CHAPTER 4

Consideration
[4.10] History of the Doctrine of Consideration................................................... 97
[4.20] THE ESSENTIAL ELEMENTS............................................................................................ 98
[4.20] Australian Woollen Mills v Commonwealth............................................... 98
[4.30] Beaton v McDivitt............................................................................. 101
[4.75] ADEQUACY OF CONSIDERATION................................................................................ 109
[4.80] Woolworths v Kelly............................................................................ 109
[4.85] SUFFICIENCY OF CONSIDERATION............................................................................. 110
[4.85] Past consideration....................................................................................... 110
[4.90] Roscorla v Thomas............................................................................ 110
[4.95] The existing legal duty rule......................................................................... 111
[4.105] Foakes v Beer................................................................................... 112
[4.115] Williams v Roffey Bros & Nicholls (Contractors)........................................ 114
[4.125] Musumeci v Winadell......................................................................... 117
[4.135] Re Selectmove.................................................................................. 122
[4.145] Duty owed to a third party.......................................................................... 123
[4.150] Pao On v Lau Yiu Long....................................................................... 123
[4.170] Bona fide compromise................................................................................ 129
[4.170] Wigan v Edwards.............................................................................. 129
[4.175] Proposals for reform.................................................................................... 131
[4.175] Sixth Interim Report.......................................................................... 131

[4.05]  The second element necessary for contract formation is consideration. A promise will
be enforceable at common law only if it is supported by consideration or made under seal (ie,
in the form of a deed). A promise that is not supported by consideration may be enforceable
in equity on the basis of equitable estoppel if it has been relied upon to the detriment of the
promisee (see Chapter 9).

History of the Doctrine of Consideration

[4.10]  E Jenks, The History of the Doctrine of Consideration in English Law (Cambridge University Press,
London, 1892).
[81] Every true contract contains a promise. A consideration is a detriment or liability voluntarily incurred
by the promisee … or a benefit conferred on the promisor at the instance of the promisee … in exchange for
the promise. Such consideration may be either the performance, or the promise, of an act or forebearance.
If it be the performance, the consideration is said to be executed, if the promise, to be executory …. In
accordance with the general rule of law, the onus of proving the existence of a consideration usually rests
upon the party setting up the contract, whether the consideration appears in writing or not …. In ordinary
cases it is immaterial whether or [not] the consideration be economically adequate to the promise, but
gross inadequacy of consideration, though in [82] itself no objection to the validity of a contract, either at
law or in equity, may be evidence of fraud. On the other hand, the consideration must be genuine, and,
if executed, it must not consist of an illegal or immoral act, nor, if executory, must it contemplate an illegal
or immoral object; and the existence of an illegal or immoral consideration may be proved by external
evidence, though the contract be embodied in writing, or even in a deed. Finally, in the case of executory
considerations which fail or become impossible, the promisor will be wholly or partially released from his
obligation, and may even recover back money paid under the contract.


[4.10]  97
Part II:  Formation

[4.15] Notes
Jenks describes consideration in terms of benefit and detriment given “in exchange for the
promise”. Consideration has also been defined as “the price for which the promise of the other
is bought”: Pollock on Contracts (8th ed, 1911), p 175. Both definitions connote an element
of bargain, which lies at the heart of the modern doctrine of consideration.
  

THE ESSENTIAL ELEMENTS

Australian Woollen Mills v Commonwealth

[4.20]  Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 (Privy Council); (1955) 93
CLR 546 (High Court of Australia) –​Action.
[FACTS: The plaintiff (Australian Woollen Mills Pty Ltd) claimed that a unilateral contract had arisen
out of the Commonwealth government’s wool subsidy scheme. The scheme was introduced after
World War II, at a time when wool was scarce. The Commonwealth subsidised purchases of wool by
manufacturers of woollen products to enable those manufacturers to supply the products at low prices.
In 1946, the Commonwealth announced in a series of letters to manufacturers, including the plaintiff,
that it would pay a subsidy on all wool purchased for domestic use by Australian manufacturers.
AWM purchased large quantities of wool over the next two years, including purchases in April, May
and June 1948 in respect of which the subsidy had not been paid. In June 1948, the Commonwealth
announced that it was discontinuing the scheme but would ensure that each manufacturer would
have a certain amount of subsidised wool in stock on 30 June 1948. The stockpile of wool held by
AWM exceeded this amount, and so the Commonwealth required AWM to repay the subsidy paid on
that excess. AWM repaid that amount but later sued to recover it, along with the unpaid subsidy on
the April, May and June purchases.]
THE COURT (DIXON CJ, WILLIAMS, WEBB, FULLAGAR and KITTO JJ): [456] The contracts alleged
by the plaintiff are pleaded in paras 3 and 4a of the statement of claim.
Paragraph 3 alleges:

At or prior to the commencement of the wool season 1946–​1947 the defendant promised
the plaintiff that in consideration that the plaintiff would during that season purchase wool at
auction and otherwise than at auction for domestic consumption in Australia the defendant
would pay to the plaintiff a subsidy.
The alleged mode of determining the amount of the subsidy is then set out, but this may be put
on one side for the moment. Paragraph 4a contains an identical allegation in respect of the wool
season 1947–​1948. In each case there follows an allegation that the plaintiff made purchases of wool
from time to time “in pursuance of the said agreement”. The contract put forward by the plaintiff is
thus seen to be of that type which is commonly said to be constituted by an offer of a promise for
an act, the offer being accepted by the doing of the act. Such contracts are sometimes described
as “unilateral” contracts, but the term is open to criticism on the ground that it is unscientific and
misleading. There must of necessity be two parties to a contractual obligation. The position in such
cases is simply that the consideration on the part of the offeree is completely executed by the doing
of the very thing which constitutes acceptance of the offer. A well-​known example in which a contract
was held to have been made is to be found in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 … Other
well-​known examples are the cases in which a reward is offered for the giving of information or for the
finding and return of lost property and the cases in which there is forbearance by a creditor in return
for the debtor’s promise to give security.

98 [4.15]
 Consideration  Chapter   4

Australian Woollen Mills v Commonwealth cont.

In cases of this class it is necessary, in order that a contract may be established, that it should
be made to appear that the statement or announcement which is relied on as a promise was really
offered as consideration for the doing of the act, and that the act was really done in consideration
of a potential promise inherent in the statement or announcement. Between the statement or
announcement, which is put forward as an offer capable of acceptance by the doing of an act, and
the act which is put forward as the executed consideration for the alleged promise, there must subsist,
so to speak, [457] the relation of a quid pro quo. One simple example will suffice to illustrate this. A, in
Sydney, says to B in Melbourne: “I will pay you £1 000 on your arrival in Sydney.” The next day B goes
to Sydney. If these facts alone are proved, it is perfectly clear that no contract binding A to pay £1 000
to B is established. For all that appears there may be no relation whatever between A’s statements and
B’s act. It is quite consistent with the facts proved that B intended to go to Sydney anyhow, and that
A is merely announcing that, if and when B arrives in Sydney, he will make a gift to him. The necessary
relation is not shown to exist between the announcement and the act. Proof of further facts, however,
might suffice to establish a contract. For example, it might be proved that A, on the day before the £1
000 was mentioned, had told B that it was a matter of vital importance to him (A) that B should come
to Sydney forthwith, and that B objected that to go to Sydney at the moment might involve him in
financial loss. These further facts throw a different light on the statement on which B relies as an offer
accepted by his going to Sydney. They are not necessarily conclusive but it is now possible to infer:
(1) that the statement that £1 000 would be paid to B on arrival in Sydney was intended as an
offer of a promise;
(2) that the promise was offered as the consideration for the doing of an act by B; and
(3) that the doing of the act was at once the acceptance of an offer and the providing of an
executed consideration for a promise.
The necessary connection or relation between the announcement and the act is provided if the
inference is drawn that A has requested B to go to Sydney.
The position has been stated above in terms of the technical doctrine of consideration, and this is,
in our opinion, the correct way of stating it. But it may be referred to a principle which is fundamental
to any conception of contract. It is of the essence of contract, regarded as a class of obligation, that
there is a voluntary assumption of a legally enforceable duty. In such cases as the present, therefore,
in order that a contract may be created by offer and acceptance, it is necessary that what is alleged
to be an offer should have been intended to give rise, on the doing of the act, to an obligation. The
intention must, of course, be judged in the light of the principle laid down in Freeman v Cooke (1848)
2 Ex 654; 154 ER 652 at 656, but, in the absence of such an intention, actual or imputed, the alleged
“offer” cannot lead to a contract; there is, indeed, in such a case no true “offer”.
[458] A test which has not seldom been applied in such cases in order to determine whether a
contract has been made or not is to ask whether there has been a request by the alleged promisor that
the promisee shall do the act on which the latter relies. Such a request may, of course, be expressed or
implied. In an interesting article in the Law Quarterly Review (1953) 69 LQR 99, to which Mr Windeyer
referred us and which has already been incidentally mentioned, Mr JC Smith maintains that the presence
of a request, express or implied, is an essential element in every true offer. Sir A Goodhart ((1951) 67 LQR
456 and (1953) 69 LQR 106), contests this general proposition, maintaining in effect that the essential
thing, in a case such as the present, is that the “offeror” should state a price which the “offeree” must
pay if he wishes to purchase a promise. This way of putting the position does not seem to differ materially
from the way in which we have put it above. At the same time, it can hardly be denied that the presence
or absence of an implied request to do the act may often provide a useful test for determining whether
there has been a true offer and a true acceptance such as to bring a contract into existence. We are really
applying the same test if we ask whether the “offer” was made in order to induce the doing of the act …
The presence or absence of an implied request that the act be done has been regarded as material
in a number of cases. In Carlill’s case itself it is regarded as material by both Bowen LJ and AL Smith LJ.
Bowen LJ says: “A further argument for [459] the defendants was that this was a nudum pactum …

[4.20]  99
Part II:  Formation

Australian Woollen Mills v Commonwealth cont.

that there was no consideration at all; in fact, that there was no request, express or implied, to use the
smoke ball”: [1893] 1 QB 256 at 270, 271. His Lordship then refers to [two cases] and proceeds: “The
short answer, to abstain from academical discussion is, it seems to me, that there is here a request to
use involved in the offer”: at 271 …
Several other illustrative cases are cited in Mr Smith’s article. It will suffice here to mention two
cases, the one nearly a hundred years old and the other very recent. The correctness of the actual
decision in Shadwell v Shadwell (1860) 9 CB (NS) 159; 142 ER 62, is likely to be forever debated.
Erle CJ and Keating J took, in the light of all the circumstances, one view of the letter on which the
plaintiff relied: Byles J took another view. But the approach of all the learned judges to the problem of
fact was exactly the same. Erle CJ and Keating J said:
First, do these facts shew a loss sustained by the plaintiff at his uncle’s request? … If the
promise was made in order to induce the parties to marry, the promise so made would be
in legal effect a request to marry. Secondly, do these facts shew a benefit derived from the
plaintiff to the uncle, at his request? … If the promise of the annuity was intended as an
inducement to the marriage … this is the consideration averred in the declaration: (1860)
142 ER 62 at 68.
Bales J said: “The inquiry therefore narrows itself to this question —​Does the letter itself disclose
any consideration for the promise? The consideration relied on by the plaintiff’s counsel being the
subsequent marriage of the plaintiff”: (1860) 142 ER 62 at 69. Then after discussing the contents of
the letter he says: “The question, therefore, is still further narrowed to this point —​Was the marriage
at the testator’s request? Express request there was none. Can any request be implied?” (1860) 142
ER 62 at 69.
His Lordship concludes that no such request can be implied, and that the marriage could not
be said: “to have taken place at the testator’s request or, in other words, in consequence of that
request”: (1860) 142 ER 62 at 69. The very recent case is Combe v Combe [1951] 2 KB 215. [460] This
is one of the “forbearance” cases. Denning LJ said:
Unilateral promises of this kind have long been enforced, so long as the act or forbearance
is done on the faith of the promise and at the request of the promisor, express or implied.
The act done is then in itself sufficient consideration for the promise, even though it arises
ex post facto: at 221.
And Asquith LJ (as he then was) said: “I do not think an actual forbearance, as opposed to an agreement
to forbear to approach the court, is a good consideration unless it proceeds from a request, express or
implied, on the part of the promisor. If not moved by such a request, the forbearance is not in respect
of the promise”: at 226, 227.
Coming to the present case, it is impossible, in our opinion, to hold that any contract was
constituted at any stage binding the Commonwealth to pay a subsidy to the plaintiff, or to any
manufacturer, in consideration of a purchase of wool for local manufacture …
Judgment for defendant.
[Australian Woollen Mills Ltd appealed to the Privy Council. In the course of their judgment
dismissing the appeal (1955) 93 CLR 546, their Lordships said:]
[4.25]  [548] The first answer of the respondent to this claim is that there were no contracts; that the
basis of the scheme was not contractual but administrative, and that the letters contained statements
of policy and not contractual offers …
[554] Their Lordships are of the opinion that these letters cannot be read as an offer or offers
to contract. They contain a statement of [555] policy. The “scheme” is to be administered by the
Commission which is itself to determine the amount of the subsidy. No single phrase or provision may
be decisive. The letters must be read as a whole. If the intention had been to provide for a series of

100 [4.25]
 Consideration  Chapter   4

Australian Woollen Mills v Commonwealth cont.

contracts one would as between these parties have expected a form containing the provisions which,
if disputes arose, would be construed and applied by the courts. The number of uncertain factors
make it natural that the basis should be administrative. Nor is there anything remarkable in the fact
that the manufacturers should be content to act on the respondent’s statement of policy. A further
letter of 20 August elaborating the procedure emphasises the control which the respondent thought
the Commission was keeping on the scheme …
[550] The appellant further submitted that the respondent wanted the manufacturers to purchase
so that there could be woollen goods on the home market. There was therefore an implied request
to do so. Let this be admitted. It does not appear to their Lordships to advance the argument. There
may be cases where the absence of a request negatives the existence of a contract. The presence of
a request does not, however, in itself establish a contract. Manufacturers may be requested to come
into and work a non-​contractual scheme. On this aspect of the argument their Lordships think, with
all respect, there was force in the criticism of that passage in the judgment of the High Court in which
it is said that there was nothing in the nature of a request or invitation …
Appeal dismissed.



