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Consideration and the Joint Promisee

Published online by Cambridge University Press:  16 January 2009

Brian Coote
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Extract

It is one of the best-known axioms of the common law of contract that consideration must move from the promisee. Expanded, this means that no person can in contract enforce a promise for which he has not provided consideration. As a principle, it has on its side the highest authority and a reasonable degree of antiquity.

Ten years ago, however, the High Court of Australia came up with a formula which, while purporting to respect the principle, would, if accepted, have the effect of reducing its impact in a potentially important group of cases. In Coulls v. Bagot's Executor and Trustee Co. Ltd. four of the five High Court judges expressed the view that a joint promisee, if she were party to a contract, could sue to enforce it notwithstanding that she had not herself furnished any part of the consideration. The case concerned a widow whose late husband had contracted to grant a licence to a quarrying company for the extraction of metal from a quarry which the husband owned. Under the contract royalties were to be paid to the husband and wife jointly while they both lived, and there after to the survivor of them. The wife's only part in the proceedings had been to append her signature to the contract document. Barwick C.J. and Windeyer J. (dissenting) held that the plaintiff was a party to the contract and, as a joint promisee, could enforce it notwith-standing that her husband alone had provided the consideration. McTiernan, Taylor and Owen JJ. agreed that if she had been a party the fact that it was her husband who had provided the consideration would not have been an impediment to her.

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The Cambridge Law Journal , Volume 37 , Issue 2 , November 1978 , pp. 301 - 312
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Copyright © Cambridge Law Journal and Contributors 1978

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References

1 See, e.g., Cheshire and Fifoot, The Law of Contract, 9th ed. (1976), p. 69; Anson's Law of Contract, 24th ed. (1975), p. 97Google Scholar; Treitel, The Law of Contract, 4th ed. (1975), p. 55; Chitty on Contract, 24th ed. (1977), Vol. I, p. 77Google Scholar; Sutton and Shannon on Contracts, 7th ed. (1970), pp. 76–77Google Scholar; Salmond and Williams, Law of Contract (1945), p. 99; 9 Halsbury's Laws of England, 4th ed. (1974), p. 188.Google Scholar A different view appears to obtain in the U.S.A.: see Corbin on Contracts (1963), Vol. 1, p. 532Google Scholar; Restatement of Contracts, para. 75 (2).

2 Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915]Google Scholar A.C. 847; Vandepitte v. Preferred Accident Insurance Corporation of New York [1933] A.C. 70.Google Scholar

3 e.g. Tweddle v. Atkinson (1861) 1 B. & S. 393; Price v. Easton (1833) 4 B. & Ad. 433; Colyear v. Mulgrave (1836) 2 Keen 81; Thomas v. Thomas (1842) 2 Q.B. 851.

4 (1967) 119 C.L.R. 460.

5 Ibid., pp. 478–480 492–493.

6 Ibid., pp. 483, 486.

7 Ibid., p. 486.

8 Ibid., p. 493.

9 cf. Cullity, “Joint Bank Accounts with Volunteers” (1969) 85 L.Q.R. 530, 534; Waddams, The Law of Contracts (1977), pp. 164–165.

10 [1975] A.C. 154, 180; [1974] 1 N.Z.L.R. 505, 522.

11 Law of Contract, 9th ed. (1976), p. 72.Google Scholar

12 A Casebook on Contract, 6th ed. (1977), pp. 221–223.Google Scholar

13 9 Halsbury's Laws of England, 4th ed. (1974), pp. 188Google Scholar, 202–205.

14 The Law of Contract, 4th ed. (1975), pp. 414–415.Google Scholar In the third edition, 1970, pp. 530, 543, the Coulls case was treated as one of mandate rather than of promise. See also Treitel, “Consideration. A Critical Analysis of Professor Atiyah's Fundamental Restatement” (1976) 50 A.L.J. 439, 445–446.

15 Consideration in Contracts: A Fundamental Restatement, A.N.U. Press, Canberra, 1971, pp. 41–42.Google Scholar

16 Both denied that consideration need move from the promisee; Williston on Contracts, 3rd ed. (1959), Vol. 2, pp. 819–820Google Scholar; Corbin on Contracts (1963), Vol. 1, p. 532.Google Scholar

17 Waddams, The Law of Contracts (1977), p. 164.

18 (1858) 4 C.B.N.S. 307.

