Consideration - REC

Page 1: Consideration

Page 2: Elements of a Legally Enforceable Contract

  • Components required: Agreement + Intention + Consideration

  • Result: A Legally Enforceable Contract

Page 3: The Nature and Purpose of Consideration

  • Legal Intention: Ensures reliance on promises made

  • Consideration: Distinguishes serious commitments and enforceability by showing valuable reliance

  • Form (Deed): Indicates serious commitment to the agreement

Page 4: Legal Definitions

  • Promisor: Person making the promise (offeror)

  • Promisee: Person receiving the promise (offeree)

  • Consideration: The promise, act, or omission exchanged; price of the promise

  • Importance: Establishes a reciprocal exchange needed for enforceability

Page 5: Exchange of Promises

  • In most contracts, both parties act as promisor and promisee

  • Valid agreement: Each party must receive consideration in return for their promise

  • Legal standpoint: A promise counts as consideration even if goods or money haven’t exchanged yet

Page 6: Principles of Consideration

  • Key Rules:

    • No past consideration allowed

    • Must be sufficient but not necessarily adequate

  • Outcome: Enforceable contract if consideration is not past, is sufficient, but need not be equal in economic value

Page 7: The Rule Against Past Consideration

  • Essential question: Has the act occurred before the rewarding promise?

  • Requirement: Promises must follow a mutual exchange; prior request needed

  • Invalid consideration: If the act is completed without expectation prior to the promise (case: Roscorla v Thomas [1842])

Page 8: Exception to the Rule

  • Previous Request Device: Valid when an act is performed at another's request, expecting payment or benefit

  • Characteristics:

    • Price not expressly discussed

    • Act performed with an expectation of reward

    • Later promise to pay must be lawful (case: Pau On v Lau Yiu Long [1980])

Page 9: Adequacy of Consideration

  • Freedom of contract: You can sell your property for any price

  • Adequacy not assessed by judges; consideration must have minimal economic value, not equivalent market value (case: Chappell v Nestle [1960])

Page 10: Sufficiency of Consideration

  • What the promisee promises must be of minimal value and recognized by law

  • Concept: Evidence of an exchange, ensuring that value is exchanged for value

Page 11: Distinguishable Situations for Consideration

  1. Existing Public Duty

  2. 3rd Party

  3. 2 Party (typical contractual situation)

  • Importance: Determining sufficiency is crucial in these contexts

Page 12: Existing Public Duty

  • Definition: Legally required actions do not count as valid consideration

  • If a person performs more than their legal obligation, it may constitute valid consideration (case: Glasbrook Brothers Ltd. v Glamorgan County Council [1924])

Page 13: Promise of Existing Contractual Duty to a 3rd Party

  • Consideration doesn't need to be adequate

  • Valid consideration exists if the offeror acknowledges your existing contract with someone else and compensates for completion (case: Pau On v Lau Yiu Long [1980])

Page 14: Identifying the 3rd Party

  • Scenario breakdown: Hesta (contractor) and Gita (client) and Mira (Gita's mother)

  • Discusses implications of offers made to speed up contract completion

  • Hesta's obligations and potential payment by Mira raise questions of contractual validity

Page 15: Promise of Existing Contractual Duty—2 Party Context

  • Two forms:

    • Increasing Pact: Agreeing to pay more for the same service

    • Decreasing Pact: Accepting less than initially agreed

Page 16: Increasing Pacts

  • Distinctives: Existing obligations don't count as new consideration

  • Requires evidence of new promisee detriment

  • Implications of practical benefit (case: Stilk v Myrick [1809]; Hartley v Ponsonby [1857])

Page 17: Practical Benefit in Increasing Pacts

  • Elements:

    1. Practical benefit for the promisor

    2. No economic duress while making the agreement

  • Example: Williams v Roffey Bros. & Nicholls (Contractors) Ltd [1991]

Page 18: Decreasing Pacts

  • Conditions when part-payment constitutes sufficient consideration

  • General rule: Promises to pay less for a debt larger than owed are usually insufficient (case: Pinnel's Case [1602])

Page 19: Validity in Part-Payment Agreements

  • Criteria for enforceability when discharging debt:

    • Repayment earlier than the due date

    • Part-payment at a different location as new consideration

    • Accepting goods instead of money as consideration

    • Other methods include agreement among creditors for less payment or 3rd party arrangements

Page 20: Promissory Estoppel

  • Definition: Stops someone from denying the effect of a previous promise

  • Significance: Provides a way to enforce a promise for lesser sums in part-payment of debts; presents an alternative to common law principles

Page 21: Elements of Promissory Estoppel

  1. Pre-existing legal relationship

  2. Clear promise to vary terms

  3. Binding intention shown by reliance

  4. Inequitable to retract the promise (examples: W J Alan & Co Ltd v El Nasr Export and Import Ltd [1972]; D&C Builders v Rees [1966])

Page 22: Scope of Promissory Estoppel

  • Nature: Acts as a defensive shield, not an offensive weapon

  • Rights granted by promissory estoppel are limited compared to full contracts

Page 23: Summary

  • Overview of consideration's role in enforceability of contracts

  • Covered valid requirements for consideration, invalidity of past consideration, necessity of sufficiency, and when duties are deemed insufficient

  • Discussed exceptions and implications of part-payment agreements and the concept of promissory estoppel.