Formation IV: Consideration General Principles And Existing Duty (Part 1) Flashcards
Understand Consideration in relation to contract law in NZ (9 cards)
Consideration I: General principles and existing duty (Goals)
Requirement of consideration is not a part of contract law in non-common law jurisdictions.
Is a promise to perform an existing legal duty sufficient consideration?
Existing legal duty? → if already given something → then promise to do it → may not be good consideration → because past consideration is not good consideration.
Goals for this week
· What is consideration?
· The rationale for the requirement of consideration in the common law
· Is a promise to perform an existing legal duty constitute sufficient consideration?
GENERAL PRINCIPLES:
Hamer v Sidway [1891] 124 N.Y. 538
An American case.
· What promise is to be enforced here?
· What was the consideration in return for this promise?
US CASE (NYC):
Case that represents the law in NZ, and based of UK cases.
Hamer v Sidway
Facts:
Parties to litigation → Trust against the executor. → uncle passed away and got the estate.
Nephew’s assignee.
Uncle dies and is in charge of the estate → the Nephew assigned his contractual right to his wife.
Wife assigned it to another woman → and she comes to the executor based on the original contract of the Uncle.
Promise → promise to pay $5000 →
In return → there was consideration given →
In some contracts a party makes a promise, and other’s make a promise in return → promise can be good consideration.
Promisor and Promisee →
But here there are two promisor’s, and two promises. → mutually need promises.
In exchange for $5000 → there is a promise → stop drinking tobacco, and paying billiards for money → promising this → is this good consideration>
Woman says to executor → give me $5000 →
The uncle did not get anything out of this → who benefitted? The nephew → not drinking and not smoking, and not gambling → is a good thing → what did he give in consideration?
· Parker J
o 545: Quoting Currie v Misa (1875) LR 10 Ex 153, 162 (Exch) (Per Lush J): “A valuable consideration, in the sense of the law, 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.”
A valuable consideration in the sense of the law, may consist either in some right, interest, profit, → must be something valuable → sufficient consideration → good feelings, good wishes, good motivation, or attitude. → for example: promise to give you a million dollars → one could say that is good consideration
CURRIE V MISA:
Don’t recognise good wishes as good consideration.
But something of value → something that is given, a right, benefit, thing of value → something that is good to the promisor → or → Some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.
CONSIDERATION MUST BE SUFFICIENT → give something of value
EITHER BENEFIT TO THE PROMISOR OR DETRIMENT TO THE PROMSIEE.
For example: smokeball, she did something to herself.
Promise → as long as it it is something valuable.
EXECUTORY CONSIDERATION V EXECUTED CONSIDERATION:
Executed → for example: paying the money, doing the thing.
PARKER J:
Promisee used tobacco, and had legal right to do so → abandoned for ten years → because he would give him 5k → restricted his lawful freedom, undertook restriction → harming himself in the sense → GOOD CONSIDERATION.
o 546: “the promisee used tobacco, occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise of the testator that for such forbearance he would give him $5,000. … It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement.”
· Consideration can be (1) a promise (2) to forebear from anything which is within the legal rights of the promisee.
· Consideration must be sufficient.
· (Not mere motivation, good wishes, affection, etc.)
· (Executory consideration v executed consideration)
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 (HL)
A question of copyright infringement
· S. 8 of the Copyright Act 1956 allows the making of records as long as
o First, “the manufacturer intends to sell the record by retail, or to supply it for the purpose of its being sold by retail by another person, or intends to use it for making other records which are to be so sold or supplied;”
o Second, “Subject to the following provisions of this section, the royalty … shall be of an amount equal to six and one-quarter per cent. of the ordinary retail selling price of the record …”
FACTS:
Parties are Chappell and Co → plaintiff. And Nestle → Respondent.
Saying Nestle has breached the copyright act →
Nestle not producing records
Nestle → selling chocolate
Decided to sell records as part of promotion
Is whether doing so → did they breach copyright act
Copyright → property right we have in intangible thing.