Beaton v McDivitt
[4.30]  Beaton v McDivitt (1987) 13 NSWLR 162 (Court of Appeal of the Supreme Court of New South
Wales) –​Appeal from Young J.
[FACTS: The McDivitts (the respondents) owned 25 acres of land but farmed only a portion of it.
Mr McDivitt believed that the local council was likely to rezone the land within two years and that the
council rates would then be increased substantially. McDivitt feared that he would be unable to pay
the new rates and he decided to divide the land into four blocks, three to be retained by himself and
his family, the fourth to be made available to “someone interested in the form of cultivation known as
permaculture to work the block”. He said that he would transfer the title to the block to the person
selected when the rezoning took place.
Mr Beaton (the appellant) was told of this plan by a mutual friend, and the Beatons then had
discussions with the McDivitts. As a result of those discussions, the Beatons moved on to the fourth
block, farmed the land using permaculture methods and, in accordance with oral undertakings given
to McDivitt, assisted in the creation and maintenance of a road which gave access to the block. After
seven years, a dispute arose and McDivitt ordered the Beatons off the land. Young J said:
Doing the best I can, in my view what happened was this, Mr McDivitt feared that the
zoning would be changed which would affect his rates, knew that he was not using the
whole of his 25 acres, thought it would be nice to have someone who was interested in
permaculture work on part of the land, and was quite willing to give part of the land to that
person if and when the land was rezoned …
Accordingly, the essential facts as I have found them, are that the defendants made a
proposal to Mr Beaton that he would come on to lot B and work it rent free, and that when
subdivision took place, which was thought to be only a short time, that is, a matter of two to
three years away from being a legal possibility, the Beatons, or at least Mr Beaton, would be
given the title to lot B in fee simple. Mr Beaton accepted this proposal and he suffered some
detriment in acting upon it in that he spent approximately $1,000 on planting trees and
shrubs on the land. He has, of course, also spent seven years living on the land and working
on it, though there must also be taken into account the fact that he has occupied that land
without payment.

[4.30]  101
Part II:  Formation

Beaton v McDivitt cont.

Young J held that the Beatons had not given consideration sufficient to satisfy the bargain requirement
of something given in exchange for the promise. He found, however, that there was a line of cases
starting with Dillwyn v Llewelyn which represented “an exception to the modern requirement that
a contract should be a bargain supported by consideration in the nature of a quid pro quo”. The
Beatons’ acts of reliance were sufficient to give rise to a “Dillwyn v Llewelyn type contract”. Young J
held, however, that this contract had been frustrated. Accordingly, the Beatons were not entitled to
remain on the land. Mr Beaton appealed.]
KIRBY P: [168] By our law, consideration is an essential requirement for an enforceable contract.
Without consideration, a promise is unenforceable at law. The modern theory of consideration has
arisen from the notion that a contract is a bargain struck between the parties by an exchange. By
that modern theory, consideration must be satisfied in the form of a price in return for the promisor’s
promise or a quid pro quo. The price can be in the form of an act, forbearance or promise. In Pollock
on Contracts, 13th ed (1950) at 133 Sir Frederick Pollock, in words adopted by Lord Dunedin in
Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847 at 855, expressed the idea of
consideration as the “price in return” in the following way: “An act or forbearance of one party, or
the promise thereof, is the price for which the promise of the other is bought, and the promise thus
given for value is enforceable.”
The triumph of the bargain theory of consideration necessary for a contract amounts to a rejection
of the theory of contractual obligation based upon reliance. This shift may have come about as a
result of the mercantile attitudes and the requirements of England in the eighteenth and nineteenth
centuries. It may reflect the consequent final subordination of Roman Law doctrines, founded
ultimately in notions of relationships and morality: see P S Atiyah, The Rise and Fall of Freedom of
Contract (1979) at 499 f but cf J H Baker (1980) 43 Mod L Rev 467 f and sources there cited. Whatever
the origins and explanations for this shift (to the extent that they can now be known given that such
disputes were typically resolved by jury verdicts) it was necessary, thereafter, to have resort to courts
of equity for the enforcement of claims based on relationships. For in the courts of law, duties arising
from bargains entered between free parties were to be enforced, not duties deriving from suggested
moral obligations such as those deriving from relationships.
The High Court of Australia has accepted this “modern” or bargain doctrine of consideration.
In Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 at 456–​7, the Court
(Dixon CJ, Williams, Webb, Fullagar and Kitto JJ) said, relevant to the present arrangement:
In cases of this class it is necessary, in order that a contract may be established, that it should
be made to appear that the statement or announcement which is relied on as a promise was
really offered as consideration for the doing of the act, and that the act was really done in [169]
consideration of a potential promise inherent in the statement or announcement. Between
the statement or announcement, which is put forward as an offer capable of acceptance by
the doing of an act, and the act which is put forward as the executed consideration for the
alleged promise, there must subsist, so to speak, the relation of a quid pro quo.
Young J (rightly in my opinion) was unable to find consideration in this sense in the facts of the
present case. It is just not possible, however indulgently one approaches those facts with sympathy
to the appellant, to classify the promises he made as a quid pro quo for the suggested promise of the
respondent, in certain circumstances, to transfer title in the land to him. At the time, the appellant was
having difficulties with his landlord. Therefore, a right to occupy and use the respondents’ land rent
free was of considerable benefit to him. What other possible benefit did the respondents derive of the
kind which the High Court said in the Australian Woollen Mills case was necessary for an enforceable
contract? True it is they would have somebody living on the land. True also they might hope that such
person would be a congenial neighbour, sharing with them their peculiar ideas about horticulture. But
these scarcely amount to a quid pro quo for such a substantial promise as the passing of title and the
taking of steps to that end. I do not in this conclusion overlook the fact that the law is not concerned

102 [4.30]
 Consideration  Chapter   4

Beaton v McDivitt cont.

with the sufficiency of the suggested consideration. I examine the facts simply to see whether those
suggested benefits which passed to the respondent can properly be classified as consideration. In my
opinion the expenditures and actions of the appellant are more properly to be categorised as entirely
for his own benefit and that of his family. The element of congeniality and of having on the land a
neighbour of like horticultural practices is not valuable consideration. It is more akin to domestic and
social arrangements and the natural love and affection which have long been held not to amount to
consideration sufficient to establish a binding contract …
There is a policy behind the law’s insistence upon consideration of the kind explained. People make
foolish and ill considered promises to confer gifts and other benefits on others. Especially do they do
so, one might say, in the festive atmosphere of the Christmas and New Year season. In the cold light
of the dawns that follow, disputes require courts to decide whether these promises will be enforced.
Leaving aside equitable relief occasioned by the dealings between the parties, why should the law hold
a party to such a promise of a gift unless it can be demonstrated that, in return for such a promise, the
promisor received some bargain from the promisee by way of quid pro quo? In a sense, this shows
our law (which has generally declined to adopt the formalism of the civil law approach to contract)
insisting upon a bargain before it will attach legal consequences to the unformalised dealings of the
parties. The law is not concerned (in this respect) with the equality of [170] the bargain. But in some
cases the “bargain” will be so illusory or one-​sided that a quid pro quo will not be found. Formality
apart, the suggested “contract” will then not be enforced at law.
But was the promise made on New Year’s Eve 1977, that the appellant would maintain the private
road to the property, a sufficient quid pro quo to amount to consideration to sustain an enforceable
contract? In my view it was not. Any “agreement” between the parties was made on 26 December
1977. Talk about the road did not arise until nearly a week later. Even then it arose only in response
to the appellant’s offer to pay the rates. That very offer indicates the appellant’s acknowledgment
of the great benefit which he was receiving. Any promise made to maintain the road (which after
all was necessary to secure access to the appellant’s home) cannot be classified as one demanded
or offered in exchange for the alleged promise of the respondents to transfer title. In the manner in
which the additional term as to the road arose, it was not contemplated by the respondents’ promise,
earlier accepted by the appellant. Accordingly it cannot represent consideration. I therefore agree
with Young J’s conclusion that no contract was made between the parties which would be enforced
according to the conventional or “modern” view about the requirement of valuable consideration for
a contract enforceable at law.
Gift and ex post facto consideration
[4.35]  But was Young J right in holding that a contract of the kind found in Dillwyn v Llewelyn existed
here and would be enforced by the law of contract? His Honour analysed the line of cases which have
followed Dillwyn v Llewelyn. He concluded that its conceptual classification was not estoppel but the
survival of an old contract principle of detriment, as an exception to the modern requirement that a
contract should be a bargain supported by consideration in the nature of a quid pro quo.
Whatever may be the position elsewhere, I consider that to hold as Young J did would be to
subvert the principle accepted unanimously by the High Court of Australia in Australian Woollen Mills.
Moreover, it would be to undermine the simplicity of the requirements of contract law and the
uniform approach to the definition therein of the requirements of consideration. Given the clear way
in which contract law has moved from a “detriment” to a “bargain” theory, I regard the belated
attempt to suggest an exception founded on Dillwyn v Llewelyn as unconceptual and unhistorical.
However that may be, it is impermissible to the courts in Australia until the High Court of Australia
reviews and modifies its decision in the Australian Woollen Mills case.
In any case, close analysis of the judgment of Lord Westbury LC in Dillwyn v Llewelyn suggests
that the basis for equitable intervention in that case was proprietary estoppel. The inter-​relationship
of common law and equity is notoriously troublesome. But it is both obligatory and desirable in
this Court to preserve the unity of contract law by avoiding suggested exceptions to the rule that

[4.35]  103
Part II:  Formation

Beaton v McDivitt cont.

consideration for an alleged promise must involve “the relation of a quid pro quo”. The “exception”
to the general rule thought by Young J to be necessary is better classified not as an exception to the
requirement of a quid pro quo for consideration but as an illustration of the [171] relief which equity
will sometimes give, based upon estoppel, whatever may be the rights of the parties in law.
It is suggested that the quid pro quo for the transfer of the block of land assigned to the appellant
was his act in coming upon and working the block by means of the particular form of horticulture
specified by the respondents. Once he did so, it is argued that it was not open to the respondents to
withdraw their offer. I do not consider that this is the correct analysis of the arrangement between
them. I have mentioned the difficulties which the appellant was having with his landlord because of
which the offer of rent-​free accommodation must have seemed remarkably well timed. The lack of
specificity as to the work and expenditure to be carried out by the appellant on the land (reinforced
by the evidence of the lack of substantial work in actuality) combined with the fact that the appellant
contemplated and performed some work as part of his own business to his own advantage suggests
(as do numerous other indications) that, both before and after the Yuletide conversations in 1977, the
true classification of the appellant’s occupation of the land was that of a bare licensee.
If it be relevant to look to whether the appellant acted to his detriment, I do not believe that he did.
On the contrary, the arrangement made was entirely to his advantage. If, as I have held, it is necessary
to decide whether the appellant gave a quid pro quo for the suggested promise to transfer the land,
I do not believe he did. Properly considered, the true interpretation of events appears to be that the
respondent for reasons of congeniality and commitment to a shared idea of horticulture invited the
appellant onto part of his land. No rent or other relevant consideration passed from the appellant to
the respondents for this permission. No relevant detriment was suffered by the appellant. He received
rent-​free accommodation for seven years. To enforce the Boxing Day promise (apart from the many
other difficulties it faced) would in my view amount to the enforcement of a contract made without
consideration. This conclusion relieves me of the obligation to consider whether any such contract, if
made, would have been frustrated by the events which later occurred ….
Relief in equity
[4.40]  This conclusion brings me to the alternative way in which the appellant sought relief, so far as
still pressed in this Court. This was that, whatever the position in law, it would be unconscionable for
the legal owners of the land (the respondents) to insist upon their legal rights and that equity would
provide relief to the appellant. One such circumstance where relief will be provided is where there
is unconscionable behaviour on the part of the legal owner in circumstances in which another party
is incurring expenditure, to the knowledge of the owner. Even where the owner may not request or
excite that behaviour, where the expenditure is induced by an expectation of obtaining protection,
equity will intervene to ensure that an injustice may not be perpetrated …
[172] [S]‌o far as any expenditure which the appellant made on that part of the respondents’
property which he occupied, this is entirely explained by the appellant’s own domestic and business
needs and interests. The appellant and his family enjoyed the property, rent free, for seven years
before the judgment of Young J. Despite all that has occurred and not occurred, including the
absence of rezoning, the absence of consent by the council, the absence of the Minister’s consent
and the delay of years far beyond that originally contemplated, to now suggest that equity can only
be satisfied by the transfer of an interest in the land to the appellant is so disproportionate to the
identified detriments to which the appellant can point, that I cannot accept that equity would in the
circumstances lend its aid.
[173] There being no enforceable contract between the parties and no equity which the courts
would enforce in favour of the appellant, I have concluded that the orders of Young J should be
sustained ….
[4.45] McHUGH JA: [180] The learned judge found that the plaintiff gave no consideration in the
conventional sense for the defendant’s promise to make the land over to him. However, his Honour

104 [4.40]
 Consideration  Chapter   4

Beaton v McDivitt cont.

said that, where a person has made a promise of a conditional gift and the promisee has relied on
that promise to his detriment, the promisee gives ex post facto consideration for the promise and
that makes it contractually enforceable. Young J referred to many cases where promises to make a
gift of land have been enforced against the promisor when the promisee had acted to his detriment
in reliance on the promise: see for example, Dillwyn v Llewelyn (1862) 4 De G F & J 517; 45 ER
1285; Ramsden v Dyson (1866) LR 1 HL 129. Professor Atiyah regards this line of decisions as based
on the law of contract and as an exception to the bargain theory of contract: see Consideration in
Contracts: A Fundamental Restatement (1971), pp 30–​3. Young J accepted this analysis. The principle
upon which his Honour relied is succinctly stated by Jordan CJ in New South Wales Trotting Club Ltd v
Glebe Municipal Council (1937) 37 SR (NSW) 288 where his Honour said:
if a person lays out money in improving land which he knows to belong to another, and
does so, to the knowledge of the other, on the faith of an express or implied promise from
that other that he is to have some interest in the land, a court of equity, so far as it can, will
compel the other to give effect to the promise. It is pointed out in Canadian Pacific Railway
Co v The King [1931] AC 414 at 428 that this type of case depends on contract express or
implied.
However, in my opinion it is not open to this court to regard this line of cases of which Dillwyn v
Llewelyn and Ramsden v Dyson are well known examples as contract based. It is true that statements
can be found in many of them which suggest that the promise is enforceable because the parties have
made a contract. As late as 1961 Nagle J, sitting in the Full Court in Commonwealth v A E Goodwin Ltd
[1962] SR (NSW) 315, 325; [1961] NSWR 1080, 1090, declared that contract was the basis of these
decisions. But this is not the explanation which more recent authorities have placed on them. Nor in
the light of the decision of the High Court in Australian Woollen Mills Pty Ltd v Commonwealth (1954)
92 CLR 424 is it possible for this court to hold that the Dillwyn v Llewelyn line of cases is contract
based. The statement by Jordan CJ to which I have referred and which Young J quoted in his judgment
cannot now be considered an accurate statement of the law.
The jurisprudential basis of the plaintiff’s claim
[4.50]  [181] Historically, the doctrine of consideration was nearly identical with the motive for making
a promise. Before it could be decided whether the promise was binding, a court had to know why
the promise was made: Simpson, A History of the Common Law of Contract (1975), p 321. Historically,
there was little difference between the common law conception of consideration and the Roman idea
of “causa”. But in the 19th century, the basis of consideration moved from motive and reliance to
bargain. By 1842 Patteson J could say in Thomas v Thomas (1842) 2 QB 851, 859; 114 ER 330, 333–​4:
It would be giving to causa too large a construction if we were to adopt the view urged by
the defendant: it would be confounding consideration with motive … Motive is not the same
thing with consideration. Consideration means something which is of some value in the
eye of the law, moving from the plaintiff: it may be of some benefit to the plaintiff or some
detriment to the defendant; but at all events it must be moving from the plaintiff.
In Currie v Misa (1875) LR 10 Exch 153 at 162, Lush J, in the course of giving the judgment of Keating,
Quain and Archibald JJ and himself, gave the now classic definition: “A valuable consideration, in the
sense of the law, may consist either in some right, interest, profit, or benefit accruing to one party,
or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.”
The element of bargain is inherent in this definition.
In the United States, O W Holmes Jnr was a strong proponent of the bargain theory. In The Common
Law (De Wolfe Howe ed), he said (at 230): “The root of the whole matter is the relation of reciprocal
conventional inducement, each for the other, between consideration and promise.”
This sentence was quoted with evident approval by Isaacs ACJ in The Crown v Clarke (1927) 40 CLR
227 at 236.

