-
Immensely important (more so than cause)
-
Note the parallel: Form requirements for donative agreements in the Civil Law, and Consideration in the Common Law!
-
Consideration as an additional requirement for the enforceability of informal promises in the Common Law
-
“Indication of Seriousness”
-
Not necessary for promises “under seal”
-
Literal and original meaning: Factors considered by the promisor when she promised; motivating reasons which induced the promisor to make the promise (Simpson)
-
Figurative usage: If consideration is “good”, this meant that the court found sufficient reasons for enforcing the promise (Atiyah). Atiyah recommends against the box-checking doctrine approach, but argues it should be “the considerations” that lead a Court to enforce a promise.
-
Development of a body of rules, a “doctrine” of certain and defined scope: Promises can have “good consideration” and still not be enforced for other reasons.
Origins of Consideration A.W.B. Simpson, “The Doctrine Consideration – Intro, in a History of the common law of Contract: The Rise of the Action of Assumpsit”: CB 214 -
Literal and original meaning was to gather reasons/factors and motive behind the promisor when she promised, later in the 19th century other issues separated from consideration (illegality, economic duress, unconscionabilty, etc.)
Atiyah, “Consideration: A Restatement” [excerpts]: CB 215 -
If consideration is “good” this meant that the court found sufficient reasons for enforcing the promise; Atiyah argues that consideration need not be abolished – but other justifications for deciding what promises are enforceable are needed.
-
The conventional account of the “doctrine of consideration” no longer accords with the law actually enforced.
-
Doctrine of consideration is not based on fixed rules that froze in late 19th c.
-
The courts never tried to create a doctrine of consideration – instead they’ve decided which promises to enforce (and therein found ‘good’ consideration).
-
So – consideration is a reason for the recognition of an obligation (assumes that consideration is necessary for enforceability and that law is rational).
-
Nothing inconsistent now seen in finding consideration but refusing to enforce the transaction because it’s illegal or because there was no intent to create legal relations.
-
Sometimes there are good reasons for enforcing gratuitous promises: “courts often enforce promises which are not bargains, and … they do so for reasons of justice and good policy.”
-
It may be wise to enforce gratuitous promises more widely (including unrelied-upon gratuitous promises), but not to the same extent as commercial promises; we need to consider more closely the kind of circumstances in which people do rationally make gratuitous promises
Bargain Theory
“An Act or forbearance of the one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise this given for value is enforceable.” (Sir Frederick Pollock)
Clear Situations
-
Promise in exchange for immediate economic value: enforceable
-
Promise in exchange for promise of economic value: enforceable
-
Charitable/gratuitous promise: not enforceable (except if made under seal)
Does it make sense that promises to make a gift are not binding, whereas an actual gift cannot to be revoked? Why should delivery make a difference? Because delivery (actually giving something away) could be seen as performing the function of a formality: It is both evidentiary and cautionary
See Art. 1824 (2) CCQ!
“A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”
Consideration does not look at the contract as a whole, but goes to each promise to see if there was a quid pro quo for each promise given (object exchanged for an act or forbearance)
|
Consideration in Bilateral Contracts
In bilateral agreements: a promise is exchanged for a promise (consideration is the other’s promise); mutuality of the promise (e.g. settlement of a lawsuit is a promise whereby one party pays money in return for the other party not suing them).
Promise
A B
Consideration
(A buys B’s promise; B buys A’s promise)
|
Consideration in Unilateral Contracts
In unilateral agreements, the promise one wishes to enforce is exchanged for an act or forbearance
A truly unilateral agreement can be restated in this formula: If you do (or not do) x, I promise y
The doing of the requested act or complying with the request to forbear simultaneously accepts the offer and provides the consideration rendering the promise enforceable (e.g. finding a dog for a reward)
Promisee must give something; promisor need not receive anything
Consideration is through performance, unless
A B there is performance, there is no consideration
Performance
|
All informal promises need consideration – always ask has there been a bargain (has the promise been bought?)
