Prepared by Michael Bozzo, Mohawk College

Part 3 – The Law of Contract

Chapter 8 – Requirement of Consideration

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Nature of ConsiderationSeal as a ConsiderationTenders

Adequacy of Consideration Past Consideration Quantum Meruit Debtor Creditor Relationship Gratuitous Promises (Estoppel)

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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

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MoneyServicesPromise not to do somethingRelinquishment of a rightDelivery of propertyPromise for a promise

Forms of Consideration

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CharacteristicsA form of the bargaining theoryConsideration must be something

done for the promise givenGeneral rule is “no consideration = no

contract”

Nature of Consideration

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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