[4.50]  105
Part II:  Formation

Beaton v McDivitt cont.

By the beginning of the 20th century, Pollock was able to say that an “act or forbearance of one
party, or the promise thereof, is the price for which the promise of the other is bought, and the
promise thus given for value is enforceable”: Pollock on Contracts (8th ed, 1911), p 175. Pollock’s
definition was adopted by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915]
AC 847 at 855.
In the United States the bargain theory has been extended to the point where nothing is regarded
as consideration “which is not regarded as such by both parties”: Restatement, Contracts, 2d, s 75(1).
English law has not gone so far: see Treitel, “Consideration: A Critical Analysis of Professor Atiyah’s
Fundamental Restatement” (1976) 50 ALJ 439 at 440. However, the essential elements of the bargain
theory were adopted in The Crown v Clarke and in Australian Woollen Mills Pty Ltd v Commonwealth.
The ratio decidendi of Australian Woollen Mills Pty Ltd v Commonwealth is that the expenditure
of money in reliance on an announcement by the government that it would pay a subsidy to a
manufacturer on wool purchased and used for local manufacture is not itself sufficient to create a
contract to pay the subsidy …
The reasoning of the High Court … accepts the basic element of the bargain theory of consideration
and amounts to a rejection of a reliance based theory of consideration.
Modern writers on contract law have criticised the use of the bargain theory as the exclusive test
of consideration: see Atiyah at 27–​8; Gilmore, The Death of Contract (1974), pp 19–​21, 60–​5; Sutton,
Consideration Reconsidered (1974), p 33; Greig and Davis, The Law of Contract (1987), pp 75–​8. The
criticisms of these writers would extend to the theory of consideration applied in Australian Woollen
Mills Pty Ltd v Commonwealth. However, the current theory of consideration has its modern supporters
(see Treitel, Law of Contract (6th ed, 1983), pp 51–​4) and the paper given by Sir Anthony Mason
and Gageler at the Australian National University, “The Contract”. However, so far as this court is
concerned, the discussion is academic. In the case of a unilateral contract such as the present, the law
relating to consideration is laid down in Australian Woollen Mills Pty Ltd v Commonwealth. None of the
cases to which Young J referred, therefore, can be treated as contract based unless there was a quid
pro quo for the defendant’s promise.
The jurisprudential basis of cases such as Dillwyn v Llewelyn, in my opinion, is that equity will not
allow a person to insist upon his strict rights when it is unconscionable to do so …
Although I disagree with the jurisprudential basis on which Young J found a contract in this case,
I am of the opinion that his Honour was correct in finding a contract. However, as will be seen, I do
not fully agree with all that his Honour said as to the terms of that contract.
The contract
[4.55]  When a person promises or offers to transfer property to another person, care must be taken
to distinguish between three situations. The first concerns a promise to transfer property subject to
the occurrence of an event or condition. The promise will not be enforceable even if the event or
condition [183] occurs. An example is a bare promise to pay X $100 if a certain team wins a football
match. The second situation concerns a promise to transfer property after which the promisor allows
the promisee to act to his detriment in reliance on the promise. In this situation, depending on the
circumstances, equity may prevent the promisor insisting on his strict rights and may enforce the
promise. The third situation is where the promise contains an express or implied request by the
promisor to do an act or fulfil a condition. In that situation the doing of the act or the fulfilling of the
condition by the promisee in reliance on the promise will usually constitute consideration and create
a binding contract: see Australian Woollen Mills Pty Ltd v Commonwealth and Combe v Combe [1951] 2
KB 215 [and Carlill v Carbolic Smoke Ball Co. [1893] 1 QB 256] ….
In the present case, I think that the promise made by Mr McDivitt was an offer which was intended
to give rise to an obligation on the part of himself and his wife upon the plaintiff coming and working
on the land. Mr McDivitt was concerned that the land would be rezoned, that the rates would go up,
and that he would not be able to pay them when he went on the pension. Accordingly, he decided

106 [4.55]
 Consideration  Chapter   4

Beaton v McDivitt cont.

to subdivide the land. Upon the transfer of three of the blocks after subdivision, he would obtain
a benefit because his rates would be reduced. This motivated him to offer the block in return for a
person coming and working the block by means of organic farming. Thus the consideration for the
transfer of the block was the act of the plaintiff in coming and working the block by means of organic
farming at the request of the McDivitts.
Once the plaintiff went on to the land and commenced to work the block, it was not open to the
McDivitts to withdraw their offer ….
By entering onto lot B and performing work, the plaintiff had suffered sufficient detriment to
constitute consideration even though he was obliged to work the land until the time of subdivision
before he was entitled to the transfer of lot B …
Frustration
[4.60]  … With great respect to the learned trial judge, I am unable to conclude that the contract was
frustrated by December 1982 or at all. His Honour found, and it was common ground on this appeal,
that the present zoning did not prevent the subdivision of the land of the McDivitts. Nor with respect
was there any evidence from which a conclusion could be drawn that an application for subdivision
would certainly fail.
His Honour’s finding concerning the terms of the contract did not include any term that the
plaintiff’s right to the transfer of the land depended upon the rezoning of the land. The plaintiff’s right
arose upon the subdivision of the land. Moreover, the evidence does not establish that the fulfilment
of the [185] offer was dependent upon the land being rezoned. I have already set out the plaintiff’s
evidence. On that evidence the question of rezoning, while a motivating factor, was not a condition
of the transfer of the land …
It may well be that, without the rezoning of the land, no approval will be given to the subdivision.
However, subdivision is not a legal impossibility; it is possible that in all the circumstances the council
might permit the land to be subdivided to enable the title to lot B to pass to the plaintiff.
The duty to co-​operate
[4.65] The McDivitts have a contractual duty to do everything necessary on their part to enable
the plaintiff to have the benefit of the contract: Secured Income Real Estate (Aust) Ltd v St Martins
Investments Pty Ltd (1979) 144 CLR 596 at 607 per Mason J. Accordingly, it is and was their duty to
do everything in their power necessary to have the land subdivided so as to transfer “lot B” to the
plaintiff. No doubt it was not a breach of that duty for the McDivitts to wait and see whether the
land would be rezoned. But if the land is not to be rezoned, then the fulfilment of the McDivitts’
duty requires that they make an application under the present zoning. If that application fails and
if it appears that there is no prospect in the foreseeable future of a [186] subdivision being carried
through, then it may be proper to conclude that the contract between the parties has been frustrated.
But in my opinion that moment has not yet been reached. Moreover, it necessarily follows from what
I have said that the plaintiff is entitled to work lot B and remove the fruits of his labour.
[McHugh JA concluded that the plaintiff was entitled to have the block transferred to him
conditional upon the appropriate consent of the council and the minister being obtained.]
[4.70] MAHONEY JA: [175] In my opinion, the transaction between the parties constituted a
contract. To adopt the Ansonian approach, the defendants offered the plaintiff a promise for an
act: they promised to transfer the land if Mr Beaton came on the land and worked it as they discussed.
The appeal has proceeded on the basis that Mr Beaton did, or did substantially, the act in question.
Therefore there was a binding contract ….
[176] I think the conclusion should be drawn that Mr Beaton also did what he did upon the basis
that the transfer of the land to him was to be made as and when the land was rezoned and therefore
could be subdivided …
It is therefore necessary to determine the significance of the contemplated rezoning in the
contractual obligations of the parties.

[4.70]  107
Part II:  Formation

Beaton v McDivitt cont.

On the facts as the learned judge found them, I would be inclined to think —​at least it might be
argued —​that the rezoning was a condition subsequent to the contractual arrangements made. On
this basis, the defendants would be contractually bound to transfer the land to Mr Beaton but they
would not be bound to effect the transfer unless and until the rezoning took place.
If the rezoning was a condition, then it was not fulfilled. No time was specified within which the
rezoning was to take place. In the absence of specification of time, the implication would be, I think,
that it should take place within a reasonable time. And, on the evidence, I would conclude that that
time has now elapsed. That being so, it would be open to the defendants to terminate and what they
have done constitutes such a determination.
However, before this Court the parties did not argue the significance of rezoning as a condition of
the contract. I do not think that the learned judge made a definitive finding in this regard. There may
be reasons why, had such an argument been raised and pursued, it would have been rejected: it may
be that evidence could have been called upon the matter. I therefore do not think it is proper for this
Court to hold that rezoning was a condition of the contract or that, if it was, the contract has been
terminated by failure of it.
What, then, should this Court see as the significance of the rezoning?
For the reasons I have given, it is proper to approach this question upon the basis that, though the
parties regarded rezoning as they did, it was not a contractual term in their contract. On this basis,
I agree with his Honour’s conclusion that the fact that there was not a contemplated rezoning by the
time of the hearing effects a termination of the contract. The fact that the rezoning was specifically
contemplated by the parties does not, I think, prevent the doctrine of frustration operating. Ordinarily
an event operating by way of frustration will not be expressly contemplated or the subject of an [177]
express provision in an agreement. But there is, in my opinion, nothing in the doctrine of frustration
which will prevent it operating where the parties have contracted on an expressed assumption which
in the event proves false: see generally Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR
143 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
In so far as the applicability of the doctrine of frustration is to be tested by the circumstances,
I think that, had a bystander said to the parties in 1977: But what if the rezoning does not take place?,
they would both have said that (subject to one matter): Of course, the land cannot be transferred.
And that, in principle, provides the basis for the operation of frustration.
The matter that I have mentioned is the provision for an accounting of what should come from or
go to Mr Beaton if his contractual rights in the land were to come to an end. It would be expected
that the parties would have said not merely “Of course …” but “Of course … but …”.
I do not think that, if conditions subsequent be put aside, the fact that there would be a qualified
“Of course” prevents the operation of the doctrine of frustration, at least in the present case. I do not
think that, in principle, it prevents that doctrine operating. The fact of the qualification would go, not
to frustration, but to what would follow from it. To that I shall return subsequently.
There remains the possibility that a rezoning may take place. But, as far as the evidence shows, there
is no present prospect of a rezoning. The contemplation was, as his Honour said, that there would be a
rezoning within some two years. Ten years and more have passed. I think that, in these circumstances,
the theoretical possibility of a rezoning in the future does not prevent the contract coming to an end.
… it was not suggested —​at least the matter was not pursued before the learned judge —​
that efforts by the defendants could or would have procured a rezoning. I do not think that the
contemplation of the contract was that the defendants should produce a rezoning: the contract was
upon the basis of a rezoning resulting, not from the efforts of the defendants but otherwise. The
defendants were, in my opinion, under no obligation to procure it and the imposition of a term upon
them that they should seek so to do would be wrong.
Appeal dismissed.


108 [4.70]
 Consideration  Chapter   4

ADEQUACY OF CONSIDERATION
[4.75]  The courts and writers draw a distinction between adequate consideration and sufficient
or good consideration. Although the terms are not always used with perfect consistency, the
adequacy of consideration refers to its intrinsic value. The determination of the sufficiency of
consideration involves the question whether, for what are ultimately public policy reasons,
certain consideration should be denied legal efficacy.
Subject to the doctrine of illusory consideration, the general principle is that the courts do not
inquire into the adequacy of consideration, that is, the comparative value of the consideration
and the promise or act in return for which it is given. Thus, a nominal consideration –​such as
a peppercorn, a canary or a piece of coal –​will be adequate consideration.

