Contract Handout 3 - Consideration
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Questions and Answers

What is consideration in contract law?

Consideration is something of value exchanged between parties that makes a promise legally binding.

How is a gratuitous promise different from a contract?

A gratuitous promise is not enforceable by law because it lacks consideration, as nothing is exchanged for it.

What distinguishes executory consideration from executed consideration?

Executory consideration involves promises exchanged before completion, while executed consideration occurs when an act is performed in return for a promise.

What happens if consideration is given before the agreement?

<p>If consideration is given before the agreement, it is classified as past consideration and is ineffective for forming a contract.</p> Signup and view all the answers

What is the significance of contracts under seal concerning consideration?

<p>Contracts under seal do not require consideration to be enforceable, recognizing the formality of the agreement.</p> Signup and view all the answers

Can a promise to provide something for nothing be enforced in court?

<p>No, a promise to provide something for nothing cannot be enforced because it lacks consideration.</p> Signup and view all the answers

What constitutes a binding contract in terms of consideration?

<p>A binding contract requires that both parties provide something of value, establishing mutual consideration.</p> Signup and view all the answers

Define the concept of 'past consideration' within contract law.

<p>Past consideration refers to a benefit given or a detriment suffered before a contract is made, which does not constitute valid consideration.</p> Signup and view all the answers

What three conditions must a promisee prove when surrendering a legal claim for it to constitute good consideration?

<p>The claim must be reasonable, the promisee must believe it might succeed, and they must not conceal any affecting facts from the promisor.</p> Signup and view all the answers

Explain why performing a duty imposed by law does not constitute good consideration.

<p>A person under public duty does not provide good consideration by merely fulfilling that duty because they are obligated to do so by law.</p> Signup and view all the answers

In what scenario would the promisee's extra service qualify as good consideration?

<p>When the promisee does more than what is expected in the bare discharge of their public duty.</p> Signup and view all the answers

What is the implication of Pollock's view on consideration in contracts?

<p>According to Pollock, if a promisee is merely doing something they are already bound to do, it does not constitute good consideration.</p> Signup and view all the answers

What are the four areas to examine regarding the insufficiency of consideration?

<p>The areas include public duty, existing contractual duty to the promisor, existing contractual duty to a third party, and composition with creditors.</p> Signup and view all the answers

Why can't a promisee claim good consideration if fulfilling an existing contract with the promisor?

<p>Because fulfilling an existing contractual obligation does not provide new value or consideration to the contract.</p> Signup and view all the answers

How can an existing contractual duty to a third party impact consideration?

<p>An existing duty to a third party also fails to constitute good consideration if the promisee merely promises to perform it.</p> Signup and view all the answers

What distinguishes a vexatious claim from a reasonable legal claim in terms of consideration?

<p>A vexatious claim is unreasonable and without merit, whereas a reasonable claim has a legitimate chance of success.</p> Signup and view all the answers

What is the significance of the requirement that consideration must move from the promisee?

<p>It ensures the promisee suffers some detriment at the request of the promisor, regardless of whether any benefit is received by the promisor.</p> Signup and view all the answers

How do courts view the adequacy of consideration given by parties in a contract?

<p>Courts do not concern themselves with the relative value of consideration, allowing agreements to be enforced even if one party benefits more than the other.</p> Signup and view all the answers

Why would a promise to pray for someone's salvation not be considered good consideration?

<p>It cannot be valued in monetary terms and does not involve a tangible detriment or benefit.</p> Signup and view all the answers

What was the ruling in Hamer v Sidway regarding the nephew's sacrifice?

<p>The court upheld the agreement, recognizing the nephew's refraining from legal rights as sufficient detriment, constituting adequate consideration.</p> Signup and view all the answers

What does it mean if a contract is described as an 'unconscionable bargain'?

<p>It refers to agreements that are so one-sided that they shock the conscience, prompting courts to examine the adequacy of consideration.</p> Signup and view all the answers

How does the case of White v Bluett exemplify the limitations of consideration?

<p>It shows that promises based solely on natural love and affection lack sufficient value to constitute good consideration.</p> Signup and view all the answers

What did Manners LJ state about fair consideration in Grogan v Cooke?

