Consideration

Consideration in Contract Law

  • Definition of Consideration:

    • Consideration is an essential component that must be proven to establish the existence of a contract.

    • It is defined as something of value, often a promise, exchanged between parties to create a binding contract.

  • Contract as a Bargain:

    • A contract is fundamentally a bargain or exchange; thus, something of value must flow between each party to sustain the contract.

  • Fundamental Assumption:

    • People are presumed to enter contracts only when they anticipate some benefit, which underpins the necessity for consideration in contractual agreements.

  • Nature of Consideration:

    • Consideration frequently takes the form of a promise rather than an immediate exchange of goods or services.

    • Example: If one party offers to sell a car for $20,000, the consideration is not the car or the money itself but rather the promise to pay and the promise to deliver the car.

    • This distinction is crucial for understanding when a contract is legally effective.

  • Breach of Contract:

    • If one party fails to fulfill their promise, it constitutes a breach of contract.

    • Legal action cannot be taken against gratuitous promises, which are not supported by consideration.

  • Gratuitous Promises Defined:

    • A gratuitous promise refers to a promise made without consideration, which renders it unenforceable in a court of law.

    • Legal implications of breaking a gratuitous promise highlight that it may be morally wrong but is not illegal.

  • Examples of Non-Consideration Situations:

    • Car Washing Scenario:

    • If a person washes another's car voluntarily and later seeks payment, the promise of payment does not constitute a contract as there was no agreement or bargain to wash the car for money beforehand.

    • Illegal Consideration:

    • If part of the consideration involves illegal actions, this invalidates the promise and the potential contract.

    • Existing Legal Obligations:

    • Promising to perform a duty already mandated by existing obligations does not constitute valid consideration.

    • Example: If an instructor is supposed to teach a course and demands additional payment for it, that payment doesn't count as it’s part of their existing obligations.

  • Modification of Existing Contracts:

    • Issues arise when modifying a current contract; if a contractor requests more money to finish a project, the additional promise may not hold up as consideration without new bargaining.

    • This leads to legal complexities differing by jurisdiction.

  • Judicial Precedents:

    • Ontario Case (Gilbert Steel vs. University Construction):

    • Established that a gratuitous promise to modify a contract is enforceable only if fresh consideration is provided, contributing to legal uncertainty.

    • Nova Scotia Case (Nav Canada vs. Greater Fredericton International Airport):

    • Contrarily, held that a promise to increase payment in contract variation can be enforced unless shown to be obtained under duress.

  • General Rules and Exceptions of Consideration:

    • The overall rule: every contract requires consideration.

    • Contracts Under Seal:

    • Traditionally, a seal indicates intent to be bound by the document's terms, thus a contract may be enforced even without consideration.

    • Partial Payment of Debt:

    • Contracts for partial debt payments are enforceable despite lack of additional consideration, reflecting legislative intent to facilitate debt resolution.

    • Promissory Estoppel:

    • A situation where a promise without consideration may still be enforceable if:

      1. There exists a preexisting legal relationship.

      2. A clear promise is demonstrated (e.g., not enforcing aspect of agreement).

      3. The promisee relies on this promise to their detriment.

    • Case Example: The classic case establishing promissory estoppel involved a landlord and tenant, where the tenant failed to make repairs based on the landlord's promise not to evict if negotiations to buy property failed.

    • Promissory estoppel can only act as a defense and cannot form the basis of an action in damages.

  • Conclusion and Next Steps:

    • Recap of the essential nature and legal significance of consideration in contract law.

    • Future discussion will cover the element of intention in contracts.