Contract Law: Consideration Basics

Questions and Answers

Why is consideration necessary for a contract to be enforceable?

It is the price of a promise. (correct)

It provides a nickname for the parties involved.

It outlines the location of contract signing.

It ensures contracts are written formally.

What is an example of valid consideration?

A friend promising to lend money.

A verbal agreement to meet for lunch.

Helping someone without any expectation of return.

A promise to behave respectably in exchange for a monthly sum. (correct)

When is a contract formed according to the rules of contract law?

When goods are delivered.

When parties exchange promises. (correct)

When the terms are written down.

When the price is agreed upon.

Which of the following cannot serve as consideration for new promises?

A promise to perform current legal duties. Signup and view all the answers

What constitutes a deed in contract law?

A written document enforceable without consideration. Signup and view all the answers

What characterizes express terms in a contract?

Clearly stated terms in a contract. Signup and view all the answers

What is a key feature of letters of intent in construction contracts?

They signify the intent to enter future contracts. Signup and view all the answers

Which of the following statements is true about implied terms in contracts?

Some implied terms are introduced by law or custom. Signup and view all the answers

What differentiates conditions from warranties in contracts?

Conditions are essential terms while warranties are less important. Signup and view all the answers

Which theory describes consideration as a benefit to the promisor or a detriment to the promisee?

Benefit-detriment theory. Signup and view all the answers

Study Notes

Consideration

Consideration is essential for a contract; it represents the price of a promise.
A contract without consideration is unenforceable.
Distinction between formal contracts (needs specific forms) and simple contracts (less formal) is crucial.
Valid consideration example: An ex-wife promising to behave respectably for a monthly payment.

Contract Formation

A contract is established through the mutual exchange of promises, not by the fulfillment of those promises.
A promise to deliver goods without consideration lacks validity as a contract.

Legal Rules on Consideration

Consideration must hold value but does not need to be equivalent to the promise's value.
Past actions cannot be used as consideration for new promises.
It can either be a detriment to the promisee or a benefit to the promisor.
Theories of consideration include:
- Benefit-detriment theory: focuses on the benefit received or detriment suffered.
- Bargain theory: emphasizes the mutual exchange of promises.

Existing Duty and Consideration

An existing legal duty cannot be considered as valid consideration for new promises.
Example: In Collins v Godefroy (1831), a promise to attend court was deemed invalid as consideration.

Exceptions to Existing Legal Duty

Fresh consideration can provide new grounds for promises.
Practical benefits can create exceptions in certain situations.
Third-party promises and the termination or replacement of contracts introduce additional exceptions.

Deeds

A deed is enforceable even without consideration if it adheres to specified formalities.

Letters of Intent

Commonly used in construction contracts to indicate intent to enter into a future contract.
These letters can be binding if they encompass all the elements of a valid contract.

Terms of a Contract

Express Terms: Clearly articulated within the contract.
Implied Terms: Not directly stated but included through statutes or common law principles.
Distinction between:
- Conditions: Major terms crucial to the contract.
- Warranties: Minor terms that are less critical.

Implied Terms by Law and Custom

Certain terms are automatically implied by law, particularly those that protect consumer rights.
Industry standards can also imply customary terms based on common practices within specific sectors.

Frustration in Contracts

A contract is deemed frustrated if an unforeseen event disrupts its commercial foundation.
Example: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) illustrates this principle.

Description

Explore the essential concepts of consideration in contract law, including its importance and the distinctions between formal and simple contracts. Learn about the validity of promises, examples of valid consideration, and the underlying theories of consideration.