If you have record, i can’t sell that → unless selling them by retail. → When merchants sell between themselves, they sell a bunch → when you sell to individual consumers you are selling by retail.
If selling by retail
QUESTION OF COPYRIGHT INFRINGEMENT:
S8 of the Copyright Act → allows for making records.
Retail → and pay royalties → for the value for 6.25% of your proceeds → then you are not in breach of copyright → can sell it in retail → pay royalties for it then not in breach. → Nestle arguments.
BUT → in order to ascertain whether Nestle falls into this exemption (is it a retail sale), what is the price of the record? Was it;
1s. 6d,
1s, 6d + 3 wrappers
What is 1s, 6d + 3 wrappers → what is 6.25% of that
Was there a “ordinary retail selling price” here?
Were the wrappers apart of the consideration?
CONSIDERATION → whether three wrappers can be good consideration in exchange for a record → why is it important in this case?
Because if wrappers can be good consideration, they are part of the price of the record, and part of the price given for the record, and if not then it is not a regular retail sale → because you don’t say take this money and these wrappers.
· Somervell L
o 114-15: “It is said that when received the wrappers are of no value to Nestle’s. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn. As the whole object of selling the record, if it was a sale, was to increase the sales of chocolate, it seems to me wrong not to treat the stipulated evidence of such sales as part of the consideration. For these reasons I would allow the appeal.”
· Consideration need not be adequate.
SOMERVILL:
Nestle says when received the wrappers are of no value → this is irrelevant → can stipulate for what consideration he chooses → a peppercorn does not cease to be good consideration if it is established that the promises does not like pepper and will throw away.
First thing → CONSIDERATION although we have to have it in NZ → we don’t ask whether the consideration is an adequate consideration for the Courts → for example: if you promise me a nice suit, and I in return promise you a peppercorn and you say it’s fine → If Court → you can say this is not adequate exchange, not value for value → but that does not matter → courts will not look into adequacy of the consideration instrument.
WHY COURTS SHOULD NOT EVALUATE ADEQUACY → this exchange was the parties choice, who is the expert on how valuable things are for people → The Court does not know best → the person knows what is best for themsleves.
Parties can choose to engage in whatever exchange → Also it is efficient → parties are best judges of their interests → Contracts → allowing people to engage in interests that are good for them → If Courts started ruling on what is good and what is not → then you will no longer have a free society where people get to make their own contracts.
Don’t want Courts to evaluate the adequacy of contracts
NESTLE:
Wrappers are nothing to nestle.
At end of judgement → what the wrappers stand for, buying the chocolates, is the whole rationale for the exchange, it is not in the money, nestle is not in the process of marketing record sales, they want to sell chocolates. → If the Court does not get it they cannot say that lacks value.
Analysis
· What is the rationale for the demand for consideration, which is absent in other legal systems?
· A marker that we are in the realm in which there is an intention to form legal relations.
· (Dealing at arm’s length)
· (Why courts should not evaluate adequacy)
Consideration not only money → not an ordinary retail sale contemplated by s 8 → therefore not copyright.
(INCLUDING A PROMISE NOT TO DO SOMETHING THAT THEY HAVE A LEGAL RIGHT TO DO)
You may think it is of little value but it is value.
DOES CONSIDERATION MAKE SENSE?
Not required in civil law. → Agreement by parties is enough.
Why does English law have consideration?
Commerce → two parties that take care of their own interests, if you genuinely want to be bound, i am probably getting something in return, why would i do it otherwise?
Dealing in arms-length → if contract is meant for people who are not together → then we expect them to benefit each other in the exchange → they are meant to benefit each other.
Choice, efficiency, surplus,
CONSIDERATION:
English Common law and NZ law → treats considerations as a constituent element of consideration → there must be consideration for there to be a contract
When actually → the value of consideration is evidentiary
It is good evidence that the parties choose to have legal relations →
Lord Mansfield → 18th Century → there is no requirement of consideration in common law contract, only good evidence → in the minority. → NOT THE LAW
Greatest judges saw it → 250 years → based on not listening to Lord Mansfield.
