Contracts - week 2

Consideration

I cried because I had no shoes, 'till I met a man who had no feet. So I said, 'You got any shoes you're not using?' ~ Steven Wright

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Consideration Defining Consideration

some act or forbearance involving legal detriment to the promisee, or the promise of such an act or forbearance, furnished by the promisee as the agreed price of the promise.

Detriment Bargain

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Consideration

Must flow both ways:

consideration

consideration

A B

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Consideration

Australian Woollen Mills v Commonwealth AWM claimed unilateral contract

Cth promised to pay subsidy AWM purchased wool

The purchase of wool not good consideration - not done at request of promisee

No quid pro quo - ‘this for that’

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Consideration

A promises B - ‘I will pay you $1000 on your arrival in Sydney’

B travels to Sydney Has B provided consideration? - No No quid pro quo unless A requested it Conditional gift. Travel to Sydney is the

condition.

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Consideration

A promises B - ‘I will pay you $1000 on your arrival in Sydney’

B travels to Sydney because he needs money - airfare costs him $250

No consideration Reliance on promise and detriment May be estoppel

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Consideration

1. Must be given on request of promisor2. Must move from the promisee3. Must be sufficient4. Need not be adequate5. Must not be illusory6. Past Consideration is No Consideration7. Promise to Perform an Existing Duty is Not

Consideration

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Consideration

Must be given on request of promisor Australian Woollen Mills v Commonwealth

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Consideration Must move from the promisee

Price v Easton Contract between Def and X. Defendant promised to

pay Plaintiff for work performed by X. No consideration moved from Plaintiff as promisee Plaintiff unable to sue

Joint Promisees Coulls v Bagot’s Executor and Trustee Mr and Mrs Coulls joint promisees No consideration given by her But consideration given on behalf of both and therefore

moved from both.

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Consideration

Consideration must be sufficient Consideration need not be adequate Threshold - must be something the law

recognises as having value (sufficient) Whether the price is fair or equivalent

(adequate) is not relevant May be ‘nominal’ - eg peppercorn rent

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Consideration Woolworths v Kelly Justice Kirby provides three reasons for the

‘sufficiency’ rule:1. The courts cannot assess the value which an

individual might ascribe to something. It is a subjective assessment.

2. If courts were empowered to decide whether a bargain was fair, then this would make enforcement of contracts uncertain.

3. The rule protects economic freedom

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Consideration Chappel v Nestle

Consideration for record - 1s 6d and 3 wrappers Are the wrappers part of the consideration? No intrinsic

value. No direct benefit to Nestle ‘It is said that when received the wrappers are of no

value to Nestle. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.’ - Lord Somervell of Harrow

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Consideration Must not be illusory

Unfettered discretion Placer Development v Commonwealth Promise to pay subsidy ‘of an amount or at a rate

determined by the Commonwealth from time to time No obligation

Uncertain or unenforceable Love and affection White v Bluett - Promise by son not to ‘bore his father

with complaints’ Dunton - promise by wife to conduct herself with

sobriety and in a respectable, orderly and virtuous manner.

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Consideration

Past Consideration is No Consideration Roscorla v Thomas Contract for sale of horse After purchase, plaintiff asked for a guarantee

that horse was not vicious Horse was vicious Guarantee was not supported by consideration

- price had been paid under earlier contract

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Consideration

Actual photo of vicious horse from Roscorla v Thomas

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Consideration Promise to pay for past services Exception to the ‘past consideration’ rule

Lampleigh v Braithwaite Re Casey’s Patents; Stewart v Casey the later promise to pay is interpreted ‘either as

an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered.’ - Bowen LJ

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Consideration A Promise to Perform an Existing Duty is

Not Good Consideration General Rule Part Payment of a Debt Exceptions to the General Rule

Fresh Consideration Compromise and Forbearance to Sue Practical Benefit Promises Made to Third Parties Termination and Replacement

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Consideration A Promise to Perform an Existing Duty is Not

Good Consideration - General Rule May be a public duty or a private (eg contractual)

duty Glasbrook v Glamorgan

Provision of 70 extra police to colliery during coal miner’s strike - agreement to pay

Not within the scope of the existing duty, so there was good consideration

Promise to give evidence - promisor had been subpoenaed

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Consideration Pre-existing Contract between parties Stilk v Myrick

Promise to pay extra wages to crew of ship after 2 shipmates deserted

Original contract included emergency situations No consideration for promise to pay extra

Hartley v Ponsonby Similar facts, but almost half the crew had deserted Court found the voyage was dangerous - not covered

by existing duty There was consideration for the promise to pay extra

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Consideration

Ship from disputed voyage of Stilk v Myrick

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Consideration Part Payment of a Debt Pinnel’s Case - 1602 Part payment of a debt is not good consideration

for a promise by the creditor not to sue for the balance.