CML – Holt v Feigenbaum, 52 N.Y. 2d 291 (N.Y. 1981): CB 225 |
Jurisdiction
|
USA
|
Facts
|
Plaintiffs and defendant were shareholders in a company which defaulted on a loan. Plaintiffs had signed a personal guarantee to the bank, agreeing to be jointly and severally liable for the full amount of the loan in the event of default. The defendant had not signed this guarantee. All of the shareholders in the company, including the defendant, also entered into a cross-indemnity agreement in which each promised to contribute a pro rata share of the loss incurred by any one of them who should be held liable to the bank as a result of his personal guarantee. The company defaulted on its loan, and the bank recovered the amount owed in full from six of the company’s shareholders. The six shareholders in turn attempted to recover the monies owed to them under the cross-indemnity agreement, but the defendant did not honour his pledge, arguing that the promise was unenforceable for lack of consideration.
|
Issues
|
Was the cross-indemnity agreement entered into by the defendant unenforceable for lack of consideration?
|
Holding
|
No Holt.
|
Reasoning
|
Gabrielli J:
-
The Court says that F’s claim that he promised, but he can’t benefit and therefore there is no consideration is a faulty theory. F’s promise induced a promise from the other shareholders by which they lost something and that is enough. The others incurred a loss from relying on his promise and that means there is consideration.
-
Defendant argues that because he had not signed the guarantee to the bank in the first place, he did not benefit from the cross-indemnity agreement entered into with the other shareholders
-
Although this is true, benefit to promisor is not the only requirement: “A specific, bargained for legal detriment may enforce a promise against the promisor, notwithstanding the fact that the latter may have realized no concrete benefit as a result of the bargain.”
-
All contract law springs from the tort of assumpsit – this is where someone promises to undertake something, breaches the promise, and as a result, the other party incurs a detriment.
-
In this case, the plaintiffs incurred the detriment of being obliged to share costs with anyone who was made to fulfil the guarantee to the bank
-
The defendant’s promise induced reliance on the part of the plaintiffs and induced them also to enter the cross-indemnity agreement.
|
Ratio
|
Consideration may be in the form of a detriment to the promisee when no benefit is incurred by the promisor.
|
Comments
| -
There is a long historical section in this judgment about the importance of detriment. Eventually “an action in assumpsit [“he has undertaken”] could… be maintained upon a showing of any detriment, loss, or disadvantage to the promisee arising from the bargain.”
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CML – Hamer v. Sidway (1891), 124 N.Y. 538 (C.A.): CB 221 |
Jurisdiction
|
USA
|
Facts
|
A nephew had been promised by his uncle that if he did not drink, use tobacco, swear, or gamble until he 21 years of age, his uncle would pay him $5000. The nephew agreed, and fulfilled his part of the obligation. When he turned 21, he wrote his uncle and informed him that he had performed in full and was therefore entitled to the $5000. The uncle replied, acknowledging his promise to pay him $5000, and saying that he would keep the $5000 in the bank for his nephew until he would be “capable of taking care of it”. In the postscript, he added, “You can consider this money on interest.” The nephew consented to these terms and conditions. The uncle passed away without having paid any portion of the $5000 and interest.
|
Issues
|
Was there good consideration for this agreement?
|
Holding
|
Yes Nephew.
|
Reasoning
|
Parker J:
-
The first question is whether abstaining from drinking, using tobacco, swearing, or gambling counts as consideration. The defendants argue that because performance of these conditions in fact conferred a benefit on the promisee, rather than a detriment, they are not consideration
-
However, jurisprudence shows that the surrender of any legally protected right is sufficient consideration to uphold a contract. In this case, the nephew gave up his legal rights to drink, use tobacco, etc., thereby restricting his lawful freedom on the faith of his uncle’s agreement. Therefore, the first agreement was legally enforceable.
-
The second question was whether or not the uncle’s reply to the nephew’s claim for the $5000 constituted a continuation of the debtor-creditor relationship, or whether it created a new relationship of trustee-cestui que trust
-
The language of the uncle’s letter to his nephew assured him that the money would be held for him without interference, with interest, until he would be ready to take care of it. All of the elements necessary for the creation of a trust were present
|
Ratio
|
Consideration “consists either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other.”
|
Comments
| -
Restriction of future freedom is consideration enough to make a promise enforceable.
-
Claim in CML to enforce the contract against the estate is barred – debts are paid out of the general patrimony of a debtor, but once a trust is formed, the property is no longer part of the settlor’s patrimony, so the judge finds that the $5000 is no longer part of the uncle’s assets (patrimony)
-
People regularly sell their “beneficial interest” in a trust
-
The fact that the debt has been sold twice indicates a high degree of reliance (the person suing had paid twice for this debt).
|
|
On Consideration and Inducement
“It is said that consideration must not be confounded with motive. It is true that it must not be confounded with what may be the prevailing or chief motive in actual fact. A man may promise to paint a picture for 500 dollars, while his chief motive may be a desire for fame. A consideration may be given, and accepted, solely for the purpose of making a promise binding.
