with the object of persuading A to buy a car from him, then there is no doubt that if A does buy a car from B, then B will be contractually bound to give the car a free servicing every year. But if B was A’s friend, and B was simply offering to give A’s car a free servicing if he happened to buy a car, and B was not trying to get A to buy a car when he made his promise, then A’s buying a car will not provide consideration for B’s promise, and B will not be contractually bound to give A’s car a free servicing every year.

Here is my definition of when a promise will be supported by consideration:

There will normally exist consideration for A’s promise to B if: (1) A’s promise was made as part of an agreement reached between A and B under which they each promised to do things for the other; (2) A invited or requested B to do x and A made his promise to B in order to induce B to do x, and B was so induced.

Two points need to be made about this definition.

First, it only defines when we will normally find that there was consideration for A’s promise. There may be occasions when there B will not have provided consideration for A’s promise even though the above definition applies to their case; for example, where what B promised to do for A or what B was induced to do by A’s promise was something that B was legally bound to do for A anyway.

Secondly, it is not possible to simplify the above definition without eventually getting confused. For example, it is sometimes said that the doctrine of consideration requires that something be given in return for A’s promise, or that A receive some quid pro quo for his promise. And consideration is consequently often referred to in the books as the ‘price of the promise’. I think this is misleading. In situations covered by the second limb of my definition (under which there will be consideration for A’s promise to B if A was inviting or requesting B to act in a particular way, and A made his promise to B in order to induce B to act in that way, and B was so induced), B’s act isn’t really given in return for A’s promise (which it would be if B said to A, ‘If you promise to do y for me, then I will do x for you’). It’s normally the case that A’s promise is given in return for B’s act: in these kind of situations, A is usually saying, ‘If you do x, then I promise I will do y for you.’ However, as a rough and ready working definition of when consideration will be provided for A’s promise, it’s acceptable to think of consideration as something that is given in return for A’s promise.

Why do we have it?

It is, again, often observed in the contract textbooks that jurisdictions on the European continent don’t have a requirement that a promise be supported by consideration before it will be legally binding. So why does the common law have such a requirement? To answer this question, we need to know a bit about legal history.

So – in England, in medieval times, there were local courts and royal courts. Justice in the local courts was random and arbitrary. A plaintiff (nowadays, claimant) who brought a claim against a defendant in a local court would lose his case if the defendant could find enough people to swear (through a process known as ‘compurgation’ or ‘wager of law’) that he was not liable. So powerful defendants tended to be immune from ever being held liable in a local court. The royal courts were better: they made an attempt to find out what had actually happened in a case brought before them, and tried to come up with a reasoned conclusion as to what the legal outcome of the case should be. However, a plaintiff who wanted to sue a defendant in the royal courts on the ground that the defendant had done him some wrong (or ‘trespass’) would face the problem that the royal courts were only interested in dealing with cases where the defendant’s trespass was ‘against the King’s peace’. In other words, they were only interested in remedying violent wrongs. Normally, this wasn’t much of a problem. The plaintiff who wanted to complain that the defendant had done him wrong would simply bring a claim of trespass in the royal courts and tack onto his complaint that the defendant had acted violently, in breach of the King’s peace, in doing him wrong. The case would then be heard and no one would be that bothered about whether the ‘contra pacem’ part of the claim was made out.

However, there were some claims where it was simply impossible for the plaintiff to allege with a straight face that the defendant had acted violently in doing him wrong. This would be particularly the case where the plaintiff wanted to complain that the defendant had performed some service (such as shoeing the defendant’s horse) badly. It was simply not possible for the plaintiff to say ‘The defendant did me wrong by undertaking to shoe my horse, and then in breach of the King’s peace he shoed the horse so badly that it was made lame.’ The peaceful nature of the defendant’s undertaking and failure to do a good job made it impossible to allege that the defendant’s wrong was committed violently, in breach of the King’s peace. So plaintiffs who wanted to sue for this kind of wrong were shut out of the royal courts and had to sue in the local courts instead, where – as I have said – it was a matter of chance whether or not justice was done.

