Consideration and Promissory Estoppel — SQE1 FLK1 Contract Law

A supplier tells a shop owner it will take 20 per cent off everything he orders for the next twelve months. They have traded together for years. He promises nothing in return. Three orders later, the supplier invoices at full list price and says it has changed its mind. Can he hold it to the discount? No. He gave nothing for the promise, and English law does not enforce a promise given for nothing.

That is consideration: the price paid for a promise. This is Consideration and Promissory Estoppel, the second topic in Contract Law. It decides which promises the law will enforce, and where equity steps in when that rule bites too hard. Keep the shop owner in mind. We come back for him twice.

Here is the route. What consideration is, and the three kinds of it. Then past consideration, and the one exception that rescues it. Then two more rules: consideration must move from the promisee, and it must be sufficient without being adequate. Then existing duties, a key exam topic. Then part payment of debts. And finally promissory estoppel, equity's escape hatch.

Start with the idea. English law will not enforce a bare promise, a nudum pactum. Something of value must be given in exchange, or the promise is a gift and no more. There is one way round that. A promise made by deed binds without any consideration at all. Everywhere else, find the price or there is no contract.

The classic definition dates from 1875. Consideration is a benefit accruing to one party, or a forbearance, detriment, loss or responsibility given or suffered by the other. Strip it down. Benefit to one side, detriment to the other. That pairing is still the foundation.

Three kinds, and only two of them work. Executory is a promise for a promise, where neither side has performed yet. You promise to deliver next week, I promise to pay on delivery. Executed is where one side has already done the act asked for. You promise a reward for finding your lost dog, I find it, and my act is the consideration. And past consideration, the problem child.

Rule one. Past consideration is not good consideration. It is something done before the promise was made, and the reason it fails is simple: the act was never given in exchange for the promise. Take a wife who carries out improvements to the family house. Only afterwards do the other family members sign a document promising to reimburse her. In 1951 the Court of Appeal held that promise unenforceable. The work was already finished when the promise was made.

The same rule sank a buyer who was told, only after the sale was complete, that his horse was sound and free from vice. The horse turned out vicious. He sued on that promise and lost, because the purchase was the consideration and the purchase was already done. That was 1842.

But past consideration can be saved, and the exception has three conditions. All three. One: the act was done at the promisor's request. Two: both sides understood payment would be made. Three: the payment would have been legally enforceable if promised in advance. The rule comes from 1615. A man who had killed another asked someone to obtain a royal pardon, promised £100 for the trouble, then never paid. The court made him pay.

Rule two. Consideration must move from the promisee. Only someone who has given value can enforce the promise. Two fathers once agreed that each would pay a sum to the groom. One died without paying. The groom sued his estate and failed. He had given nothing, and he was a stranger to the bargain between the fathers. That was 1861.

Now rule three, and it surprises people. Consideration must be sufficient, but it need not be adequate. Sufficient means value the law recognises. Adequate would mean a fair price, and the court will not ask about that. A dying husband wished his wife to have their house for life. The executors let her stay for £1 a year, and she kept the house in repair. Sufficient, said the court, in 1842.

Then Chappell v Nestle, from 1960, and this is the one to remember. Nestle offered a record to anyone who sent in a sum of money and three chocolate bar wrappers. The wrappers were thrown away the moment they arrived. Worthless, then? The House of Lords held they were part of the consideration, because they had economic value to Nestle. They promoted sales.

Lord Somervell put it best. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. So money, goods, services, a promise to act, a promise to refrain, all count. Love and affection do not. Nor does moral obligation.

An aunt signs a note promising her nephew a painting worth £9,000, in consideration of the love and affection she has for him. The note is not a deed. The nephew gives nothing and promises nothing. Can he enforce it? No. Affection and gratitude have no value the law recognises.

Now the big one, and a key exam topic. Can performing a duty you already owe be consideration for a new promise? It depends entirely on who you owe it to. Three categories: a public duty, a contractual duty owed to the promisor, and a contractual duty owed to a third party.