<p>He asserted that if a bargain is done in good faith, the courts will not closely examine its depth or fairness.</p> Signup and view all the answers

What can be concluded from Bainbridge v Firmstone regarding seemingly worthless transactions?

<p>Even transactions that appear to hold no value can still be recognized as good consideration if deemed adequate by the courts.</p> Signup and view all the answers

What was the primary legal issue in Williams v Roffey Brothers regarding consideration?

<p>The primary issue was whether the practical benefit obtained by B could serve as valid consideration for B's promise to A.</p> Signup and view all the answers

How did the court's ruling in Williams v Roffey differ from the ruling in Stilk v Myrick?

<p>Williams v Roffey recognized practical benefit as consideration, whereas Stilk v Myrick did not uphold additional promises as valid consideration under similar circumstances.</p> Signup and view all the answers

What conditions must be met for a promise to constitute valid consideration according to Williams v Roffey?

<p>The promise must result in a practical benefit for B and must not be given under economic duress or fraud from A.</p> Signup and view all the answers

Explain the significance of the economic duress doctrine in relation to contracts.

<p>The economic duress doctrine allows parties to be released from a contract if they were coerced into it under the threat of serious financial loss.</p> Signup and view all the answers

What previous rulings were compared with the decisions in Williams v Roffey regarding consideration?

<p>The cases of Harris v Watson and Stilk v Myrick were contrasted with Williams v Roffey to illustrate changing interpretations of consideration.</p> Signup and view all the answers

In Hartley v Ponsonby, what did the court determine about the sailors' performance?

<p>The court found that the sailors had provided good consideration by performing more than what was expected in their original contract.</p> Signup and view all the answers

What impact did the ruling in Williams v Roffey have on future contract law decisions?

<p>The ruling impacted future decisions by allowing for practical benefits to be seen as valid consideration, affecting the rigidity of contract law.</p> Signup and view all the answers

How did the case of Truck & Machinery Sales v Marubeni Komatsu relate to Williams v Roffey?

<p>It followed Williams v Roffey by adopting the principle that practical benefits could constitute consideration in contract agreements.</p> Signup and view all the answers

What must occur for creditors to be bound by their promise to accept a lesser sum from a debtor?

<p>All creditors must agree together to accept the lesser sum.</p> Signup and view all the answers

What legal principle applies if a debtor makes individual agreements with multiple creditors?

<p>The rule in Pinnel's Case applies, which means composition with creditors does not apply.</p> Signup and view all the answers

What rationale supports the exception that prevents a creditor from suing for the balance after a settlement?

<p>It prevents fraud on other creditors by ensuring fairness in the arrangement.</p> Signup and view all the answers

In the example of X, A, and Y, what outcome occurs when Y pays a part of X's debt?

<p>A cannot sue X for the remaining balance, as it creates a fraudulent situation against Y.</p> Signup and view all the answers

When is the promisee considered to be giving good consideration despite an existing duty to a third party?

<p>When the promisee promises to perform an obligation they are contractually bound to fulfill.</p> Signup and view all the answers

What is the general rule regarding consideration when a promise affects a third party's existing contractual duty?

<p>The general rule is that the promisee is providing good consideration.</p> Signup and view all the answers

What occurs legally when a debtor's performance involves a contractual duty to a third party?

<p>The courts recognize the promisee's performance as valid consideration.</p> Signup and view all the answers

What does the rule in Pinnel's Case state regarding part payments of debt?

<p>The rule states that payment of a lesser sum is no satisfaction of the debt.</p> Signup and view all the answers

What conclusion can be drawn from the courts in cases involving third parties and settlement payments?

<p>Courts will not allow actions that undermine the agreements made with third parties.</p> Signup and view all the answers

In which situation does the rule in Pinnel's Case allow for a lesser sum to satisfy a debt?

<p>A lesser sum can satisfy a debt if a new element is introduced at the request of the creditor.</p> Signup and view all the answers

How does Williams v Roffey Bros limit its application in contract law?

<p>Williams v Roffey Bros applies only when services are rendered for an additional payment, not for accepting a lesser amount in satisfaction of a debt.</p> Signup and view all the answers

What is one important distinction between payment by promissory notes and payment by cheque according to the discussed rules?