Courts were there is an agreement to be bound → but lacking consideration → can choose to be bound without sufficient consideration.
Cook v Wright (1861) 1 B & S 559, 121 ER 822 (QB)
Wright is asked to pay a debt he does not owe.
· The consideration was the plaintiffs’ promise to not to sue.
FACTS:
Promisor → lawyer, representative of someone who owns property in london, the agent is approached by commissioners, and are entitled under the law to a payment from the resident owner.
He does not want to pay (lawyer) → he is not the owner and does not want to pay the money → they said pay up or will take you to Court →
The promisee → the commissioners say you can pay three instalments, and agent agrees
Although he did not have the need to.
Pays on first initial note
But then fails to pay the last two notes
When approached he says → No Consideration
I promised to pay you, but there was no consideration.
Why would he say this? → He did not owe them any money, they would not get any money if they sued them, he didn’t give anything up, no detriment or benefit, no right against me
Lawsuit would fail → not good consideration
· Blackburn J
o “the question is, whether a person who has given a note as a compromise of a claim honestly made on him, and which but for that compromise would have been at once brought to a legal decision, can resist the payment of the note on the ground that the original claim thus compromised might have been successfully resisted.” (at 826)
o “unless there was a reasonable claim on the one side, which it was bona fide intended to pursue, there would be no ground for a compromise;” (at 826)
o “The position of the parties must necessarily be altered in every case of compromise, so that, if the question is afterwards opened up, they cannot be replaced as they were before the compromise.” (at 826)
o “In the present case we think that there was sufficient consideration for the notes in the compromise made as it was.” (at 827)
BLACKBURN:
In present case → we think there was sufficient consideration for the notes in the compromise made as it was.
Unless there was a reasonable claim on the one side, white was bona fide → in good faith → intended to pursue, there would he no ground for compromise.
· Not pursuing a bad claim is sufficient consideration, as long as it is reasonable and would otherwise have been pursued in good faith.
In the case where there is a reasonable claim → by promising someone not to take them to court even if it will fail → change legal position → even if it was a bad claim →
What would happen if there would be no consideration to give up on a bad claim → settlements → there would be no settlements → everytime a party would want to settle → this is not a valid contract because the other party lost → then would have to go to Court.
Settlements are an efficient thing → and parties have right to choose to do → HAVING THIS RULE WOULD MEAN NO SETTLEMENTS OUT OF COURT.
PROMISE TO PERFORM AN EXISTING DUTY (SOMETHING THAT I AM ALREADY LEGALLY BOUND TO DO) → promise to do something i am already legally bound to do? Is it good consideration?
Collins v Godefroy (1831) 1 B & Ad 950 (KB):
FACTS:
Two parties:
Collins → is a lawyer, and is a witness in a civil case,
Godrey is suing someone, calling on Expert witness, Mr Collins
Godfrey promises compensation for loss of time to Mr Collins → for the time he comes and waits to be called to give evidence
He does not pay the compensation → but he has a contract
He does not pay because
LEGAL ARGUMENT of GODFREY
Because in exchange for his promise to pay 6 guineas → he did not give anything in return → he had duty in law under subpoena to appear at Court.
So would not be a detriment or benefit to Collins
· Plaintiff was promised money to give expert evidence at a trial. He was obliged to do this anyway as he had been summoned under subpoena.
· Lord Tenterden CJ: “If it be a duty imposed by law upon a party regularly subpoenaed, to attend from time to time to give his evidence, then a promise to give him any remuneration for loss of time incurred in such attendance is a promise without consideration.”
COURT:
If regularly subpoenaed to attend from time to time to give his evidence → then no consideration.
