RSM225 - Consideration

Consideration

• It's what each party gives or promises in a contract.

• Must be enforceable.

Gratuitous Promises

• These are free promises, where one person promises something without getting anything in return.

• Generally unenforceable

• No legal remedy if the person does not perform

• Once performed, the person may not ask for the service or property back

Adequacy of Consideration

• Courts don't consider the fairness of consideration and will not “evaluate” a deal/bargain

• Once agreed upon, mutual promises or payments form good consideration, even if afterwards the parties discover they were not bound as they thought.

Consideration and existing legal duties

A promise to do something you’re already legally obligated to do isn’t usually enforceable unless you do something extra (new consideration).

Promissory Estoppel: prevented. 

• This is based on fairness (equity), and it applies when:

  • One person makes a promise (not a contract),

  • The other person relies on that promise,

  • The reliance causes harm or loss,

  • It would be unfair to allow the first person to take back the promise.

Requests for Goods or Services

• If one party requests goods or services from another, the law implies a promise to pay for them. This is true even if no price was discussed in advance.

• If a price is agreed upon → The court will enforce that price.

• If no price is agreed upon → Y can sue under quantum meruit to recover the reasonable value of the goods/services.

• Quantum Meruit: (“as much as is deserved”)

• Allows a person to claim reasonable payment for goods or services.

• Applied when:

  • No formal contract exists, but services/goods were still requested and delivered

Mistakes

Errors in understanding the terms of a contract that can affect its validity or enforceability.

General Rule - Mistakes

• If it is not unreasonable to rely on the terms as written, they will be enforceable

• But if it is clearly unreasonable– if it is obvious that one party made a mistake, the other party cannot take advantage, especially if the mistaken party has taken steps to correct the mistake

What if the subject matter of the contract exists, but its value fluctuates?

• The reasonable expectation of the parties in such circumstances will determine who bears the risk

• If the parties know of the risks, they must bear them…

But if an unusual risk appears, court must ask:

• What were the reasonable expectations of parties in the circumstances?

• What would be the fair result of enforcing the contract or granting rescission?

  • Rescission will put parties back into the position they were in before the contract

Innocent Third Parties

• Seller sells goods to Rogue, who has deceived the Seller somehow

• Rogue then sells to Purchaser, an innocent third party, and then absconds (i.e. disappears)

• Can Seller plead mistake in order to get the goods back from Purchaser?

Common law and the void contract

• If a contract is void, then it never existed, and no rights passed under it

• So Rogue never got title to the goods, so he/she could not convey title to Purchaser

• Therefore, Purchaser must return the goods to Seller or pay their value

Capacity and Illegality

• When can contracts NOT be enforced because

  • the parties lack the capacity to contract

  • the contract is deemed to be illegal