CONSIDERATION

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    ESSENTIAL ELEMENTS (50MINS)

     

    Consideration - each party must give something in return for the others promise

     

    The doctrine of consideration

    What is it?

    • Requires that something of value must be given in exchange for a promise

    • Consideration is the price paid by the promisee for the promisors promise

    Why does it matter?

    • Consideration may become an issue when one party seeks to enforce a promise that has not been performed

    • No consideration given for a promise means no enforceable contract

     

    Consideration - a detriment or liability voluntarily incurred by the promisee or a benefit conferred on the promisor at the instance of the promisee … in exchange for the promise - History of the doctrine of Consideration.

    Promisor - allegedly made the promise.

    Promisee - wants to enforce the promise.

     

    EXAMPLE:

    I own a holiday house and I venture into an agreement with Stayz, and rent it out to someone called Jeremy for a week over the school holidays. Agreement is that I will allow him to use my holiday house for a week and he will pay me $1000. If I change my mind because there is a double booking, and I tell Jeremy, sorry I am not going ahead with it. Jeremy is the aggrieved person, and wants to enforce my promise to make the house available to him so he needs to show all elements of contract formation, as well as consideration. Must show that my promise was not a mere gift, that it was a bargained for promise and he has paid for it, and his consideration would be the actual payment or the promise to pay $1000.

     

    What is consideration - typical examples

    Bilateral

    • A promise to pay a sum of money

    • A promise to sell land

    • A promise to do a certain number of hours of work

    • A promise to buy a car

    • A promise not to do something

    unilateral

    Performance of the act in accordance with the terms of the offer

    • Mrs Carllil provided consideration by buying and using the smokeball (Carllil v Carbolic Smoke)

     

     

     

     

    Consideration is required for the enforceability of any promise not made in a deed (under seal)

     

    Agreement not supported by consideration (and not made in a deed) is called nudum pactum (naked agreement) and is unenforceable.

    For an agreement to be legally binding, there usually needs to be something of value exchanged between the parties (called consideration). If there’s no exchange and the agreement isn't in the form of a deed, it’s not enforceable.

    A deed is a special, formal type of promise that shows a person really means to be bound by it. It’s used when it's unclear if both sides are exchanging something of value, ensuring the agreement is still enforceable.

    • A deed is a promise made in particular form and subject to particular rituals by which a person notifies the community that he/she most solemnly means and intends it to be bindings

    • Used commonly in practice in situations where there may be some doubt if consideration is being provided by one party.

     

    EXECUTION AS A DEED

    • Just has to say it is 'executed as a deed' and 'signed and sealed' in presence of a witness. Seal means 'wax seals' historically, modern version of that means 'sealed' sufficient to convert it to a deed.

    • Governed by different statutes in each jurisdiction. In Vic Property Law Act 1958. Corporations Law (Cth)  deals with execution of deeds by companies.

     

    CONSIDERATION ELEMENTS.

    Two essential elements.

    • Benefit/detriment requirement

      • Promisee must confer a benefit (usually, but not necessarily, on the promisor) or promisee must incur a detriment

      • The promisee has to pay for the promise

     

    In most cases consideration will result in both a benefit to the promisor and a detriment to the promisee.

    Payment of money

    Financial gain for promisor, financial loss for promisee

    Transfer of property

    Material gain for promisor, material loss for promisee

    Undertaking of labour

    Work product for promisor, physical/mental exertion for promisee

     

    Consideration must move from the promisee - but need not move to the promisor. The benefit may be conferred on a third party

    A offers a reward to any person who finds C's dog. B finds the dog. In that situation B is the promisee wanting to enforce the promise from A of the reward, but the benefit provided by B goes to C (third party) whose dog was lost.

     

    Qualification: where two parties are joint promisees, consideration may be provided by one of them on behalf of the other Coulls v Bagot's Executor

     

    • Bargain requirement

      • The benefit or detriment must be given in return for the promise

      • The payment has been made, and the promise has been made in exchange for each other

    It is a requirement of 'quid pro quo'/ this for that Australian Woollen Mills; Beaton v McDivitt

    • A request from the promisor is relevant but not conclusive in establishing quid pro quo

      • Australian Woollen Mills; Beaton v McDivitt

    • There is a distinction between a promise made in return for an act and a conditional gift - not considered good consideration

      • Australian Woollen Mills; Beaton v McDivitt

    • Something that is done in reliance of a promise is not good consideration

      • Beaton v McDivitt.

     

    Just means that consideration is given in return for the promise, and the promise is given in return for the consideration. Just means it is one for the other, they are related.

     

    Australian Woollen Mills

    facts

    Issue

    Decision

    Authority

     

    Was the promise given in return for AWM purchasing wool and vice versa

    This is a purported 'unilateral' contract.