Public duty first. A police officer was subpoenaed to give evidence at a trial, and the defendant promised to pay him for attending. No consideration, held the court in 1831. He was already legally obliged to attend. But go beyond the duty and everything changes. In 1925, at a mine owner's request, police provided a garrison of officers during a strike when a mobile patrol would have done. The extra protection was good consideration.

A mother did the same thing in 1956. The father of her child promised her £1 a week provided the child was well looked after and happy. She already had a statutory duty to maintain the child. Keeping the child happy went beyond it, so she had given consideration.

Second category, and here are the two names that matter. Stilk v Myrick, 1809. Two sailors deserted mid-voyage. The captain promised to divide the deserters' wages among the crew who stayed if they sailed the ship home. They sailed her home. They got nothing. They were already contractually bound to sail the ship home, so they gave nothing new for the captain's promise.

Then 1991. Williams v Roffey Bros. Roffey were main contractors who had subcontracted carpentry to Williams. Williams ran into financial difficulty and could not finish on time. Roffey faced a penalty clause in their own main contract, so they promised Williams a further £10,300 to finish on time. Williams did the work. Roffey did not pay. The Court of Appeal held Williams could recover.

Why? Because Roffey got a practical benefit. They avoided the penalty clause, they avoided the cost of finding a new subcontractor, and the work was done on time. Five conditions: an existing contract, a reason to doubt performance, a promise of extra payment, a practical benefit or an avoided disbenefit, and no duress or fraud.

Stilk v Myrick was not overruled. It was refined and limited. Third category, and it flips. Performing a duty you already owe to a third party is good consideration. A haulier is already bound by its contract with a manufacturer to get a consignment to the docks by a fixed date. A port operator, no part of that contract, promises thirty days free storage if the goods arrive by then. The haulier delivers. Is the operator bound?

Yes. The duty the haulier performed was owed to the manufacturer, not to the operator. The Privy Council confirmed the principle in 1980. The promisee suffers a detriment by making themselves liable to two parties instead of one.

Part payment of debts now, and this is where the doctrine bites hardest. You owe £100. You pay £80. The creditor agrees to take it in full settlement, then changes their mind. Can they sue you for the £20? Yes. Payment of a lesser sum on the day cannot be satisfaction for the whole, and you gave nothing for the release. That rule dates from 1602.

The House of Lords confirmed it in Foakes v Beer, 1884. Mrs Beer had a judgment debt against Dr Foakes, and agreed that if he paid by instalments she would take no proceedings whatever on the judgment. He paid in full. She then claimed the interest, and she won. He had given nothing for her promise.

There are five exceptions worth knowing. Payment in kind: goods or services instead of money, which the creditor may actually prefer. Early payment, before the due date and at the creditor's request. Payment at a different place, again at the creditor's request. Payment by a third party: in 1911 a father's part payment on his son's behalf discharged the whole debt. And a composition agreement, where all the creditors agree to take a proportion.

One thing the exceptions do not include. The practical benefit reasoning from Williams v Roffey Bros does not extend to part payment. In 1995 the Court of Appeal said so plainly. It was bound by Foakes v Beer, a House of Lords decision, and only the Supreme Court or Parliament could change that rule. Extra pay for the same work, Roffey. Accepting less than the debt, Foakes v Beer.

Which brings us to equity. Promissory estoppel. In 1947 a landlord had let a block of flats. The war came, the tenant could not find sub-tenants, and the landlord agreed to halve the rent. After the war he claimed the full rent again. Central London Property Trust v High Trees House. Denning held he was estopped from going back on his promise for the war period, but could restore the full rent for the future.

So what is it? An equitable doctrine that stops a party going back on a promise to accept less, even with no consideration behind it. It creates no new rights. It only prevents the enforcement of existing ones where that would be inequitable. Four requirements. A clear and unambiguous promise that strict legal rights will not be enforced. Reliance by the promisee. Inequity in going back on it. And an existing legal relationship.