But, nevertheless, it is the essence of a consideration, that, by the terms of the agreement, it is given and accepted as the motive of inducement of the promise. Conversely, the promise must be made and accepted as the conventional motive or inducement or furnishing the consideration.
The root of the whole matter is the relation of reciprocal conventional inducement, each for the other, between consideration and promise.” (O.W. Holmes Jr.)
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The Bargain Test
“It is said that consideration must not be confounded with motive. It is true that it must not be confounded with what may be the prevailing or chief motive in actual fact. A man may promise to paint a picture for 500 dollars, while his chief motive may be a desire for fame. A consideration may be given, and accepted, solely for the purpose of making a promise binding.
But, nevertheless, it is the essence of a consideration, that, by the terms of the agreement, it is given and accepted as the motive of inducement of the promise. Conversely, the promise must be made and accepted as the conventional motive or inducement for furnishing the consideration.
The root of the whole matter is the relation of reciprocal conventional inducement, each for the other, between consideration and promise.”
Remember the principle of “mutual inducement”
Lack in cases of past consideration
-
First level of analysis:
Action taken before the promise is made: “Past Consideration”
No consideration under the Bargain Test!
CML – Roscorla v. Thomas (1842), 3 Q.B. 234: CB 230 |
Jurisdiction
|
USA
|
Facts
|
Roscorla (plaintiff) bought a horse from Thomas (defendant) for £30. After the sale, defendant promised that the horse was sound and not vicious. Horse turned out to be vicious and the defendant initiated an action for breach of warranty of the soundness of a horse.
|
Issues
|
Was the purchase of the horse consideration for the warranty, i.e. a promise that the horse was in good condition?
|
Holding
|
No Thomas.
|
Reasoning
|
Denman J:
-
The sale was concluded before the promise of the horse’s fitness – the court sees the warranty as a fresh new promise with no consideration.
-
“The promise must be coextensive with the consideration” but it came afterwards – see evidence in the text itself (“bought” always preceding “promised”)
-
A promise must be bargained for – if there is no reciprocity, there is no consideration.
|
Ratio
|
Past consideration is no consideration.
|
Comments
| -
Now we have consumer protection acts that imply guarantees.
|
-
Second level of analysis:
Can there be an exception to the rule of past consideration? “Moral obligation”
Mills v. Wyman, Supreme Judicial Court of Mass. (1825): Promises in consideration of moral obligations “the law has left to the interior forum, as the tribunal of conscience has been aptly called.”
Webb v. McGowin, Court of Appeals of Alabama (1935):
-
Webb saved McGowin’s life from an accident which left Webb disabled for life. In gratitude, McGowin promised to pay Webb $15 every two weeks for the rest of Webb’s life, payments were made for 8 years, McGowin dies and estate resists further payment.
Moral obligation: “Having received a material benefit from the promisee, [promisor] was morally bound to compensate him for the services rendered.”
“I do not think that law ought to be separated from justice, where it is at most doubtful.”
Is any bargained-for consideration sufficient?
“It is an elementary principle that the law will not enter into an inquiry as to the adequacy of consideration.”
“Severe inadequacy of consideration may be relevant to the determination of the existence of fraud or the applicability of the doctrine of unconscionability, but it does not preclude a finding of sufficient consideration.”
The Peppercorn Theory
Anything given in return for a promise is enough, even if it is a peppercorn. (No inquiry into the adequacy of consideration!! Consideration must be sufficient but it doesn’t have to be adequate – it doesn’t matter what is paid but as long as something is given in return – even if it’s a peppercorn. Ba dum bump.)
What if the consideration is clearly “nominal”? It’s been made up to make the contract enforceable. There is an extra step here to cast the promise in the form of a bargain, and therefore, ensures seriousness/no rash decisions – remember “consideration as form”!
e.g. I’ll give you my house for $1
Consideration in the form of a bargain becomes a formality.
“it is an elementary principle that the law will not enter into an inquiry as tot he adequacy of consideration.”
“Sever inadequacy of consideration may be relevant to the determination of the existence of fraud or the applicability of the doctrine of unconscionability, but it does not preclude a finding of sufficient consideration.”
Donations and Manufacturer’s warranties are not binding.
Is any promise given for a promise good consideration?
It has to be a binding promise (there would be some kind of conditions for rescinding the promise). If it is not, then you have given nothing, not even a peppercorn.
There must be “Mutuality of Obligation”
Both parties must be under a REAL obligation, even if that obligation is implied.
If consideration for a promise is a promise, the essence of this consideration is not its economic value, but the fact that it is a commitment that restricts future freedom.
Is one of the promises “illusory”?
