Consideration (Contract Formation)

Question 1

What is consideration?

Answer 1

What one party gives (or promises to give) in exchange for the other party’s performance (or promise of performance)

Question 2

What is the purpose of consideration?

Answer 2

To distinguish between enforceable contracts and gifts/free services which are not enforceable

Question 3

What are the three rules?

Answer 3

• Consideration must be sufficient but need not be adequate
• Consideration must not be in the past
• Performing an existing duty is not good consideration

Question 4

Consideration must be sufficient but need not be adequate

Answer 4

• What is promised must be real/of some value, but it need not be the real or market value of the goods/services
• Can include a promise not to do something/giving something up which they are entitled to

Question 5

Case for when consideration was sufficient

Answer 5

Thomas v Thomas

Question 6

Case for when consideration was not sufficient

Answer 6

White v Bluett

Question 7

Past consideration

Answer 7

• Must not be something that was already done when the agreement is made
• If it has already been carried out, it was a gift: needs to be in return for another promise made as part of a contract

Question 8

Case for past consideration

Answer 8

Re McArdle

Question 9

Exception to past consideration

Answer 9

If one party acted at the other’s request and it was understood all along that payment would be made later, then past consideration would be valid

Question 10

Case for exception to past consideration

Answer 10

Lampleigh v Braithwaite

Question 11

Performing an existing duty

Answer 11

If you promise to do something you already have to do, it’s not good consideration as you are obliged to do it anyway (contractual obligation/public duty)

Question 12

Case for performing an existing duty

Answer 12

Stilk v Myrick

Question 13

Exception to performing an existing duty (extra)

Answer 13

If you do more than your existing duty/provide some extra practical benefit to the promisor, this can be good consideration

Question 14

Case for exception of performing an existing duty (extra)

Answer 14

Hartley v Ponsonby

Question 15

Exception of performing an existing duty (third party)

Answer 15

A promise to perform a contractual duty owed to a third party is good consideration

Question 16

Case for exception of performing an existing duty (third party)

Answer 16

Scotson v Pegg