Woolworths v Kelly
[4.80]  Woolworths Ltd v Kelly (1991) 22 NSWLR 189 (Court of Appeal of the Supreme Court of New
South Wales).
KIRBY P: [193] There are a number of reasons why the common law has declined to weigh the
adequacy of consideration in judging whether a particular bargain amounts to a legally enforceable
contract:
1. In the marketplace, in the myriad of situations which lead to contracts, different participants will
put different values upon the bargain they are getting. The subject of a bargain may be specially
important to a party. It may be valued for idiosyncratic, sentimental, ethical and other reasons
as well as economic reasons. That is why it has been said so often that it is impossible for the
law to indulge in an evaluation of the equivalence of the promises exchanged by parties to a
contract: see, eg, American University v Todd 1 A 2d 595 (1938) at 598;
2. Judges deciding disputed contract cases are lawyers. Parties whose disputes come to law are
advised by lawyers. Lawyers enjoy a special training. But that training may not prepare them to
evaluate the multitude of economic and other decisions daily made by people of different, and
even like, backgrounds in entering into bargains. The disinclination of the courts to become
involved in economic evaluation derives, in part, from a realisation of the limited expertise of
lawyers. That expertise does not necessarily qualify the lawyer to substitute his or her opinion
about the wisdom of the bargain achieved for that of the parties, so long as some consideration
for the bargain can be demonstrated;
3. If courts were to entertain disputes concerning the adequacy, or inadequacy, of consideration
for a bargain, and if such issues were justiciable, they would lead to litigation prone to open
up a vast territory of evidence. Courts would have to try the adequacy of consideration upon
testimony. Different decision-​makers would reach different conclusions upon the same evidence;
4. The prospect of such disputes would produce a great deal of uncertainty in an area of the law
where certainty has great economic importance to society. In contract law it is highly desirable
that uncertainty about whether a bargain is legally enforceable be minimised. In so far as any
suggestion is made to enlarge the area of the exceptions to the disinclination of the common
law to evaluate the sufficiency of consideration, I would be disinclined to go beyond those
which are well founded on clear authority: cf Beaton v McDivitt (1987) 13 NSWLR 162 at 169;
5. The law provides means, in particular cases, to challenge the adequacy of a bargain where some
wrong or moral fault can be shown to justify the challenge. Thus, if there was no intention to
enter into contractual relations at all, the bargain will not be enforced. Equitable relief will also
sometimes be available to prevent enforcement of a contract contrary to conscience. [194]
Statutory and other relief has been provided by law to meet cases of unconscionable or unjust
contracts. Federal and State statutes have been enacted to provide expressly for such relief: see,
eg, Trade Practices Act 1974 (Cth), s 87; Contracts Review Act 1980, s 7; Industrial Arbitration Act
1940, s 88F. Relief may be granted for mistake. Contracts may be rectified. Restitution may be

[4.80]  109
Part II:  Formation

Woolworths v Kelly cont.

ordered. But at law, the rule against inquiring into the adequacy or inadequacy of considerations
stands firm. It should not, in my view, be changed: cf State Rail Authority of New South Wales v
Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177; Geftakis v Maritime Services Board of New
South Wales, (Court of Appeal, unreported, 20 November 1987); Biotechnology Australia Pty Ltd
v Pace (1988) 15 NSWLR 130 at 133 and Austotel Pty Limited v Franklins Selfserve Stores Pty Ltd
(1989) 16 NSWLR 582 at 585F;
6. The restraint of the common law in this regard is also an attribute of economic liberty. That liberty
extracts a price in social terms. However, respecting the right of parties at law to reach their own
bargains, untroubled by the paternalistic superintendence of the courts as to the adequacy of
their bargains is the approach which the common law has adopted. It is an approach protective
of economic freedom.



SUFFICIENCY OF CONSIDERATION

Past consideration
[4.85]  Past consideration is not considered sufficient consideration. Thus, if P performs an
apparently gratuitous service for D and D later promises to pay P for that service, D’s promise
will not be enforceable. The service performed by P is past and cannot provide consideration
supporting D’s later promise. The courts have recognised an exception to this principle in the
case of a promise to pay for past services which were rendered on the basis that they were to
be paid for (see Pao On v Lau Yiu Long [1980] AC 614 at [4.150]).

Roscorla v Thomas
[4.90]  Roscorla v Thomas (1842) 3 QB 234; 114 ER 496 (Court of Queen’s Bench) –​Rule Nisi for
Arrest of Judgment.
[FACTS: The plaintiff bought a horse from the defendant. After the sale was made, the defendant
promised the plaintiff that the horse was sound and free from vice. The plaintiff sought damages
for breach of warranty, claiming the horse was not free from vice but was “very vicious, restive,
ungovernable and ferocious”.]
LORD DENMAN CJ delivered the judgment of the Court. [236] This was an action of assumpsit for
breach of warranty of the soundness of a horse. The first count of the declaration, upon which alone
the question arises, stated that, in consideration that the plaintiff, at the request of the defendant, had
bought of the defendant a horse for the sum of £30, the defendant promised that it was sound and
free from vice. And it was objected, in arrest of judgment, that the precedent executed consideration
was insufficient to support the subsequent promise. And we are of opinion that the objection must
prevail.
It may be taken as a general rule, subject to excep-​[237]tions not applicable to this case, that
the promise must be coextensive with the consideration. In the present case, the only promise
that would result from the consideration, as stated, and be coextensive with it, would be to
deliver the horse upon request. The precedent sale, without a warranty, though at the request
of the defendant, imposes no other duty or obligation upon him. It is clear, therefore, that the
consideration stated would not raise an implied promise by the defendant that the horse was
sound or free from vice.

110 [4.85]
 Consideration  Chapter   4

Roscorla v Thomas cont.

But the promise in the present case must be taken to be, as in fact it was, express: and the question
is, whether that fact will warrant the extension of the promise beyond that which would be implied by
law; and whether the consideration, though insufficient to raise an implied promise, will nevertheless
support an express one. And we think that it will not.
The cases in which it has been held that, under certain circumstances, a consideration insufficient
to raise an implied promise will nevertheless support an express one, will be found collected and
reviewed in the note (a) to Wennall v Adeney (1802) 3 Bos & Pul 247; 127 ER 137, and in the
case of Eastwood v Kenyon (1840) 11 A & E 438; 113 ER 482. They are cases of voidable contracts
subsequently ratified, of debts barred by operation of law, subsequently revived, and of equitable and
moral obligations, which, but for some rule of law, would of themselves have been sufficient to raise
an implied promise. All these cases are distinguishable from, and indeed inapplicable to, the present,
which appears to us to fall within the general rule, that a consideration past and executed will support
no other promise than such as would be implied by law.
[238] The rule for arresting the judgment upon the first count must therefore be made absolute.
Rule absolute.



The existing legal duty rule

The general rule
[4.95] A promise to perform an existing contractual duty is not regarded as sufficient
consideration. The issue often arises in the context of a one-​sided modification of an existing
contract.
In TA Sundell & Sons Pty Ltd v Emm Yannoulatos (Overseas) Pty Ltd (1955) 56 SR (NSW)
323 (see [10.90]), the defendants agreed to supply certain galvanised iron to the plaintiffs at
£109 15s per ton. Subsequently the defendants refused to deliver the goods unless the price
was increased by £27 per ton, citing a great increase in the price of zinc as the reason. Under
protest, the plaintiffs made the additional funds available and in due course received the iron.
The plaintiffs then successfully sued to recover the additional amount paid. The court, in
holding that the defendants had given no consideration for any promise, the plaintiffs might
have made to pay the additional price, said (at 327):
the only consideration which was suggested in argument as being given in exchange for the
alleged promise was that the [defendant] would do what was necessary to ensure that the
goods were delivered. But we are satisfied that the [defendant] was bound to do so under the
original contract. In our view every promise allegedly given to the plaintiff by the defendant
under the so called second agreement was identical with a promise given under the original
agreement.

See also Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168, discussed in Williams v Roffey Bros
& Nichols (Contractors) Ltd [1991] 1 QB 1 at [4.115] and Wigan v Edwards (1973) 1 ALR
497 at [4.170]. The rationale of the “existing contractual duty” rule is discussed in Williams v
Roffey Bros & Nichols (Contractors) Ltd [1991] 1 QB 1 at [4.115] and Musumeci v Winadell
Pty Ltd (1994) 34 NSWLR 723 at [4.125]. You will see that these cases also involve the
application of the potentially expansive “practical benefit” exception to the existing legal
duty rule.

[4.95]  111
Part II:  Formation

Part payment of a debt

[4.100]  A corollary of the rule that a promise to perform an existing contractual duty is no
consideration is the rule in Pinnel’s Case. The rule in Pinnel’s Case is that a promise to pay part
of a debt will not constitute consideration for a promise to accept the payment in satisfaction
of the debt. For example, if D owes C $10, C’s promise to accept $8 in full settlement of
the debt will not, on its own, be contractually binding on C. D will not have provided good
consideration for the promise.
The rule in Pinnel’s Case will not apply where part payment of a debt is accompanied by
some additional consideration from the debtor, even if that consideration is nominal.

Foakes v Beer
[4.105]  Foakes v Beer (1884) 9 App Cas 605 (House of Lords) –​Appeal from the Court of Appeal.
[FACTS: On 11 August 1875, Beer recovered judgment against Foakes for £2 077 17s 2d for debt
and £13 1s 10d for costs. On 21 December 1876, a memorandum of agreement was made and
signed by Foakes and Beer in the following terms:
Whereas the said John Weston Foakes is indebted to the said Julia Beer, and she has obtained
a judgment in Her Majesty’s High Court of Justice, Exchequer Division, for the sum of £2
090 19s. And whereas the said John Weston Foakes has requested the said Julia Beer to give
him time in which to pay such judgment, which she has agreed to do on the following
conditions. Now this agreement witnesseth that in consideration of the said John Weston
Foakes paying to the said Julia Beer on the signing of this agreement the sum of £500, the
receipt whereof she doth thereby acknowledge in part satisfaction of the said judgment debt
of £2 090 19s, and on condition of his paying to her or her executors, administrators, assigns
or nominee the sum of £150 on 1 July and January or within one calendar month after each
of the said days respectively in every year until the whole of the said sum of £2 090 19s shall
have been fully paid and satisfied, the first of such payments to be made on 1 July next, then
she the said Julia Beer hereby undertakes and agrees that she, her executors, administrators
or assigns, will not take any proceedings whatever on the said judgment.
Beer, having in June 1882 taken out a summons for leave to proceed on the judgment, an issue was
directed to be tried between Beer as plaintiff and Foakes as defendant whether any and what amount
was on 1 July 1882 due upon the judgment.
At the trial of the issue before Cave J, it was proved that the whole sum of £2,090 19s had been
paid by instalments, but Beer claimed interest. The jury under his Lordship’s direction found that
Foakes had paid all the sums which by the agreement of 21 December 1876, he undertook to pay
and within the times therein specified. Cave J was of opinion that whether the judgment was satisfied
or not, Beer was, by reason of the agreement, not entitled to issue execution for any sum on the
judgment.
The Queen’s Bench Division (Watkin, Williams and Mathew JJ) discharged an order for a new trial
on the ground of misdirection.]
[The Court of Appeal (Brett MR, Lindley and Fry LJJ) reversed that decision and entered judgment
for the respondent for the interest due, with costs: 11 QBD 221.]
EARL OF SELBOURNE LC: [610] Although, therefore, I may (as indeed I do) very much doubt
whether the effect of the agreement, as a conditional waiver of the interest to which she was by law
entitled under the judgment, was really present to the mind of the judgment creditor, still I cannot
deny that it might have that effect, if capable of being legally enforced.
[611] But the question remains, whether the agreement is capable of being legally forced.
Not being under seal, it cannot be legally enforced against the respondent, unless she received
consideration for it from the appellant, or unless, though without consideration, it operates by way of

112 [4.100]
 Consideration  Chapter   4

Foakes v Beer cont.

accord and satisfaction, so as to extinguish the claim for interest. What is the consideration? On the
face of the agreement none is expressed, except a present payment of £500, on account and in part
of the larger debt then due and payable by law under the judgment. The appellant did not contract
to pay the future instalments of £150 each, at the times therein mentioned; much less did he give
any new security, in the shape of negotiable paper, or in any other form. The promise de futuro was
only that of the respondent, that if the half-​yearly payments of £150 each were regularly paid, she
would “take no proceedings whatever on the judgment”. No doubt if the appellant had been under
no antecedent obligation to pay the whole debt, his fulfilment of the condition might have imported
some consideration on his part for that promise. But he was under that antecedent obligation, and
payment at those deferred dates, by the forbearance and indulgence of the creditor, of the residue of
the principal debt and costs, could not (in my opinion) be a consideration for the relinquishment of
interest and discharge of the judgment, unless the payment of the £500, at the time of signing the
agreement, was such a consideration …
The question, therefore, is nakedly raised by this appeal, whether your Lordships are now prepared,
not only to overrule, as contrary to law, the doctrine stated by Sir Edward Coke to [612] have been
laid down by all the judges of the Common Pleas in Pinnel’s case, 5 Co Rep 117a; 77 ER 237 in 1602,
and repeated in his note to Littleton, s 344 (Co Litt 212b), but to treat a prospective agreement, not
under seal, for satisfaction of a debt, by a series of payments on account to a total amount less than
the whole debt, as binding in law, provided those payments are regularly made; the case not being
one of a composition with a common debtor, agreed to, inter se, by several creditors … The doctrine
itself, as laid down by Sir Edward Coke, may have been criticised, as questionable in principle, by
some persons whose opinions are entitled to respect, but it has never been judicially overruled; on
the contrary, I think it has always, since the 16th century, been accepted as law. If so, I cannot think
that your Lordships would do right, if you were now to reverse, as erroneous, a judgment of the Court
of Appeal, proceeding upon a doctrine which has been accepted as part of the law of England for
280 years.
The doctrine, as stated in Pinnel’s case is:
that payment of a lesser sum on the day [it would of course be the same after the day]
in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears
to the judges, that by no possibility a lesser sum can be a satisfaction to the plaintiff for a
greater sum.
As stated in Coke Littleton, 212b, it is: “where the condition is for payment of £20, the obligor
or offeror cannot at the time appointed pay a lesser sum in satisfaction of the whole, because it is
apparent that a lesser sum of money cannot be a satisfaction of a greater”, adding (what is beyond
controversy), that an acquittance under seal, in full [613] satisfaction of the whole, would (under like
circumstances) be valid and binding.
The distinction between the effect of a deed under seal, and that of an agreement by parol, or by
writing not under seal, may seem arbitrary, but it is established in our law; nor is it really unreasonable
or practically inconvenient that the law should require particular solemnities to give to a gratuitous
contract the force of a binding obligation. If the question be (as, in the actual state of the law, I think it
is), whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part
of the debt presently due from him, for a promise by the creditor to relinquish, after certain further
payments on account, the residue of the debt, I cannot say that I think consideration is given, in the
sense in which I have always understood that word as used in our law. It might be (and indeed I think
it would be) an improvement in our law, if a release or acquittance of the whole debt, on payment of
any sum which the creditor might be content to receive by way of accord and satisfaction (though
less than the whole), were held to be, generally, binding, though not under seal; nor should I be
unwilling to see equal force given to a prospective agreement, like the present, in writing though not
under seal; but I think it impossible, without refinements which practically alter the sense of the word
to treat such a release or acquittance as supported by any new consideration proceeding from the

[4.105]  113
Part II:  Formation

Foakes v Beer cont.

debtor. All the authorities subsequent to Cumber v Wane (1 Sm LC, 8th ed, 366), which were relied
upon by the appellant at your Lordship’s Bar (such as Sibree v Tripp (1846) 15 M & W 23; 153 ER 745;
Curlewis v Clark (1877) 3 Ex 375; and Goddard v O’Brien (1882) 9 QBD 37), have proceeded upon the
distinction, that, by giving negotiable paper or otherwise, there had been some new consideration for
a new agreement, distinct from mere money payments in or towards discharge of the original liability.
I think it unnecessary to go through those cases, or to examine the particular grounds on which each
of them was decided. There are no such facts in the case now before your Lordships. What is called
“any benefit, or even any legal possibility of benefit”, in Mr Smith’s notes to Cumber v Wane, is not
[614] (as I conceive) that sort of benefit which a creditor may derive from getting payment of part
of the money due to him from a debtor, who might otherwise keep him at arm’s length, or possibly
become insolvent, but is some independent benefit, actual or contingent, of a kind which might in
law be a good and valuable consideration for any other sort of agreement not under seal.
My conclusion is, that the order appealed from should be affirmed, and the appeal dismissed, with
costs, and I so move your Lordships.
[LORD WATSON and LORD FITZGERALD delivered speeches in which they reached the same
result.]
[4.110]  LORD BLACKBURN: [622] What principally weighs with me in thinking that Lord Coke made
a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every
day recognise and act on the ground that prompt payment of a part of their demand may be more
beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even
where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the
debtor is doubtful it must be more so. I had persuaded myself that there was no such long-​continued
action on this dictum as to render it improper in this House to reconsider the question. I had written
my reasons for [623] so thinking; but as they were not satisfactory to the other noble and learned
Lords who heard the case, I do not now repeat them nor persist in them.
I assent to the judgment proposed, though it is not that which I had originally thought proper.
Appeal dismissed.