19 [1938] 4 All E.R. 170.

20 [1949] 1 K.B. 532.

21 Voulis v. Kozary and ors. (1975) 5 A.L.J.R. 59Google Scholar, 67 per Jacobs J., 68 per Murphy J.

22 [1935] A.C. 24.

23 Op. cit., p. 72.

24 Op. cit., p. 415.

25 Loc. cit., p. 41.

26 [1935] A.C. 24, 43.

27 [1900] A.C. 577.

28 (1974) 6 N.Z.U.L.R. 161, 169.

29 A similar view is expressed in Williston on Contracts, 3rd ed. (1957), Vol. I, p. 453.Google Scholar As a further example of consideration moving from someone other than the promisee, Williston cites (at p. 452) the right of a mortgagee to recover under the mortgagee clause of a fire insurance policy even though it is the mortgagor who has paid the premiums. Corbin on Contracts, Vol. I, p. 532 gives the case of a mortgagee whose rights as such are unaffected by the fact that the money for the advance has been supplied by a third person.

30 Op. cit. at pp. 414–415. The same argument is advanced in (1976) 50 A.L.J. 439,445.

31 “Consideration; A Critical Analysis of Professor Atiyah's Fundamental Restatement” (1976) 50 A.L.J. 439Google Scholar, 445.

32 (1967) 119 C.L.R. 460, 479, 486, 493.

33 Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] A.C. 847.Google Scholar

34 e.g., Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 119 C.L.R. 460Google Scholar,478 per Barwick C.J.: Treitel op. cit., p. 420; Cullity, loc. cit. p. 582; Waddams, op. cit., p. 164.

35 Kepong Prospecting Ltd. v. Schmidt [1968]Google Scholar A.C. 810.

36 e.g., Coulls v. Bagot's Executor and Trustee Co. Ltd. (supra), at pp. 478–479 per Barwick C.J., 493 per Windeyer J.

37 Cf. Williston on Contracts, 3rd ed., Vol. I, p. 451.

38 [1938] 4 All E.R. 170.

39 [1900] A.C. 577.

40 [1915] A.C. 847.

41 Ibid., at pp. 853 per Viscount Haldane L.C., 855 per Lord Dunedin. Cf. S.J.B. (1935) 51 L.Q.R. 419.

42 Ibid., at pp. 854 per Viscount Haldane L.C., 855 per Lord Dunedin, 858 per Lord Atkinson, 859 per Lord Parker of Waddington, 862–863 per Lord Sumner, 864 per Lord Parmoor.

43 Smith and Thomas, A Casebook on Contract, 6th ed. (1977), p. 21; Cheshire and Fifoot, The Law of Contract, 9th ed. (1976), p. 69; Salmond and Williams, The Law of Contract (1945), p. 100; Furmston, “Return to Dunlop v. Selfridge?” (1960) 23 M.L.R. 393, 382–384; Samuels, “Contracts for the Benefit of Third Parties” (1968) 8 West Aust.L.Rev. 378, 383.

44 Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943]Google Scholar A.C. 32, 56 per Lord Russell of Killowen. The expression “failure of consideration,” referring as it does to a failure in performance, only adds to the difficulty.

45 Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (supra), at pp. 48 per Viscount Simon L.C., 53 per Lord Atkin, 72 per Lord Wright.

46 While it is indisputable that an exchange of promises can create a bilateral contract, to say that a promise per se constitutes consideration is to invite the logical difficulties noted by Corbin (op. cit., Vol. I, pp. 611–614) and Williston (op. cit., Vol. I, pp. 385–396) and which led Corbin to conclude (at p. 612) that consideration was a combination of promise and performance. However, even if these writers were correct in their objections it does not follow that they were right in their conclusions. To say that a promise constitutes consideration in most cases involves an ellipsis. The consideration is neither the promise per se nor its performance. It is the promisor's acceptance or assumption, at the time the contract is formed, of an obligation intended to be binding in law. It is hoped to develop that theme on a later occasion. In the meantime, since the concept of an executory bilateral contract presupposes that formation of a contract will antedate performance, the consideration for such contracts has to be something other than the actual performance.