If he didn’t come → he could be tried be in contempt of Court, and disobeying lawful orders
Have to show up when Court tells you to show up
Why would anybody pay for them to be there?
The Court said it is suspicious to pay them
If this was indeed the contract → and not giving the right evidence → could potentially be an issue
This showing up is not given in consideration → but something else could be given as consideration (false statements)
Legal duty → is not good consideration.
Scotson v Pegg (1861) 6 H & N 295, 158 ER 121 (Exch)
FACTS:
Parties:
Scotson had agreement with third party to deliver coal
And P had agreement with third party to deliver coal
First Contract between Pegg and Third party
Second contract Scotson with third party to deliver coal
Under third contract → Scotson promises to deliver coal to them and the third party.
Pegg → promises to unload coal at particular rate.
Scotson → says you were under contractual agreement to unload coal at particular rate
Pegg → no contract because what you promised me is something you are already legally bound to do under your third party.
· Wilde B: “to say that there is no consideration is to say that it is not possible for one man to have an interest in the performance of a contract made by another. But if a person chooses to promise to pay a sum of money in order to induce another to perform that which he has already contracted with a third person to do, I confess I cannot see why such a promise should not be binding.”
· Can the rule in Scotson v Pegg be reconciled with the on in Collins v Godefroy?
CAN WE MAKE SENSE OF THE TWO RULES?
Collins v Godfrey → and Scotson → two similar facts and decided a different way.
Both cases are decided correctly
What distinguishes the two is → what kind of obligation the pre-existing legal duty was
Public law obligation and a criminal law obligation → is different from an in personam right to a contract in several ways
People can choose to breach their contracts → if you breach your contract → you will have to pay damages
Regular thing for people to break contracts to pay damages
A promisee (Scotson) → can choose to breach, third party can choose to breach, Scotson can choose to breach.
The existing duty is an in personam duty → owed to the third party →
If there was only one contract between third party and Scotson → breached → did not deliver the coal → have to compensate the third party for their loss →
If there is a second contract breach → compensate third party and Pegg → their is a new in personam duty → may seem like the same
Collins → statutory duty owed absolutely → not an in personam duty, had to do it full stop.
Here → just an in personam duty by the third party.
New obligation under contract → it is a new contractual duty owed in personam to Pegg.
Scotson may look like an existing → but it is a new obligation
SCOTSON:
If person chooses to promise to pay a sum of money in order to induce another to perform → That is fine → breach of contract. → means new obligation → in personam contractual right → not the same duty, not a pre-existing duty.
Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168 (KB)
Ellenborough L
o “Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage.”
o “the desertion of a part of the crew is to be considered an emergency of the voyage as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port.”
o “the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship.”
STILK:
Continuation of existing legal duty → does not challenge Scotson, or Godfrey.
FACTS:
Two sailors, and there is an owner of a ship
Sailors promise to be sailors and overcome any obstacle while on board
And the owner promises to pay them wages 5 pounds per month
Two sailors desert.
Varied Contract → after two sailors desert, captain is afraid that the rest will desert
Now the remaining sailors have to do more work
So he is saying → you continue to perform duties and will pay above the 5 pounds
Divide the salary of two sailors that deserted
When they get back to England shipowner refuses to pay the additional amount
Sailors say you promised
Owner says no consideration
When you sign up → you said you will stick it out no matter what.
Will perform duties no matter what → contractual clause.
When he said the additional sum → they were already bound to do what they were bound to do.
COURT:
Only performed what they were bound to perform → Agreement is void because of no consideration → there was no consideration for the ulterior pay promised to the mariners who remained with the ship
WHY WAS IT DECIDED THIS WAY?
Decision is that the contract was not valid → question whether that was a good decision due to no consideration
In early 19th century england, a seafaring nation → almost an empire about to become a huge empire → If they said they could renegotiate terms → they would come to the captain and say → how about the pay raise.
Want a raise.
