Australia September 22 2021 Show
For a valid contract to exist, there must be consideration on the part of each party that enters the contract. What is Consideration? In simple terms, where a promiser has made a promise to a promisee, the latter must in return give the promisor something in order to make the promise binding. That is, consideration is the mutual exchange of promises (see Eastwood v Kenyon (1840) 113 ER 482). For example, if Hugh promises to do renovations on Neil’s house, Neil might give Hugh $10,000.00 as consideration to make the promise binding on Hugh. What does Consideration do? It makes a promise enforceable. What constitutes Consideration? The Australian Courts have applied the following elements when determining whether there has been consideration.
What if the Consideration is disproportionate? Generally, the law does not intervene with respect to the value of the consideration exchanged unless the two promises are so disproportionate in value as to demonstrate unconscionability in the bargaining process. While consideration need not be adequate, it must be legally sufficient (see Woolworths Ltd v Kelly (1991) 22 NSWLR 189). When is Consideration not required? Consideration is not required when:
What if the contract does not have Consideration? The contract may be unenforceable. However, this relies on the unique circumstances of the situation. Whenever there is uncertainty of whether a contract has sufficient consideration, it is crucial that you obtain proper legal advice. It sounds simple enough, someone offers you something and you sign a contract to receive it. However, it’s actually quite possible that this contract will not be enforceable. Alternatively, if you signed the contract and offered $1 as consideration, you likely would not have this problem. In this article, we’ll discuss what consideration is and how it forms a crucial part of a contract. For a contract to be valid, there needs to be an offer, an acceptance of that offer, and consideration. Generally, a Court will not enforce a contract where there’s been no exchange of one thing for another. However, there may be exceptions when dealing overseas with international contracts.
What is it?Consideration is essentially the price of a contract or for what the contract provides. More often than not, this is by way of money. However, it does not have to be strictly monetary. In fact, consideration can take the form of an ‘act, forbearance or a promise.’ An example of a promise can be seen in historical transfers of land. A spouse transferring property into both spouses’ names could list the consideration from the other spouse as ‘love and affection.’ The range of things that can be consideration is extremely broad. It has even been deemed to include Peppercorns, despite whether or not the seller would use them. Subsequently, if you wanted to give your house to your friend, for a contract to be valid they would need to provide something. This could be them paying $1 or buying you dinner. However, if something isn’t provided by both parties to a contract, then it won’t be enforceable. Despite this, there are several rules that regulate what is and isn’t consideration. As such, the law of contracts can be quite difficult to navigate and understand without the advice of a lawyer. International LawConsideration is an essential part of Australian Law and stems from the common law tradition. However, laws in other countries differ. This can be seen in European countries – where it’s not required to enforce contractual obligations. This can effect Australian contracts, or companies who are parties to these contracts. An example of this is where an Australian business engages in a contract with an overseas company. The other party may be subject to an exclusive clause which binds both parties to the law in the contract. Even though the company may not have supplied consideration, the contract may still be enforceable. Moreover, this issue is compounded by the inclusion of international treaties such as the United Nations Convention on Contracts for the International Sale of Goods. ConclusionIn Australia, one of the fundamental elements of a legally binding contract is consideration. Without consideration, there is no exchange of promises, and no ‘payment’ for the good received. If you sign a contract which does not have consideration, it is likely that it will not be enforced by the Court. If you’re unsure as to whether your contract is legally enforceable, it is worth speaking to a contract lawyer.
He’s almost always the youngest person in the room but when Stipe speaks, even the oldest hands listen. Stipe has earned the gratitude and respect of many established company directors and individuals who he has helped through financial hardship, insolvency, bankruptcy and business reconstruction. He speaks fluent accountancy and insolvency practitioners enjoy his repartee on topics ranging from extending convening periods or remuneration approval to recovering voidable transactions and public examinations. With a pedigree that boasts large British and Australian multinationals across the consumer goods, manufacturing and retail space, Stipe has worked on complex and high-profile cases that most lawyers will only ever read about. His professional mantra is that being a lawyer is easy, but being a good lawyer is hard. Stipe leads our insolvency and restructuring division which focusses on insolvency, bankruptcy, restructuring and business reconstruction, tax disputes and shareholder and co-owner disputes and commercial debt recovery, serving clients across the entire nation, from Canberra, Sydney, Newcastle, Perth and online. We know Stipe is better than good. He’s won many awards and accolades for being both young and quick-witted, so if you need the best and brightest to rescue your distressed assets, Stipe’s your man (unless someone whisks him away for a coffee, and then you may find he’s distracted for a minute or two). For a valid contract to exist, five elements must be present. These elements are offer, acceptance, consideration, intention to create legal relations and certainty. This article outlines consideration.in contract law. What is consideration?Judges have provided definitions of consideration in contract law in various cases. In the 1875 English House of Lords decision of Currie v Misa, Lush J defined consideration as follows:
In the 1915 House of Lords decision of Dunlop v Selfridge, Lord Dunedin wrote:
What these definitions make clear is that for a contract to be legally enforceable, there must be payment of some sort for what is being provided. This is what is meant by consideration in contract law. If someone promises to provide something to another person gratuitously, and then fails to do so, there can be no legal enforcement of that promise. This is because in this case, no consideration has given. Principles of considerationThere are several principles applicable to consideration in contract law. These are:
Where an act, promise or forbearance cannot constitute consideration There are some situations where an act, promise or forbearance cannot be taken to be legal consideration in contract law. These situations are where there is some existing duty to do these things, and they are either done either:
Where the act, promise or forbearance is made in performing an existing duty, the existing duty can be to the public, the promisor or a third party, for it to not constitute proper consideration in contract law. Where parties that are contracting seek to end an obligation under a contract, there must be some consideration for discharging that obligation. Otherwise, the original contractual obligations may still apply. The performance or forbearance that is the consideration for the discharge of the obligation or obligations must be something different to the obligation under the original agreement. Promissory EstoppelIn some situations, even where there is found to be no consideration in contract law, a remedy may be available where one party has acted on a representation made by another party. The doctrine that governs this situation is called promissory estoppel. This doctrine stops a party from going back on a promise where it would be unconscionable to do so. The elements for a successful claim of promissory estoppel are:
A court will consider the detriment suffered and seek to remove that detriment as relief for an aggrieved party which successfully brings a claim for promissory estoppel. Promissory estoppel cannot be brought as a new cause of action. That is to say that the party pleading promissory estoppel must have a cause of action that is independent of promissory estoppel. Further, promissory estoppel does not override the requirement for consideration in contract law. It also does not make voluntary promises enforceable. The doctrine of promissory estoppel also does not terminate the rights of a promisor. It merely suspends them. If you require legal advice or representation in any legal matter, please contact Armstrong Legal. |