Last edited 28 Sep 2018

Valuable consideration

Other than contracts made under seal, and subject to the Contracts (Rights of Third Parties) Act, the courts will not enforce gratuitous promises. There must be valuable consideration.

Valuable consideration is 'something of value in the eye of the law' (Thomas v Thomas). Clearly, the payment of money or a promise to pay money is valuable consideration. However, 'in the eyes of the law' other acts, however insignificant, may provide valuable consideration.

For example, a promise to give £50 'if you will come to my house' was held to be valuable consideration in Gilbert v Ruddeard. However, as a general rule, a moral obligation does not provide valuable consideration; for example, a promise made 'in consideration of natural love and affection' (Brett v J.S.). Nor is a pre-existing legal obligation sufficient to provide valuable consideration, often referred to as 'past consideration'.

The giving of a collateral warranty by an architect in consideration of terms of appointment that have already been fulfilled or the giving of a guarantee by a construction company in consideration of a payment under the construction contract, are examples of past consideration.

Valuable consideration need not be adequate consideration in a sense that the courts are not concerned as to the fairness of the bargain between two contracting parties. For this reason payment of nominal consideration is sufficient. Collateral warranty agreements usually provide that consideration for the agreement shall be the payment by the promisee to the promisor of the sum of £1 or £10. Whether it be £1 or £10, this consideration, though nominal, is valuable consideration for the purposes of enforcing the warranty.

Valuable consideration must support the promise and not the contract. That is to say there must be some detriment to the promisee (the giving of value) or some benefit to the promisor (receipt of value).

In many cases, a detriment to the promisee will be the same as a benefit to the promisor, for example, a sub-contractor promises to carry out piling works in consideration for which the main contractor promises to pay the price of those works. The carrying out of the piling works and the promise to pay the price of the works are respectively both detriments and benefits. However, whilst consideration must move from the promisee it is not necessary for consideration to move to the promisor.

For example, if A promises to B that A will guarantee the repayment of a loan of finance to be made by B to C, whilst A derives no benefit from the transaction if B, in consideration of A's promise, makes the loan to C, then B will suffer a detriment which provides valuable consideration moving from B (the promisee) to A (the promisor) in respect of a contract of guarantee.