Fundamentals of Law (BL502)
Fundamentals of Law
Consideration
Fundamentals of Law (BL502)
Two Types of Enforceable Agreement
 Deeds
 Formal contracts that do not require
consideration
 Simple contracts
 Do require consideration
Fundamentals of Law (BL502)
Deed
 Maker of deed must sign, seal and deliver the
document
 Independent witness
 Special attestation clause
SIGNED SEALED AND DELIVERED )
by the said JOE BLOGGS
)
in the presence of:
)
Fundamentals of Law (BL502)
Consideration
 Every simple contract must be supported by
consideration
 The law will not enforce a gratuitous or bare
promise
 Lack of consideration can be overcome by
the equitable doctrine of estoppel
Fundamentals of Law (BL502)
What is Consideration
 Consideration must flow from both sides of the
contract
 Can be:
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A promise to do something
A promise not to do something
Doing something
Refraining from doing something
A benefit for the promisor
A benefit for a third person at the promisor’s direction
A detriment to the promisee
Anything of real value to the promisor
Fundamentals of Law (BL502)
Consideration Must Move From Promisor
 Only the person who has “paid” for the
promise can enforce it
 Dunlop v Selfridge (S&OR p101)
Dunlop
Contract
Wholesaler
(brought tyres from Dunlop, sold to retailers)
Contract
Selfridges
 Privity of Contract
(broke promise to wholesaler not to discount)
Fundamentals of Law (BL502)
Joint Promisee Rule
 If a promise is made to two or more people
jointly only one promisor need give
consideration
 All promisors must be parties to the contract
 Coulls v Bagot Executor and Trustee Co
(S&OR p 102)
Fundamentals of Law (BL502)
Privity of Contract - Exceptions
 Statutory exceptions
 Insurance Contracts entered into with the
intention of benefiting another
 Where one party acts as agent for another
person
 Exemption clauses
 Contractual benefits held on trust for another
 Contractual benefits may be assigned
Fundamentals of Law (BL502)
Consideration May Not Be Past
 A promise can be executed or executory but
cannot be past
 A promise must be paid for but if
consideration has already been given then
there is nothing being paid for the new
promise
 Roscorla v Thomas (S&OR p103)
 Settling unsettled aspects of a past
transaction may be consideration
 Re Casey’s Patents: Stewart v Casey
(S&OR p104)
Fundamentals of Law (BL502)
Consideration May Be Inadequate
 Consideration must be sufficient i.e. have
some value in the eyes of the law
 Need not be equal in value to the promisor’s
promise
 The very nature of contract law is to let the
parties make their own bargain
 However, doctrine of unconscionable conduct
has developed to overcome resulting
injustices
Fundamentals of Law (BL502)
Consideration Must Be Sufficient
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$1 for a Rolls Royce
“I promise to be an honest public servant”
“I’ll give up my legal claim against you”
“I will pay you less than I owe you if you
forget the rest”
 “In love and affection”
 “I promise to carry out my contractual
obligations”
Fundamentals of Law (BL502)
Consideration Must Be Sufficient (Cont)
 Illusory promises are not consideration
 E.g. “in consideration of natural love and
affection”
 Too uncertain to be enforced
 Dunton v Dunton (S&OR p 106)
Fundamentals of Law (BL502)
Consideration Must Be Sufficient (Cont)
 Settling disputes
 Forbearance to sue is good consideration
provided
 The claim was reasonable
 The promisee had an honest belief that the claim
had a reasonable chance of success
 The promisee has not concealed any facts that
might affect the validity of the claim
 Wigan v Edwards (S&OR p106)
Fundamentals of Law (BL502)
Consideration Must Be Sufficient (Cont)
 Promising to perform an existing contract is
not consideration
 To be binding, there must be a promise to do
something additional to contracted duty
 Stilk v Myrick (S&OR P 107)
 Rule may be undergoing change
 Williams v Roffey Bros. & Nicholls (S&OR p108)
 A practical benefit is conferred
 No duress
 Followed in NSW
Fundamentals of Law (BL502)
Consideration Must Be Sufficient (Cont)
 Renegotiating a debt
 Pinnel’s Case (S&OR p109)
( approved by House of Lords in Foakes v Beer)
 Exceptions
 Composition with creditors
 Payment by third party
 Ways around
 Deed
 Payment in kind
Fundamentals of Law (BL502)
Consideration Must Be Sufficient (Cont)
 Promise to perform a contractual duty to a
third party is sufficient consideration
 Performance of a public duty is not sufficient
consideration
 Collins v Godefroy (S&OR p110)
Fundamentals of Law (BL502)
Fundamentals of Law
Promisory estoppel
Fundamentals of Law (BL502)
Promisory estoppel
 A strict application of the rules of contract
formation can lead to unjust results
 Courts used equitable jurisdiction to intervene
and prevent unfairness
 Estoppel is used to stop a person from
denying something that they have
represented
 Central London Property Trust v High Trees
House (obiter dicta by Lord Denning) (S&OR
p111)
Fundamentals of Law (BL502)
Promissory estoppel
 Is not part of contract law
 Applies where
 No consideration exists
 Formalities of making a contract have not
been satisfied
 Walton Stores v Maher (S&OR p114)
Fundamentals of Law (BL502)
Promisory estoppel - Elements
 One party to a contract makes a promise by
words or conduct
 The promise leads the promisor to believe
that the promisee will not enforce legal rights
 Promisor acts in reliance on promise
 Promisor alters its position to its detriment
 It would be unfair to allow promisee to go
back on promise
Fundamentals of Law (BL502)
The Assumption
 The promisee on reasonable grounds
assumed that a particular legal relationship
 Existed; or
 Would exist
Fundamentals of Law (BL502)
The Promisor Makes a Representation
 The promisor either
 Induced the assumption; or
 Being aware that the promisee had made
the assumption, deliberately remained
silent in circumstances where the
promisor could reasonably have been
expected to speak
 The promise must be precise and unqualified
 Legione v Hately (S&OR p113)
Fundamentals of Law (BL502)
Reliance
 The promisee acted (or refrained from acting)
on the faith of the assumption.
Fundamentals of Law (BL502)
Detriment
 The promisee will suffer a detriment if the
promisor is permitted to reneg on the promise
 Mere failure by the promisor to carry out the
promise will not of itself amount to detriment
 Je Maintiendrai v Quaglia & Quaglia (S&OR
p114)
Fundamentals of Law (BL502)
Remedy
 Minimum orders to prevent detriment
 Not necessarily the same remedy as for
breach of contract
Fundamentals of Law (BL502)
Fundamentals of Law
Capacity to Contract
Fundamentals of Law (BL502)
Contracts with Minors
 Anyone under 18 years of age
 Contracts with minors can be
 Valid – legally enforceable
 Voidable – legally enforceable until
repudiated by the minor
 Void – no legal effect
Fundamentals of Law (BL502)
Contracts with Minors (Cont)
 Valid contracts
 Supply of necessaries
 Contract for the supply of goods and services
that are suitable to the condition in life of the
minor and tom his actual requirements at the
time of sale and delivery
 Onus is one person seeking to enforce contract
against minor
 Nash v Inman (S&OR p116)
 Reasonable price not contract price
 Beneficial contracts of service
Fundamentals of Law (BL502)
Contracts with Minors (Cont)
 Benefical contracts of service
 E.g. apprenticeships
 Must be for the benefit of the minor
 Ratification by Minor after turning 18
 Contract becomes valid and enforceable
 Statutory modification
 NSW & SA