Prepared by Michael Bozzo, Mohawk College Part 3 – The Law of Contract Chapter 8 – Requirement...
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Transcript of Prepared by Michael Bozzo, Mohawk College Part 3 – The Law of Contract Chapter 8 – Requirement...
Prepared by Michael Bozzo, Mohawk College
Part 3 – The Law of Contract
Chapter 8 – Requirement of Consideration
© 2015 McGraw-Hill Ryerson Limited 8-1
Nature of ConsiderationSeal as a ConsiderationTenders
Adequacy of Consideration Past Consideration Quantum Meruit Debtor Creditor Relationship Gratuitous Promises (Estoppel)
© 2015 McGraw-Hill Ryerson Limited 8-2
Overview
ConsiderationSomething that has value in the eyes
of the law, and which the promisor receives in return for a promise
What a party gets in return for their promise
A benefit or a detriment
Nature of Consideration
© 2015 McGraw-Hill Ryerson Limited 8-3
MoneyServicesPromise not to do somethingRelinquishment of a rightDelivery of propertyPromise for a promise
Forms of Consideration
© 2015 McGraw-Hill Ryerson Limited 8-4
CharacteristicsA form of the bargaining theoryConsideration must be something
done for the promise givenGeneral rule is “no consideration = no
contract”
Nature of Consideration
© 2015 McGraw-Hill Ryerson Limited 8-5
A promise not accompanied by consideration
The promisor must get something in return for the promise or the promise is merely gratuitous
Gratuitous promise is not enforceable under law
Gratuitous Promise
© 2015 McGraw-Hill Ryerson Limited 8-6
Gratuitous services Must be performed with care and skill
(negligence still applies – sue in tort not contract)
Negotiable Instruments One is still liable on a check or note, and to
subsequent endorsers even though no consideration exists
Exceptions
© 2015 McGraw-Hill Ryerson Limited 8-7
Charitable DonationsMost charitable donations are gratuitous promisesIf charity can show a specific project undertaken
on strength of a donor’s pledge may be enforceable promise○ Needs to be a substantial portion○ Not enforceable if it is not a significant donation○ Generally difficult to enforce charitable
donations without strong consideration
Exceptions
© 2015 McGraw-Hill Ryerson Limited 8-8
SealA formal mode of expressing the intention to be
bound by a written promise or agreementA major exception to the rule of considerationThe deliberate act of placing a seal on a document
is intention to be bound by the agreementContract under seal requires no consideration
Seal as Consideration
© 2015 McGraw-Hill Ryerson Limited 8-9
TenderDiffers from the ordinary offerMerely an invitation to submit offersFirm asking for tender can reject or accept such
tendersIf tender is an offer, rules of revocation say it can
be revoked anytime before acceptanceTender generally uses seal to render offer
irrevocable; payment as money (deposit) as consideration
Tenders
© 2015 McGraw-Hill Ryerson Limited 8-10
General RuleCourt not concerned about the adequacy of
considerationPrice or value is up to the parties not the courtsException: if the promise was made under unusual
circumstances One cannot snap up an offer Inadvertent typos (rule of rectification)
Adequacy of Consideration
© 2015 McGraw-Hill Ryerson Limited 8-11
Consideration must be given before contract entered into and not after
Cannot be something the person received before promise is made
Cannot be something a person is already entitled to receive at law or under a present contract
Past consideration is no considerationNew contract requires new consideration
Past Consideration
© 2015 McGraw-Hill Ryerson Limited 8-12
Consideration must be legal The promises cannot be illegal or a violation of public
policy Asking for additional funds to complete a construction
project Promise to provide extra funds is gratuitous; new
promise requires new consideration Cannot violate Statutes
Contracts with clauses that buyer must resell at fixed or minimum price are unlawful under Competition Act
Legality of Consideration
© 2015 McGraw-Hill Ryerson Limited 8-13
Definition“As much as he deserves”A quasi-contractual remedy that permits a
person to recover a reasonable price for services and/or materials requested, where no price is established when the request is made○ Court decides on price based on price of similar
goods or services in the area
Quantum Meruit
© 2015 McGraw-Hill Ryerson Limited 8-14
Gratuitous reduction of a debtCreditors agreeing to accept less than what is
owed is a gratuitous promiseNew promise requires new considerationExceptions to this rule exist for business efficiency
Sign under seal Acceptance of something other than money Pay before the due date Third party makes the payment
Debtor-Creditor Relationship
© 2015 McGraw-Hill Ryerson Limited 8-15
Estoppel A rule whereby a person may not evade a
promise or deny the truth of a statement of fact made by him or her when another person has relied and acted upon the promise or statement
Promise enforceable without consideration Was only used as a shield (defense to a claim)
and not a sword (an action), but its use to advance a claim has widened
Equitable/Promissory Estoppel
© 2015 McGraw-Hill Ryerson Limited 8-16
Prevents retraction of promise if:1.The person making the promise intended it
to affect their relationship with the other person and intended that the promise should be acted upon.
2.The other person did rely upon the promise, and acted or changed their position because of it.
Essential Elements of Estoppel
© 2015 McGraw-Hill Ryerson Limited 8-17
ConsiderationEssential requirement of a contractGratuitous promises are not enforceableMust have value in eyes of law but need not be
valuableConsideration must flow from each party to the
otherA seal replaces considerationEstoppel is a defense available in certain
circumstances
SUMMARY
© 2015 McGraw-Hill Ryerson Limited 8-18