First a reminder from last week.

Split in your Groups - what did we learn last week.

- Does a contract exist? Time and Place?

-What do we need?

-Carbolic?

-Offer reasonable person?

-Invitation to treat? Example?

-Termination of offer - how? By whom?

- Acceptance what is required?

In this seminar we will focus on: Offer

Acceptance

Consideration Certainty

Intention, and

Capacity (online module)

Refer seminar guide

Consideration

The doctrine of consideration requires that something be given in return for a promise in order to make it binding.

If the promisee wants to enforce the promise made by the promisor, the promisee must be able to demonstrate that he or she has paid for the promise i.e. given something in exchange for the promise. Classical theory. Can anyone think of an agreement that lacks consideration?

Without consideration, an agreement is said to be nadum pactum (a naked agreement). An empty promise is not legally binding!

Rules have been developed which establish what may amount to consideration. However there are many exceptions to these rules!!

Common consideration

exchange of things (e.g. money for goods);

I give you a laptop, you give me $500 cash

(Executed consideration)

exchange of a thing for a promise (e.g. money for some future service);

I pay you $70, you promise to landscape my garden

My consideration = Executed, yours = Executory

exchange of a promise for a promise.

I will sell you my house, at settlement you will pay me $400k

Both sides = Executory

Classification of consideration

Terminology - Executory vs Executed Consideration

As weve seen, the mere making of a promise may be regarded as consideration although the promise has yet to be fulfilled. This is called executory consideration. Dan and Virginia enter into an agreement whereby Virginia is to

paint Dan's fence and Dan will pay her $75 for doing so when the

jobs done.

Where the promise has been fulfilled (i.e. money paid) or the consideration is an act that has taken place then the consideration is said to be executed. If Dan pays the money but Virginia is still to paint the fence then

Dans consideration is executed and hers executory.

Consideration definition

In Dunlop Pneumatic Tyre Co Ltd v Seifridge & Co Ltd [1915] AC 847 at 885, Lord Dunedin defined consideration as the 'price' for which a promise is purchased.

The 'price' may be an act or another promise, and can, in limited circumstances, constitute a detriment to one party or a benefit to the other (flows to a third party).

A valuable consideration, in the sense of the 1aw, may consist either in some right, interest, profit, or benefit accruing to the one party; or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other -Currie v Misa (1875) LR 10 Ex 153 at 162

8

You can use my ute over

the weekend.

Great thanks, its

a deal!

You can use my ute over

the weekend._______________________________________________

OK, its a deal!

Great thanks, Ill pay you

$100 for the 2 days and Ill

refill the tank.

No consideration given by B

Nudum pactum, empty promise by A to hand over the car

If A refuses to hand over the car, B cannot force A to keep his promise as B did not pay for As promise

A = promises to hand over his car B = promises to pay $ and refill the diesel tank

Bs promise of $ was given IN RETURN FOR As promise to hand over the car (quid pro quo)

If A refuses to hand over the car, B can force A to keep his promise as B paid for As promise with a promise

A B

A B

Referability

In Australian Woollen Mills Pty Ltd v Commonwealth(1954) 92 CLR, the court introduced the bargain element, which says that

In cases of this class [unilateral; such as Carbolic] it is necessary, in order that a contract

may be established, that it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that the act was really done in consideration of a potential promise inherent in the statement or announcement. Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak the relation of a quid pro quo

This bargain requirement means that there must be sufficient connection between the consideration and the promise which it is said to support.

Case Analysis: Australian Woollen Mills v Cth Think how does this case relate to the bargain theory of contract? Was there a relationship of quid pro quo?

Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 HCA

FACTS

In June 1946 the Commonwealth Government announced that it would pay a subsidy to manufacturers of wool who purchased and used it for local manufacture after 30 June 1946.

The Plaintiff purchased and used wool for local manufacture between 1946-48 and received some payments. The Government subsequently stopped its subsidy scheme and the Plaintiff sued the Government for subsidies it claimed it was due.

Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 HCA

Plaintiff argued

1. There was a unilateral contract between it and the Government under which Commonwealth promised to pay subsidies if wool was bought for domestic consumption/manufacture.

2. By purchasing the wool, it provided consideration for the Commonwealths promises to pay the subsidies.

3. The plaintiff made purchases of wool in pursuance of the agreement (i.e. accepted the offer as per Carlill v Carbolic Smoke Ball Co.)

Australian Woollen Mills Pty Ltd v The Commonwealth

Held

There was no contract. The statement made by the Commonwealth was not offered as consideration for the plaintiff buying the wool. The Court stated that in cases such as this: it is necessary, that it should be made to appear that the

statement or announcement which is relied on as a promise [here the subsidy statement] was really offered as consideration for the doing of the act, and that the act [buying and using the wool as directed] was really done in consideration of a potential promise inherent in the statement or announcement.

There must be a relationship of quid pro quo between the Commonwealths promise and the acts relied upon as consideration for that promise. Here there was no promise offered in consideration of doing an act.

Australian Woollen Mills Pty Ltd v The Commonwealth

Held

Buying the wool was merely a condition precedent to entitlement to the subsidy. It was not intended as the consideration for a promise to pay the subsidy. In this respect the Court also noted that there was no offer or request or invitation to purchase wool or anything else suggesting that payment of subsidy and the purchase of wool were regarded as related in such a way that the one

was a consideration for the other.

Note: The Court also concluded that there was no intention on the part of the government to create legal relations; it was instead a government scheme to promote industry.

Privy Council upheld decision.

Australian Woollen Mills Pty Ltd v The Commonwealth

Held

[39] When one comes to the documents, it is not, in our opinion, possible to construe them as containing a standing offer, a standing offer capable of acceptance by the purchase of wool. It is impossible to find anywhere anything in the nature of a request or invitation to purchase wool, or anything which suggests that the payment of subsidy was put forward in order to induce any manufacturer to purchase wool, or which suggests that the payment of subsidy and the purchase of wool were regarded as related in such a way that the one was a consideration for the other. Whichever of the possibly legitimate tests is applied, the answer is the same. If we ask (what we think is the real and ultimate question) whether there is a promise offered in consideration of the doing of an act, as a price which is to be paid for the doing of an act, we cannot find such a promise. No relation of quid pro quo between a promise and an act can be inferred. If we ask whether there is an implied request or invitation to purchase wool, we cannot say that there is. If we ask whether the announcement that a subsidy would be paid was made in order to induce purchases of wool, no such intention can be inferred. (at p461)

http://www.austlii.edu.au/au/cases/cth/high_ct/1999/6.html

Australian Woollen Mills Pty Ltd v The Commonwealth

Held

[32]One simple example will suffice to illustrate this. A, in Sydney, says to B in Melbourne: "I will pay you 1,000 pounds on your arrival in Sydney". The next day B goes to Sydney. If these facts alone are proved, it is perfectly clear that no contract binding A to pay 1,000 pounds to B is established. For all that appears there may be no relation whatever between A.'s statement and B's act. It is quite consistent with the facts proved that B intended to go to Sydney anyhow, and that A is merely announcing that, if and when B arrives in Sydney, he will make a gift to him. The necessary relation is not shown to exist between the announcement and the act. Proof of further facts, however, might suffice to establish a contract. For example, it might be proved that A, on the day