2014-03-04-lexisnexis-nz-q_a-contract.jpg

Consideration is one of the forming elements in a simple contract. There are several useful definitions of what is meant by consideration and it is helpful to keep in mind that there is an element of exchange involved in consideration. The exchange does not have to be equal in value.

Key issues

Before proceeding further, you should be familiar with these issues:

  • The meaning of consideration.
  • Consideration is an act of forbearance or a promise by the promise. What is meant by forbearance?
  • Consideration must move from the promisee but does not have to move to the promisor. What does this mean?
  • Consideration need not be adequate but must be sufficient. What is meant by adequate? What is meant by sufficient?
  • Consideration must be executory or executed but not past. Explain what is meant by these terms.
  • When may past consideration be good consideration?
  • Consideration must be present in all simple contracts. Distinguish a simple contract from a specialty contract.
  • It seems likely that consideration is not necessaru for a variation of an existing contract. Can you explain the development of the law in Williams v Roffey, Anton’s Trawling v Smith and Teat v Wilcocks?
  • What is the rule in Pinnel’s Case and what are the exceptions to that rule?
  • What are the requirements for creating promissory estoppel?
  • Consideration is not required where the agreement is expressed in a deed. What is a deed?

Common pitfalls

  • Failure to recognise that consideration may have been given in law (or may not need to be given) where an existing obligation to a third party is performed or where an existing obligation to the other party to the contract is performed. The interrelationship between Williams v Roffey, Anton’s Trawling v Smith and Teat v Wilcocks should be understood: Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991] 1 QB 1; Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA); Teat v Wilcocks [2013] NZCA 162.
  • Failure to deal with the exceptions to the rules on part payment of a debt.

Question 1

(a) Colin made the following promises:

  • to give his daughter, Diana, $1000 to give up her career as a model and become a social worker;
  • to pay Fred, who has a contract with the local newsagent to deliver the newspapers in the area, $5 if he delivers Colin’s newspaper by 6:30 am every day for a month and puts it through the mailbox without tearing it;
  • to give his old lawnmower to his neighbour George if George collects it from Colin’s garden shed.

(b)     Andrea’s car breaks down on a remote Westland road, many miles from the nearest town. A passing motorist, Bernard, stops and gives Andrea a tow to the nearest garage. On their arrival, a thankful Andrea obtains Bernard’s address and promises to send him $100 for his trouble. A month passes and Bernard still has not received the promised $100.

  • Advise Bernard whether he has an enforceable contract with Andrea for payment of the $100.
  • Would it make any difference to your advice if Andrea on seeing Bernard’s car approaching had waved him down and said to him: “If you give me a tow to the nearest garage, I’ll make it worth your while?”

Note: This separate-points question is quite a usual way of examining the basic rules of consideration. Always make sure that each part does not also contain any other possible topics as well as the one on consideration. For example, intention to create legal relations is often linked with consideration and should be included in your answer.

Answer Plan

  • You will need to consider the following in your answer:
  • Did Colin and Diana intend to create a legal (contractual) relationship?
  • Did Diana give any consideration for Colin’s promise?
  • Did Fred, by performing his contract with the newsagent, provide consideration for Colin’s promise to pay for early and undamaged delivery of the paper?
  • Is Colin’s promise to George a contract or a gift?
  • Is there consideration for Andrea’s promise to pay Bernard $100 for his trouble?

Question 2

It is local authority election year. The Bodley City Council is seeking to gain votes from three sports bodies, the members of which have been among the council’s sternest critics. Each of the three sports bodies has asked the council to let it have the use of a large area of vacant land belonging to the council. The council has decided to divide the area into roughly three equal parts and allocate each of the sports bodies one of the parts. The council, wishing to appear generous, has entered into a separate written agreement with each of the sports bodies. Arrow Archery Club has been allocated the eastern part of the land in return for the club removing a heap of stones from the land and levelling the area. The Crawlers Swimming Club has been allocated the western part of the land and the use of the lake, which is on the western part, for their swimming activities. In return the club is to give the swimming classes they have promised the principal of the local school they will take during the summer. The central part of the land is allocated to the Outdoor Pursuits Club in return for the club having organised a camping week for the disabled last year. All the agreements are for two years. The council has now received a very good offer from a local developer who wishes to buy the land. The council has asked you whether it has any contractual liabilities to the three clubs.

Discuss.

Answer Plan

You will need to consider the following in your answer:

  • Intention to create legal relations.
  • Consideration – executory, past, obligation to third party? Has consideration been given?

Question 3

Brown, a builder, agrees to build a granny flat extension to Black’s house for $175,000. Brown starts digging for the foundations of the granny flat and finds considerable water where he is digging. Further exploration reveals that the water is a spring draining from under Black’s house. The problem can only be cured by putting in extensive piping. Brown tells Black that he will only proceed with the granny flat if Black will pay an extra $8000 for the piping work. Black is upset about the additional price but agrees to pay it. Brown completes the granny flat. Black knows that Brown has several bills to pay in connection with the building of the granny flat and that creditors are pressing Brown for payment. Black gives Brown a cheque for $175,000 saying that he cannot afford any more. Brown reluctantly accepts the $175,000 “in full settlement”. A week later Brown discovers that Black has left for a world “package trip” worth $15,000.

Brown asks your advice as to whether he can claim the extra $8000 from Black.

Note: As usual in law there may be more than one approach to the solution and possibly more than one solution. The final answer would lie with the court. What is given here is one approach and one suggested solution.

Answer Plan

  • You will need to consider the following in your answer:
  • Has Brown given consideration for Black’s promise to pay the extra $8000?
  • Is Black able to claim the lesser payment as full discharge of the debt?: Pinnels’s Case (1602) and the Judicature Act 1908, s 92. (Note: for the purposes of the arguments here we are assuming that Brown will have given consideration for Black’s promise of additional payment of the $8000.)
  • Is Brown estopped from claiming the additional price?
  • Can Black raise an equitable defence such as estoppel?

 

For the full sample answers and more see Adams and Drake Questions and Answers: Contract Law (3nd ed, LexisNexis, Wellington, 2014).