Law of Contract - Consideration (Part 1)

Under classical contract law, even if the contracting parties have come to an agreement, this agreement can only be enforced if it is supported by consideration.

The classic definition of consideration was stated by Lush J. in 1875:

“a valuable consideration in the sense of the law, may consist of 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.” ((1875-1876) L.R. 1 App. Cas. 554, HL )

The doctrine of consideration is highly controversial. Many academics believe that the law of contract would operate perfectly well without it. (Not all jurisdictions recognise it.) The doctrine consists of the following highly technical rules.

1. Consideration must be sufficient but need not be adequate

This confusing phrase means that the consideration must be of some value (sufficient). The consideration does not have to be equal (adequate). The courts are not interested in whether the contracting parties have made a good or fair bargain.

The following case demonstrates this principle.

Chappell & Co Ltd v The Nestle Co Ltd [1960] AC 87

As part of a special offer/promotion – Nestle offered to sell at a discount a record of the song called “Rockin’ Boots” to anyone who sent in 3 Nestle chocolate wrappers.

Chappell owned the copyright to “Rockin’ Boots”. Under the Copyright Act 1956 Nestle were required to pay Chappell royalties of 6.25 % of the ordinary retail price. Nestle offered to pay Chappell 6.25% of the money they had received for the records sold. Chappell brought an action, arguing that the chocolate wrappers should also part of the consideration for the sale of the record.

The House of Lords held (in a split decision) that the chocolate wrappers did constitute good consideration.

This case should be compared to Lipkin Gorman v Karpnale ([1989] 1 WLR 1340), where the House of Lords held that gaming chips in a casino were not valid consideration.

2. Consideration must move from the promisee

As a general rule, a person who wishes to enforce the contract must show that they provided consideration. It is not enough to show that someone else provided consideration (Tweddle v Atkinson (1861) 1 B.& S. 393).
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