Exceptions to the existing legal duty rule

Practical benefit

Williams v Roffey Bros & Nicholls (Contractors)

[4.115]  Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (Court of Appeal) –​Appeal
from County Court.
[FACTS: Roffey Bros (the defendants) held a contract (the main contract) to refurbish a block of 27
flats. They entered into a subcontract with Williams (the plaintiff) under which Williams was to carry
out the carpentry in the flats. Williams commenced work, but because his agreed price of £20 000
was too low, got into financial difficulties. Roffey Bros were concerned that he might not be able to
complete his contract. The main contract imposed a penalty for late completion.
The parties made an oral agreement whereby Roffey Bros were to pay Williams an additional £10
300 at the rate of £575 for each flat on which the carpentry had been completed. Williams continued

114 [4.110]
 Consideration  Chapter   4

Williams v Roffey Bros & Nicholls (Contractors) cont.

work and substantially completed the carpentry on eight more flats, but after approximately seven
weeks, the defendants having made only one payment of £1 500, ceased work on the flats. The
defendants declined to pay the balance of the additional amount promised as well as an amount
outstanding under the original contract. They subcontracted other carpenters and finished the
refurbishment one week later. Williams sued for these amounts and Roffey Bros counterclaimed for
damages for breach of contract.
The trial judge found that Williams was entitled to be paid for eight flats substantially completed
since the oral agreement less “some small sum for defective and incomplete items”, together with £2
200 owing under the original contract. He further found that as Williams had received only £1 500,
he was entitled to stop work.]
GLIDEWELL LJ:
The issues
[7]‌Before us Mr Evans for the defendants advances two arguments. His principal submission is
that the defendants’ promise to pay an additional £10 300, at the rate of £575 per completed flat, is
unenforceable since there was no consideration for it.
[8]‌Mr Evans’ secondary argument is that the additional payment was only payable as each flat
was completed. On the judge’s findings, eight further flats had been “substantially” completed.
Substantial completion was something less than completion. Thus none of the eight flats had been
completed, and no further payment was yet due from the defendants …
[The doctrine of substantial performance is dealt with at [29.50]–​[29.75].]
Was there consideration for the defendants’ promise made on 9 April 1986 to pay an additional
price at the rate of £575 per completed flat
[10] The judge made the following findings of fact which are relevant on this issue.
(i) The subcontract price agreed was too low to enable the plaintiff to operate satisfactorily and
at a profit. Mr Cottrell, the defendants’ surveyor, agreed that this was so.
(ii) Mr Roffey (managing director of the defendants) was persuaded by Mr Cottrell that the
defendants should pay a bonus to the plaintiff. The figure agreed at the meeting on 9 April
1986 was £10 300.
The judge quoted and accepted the evidence of Mr Cottrell to the effect that a main contractor who
agrees too low a price with a subcontractor is acting contrary to his own interests. He will never get
the job finished without paying more money. The judge therefore concluded:
In my view where the original subcontract price is too low, and the parties subsequently
agree that additional moneys shall be paid to the subcontractor, this agreement is in the
interests of both parties. This is what happened in the present case, and in my opinion the
agreement of 9 April 1986 does not fail for lack of consideration.
In his address to us, Mr Evans outlined the benefits to his clients, the defendants, which arose from
their agreement to pay the additional [11] £10 300 as:

(i) seeking to ensure that the plaintiff continued work and did not stop in breach of the
subcontract;
(ii) avoiding the penalty for delay; and
(iii) avoiding the trouble and expense of engaging other people to complete the carpentry
work.
However, Mr Evans submits that, though his clients may have derived, or hoped to derive, practical
benefits from their agreement to pay the “bonus”, they derived no benefit in law, since the plaintiff
was promising to do no more than he was already bound to do by his subcontract, that is, continue
with the carpentry work and complete it on time. Thus there was no consideration for the agreement.

[4.115]  115
Part II:  Formation

Williams v Roffey Bros & Nicholls (Contractors) cont.

Mr Evans relies on the principle of law which, traditionally, is based on the decision in Stilk v Myrick
(1809) 2 Camp 317; 170 ER 1168. That was a decision at first instance of Lord Ellenborough CJ. On a
voyage to the Baltic, two seamen deserted. The captain agreed with the rest of the crew that if they
worked the ship to London without the two seamen being replaced, he would divide between them
the pay which would have been due to the two deserters. On arrival at London this extra pay was
refused, and the plaintiff’s action to recover his extra pay was dismissed. Counsel for the defendant
argued that such an agreement was contrary to public policy, but Lord Ellenborough CJ’s judgment
was based on lack of consideration. It reads (at 318–​19):
I think Harris v Watson (1791) Peake 102; 170 ER 94 was rightly decided; but I doubt whether
the ground of public policy, upon which Lord Kenyon is stated to have proceeded, be the
true principle on which the decision is to be supported. Here, I say the agreement is void
for want of consideration. There was no consideration for the ulterior pay promised to the
mariners who remained with the ship. Before they sailed from London they had undertaken
to do all they could under all the emergencies of the voyage. They had sold all their
services till the voyage should be completed. If they had been at liberty to quit the vessel
at Cronstadt, the case would have been quite different; or if the captain had capriciously
discharged the two men who were wanting, the others might not have been compellable
to take the whole duty upon themselves, and their agreeing to do so might have been a
sufficient consideration for the promise of an advance of wages. But the desertion of a part
of the crew is to be considered an emergency of the voyage as much as their death; and
those who remain are bound by the terms of their original contract to exert themselves to
the utmost to bring the ship in safety to her destined port. Therefore, without looking to the
policy of this agreement, I think it is void for want of consideration, and that the plaintiff can
only recover at the rate of £5 a month.
In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, Mocatta J regarded the
general principle of the decision in Stilk v Myrick as still being good law …
[13] It was suggested to us in argument that, since the development of the doctrine of
promissory estoppel, it may well be possible for a person to whom a promise has been made, on
which he has relied, to make an additional payment for services which he is in any event bound to
render under an existing contract or by operation of law, to show that the promisor is estopped
from claiming that there was no consideration for his promise. However, the application of the
doctrine of promissory estoppel to facts such as those of the present case has not yet been fully
developed …
There is, however, another legal concept of relatively recent development which is relevant,
namely, that of economic duress. Clearly if a subcontractor has agreed to undertake work at a fixed
price, and before he has completed the work declines to continue with it unless the contractor agrees
to pay an increased price, the subcontractor may be held guilty of securing the contractor’s promise
by taking unfair advantage of the difficulties he will cause if he does not complete the work. In such a
case an agreement to pay an increased price may well be voidable because it was entered into under
duress. Thus this concept may provide another answer in law to the question of policy which has [14]
troubled the courts since before Stilk v Myrick and no doubt led at the date of that decision to a rigid
adherence to the doctrine of consideration.
This possible application of the concept of economic duress was referred to by Lord Scarman,
delivering the judgment of the Judicial Committee of the Privy Council in Pao On v Lau Yiu Long [1980]
AC 614 …
[15] It is true that Pao On is a case of a tripartite relationship that is, a promise by A to perform a pre-​
existing contractual obligation owed to B, in return for a promise of payment by C. But Lord Scarman’s
words, at 634–​5, seem to me to be of general application, equally applicable to a promise made by
one of the original two parties to a contract.

116 [4.115]
 Consideration  Chapter   4

Williams v Roffey Bros & Nicholls (Contractors) cont.

Accordingly, following the view of the majority in Ward v Byham [1956] 1 WLR 496 and of the
whole court in Williams v Williams [1957] 1 WLR 148 and that of the Privy Council in Pao On the
present state of the law on this subject can be expressed in the following proposition:
(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in
return for payment by B; and
(ii) at some stage before A has completely performed his obligations under the contract B has
reason to doubt whether A will, or will be able to, complete his side of the bargain; and
(iii) B thereupon promises A an additional payment in return for A’s promise to perform [16] his
contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and
(v) B’s promise is not given as a result of economic duress or fraud on the part of A; then
(vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be
legally binding.
As I have said, Mr Evans accepts that in the present case by promising to pay the extra £10 300 his
client secured benefits. There is no finding, and no suggestion, that in this case the promise was
given as a result of fraud or duress. If it be objected that the propositions above contravene the
principle in Stilk v Myrick I answer that in my view they do not; they refine, and limit the application
of that principle, but they leave the principle unscathed for example, where B secures no benefit by
his promise. It is not in my view surprising that a principle enunciated in relation to the rigours of
seafaring life during the Napoleonic wars should be subjected during the succeeding 180 years to a
process of refinement and limitation in its application in the present day. It is therefore my opinion
that on his findings of fact in the present case, the judge was entitled to hold, as he did, that the
defendants’ promise to pay the extra £10 300 was supported by valuable consideration, and thus
constituted an enforceable agreement …
For these reasons I would dismiss this appeal.
[4.120]  RUSSELL LJ: [19] For my part I wish to make it plain that I do not base my judgment upon
any reservation as to the correctness of the law long ago enunciated in Stilk v Myrick. A gratuitous
promise, pure and simple, remains unenforceable unless given under seal. But where, as in this case, a
party undertakes to make a payment because by so doing it will gain an advantage arising out of the
continuing relationship with the promisee, the new bargain will not fail for want of consideration ….
I too would dismiss this appeal.
[PURCHAS LJ delivered a judgment to a similar effect.]
Appeal dismissed.



Musumeci v Winadell
[4.125]  Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 (Supreme Court of New South
Wales) –​Action.
[FACTS: The plaintiffs were tenants of a fruit and vegetable shop in a shopping centre owned by
the defendant. The introduction of a larger competing fruit and vegetable shop in the shopping
centre threatened the ability of the tenants (the plaintiffs) to pay the full rent. The defendant
landlord promised to accept a reduced rent but later sought to resile from that arrangement. The
plaintiffs sought, inter alia, a declaration that the landlord had made a binding promise to reduce
the rent. The principal issue was whether the tenants had given consideration for the landlord’s
promise.]

[4.125]  117
Part II:  Formation

Musumeci v Winadell cont.

SANTOW J: [741]
Williams v Roffey —​should it be followed in Australia?
There are three reasons which might be put as to why a contract to perform an existing obligation
should not be enforced.
First, to protect the promisor from extortion, such as may result from threatening to breach a
contract in order to exact a concession. Thus, for example, the two dollar unguaranteed corporate
tenant in a falling market, whose directors threaten to walk away from a lease, unless rent concessions
are conceded.
G H Treitel, The Law of Contract (8th ed, 1991) suggests (at 90 and 364) that this argument is much
reduced in importance, now that such a refusal may constitute duress: B and S Contracts and Designs
Ltd v Victor Green Publications Ltd [1984] ICR 419 was such a case. However it has been held by the
Privy Council that a threat to breach a contract may not amount to duress, where there has been no
“coercion of the will”, having regard to alternative courses open: Pao On v Lau Yiu Long. The Australian
cases, discussed below, make clear that coercion of the will is not essential for duress. One may choose
to submit, without one’s will being overborne, but by reason of illegitimate pressure consisting of
unlawful threats or unconscionable conduct: Crescendo Management Pty Ltd v Westpac Banking Corp
(1988) 19 NSWLR 40 at 45–​6. Furthermore economic duress has not received unqualified acceptance
as a basis for setting aside contracts in Australia.
Thus, in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50, [742] Kirby P
(at 106) cast doubt on the utility of economic duress as a satisfactory remedy. He described it as an
unsatisfactory and uncertain doctrine, lending itself to open ended formulae, little clarified by the
cases over the last hundred years. He criticised its encouragement to the courts to substitute their own
subjective opinion about agreements for those reached by the parties, particularly when substantial
corporations. He preferred to see the concepts of economic duress invoked under sensibly limited and
structured legislation like the Contracts Review Act 1980 or more broadly, subsumed by the doctrine of
undue influence and unconscionability.
Clark JA and Cripps JA did not reject the doctrine, but were satisfied it did not apply in the
circumstances. This reflects the Court of Appeal’s acceptance of economic duress in earlier cases such
as Crescendo Management Pty Ltd v Westpac Banking Corp.
But does it follow that, because there is not as yet a fully developed doctrine for the avoidance
of contracts on the grounds of economic duress (pace Hobhouse J in The “Alev”, Vantage Navigation
Corp v Suhail and Saud Bahwan Building Materials LLC [1989] 1 Lloyd’s Rep 138 at 147, who thought
otherwise), that therefore strict consideration should remain the discrimen for enforceability of
contractual modifications? There are a number of reasons why not. If it is assumed that the underlying
concern is to prevent coercive modifications, the traditional notion of consideration does not perform
that role very well. Its very certainty is bought at the price of inflexibility. This produces a real
disincentive to re-​negotiate a contract which changed circumstances have made unduly onerous.
This is especially if the outcome is likely to be unenforceable by reason of lack of consideration.
Even the presence of consideration does not preclude there having been economic duress inducing
the contract. Consideration expressed in formalistic terms of one dollar can indeed actually cloak
duress rather than expose it.
Posner J sets out incisively the policy issues as he saw them in United States v Stump Home Specialties
Manufacturing Inc 905 F 2d 1117 (1990) at 1121–​2:
The requirement of consideration has, however, a distinct function in the modification
setting —​although one it does not perform well —​and that is to prevent coercive
modifications. Since one of the main purposes of contracts and of contract law is to
facilitate long-​term commitments, there is often an interval in the life of a contract
during which one party is at the mercy of the other. A may have ordered a machine
from B that A wants to place in operation on a given date, specified in their contract;

