CONSIDERATION

Question 1

What is consideration?

Answer 1

A consideration is a detriment or liability voluntarily incurred by the promisee… or a benefit conferred on the promisor at the instance of the promise… in exchange for the promise

Question 2

Where do you not need consideration?

Answer 2

Deed

Question 3

Consideration for bilateral contracts?

Answer 3

Bilateral contracts require two lots of consideration- and exchange of promises

Question 4

Where does the consideration move from/to?

Answer 4

Consideration must move from promisee, but not necessarily to the promisor

Question 5

What happens if there is no consideration?

Answer 5

No contract
An agreement not supported by consideration by both parties is nudum pactum (a naked agreement)
If consideration is not given, then the promisor can withdraw their offer or promise

Question 6

Benefit/Detriment Requirement

Answer 6

Detriment to promisee or benefit to promisor (generally results in both)
Mutual promises are good consideration – A and B have enforceable legal rights (benefit) and have added obligations (detriment)

Question 7

Bargain Requirement

Answer 7

Quid pro quo - Benefit to promisor or detriment to promisee must be given in return for a promise (AWM v Commonwealth; Alto Controls)
Consideration must be in reliance with a promise (Beaton)

Question 8

Australian Woollen Mills Pty Ltd v Commonwealth - issue

Answer 8

was the Commonwealth’s promise to pay the subsidy made in return for Australian Wollen Mills purchasing the wool

Question 9

Australian Woollen Mills Pty Ltd v Commonwealth - rule

Answer 9

A unilateral contract- the promise must be in return for the acts to be performed, and the acts to be performed must be done at the request of the promisee
Government policies generally not good consideration
Need to distinguish between promises, which are conditional gifts. In the absence of an express or implied request from the promisor, the promise is likely to be a conditional gift

Question 10

Beaton v McDivitt - issue

Answer 10

Had Beaton provided consideration for the promise to transfer the land to McDivitt?

Question 11

Beaton v McDivitt - rule

Answer 11

Bargain requirement 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
Consideration must be in reliance on a promise

Question 12

Atco Controls Pty Ltd v Newtronics Pty Ltd - issue

Answer 12

Were the letters of support enforceable contracts, and had Newtronics provided consideration by continuing to trade?

Question 13

Atco Controls Pty Ltd v Newtronics Pty Ltd - rule

Answer 13

In order for good consideration it must be evident that Atco requested Newtronics to continue to trade in return for the undertaking of continued support and that Newtronics responded to that request.
In this case there was no quid pro quo, Atco did not offer the promise of support as the price for Newtronics continuing to trade

Question 14

Adequacy of consideration

Answer 14

Consideration is not considered in terms of adequacy:
Different people place different values on the bargain they are getting for different reasons
Judges are not qualified to give opinions about the wisdom of certain bargains
Different judges would reach different decisions on the same evidence
Uncertainty in the enforceability of contracts
There are other areas of law that provide a means to challenge unjust bargains
Economic freedom of parties to make their own deals

Question 15

Past consideration:

General rule-

Answer 15

Past consideration is not good considertation (i.e something given by the promise before the promisor makes the promise is consideration for that promise

Question 16

Past consideration:

exception-

Answer 16

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

Question 17

Roscarla v Thomas - issue

Answer 17

whether Roscarla’s payment for the horse was good consideration for Thomas’ subsequent promise that the horse was “sound and free from vice”

Question 18

Roscarla v Thomas - rule

Answer 18

Promisor’s promise must be coextensive with promisee’s consideration- past and executed consideration will not support any further promise made by the promisor

Question 19

Exception to the past consideration rule

Answer 19

Promisor requests the promisee to perform certain services (request being made before an actual promise to pay for them is made)
Surrounding circumstances evidence an understanding that the services would be paid for
Promisee performs the services requested
Promisor subsequently makes the promise to pay for the services (fixes the price for the services)

Question 20

Lampleigh v Brathwait - issue

Answer 20

whether Lampleigh’s performance of securing a pardon from the King was past consideration for Brathwait paying him the 100 pounds

Question 21

Lampleigh v Brathwait - rule

Answer 21

Where A makes a request to B that he perform services, and B then perform the services requested, and A then promises to pay B for the performed services, B’s performance of the services is good consideration for A’s promise
Braithwait was legally bound to pay the 100 pounds

Question 22

Ipex Software Pty Ltd v Hosking

Answer 22

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

Question 23

Ipex Software Pty Ltd v Hosking

Answer 23

“transfer was not … intended to be gratuitous … It was more like the performance of a service on the basis that it would be paid for, followed by the promise which fixed the amount of the payment.”

