Consideration in contract law

Date: Jun 10, 2015
Document Type: Article

The doctrine of Consideration is concerned with the price paid for a promise. Consideration is something of legal value given in exchange for a promise.

The foundation of consideration is that a person must incur a benefit or suffer detriment in return for a promise. The adequacy of that promise is not of concern to the courts, as it would contradict the “free will” theory of contract which underpins the system. Objectivity is the method employed by judges to ensure this standard is upheld.

In Williams v Roffey Bros and Nicholls (Contractors) Ltd,Roffey Bros had agreed to pay Williams, a subcontractor, a higher, rate for his services than agreed to in an original contract in order to ensure work was completed on time. This separate oral agreement was to benefit Roffey Bros who would otherwise suffer penalty for work still incomplete on a specified date under the main contract of renovation. Williams offered nothing more than his consideration under the original agreement.

The relevant precedent at the time was drawn from the case of Stilk v Myrick, which stated that work already being completed under an original contract was not good consideration for additional promises, such as extra payment. New consideration was needed for the additional agreement to become legally enforceable. The court said that it was clarifying an exception to this precedent, but on one view it actually changed it. Completion of the work by Williams, although consideration under the existing contract, was deemed good consideration for the additional promise. The reasoning, as Justice Santow pointed out in Musumeci v Winadell Pty Ltd, was that

the new agreement was worth more to [Roffey] than likely damages, even taking into account the cost of any concession to obtain greater assurance of that performance.

By deciding the case in this manner the Court ascertained whether a bargain in form also constituted a bargain in substance. The resultant decision reflected an apparent preference of the Court to uphold the transaction because it occurred in a commercial setting and reflected commercial practice in the industry, with the effect that the original agreement was “re-priced”. The judgement was most certainly not derived the mechanical application of precedent. Heffey, Paterson and Robertson suggest that “this appears to be a perfect example of a situation in which a rule that appears to dispose cleanly of a fact situation is nullified by a counter rule whose scope of application seems to be almost identical”.

This web page was created on 2 June 2015, and the law or facts contained in this article may have since changed.

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