    The bargain requirement - the promise must be done in return for the acts to be performed and the acts performed must be in consideration of the promise

     

    No contract existed because there was no offer made

    • Lack of intent

    • Lack of certainty

     

    Consideration - even if there was an implied request to purchase wool this does not assist the respondent (AWM). High Court overstated

    • The bargain requirement for consideration

    • The distinction  between an enforceable promise and a conditional gift

    • Importance of a request from the promisor in distinguishing between a bargain and a conditional gift (but not decisive - privy council)

    • The overlap between the requirements of offer, intention, certainty and consideration as evidenced by the different approaches by the High Court and the Privy Council.

     

    Beaton v McDivitt

    facts

    Issue

    Decision

    Authority

    You can have the land when it is rezoned if you work the block by means of organic farming

    McDivitt owned 25acres but only farmed a portion of it

    McDivitts feared the local council would rezone the land, meaning higher rates would have to be paid

    Gave the 4th block of land to Beaton, as he is interested in permaculture

    The 4th block was made rent-free on condition that Beaton employ permaculture cultivation techniques.

    Mc Divitt said he would transfer the title to Beaton when the rezoning took place (thought to be 2 or 3 years later)

    Beaton accepted and worked the land for 7 years - rezoning never took place - spent money and maintained the property

    Relationship between Beaton and McDivitt soured - the McDivitts reneged on the deal

    Was the working of the land by Beaton consideration

     

    Was there a contract between McDivitts and Beaton

    • Had beaton provided consideration for the promise to transfer the land

    • Trial judge:

      There was a contract. Although no traditional consideration made (quid pro quo) Beatons reliance on McDivitts promise amounted to a form of Consideration following Dillwyn v Llewellyn (1862)

      The contract was frustrated because the rezoning never happened

       

      NSW CA:

      Dillwyn v Llewellyn (1862) was a case based on estoppel, not contract law, therefore didn’t provide an exception to the bargain requirement. Contract does not protect a reliance interest

      • That detriment suffered in reliance (maintaining the road) was not relevant. Needed to assess whether working the land using permaculture was good consideration provided in exchange of the offer

       

      Decision of NSW Court of Appeal (1987) cont

      • McHugh and Mahoney JJ – good consideration:

       

      • Beaton’s working of the land at the McDivitt’s request was sufficient consideration, giving rise to a unilateral contract

      • Kirby P – no consideration:

        • the bargain requirement was not satisfied on the facts, as Beaton had made no promise that could be regarded as a quid pro quo for the exchange of land

      BUT

      • Mahoney JA: found that the contract had been frustrated by the failure of the Council to rezone the land. [frustration is covered in Contract B]

      • Therefore Beaton was not able to enforce the promise (McHugh in minority)

       

     

     

    Consideration needs not be adequate

    Adequacy refers to the fairness of exchange - the courts will not inquire into the adequacy of the consideration Woolworths v Kelly . This means that:

    -Nominal consideration - will be sufficient consideration

    Parties can effectively avoid the requirement of consideration through the use of nominal consideration, as frequently happens.

     

    Consideration does not need to be ‘adequate’. Partially because adequacy of consideration is a matter of opinion (Woolworths Ltd v Kelly). • ‘Peppercorn principle’: nominal consideration, which may be deemed by others to be ‘inadequate’ – e.g. a peppercorn in exchange for a house, can still suffice as consideration

     

     

    SUFFICIENCY OF CONSIDERATION - PAST CONSIDERATION (15MINS)

    Consideration must be sufficient - past consideration not sufficient - exception for services requested.

     

    What is not 'sufficient consideration'

    Past consideration

    Something already done by the promisee is not good consideration

    Exception/qualification for past services performed at the request of the promisor

    Existing legal duty

    A promise to perform a pre-existing legal duty is not good consideration. 5 exceptions

    Illusory consideration

    A promise that is illusory (has no real content) is not good consideration

    Kirby  J in Beaton v McDivitt

    Barwick J in MacRobertson Miller Airlines

     

    PAST CONSIDERATION

    General rule: past consideration is not good consideration

    Something given by the promisee before the pomisor makes the promise is past consideration for that promise

    Roscorla v Thomas (1842)

    Facts

    Issue

    Decision

    Authority

    Roscorla buys a horse from Thomas

    Thomas later promises the horse is sound and free from vice

    But the horse was not, and Roscorla sued relying on the payment of the purchase price as good consideration for the subsequent promise

    Was payment of the purchase price good consideration for the subsequent promise

    As a general rule, a promisors promise must be coextensive with the promisees consideration

    Consideration past and executed will not support any further promise made by the promisor. Accordingly there was no consideration provided for Thomas' subsequent promise

    There was no implied promise at the time of sale that the horse was free from vice

     

    Consideration must not be past, except where the promise is to pay for past services performed at the request of the promisor.