• The transfer of the business was not past consideration. It was executed consideration and it was capable of supporting the promise to give him a 5% stake

Question 24

Existing legal duty rule:

General rule

Answer 24

Promise to perform, or actual performance of an existing legal duty is not sufficient consideration
Existing legal duty is where a promise is made by a party to a pre-existing contract, when it is made to the promisee under the contract and it is to do no more than the promisor is already bound to do under that contract

Question 25

Examples of existing legal duties

Answer 25

Public duties- duty to attend court to give evident, duty to obey the law
Contractual duties- pre-existing contract obliges a party to perform a certain task and a further promise to perform the same task is then of no value

Question 26

When/how does the existing legal duty rule arise?

Answer 26

Contract variations- one party to a contract that has already been formed subsequently promises to:
Assumes an additional obligation as part of the transaction (do extra work for the same prce or more money for the same work)
Releases the other party from an obligation (accept part payment as full settlement for the work done, or accept less work for the same price)

Question 27

Stilk v Myrick - issue

Answer 27

Was there a valid contract for the distribution for the deserters wages?

Question 28

Stilk v Myrick - rule/decision

Answer 28

No consideration for the promise to pay extra wages to the sailors who remained because they were already contracted to do all that they could under all the emergencies of the voyage- already bound by this orginal contract
No valid consideration, no legally enforceable contract- did not have to recicve the additional wages

Question 29

Foakes v Beer - issue

Answer 29

Was Foakes required to pay the interest on the judgement sum calculated from the date it was ordered?

Question 30

Foakes v Beer - rule

Answer 30

Foakes already under a pre-existing obligation to pay the whole judgement debt
Payment of the judgment debt by instalments is not consideration for the relinquishment of interest on the judgement sum and discharge of the judgment debt
Paying instalments without interest cannot be good consideration
Part payment of a debt is not sufficient consideration

Question 31

Exceptions to the legal duty rule (5)

Answer 31

1. Fresh consideration- party promising to perform an existing duty shows a new consideration given in return for the other party agreeing to modify the pre-existing contractual obligations
2. Practical benefit- Party promising to perform an existing duty shows that the other party receives a practical benefit from that promise
3. New obligation to a third party- Where the promise to perform an existing legal duty is made to a third party
4. Bona fide compromise of a legal dispute- Promise to perform an existing legal duty is made by way of a bona fide compromise of a legal dispute
5. Termination and replacement of agreement- Original contract is terminated by agreement and replaced with new one

Question 32

Hartley v Ponosby - issue

Answer 32

Had Hartley given fresh consideration for the promise to be paid extra by Ponosby?

Question 33

Hartley v Ponosby - decision

Answer 33

Continuing on the situation of danger was something more than agreed to under the original contract
Agreeing to continue the voyage in this new situation was fresh consideration given by Harley for the additional payment, thus Ponsonby was obliged to pay it

Question 34

Williams v Roffey Bros & Nicholls (Contractors) Ltd - issue

Answer 34

Had Williams given good consideration for the promise to be paid extra?

Question 35

Williams v Roffey Bros & Nicholls (Contractors) Ltd - rule

Answer 35

• 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
• 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
• B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and
• As a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit, and
• B’s promise is not given as a result of economic duress or fraud on the part of A, then
• The benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding”
Application of principle to the facts
• Williams enters into a contract with Roffey Brothers to do carpentry work for Roffey Brothers in return for payment of £20,000 by Roffey Brothers
• At some stage before Williams had completely performed his obligations under the contract, Roffey Brothers became concerned that Williams might not complete the work in time (because he was in financial difficulty)
• Roffey Brothers promised Williams an additional payment of £575 per flat in return for Williams’ promise to complete his carpentry work on time; and
• As a result of Williams giving his promise, Roffey Brothers obtained a practical benefit or obviated a disbenefit in that -
○ (a) Williams continued his work and did not breach the sub-contract
○ (b) Roffey could avoid any penalty for delay
○ (c) Roffey avoided the trouble and expense of engaging others
• There was no evidence of economic duress or fraud on the part of Williams; then
• The benefit Roffey Brothers received from Williams’ promise to complete was good consideration for Roffey’s promise of extra money

Question 36

Musumeci v Winadell Pty Ltd - issue

Answer 36

Had the Musumecis given consideration for Winadell’s promise to accept less rent?

