Consideration

Lecture 3
THE CONTRACTING PROCESS
2
Creation of the Contract
1. Intention to enter legal relations (Week 2)
2. Agreement (offer + Acceptance) (Week 2)
3. Consideration (Week 3)
Validity of Contract
4. Consent (Week 3)
5. Capacity (Week 4)
6. Legality (Week 4)
7. Form (Week 4)
THE CONTRACTING PROCESS
3
Construction and Termination of Contract
(Week 5)
8. Terms
9. Discharge of Contractual Obligations
10. Termination by Agreement
11. Breach of Contract
- Remedies for Breach of Contract
4
It is normally required in every simple contract (as
opposed to a formal contract see above)
Something of value
not
Something Valuable
Chappel v Nestle (1960) (p316)
The nature of the bargain (was it a good or bad
price?) is not a legal concern
WHAT IS CONSIDERATION?
WHEN IS CONSIDERATION REQUIRED?
Simple Contracts Yes, Consideration is required. To evidence
that the parties are serious about a bargain (meaning a
commercial transaction)
Formal Contracts (sometimes called Deeds) No,
Consideration is not required. The fact that the parties have
written down their agreement and formally signed it itself
indicates that this is a serious transaction
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WHO MUST GIVE CONSIDERATION TO
WHOM?
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Consideration is what makes a contract different from a
mere agreement. It shows the transfer of value and
demonstrates the transaction is a commercial bargain
Offeror Offeree
Offer
Acceptance
Consideration
WHAT IS SUFFICIENT CONSIDERATION?
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This question has a commercial aspect and a legal aspect
From a commercial perspective is the consideration
sufficient? (i.e. did you get enough $? See Thomas v
Thomas (1842) (not in book) widow paying 1 a year
argued insufficient but was legally sufficient)
Sufficient as a legal question (does it satisfy the
requirements of consideration)
Must have some legal value (see below Withholding Legal
Action) Forbearance to Sue (p321) must be genuine
dispute
CONSIDERATION FOR A GOOD/SERVICE
VS CONSIDERATION FOR A PROMISE
Carlill v Carbolic Smokeball (not in book in this context)
The price paid for the smoke ball product was consideration for the purchase of the
actual physical good the smoke ball.
What about the promise by the Smoke Ball Company to pay 1000? Was this a
unenforceable gift from the company or an enforceable contract? Did Mrs Carlill
transfer value to the Smoke Ball Company making this promise enforceable? Yes she
suffered the inconvenience of having to use the smokeball according to the instructions
Therefore - Consideration can also be :
any act of the plaintiff from which the defendant derives a benefit or advantage, or any
labour, detriment or inconvenience sustained by the plaintiff, provided such act is
performed or such inconvenience suffered by the plaintiff with the consent, either
express or implied, of the defendant.
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PAST CONSIDERATION IS NO
CONSIDERATION
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Consideration must be present or future (there are different ways to
pay for a promise)
Consideration CANNOT be something done, performed or said in
the past (Roscorla v Thomas [1842] (p 313) buying horse
confirmed horse was healthy and free from vice (problems) after
purchase horse turned out to be vicious promise NOT
enforceable)
Anderson v Glass (p314) promise to pay increased wages for past
work and future work only promise for future work is
enforceable.
DIFFERENT TYPES OF CONSIDERATION
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Executory Consideration is a payment for a promise that
has yet to be made (An exchange of promises is an example of
executory consideration as seen with Bilateral Contract)
Executed Consideration is a payment for a promise that is
made immediately it flows immediately when the contract is
accepted (For example, an offer to pay $300 for finding a lost dog
requires executed consideration).
WHAT IS NOT CONSIDERATION?
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Vague or uncertain promises do not constituted a legally valid form of
consideration
White v Bluett (1853) (not in book) complaining son promises to stop
complaining
Placer Development Ltd (PDL) v Commonwealth (1969) (not in book) PNG
timber exporter rate determined by the Commonwealth from time to time
It cannot be something impossible
It cannot be unlawful (illegal) (Parkinson v College of Ambulance
[1925] (not in book) Money for knighthood corrupt
arrangement
WHAT IS NOT CONSIDERATION?
It cannot be the discharge of an existing Public duty
(i.e. Police providing information on criminals to obtain a
rewards or rescue workers rescuing miners in stuck in a mine)
Acts in excess of a public duty however can
be consideration (i.e. Glasbrook Brothers v
Glamorgan County Council (1925) (p317)
police agreed to protect coal mine during
strike above their obligations and then
company refused to pay 2200 yes this was
Consideration
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WHAT IS NOT CONSIDERATION?
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It cannot be an existing contractual or legal obligation Stilk v Myrick (1809) (p 318)
Captain offered to pay crew extra to finish voyage after 2 crew members
deserted. Contract stated that the crew would do all they could in case of
emergency. Crew did not do more than they already had to do. Pay increase
not enforceable no consideration no contract.
Hartley v Ponsonby (1857) (p 318)
Similar facts but half crew deserted, ship was
unseaworthy and captain promised 40 if the crew would
sail to Liverpool via Bombay. Pay increase was
enforceable.
WITHHOLDING LEGAL ACTION
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A promise not to pursue legal action may amount to
sufficient/adequate consideration, if:
the legal claim is reasonable; and
The person has an honest belief in the chance of success; and
The person who has the right to sue in law is not hiding any
information from the other party
THE RULE IN FOAKES V BEER (1884) (P 320)
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The rule is that a promise to accept a lesser sumin satisfaction of a debt is
not enforceable.
Exceptions to the rule:
The promise is binding if:
the promisor promised to pay the lesser sum at a time earlier than originally
promised;
the promisor promised to pay the lesser sum at a place different to that
originally promised;
the promisor promised to pay the lesser sum and to do something else; or
there is an estoppel.
Common Law and Equity
Were in the past 2 separate legal systems
Common Law based on precedent and formality
Equity based on principles and fairness
2 Systems were united in the 19
th
Century courts can now
exercise Common law and Equitable powers
Promissory Estoppel is an equitable rule so underlying its
existence and development is the idea of fairness
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PROMISSORY ESTOPPEL
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If you look closely at the title you will note two familiar
words PROMISE and STOP.
Promissory estoppel is an equitable remedy that will stop a
person who has made some promise from going back on
that promise because it would be very unfair or unjust to
allow them to do so even if there is no consideration
PROMISSORY ESTOPPEL
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Promissory estoppel is an exception to the rules about consideration.
If the below requirements are fulfilled a contract will be enforceable even if there
was no consideration (Waltons Stores (Interstate) Ltd v Maher (1988) (p 325))
Plaintiff assumed a particular relationship existed
Defendant caused plaintiff to hold such an assumption
Plaintiff acts or abstains from action based on such an assumption
The defendant knew or intended the plaintiff to take or abstain from such actions
Plaintiffs actions will occasion harm or detriment if assumption not fulfilled
The defendant has failed to act to avoid that detriment whether by fulfilling the
assumption or expectation
See also Giumelli v Giumelli (1999) Son left school to work on farm for
family property family disapproved of second wife and did not want to
transfer property ordered payment of damages.
PROMISSORY ESTOPPEL
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(See Australian Business Law, 26
th
Ed. Paul Latimer, 2007)
See blackboard for case summaries
Cases where Estoppel Unsuccessful:
Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd [1998]
Easts Van Villiages Pty Ltd v Minister Administering the National Parks and Wildlife
Act [2002]
Mason v Wagonga Local Aboriginal Land Council [2002]
Cases where Estoppel successful:
Commonwealth of Australia v Verwayen [1990]
Horsman v Commissioner of Main Roads [1999]