What would happen if people can’t make this contract at sea → if captain couldnt do this → they would have deserted → dont want to incentivise contracts to break contract and exploit other parties → but sometimes contracts need to be valid → we need to give parties power to do that → at the end → it will be solved by a different doctrine
Doctrine of Duress → people cannot pressure other people into making contracts and if they do, the contract is void.
WHY IS STILK HARD?
Is it more like Scotson, or Godfrey?
Private law duties
Same duty → different from Scotson and Godfrey
Same in personam duty for person to do the same thing
When they said it is not fair → Scotson and Pregg → made a choice → in personam private law obligations
Same thing obligated → but you want more → even if I am doing the same work → have to consider something of detriment to them, or benefit to them, like do more work.
CONTRACTUAL VARIATION:
Issue highlighted in Williams.
LECTURE 2:
Can still fail on essential terms and still have contract → something has to be given in exchange for the promise
Consideration has to be given in exchange for the promise
Consideration must be sufficient → law must recognise it as having value → cannot be good wishes
But don’t look at the adequacy of consideration → is peppercorn good enough in exchange for a car.
Difference between common law and equity → in english law for a while → courts with different jurisdictions → common law courts and Courts of equity
Equity → just did justice to make right the wrongs of common law
There is still equitable doctrine in Contract Law
Equitable Doctrine → uncontrability → if something is not balanced → terms are really bad for one party → maybe the Courts will look into it and correct it.
Then the topic → question of an existing legal duty
EXISTING LEGAL DUTY →
Collins v Godrey → absolute duty → a thing that you have to do → giving a promise to do that is good in the eye of the law → promise to do something you already have to do is not good consideration especially if it is an absolute duty
Scotson v Pegg → one of the parties was bound to deliver coal → contractual duty, but when Scotson promises to do the same thing under a different contract with Pegg → there is a new legal duty → one is owed to the third party → compensate the third party → then new obligation owed to Pegg → and if breached then would have to compensate Pegg
Different In Personam duties
STILK:
We have a contractual duty (pre-existing) owed to the same person → different from Scotson v Pegg → owed to the same person in the contract → not quite a public law duty that is the same as Collin v Godfrey
In terms of policy efficiency → don’t want parties to come to each other and say let’s negotiate now →
Stilk → if the contract had not been valid → the sailors would have deserted →
Existing duty → is not a good consideration. → same duty owed to the same person → sailors just promising again → the same promise that they have given before\
Therefore not good consideration
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA)
The original contract
· The events
· Roffey Bros defence was based on Stilk v Myrick.
· The law
QUESTION OF VARIATION
FACTS:
Rofey brothers are contractors
Contract for refurbishment of 27 apartments for third party
And are paid for it
Williams → carpenter → person contractor contracts with → sub contractor
Principle has contract with contractor, and makes subcontracts with carpenter
Promises 20k pounds to subcontractor by contractor
When williams finishes 9 of the apartments
Williams runs out of money
Willaims underquoted → said did work for 20k pounds, he should have asked for 23k 15% more
Rofey Brothers → sees something wrong → does not want williams to go out of business → will not finish the work → and will have to compensate the principal for being late (fine)
Instead → they say that you should continue → and we will be pay you extra 575 pounds for each apartment you refurbish
And you continue to do what you already promised us to do. → similar to Stilk.
WILLIAMS:
COURT → decides in opposite way to Stilk
Says that there is good consideration.
Roffey bros → enter into contract with Williams
In the life of contract → approach Williams → like in Stilk
And said let us vary the contract between us → lets form a new one under new terms
And under these new terms you will get paid more than you did before under new contract
Contractual variation
After completing 9 of the 27 apartments → Williams
Here decision of CA is different
Williams continues under the valid contract
Rofey brothers refuse to pay the sums owed under the new arrangement
So Williams stops
The question is → whether in the refusal to pay → the Rofey Brothers have breached the contract?
