Hi Fellow Steemians
Welcome back to another part of the Private Law series. Last time we finished off the first element of Contracts, Agreement, and got started on the second element Consideration. There are 2 main core elements to Consideration as I mentioned last time, the benefit/detriment requirement and the bargain requirement. I'll be going into those further in this post.
To reiterate what the two core elements are:
- Promisee must incur a detriment or confer a benefit on the promisor (benefit/detriment requirement)
- Either confer benefit on promisor or must incur legal detriment - sense of giving something up or undertaking an obligation
- Consideration given in return for a promise will constitute both benefit to promisor/detriment to promisee
- Mutual promises = good consideration
- Benefit/detriment must be given in return for the promise (bargain requirement)
- Act relied on as consideration, must be performed as the agreed price of the promise
To elaborate on the bargain requirement:
- Important to distinguish between act performed as the agreed price of a promise & act performed in reliance on a promise --> the later does not constitute good consideration and does not meet the criteria
- Consideration which precedes the promise it purportedly supports is not good consideration.
- Something given before a promise is made cannot constitute good consideration for the promise
- Distinguish between past/executed consideration
- Executed Consideration is something given as part of the same transaction as the promise
- Eg. unilateral contract - Consideration given by offeree has been provided or executed by time contract is made - A offers $50 for the dog, contract made when B returns dog. at that time, B's Consideration is executed, but A's promise remains executor
- Past consideration predates the agreement
However, there are exceptions to the rules of past consideration
- The act must have been done at the request of promisor
- The parties must have understood that the act was to be renumerated
Duty owed to a third party
- Promise to perform existing contractual obligation does amount to good consideration if it is made to a person who was not a party to the original contract
- Basically, if you have promised to perform an action for a person, you cannot hold that action as consideration in a contract with another person. No killing of two birds with one stone here.
The Existing Legal Duty Rule (Performance of Existing Legal Duties)
Neither a promise to perform an existing legal duty, nor the performance of an existing legal duty is regarded as sufficient Consideration to support a contract
The Existing Legal Duty Rule (ELDR) covers promises to perform existing public duties. Eg. promise to give evidence in court when promisee is obliged by subpoena
- Why important? - does not encourage public officials + those involved in the administration of justice to be influenced by promises of extra rewards for discharging responsibilities
- Most common when one-sided variations in contracts where one party assumes additional obligation or agrees to release the other party from an obligation
- Existing contract where one party benefits
- If both benefit, then consideration both ways, enforceable
- Where variation is one-sided, a promise of more for the same
- Person who performs existing legal duty/claims benefit of contractual modification is beneficiary v. modifying party
- Performance of existing contractual duty insufficient. However good consideration if performance to a 3rd person.
- If he has acted in excess of his existing contractual duty, he will have provided good consideration.
Exceptions to this rule:
- Not apply where beneficiary is providing fresh consideration, such as where the beneficiary undertakes to do something more than he/she obliged to under original contract
- Where beneficiary's promise to perform confers a practical benefit on modifying party
- Held to be inapplicable where promise to perform existing contractual duty is made by beneficiary to a third party
- Promise made by way of a bona fide compromise of a legal claim will not be covered by the rule
- Rule avoided where original contract terminated by agreement + replaced with a new contract
Finally I will end the second element of Contracts with reasons for why the element of Consideration exists.
- Seen as means of distinguishing between fair and unfair transactions
- Seen as means of assessing whether parties intended their agreement to create legal obligations
- Ensure only transactions that enhance economic efficiency are enforced by courts
- Operates to limit involvement of state in voluntary undertakings
- Limits amount of litigation / cost of judicial system
- No more trivial matters
- Fulfilling function of a formal requirement, without subjecting contracting parties to inconvenience of writing, seal or notorisation
This is the end of the second element of Contracts! In the next post I'll be going into the third element, Intention. So be ready to learn some more!
If you have any suggestions for improvement or questions comment below!