consideration Flashcards
Consideration
Consideration is a mutuality of offering an act or a promise to do something or not do something, may consist either in some right interest, profit, or benefit accruing to the one party or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other party.
Exceptions to consideration:
1) Contracts under seal – cross-pages seal?
2) Contracts without consideration are enforceable under promissory estoppel
Consideration must have: rights/interest/ profit/ to other party, is not an exhausted definition
1) value: not in terms of commercial or economic but value in the eyes of the law, which comes from the mutuality of exchange (that is “consideration”, the exchange part, I am doing this for you in considering you do that for me) of obligation to do or not do something (Thomas v Thomas)
2) mutuality of exchange one promise must be conditional on the other (Dalhousie)
3) promise does not have to move to the parties it only has to flow from both parties (Thomas v Thomas)
What is the point of the doctrine of consideration?
* essence of the bargain theory of contract: idea something is only a bargain if there is an exchange
o if it doesn’t have mutuality of each doing something it is not a bargain and it is a gift
* gift does not have mutuality, it is unilateral
* consideration serves as an analytical device to distinguish gifts (in essence property law)from contracts
THOMAS V THOMAS 1842 QC – PEPPERCORN THEORY, THOMAS DIES LEAVES HOUSE TO WIDOW 1 POUND PER YEAR
Facts * Testator dies and leaves house to widow in exchange for 1 pound annually in rent
* Executor kicks her out of house and claims this was not consideration because 1 pound per year is not close to actual value, so widow is suing that she has a contractual right to stay in the home
Issues Is there valid consideration? (Is the contract enforceable, if no consideration, then not enforceable)
Rules * Establishes the peppercorn principle: that consideration must have value in the eyes of the law not economic value, you can give a mansion in exchange for a peppercorn
* Consideration must flow from each party (both parties must do sth / or promise to do sth, if not, then no mutuality)
Analysis * Consideration means something that has value (something valuable) in the eyes of the law (that means legal value) not market value and vested in mutuality of giving:
* In this case: giving the house in exchange for 1 pound per year is mutuality
* Court does not analyze through economic value for 2 reasons:
* (1) freedom of contract theory: can make whatever deal you want, and court will give effect to it, no matter a good / bad deal
* (2) practically speaking if it were otherwise would undermine commercial certainty (if could sue only because you made a bad deal)
* Consideration must flow from both parties because bargain theory of contract and mutuality are what distinguishes contracts from a gift
Conclusion Yes, there was valid consideration
GOVERNORS OF DALHOUSIE COLLEGE HALIFAX V THE ESTATE OF ARTHUR BOUTILLIER 1934 SCC – ONE PROMISE MUST BE CONDITIONAL ON THE OTHER, SUBSCRIPTION FUND DIED BEFORE PAYING
Facts * Man promises to donate $5000 to Dalhousie as part of a fundraising campaign called a subscription fund
* Brochure generally refers to things they would do if they got a certain amount of money
* He later tells Dalhousie he can’t afford to pay, dies, and Dalhousie sues his estate for the money
* His estate it was a promise of a gift aka a nudum pactum
Issues Did the parties provide consideration? (no consideration, not enforceable)
Rules Consideration is, in essence, a conditional relationship between the 2 parties where one party does something on the condition that the other party does something, in contrast to a gift. Need to be a promise that flows from each party rather than an exchange of gratuitous gifts.
Analysis * Arthur promised $5000 but Dalhousie did not promise anything in return they just generically expressed a wish list depending on how much money was raised
* Need mutuality but these 2 commitments were not related – Dalhousie’s promise was not conditional on the other
* If there is consideration, there would be an implied or express request but there was no request that Dalhousie do anything specific with the money
* This case was gifts because no conditional relationship
* Court flips it to analyze: if he gave $5000 dollars and they didn’t build a library could he sue them for breach of contract? No because they didn’t promise to do anything.
Conclusion No, the parties did not provide consideration so no binding contract.
EASTWOOD V KENON 1840 QC – PAST CONSIDERATION IS NO CONSIDERATION, CARING FOR MINOR, HUSBAND AGREES TO PAY HER BACK FOR THAT
Facts * Plaintiff is caring for a minor in her wardship, minor comes of age, and plaintiff marries her to a husband
* Husband promises to reimburse the Plaintiff for all the expenses that she incurred while raising the girl
* Husband does not pay, and plaintiff is suing for breach of contract, but husband argues there was no consideration flowing from the woman.