This changed from about 1350 onwards. From then on, the royal courts showed themselves willing to hear ‘actions for trespass on the case’ (or ‘actions on the case’, for short) under which the plaintiff would not need to allege a breach of the King’s peace to get the royal court to hear his claim. The actions on the case that the royal courts then started hearing including a number of claims where an essential element of the plaintiff’s claim was that the defendant had undertaken, or promised, to do something for him. These claims were known as assumpsit claims (‘assumpsit’ being Latin for ‘he promised’ or ‘he undertook’). The sort of assumpsit claims that the royal courts were willing to hear included:

(1) From 1369: claims that the defendant had undertaken to perform some service for the plaintiff and had injured the plaintiff’s person or property in performing that service.

(2) From 1449: claims that the defendant had undertaken to look after the plaintiff’s property, and that he had failed properly to look after it.

(3) From 1450: claims that the defendant had deceitfully deprived the plaintiff of money by promising to sell the plaintiff land, accepting the purchase price of the land, and then selling the land to someone else or (from 1504) refusing to hand over the land.

(4) From 1520: claims that the defendant had deceitfully induced the plaintiff to hand over goods to a third party by promising to pay for those goods, and then failing to pay for them.

(5) From 1550: claims to enforce the defendant’s promise to pay a debt that he owed the plaintiff in consideration of the plaintiff’s supplying the defendant with certain goods or services.

(6) From 1577: claims to enforce a bet under which the defendant promised to pay the plaintiff money, and the plaintiff promised in return to pay the defendant money, depending on what the outcome of a game was; the plaintiff having won the bet, he sought to enforce the defendant’s promise.

In all of these cases, it was never enough for the plaintiff simply to say ‘the defendant promised’ and sue the defendant for failing to keep his promise. Assumpsit claims were never simply based on an assumpsit: they were always assumpsit plus something else. An attempt was made in 1400 to bring an assumpsit claim for a carpenter’s mere failure to keep his promise to build a house, but that claim – and others like it brought in the following few years – was dismissed on the basis that mere failures to keep a promise could only be sued for in covenant, for which the promise had to be made in a deed.

We owe the doctrine of consideration to the fact that plaintiffs were not allowed to bring assumpsit claims simply on the basis the defendant promised to do something for the plaintiff: something else had to be established for the plaintiff to be allowed to bring his claim. The doctrine of consideration both expressed that fact, and attempted to define what that ‘something else’ had to be before an assumpsit claim could be brought. The vagueness of Currie v Misa’s definition of what would amount to consideration may be attributable to the fact that assumpsit claims could be brought in so many different situations. The fact that an assumpsit claim could be brought in situations (3) and (5) accounts for why definitions of what amounts to consideration say that there will be consideration for the defendant’s promise if the defendant has obtained some benefit from the plaintiff. The fact that an assumpsit claim could be brought in situation (4) accounts for why such definitions also say that there will be consideration for the defendant’s promise if the plaintiff has incurred some detriment as a result of the defendant’s promise. And the fact that an assumpsit claim could be brought in situation (6) – basically, a bilateral executory contract where two people have made reciprocal promises to each other – accounts for why definitions of what amounts to consideration say that the plaintiff’s making a promise to the defendant can amount to consideration for the defendant’s promise to the plaintiff.

This brief history lesson should teach us three things.

(1) Rationale of consideration

The variety of situations where an assumpsit claim could be brought makes it very unlikely that the royal courts allowed those claims to be brought for the same reason in every case. Given this, it is unlikely that we can come up with a unified explanation of why promises that are supported by consideration are legally binding. It is unlikely that the reason why a promise which forms part of an agreement under which the parties have undertaken to do things for each other will be legally binding is the same as the reason why a promise that was made with the object of persuading the promise to act in a particular way and was successful in persuading the promise to act in that way will be legally binding. The first kind of promise is likely to be legally binding because there is a considerable social interest in making reciprocal agreements binding: modern life would be impossible if such agreements were not legally binding. The second kind of promise is likely to be held to be legally binding in order to avoid the material harm that would be suffered by the promisee if he were induced to rely on a promise which was then broken. The first kind of promise is held to be legally binding in the public interest; the second kind of promise is held to be legally binding in order to prevent the promisee being harmed.

