Discuss what the term sufficient means in this context and whether the statement is accurate in regards to Australian contract law.?
The modern doctrine of consideration originated from the judgment of Lush J in the case of Currie v Misa ((1875) LR 10 EX 153) where he defined consideration as: ‘some interest, profit, right or benefit accrued to one party or some loss, forbearance, responsibility or detriment either undertaken, suffered or given by the other person’. This definition introduced the notion of consideration to be no promise can be made enforceable unless the promisee has agreed to give something in exchange of the promise. The doctrine of consideration emerged in England in the 19th century. Whilst the exact origin of the doctrine cannot be recognized categorically, the roots of the concept can be outlined from the medieval times. It is of great importance that the doctrine of the consideration has been recognized by law as a promise which itself is a valid consideration for another party’s promise. The concept of the doctrine has been adopted in Australia from the year 1788. Consideration is defined as a price for a promise made by the promissor to the promisee. Consideration is considered as an essential element to form a valid contract[1]. It makes the contract legally binding and enforceable by law. Sir Francis Pollock defines consideration as the promise is the price for which the promise of the other is procured and the promise made for the price is enforceable[2]. The doctrine of consideration must be sufficient and need not be adequate. Sufficiency and adequacy, in simple words, have similar meanings. However, in the legal parlance, the term adequacy signifies those situations where the price paid by a party is not proportionate to the price of what the party gets in exchange. A consideration is said to be sufficient in the legal parlance, it must be of some monetary value. A consideration besides amounting to monetary value, a consideration must be enough to be enforceable and recognized by law[3]. The doctrine of consideration must be made by the promisee but it may not essentially move to the promisor. Consideration is often proved to be more beneficial to the promissor or in other words, it is detrimental to the promisee. The consideration doctrine is defined as the price demanded by the promisor in return of the promise made to the promisee. The term ‘price’ needs not include money; it may include intangible benefits as well.
Consideration forms an essential element for a validating a contract[4]. The significance of a consideration in a contract is two-fold. Firstly, it acts as an evidential function that prevents commission of fraud that would have otherwise taken place had verbal promises were enforceable[5]. Secondly, it prevents the parties to the contract to make any casual promises instead; it includes promises that have a certain value[6]. In Currie v. Missa it was observed by the court that consideration must include something that is valuable in the eyes of law made from the promise. It must be beneficial to the plaintiff and detrimental to the defendant but in all circumstances, the promise or the plaintiff must make the consideration.
Consideration may be defined as a price for which the promise of another party is purchased. There are four essential elements associated with the doctrine of Consideration. They are: consideration must not be adequate, it must be sufficient; performance of a legal duty is not consideration; past consideration is not good consideration; half payment of a debt is not good consideration.
The rule that consideration has emphasized on the principle that consideration need not be adequate; it is valid if it is sufficient. This concept becomes evident if the decisions between the Chappel case and Ward v. Byham where it was stated by the court that the chocolate wrappers and a promise to satisfy a child both amounts to sufficient consideration. A consideration is said to be sufficient if the consideration posses economic value and is enforceable by law.
However, several instances render a consideration inadequate in the judicial system. Such instances may include ethical duty, natural affection and love, requests made by either of the parties to the contract[7].
The most important feature of the doctrine of consideration is that there is no need for a consideration to be adequate; it is valid if it is sufficient to bind the parties to the contract legally. Consideration having monetary value and enforceable by law is considered to be sufficient in the eyes of law. In the case of Chappell & co ltd, the facts of the case were such that Nestle made an advertisement that the customers shall be provided with a copy of musical records if the customers send three wrappers of the Nestle chocolate in 1/6 D together. The sellers of the musical record argued that the value was to be calculated on the 1/6 D in addition to the price of the wrappers. Nestle argued that the packaging had no price attached to them. The House of lord held that the covering were part of the consideration price. The consideration included both the purchasing of the chocolate for the covering and the payment of the price which attaches to value to Nestle. In this case, although the price value of the chocolate wrappers was disregarded, but since it was agreed upon that the wrappers of the chocolate could be held as a valid consideration the contract became legally binding.
Another rule that makes a consideration inadequate is the performance of any duty, which the party is otherwise legally bound to do. In the case of Collins v. Godefoy the plaintiff provided proof at a civil trial after he was served a subpoena where the defendant agreed to pay the plaintiff a certain amount of money as the plaintiff’s fee. However, the court held that the plaintiff is not allowed to recover the fee amount, as there was no consideration made for the promise and the plaintiff was lawfully bound to attend the trial as per the subpoena served upon him. It simple amounted to performing a legal obligation that the plaintiff was already lawfully bound to do. Again, if the plaintiff is bound legally by the terms and conditions of an existing contract and he makes another promise to perform the previous promise, the court considers such consideration inadequate.
In Re Wilson, the court observed that promises made out of natural love and affection are the kind of promises that are made within a family and such promises do not confer adequate consideration in the creation of a contract.