<p>Payment by promissory notes constitutes a different means of payment, while payment by cheque does not.</p> Signup and view all the answers

What is the significance of the exception regarding the introduction of a new element in Pinnel's Case?

<p>The introduction of a new element means the debtor's lesser payment can fully satisfy the debt.</p> Signup and view all the answers

Why can a creditor not accept 19s 6d in the pound under the rule in Pinnel's Case?

<p>Because the rule specifies that a creditor cannot accept a lesser amount of money as satisfaction for a debt.</p> Signup and view all the answers

How does the doctrine of promissory estoppel relate to the rule in Pinnel's Case?

<p>Promissory estoppel serves as an important exception to the rule by enforcing a promise even without consideration.</p> Signup and view all the answers

What does it mean for a creditor to engage in composition with creditors in relation to Pinnel's Case?

<p>Composition with creditors refers to an agreement whereby creditors accept a lesser amount in full satisfaction of debts.</p> Signup and view all the answers

Flashcards

Good Consideration (Legal Claim)

Surrendering a legal claim can be good consideration, but the claim must be reasonable, the claimant must honestly believe in the chance of success, and should not conceal facts affecting its validity.

Insufficient Consideration

Consideration must have actual value. A promise or act already required under a pre-existing contract/duty does not count.

Public Duty (Consideration)

A promise to perform a public duty already required by law is not new consideration.

Existing Contractual Duty (Consideration)

Agreeing to do something already obligated by a prior contract (with same party) isn't new consideration.

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Exception to Public Duty

Performing more than the minimum required duty IS new consideration.

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Existing Contractual Duty to Third Party

Doing something already required under a contract with a different party does not constitute new consideration for the original party.

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Composition with Creditors

Dealing with settling debts in a structured arrangement, doesn't have separate consideration rules mentioned. Likely existing duty related but not expanded on in excerpt.

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Reasonable Claim

A claim that has a valid basis in law, and that it is likely to succeed

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Consideration in Contracts

Something of value exchanged between parties to a contract. Without it, a promise is not legally binding.

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Gratuitous Promise

A promise given without anything of value in return. Not legally binding.

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Executory Consideration

Promises are exchanged, but neither party has yet fulfilled their part of the agreement.

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Executed Consideration

An act is done in exchange for a promise. The act is the consideration.

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Past Consideration

Something done prior to the agreement. Not valid consideration.

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Contract Under Seal

A contract that is formally signed and witnessed requiring no consideration for it to be binding.

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Civil Law Systems

Legal systems that do not always require consideration to enforce a contract, contrasted with common law systems.

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Binding Contract

A contract that is legally enforceable. It requires an offer, acceptance, consideration, and intention to create legal relations.

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Consideration (contract law)

Something of value exchanged between parties to a contract, inducing a promise.

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Sufficiency of Consideration

Consideration need not be equal in value; only that it has identifiable value.

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Adequacy of Consideration

Courts don't assess if the exchange is a good deal; a fair bargain is assumed.

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Unconscionable Bargain

A contract where one party obtains a grossly unfair benefit or contract.

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Detriment

Something a party loses or forgoes for the contract.

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Value in contract

Something of value that is measurable or capable of value.

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Good Consideration

Recognized consideration under contractual law, for promises.

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(contract) consideration does not flow

Consideration does not have to be directly to the promisor. 

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Williams v Roffey Brothers

A legal case establishing that a practical benefit to the promisor can be valid consideration for a promise, even if it doesn't meet traditional consideration requirements.

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Practical Benefit

A benefit to a party, resulting from a new promise, and which is legally sufficient to constitute consideration.

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Economic Duress

Illegal pressure or coercion exerted to force a party to enter a contract or to modify its terms.

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Stilk v Myrick

A case that illustrates traditional consideration requirements. Doing exactly what one is already obligated to do is not sufficient consideration for a new promise.

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Hartley v Ponsonby

A case that illustrates that doing more than a pre-existing contractual duty is valid consideration.

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Glidewell LJ

The judge who outlined the key principles of Williams v Roffey Brothers, relating to consideration and practical benefit.

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Fraud in Composition

If one creditor who agreed to a composition settlement later sues for the balance, it's considered fraudulent towards the other creditors who also agreed.

