BetterLawNotes-5 (2)

CONTRACT LAW

At common law, if C is to enforce D’s promise, it must be C who provides the consideration.

‘I think the declaration cannot be supported, as it does not shew any consideration for the promise moving from the plaintiff to the defendant.’ Price v Easton (1833) 4 B & Ad 433, 434 (Lord Denman CJ).

So if D promises to pay C £100 if T sings at D’s birthday party, C, on the face of it, is not providing the consideration. The consideration, the singing at D’s party, is provided by, or moves from, T.

A couple of points to note: first, at common law T cannot enforce the promise either as the offer is addressed to C not T, although note that the position at common law has been modified by the Contracts (Rights of Third Parties) Act 1999. Second, C might be able to enforce the promise if he can show that D’s promise was really a request to C that C procure T’s performance at D’s party.

At this point mention must be made of the third party, or privity, rule. At common law, a third party, T, cannot enforce the terms of a contract made between A and B, even where the terms of the contract are plainly intended to benefit T. This is because T is not a party, or privy, to the contract.

‘[I]n the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.’ Dunlop v Selfridge [1915] AC 847, 853 (Viscount Haldane). Again, as noted above, bear in mind that the common law position has been amended by the Contracts (Rights of Third Parties) Act 1999.

Opinions differ as to whether the rule that consideration must move from the promisee and the third-party rule are distinct principles or whether they are merely two sides of the same coin.

Price v Easton (1833) 4 B & Ad 433

E promised T that if T performed certain work for him, he would pay P. T did the work, but E failed to pay P. Held: P could not enforce the promise. Lord Denman based his decision on the fact that P had not provided any consideration. Littledale J thought that there was no privity between P and E.

Tweddle v Atkinson (1861) 1 B & S 393

F1 agreed with F2 that each would pay a certain amount of money to S. F2 failed to pay. Held: S could not recover the sum from F2: ‘in general no action can be maintained upon a promise unless the consideration moves from the party to whom it is made’ (Blackburn J at 399).

Dunlop v Selfridge [1915] AC 847

D sold its tyres to a wholesaler, T. Under the sale contract, T agreed to obtain from customers to whom it sold the tyres an undertaking that these customers would not subsequently re-sell the tyres at prices below D’s list-price. S bought tyres from T and then sold them at below list-price. D sued S. Five out of the six judges in the House of Lords were prepared to assume that T made the contract with S as D’s agent. Nevertheless, the action failed because D had provided no consideration for S’s promise to observe the list-price.

There is, nevertheless, some uncertainty as to precise meaning of ‘moves from the promisee’. On the hand there is the view expressed by Glidewell LJ in Williams v Roffey Bros:

‘[Counsel for R] submits that on the facts of the present case the consideration, even if otherwise good, did not “move from the promisee.” This submission is based on the principle illustrated in the decision in Tweddle v Atkinson. My understanding of the meaning of the requirement that “consideration must move from the promisee ” is that such consideration must be provided by the promisee, or arise out of his contractual relationship with the promisor. It is consideration provided by somebody else, not a party to the contract, which does not “move from the promisee.” This was the situation in Tweddle v Atkinson, but it is, of course, not the situation in the present case. Here the benefits to the defendants arose out of their agreement of 9 April 1986 with the plaintiff, the promisee. In this respect I would adopt the following passage from Chitty on Contracts (26th ed, 1989) p 126, para 183, and refer to the authorities there cited:
“The requirement that consideration must move from the promisee is most generally satisfied where some detriment is suffered by him eg where he parts with money or goods, or renders services, in exchange for the promise. But the requirement may equally well be satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment.”’

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 at [16].

On the other, is the view of Colman J in the South Caribbean Trading case:

‘But for the fact that Williams v Roffey Bros Ltd was a decision of the Court of Appeal, I would not have followed it. That decision is inconsistent with the long-standing rule that consideration, being the price of the promise sued upon, must move from the promisee. The judgment of Glidewell LJ was substantially based on Pao On v Lau Yin Long in which the Judicial Committee of the Privy Council had held a promise by A to B to perform a contractual obligation owed by A to X could be sufficient consideration as against B. At page 15 Glidewell LJ regarded Lord Scarman’s reasoning in relation to such tripartite relationship as applicable in principle to a bipartite relationship. But in the former case by the additional promise to B, consideration has moved from A because he has made himself liable to an additional party, whereas in the latter case he has not undertaken anything that he was not already obliged to do for the benefit of the same party. Glidewell LJ substituted for the established rule as to consideration moving from the promisee a completely different principle — that the promisor must by his promise have conferred a benefit on the other party.’

South Caribbean Trading Ltd v Trafigura Beheer BV [2004] EWHC 2676 (Comm) at [108].

It should be noted, in any event, that the consideration need not directly benefit (ie, it need not move to) the promisor. Thus, a promise by D to pay C £100 if C sings at T’s birthday party is enforceable by C. C provides the consideration (the singing) and it is immaterial that the benefit of the consideration appears to accrue to T not D.

You cannot copy content of this page