118 [4.125]
 Consideration  Chapter   4

Musumeci v Winadell cont.

and in expectation of B’s complying with the contract, A may have made commitments
to his customers that it would be costly to renege on. As the date of scheduled delivery
approaches, B may be tempted to demand that A agree to renegotiate the contract
price, knowing that A will incur heavy expenses if B fails to deliver on time. A can always
refuse to renegotiate, relying instead on his right to sue B for breach of contract if B fails
to make delivery by the agreed date. But legal remedies are costly and uncertain, thereby
opening the way to duress. Considerations of commercial reputation will deter taking
advantage of an opportunity to exert duress on a contract partner in many cases, but
not in all. [743] …
[7]‌The rule that modifications are unenforceable unless supported by consideration
strengthens A’s position by reducing B’s incentive to seek a modification. But it strengthens it
feebly … The law does not require that consideration be adequate —​that it be commensurate
with what the party accepting it is giving up. Slight consideration, therefore, will suffice to
make a contract or a contract modification enforceable. And slight consideration is consistent
with coercion. To surrender one’s contractual rights in exchange for a peppercorn is not
functionally different from surrendering them for nothing.
The sensible course would be to enforce contract modifications (at least if written)
regardless of consideration and rely on the defence of duress to prevent abuse … All coercive
modifications would then be unenforceable, and there would be no need to worry about
consideration, an inadequate safeguard against duress ….
I conclude that even if duress is not a fully developed doctrine, it is nonetheless a useful weapon.
It, with fraud, is already introduced by element (v) of Glidewell LJ’s formulation [see at [4.115],
p 107], precluding enforcement of a promise so induced. Logically though, one should expand
that element also to exclude promises induced by undue influence or unconscionable conduct,
at the least.
But should our courts go further, as American courts have done, by drawing a line between
legitimate inducement and extortion, doing so according to a doctrine of good faith, as suggested by
Richard Hooley, Consideration and the Existing Duty [1991] JBL 19 at 27–​8, 33–​4? …
[744] … I consider that the notion of “good faith” is better replaced by the more precise and
apposite one of “unfair pressure” on A’s part inducing B’s promise in element (v). Economic duress, as
the cases demonstrate, cover[s]‌many examples of unfair pressure, but by no means all. Furthermore,
where the circumstances giving rise to the re-​negotiation were unforeseen by A at the time of the
original contract, possibly reflecting unanticipated hardship in future performance by A, these still do
not justify a demand for re-​negotiation backed by unfair pressure. But such circumstances giving rise
to that demand, may nonetheless have some influence on the court in judging fairness, by reference
to proportionality of any pressure brought to bear.
Thus such a reformulation of element (v) might read as follows:
(v) B’s promise is not given as a result of economic duress or fraud, or undue influence or
unconscionable conduct on the part of A nor is it induced otherwise by unfair pressure on the part of
A, having regard to the circumstances.
The second reason cited by Treitel (at 89) why the new promise should not be enforced, is that
the promisee suffered no legal detriment in performing what was already due from him. Nor did
the promisor receive any legal benefit in receiving what was already due to him. He answers that
this way:
But this reasoning takes no account of the fact that the promisee may in fact suffer a
detriment: for example, the wages that a seaman could earn elsewhere may exceed those
that he would earn under the original contract together with the damages that he would
have to pay for breaking it.

[4.125]  119
Part II:  Formation

Musumeci v Winadell cont.

Conversely, the promisor may in fact benefit from the actual performance of what was
legally due to him: in Stilk v Myrick the master got his ship home and this may well have been
worth more to him than any damages that he could have recovered from the crew.
Indeed the very fact that a concession is extended by B, without extortion, supports an inference,
though by no means conclusively, that consideration from A, in a real and practical sense, has
moved that concession. The law is increasingly tending away from the artificial towards the
substantive. Such a practical notion of consideration reflects that trend. It is a notorious fact that
concessions are made to avoid the necessity for enforcing a contract whose performance is in
jeopardy. It would indeed be far more artificial to treat such concessional modification to the
contract as moved by a consideration consisting of cancellation of the old contract in return for
the [745] new, an approach which the Court of Appeal in Williams v Roffey expressly and correctly
disclaimed.
That leads to the third possible reason for why such a promise should not be enforced. It is expressed
in the proposition that a benefit which is merely the hoped-​for end result of performance cannot
constitute consideration: Brian Coote. “If these matters are capable of being regarded as consideration
the reality is that the existing duty rule no longer applies, for in every case these types of benefits
will be present”; Carter and Harland, Contract Law in Australia (at 109). The authors of that text go
further: “Indeed, it is because contracting parties regard such matters as benefits that the argument
can be made that existing rule should be abolished.” But that assumes the existing rule has not even
residual utility and I do not accept that proposition.
Thus, Williams v Roffey and subsequent cases such as Anangel Atlas Compania Naviera SA v
Ishikawajima-​Harima Heavy Industries Co Ltd (No 2) [1990] 2 Lloyd’s LR 526 per Hirst J, have been at
pains to treat Stilk’s case as still good law, though only “where there is a wholly gratuitous promise”
(at 545).
But it should be apparent that Stilk’s case involved no less a practical benefit than was upheld as
sufficient for consideration in Williams v Roffey.
What then is a sufficient practical benefit to B, so as to take the situation beyond a wholly gratuitous
promise by B? The answer lies in the proposition put by Treitel (at 90) quoted above. It is indeed
inherent in the situation posed by Williams v Roffey itself (and indeed in Stilk’s case itself, despite the
decision). There the subcontractor A’s performance was worth more to B (the principal contractor)
than likely damages, even taking into account the cost of any concession to obtain greater assurance
of that performance. This suggests there should be an addition to element (iv) of Glidewell LJ’s
formulation by adding this proviso at the end:
provided that A’s performance having regard to what has been so obtained is capable of
being viewed by B as worth more to B than any remedy against A (allowing for any defences
or cross-​claims) taking into account the cost to B of any such payment or concession to
obtain greater assurance of A’s performance.
Nor should the alternative and indeed original basis of consideration be ignored, namely detriment
to A, the promisee for this purpose. It is of course long settled that detriment to the promisee suffices
as consideration —​indeed it better reflects the origins of contract in the action of assumpsit. Thus
element (iv), as I have expanded it, should be divided into parts, the second as follows:
(iv)(a) …, or (b). As a result of giving his promise, A suffers in practice a detriment (or
obviates a benefit), provided that A is thereby foregoing the opportunity of not performing
the original contract in circumstances where such non performance, taking into account B’s
likely remedy against A (and allowing for any defences or cross-​claims) is being capable of
being viewed by A as worth more to A than performing that contract, in the absence of B’s
promised payment or concession to A.

120 [4.125]
 Consideration  Chapter   4

Musumeci v Winadell cont.

To all this it might be said that such a relaxation of the doctrine of consideration, [746] if adopted,
will discourage concessions, since they would then too readily become legally binding throughout the
term of the contract. But the answer to that is simple enough. The courts should be alert to distinguish
promises intended by their terms to be no more than temporary, or truly ex gratia, concessions, for
example if expressly limited to a period of difficult circumstances for performance by the other party,
which may not be permanent. And “care must also be taken not to infer anterior promises from
conduct which represents no more than an adjustment of their relationship in the light of changing
circumstances”: per McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust)
Pty Ltd (1988) 5 BPR 11,110 at 11,117.
Accordingly, I’m satisfied to conclude that, subject to the earlier re-​ casting of the five
elements of Glidewell LJ, Williams v Roffey should be [747] followed in allowing a practical
benefit or detriment to suffice as consideration. For convenience, I set out below the re-​cast
elements, changes indicated by italics. I recognise that they will be further refined in light
of experience. One particular issue is the extent to which a benefit or detriment, said to be
“practical”, as distinct from explicitly bargained for, must nonetheless be consistent with, and
not extraneous to, the bargaining process, as at least its intended result if not necessarily its
moving force:
The present state of the law on this subject can be expressed in the following proposition:
(i) If A has entered into a contract with B to do work for, or to supply goods or services to, B in
return for the payment by B, and
(ii) At some stage before A has completely performed his obligations under the contract B has
reason to doubt whether A will, or be able to, complete his side of the bargain, and
(iii) B thereupon promises A an additional payment or other concession (such as reducing A’s
original obligation) in return for A’s promise to perform this contractual obligation at the
time, and
(iv) (a)   As a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit
provided that A’s performance, having regard to what has been so obtained, is capable
of being viewed by B as worth more to B than any likely remedy against A (allowing for
any defences or cross-​claims), taking into account the cost to B of any such payment or
concession to obtain greater assurance of A’s performance, or
(b) as a result of giving his promise, A suffers a detriment (or obviates a benefit) provided
that A is thereby foregoing the opportunity of not performing the original contract, in
circumstances where such non-​performance, taking into account B’s likely remedy against
A (and allowing for any defences or cross-​claims) is capable of being viewed by A as worth
more to A than performing that contract, in the absence of B’s promised payment or
concession to A.

(v) B’s promise is not given as a result of economic duress or fraud or undue influence or
unconscionable conduct on the part of A nor is it induced as a result of unfair pressure on the part
of A, having regard to the circumstances, then,
(vi) The benefit to B or the detriment to A is capable of being consideration for B’s promise, so that
the promise will be legally binding.

Application of Williams v Roffey to present circumstances

[4.130]  … [748] Thus I find that the particular practical benefit here, was that the lessor had greater
assurance of the lessees staying in occupation and maintaining viability and capacity to perform by
reason of their reduction in their rent, notwithstanding the introduction of a major, much larger
competing tenant. [749]

[4.130]  121
Part II:  Formation

Musumeci v Winadell cont.

The practical detriment to the lessees lay in risking their capacity to survive against a much
stronger competitor, by staying in occupancy under their lease, rather than walking away at the
cost of damages, if the lessees’ defences, including under the Contracts Review Act 1980, were
unsuccessful ….
As to element (iv) which, in its proviso, is designed to eliminate “wholly” gratuitous promises, there
is evidence before me that the plaintiffs’ goodwill was at risk of destruction by the introduction of
the much stronger competitor on a concessional basis, unless the rent reduction were forthcoming.
That makes it a proper inference for me to draw that there was indeed a sufficient practical benefit,
procured by maintaining the plaintiffs as viable tenants on the promise of reduced rental. This is
compared to the evidently less attractive alternative of finding another tenant and suing for any
rent shortfall, particularly where the lessees might plead a number of foreshadowed defences and
cross-​claims.



Re Selectmove
[4.135]  Re Selectmove Ltd [1995] 1 WLR 474 (Court of Appeal).
GIBSON LJ: [481] [I]‌f the principle of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v
Beer, 9 App Cas 605 without any application. When a creditor and a debtor who are at arm’s length
reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor
will no doubt always see a practical benefit to himself in so doing. In the absence of authority there
would be much to be said for the enforceability of such a contract. But that was a matter expressly
considered in Foakes v Beer yet held not to constitute good consideration in law. Foakes v Beer was
not even referred to in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, and it is in
my judgment impossible, consistently with the doctrine of precedent, for this court to extend the
principle of Williams’s case to any circumstances governed by the principle of Foakes v Beer, 9 App
Cas 605. If that extension is to be made, it must be by the House of Lords or, perhaps even more
appropriately, by Parliament after consideration by the Law Commission.



[4.140] Notes

1. In Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329, the English Court
of Appeal affirmed the position adopted in Re Selectmove Ltd [1995] 1 WLR 474 but
accepted that its effect may be substantially undermined by the doctrine of promissory
estoppel.
2. As the extracts at [4.115]–​[4.135] indicate, the problems of contract modification and
the acceptance of part payment of a debt in full satisfaction also raise the application of
the doctrines of economic duress (see Pao On v Lau Yiu Long [1980] AC 614 at [4.150]
and North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705) and
promissory estoppel (see Chapter 9, especially Je Maintiendrai Pty Ltd v Quaglia (1980)
26 SASR 101 at [9.10]).
  

122 [4.135]
 Consideration  Chapter   4

Duty owed to a third party

[4.145] A promise to perform an act which the promisor is under an existing duty to a
third party to perform may constitute good consideration. For example, consideration may
be found in A’s promise to B to perform a duty which A is already contractually obliged to
perform for C.