Question 37

Musumeci v Winadell Pty Ltd - rule

Answer 37

• If A has entered into contract with B to do work for, or to supply goods and services to, B in return for the payment by B, and
• At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or be able to, complete his side of the bargain, and
• B thereupon promises A an additional payment or other concession (such as reducing A’s obligation) in return for A’s promise to perform this contractual obligation at the time, and
○ As a result of giving his promise B obtains in practise a benefit, or obviates a disbenefit provided that A’s performance, having regard to what has so been obtained, is capable of being viewed by B as worth more to B than any likely 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
○ as a result of giving his promise, A suffers 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 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
• (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 included as a result of unfair pressure on the part of A, having regard to the circumstances, then,
• (v) The benefit to B or the legal detriment to A is capable of being consideration for B’s promise, so that the promise will be legally binding

Question 38

Musumeci v Winadell Pty Ltd - application to facts

Answer 38

• The Musumecis entered into a lease with Winadell. The Musumecis promised to pay rent in return for Winadell letting them occupy premises.
• At some stage before the lease expired Winadell had reason to doubt the Musumecis would be able to continue paying their rent
• Winadell promised to reduce the rent so Musumecis would stay on as tenants. As a result of the promise to reduce the rent:
• Winadell obtained a practical benefit by maintaining the Musumecis as tenants. Otherwise they would have had to find new tenants and sue Musumeci for the shortfall
• Musumecis suffered practical detriment by staying on and risking their capacity to survive against the stronger competitor and they gave up the option of walking away and getting another lease elsewhere
• There was no evidence of fraud, economic duress, unconscionability etc
• As a result the benefit to Winadell and the detriment to the Musumecis constitutes good consideration for Winadell’s promise to accept less rent
• Accordingly there was good consideration for Winadell’s promise to reduce the rent

Question 39

Re Selectmove - principle

Answer 39

Practical benefit exception in Williams v Roffey is not applicable to the part payment of a debt

Question 40

Obligation to a third party

Answer 40

• Third party is someone who is not involved or a party in the contract variation
• A has contracted with B, A promises B something. A enters into a contract with C and makes the same promises to C as they did to B
• Remains good consideration (even thought they were already obliged to do it under the contract with A)

Question 41

Pao On v Lau Yiu Long

Issue

Answer 41

Promise to perform a pre-existing contractual obligation to a third party can be valid consideration because the promisee obtains the benefit of a direct obligation
Consideration given by the Plaintiffs for the guarantee and indemnity was the promise to perform their pre-existing contractual obligations to Fu Chip
Plaintiff’s promise imposed upon them an obligation now owed to the Defendants to do what they had agreed with Fu Chip to do

Question 42

Bona fide compromise of a legal dispute

Answer 42

Honestly, genuinely held compromise of a legal claim

Made in good faith

Question 43

Wigan v Edwards

Issue

Answer 43

Was there consideration fro the promise to fix the defects?

Question 44

Wigan v Edwards

Rule

Answer 44

Promise to do precisely what the promisor is already bound to do is sufficient consideration when it is given by way of a bona fide compromise of a disputed claim- promisor asserted that they are not bound to perform the obligation under the pre-existing contract or that they have a cause of action under that contract
Valuable consideration was provided by Wigan
Purchaser is the promisee and must provide consideration. That consideration is provided by way of a promise, and therefore they become the promisor of the consideration

Question 45

Ballantyne v Phillot - issue

Answer 45

Had Ballantyne given good consideration for Phillot’s promises in the signed document?

Question 46

Ballantyne v Phillot - rule

Answer 46

Ballantyne had not given consideration for Phillot’s promises, done no ore than admit she had no claim against Phillot- did not constitute a detriment to Ballantyne or a benefit to Phillot
No bona fide compromise exists, no consideration

Question 47

Termination and replacement of contract - consideration or not?

Answer 47

If an agreement is terminated and replaced with a new one on different terms, the old terms are no longer binding- no existing legal duties
Only applies where parties intend to terminate and replace a contract