Williams say you owe me an extra 575 in each apartment
Rofey said there is no consideration. → the issue → there was no new contract
Promised to pay you more → not contractually binding → for contractually binding there needs to be consideration in return for it
No consideration → because the thing you did → something you already agreed → past consideration cannot be good consideration under the new contract
o Glidewell LJ at 15-16: “(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding.”
GLIDEWELL:
IF a has entered into contrac with A → to do services for B →
B has hesitation about A’s performance
And B offers more to ensure.
As a result of giving promise B obtains a benefit (obviates)
Cancels a disbenefit
And B promise is not given due to economic duress or fraud
Then the benefit to B → is capable of being consideration for A’s promise
COURT:
Usually in these cases there is no consideration
But they say there is a practical benefit that lofey brothers accrued
They gained something out of this contract
And this is good enough consideration
Footnote → in the future there is duress. → cannot put other parties under duress to give you consideration, or perform some part of formation
o Purchas LJ at 23: “I consider that the modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment.”
· UCC §2-209 (Modification, Rescission and Waiver): (1) An agreement modifying a contract within this Article needs no consideration to be binding.
· Stilk v Myrick
o Glidwell LJ at 16: “If it be objected that the propositions above contravene the principle in Stilk v. Myrick, 2 Camp. 317, I answer that in my view they do not; they refine, and limit the application of that principle, but they leave the principle unscathed e.g. where B secures no benefit by his promise”
o Russell LJ at 18: “In the late 20th century I do not believe that the rigid approach to the concept of consideration to be found in Stilk v. Myrick is either necessary or desirable. Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect the true intention of the parties.”
o Purchas LJ at 21: “the rule in Stilk v. Myrick, 2 Camp. 317 remains valid as a matter of principle, namely that a contract not under seal must be supported by consideration.”
o What is a practical benefit?
PRACTICAL BENEFIT?
What sort of practical benefits can we ascertain from Lofey Brother’s (there is a practical benefit)
Rofey → they get williams to finish the contract and avoid the penalty with other principal and avoid paying fees for lateness
Dont have to find a new contractor → dont need to find a new carpenter which will take time and money
Williams continued to work
Save the penalty in the primary contract
Costs of finding someone else to do the work
More efficient method of completion, which serves Roffey Bros.
RUSSEL:
Party undertakes to make payment because by doing so it wil gain an advantage arising out of the continuing relationship with promise the new bargain will not fail for want of consideration
RULE MADE IN ROFEY → in cases of variation, when party undertakes to do the same thing under original contract → the interest and benefit the promisee gets under the continuing relationship. → promisee gets benefit → is good enough consideration → fills requirement → valid contract between Williams and Rofey Brothers
Have to pay a sum to Williams.
PRACTICAL BENEFIT IS GOOD CONSIDERATION IN THE VARIATION OF CONTRACTS.
Are these really practical benefits → williams continued to work, save the penalty in the primary contract, costs of finding someone else to do the work → part of the original contract
What is the proper name for what the CA is doing here? Bullshitting
Not lying → indifference towards the truth → does not stand up to scrutiny → against the law
]
If this was the rule in Stilk → Rofey applied → then there would be a practical benefit to the shipowner because he would not have deserted → There would be practical benefit. → sailors would have won
There was for sure a practical benefit for the captain → continuing the service of the sailors.
RUSSEL:
He said the late 20th century approach in Stilk is not necessary or desirable → consideration there must still be but → in my judgement, the Courts nowadays should be more ready to find its existence.
Mansfield in 19th century → consideration is good proof not rigid
As long as there is intention to be bound
COMPARE, ACROSS THE ATLANTIC:
Court in Rofey → uses the American law → how they deal with Contracts
Uniform Commercial Code → except for Louisiana
UCC → governs commercial contracts between merchants
(1) An agreement modifying a contract within this Article needs no consideration to be binding
In the variation of contracts → there is no need for consideration
The CA in england and wales → no consideration but practical benefit would do
US → No need for consideration in variation of contracts
GOING BACK TO THE LOGIC OF CONSIDERATION:
A marker that we are in the realm in which there is an intention to form legal relations
Clear marker where people actually deal with each other → arms length
Binding agreements that benefit both of them
Why don’t we need consideration in the variation of contracts?