Pao On v Lau Yiu Long

[4.150]  Pao On v Lau Yiu Long [1980] AC 614 (Privy Council) –​Appeal from the Court of Appeal of
Hong Kong.
[FACTS: On 27 February 1973, the plaintiffs agreed (the main agreement) to sell to Fu Chip
Investment Co Ltd (Fu Chip) the whole of the issued capital in Tsuen Wan Shing On Estate Co Ltd
(Shing On). The price payable was $HK10.5 million which was to be met by an allotment of 4.2 million
ordinary shares of $HK1 each in Fu Chip of which the defendants were majority shareholders. For the
purposes of the agreement, one Fu Chip share was deemed to be worth $HK2.50.
So that the market in Fu Chip shares might not be unduly depressed by a sale by the plaintiffs of
their allotment, under cl 4(k) of the main agreement, the plaintiffs agreed not to sell 60 per cent of
their allotment of shares in Fu Chip before the end of April 1974.
In view of this restriction, the plaintiffs required some protection should the price of Fu Chip
shares fall during the period in which they were unable to sell. Accordingly, a second agreement (the
subsidiary agreement) was entered into by which the plaintiffs agreed to sell to the defendants on or
before 30 April 1974 at a price of $HK2.50 per share, 2.5 million shares in Fu Chip, this being 60 per
cent of the plaintiffs’ total allotment.
Although this arrangement protected the plaintiffs from loss, it also effectively prevented them
from realising any profit on 60 per cent of their holding in Fu Chip should the price rise above
$HK2.50 as, indeed, was generally expected. On realising what they had done, the plaintiffs refused
to proceed with the main agreement unless the subsidiary agreement was cancelled and replaced by
a guarantee by way of indemnity.
The defendants considered bringing action against the plaintiffs for specific performance of the
main agreement, but in view of the fact that the takeover of Shing On had already been announced,
and certain other business considerations, they agreed to cancel the subsidiary agreement and give
the requested guarantee.
The guarantee did not require the plaintiffs to sell their shares to the defendants at $HK2.50 per
share but guaranteed that each share in the 60 per cent portion of their holding would be worth
$HK2.50 immediately after 30 April 1974 and further indemnified them against any loss which they
might sustain should the market price fall below that figure. The guarantee further provided that if
the defendants were in fact called upon to indemnify the plaintiffs, the defendants would have the
option of buying the 60 per cent portion for $HK6.3 million, that is $HK2.50 per share. Under this
arrangement, the plaintiffs were guaranteed a minimum of $HK2.50 per share but might receive
more if the market value of Fu Chip shares rose above that figure after 30 April 1974.
By 30 April 1974, Fu Chip shares had fallen to 36 cents and the plaintiffs sought to rely on the
indemnity. The defendants refused to indemnify them. The plaintiffs successfully brought an action on
the indemnity, but this decision was reversed on appeal. The plaintiffs appealed to the Privy Council.]
The judgment of their Lordships was delivered by LORD SCARMAN:
The first question
[628] The first question is whether upon its true construction the written guarantee of 4 May 1973,
states a consideration sufficient in law to support the defendants’ promise of indemnity against a fall
in value of the Fu Chip shares. The instrument is, so far as relevant, in these terms: Re: Tsuen Wan
Shing On Estate Co Ltd.

[4.150]  123
Part II:  Formation

Pao On v Lau Yiu Long cont.

In consideration of your having at our request agreed to sell all of your shares of and in the
abovementioned company … for the consideration of $10.5 million by the allotment of
4.2 million ordinary shares of $1 each in Fu Chip Investment Co Ltd … and that the market
value for the said ordinary shares of the said Fu Chip Investment Co Ltd shall be deemed
as $2.50 for each of $1 share under an agreement for sale and purchase made between
the parties thereto and dated 27 February 1973, we Lau Yiu Long … and Benjamin Lau
Kam Ching … [629] the directors of the said Fu Chip Investment Co Ltd hereby agree and
guarantee the closing market value for 2 520 000 shares (being 60 per cent of the said
4.2 million ordinary shares) of the Fu Chip Investment Co Ltd shall be at $2.50 per share and
that the total value of 2 520 000 shares shall be of the sum of $6.3 million on the following
marketing date immediately after 30 April 1974, and we further agree to indemnify and keep
you indemnified against any damages, losses and other expenses which you may incur or
sustain in the event of the closing market price for the shares of Fu Chip Investment Co Ltd
according to the Far East Exchange Ltd, shall fall short of the sum of $2.50 during the said
following marketing date immediately after 30 April 1974, provided always that if we were
called upon to indemnify you for the discrepancy between the market value and the said
total value of $6.3 million we shall have the option of buying from you the said 2 520 000
shares of Fu Chip Investment Co Ltd at the price of $6.3 million.
Mr Neill, counsel for the plaintiffs … contends that the consideration stated in the agreement is not in
reality a past one. It is to be noted that the consideration was not on 4 May 1973, a matter of history
only. The instrument by its reference to the main agreement with Fu Chip incorporates as part of the
stated consideration the plaintiffs’ three promises to Fu Chip: to complete the sale of Shing On, to
accept shares as the price for the sale, and not to sell 60 per cent of the shares so accepted before
30 April 1974. Thus, on 4 May 1973, the performance of the main agreement still lay in the future.
Performance of these promises was of great importance to the defendants, and it is undeniable that,
as the instrument declares, the promises were made to Fu Chip at the request of the defendants. It
is equally clear that the instrument also includes a promise by the plaintiffs to the defendants to fulfil
their earlier promises given to Fu Chip.
The Board agrees with Mr Neill’s submission that the consideration expressly stated in the written
guarantee is sufficient in law to support the defendants’ promise of indemnity. An act done before
the giving of a promise to make a payment or to confer some other benefit can sometimes be
consideration for the promise. The act must have been done at the promisors’ request: the parties
must have understood that the act was to be remunerated either by a payment or the conferment of
some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable
had it been promised in advance. All three features are present in this case. The promise given to Fu
Chip under the main agreement not to sell the shares for a year was at the first defendant’s request.
The parties understood at the time of the main agreement that the restriction on selling must be
compensated for by the benefit of a guarantee against a drop in price: and such a guarantee would
be legally enforceable. The agreed cancellation of the subsidiary [630] agreement left, as the parties
knew, the plaintiffs unprotected in a respect in which at the time of the main agreement all were
agreed they should be protected.
Mr Neill’s submission is based on Lampleigh v Brathwait (1615) Hobart 105; 80 ER 255. In that case
the judges said (at 106):
First … a meer voluntary courtesie will not have a consideration to uphold an assumpsit. But
if that courtesie were moved by a suit or request of the party that gives the assumpsit, it will
bind, for the promise, though it follows, yet it is not naked, but couples it self with the suit
before, and the merits of the party procured by that suit, which is the difference.
The modern statement of the law is in the judgment of Bowen LJ in Re Casey’s Patents [1892] 1 Ch
104 at 115–​16; Bowen LJ said:

124 [4.150]
 Consideration  Chapter   4

Pao On v Lau Yiu Long cont.

Even if it were true, as some scientific students of law believe, that a past service cannot
support a future promise, you must look at the document and see if the promise cannot
receive a proper effect in some other way. Now, the fact of a past service raises an implication
that at the time it was rendered it was to be paid for, and, if it was a service which was to be
paid for, when you get in the subsequent document a promise to pay, that promise may be
treated either as an admission which evidences or as a positive bargain which fixes the amount
of that reasonable remuneration on the faith of which the service was originally rendered. So
that here for past services there is ample justification for the promise to give the third share.
Conferring a benefit is, of course, an equivalent to payment.
Mr Leggatt, for the defendants, does not dispute the existence of the rule but challenges its
application to the facts of this case. He submits that it is not a necessary inference or implication from
the terms of the written guarantee that any benefit or protection was to be given to the plaintiffs for
their acceptance of the restriction on selling their shares. Their Lordships agree that the mere existence
or recital of a prior request is not sufficient in itself to convert what is prima facie past consideration
into sufficient consideration in law to support a promise: as they have indicated, it is only the first of
three necessary preconditions. As for the second of those preconditions, whether the act done at the
request of the promisor raises an implication of promised remuneration or other return is simply one of
the construction of the words of the contract in the circumstances of its making. Once it is recognised,
as the Board considers it inevitably must be, that the expressed consideration includes a reference to
the plaintiffs’ promise not to sell the shares before 30 April 1974 —​a promise to be performed in the
future, though given in the past —​it is not possible to treat the defendants’ promise of indemnity as
independent of the plaintiffs’ antecedent prom-​[631]ise, given at the first defendant’s request, not
to sell. The promise of indemnity was given because at the time of the main agreement the parties
intended that the first defendant should confer upon the plaintiffs the benefit of his protection against
a fall in price. When the subsidiary agreement was cancelled, all were well aware that the plaintiffs
were still to have the benefit of his protection as consideration for the restriction on selling. It matters
not whether the indemnity thus given be regarded as the best evidence of the benefit intended to be
conferred in return for the promise not to sell, or as the positive bargain which fixes the benefit on
the faith of which the promise was given —​though where, as here, the subject is a written contract,
the better analysis is probably that of the “positive bargain”. Their Lordships, therefore, accept the
submission that the contract itself states a valid consideration for the promise of indemnity.
This being their Lordships’ conclusion, it is necessary [sic –​it seems that this should be unnecessary]
to consider Mr Neill’s further submission … that the option given the defendants, if called upon to
fulfil their indemnity, to buy back the shares at $2.50 a share was itself a sufficient consideration
for the promise of indemnity. But their Lordships see great force in the contention. The defendants
promised to indemnify the plaintiffs if the market price of Fu Chip shares fell below $2.50. However,
in the event of the defendants being called on to implement this promise they were given an option
to take up the shares themselves at $2.50. This on the face of it imposes on the plaintiffs in the
circumstances envisaged an obligation to transfer the shares to the defendants at the price of $2.50 if
called on to do so. The concomitant benefit to the defendants could be a real one —​for example, if
they thought that the market, after a temporary setback, would recover to a price above $2.50. The
fact that the option is stated in the form of a proviso does not preclude it being a contractual term or
one under which consideration moves.
The second question
[4.155]  There is no doubt —​and it was not challenged —​that extrinsic evidence is admissible to
prove the real consideration where:
(1) no consideration, or a nominal consideration, is expressed in the instrument; or
(2) the expressed consideration is in general terms or ambiguously stated; or
(3) substantial consideration is stated, but an additional consideration exists.

[4.155]  125
Part II:  Formation

Pao On v Lau Yiu Long cont.

The additional consideration must not, however, be inconsistent with the terms of the written
instrument. Extrinsic evidence is also admissible to prove the illegality of the consideration. In their
Lordships’ opinion the law is correctly stated in Halsbury’s Laws of England (4th ed, 1975), vol 12,
para 1487. The extrinsic evidence in this case shows that the consideration for the promise of
indemnity, while it included the cancellation of the subsidiary agreement, was primarily the promise
given by the plaintiffs to the defendants, to perform their contract with Fu Chip, which included
the undertaking not to sell 60 per cent of the shares allotted to them before 30 April 1974. Thus the
real consideration for [632] the indemnity was the promise to perform, or the performance of, the
plaintiffs pre-​existing contractual obligations to Fu Chip. This promise was perfectly consistent with
the consideration stated in the guarantee. Indeed, it reinforces it by imposing upon the plaintiffs an
obligation now owed to the defendants to do what, at the first defendant’s request, they had agreed
with Fu Chip to do.
Their Lordships do not doubt that a promise to perform, or the performance of, a pre-​existing
contractual obligation to a third party can be valid consideration. In New Zealand Shipping Co Ltd v
AM Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154 at 168, the rule and the reason for the rule
were stated:
An agreement to do an act which the promisor is under an existing obligation to a third party
to do, may quite well amount to valid consideration … the promisee obtains the benefit of a
direct obligation …. This proposition is illustrated and supported by Scotson v Pegg (1861) 6
H & N 295; 158 ER 121, which their Lordships consider to be good law.
Unless, therefore the guarantee was void as having been made for an illegal consideration or voidable
on the ground of economic duress, the extrinsic evidence establishes that it was supported by valid
consideration. Mr Leggatt for the defendants submits that the consideration is illegal as being against
public policy. He submits that to secure a party’s promise by a threat of repudiation of a pre-​existing
contractual obligation owed to another can be, and in the circumstances of this case was, an abuse of
a dominant bargaining position and so contrary to public policy. This, he submits, is so even though
economic duress cannot be proved. This submission found favour with the majority in the Court of
Appeal. Their Lordships, however, consider it misconceived. Reliance was placed on the old “seaman”
cases of Harris v Watson (1791) Peake 102; 170 ER 94, NP, and Stilk v Meyrick (1809) 6 Esp 129; 170
ER 851; 2 Camp 317; 170 ER 1168. Counsel also referred to certain developments in American law,
which are to be found described in two leading works, Corbin on Contracts (1950) and Williston on
Contracts (3rd ed, 1975) … Their Lordships would make one general observation on what is revealed
by these two distinguished American works. Where some judges speak of public policy, others speak
of economic duress. No clear line of distinction between the two concepts emerges as settled in the
American law.
In the seaman cases there were only two parties —​the seaman and the captain (representing the
owner). In Harris v Watson the captain during the voyage, for which the plaintiff had contracted to
serve as a seaman, promised him 5 guineas over and above his common wages if he would perform
some extra work. Lord Kenyon thought (at 103) that if the seaman’s claim to be paid 5 guineas was
supported “it would materially affect the navigation of this kingdom”. He feared the prospect of
seamen in times of danger insisting “on an extra charge on such a promise”, and non-​suited the
plaintiff. In Stilk v [633] Meyrick, Lord Ellenborough CJ also non-​suited the seaman. According to the
report in 2 Camp 317, 319, he said:
I think Harris v Watson was rightly decided; but I doubt whether the ground of public policy,
upon which Lord Kenyon is stated to have proceeded, be the true principle on which the
decision is to be supported. Here, I say the agreement is void for want of consideration.
Espinasse, who appeared as junior counsel for the unsuccessful plaintiff in the case, reports the
case somewhat differently. He reports (6 Esp 129 at 130) Lord Ellenborough CJ as saying that: “he
recognised the principle of the case of Harris v Watson as founded on just and proper policy”.

126 [4.155]
 Consideration  Chapter   4

Pao On v Lau Yiu Long cont.