If the promise appears to be conditional on an event that is entirely within the promisor’s control (saying, in effect: “I will if I want to”) or if the promise is coupled with a power to terminate the agreement at will without notice, these are illusory promises.
CML – White (Executor) v. William Bluett (1853), 23 L.J. Ex. 36: CB 220 |
Jurisdiction
|
UK
|
Facts
|
The defendant had owed his father a debt. The now-deceased father’s estate is suing the son on the promissory note which acknowledged the debt. The son claims that his father had promised to forgive the debt if the son would stop complaining that his share of the father’s property was not equal to the shares given to the other children. The son asserts that because he had kept his part of the bargain, he was entitled to the forgiveness of the debt.
|
Issues
|
Was there consideration sufficient to enforce the father’s promise?
|
Holding
|
No White.
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Reasoning
|
Pollock:
-
There can be no binding promise without consideration.
-
Forbearance or abstention from doing something one has no right to do in the first place cannot serve as consideration for a contract. (One cannot waive a right one does not have).
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Ratio
|
The waiving of a right one does not have in the first place cannot count as consideration to make a promise enforceable.
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Comments
| -
Once there is a written relationship, flimsy consideration is going to be less effective in trying to turn over this relationship (i.e. parties who knew to write a promissory note also knew enough to write down a change to it)
-
Son still had a right to complain, so this is not forbearance from rights, but forbearance from action (unlikely that parties intended to create a legally binding agreement (McCamus).
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CML – Miami Coca-Cola Bottling Co. v Orange Crush Co. |
Jurisdiction
|
USA
|
Facts
|
Orange Crush gave Miami Coca-Cola the exclusive right to bottle and distribute Orange Crush in a designated territory. Orange Crush agreed to supply concentrate and to advertise in the territory. Miami Coca-Cola agreed to purchase a specified amount of concentrate and use its best efforts to promote sales. The agreement was a perpetual license but Coca-Cola had an option to terminate at any time. After one year Orange Crush terminated the agreement and Coca-Cola sued to compel performance. The court dismissed the case on the grounds that the contract was unenforceable for lack of mutuality of performance and Coca-Cola appealed.
|
Issues
|
Was there a binding contract?
|
Holding
|
No Orange Crush.
|
Reasoning
|
Bryan J:
-
If a party’s obligation under a contract may be terminated at any time, the other party may terminate the contract at any time also, regardless of its contractual obligation (i.e. the contract is void).
-
Specific performance will be denied for want of mutuality of performance.
-
In this case, the consideration was a promise for a promise, but Coca-Cola did not actually promise anything because they could cancel the contract at any time – therefore, the contract lacked consideration and could not be binding.
|
Ratio
|
A promise for a promise is only valid when both promises are binding.
|
Comments
| -
This is an example of an illusory promise.
-
Coke is seeking to enforce OC’s promise – but OC was the only party who was effectively bound by the contract, and because Coke had made no reciprocal promise to that effect, OC’s promise was not binding either.
-
What is the promise in question here? Must there be consideration for each promise within a promise?
-
Power of cancellation – on entire contract – each promise in the contract is dependent on Coke’s being willing to continue. The fact that this sole condition exists is enough to render the entire contract void.
|
Or can a promise insubstantial on its face be read as not being “illusory”?
The principle of mutuality is satisfied where, although a party does not seem to have made a promise if regard is had only for the party’s explicit words, a promise is nevertheless implied from the party’s words or actions. In such cases, the implied promise serves as consideration just as if it were an explicit promise.
Mutuality
Mutuality is satisfied where, although a party does not seem to have made a promise if regard is had only for the party’s explicit words, a promise is nevertheless implied from the party’s words or actions. In such cases, the implied promise serves as consideration just as if it were an explicit promise (Wood v Lady Duff-Gordon)
Here Defendant claims that she was obliged to pay him, in case he felt like doing something – he can do work but has no obligation
The judge ruled that the promise was not illusory through an “implied duty of reasonable efforts” – this is now codified in the UCC
CML – Wood v. Lucy, Lady Duff-Gordon (1917), 118 NE 214 (C.A.): CB 228 |
Jurisdiction
|
USA
|
Facts
|
Defendant is a fashion diva – goods issued under her name have increased market value. She hired the plaintiff, who was given the exclusive right to place her endorsement on the designs of others, place her designs on sale and to licence others to market them. She was to receive 50% of all profits and revenues. This exclusive right was to last a year, with possibility to terminate agreement by notice of 90 days. Defendant placed her endorsement on goods without his knowledge and not granting him his share. Plaintiff sued for damages.
|
Issues
|
Even though the contract does not specifically mandate the plaintiff to act, is there an implied promise that constitutes consideration?
|
Holding
|
Yes Wood.
|
Reasoning
| -
The question is – did W actually agree to do anything?