Foakes v Beer - affirmed the rule Doesn’t sit well with commercial reality Estoppel might be relevant

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Consideration

Exceptions to the General Rule Fresh Consideration Compromise and Forbearance to Sue Practical Benefit Promises Made to Third Parties Termination and Replacement

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Consideration

Fresh Consideration Glasbrook v Glamorgan Hartley v Ponsonby Pinnel’s Case

Lord Blackburn ‘the gift of a horse, hawk or robe, etc might be more beneficial to the plaintiff than money’

i.e. a change in the mode of payment or the nature of the promise may transform it into fresh consideration

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Consideration Compromise and Forbearance to Sue

An agreement in settlement of a disputed claim might include a promise to perform the obligations required under the disputed contract

Recognised as good consideration Wigan v Edwards Compromise must be bona fide Claim need not be legally valid - as long as

promisee genuinely believes it is valid.

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Consideration Practical Benefit

Williams v Roffey Bros Contract to renovate 27 flats for payment of £20,000 Plaintiff unable to finish Def offered extra payment of £575 per flat Plaintiff renovated 8 more flats, then abandoned work Plaintiff sued for payment - had done less than

promised under original contract Court upheld contract Consideration was ‘practical benefit’ to Def

Rule is in contradiction to the general rule

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Consideration Williams v Roffey Bros, Glidewell J(i) If A has entered into a contract with B to do work for, or to

supply goods or services to, B in return for payment by B; and(ii) At some stage before A has completely performed his

obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and

(iii) B thereupon promises A an additional payment in return for A’s promise o perform his contractual obligations on time; and

(iv) As a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and

o B’s promise is not given as a result of economic duress or fraud on the part of A; then

o The benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding

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Consideration Musumeci v Winadell, NSW Ct of Appeal Three reasons to keep the rule

1. The rule could be exploited to allow a party to extort a promise for more money by threatening to breach their existing contract unless they are paid more.

2. The promisee (ie the party that asks for more money) suffers no legal detriment – they are just doing what they have already promised to do under the original contract.

n Abandoning the doctrine of the ‘existing duty’ rule undermines the meaning of consideration. ‘if these matters are capable of being regarded as consideration the reality is that the existing duty rule no longer applies, for in every case these types of benefits will be present… Indeed, it is because contracting parties regard such matters as benefits that the argument can be made that [the] existing rule should be abolished.’

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Consideration Musumeci v Winadell, NSW Ct of Appeal Answers to these three reasons:

1. Law of duress provides a remedy for extortion, but need to provide for lesser unfair pressure. See amendment to Glidewell’s criteria 5.

2. The fact that the promisee extends a concession evidences the fact that the practical benefit means more than damages would. This is sufficient to count as good consideration

3. The rule is able to distinguish between wholly gratuitous promises, and promises which are given because the promisor obtains this kind of practical benefit.

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Consideration Musumeci v Winadell(i) If A has entered into a contract with B to do work for, or to

supply goods or services to, B in return for payment by B; and(ii) At some stage before A has completely performed his

obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and

(iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and

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Consideration Musumeci v Winadell(iv) (a) As a result of giving his promise, B obtains in practice a benefit, or obviates

a disbenefit, provided that A’s performance having regard to what has been so obtained is capable of being viewed by B as worth more to B than any remedy against A (allowing for any defences or cross claims) taking into account the cost to B of any such payment or concession to obtain greater assurance of A’s performance; or(b) As a result of giving his promise A suffers in practice a detriment (or obviates a benefit), provided that A is thereby foregoing the opportunity of not performing the original contract in circumstances where such non performance, taking into account B’s likely remedy against A (and allowing for any defences or cross-claims) is being capable of being viewed by A as worth more to A than performing that contract, in the absence of B’s promised payment or concession to A; and

(iv) B’s promise is not given as a result of economic duress or fraud, or undue influence or unconscionable conduct on the part of A nor is it induced otherwise by unfair pressure on the part of A, having regard to the circumstances; then

(v) The benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding

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Consideration Promise to a third party

Shadwell v Shadwell Promise by plaintiff to def that plaintiff would marry his

fiancee. Already under contractual duty to fiancee

The Eurymedon Pao On v Lau Yiu Long ‘The promisee obtains the benefit of a direct obligation

which he can enforce.’

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Consideration

Termination and Replacement General rule often arises when parties try to

modify existing agreement in a way that directly benefits only one party

Parties can terminate original agreement Enter into new contract