But the report continues: “When the defendant [sic –​but surely the plaintiff is meant?] entered on
board the ship, he stipulated to do all the work his situation called upon him to do.”
These cases, explicable as they are upon the basis of an absence of fresh consideration for the
captain’s promise, are an unsure foundation for a rule of public policy invalidating contracts where,
save for the rule, there would be valid consideration.
When one turns to consider cases where a pre-​existing duty imposed by law is alleged to be valid
consideration for a promise, one finds cases in which public policy has been held to invalidate the
consideration. A promise to pay a sheriff in consideration of his performing his legal duty, a promise to
pay for discharge from illegal arrest, are to be found in the books as promises which the law will not
enforce. Yet such cases are also explicable upon the ground that a person who promises to perform,
or performs, a duty imposed by law provides no consideration. In cases where the discharge of a duty
imposed by law has been treated as valid consideration, the courts have usually (but not invariably)
found an act over and above, but consistent with, the duty imposed by law: see Williams v Williams
[1957] 1 WLR 148. It must be conceded that different judges have adopted differing approaches to
such cases: contrast, for example, Denning LJ at 149 et seq with the view of the majority in Williams’
case. But, where the pre-​existing obligation is a contractual duty owed to a third party, some other
ground of public policy must be relied on to invalidate the consideration (if otherwise legal); the
defendants submit that the ground can be extortion by the abuse of a dominant bargaining position
to threaten the repudiation of a contractual obligation. It is this application of public policy which
Mr Leggatt submits has been developed in the American cases. Beginning with the general rule that
“neither the performance of duty nor the promise to render a performance already required by duty is
a sufficient consideration” the courts have (according to Corbin on Contracts, vol 1, s 171) advanced to
the view: “that the moral and economic elements in any case that involves the rule should be weighed
by the court, and that the fact of pre-​existing legal duty should not be in itself decisive”.
[634] The American Law Institute in its Restatement of the Law, Contracts (ch 3, s 84(d)), has
declared that performance (or promise of performance) of a contractual duty owed to a third person
is sufficient consideration. This view (which accords with the statement of our law in New Zealand
Shipping Co Ltd v A M Satterthwaite & Co Ltd) appears to be generally accepted but only in cases where
there is no suggestion of unfair economic pressure exerted to induce the making of what Corbin on
Contracts calls “the return promise”.
Their Lordships’ knowledge of this developing branch of American law is necessarily limited. In
their judgment it would be carrying audacity to the point of foolhardiness for them to attempt to
extract from the American case law a principle to provide an answer to the question now under
consideration. That question, their Lordships repeat is whether, in a case where duress is not
established, public policy may nevertheless invalidate the consideration if there has been a threat to
repudiate a pre-​existing contractual obligation or an unfair use of a dominating bargaining position.
Their Lordships’ conclusion is that where businessmen are negotiating at arm’s length it is unnecessary
for the achievement of justice, and unhelpful in the development of the law, to invoke such a rule of
public policy. It would also create unacceptable anomaly. It is unnecessary because justice requires
that men, who have negotiated at arm’s length, be held to their bargains unless it can be shown that
their consent was vitiated by fraud, mistake or duress. If a promise is induced by coercion of a man’s
will, the doctrine of duress suffices to do justice. The party coerced, if he chooses and acts in time,
can avoid the contract. If there is no coercion, there can be no reason for avoiding the contract where
there is shown to be a real consideration which is otherwise legal.
Such a rule of public policy as is now being considered would be unhelpful because it would
render the law uncertain. It would become a question of fact and degree to determine in each case
whether there had been, short of duress, an unfair use of a strong bargaining position. It would create
anomaly because, if public policy invalidates the consideration, the effect is to make the contract void.
But unless the facts are such as to support a plea of “non est factum”, which is not suggested in this
case, duress does no more than confer upon the victim the opportunity, if taken in time, to avoid

[4.155]  127
Part II:  Formation

Pao On v Lau Yiu Long cont.

the contract. It would be strange if conduct less than duress could render a contract void, whereas
duress does no more than render a contract voidable. Indeed, it is the defendants’ case in this appeal
that such an anomaly is the correct result. Their case is that the plaintiffs, having lost by cancellation
the safeguard of the subsidiary agreement, are without the safeguard of the guarantee because its
consideration is contrary to public policy, and that they are debarred from restoration to their position
under the subsidiary agreement because the guarantee is void, not voidable. The logical consequence
of Mr Leggatt’s submission is that the safeguard which all were at all times agreed the plaintiffs should
have —​the safeguard against fall in value of the shares —​has been lost by the application of [635]
a rule of public policy. The law is not, in their Lordships’ judgment, reduced to countenancing such
stark injustice: nor is it necessary, when one bears in mind the protection offered otherwise by the law
to one who contracts in ignorance of what he is doing or under duress. Accordingly, the submission
that the additional consideration established by the extrinsic evidence is invalid on the ground of
public policy is rejected.
The third question
[4.160]  [635] Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Their
Lordships agree with the observation of Kerr J in Occidental Worldwide Investment Corp v Skibs A/​
S Avanti [1976] 1 Lloyd’s Rep 293 at 336 that in a contractual situation commercial pressure is not
enough. There must be present some factor “which could in law be regarded as a coercion of his
will so as to vitiate his consent”. This conception is in line with what was said in this Board’s decision
in Barton v Armstrong [1976] AC 104 at 121 by Lord Wilberforce and Lord Simon of Glaisdale —​
observations with which the majority judgment appears to be in agreement. In determining whether
there was a coercion of will such that there was no true consent, it is material to inquire whether the
person alleged to have been coerced did or did not protest; whether, at the time he was allegedly
coerced into making the contract, he did or did not have an alternative course open to him such as
an adequate legal remedy; whether he was independently advised; and whether after entering the
contract he took steps to avoid it. All these matters are, as was recognised in Maskell v Horner [1915]
3 KB 106, relevant in determining whether he acted voluntarily or not.
In the present case there is unanimity amongst the judges below that there was no coercion of
the first defendant’s will. In the Court of Appeal the trial judge’s finding (already quoted) that the
first defendant considered the matter thoroughly, chose to avoid litigation, and formed the opinion
that the risk in giving the guarantee was more apparent than real was upheld. In short, there was
commercial pressure, but no coercion. Even if this Board was disposed, which it is not, to take a
different view, it would not substitute its opinion for that of the judges below on this question of fact.
It is, therefore, unnecessary for the Board to embark upon an inquiry into the question whether
English law recognises a category of duress known as “economic duress”. But, since the question has
been fully argued in this appeal, their Lordships will indicate very briefly the view which they have
formed. At common law money paid under economic compulsion could be recovered in an action
for money had and received: Astley v Reynolds (1731) 2 Str 915; 93 ER 939. The compulsion had to
be such that the party was deprived of “his freedom of exercising his will”: see at 916. It is doubtful,
however, whether at common law any duress other than duress to the person sufficed to render a
contract voidable: see Blackstone’s Commentaries (12th ed), Book 1, pp 130–​1 and Skeate v Beale
(1841) 11 Ad & E 983; 113 ER 688. American law (Williston on Contracts (3rd ed)) now recognises that
a contract may be avoided on the [636] ground of economic duress. The commercial pressure alleged
to constitute such duress must, however, be such that the victim must have entered the contract
against his will, must have had no alternative course open to him, and must have been confronted
with coercive acts by the party exerting the pressure: Williston on Contracts (3rd ed, 1970), vol 13
s 1603. American judges pay great attention to such evidential matters as the effectiveness of the
alternative remedy available, the fact or absence of protest, the availability of independent advice,
the benefit received, and the speed with which the victim has sought to avoid the contract. Recently
two English judges have recognised that commercial pressure may constitute duress the pressure of
which can render a contract voidable: Kerr J in Occidental Worldwide Investment Corp v Skibs A/​S Avanti

128 [4.160]
 Consideration  Chapter   4

Pao On v Lau Yiu Long cont.

[1976] 1 Lloyd’s Rep 293 and Mocatta J in North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
[1979] QB 705. Both stressed that the pressure must be such that the victim’s consent to the contract
was not a voluntary act on his part. In their Lordships’ view, there is nothing contrary to principle in
recognising economic duress as a factor which may render a contract voidable, provided always that
the basis of such recognition is that it must amount to a coercion of will, which vitiates consent. It
must be shown that the payment made or the contract entered into was not a voluntary act.
For these reasons their Lordships will humbly advise Her Majesty that the appeal be allowed …
Appeal allowed.



[4.165] Note
See further North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705.
  

Bona fide compromise

Wigan v Edwards
[4.170]  Wigan v Edwards (1973) 47 ALJR 586 (High Court of Australia) –​Appeal from the Supreme
Court of Queensland.
[FACTS: Mr and Mrs Edwards (the respondents) agreed to purchase a house from Wigan (the
builder, appellant, promisor) under the terms of a contract dated 15 April 1969. The contract contained
no express term that the house had been constructed in a good and businesslike manner nor that it
was free from structural defects, nor any other term relating to quality. Nonetheless, shortly after the
contract was signed, the Edwards had discussions with Wigan in relation to certain features of the
house and gave him a list of matters which they said required attention before they would complete
the transaction. Wigan agreed to remedy certain defects, and on 22 April 1969, he signed a document
in which he promised to remedy the minor defects listed therein and “any major faults in construction
five years from purchase date I will repair”. Subsequently the appellant failed to remedy the minor
defects and also a major fault which was discovered in the concrete slab. The Edwards sued Wigan in
the District Court of Queensland and obtained judgment for $6,000. An appeal to the Full Court of
the Supreme Court of Queensland was dismissed. One of the points argued on behalf of Wigan on
appeal to the High Court of Australia was that there was no consideration for the promises contained
in the document dated 22 April.]
MASON J: [594] The first question which arises is whether there was valuable consideration for the
appellant’s promise of 22 April 1969. The general rule is that a promise to perform an existing duty
is no consideration, at least when the promise is made by a party to a pre-​existing contract, when it
is made to the promisee under that contract, and it is to do no more than the promisor is bound to
do under the contract. The rule expresses the concept that the new promise, indistinguishable from
the old, is an illusory consideration. And it gives no comfort to a party who by merely threatening
a breach of contract seeks to secure an additional contractual benefit from the other party on the
footing that the first party’s new promise of performance will provide sufficient consideration for that
benefit.
An important qualification to the general principle is that a promise to do precisely what the
promisor [595] is already bound to do is a sufficient consideration, when it is given by way of a bona

[4.170]  129
Part II:  Formation

Wigan v Edwards cont.

fide compromise of a disputed claim, the promisor having asserted that he is not bound to perform
the obligation under the pre-​existing contract or that he has a cause of action under that contract.
The qualification recognises that for the court itself to examine and determine the correctness of the
promisor’s claim would be a pointless exercise when the new bargain indicates that the promisee
regarded the fresh promise as a benefit, presumably viewing the promise of performance as more
advantageous than the remedies available to him for breach of contract. But the law, by insisting that
the claim in dispute is one which was honestly or bona fide made, prevents the qualification from
assisting the party who would seek to gain an unfair advantage by threatening unscrupulously to
withhold performance under a contract.
It is no objection to the existence of a bona fide compromise of a dispute that the court considers
that the claim made by the promisor that he was not bound under the former contract would not
have succeeded had the issue been litigated: Callisher v Bischoffsheim (1870) LR 5 QB 449; Miles v New
Zealand Alford Estate Co (1886) 32 Ch D 266. But it is perhaps open to question whether a bona fide
compromise of a dispute is sufficiently established by showing that the promisor honestly believed
that his claim was well founded. It has been said that it must also be shown that the claim was not
vexatious or frivolous. In Miles v New Zealand Alford Estate Co Bowen LJ (at 291–​2) expressed himself
in favour of the second formulation, whereas in the same case Cotton LJ (at 283–​4) and Fry LJ (at
297–​8) expressed themselves more obliquely. However, as I understand their observations, they are
not inconsistent with what Bowen LJ had to say. In many courts in the United States a similar test to
that adopted by Bowen LJ has been adopted. Williston on Contracts (3rd ed), s 135B states: “In many
jurisdictions the tendency is to make the test the honesty of the claimant, provided the invalidity of
the claim in law or in fact is not entirely obvious.” Even so, according to the author, the forbearance is
insufficient consideration “if the claim forborne is so lacking in any foundation as to make its assertion
incompatible with both honesty and a reasonable degree of intelligence”.
The different expressions of the principle do not reflect an important conceptual difference. There
will be few cases involving an honest or bona fide belief in a claim which is vexatious or frivolous. In
this case it is unnecessary to choose between the competing formulations, for in my view the more
stringent test, that favoured by Bowen LJ in Miles’ case is satisfied.
The judge found that the respondents honestly believed that, having regard to the defective
condition of the house, they were not bound to complete. In my opinion his Honour was correct in so
finding. Although it is my view that the majority of the defects on which the respondents relied would
not have justified a refusal to complete the contract, there were many defects. In addition, the water
had not been connected and the fence had not been erected. In these circumstances the respondents’
claim that they would not complete cannot be described as a frivolous or vexatious claim.
The respondents merely asserted that they would not complete until the matters of which they
complained were set right. They did not threaten to bring an action or to defend a suit for specific
performance. However, a threat to bring an action or enter a defence is not an essential element
of a bona fide compromise; it is enough if there is a claim (of the kind already discussed) that the
contracting party is not bound to perform the contract. Clearly the respondents’ claim was of this kind.
Accordingly, in my view there was valuable consideration to support the agreement of 22 April 1969.
In expressing this conclusion I am mindful that the appellant’s promise to repair major defects in
five years incorporated in the document of 22 April 1969 was volunteered by him and was given after
he had acceded to the respondents’ demand that the list of defects should be remedied. Though
volunteered by the appellant after he had acceded to the initial request, the additional promise should
be regarded as an element of the bargain reached by the parties …
[On this point, WALSH AND GIBBS JJ agreed with the reasoning of Mason J. MENZIES J and
McTIERNAN ACJ reached the same conclusion.]



130 [4.170]
 Consideration  Chapter   4

Proposals for reform

Sixth Interim Report
[4.175]  United Kingdom Law Revision Committee, Sixth Interim Report (CMD 5449, 1937).
[50] It may be convenient to summarise our recommendations which are as follows:
(1) …
(2) That an agreement shall be enforceable if the promise or offer has been made in writing by
the promisor or his agent, or if it be supported by valuable consideration past or present.
(3) That an agreement to accept a lesser sum in discharge of an enforceable obligation to pay
a larger sum shall be deemed to have been made for valuable consideration, but if the new
agreement is not performed then the original obligation shall revive.
(4) That an agreement in which one party makes a promise in consideration of the other party
doing or promising to do something which he is already bound to do by law, or by a contract
made either with the other party or with a third party, shall be deemed to have been made for
valuable consideration.
(5) That a promise shall be enforceable by the promisee though the consideration is given by or
to a third party.
(6) That an agreement to keep an offer open for a definite period of time or until the occurrence
of some specified event shall not be unenforceable by reason of the absence of consideration.
(7) That a promise made in consideration of the promisee performing an act shall constitute a
contract as soon as the promisee has entered upon performance of the act, unless the promise
includes expressly or by implication a term that it can be revoked before the act has been
completed.
(8) That a promise which the promisor knows, or reasonably should know, will be relied on by
the promisee shall be enforceable if the promisee has altered his position to his detriment in
reliance on the promise.
(9) That where a contract by its express terms purports to confer a benefit directly on a third party,
it shall be enforceable by the third party in his own name subject to any defences that would
have been valid between the contracting parties. Unless the contract otherwise provides, it
may be cancelled by the mutual consent of the contracting parties at any time before the third
party has adopted it either expressly or by conduct.



[4.175]  131