-
D-G says that there is no consideration because W does not actually have to do anything – but W could not have made money without work
-
There was an implied promise that W would work hard – more to the contract than meets the eye (“The law has outgrown its primitive stage of formalism where the precise word was the sovereign talisman, and every slip was fatal”… the promise was “instinct with an obligation”
-
There was sufficient consideration in the implied promise made by the plaintiff to assume duties (monthly accounting, responsibility for patents and trademarks, etc.) in order to earn his 50% - there was business efficacy the contract is enforceable
-
“Without an implied promise, the transaction cannot have such business efficacy as both parties must have intended that in all events it should have” (intention to create legal relations)
|
Ratio
|
Even if an express promise is lacking or “imperfectly expressed,” when both parties assume duties (test of business efficacy), there is consideration and the promise is enforceable.
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Comments
| -
In a bilateral agreement, either party can sue – but if W failed to perform, would/could D-G sue him?
-
Cardozo refers to formal written contracts as “primitive” (interesting because contractual arrangements are often seen as the pinnacle of modernism, as opposed to “primitive” custom)
-
Now codified in the UCC!
|
Uniform Commercial Code
§ 2-306. Output, Requirements and Exclusive Dealings.
(1) […]
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
Mutual Obligation in Unilateral Cases
The very nature of unilateral cases means that mutual obligation cannot be applied.
CML – Dahl v. HEM Pharmaceuticals Corp., United States Court of Appeals, Ninth circuit, 7 F. 3D 1399 (1993): CB 228 |
Jurisdiction
|
USA
|
Facts
|
HEM promised Dahl and other patients a year’s supply of an experimental drug at no charge in exchange for their participation in a testing program for FDA approval. The patients submitted to the tests, but upon completion of the program, HEM ceased to provide them with the drug, arguing that because the patients had participated voluntarily and had been free to withdraw at any time, there was no binding obligation and no consideration.
|
Issues
|
Was there mutual obligation and thus consideration in the contract?
|
Holding
|
No mutual obligation in unilateral contracts, but there was consideration Dahl.
|
Reasoning
|
Kleinfeld J:
-
HEM entered into a unilateral contract. The patients fully performed the conditions for acceptance (participation in the experimental program), resulting in a binding obligation for HEM to provide them with a year’s supply of the drug at no charge.
-
By incurring the detriment of undergoing “intrusive and necessarily uncomfortable testing,” the patients provided consideration for the contract.
|
Ratio
|
Detriment incurred by a party performing the conditions for completion of a unilateral contract is sufficient consideration to make the contract binding upon completion.
|
Synthesis and analysis
-
Very little discussion of the appropriateness of enforcing the promises in White and Hamer – judges hides behind consideration (Wood is an exception)
-
White turned on law, not facts – but weight is given to the uncle’s statement in front of everyone in Hamer
-
In White, abstention from complaining was found to be not consideration; in Hamer, abstention from drinking/etc was found to be valid consideration
-
Consideration was found in Hamer and Wood – some of the reasons may be revealed in the table:
-
FULLER
|
White
|
Hamer
|
Wood
|
Clear evidence of promise?
|
no
|
yes
|
yes
|
Promisor’s awareness of undertaking a legal obligation?
|
?
|
yes
|
yes
|
Typical of a commercial exchange?
|
no
|
no
|
yes
|
OTHER
|
|
|
|
Reliance, unjust enrichment?
|
no
|
reliance (debt had been sold)
|
?
|
CML – Stott v. Merit Investment Corp. (1988), 63 O.R. (2d) 545 (C.A.): CB 232 |
Jurisdiction
|
Ontario (?)
|
Facts
|
Stott was a salesman for Merit and purchased gold future contracts for a customer, Guyenot. Stott sold two of Guyenot's contracts when Guyenot’s margins diminished. Guyenot complained to Stott's superior Douglas, who authorized the repurchase of the two contracts and accepted a post-dated cheque. Cheque bounced and Guyenot's accounts were sold out. Price of gold declined, Guyenot owed $66,000 to Merit. Stott was asked to sign a document stating his unconditional responsibility for the debt, which he did in exchange for forbearance of suit and continued employment at the company. Sums deducted from Stott's subsequent commissions (payable in full in the event of his resignation). Stott signed another document in which he agreed to pay $35,000 if a settlement was reached with Guyenot. Stott resigned and brought an action to recover the amount that had been deducted from his commissions.