Issues Did the woman provide consideration?
Rules As a general matter, past consideration is no consideration because it lacks mutuality (one isn’t conditional on the other)
Analysis * There needs to be a mutuality of consideration: the husband promised to reimburse the woman, but the woman did not promise anything, she already raised the minor her consideration has passed temporally and isn’t dependent on his promise
* Analytically, this is an exchange of gifts
* The woman’s act was performed before the other party made consideration to reimburse her
* No conditional relationship
Conclusion No there was no consideration from the woman. Past consideration is no consideration because no mutuality (see exception in Lampleiiigh case). Consideration does not have to flow to either party but has to flow from either party.
LAMPLEIGH V BRATHWAIT 1615 KINGS BENCH – EXCEPTION TO PAST CONSIDERATION IS NO CONSIDERATION, PRINCIPLE REARTICULATED IN PAO ON, NOBLEMAN GOT PARDON
Facts * Defendant killed someone and needed plaintiff the nobleman to get him a pardon, so plaintiff rides around the countryside to secure a pardon from the king
* No mention at the for payment but after getting the pardon, the defendant is very grateful and promises to give the nobleman 100 pounds
* The nobleman asks for the payment and the defendant refuses so nobleman sues
Issues Did the defendant provide consideration?
Rules An exemption to the rule of past consideration is no consideration: an act done before giving a promise to make a payment can be consideration for that promise if:
1) The past act was done at the request of the other party (express or implied)
2) The parties understood at the time it was to be rewarded / compensated for with some future payment or benefit from the reasonable person would think so in such circumstances
Analysis * There was consideration in this case because it would have been understood even though not expressly stated that the act would be paid for
* Reconciled from the previous case because facts were different, here the act was done on request of the other party and the parties understood at the time it was to be compensated for
Conclusion Yes, there was past consideration in this case, and should be accepted as “consideration”.
FORBEARANCE OF SUIT
Forbearance of suit = promising not to sue
Promise to do / not do something (can be anything), forbearance is promising not to do something.
Does this count as consideration? It depends.
Forbearance situation:
1) Ask if the payment has already been made:
a. If it has been made in fact, then its binding because gift (property law) (Zellers)
2) If money hasn’t been paid and is just promised to pay, then follow Zellers rules:
a. If the underlying tort claim is valid then promise not to sue in exchange for promise is valid contract, binding
b. If the underlying tort claim is invalid then can forbearance to sue is valid if the three conditions in Zellers are met
DCB AND HAROLD J ARKIN V ZELLERS INC 1996 MBQB – FOREBEARANCE OF SUIT AS VALID CONSIDERATION RULES, KID STEALS FROM ZELLERS
Facts * Kid steals stuff from Zellers, Zellers sends a letter to parents demanding they pay $225 or else they will sue.
* The mom pays the money to Zellers but then finds out she didn’t have to because Zellers did not have the right to sue the parents, so she wants her money back from a bogus lawsuit.
* Zellers argues there was a contract since they agreed to not sue and she gave money
Issues Does forbearance of suit count as valuable consideration even if lawsuit is bogus?
Note: Zellers never has a right to sue in tort. Is that a mutual consideration in this case? Consideration is moving from each party, consideration of mom is money, the “alleged” consideration of Zellers is “forbearance”. Promising not to sue in tort constitutes a consideration?
1. Has the payment been paid, yes then it’s a gift, you cannot recover the money.
2. Promise to pay the money depends on 1 & 2, depending on the underlying claim (valid or not).
Rules Forbearance of suit will count as valuable consideration if:
1) If the underlying tort claim is valid (Zellers in fact has the right to sue), then the promise of forbearance of suit is valid and therefore binding contract.
2) If the underlying tort claim is invalid, then the promise of forbearance of suit is still valid if three things are satisfied: (1) the forebearer had to honestly and objectively believe in good faith that it was a valid claim (2) that belief must be reasonable in the circumstances even if its incorrect (subjective belief) (3) they must have had an honest intention to sue in tort (can’t be matter of extortion), then it the promise to pay is still binding.