47 Likewise, in the case cited by Corbin (op. cit., Vol. I, p. 532) where the funds for an advance were provided by someone other than the mortgagee, the contract would have been enforceable by the mortgagee because it was he who had accepted the obligation in law that the advance would be made and, by so doing, had provided consideration.

48 Metcalfe v. London, Brighton & South Coast Railway (1858) 4 C.B.N.S. 307.

49 Lockett v. Charles [1938] 4 All E.R. 170.Google Scholar

50 Olley v. Marlborough Court Ltd. [1949] 1 K.B. 532.Google Scholar

51 Voulis v. Kozary and ors. (1975) 50 A.L.J.R 59.Google Scholar

52 [1900] A.C. 577.

53 [1975] A.C. 154, 180; [1974] 1 N.Z.L.R. 505, 522.

54 [1915] A.C. 847.

55 Op. cit. supra, p. 586.

56 At pp. 586–587. A similar explanation can be given for the rights of a mortgagee to recover directly from an insurance company, notwithstanding that the premiums have been paid by the mortgagor. The mortgagee is a party to the insurance, either directly or through the agency of the mortgagor, to the extent of his insurable interest, and as such is under obligation to the insurer (cf. Johnson v. Ocean Accident and Guarantee Corporation Ltd. (1915) 34 N.Z.L.R. 358Google Scholar; Vandepitte V. Preferred Accident Insurance Corporation of New York [1933]Google Scholar A.C. 70; Green v. Russell [1959] 2 Q.B. 226Google Scholar).

57 (1967) 119 C.L.R. 460, 479, 486, 493.

58 Attwood v. Banks (1839) 2 Beav. 192.

59 (1834) 2 C. & M. 617.

60 Ibid., p. 623.

61 (1834) 5 B. & Ad. 925.

62 (1852) 7 Ex. 669.

63 In Corbin on Contracts (1963), Vol. I, p. 618Google Scholar, it is asserted, not that the courts failed to find consideration, but that the consideration they found was a fictitious one.

64 (1967) 119 C.L.R. 460, 493.

65 Cf. Salmond and Williams, Law of Contract (1945), pp. 382–383.

66 9 Halsbury, 4th ed., p. 202. By contrast, the third edition treated “stranger to the contract” and “stranger to the consideration” as synonymous (8 Halsbury, 3rd ed., pp. 66, 115–116). On the evidence of the treatment of consideration on p. 188 of Vol. 9 of the fourth edition, the change was made in order to take account of Coulls v. Bagot's Executor and Trustee Co. Ltd. (supra).

67 (1967) 119 C.L.R. 460.

68 See citations at note 43 (supra). See also Sutton and Shannon on Contracts, 5th ed. (1956), p. 369Google Scholar; Waddams, op. cit. pp. 164–165; and Halsbury, 3rd ed., pp. 66, 115–116. The contrary view is adopted in Anson's Law of Contract, 24th ed. (1975), pp. 97–98Google Scholar and Cullity, “Joint Bank Accounts with Volunteers” (1969) 85 L.Q.R. 530Google Scholar, 532, where privity of agreement is equated with privity of contract. In Chitty on Contracts, 24th ed. (1977), Vol. I, pp. 516–517Google Scholar and Treitel, The Law of Contract, 4th ed. (1975), pp. 420–422 it appears to be suggested that privity of promise constitutes privity of contract.

69 Supra, p. 302.

70 [1935] A.C. 24.

71 Cf. Cullity, loc. cit. p. 532.

72 (1967) 119 C.L.R. 460.

73 De facto impossibility of performance does not by itself make a promise illusory. Thus, there can be a valid promise to sell a tanker which, unknown to the parties, does not exist (McRae v. Commonwealth Disposals Commission (1951) 84 C.L.R. 377Google Scholar). To be illusory on the ground of impossibility, the promise must be of something which the parties knew to be impossible, as, for example, a promise to perform on a date which had already passed when the promise was made (Hall v. Cazenove (1804) 4 East 477).

74 See, e.g., Arden v. Tacker (1833) 4 B. & Ad. 815, 820–821. Cf. St. Margaret's Rochester Burial Board v. Thompson (1871) L.R. 6 C.P. 455.

75 (1967) 119 C.L.R. 460.

76 Lockhart v. Barnard (1845) 14 M. & W. 674.

77 (1967) 119 C.L.R. 460.