JUDICIAL HISTORY: Trial judgement: was Stott liable for Guyenot's debt to Merit? Judges found that he was not, since the losses were a result of the intervention of Stott's superior. Merit Appealed.
|
Issues
|
Was there valid consideration (on the part of Merit) for Stott’s promise to pay for his client's debt?
|
Holding
|
Yes Merit.
|
Reasoning
|
Finlayson JA [majority]:
-
Distinguish question of fact and question of law: evidence for consideration was there.
-
Was the claim a bona fide at the time it was asserted? Stott had clearly acknowledged his indebtedness in the first document he was asked to sign. Subsequent conduct reaffirmed this. Forbearance to sue was valid consideration because both parties at the time believed it to be valid, even if it was in fact not valid. Trial judge made no finding that Merit had acted in bad faith.
-
Stott's concern for his future at the firm was incentive for him to sign the documents.
-
Observe this case from a businessman's perspective: Stott's original employment conditions did not make him liable for the default of his customer. His superior's acceptance of the post-dated cheque reduced Stott's liability for Guyenot's account, but his acknowledgment of the debt by his signature meant that he accepted responsibility.
Blair JA [dissenting]:
-
Intervention of his superior exonerates Stott from liability on the Guyenot account.
-
Stott was not liable in his employment contract; therefore Merit had no claim against Stott.
-
Fall-off in market activity leading to the portion of Stott's bonus being deducted is problematic. Payment of the bonus was made under the original contract. Manipulation of such employee benefits provides no consideration for the agreement.
|
Ratio
|
Where both parties are found to be in good faith, even if consideration is not valid in law, the fact of both parties believing that the consideration was valid is enough to render the promise enforceable. (“If you’re giving up a right that you don’t actually have as consideration for a promise, you must at least be in good faith that you have that right.”)
|
Comments
| -
Couldn’t the doctrine of duress apply in this case? If Stott was afraid of being fired, and signed because of that fear, perhaps that could invalidate the contract.
-
We are not dealing here with the duress element to this K (law will not enforce a K if someone did not sign it freely enough)
-
Other possible (policy) reason for having enforced this K: trying to encourage settlement-once-and-for-all
-
Employee benefits may be exchanged as consideration in return for something from employee (promise not to fire is consideration, but promise not to quit is not)
-
Implicit forbearance is sufficient consideration
|
Pre-Existing Duty Rule
A promisor does not give a sufficiently substantial promise if she promises to do something she is already obliged to do. You can’t ask to be paid for something you are already obliged to do.
-
Has the promisor made a new commitment, adopted a new constraint?
-
Public duty? (ie. Policemen…this is to avoid corruption)
-
Contractual duty? (Duty owed to a third party, Duty owed to the promisee)
-
Example: duty owed to a third party occurs when a party (A) promises another (B) to do something for a third party (C), there is no contract between A and C, B has an obligation with C, A tries to get extra money from C in exchange for delivery (which he was already obliged to do for A)
One-Sided Variation of the Agreement
-
The Pre-Existing Duty Rule produces reasonable outcomes in situations where one party exploits the other party’s need to have the pre-existing duty performed by exacting an additional fee.
CML – Harris v. Watson (1791), 170 E.R. 94 (H.L.): CB 231 |
Jurisdiction
|
UK
|
Facts
|
Plaintiff was a seaman on board a ship, of which the defendant was the commander and owner. Defendant offered additional wages for extra work because the ship was in danger. The freight was lost. The seaman was not paid. Plaintiff brought suit.
|
Issues
|
Can an implied condition exist as a claim of an exception to a valid contract based on dangerous situations?
|
Holding
|
No Watson.
|
Reasoning
|
Lord Kenyon:
-
If the freight of a ship is lost, then all the wages are lost
-
Matter of policy: a way of preventing seamen from extorting money in times of crisis
-
The condition for the additional wages was for the freight to arrive successfully?
|
Ratio
|
Rule based on public policy: avoid exploitation in times of crisis.
|
Comments
| -
No doctrine of consideration at this point – this was a serious public policy question. It would have been bad public policy to enforce this promise because it would have had an effect of sailors extorting extra pay in dangerous conditions.
