Should the Law Reform the Doctrine of Consideration in Modern Commercial Contracts

Consideration was defined in Currie v Misa by Lush J who stated that “consideration is some right,  interest, profit, or benefit to one party or some forbearance, detriment, loss or responsibility suffered  by the other.” This is a fundamental part of contract formation within English contract law. It has been  used historically for three main reasons. These are: the fact they provide evidence of seriousness,  justice of exchanges and facilitates exchanges and it explains measure of relief and marks boundary of  appropriate legal involvement. However, the necessity of this has been challenged in recent years for  being outdated and not applicable within modern commercial contracts with lawyers calling for a  reform of this doctrine or an outright abolishment. This essay will cover some of the main challenges  to the doctrine of consideration and argue for the reform of the doctrine of consideration looking at  alternatives adopted by other countries.  

To begin, Professor Atiyah outlined the main principal critiques of the doctrine of consideration.  These are outlined below.  

Firstly, the doctrine of consideration has an extremely narrow scope of usage within English contract  law. One area which consideration does not cover is promises. Dawson argued “even the most  embittered critics of bargain consideration do not really object to the enforcement of bargains. The  objection has been to its transformation into a formula of denial, a formula that would deny legal  effect to most promises for which there is nothing given or received in exchange.” This is showcased  in the case of Re McArdle (1951). Within this case, work had been completed on the house by the  plaintiff before any agreement had been signed- this was deemed to be past consideration. The  promisee did not have the payment in mind when she decided to voluntarily complete the work  renovating the property, which she was now claiming compensation for. The courts held that she was  not entitled to compensation due to the fact that it was a promise, not a contract. If the work was  understood to be compensated by both parties, then that would be consideration.  

However, there are exemptions to the notion that work must be written into contract by both parties  for it to be consideration. In Lampleigh v Brathwait, Lampleigh wanted payment after being sent to  get Brathwait pardoned by the King. Brathwait refused to provide compensation for his service  believing that it was a gift. The courts decided that the exact order of events is not integral to  answering whether a contract has been formed. The courts were satisfied that the promise and the past  action are part of the same overall transactions. Applying this logic, they decided that the payment  would be a part of the deal even though there was no formal contract. This contradicts the previous  case which required consideration to be formally documented and written otherwise, compensation  could not be attained.  

This alludes to another problem identified by Professor Atiyah. As the previous case shows, the  doctrine of consideration has become very technical. The account of the doctrine is over 100 pages in  Treitel’s classic textbook. The doctrine has become extremely dense and nuanced including  complicated ruling over what constitutes consideration. As shown above, sometimes they appear to  contradict each other. There have been other alternatives which have been adopted in replacement of  consideration which highlight this problem, these are discussed later on.  

The next criticism is that it does not represent commercial reality. This is arguably the most essential  part of any requirement by the courts when dealing with contractual agreements. They must reflect the  current commercial landscape. This has become a fundamental part of the ‘market-individualism.’  Professor Adam’s and Brownsword identified two conflicting policies which law should attest to.  These are the former mentioned ‘market-individualism’ and ‘consumer welfare.’ Whilst consumer  welfare looks to regulate commercial contracts to benefit consumers promoting a sense of fairness and  reasonableness, it is the individualistic theory which shall take precedence in this essay. This focuses  on a non-interventionist role respecting contracts. This theory believes that parties should enter the 

market, choose their contractors, set their own terms and stick to them. It is founded on the key  principles of freedom of contract and sanctity of contract. In practicality, this means that companies  and individuals should be able to create meaningful and legally binding contracts without being  constrained by the courts and legislation. Naturally, there is a trade off between this and the welfare of  consumers and ethics. But, it is ultimately the courts who must live in this commercial reality. It is  argued that consideration does not represent commercial reality. It is harder to evaluate the strength of  claims as it is rarely issues in modern commercial practice. Therefore, Courts do not typically look  into the validity of consideration. If firms are worried about the doctrine of consideration, they  typically bypass this through using deeds. This however should not detract from the fact that some  commercial contracts can still be explained by terms consistent with the doctrine of consideration.  

The final critiques is that the doctrine of consideration is difficult to apply into modern theoretical models of contract law. Professor Atiyah argues that the doctrine of consideration does not fit into  many key theories used by courts (and assumed by contractors). One area of note is commercial  models of contracts. They often focus on the following key aspects: efficiency, risk allocation,  development of long-term relationships, flexibility (with the possibility of negotiation.) The courts  must be flexible when looking at these aspects which vary within every contract imaginable.  Expanding on this, consideration is too rigid and formalistic. It has no legal flexibility within  commercial contracts and cannot be used to appropriately create solutions for firms looking to seek a  resolution at the end. Modern commercial contracts are ever evolving to incorporate the legal,  political, and economic landscapes both domestically and internationally. This can often be  challenging for companies to incorporate so may rely heavily on trust, repeated dealings, and  relational norms. A strict exchange model does not suit these standards of business. Therefore,  consideration has no place within modern commercial contracts.  

The final aspect of Professor Atiytah’s criticisms of the doctrine of consideration is that it is over broad. Duress, estoppel, and intention to create legal relations can target with greater precision the  reason for the law’s refusal to give effect to the promise that has been made. Consideration has  become outdated by these more sophisticated, narrow doctrines which regulate within their own  isolated scope. Consideration as a theory attempts to cover everything, but in doing so fails to achieve  any form of certainty as to what consideration will look like in modern contracts. For this reason,  consideration should be removed in replacement for these more tailored doctrines and principles.  

Overall, consideration is a historical concept which has been used by the courts to help distinguish  formal contracts from promises, deeming these promises not to be contractually binding unless it is in  the form of a deed. This doctrine has been criticised for its lack of space within commercial contracts  is the modern day, there are many doctrines which cover it and provide the confidence needed for  firms to achieve what they wish for out of a contract. One way of looking at consideration is that it  was a historical first attempt at managing contracts and providing certainty. However, as the world  moves forward, it is time for the United Kingdom to remove the doctrine of consideration as a  requirement in law.  

Bibliography  

Cases 

1. Currie v Misa [1874-75] LR 10 Ex. 153 
2. Re McArdle [1951] 1 All ER 905 
3. Lampleigh v Brathwait [1615] 80 ER 255 

Secondary Sources 

1. Professor Atiyah ‘Consideration: A Restatement’ (contained in Essays on Contract (Oxford  University Press, 1986), pp. 179–243) 
2. Dawson ‘Gifts and Promises (Yale University Press, 1980), pp. 3–4 
3. Treitel ‘The Law of Contract’ (15th edn, Sweet and Maxwell 2024)