     

    Qualification/exception - subsequent promise to pay for services requested

    • Past services are good consideration for a subsequent promise to pay for those services if they were performed at the request of the promisor and there was an implication they would be paid for

      • Ipex Software Services Pty Ltd v Hosking (2000)

    Facts

    Issue

    Decision

    Authority

    Hosking was part owner of a software business

    Hosking business to be acquired by Ipex

    Hosking assisted in the transfer, believing in return that he would receive shares or units in the restructured corporate group - evidence suggested everyone had this same understanding

    Ipex failed to transfer 5% stake in the corporation

    Had Hosking provided good consideration for the promise to provide him with a 5% stake in the restructured corporation

    Callaway JA

    It was more likely the performance of a service on the basis that it would be paid for, followed by a promise which fixed the amount of the payment

    they were performed at the request of the promisor and there was an implication they would be paid for

    • Lampleigh v Braithwait (1615)

    Facts

    Issue

    Decision

    Authority

    Braithwait had murdered Patrick Mahume

    Braithwait asked Lampleigh to help him secure a pardon from the King

    Lampleigh agreed to undertake the task and did so. Involved significant travel and expense.

    Upon his release, Braithwait promised to pay Lampleigh €100 for his trouble, but then changed his mind

    Was L's work good consideration for the later promise from B for payment

    Braithwaite was legally bound to pay 100

    Where:

    A makes a request to B that he perform services

    B then performs the services requested from him

    A then promises to pay B for his performed services

    B's performance of the services is good consideration for A's promise

     

     

    SUFFICIENCY OF CONSIDERATION - EXISTING LEGAL DUTY (1:12 MINS)

    General rule: promise to perform or actual performance of an existing legal duty is not sufficient consideration

    🚩 contractual modification which only benefits one party - shows that an existing legal duty might be arising.

    A promises to do extra work for same pay

    A releases B from obligation, while A is still bound by their obligations

    These modifications under the general rule are not binding because lack of sufficient consideration flowing from B. B's consideration for these modifications is doing no more than what they were already bound to do. (existing legal duty).

    Therefore, B cannot enforce these modifications, and A is free to change their mind or go back on these, HOWEVER THE 5 EXCEPTIONS ARE LISTED BELOW

     

    Stilk v Myrick

    Facts

    Issue

    Decision

    Authority

    Stilk and 10 other sailors worked on Myricks ship. Terms of the original contract included:

    • Myrick promised to pay each sailor 5 a month for the length of voyage

    • Sailors promised to work on the shop and to do all that they could under an emergency until the voyage completed

    • 2 sailors deserted the ship, leaving only 9 men on the ship

    • Ships captain couldn’t fill positions, and decided to divvy up the other sailors wages if the 9 left filled their roles.

    • Sailors said yes, Myrick refused.

    Did Stilk provide good consideration for the promise of extra wages

    There was no consideration for the promise to pay extra wages because:

    Before they sailed the sailors had undertaken all they could under emergencies of the voyage until voyage was complete

    2 sailors deserting is to be considered an emergency of voyage

    The 9 were bound by the original terms, to bring the ship back safely.

     

     

    There was no valid consideration and therefore no legally enforceable contract

    Foakes v Beer

    Facts

    Issue

    Decision

    Authority

     11 aug 1875 - beer obtained court judgement against Foakes for 2090$ due immediately

    21 Dec 1876 - Beer and Foakes sign agreement under which Beer agrees to accept payment of debt by instalments and not enforce the judgement debt

    After Foakes has paid the original debt of 2090, Beer sues for interest from date of court order.

     Was the promise by Beer in the December 1876 agreement not to sue on the judgement debt enforceable.

     Foakes was already under a pre-existing  obligation to pay the whole judgement debt

    Payment of the judgement debt by instalments consideration for the relinquishment of interest on the judgement sum and discharge of the judgement debt.

     

     

    5 EXCEPTIONS

    Fresh consideration

    Hartley v Ponsonby

     

    Applies where the circumstances drastically change. The promisees conduct under the new circumstances is now worth something more.

    Promise to continue the existing legal duty is now sufficient consideration for extra money.

    Practical benefit

    Williams v Roffer; Musumeci v Winadell

     

    New obligation to a third party

    Pao On v Lau Yiu Long

     

    Bona fide compromise of a legal dispute

    Wigan v Edwards

    Statement of the rule. The general rule is that a promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-existing contract, when it is made to the promisee under that contract, and it is to do no more than the promisor is bound to do under that contract

    Termination and replacement of agreement

    Hartley v Ponsonby

     

     

    EXAMPLES OF EXISTING LEGAL DUTIES

    Public duties

    Duty to attend court to give evidence pursuant to a subpoena

    Duty to obey the law

    Contractual duties

    A pre-existing contract obliges a party to perform a certain task - a further promise to perform the same task is of no value

     

    • If one party changes the contract (e.g., does more for the same price or accepts less for the same price), the contract is modified.

    • The party that made the change (modifying party) cannot usually go back to the original terms without the other party's agreement.

    • Once modified, the new deal typically stands.

    • The modifying party is generally obligated to follow the new terms unless both parties agree to revert to the original agreement.

     

     

     

    An illusory promise is not sufficient

     

    CONSIDERATION IN INTERNATIONAL CONTRACT LAW (8MINS)