Further, the rule related to the concept of consideration is that a consideration is not a good consideration. It must be made either after a promise is made or with the promise itself. If the consideration stipulated in the contract has been fulfilled prior to the promise, the promise becomes unenforceable as it becomes a past promise[8]. It simply contemplates that if the consideration is already fulfilled then there is nothing left to be given in exchange for the promise made. In Eastwood v. Kenyon (1840), a warden took loan for raising a girl. After her nuptial, the spouse of the girl promised to pay-off the loan but such promise becomes unenforceable as the consideration is a past consideration and cannot be enforced upon the husband. However, there is an exception to this theory where past consideration is regarded as good consideration provided such consideration is made at the promisor’s request; the parties comprehended that they would become entitle to remuneration; if the promise was made prior to the act the promise would have been recognized by law.
The principle that consideration moves from the promise to the promisee denotes that the burden is on the promise to establish that they have provided consideration in return of the promise made to them by the promisor in order to make the contract enforceable. This rule was recognized in the context of the case of Williams v. Roffey that enabled the courts to be certain about which of the recipient of the promise would be liable to perform the promise.
Executory and executed consideration is a method where the plaintiff buys the promise or the offer of the defendant. Executor consideration may be defined as a return promise made by the defendant in exchange for the promise made by the plaintiff. In other words, any agreement that is intended to have effect in the future is termed as executory agreements. In case of executed considerations, either of the party executes his part of the promise in the contract and the other party has not executed his promise, and hence his promise remains to be executed that in the future[9].
Part-payment of a debt is not regarded as a good consideration whereas part-performance of an existing contractual duty is considered as a good consideration as stated in Stilk v. Myrick (1809). The payment of a lesser amount by the promisee does not exempt him from performing his part of the obligation to make the full payment in return for the promise made by the promissor. The payment of smaller sum is not considered as a good consideration as by making part payments of the debt the promise is performing the existing contractual duty that is due to be paid by him to the promissor. This rule has originated in the Pinnel’s case or Pinnel v. Cole (1602). In the case, Cole owed Pinnel a certain sum of money out of which he only made half payment and Pinnel accepted the same in full settlement of the debt. Pinnel afterwards, brought a legal suit against Cole for the remaining due amount[10]. It was held that part payment is not a good consideration in itself. However, later, it was held that if the debtor accepted the part payment the agreement would bind the debtor legally at the request of the creditor subject to the condition that fresh consideration had been included. The rule laid down in the Pinnel’s case was ultimately reaffirmed in the case of Foakes v. Beer. The facts of the case was such that the parties entered into an agreement that Foakes would pay $500 to Beer in part payment and the balnce amount shall be pain in installments subject to the condition that Beer would not bring any legal action against Foakes. However, Foaks initiated legal proceedings against Beer in order to recover the interests on the debt amount. It was held that the agreement could be enforced only if there was any consideration. The only consideration that was made was the payment of $500 that was already due and so it became a past consideration, which is not considered to be a good consideration. The remaining balance that was to be paid in installments cannot form a consideration unless the payment of the $500 amounted to be a consideration. According to the rule laid down under the Pinnel’s case any payment of a lesser amount do not constitute a good consideration for a promise and the remaining amount cannot be claimed. Hence, it was established that fraction payment of a debt is not consideration for a creditor to promise that the remaining or the due amount shall not be claimed.
There are certain exceptions applicable to the Pinner’s Rule: if the lesser amount is paid in prior to the promise made and the creditor accepts the same in the full payment of the arrears. If the less amount is paid in the form of an thing or object which is accepted by the creditor in settlement; if the lesser amount is paid along with the thing or object that is acceptable by the creditor. If a third party makes the payment of the lesser sum. If the promisor and the promisee enters into an arrangement where the the debtor promises to make part-payment to the creditor in exchange of a promise by the creditor that he will not sue the debtor for the full payment of the amount, the lesser amount paid shall extinguish the entire debt.
The doctrine of Equitable or Promissory Estoppel is another exception to the Pinner’s rule and is referred to as the rule in the “High Trees Case”. The doctrine denotes that where parties enter into legal relationship and either of them makes a promise that is intended to affect their legal relationship and the other party is required to rely upon such promise[11]. Once the other party relies and acts upon the promise and it changes their legal position, the party who made the promise cannot say that they had a different legal relationship, that is, the party cannot deny the promise he made[12]. This doctrine enables to make a promise without any consideration lawfully binding as stated in Combe V. Combe. Thus, this doctrine restricts a person from returning to the belief that he made the other person to believe in[13].
The law of contracts states that for a contract to be enforceable by law, it must include certain essential elements[14]. There must be an offer made by a party to another party indicating a willingness to enter into a contract. The other party must accept such offer as without an acceptance of an offer a contract cannot be formed. A contract to be valid must have a consideration as it binds the parties to the contract legally. To enforce a contract the parties must also possess an intention to make the contract legally effective. The final essential element to make a contract valid is the capacity of the parties to enter into a contract.