-
No doctrine of duress either
|
Stilk v. Myrick, [1809] EWHC KB J58, (1809) 170 ER 1168; KB |
Jurisdiction
|
UK
|
Facts
|
Plaintiff was a seaman on a ship from London to the Baltic. Two sailors deserted. As a result the captain offered to split their wages equally among the remaining sailors if two substitutes could not be found before the ship's return to London. Plaintiff was not paid and filed an action to recover wages.
|
Issues
|
Was the plaintiff entitled to additional pay for extra work on the ship in a time of emergency?
|
Holding
|
Fuck no Myrick.
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Reasoning
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Agreement void of consideration – extra wages were promised for a duty that had already been agreed to for the original wages
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Conditions of the voyage, including times of emergency, were already agreed to
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Desertion of two seamen created an emergency – the rest of the crew were still bound by the terms of their original contract
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Ratio
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Agreements stemming from a pre-existing duty are void for lack of consideration – there is no new consideration than one already given for another obligation. In other words: No consideration for contract when X is giving Y something that Y was already entitled to.
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Comments
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It’s a hard life. Go get a union job.
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Doctrine of consideration starting to develop.
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CML – Kirksey v. Kirksey 8 Ala 131; 1845 Ala.: CB 245 |
Jurisdiction
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USA
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Facts
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Plaintiff was the wife of the defendant’s brother and had several children but had been a widow, lived on her public land under a contract of lease and was comfortably settled. The plaintiff wrote to her saying “if you will come down and see me, I will let you have a place to raise your family, and I have more open land than I can tend, and on account of your situation, and that of your family, I feel like I want you and the children to do well.” Plaintiff moves to the defendant’s residence who put her in comfortable houses and gave land to cultivate for 2 years, after that he put her in an uncomfortable house in the woods and later asked her to leave.
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Issues
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Was the promise to give land legally binding?
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Holding
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No Defendant.
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Reasoning
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“The promise on the part of the defendant, was a mere gratuity, and that an action will not lie for its breach.”
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The brother-in-law made a promise that was not induced by consideration – was just doing her a favour thus the bargain test fails, she had consideration but he did not bargain for it.
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Ratio
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This was before the principle of promissory estoppel – today, she would have been allowed to stay in the house and on the land because of her reliance on the promise.
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Comments
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Ormond J, even at this time, believed that the detriment incurred of moving her entire family was sufficient consideration to support the promise, but he was over-ruled by the other judges on the bench.
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Her giving up her own place to live was not the price brother-in-law bargained for, therefore it didn’t count as consideration – bargain test fails
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Distinguished from Hamer v. Sidway because in this case, she did not expressly restrict her future freedom
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But this is like a unilateral contract – “move to my place and I’ll give you a place to live” – however, her move to his place was not the consideration intended – it was just incidental – if she moves, he will make her a gift. It’s not that he wants her to move.
Williston’s Example (1920)
“A benevolent says to a tramp, ‘if you go around the corner to the clothing shop there, you may purchase an overcoat on my credit.’ No reasonable person would understand that the short walk was requested as the consideration for the promise, but that in the event the tramp going to the shop the promisor would make him a gift”
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CML – Gilbert Steel Ltd. v. University Construction Ltd. (1976), 12 O.R. (2d) 19 (C.A.): CB 234 |
Jurisdiction
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Ontario (Court of Appeal)
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Facts
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Appeal of a dismissal of the plaintiff’s action in damages for breach of an oral agreement for steel delivery. Three steps: (1) original contract for supply of steel to three construction sites; (2) Modification of original contract for increased price of steel for the third site; (3) Oral agreement for a second price increase for second half of steel delivery for third site – fact of oral agreement not in dispute.
After third step (oral agreement), defendant accepted delivery of steel against invoices which reflected revised prices, but did not pay in full.
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Issues
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Was there consideration for the oral promise?
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Holding
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No University Construction.
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Reasoning
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CREATIVE ARGUMENT: Mutual abandonment of former contract is consideration enough to support the new agreement, which impliedly rescinds the old contract (rejected due to lack of evidence – a price increase is not enough in and of itself to rescind the old contract – no consideration there). It cannot be by implication only.
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Plaintiff promised to give a “good price” in the future (rejected for vagueness)
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Promise of 60 days credit for amount owed on original prices replaced by promise of 60 days credit for amount owed on new, higher prices is consideration (rejected because (1) no, it actually flows from the price; and (2) case used to support this claim was clearly distinguishable from the case at bar)
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Estoppel – by his conduct in accepting delivery against invoices reflecting higher prices, defendant had in effect acquiesced to the increase (rejected because estoppel cannot be used as a sword – i.e., never by the offeror; it also fails because estoppel requires detriment incurred for the plaintiff)
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Estoppel requires proof of (1) defendant giving up right to insist on original price; and (2) plaintiff’s reliance on this – neither happened. The oral agreement was a variation on the contract, not a new contract no consideration.