(2) Non-enforcement of gratuitous promises

The reasons why assumpsit claims could not be brought for mere breach of a promise were purely formal in nature. There already existed a cause of action that allowed plaintiffs to sue defendants for merely breaching a promise, and that was covenant. The royal courts refused to allow assumpsit claims to be brought for the mere breach of a promise because they did not want: (1) to undermine the rules limiting when someone could bring a claim for breach of covenant by allowing claims for assumpsit to be brought by the plaintiffs who could not bring themselves within the rules for bringing a claim for breach of covenant; and (2) to provide plaintiffs who actually did have a good claim for breach of covenant with an alternative claim in assumpsit. Neither of these reasons, being purely formal in nature, were actually good reasons for refusing to allow a claim for the mere breach of a promise to be brought in assumpsit. So it still has to be established that the modern law of contract does have a good reason for refusing to enforce gratuitous promises that have not been made in a deed.

(3) Limits on when the courts will find that there is consideration for a promise

I have argued that the doctrine of consideration originated in: (1) the fact that a claim in assumpsit could not be brought simply on the basis that the defendant had failed to keep a promise, and that something more needed to be established before the plaintiff could bring such a claim against the defendant, and (2) the need to explain to litigants what that ‘something more’ involved. Given this, it’s hard to understand why at some point before the end of the 18th century, the doctrine of consideration became immutable in that its list of situations where there would be consideration for a defendant’s promise became closed. (I say ‘before the end of the 18th century’ because by the time Pillans v Van Mierop (1765) was decided, not even a judge as bold as Lord Mansfield tried to argue that a written promise to pay a third party’s debts was supported by consideration; instead he argued that such a promise did not need to be supported by consideration to be binding – a suggestion that was disapproved in Rann v Hughes (1778).)

There is a saying that ‘the categories of negligence are never closed’ (Donoghue v Stevenson (1932), per Lord Macmillan). What this means is that the law does not take the view that there is a limited list of situations in which one person can sue another for negligence and if your case doesn’t come within that list, then you have no case. It is a pity, for the rational development of the law, that we do not have an equivalent saying that ‘the categories of consideration are never closed’, so that if a claimant who wanted to sue a defendant for breaching a promise would not necessarily be prevented from doing so just because his case does not fall within the list of situations where the courts have recognised in the past that a defendant’s promise will be supported by consideration. But the categories of consideration are now definitively closed, and a claimant who wants to enforce a promise not made in a deed and whose case does not fall within one of the two limbs of my definition of consideration, set out above, is forced to cast about for some other area of law, such as the law on estoppel or public law, as a way of getting an effective remedy; the law of contract will not help him out. I suppose this does make the law more certain – the law of negligence is notoriously unstable precisely because ‘the categories of negligence are never closed’ – but it does not help the law develop in a clear and rational way. Ideally, we would have one area of law dealing with the issue of when a promise will be legally binding, but at the moment we have three or four grappling with this issue because the area of law that is most apt to deal with this issue – the law of contract – has stopped developing.

Of course, if it were true that ‘the categories of consideration are never closed’ then the start of this essay would look very different. We would have to adopt something like Patrick Atiyah’s view of the doctrine of consideration (see Atiyah, ‘Consideration: a restatement’ in his Essays on Contract (1986)), and say that ‘A defendant’s promise will be supported by consideration if the courts think that there is a good reason to enforce it even though it was not made in a deed. As the law stands at the moment, the courts will hold that a defendant’s promise is supported by consideration if the promise is made as part of a reciprocal agreement under which the parties to the agreement have promised to do things for each other, or if the promise was made with the object of persuading the plaintiff to act in a particular way and was successful in that object. However, it has been argued that there are other kinds of promise which should be enforceable, and it has been suggested that the courts should also recognise that a promise is supported by consideration if…’ All this very much represents the road not taken by English law. There are only two situations in which the courts will recognise that a promise is supported by consideration and it is hard to see nowadays – given the current state of the law – how that list of situations could, or will ever, be added to by the courts.

Should we have it?

I think academics and judges who argue that we should abolish the doctrine of consideration are not thinking straight. In a case where A makes a promise to B, we might want to find that that promise is legally binding because of: (1) something that B has done, or (2) something that A has done.

If we are going to find certain promises binding because of something the promisee has done, then we will need the law to specify when a promise will be legally binding because of something the promisee has done – and that is basically the function that the doctrine of consideration performs today. If we abolished the doctrine of consideration, we would just need to reinvent it (though perhaps in a modified form) to deal with the issue of when a promise will be legally binding because of something the promisee has done. Of course, it is always possible that we would never want to enforce a promise because of something that the promisee has done, and that our reasons for enforcing a promise would always be based on what the promisor has done in making that promise. But this is hardly likely.

