Week 3 â Consideration; Estoppel; Intention
Week 3 – Consideration; Estoppel; Intention CONSIDERATION
Exchanging a promise for a promise
For a promise set out in an agreement to amount to a breach of contract if it is not carried out, the promise must be supported by consideration
Unless the promisee in seeking to enforce the promise against the promisor, has provided consideration for the promise, he or she will not succeed in any action or remedy based upon a breach of contract (e.g. no consideration, no means for action against breach of contract)
Consideration is the criterion which determines whether a promise made should create a contractual obligation
Consideration is some act of forbearance involving legal detriment to the promise, or the promise of such an act of forbearance furnished by the promise as the agreed price of the promise
Consideration can be in the promise
Consideration must be a two-way bargain; with both parties benefiting in some way
Gratuitous promises and deeds
If there is no consideration then the contract is a gratuitous promise In simple contracts, consideration is always necessary.
Formation contracts (or deeds) do not require consideration. This is because in the context of a deed, it was considered that they must have determined upon what they were about to do before they made so solemn engagement;
Executory & Executed consideration Executory: A promise is exchanged for a promise (bi-lateral) Executed: A promise is exchanged for an act (uni-lateral) Summary of rules of consideration
Consideration must be referable to the promise
Consideration must move from the promisee (but not necessarily to the promisor)
Consideration must be sufficient, but need not be adequate
Past consideration is not good consideration
Consideration must not be illusory
Performing duties imposed by law is not good consideration, unless the imposed duties are exceeded
Performing a contractual duty already owed to the other contracting party is not good consideration, BUT consideration is good if promise of a contractual duty owed to another party
Forebearance to sue is good consideration
Compromises of disputed claims are enforceable
Consideration must be referable to the promise
Consideration must be an inducement for a promise- consideration must impact on the parties’ decision to act For example if there is no consideration if you refrain from an act you would not have performed anyway
Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424 o Jurisdiction: High Court of Australia o Facts: The Australian government implemented a scheme to ensure wool was being sold to the public at a reasonable price due to its scarcity and expensiveness. Subsidies were paid to Australian Wool Manufacturers that made wool products for the Australian market. AWM purchased large amounts of wool, but the gov. didn’t pay subsidies on all of them. AWM sued the gov. claiming that its purchase of wool was consideration for the promise by the gov. to pay subsidies to local wool manufacturers like AWM to purchase wool. o Ratio: Principle that consideration must be bargained. The subsidy scheme was a conditional promise of a gift which couldn’t be legally enforced.
Consideration must move from the promisee, but not necessarily to the promisor
E.g. if I were to cut your law if you promise to pay the $30 to a third party
As long as one of the joint promises pays consideration, promise is enforceable
Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 (Joint promise rule exception) o Jurisdiction: High Court of Australia o Facts: Mr Coulls owns a block of land, and gives Bagot’s the right to quarry the land in return for loyalty to be paid to him and his wife as joint tenants. Mr Coulls passes away. The question is whether Mrs Coulls is entitled to the money or does the money go to the executors of Mr Coulls estate? Ambiguity in agreement as unsure if royalties payment was between the construction company and both Mr and Mrs Coulls, or if it was only between construction company and Mr Coulls. The Executor argued that Mrs Coulls didn’t provide any consideration to the construction company, so she can’t enforce the agreement. o Ratio: Consideration must move from the promise, but if there are joint promises, it only needs to move from one of them. The majority agreed that agreement was between construction company and Mr Coulls only and thus Mrs Coulls cannot enforce it.
Consideration must be sufficient, but need not be adequate
What is put forward as consideration must reach a threshold of legal recognition. That is it must be valid. For example, if it is illegal, it is not consideration
However, once the threshold is reached, there is no inquiry into how valuable consideration is. The law doesn’t stop you from entering into a bad bargain. Consideration on one party doesn’t have to be equal or comparable to other party’s consideration
Past consideration is not good consideration
You need ‘FRESH’ consideration to render a contract enforceable, with the consideration being given at the same time.
