B. Consideration
| Author | John D. McCamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 214-256 |
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The doctrine of consideration identifies as enforceable those promises that have been given or made as part of a bargain or exchange. An enforceable promise is one that has been, in effect, purchased by the promisee. This central or basic concept was expressed in Sir Frederick Pollock’s classic definition of the doctrine in the following terms: "An act or forbearance of the 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."9The "consideration," then, is the act or forbearance or promise thereof given in return for the promise that one wishes to enforce. A promise for which no consideration is given in return may be said to be gratuitous. Such promises are often referred to as "bare" or "naked."
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The arrangement between the parties is sometimes referred to as a "nudum pactum" or may be said to fail for "want of mutuality." If something given in return for the promise constitutes consideration in the requisite sense, it may be referred to as "good," "valid" or "sufficient" consideration.
At a relatively early stage, the common law recognized that a promise to act or forbear in return for another’s promise could constitute consideration rendering the latter promise enforceable.10Agreements in which a promise is exchanged for a promise are commonly referred to as "bilateral" contracts. Typical commercial agreements are very likely to be bilateral in form. Thus, a supplier of goods or services may promise to provide them in return for the purchaser’s promise to pay the contract price. With recognition of the possibility of enforcing bilateral agreements, it became possible to enforce a wholly executory exchange in which, although the parties have exchanged promises, no performance of either promise has yet been provided. Although it is plainly established that wholly executory agreements are enforceable, the question of whether they should be enforced has been the subject of some recent controversy. This is a matter to be further pursued in the context of a discussion of the remedies available for the enforcement of wholly executory exchanges.11Bilateral agreements in which a promise is exchanged for a promise may be contrasted with unilateral agreements in which the promise one wishes to enforce is exchanged for an act or forbearance. An offer of a reward provides a simple illustration of a unilateral contract. A reward posted for the provision of information that will lead to the arrest and conviction of the perpetrator of a particular act in return for a promise of a money payment invites the performance of an act as the price, one might say, of the reward. Similarly, a guarantor of a bank loan may promise to guarantee the loan in return for the bank’s act of advancing funds to the borrower. In the case of an existing bank loan, the giving of a guarantee might illustrate the exchange of forbearance for an enforceable promise. Assuming that the bank does not promise to forbear from enforcement of the loan, the guarantee may take the form of an undertaking by the guarantor to guarantee repayment of the loan if the bank forbears from calling in the loan or taking other steps
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against the borrower for a particular or, indeed, a reasonable period of time.12As we have seen in the context of our discussion of the rules of offer and acceptance,13whatever expressions the parties might have used to communicate their arrangements, an offer of a truly unilateral contract can be restated in the formula "if you do (or not do) x, I promise y." The doing of the requested act or complying with the request to forbear has the effect both of accepting the offer and of providing the consideration that renders the offeror’s promise enforceable.
Consideration may be constituted by any act or forbearance or promise thereof considered to be of value by the promisor. Thus, the nature of consideration has been described in another classic statement of the doctrine, in Currie v. Misa,14 in the following terms: "A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other."15The fact that the benefit to the promisor and detriment to the promisee are stated as alternatives may be taken to suggest that a benefit to be conferred by the promisee on a third party may constitute consideration. That this is plainly so may be illustrated by the simple guarantee of a bank loan mentioned earlier in the chapter. The guarantor’s promise to guarantee the loan is given in return for the bank’s conferral of a benefit on the borrower. In such circumstances, it might be said that the guarantor does not receive a benefit in return for the promise to guarantee, but the promisee bank does suffer the detriment of conferring or promising to confer value on the borrower. Similarly, the not uncommon arrangement under which a borrower might stipulate that the moneys are to be paid to a third party is binding. Again, while it might be suggested that the borrower does not benefit from such a payment term, the lender has suffered a detriment by undertaking to make such a payment. In all such cases, of course, it may be argued that the promisor would not have requested that a benefit be conferred on a third party unless it was of some advantage to the promisor to do so. In such cases, however, it is unnecessary to find that the promisor has indirectly benefited in some fashion. Consideration is constituted
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by the detriment suffered by the promisee. As is sometimes said, the benefit need not necessarily "move" from the promisee to the promisor. It may move from the promisee to a third party.
It is, however, a well-established feature of the traditional doctrine of consideration that consideration must "move" from the promisee or, in other words, that a detriment of some kind must be suffered by the promisee. This proposition is one of the traditional justifications for the doctrine of privity of contract, which holds that a third party upon whom benefits are to be conferred by the promisor but who has given no consideration in return has no standing to enforce the promisor’s undertaking. Although, as we shall see,16the doctrine of privity of contract is not followed in American law and has been abrogated by statute in a number of commonwealth jurisdictions, including one Canadian province,17the traditional doctrine of privity remains generally applicable in other common law jurisdictions. Regardless of the status of the doctrine of privity in a particular common law jurisdiction, however, the critical point for purposes of the doctrine of consideration is to note that a valid consideration must move from the promisee and thus, as a general proposition, it is necessary to establish in every case that the promisee has suffered a detriment of some kind. For the doctrine to apply, then, it must be established that the promisee has either acted or forborne from acting in the manner requested by the promisor or has given a return promise that will, in some fashion, restrict the promisee’s freedom of action in the future.
The utility of considering, when applying the consideration doctrine, whether the promisee has made a commitment that restrains freedom of action in the future rather than the more pliable concepts of benefit and detriment may be illustrated by the well-known decision in Hamer v. Sidway.18This famous case involved a promise made by a nephew to refrain from using alcohol or tobacco, swearing or playing cards until the age of twenty-one, as requested by his uncle in return for the uncle’s promise to pay him $5,000. Having complied with his undertaking, the nephew, upon turning twenty-one sought to enforce the promise. The uncle acknowledged the debt and indicated that money had been set aside for the purpose of paying the young man; but the uncle was reluctant to do so while the nephew was still so young.
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After the uncle’s death, the nephew sought enforcement against his estate. It was argued in defence that far from suffering a detriment as a result of complying with his uncle’s wishes, the nephew had actually benefited and, accordingly, the uncle’s promise was not supported by consideration. In rejecting this defence, the court reasoned that the correct approach is to consider whether the promisee has limited his legal freedom of action in return for the undertaking of the promisor. Applying this rule to the present facts, the court indicated that it was "sufficient that [the nephew] restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement, and now, having fully performed the conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor."19In any event, in the court’s view, there was nothing in the record precluding a determination that the uncle had benefited "in a legal sense."20This decision is often contrasted with the earlier English case, White v. Bluett.21In this case, a son had given a promissory note to his father in acknowledgment of monies advanced to the son in the form of a loan. In response to the son’s complaint that the father had been more generous to his...
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