No – the real question is whether the current law on deeds and consideration needs to supplemented. And that question turns on this one: Do we think that the courts should ever recognise that a promise not made in a deed is legally binding when the promisee has done absolutely nothing that might give us reason to want to enforce that promise? If the answer is ‘yes’ then the law needs to be reformed so that it says that ‘A promise that has not been made in a deed and is not supported by consideration will still be legally binding if…’ where what comes after the ‘if’ sets out the conditions under which we would want to enforce a promise not made in a deed even though the promisee has done absolutely nothing for his part to make us want to enforce the promise. If the answer is ‘no’ then the current law on deeds and consideration does not need supplementation – though the doctrine of consideration may need modification if it is too restrictive at the moment in specifying the circumstances in which we will enforce a promise based on what the promisee has done.

So – should we ever recognise that a promise not made in a deed is legally binding even though the promisee has done absolutely nothing that might give us a reason to want to enforce the promise? In Pillans v Van Mierop (1765) (which, remember, was disapproved by the House of Lords in Rann v Hughes (1778)), Lord Mansfield and Wilmot J thought the answer was ‘yes’. Two reasons were given by Mansfield and Wilmot as to why we might want to enforce such a promise. These remain the two principal reasons that anyone has ever been able to think of as to why we might want to enforce a promise when the promisee has done nothing that might give us a reason to want to enforce it.

(1) Commercial demand

In Pillans v Van Mierop, the plaintiff bank (Pillans & Rose) effectively lent a merchant, White, £800 so that he could buy some goods from someone called Clifford. They did so on White’s assurance that the defendant bank (Van Mierop & Hopkins) would guarantee the debt. The defendants subsequently indicated that they would guarantee White’s debt. However, White then went bankrupt and the defendants declined to cover the debt White owed the plaintiffs. The plaintiffs sued the defendants. Lord Mansfield observed that the case was ‘a matter of great consequence to trade and commerce’ and held that the defendants’ promise should be found to be legally binding as ‘It would be very destructive to trade, and to trust in commercial dealing if they could [breach their promise].’

There are situations where the needs of the marketplace do seem to demand that gratuitous promises be held to be binding even though they are not made in a deed. The most obvious example is the promise that a bank makes when it issues a documentary credit. The way a documentary credit is as follows. Seller is shipping 10,000 widgets to Buyer. Seller wants some assurance that he will paid for those widgets when they are shipped. The fact that Buyer is contractually bound to pay for the goods won’t be of much good to Seller: Buyer is in another country and may be of doubtful credit. So Buyer gets a Bank to issue a documentary credit to Seller, under which Bank promises to pay Seller the price of the widgets when Seller presents Bank with documentary proof (in the form of what’s called a bill of lading) that he has shipped the widgets to Buyer. Now – Seller will not have provided any consideration for Bank’s promise to pay under the documentary credit. However, it is still commercially vital that Bank’s promise to pay be legally binding as the entire system of international trade would fall down if banks started to refuse to honour documentary credits that they had issued. For this reason, documentary credits are legally binding even though they are not issued in the form of a deed, and are unsupported by consideration. So in this area at least, the demands of commerce have caused the courts to supplement the law on deeds and consideration with a special rule making documentary credits legally enforceable.

(2) Intention to be bound

The demands of commerce were not the only reason Lord Mansfield thought that the promise made in Pillans v Van Mierop should be legally binding. He seemed to take the view that we should enforce any promise that is intended to be legally binding. If a promisor makes a promise intending to be legally bound by it, then that gives us sufficient reason to want to enforce the promise. Lord Mansfield argued that ‘the ancient notion about the want of consideration [making a promise non-binding] was for the sake of evidence only: for when it is reduced into writing, as in covenants, specialities, bonds, &c. there was no objection to the want of consideration.’ The same point was developed by Wilmot J who argued that consideration was normally required to make a promise binding ‘in order to put people upon attention and reflection, and to prevent obscurity and uncertainty…it was intended as a guard against rash inconsiderate declarations: but if such an undertaking was entered into upon deliberation and reflection, it had activity; and such promises were binding.’