Exchanging a promise for a promise
For a promise set out in an agreement to amount to a breach of contract if it is not carried out, the promise must be supported by consideration
Unless the promisee in seeking to enforce the promise against the promisor, has provided consideration for the promise, he or she will not succeed in any action or remedy based upon a breach of contract (e.g. no consideration, no means for action against breach of contract)
Consideration is the criterion which determines whether a promise made should create a contractual obligation
Consideration is some act of forbearance involving legal detriment to the promise, or the promise of such an act of forbearance furnished by the promise as the agreed price of the promise
Consideration can be in the promise
Consideration must be a two-way bargain; with both parties benefiting in some way
Gratuitous promises and deeds
If there is no consideration then the contract is a gratuitous promise In simple contracts, consideration is always necessary.
Formation contracts (or deeds) do not require consideration. This is because in the context of a deed, it was considered that they must have determined upon what they were about to do before they made so solemn engagement;
Executory & Executed consideration Executory: A promise is exchanged for a promise (bi-lateral) Executed: A promise is exchanged for an act (uni-lateral) Summary of rules of consideration
Consideration must be referable to the promise
Consideration must move from the promisee (but not necessarily to the promisor)
Consideration must be sufficient, but need not be adequate
Past consideration is not good consideration
Consideration must not be illusory
Performing duties imposed by law is not good consideration, unless the imposed duties are exceeded
Performing a contractual duty already owed to the other contracting party is not good consideration, BUT consideration is good if promise of a contractual duty owed to another party
Forebearance to sue is good consideration
Compromises of disputed claims are enforceable
Consideration must be referable to the promise
Consideration must be an inducement for a promise- consideration must impact on the parties’ decision to act For example if there is no consideration if you refrain from an act you would not have performed anyway
Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424 o Jurisdiction: High Court of Australia o Facts: The Australian government implemented a scheme to ensure wool was being sold to the public at a reasonable price due to its scarcity and expensiveness. Subsidies were paid to Australian Wool Manufacturers that made wool products for the Australian market. AWM purchased large amounts of wool, but the gov. didn’t pay subsidies on all of them. AWM sued the gov. claiming that its purchase of wool was consideration for the promise by the gov. to pay subsidies to local wool manufacturers like AWM to purchase wool. o Ratio: Principle that consideration must be bargained. The subsidy scheme was a conditional promise of a gift which couldn’t be legally enforced.
Consideration must move from the promisee, but not necessarily to the promisor
E.g. if I were to cut your law if you promise to pay the $30 to a third party
As long as one of the joint promises pays consideration, promise is enforceable
Coulls v Bagot's Executor and Trustee Co (1967) 119 CLR 460 (Joint promise rule exception) o Jurisdiction: High Court of Australia o Facts: Mr Coulls owns a block of land, and gives Bagot’s the right to quarry the land in return for loyalty to be paid to him and his wife as joint tenants. Mr Coulls passes away. The question is whether Mrs Coulls is entitled to the money or does the money go to the executors of Mr Coulls estate? Ambiguity in agreement as unsure if royalties payment was between the construction company and both Mr and Mrs Coulls, or if it was only between construction company and Mr Coulls. The Executor argued that Mrs Coulls didn’t provide any consideration to the construction company, so she can’t enforce the agreement. o Ratio: Consideration must move from the promise, but if there are joint promises, it only needs to move from one of them. The majority agreed that agreement was between construction company and Mr Coulls only and thus Mrs Coulls cannot enforce it.
Consideration must be sufficient, but need not be adequate
What is put forward as consideration must reach a threshold of legal recognition. That is it must be valid. For example, if it is illegal, it is not consideration
However, once the threshold is reached, there is no inquiry into how valuable consideration is. The law doesn’t stop you from entering into a bad bargain. Consideration on one party doesn’t have to be equal or comparable to other party’s consideration
Past consideration is not good consideration
You need ‘FRESH’ consideration to render a contract enforceable, with the consideration being given at the same time.