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Third Party Payment

When a third party pays part of a debtor's debt, and the creditor agrees to discharge the debt, the creditor cannot later sue for the remaining balance.

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Shadwell v Shadwell

A case establishing that a promise to perform an existing contractual duty to a third party can constitute good consideration.

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The Eurymedon

A case where a stevedore's promise to unload goods at a port, even though it was already obligated to do so by a contract with the shipper, was considered good consideration for the owner's promise to indemnify the stevedore.

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Pao On v Lau Yiu Long

A case illustrating that if a party gains a practical benefit from fulfilling an existing contractual duty, that benefit can constitute good consideration.

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Pinnel's Case Rule

Payment of a lesser sum is not sufficient to discharge a debt. To be valid, the debtor must do something different, at the creditor's request, when paying a lesser amount.

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Exceptions to Pinnel's Case

There are exceptions where a lesser payment can discharge a debt. This includes paying at an earlier time, in a different location, or providing a different item in satisfaction of the debt.

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Payment by Negotiable Instrument

Payment made via a negotiable instrument (like a promissory note or bill of exchange) constitutes doing something different and can satisfy the debt, even if it's for a lesser amount.

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Payment by Cheque

Paying by cheque isn't considered a different means of payment, and doesn't satisfy Pinnel's Case exceptions.

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Promissory Estoppel

An exception to Pinnel's Case, where a promise to accept a lesser amount, even without consideration, can prevent the creditor from enforcing the full amount.

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Extortative vs. Non-extortative Renegotiation

The courts differentiate between renegotiations that are unfairly coercive (extortative) and those that are simply a reasonable adjustment to contracts due to unforeseen circumstances (non-extortative)

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Williams v Roffey Bros (Application)

This case restricts the application of the rule in Williams v Roffey Bros to cases where services are exchanged for an additional payment. It does not apply when one party agrees to accept a lesser amount for a debt.

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Study Notes

Contract Handout 3 - Consideration

  • Not all promises are legally binding. Contracts require specific criteria, primarily consideration.
  • Consideration is essentially a quid pro quo exchange. Something of value is given in return for something else.
  • Gratuitous promises (promises with no value exchanged) aren't enforceable.
  • One definition of consideration is the price paid for the promise. Another definition is any right, interest, profit, or benefit accruing to one party, or any forbearance, detriment, loss, or responsibility given, suffered, or undertaken by another.
  • Consideration is essential in most common law systems, but not in civil law systems.
  • Contracts under seal are an exception; no consideration is needed. This is because the formality of the contract is considered sufficient.
  • Consideration can be executory (a promise in return for a promise, neither side is yet complete) or executed (a promise given in return for a previous act).
  • Past consideration is no consideration; if the consideration occurred before the agreement was made it is not considered valid.
  • There is an exception: if an act was previously performed at the request of the other party and it was understood it would be paid for.
  • Consideration must move from the promisee. A third party providing consideration cannot enforce the contract.

Executory and Executed Consideration

  • Executory Consideration: A promise in return for another promise; neither side has completed its end of the bargain.
  • Executed Consideration: A promise given in return for an act; the act has already been completed.

Past Consideration

  • Consideration must be given at or after the agreement. If given before, it's past consideration and not valid.
  • Past consideration is no consideration.
  • An exception is when the act was done at the request of the other party and it was understood payment would follow.

Adequacy of Consideration

  • Courts don't assess the relative value of consideration. They only need it to be something of worth, not necessarily equal in value.

Consideration and the Rule in Pinnel's Case

  • Part payment of a debt is not normally sufficient consideration for the whole debt.
  • Exceptions exist: A new element (like an earlier payment or payment in a different place) can qualify. Payment via a negotiable instrument might also be an exception.

Composition with Creditors

  • An exception to Pinnel's Rule where a debtor has financial difficulties and arranges a settlement with multiple creditors.

Where the Promisee is Bound by an Existing Contractual Duty to a Third Party

  • The promisee can provide valid consideration by fulfilling a contractual obligation to a third party.

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Contract Handout 3 - Consideration PDF

Description

This quiz focuses on the concept of consideration in contract law. You'll explore what makes a promise legally binding and the differences between gratuitous promises and those that are enforceable. Understand how consideration varies across common law and civil law systems.

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