3) If the promise not to sue in exchange for money that had already been paid (as opposed to a promise to pay) then consequently the underlying tort claim is valid.
* It is binding once the money is paid over and you don’t need to consider steps 1 and 2.
* Courts treat this as an executed gift (not a contract they keep it because gift is valid)
Conclusion She paid so the money was considered a gift.
PRE-EXISTING DUTIES
Problem with pre-existing duties: if each party promises to do something but one party already has a contractual obligation to perform that duty then not promising anything at all because already had to do it- consideration needs to move from both and be fresh so this is a gratuitous promise.
Sub-categories of pre-existing duties (first question, ask how many parties here):
3 parties involved: Pao on v Lay Yiu Long = I already have to do something for you, but now I re-promised to a different person that I will do that thing for you = binding
2 people involved situations:
(1) General promises: a promise to pay more for something that is already owed
a. Gilbert Steel
b. Stilk v Myrick
c. Exceptions: starting with Williams v Roffey, Nav Canada, and Rosas v Toca
(2) Accord in satisfaction promises to accept less, debt situations (rather than promise to give more)
Need to be careful what the pre-existing duty is: if they promise to do anything more than what they were obligated not a pre-existing duty situation peppercorn doctrine: anything that is given in exchange for something else even if its trivial should be binding.
Approaching a question: first: discuss starting point of Stylk as reflected in Gilbert – law looks at these exceptions narrowly.
Then say there is an exception in Nav Canada/Rosa – doesn’t mean there is consideration just means there is an exception
If modification was not procured under duress (informed by mutual benefit) will be binding
PAO ON V LAU YIU 1980 HKPC – 3 PARTY SITUATION FOR PRE-EXISTING DUTY
Issues Was there consideration from Shing Corp in contract #3?
Rules * In a 3-party situation, promising to do a pre-existing duty will be valid consideration if the promise goes to a different party than was originally owed the promise to, even if it’s the same duty.
Analysis * Agreement 3 between Shing Corp and the shareholders of Fu Corp is binding because it’s a 3-party situation.
* Shing Corp already promising Fu Corp that it will do share swap deal in agreement 1 but Shing Corp promised the same thing to the shareholders of Fu Corp in agreement 3
* Rule because reinforces obligation because the new thing they are giving is exposing themselves to double liability – if they don’t go through with the agreement, they can be sued by 2 different parties
Conclusion Yes, there was valid consideration from Shing Corp.
STYLK V MYRICK 1809 KINGS BENCH – PRE-EXISITING DUTIES NOT CONSIDERATION, DURESS, CREW MEMBERS HAD TO DO EXTRA WORK WANTED EXTRA MONEY
Facts * Had all-encompassing sailing contract – do everything until ship gets back basically
* Some crew members mutiny and captain offer remaining sailors a wage increase to do extra work
* Ship returns to land and the captain refuses to pay the extra money
* Captain: promising more money so consideration from him but only pre-existing duty from sailors
Issues Did the crew members provide consideration so is the captain obligated to increase in wage?
Rules Promise to pay more to another party to continue a pre-existing duty is not binding because it’s a gratuitous gift since the other party gave no fresh consideration
Analysis * Captain can take back his promise since it was a gratuitous gift.
* Another reason case influential: captain made practical choice under duress to offer more money rather than consideration, so was not binding because not freely given
Conclusion No, the crew did not provide consideration so no, captain not obligated to increase wage.
GILBERT STEEL V UNIVERSITY CONSTRUCTION LTD 1976 OCA – STYLK V MYRICK SOLIDIFIED IN CANADIAN LAW
Facts * Steel contract, construction company agrees to pay a certain amount to Gilbert, because of market changes, the construction company promised they would pay Gilbert more, then later refuse
* Gilbert sues for the extra money, but the construction company argues their promise was gratuitous and therefore non-binding
* Construction company promising to pay more but steel company promised nothing new already must supply steel
Issues Did Gilbert steel provide consideration with the new contract?
Rules Modern example of Stylk and Myrick being applied, promising a pre-existing duty does not count as consideration.
Analysis * Shows the traditional approach that promising a pre-existing duty doesn’t count as consideration.