On reliance, note this. The promisee must have altered their position, but the reliance need not be detrimental. Now the limit that catches candidates out. Combe v Combe, 1951. A wife tried to use estoppel to enforce her ex-husband's promise of maintenance. She could not. Estoppel is a shield, not a sword. It creates no cause of action where none existed.

Which settles our shop owner. He relied on the discount and placed three orders. Reliance alone is not consideration, and estoppel cannot help him, because he has no claim to defend. He would be using it as a sword.

Last piece, and it decides a lot of answers. Estoppel is usually suspensory, not extinctive. It suspends the right. It does not destroy it. In 1955 patent holders had waived compensation during the war. The House of Lords held the waiver suspended the right but did not extinguish it, and it could be revived on reasonable notice.

There is an exception. Where the promisee cannot restore their original position, the estoppel may extinguish the right for good. And one last gate. Equity will not protect a promisee who has behaved inequitably. Squeeze a builder close to insolvency into taking less, and estoppel will not save you.

A word on how SQE1 tests this. You will not be asked to recall case names. You get a scenario, five answers, and one instruction: pick the best. So learn the rules, and treat the names in this episode as memory pegs, nothing more.

If you keep only three. Stilk v Myrick with Williams v Roffey Bros, the pair that decides whether doing what you already promised can buy you more money. Foakes v Beer, which says paying less than you owe buys you nothing. And Central London Property Trust v High Trees House, the case that lets equity step in where consideration cannot.

Four traps. One, and it is the big one. Williams v Roffey Bros is about promising to pay more for the same work. It never applies to a promise to accept less. That is part payment, and it belongs to Foakes v Beer.

Two: practical benefit refined Stilk v Myrick. It did not overrule it. The old rule still decides the case where there is no practical benefit and no fresh consideration. Three: the past consideration exception needs all three limbs. A request on its own is not enough. There must also be an understanding that payment would follow.

Four: estoppel is a shield, not a sword, and it has a conscience. It will not protect a promisee who applied improper pressure to get the promise. And remember the statute. The Contracts (Rights of Third Parties) Act 1999 is an exception to privity. It does not touch the rule that consideration must move from the promisee.

Quick check. A company holds a ten-year lease at £50,000 a year. Trade slumps, and it tells the landlord it cannot manage the rent. The landlord writes: in light of your difficulties I am happy to accept £30,000 a year for the time being. The company keeps on eight staff it would otherwise have made redundant, and pays £30,000 a year for eighteen months. Trade has now recovered. The landlord demands £50,000 from now on, and the £30,000 shortfall.

Three candidate answers. One: the landlord recovers both, because the company gave nothing for the promise to take less. Two: the landlord recovers neither, because the promise released the rent for the whole term. Three: the landlord cannot recover the shortfall, but may restore the full rent on reasonable notice. Pause here if you want a moment.

The answer is three. Every requirement of promissory estoppel is present. A clear and unambiguous promise not to insist on strict legal rights, in the landlord's letter. An existing legal relationship, the lease. Reliance, in keeping on the eight staff. And inequity in going back on it for the period it governed. Estoppel is suspensory, so the landlord may restore the full rent for the future on reasonable notice, but cannot claim the shortfall.

Why the others fail. One is backwards: estoppel operates precisely where no consideration was given. Two ignores the words for the time being, which is not a release of the whole term.

Five things to take away. One: consideration is the price of a promise, and it must be sufficient in law but need not be a fair price. Two: past consideration fails, unless the act was requested on an understanding that payment would follow. Three: performing an existing duty owed to the promisor buys nothing, unless you go beyond it or the promisor gains a practical benefit.

Four: part payment of a debt is no satisfaction of the whole, and practical benefit does not rescue it. Five: promissory estoppel is a shield, it needs an existing relationship and reliance, and it usually suspends rights rather than destroying them. And our shop owner still gets nothing, because reliance is not a price. Next time, Privity and Third Party Rights.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.