American rule → We don’t need evidence that these are two contracting parties → they already have a contract → they are already in that realm
That is the logic behind the UCC → and also behind Rofey Brothers
WHAT CHANGED SINCE STILK V MYRICK?
Court in Rofey said we are not in realm of Stilk
We know how to deal with the pathologies of a different rule
We are not worried about sailors deserting because we have new statutes ruling that
The development of law on duress → GLIDEWELL LJ
A general change of attitude towards consideration (RUssel LJ)
Must be consideration stands → don’t go American way. → but willing to acknowledge practical benefit is good consideration
Stilk → consideration is required.
Everything hinges on whether there is a new contract → or whether we are in the variation of contract
Seems as if there are two different rules
One rule for consideration in the making of a contract → and one rule on the variation of contract.
BACK TO THE DIFFERENT RULES:
STILK → is no longer consideration → as long as there is no duress → a practical benefit will do.
Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA)
FACTS:
- Smith → promises to make best efforts to fish enough fish as they can
Trawling → wants to vary contract → says if you fish alot you get 10% of increased quota under new rule → commercial quantities
Only benefits one party
Nothing is given in return
Even more → there is no threat to break the contractual relationship
Just want to offer a contractual incentive
Anton → NZ law has already accepted Rofey → in AG for Eng and Wales v R
· “Professor Coote … argues with force that mere performance of a duty already owed to the promisee under a contract cannot constitute consideration and that the only principled way to such a result is to decide that consideration should not be necessary for the variation of contract. That is the approach of the Uniform Commercial Code, s 2-209(1) …” at [92])
We are now looking at two possible solutions:
English approach →Rofey
And the American approach
Professor Coote → This isn’t the truth, this is not good analysis
I understand what the Court is trying to do
But to say that a practical benefit can be consideration
Can we take that into the regular rules and say that is consideration → no because then everything is consideration
Have to decide that consideration is not necessary for the variation of contracts
Coote → said let’s go the American way
Even the American way is better than Rofey
No consideration in the variation of contracts.
· “We are satisfied that Stilk v Myrick can no longer be taken to control such cases as Roffey Bros, Attorney-General for England and Wales and the present case where there is no element of duress or other policy factor suggesting that an agreement, duly performed, should not attract the legal consequences that each party must reasonably be taken to have expected.” (at [93])
Bargawarth
Stilk can no longer be taken to control cases such as Roffey → AG v R → decide in the same way as Roffey
AS LONG AS THERE IS NO DURESS
In context of consideration → signal
· “The importance of consideration is as a valuable signal that the parties intend to be bound by their agreement, rather than an end in itself. Where the parties who have already made such intention clear by entering legal relations have acted upon an agreement to a variation, in the absence of policy reasons to the contrary they should be bound by their agreement. Whichever option is adopted, whether that of Roffey Bros or that suggested by Professor Coote and other authorities, the result is in this case the same.” (at [93])
Parties who have already made it by entering into legal relations
They should be bound → as they have already entered
Valuable signal
Whichever option is adopted → whether Rofey, or PRofessor coote
The result in this case is the same
What is the law? → We don’t know → could be Rofey or Coote → could be this or that → this is a sign of distress and unhappiness in the law
Principled approach → is absent here
The principle → when it comes to offer, acceptance → Equal Choce etc.
But something does not work when it comes to consideration
Do we have to have consideration to form a contract in NZ → YES.
But here Courts will make an inroad into that requirement → in this case → NOT WHEN IT COMES TO VARIATION OF CONTRACT
Stilk is most likely not good law
We may move beyond Rofey to the American Model
CONCLUSION:
Sometimes mess is not in your head it is in the law.