* Another argument made in this case: way to get around pre-existing duty rule is you can cancel the pre-existing duty and if it doesn’t exist anymore, you are not promising what you already had to do – rejected on the facts but perfectly acceptable argument.
* In a commercial context very unlikely to rescind a contract orally and even more unlikely here since the first one was written.
Conclusion No, Gilbert steel did not provide consideration. (In amending a contract, both sides must provide fresh consideration)
WILLIAMS V. ROFFEY BROS 1990 ENG. CA – EXCEPTION TO STYLK V MYRICK, PROMISE TO DO PRE-EXISTING DUTY VALID, PROMISED TO PAY SUBCONTRACTOR MORE
Facts * Commercial contractor hires subcontractor to work on series of apartments
* Sub-contractor is not working quickly enough to meet deadlines, so main contractor approaches (promise) to pay more money so they can hire more people and get it done on time
* Main contractor doesn’t pay, sub-contractor sues, main contractor argues pre-existing duty
* Nothing moving from the sub-contractor – he is promising what he already had to do
Issues Is this promise to pay more enforceable without fresh consideration?
Note: If the second contract is revoking the contract at the same time of modification. We should take practical approach to analysis the practical benefits. In most circumstances we look at the economic benefits, but sometimes not, e.g: avoiding the reputation disadvantage.
Rules * 2-part exception, the starting point is Stylk: presumption rather than a strict rule that promising what you already had to do doesn’t count as consideration if there is good evidence on these 2 points:
* 1) there are mutual practical benefits flowing to each party from the modification (even though there is no consideration from the sub-contractor, the main contractor can avoid penalty to the owner otherwise that they can pay, that is the practical benefit flowing to the main contractor).
* 2) the promise to pay more was not procured under “economic duress”
Analysis * Court finds problem with the rigid rule and wants to be receptive to the commercial reality so found the modification binding as an exception procured.
* Practical benefit is any sort of commercial advantage in this context, in practice the person getting more money will always get a benefit just have to show the other party is too.
* In this case main contractor doesn’t have to pay penalty and will get project done on time = benefit
* No economic duress: on balance of probabilities, it was consensual, it was him who approached the subcontractor to pay more, who approaches whom maters for voluntariness
Conclusion Yes, promise to pay was enforceable without fresh consideration.
GREATER FREDERICTON AIRPORT AUTHORITY INC. V. NAV CANADA 2008 NEW BRUNSWICK – MODIFIED WILLIAMS V ROFFEY
Facts * Nav Canada and the Great Fredericton Airport Authority (“GFAA”) were parties to an Aviation Services Facilities Agreement (“ASF” Agreement).
* Systems upgrade required for the airport, and they are under comprehensive performance contract, so obligation is to meet Canadian aviation rules but say they won’t unless Fredericton airport pays more money.
* Airport doesn’t pay, Nav Canada tries to enforce it and sues, airport says they don’t have to under pre-existing duty rules
* Nav Canada is only promising what they already had to do under the comprehensive airport contract
* Under traditional starting point of stylk v myrick promise to pay more is not binding
Issues Should Canada follow the modification rule from Williams v Roffey with the 2-part exception? (Is the modification binding?)
Rules * Presumption is promising what you already must do doesn’t count because it’s a pre-existing duty the modification will be binding if the promise to pay more in exchange for pre-existing duty was not procured under duress. —(as long as there is no economic duress)
* Presence or absence of mutual practical benefit will influence the duress question.
* Economic duress = illegitimate pressure (threat of breach) + other party had no choice but to agree/comply, need to meet both criteriers
Analysis * Decided stylk is harsh and should be modified but doesn’t follow Roffey exactly, doesn’t require mutual practical benefit just no duress, but the mutual practical benefits is a good indicator there is no duress.
* Absence of duress means if you freely and consensually promise to pay more for something already owed
* considering duress in this case: illegit pressure, Nav Canada is threatening to breach a contract, airport had no alternative practical option than the agree/comply.
* since there is duress here the promise is not binding
* stylk is both over-inclusive and underinclusive – captures renegotiation by coercion and underinclusive in cases with voluntary agreements
* commercial reality and reality of life is that contracts are modified, and parties expect they will be adhered to
Conclusion Adopted modified Williams v Roffey. In Canada, you only have to see if there is duress, if no duress, then binding.
