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
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
1
Consideration
 Must flow both ways:
consideration
A
B
consideration
2
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’
3
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.
4
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
5
Consideration
1.
2.
3.
4.
5.
6.
7.
Must be given on request of promisor
Must move from the promisee
Must be sufficient
Need not be adequate
Must not be illusory
Past Consideration is No Consideration
Promise to Perform an Existing Duty is Not
Consideration
6
Consideration
 Must be given on request of promisor
 Australian Woollen Mills v Commonwealth
7
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
9
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
10
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
13
Consideration
Actual photo of vicious horse from Roscorla v Thomas
14
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
15
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
16
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
18
Consideration
Ship from disputed voyage of Stilk v Myrick
19
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
20
Consideration
 Exceptions to the General Rule





Fresh Consideration
Compromise and Forbearance to Sue
Practical Benefit
Promises Made to Third Parties
Termination and Replacement
21
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
22
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.
23
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
24
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
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 o 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
(ii)
(iii)
(iv)
(v)
(vi)
25
Consideration
 Musumeci v Winadell, NSW Ct of Appeal
 Three reasons to keep the rule
1.
2.
3.
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.
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.
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.’
26
Consideration
 Musumeci v Winadell, NSW Ct of Appeal
 Answers to these three reasons:
1.
2.
3.
Law of duress provides a remedy for extortion, but need to provide
for lesser unfair pressure. See amendment to Glidewell’s criteria 5.
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
The rule is able to distinguish between wholly gratuitous promises,
and promises which are given because the promisor obtains this
kind of practical benefit.
27
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
28
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 crossclaims) 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
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
The benefit to B is capable of being consideration for B’s promise, so that the
promise will be legally binding
(v)
(vi)
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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.’
30
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
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