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Ratio
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Affirmation of the pre-existing duty rule – where an agreement has already been entered into, agreement to the same performance for a different price is not supported by consideration.
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Comments
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Bargaining power equal – savvy business people... mutual re-negotiation – why can’t this stand? We need to adapt this rule to circumstances different from the initial ship context
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Business relationship, no duress in this context, other party came back to the table and wanted to re-negotiate, and the other party even agreed.
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This case has been heavily criticized by K thinkers: the price of steel can’t be something that they hadn’t thought about (central to GS’s commitments) – it’s the supplier’s problem if his own supplies rise in price; doesn’t reflect a relational view of Ks
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They could have included an “escalator clause” whereby the price is permitted to fluctuate – instead they kept the price fixed, so depending on price fluctuations, either party could have benefited (allocation of risk has potential upsides and downsides)
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In this case, all the court had were the written documents – parties adjust documents regularly, but these parties didn’t do so formally (no seal on the adjusted [non-]K, which allowed GS to save money but eventually voided everything)
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CML – Williams v. Roffey Bros and Nicholas Ltd., [1991] 1 Q.B. 1 (C.A.): CB 238 |
Jurisdiction
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UK
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Facts
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Plaintiff is a carpenter, who was hired to carry out work in 27 flats by the defendants, building contractors who had entered into a contract to refurbish a block of flats. The carpenter was hired on three separate sub-contracts that were eventually superseded by a sub-contract in writing, in which the defendants would pay him £20,000 for the work. Implied term that the carpenter would receive interim payments, related to the amount of work done, at reasonable intervals. Carpenter received £16,200 after having completed a substantial part of the work, but a few months later, he was in financial difficulty. It was found that the price of the contract was not appropriate for this type of project, and the defendants agreed to pay the plaintiff the further sum of £10,300 so that the work would be completed on time. The defendants only paid £1,500 and the carpenter ceased to work. The defendants had to hire another carpenter but did not meet the deadline set by their contract with the Housing Association.
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Issues
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(1) Was there consideration for the defendants’ promise made during the refurbishing period to pay an additional price to the plaintiff? (2) Is the renegotiated agreement enforceable?
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Holding
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(1) Yes; (2) Yes Williams.
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Reasoning
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Roffey Bros. argue no consideration, pre-existing duty
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Denning in Ward v. Byham: consideration can be found in practical benefits to the promisor, even if promisee is just doing what they have to do anyways.
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Legal concept of economic duress: if a sub-contractor agrees to undertake work at a fixed rate, he could take advantage of the difficulties he will cause if he does not finish the job. The contract could therefore be void. Not found to be the case here (W didn’t hold Roffey Bros. hostage).
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Estoppel not invoked, therefore not applied here.
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Contemporary law: if promisor doubts that promisee will be able to complete his side of the bargain, and promises more money (not through duress or fraud) in return for having duties performed, he “obtains in practice a benefit, or obviates a disbenefit” that can count as consideration
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Consideration must flow from the promisee, but this can mean a detriment to him, or a benefit to the promisor without detriment to the promisee
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Ratio
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Consideration can be obtaining a benefit or obviating a disbenefit (actual or practical benefit is realized), even if receiving something already contracted for.
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Comments
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“Maverick” decision – has not enjoyed success since?
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How can this case be distinguished from Gilbert? There was a pre-existing duty, but because the new promise conferred a benefit (the work gets done because the carpenter doesn’t go bankrupt), and no detriment (questionable?) it is enforceable.
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The only distinction between this case and the Ontario CA’s Gilbert Steel decision seems to be the idea of duress (Gilbert Steel is trying to get a little too much money out of CUP)
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W identified problem and as a result obviated disbenefit, but W didn’t demand increase in price (cf. Gilbert Steel)
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What policy considerations are relevant/irrelevant/competing here? Shipmen’s/policemen’s duties (avoiding situations of extortion) vs. Sales on the open market (we want flexibility here).
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Sets aside a whole set of consideration cases as not being consideration cases but duress (unreasonable pressure) cases; no duress here, so we’re trying to find consideration
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Judges not clear on which of the possible options they accept as consideration – these would always be present in every scenario (the notion of benefit is stretched pretty thin)
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Judge was probably sympathetic to W’s genuine financial distress (no blame; RBNL shouldn’t benefit from W’s mistake), and that W kept performing longer than RBNL (RBNL didn’t pay – broke the deal first)
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