From the above discussion, it can be stated that in the contemporary business activities, consideration remains to be an imperative element in the formation of a valid contract as it ensures that the parties entering into the contract must have a sufficient consideration and they possess legal intentions to bind the contract. The purpose behind the necessity of the parties to the contract to have legal intentions is to make the contract legally effective. In Williams v. Roffey Bros, the approach adopted by Russel LJ was to make consideration a part of the intention of the parties to establish legal relations. It has always been argued that good consideration must be something that has a legal benefit but in this case it was held that good consideration shall be deemed as ‘practical benefit’. The essential exception to the doctrine of consideration has been recognized to be the doctrine of Promissory Estoppel. In Australia, the doctrine has developed certain pre-conditions following the case of Walton Stores. It is unreasonable for the courts to attach certain value to the services and goods and it must be left to the parties to the contract to settle on the value to be attached to the services or goods in order to determine whether a consideration is good or inadequate[15]. As stated by Lord Mansfield, “a robe; a hawk; a goblet; a tom-ti, if he chooses to regard it as good consideration”. As long as the consideration made by the promisee is acceptable by the promisor, anything can be regarded as a good consideration, held in the case of Thomas v. Thomas.
Reference
Adriaanse, Mr John. Construction contract law. Palgrave Macmillan, 2016.
Adriaanse, Mr John. Construction contract law. Palgrave Macmillan, 2016.
Alden, Eric. “Promissory Estoppel and the Origins of Contract Law.” Browser Download This Paper (2016).
Butler, Desmond, et al. “Contract Law Case Book.” (2013).
Carter, John. “Good Faith in Contract: Why Australian Law is Incoherent.” (2014).
Cartwright, John. Contract law: An introduction to the English law of contract for the civil lawyer. Bloomsbury Publishing, 2016.
DiMatteo, Larry A. “Pre-contractual Liability in the Common Law.” International Sales Law. Nomos Verlagsgesellschaft mbH & Co. KG, 2016.
Goldberger, Jeffrey. “Estoppel and contract.” Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 29.3 (2015): 16.
Gupta, R. K. “Promissory estoppel and legtimate expectation a comparative study.” (2015).
Hughes, Will, Ronan Champion, and John Murdoch. Construction contracts: law and management. Routledge, 2015.
Kane, James. “The Rule in Pennel’s Case: The Case for Repeal, a Mistaken Preponderance and Finding Consideration in Debt Renegotiations.” Dublin ULJ 37 (2014): 79.
Keyes, Mary, and Therese Wilson. Codifying Contract Law: International and Consumer Law Perspectives. Routledge, 2016.
Parkinson, Patrick, and Judy Cashmore. “Reforming Relocation Law: An Evidence?Based Approach.” Family Court Review 53.1 (2015): 23-39.
Robertson, Andrew. “Three Models of Promissory Estoppel.” Browser Download This Paper (2014).
Turner, Chris. Key Cases: Contract Law. Routledge, 2014.
[1] Adriaanse, Mr John. Construction contract law. Palgrave Macmillan, 2016.
[2] Hughes, Will, Ronan Champion, and John Murdoch. Construction contracts: law and management. Routledge, 2015.
[3]Turner, Chris. Key Cases: Contract Law. Routledge, 2014.
[4] Adriaanse, Mr John. Construction contract law. Palgrave Macmillan, 2016.
[5] Cartwright, John. Contract law: An introduction to the English law of contract for the civil lawyer. Bloomsbury Publishing, 2016.
[6] Butler, Desmond, et al. “Contract Law Case Book.” (2013).
[7]Keyes, Mary, and Therese Wilson. Codifying Contract Law: International and Consumer Law Perspectives. Routledge, 2016.
[8] Goldberger, Jeffrey. “Estoppel and contract.” Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia 29.3 (2015): 16.
[9] DiMatteo, Larry A. “Pre-contractual Liability in the Common Law.” International Sales Law. Nomos Verlagsgesellschaft mbH & Co. KG, 2016.
[10]Kane, James. “The Rule in Pennel’s Case: The Case for Repeal, a Mistaken Preponderance and Finding Consideration in Debt Renegotiations.” Dublin ULJ 37 (2014): 79.
[11]Robertson, Andrew. “Three Models of Promissory Estoppel.” Browser Download This Paper (2014).
[12] Gupta, R. K. “Promissory estoppel and legtimate expectation a comparative study.” (2015).
[13]Alden, Eric. “Promissory Estoppel and the Origins of Contract Law.” Browser Download This Paper (2016).
[14]Parkinson, Patrick, and Judy Cashmore. “Reforming Relocation Law: An Evidence?Based Approach.” Family Court Review 53.1 (2015): 23-39.
[15] Carter, John. “Good Faith in Contract: Why Australian Law is Incoherent.” (2014).
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