The view that a promise should be held to be legally binding if the promisor intended to be bound by it is most strongly associated nowadays with Charles Fried’s Contract as Promise (1981). Two arguments in favour of this view can be gleaned from Fried’s book.

(i) Moral theory. Fried argues that breaking a promise is morally wrong because someone who makes a promise ‘has intentionally invoked a convention whose function it is to give grounds – moral grounds – for another to expect the promised performance. To renege is to abuse a confidence he was free to invite or not, and which he intentionally did invite. To abuse that confidence now is like (but only like) lying: the abuse of a shared social institution that is intended to invoke bonds of trust. A liar and a promise-breaker each use another person.’ Fried sees contract law as existing to give effect to the moral obligation that a promise-maker comes under to keep his promise.

(ii) Transfer theory. The first, introductory, chapter of Contract as Promise suggests a different argument in favour of the position that promises that are intended to be legally binding should be legally binding. Fried argues that contract law is a natural extension of the ‘liberal premise that individuals have rights’ in that it allows us to dispose ‘of these rights on terms that seem best to us.’ So – some academics argue – if I intend to be bound by my promise to paint your house, then I am trying to transfer to you my right to decide whether or not I will paint your house. This was a right which was initially given to me under the law and which – so long as I had it – made it unlawful for you to force me to paint your house. But now I have decided to transfer that right to you by making a legally binding promise to you to paint your house. Given that I have decided to transfer to you my right to choose whether or not I paint your house, why should the law get in the way of my doing that? But that is what the law does when it says that my promise is not – despite my intentions – binding on me because you have provided no consideration for it. Holding that my promise is not binding on me is the equivalent to the courts’ declaring that a gift that I made to you was invalid because you never gave me anything in return.

Both arguments suffer from problems. The moral argument may go too far in that it might be taken as indicating that any seriously made promise should be legally binding, rather than one that was intended to be legally binding. It also unclear why in the area of promises, the law should get involved with requiring people to do the right thing when it does not, for example, sanction much more serious forms of moral wrongdoing such as adultery and failing to raise one’s children properly.

The problem with transfer theories of contract law is that it is not actually clear that I have a right to decide whether or not to paint your house. What I do have is a right that you not punch me, or imprison me, or threaten me with being punched or imprisoned – and all of those rights make it virtually impossible for you to force me to paint your house. But that does not mean that I have a right – equivalent to my rights that you not punch me, or imprison me, or threaten me being with being punched or imprisoned – to decide whether or not to paint your house. So if I promise to paint your house, intending to be legally bound by that promise, I am not attempting to transfer to you something that was originally mine. I am trying instead to create something entirely new, and it is not clear why the law should assist me in doing that just because that is what I want to do.

Summary

Students might find the following summary of this lengthy essay helpful:

(1) The doctrine of consideration tells us that promises not made in a deed will only be contractually binding if they are supported by consideration.

(2) A promise will only be supported by consideration, if (i) the promise was made as part of an agreement under which both parties to the agreement promised to do things for each other; or (ii) the promise was made with the object of persuading the promisee to act in a particular way and was successful in achieving that aim.

(3) It is unlikely that the law enforces promises (i) and (ii) for the same reason. It is likely that a promise that falls into category (i) is enforced for reasons of commercial convenience. It is likely that a promise that falls into category (ii) is enforced in order to protect the promisee from suffering harm as a result of relying on that promise.

(4) Proposals to abolish the doctrine of consideration should be dismissed as nonsensical so long as it remains the case that we will want, in certain situations, to enforce a promise because of what the promisee has done; the function of the doctrine of consideration is to identify what those situations are.

(5) The doctrine of consideration may require modification in so far as it fails currently to identify all of the situations where we would want to enforce a promise because of what the promisee has done. However, such modification is impossible due to the fact that before the end of the 18th century, the categories of situation where the courts would find that there was consideration for a promise became closed, and limited to the two situations identified in (2), above.

(6) The doctrine of consideration and the law on deeds may require supplementation in so far as it is the case that we should enforce a promise not made in a deed even though the promisee has done absolutely nothing that would give us a reason to want to enforce that promise. It may be that certain such promises should be enforced when the needs of commerce demand; it is more doubtful that such a promise should be enforced simply because the person making the promise intended to be legally bound by it.

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