A Support a Reciprocal Promise

Consideration

Issue 1: Did The Parties Engage In Mutual Promises

In order for a promise by A support a reciprocal promise by B sufficient consideration must be established. According to Beaton v McDivitt, per Kirby P, agreement alone does not formulate an enforceable contract. Both parties to the contract must present significant consideration which is an essential requirement in determining whether a contract is enforceable or not. Accordingly, this means that both parties pursuing agreement must promise to give or do something in exchange for the other. Here, A has made a promise in which B made a reciprocal promise. Essentially, both parties have mutually exchanged promises thus consideration has been established and the promises are enforceable by law.

Issue 2: Benefit/Detriment Requirement -Did The Promisee Incur A Detriment Or Confer A Benefit On The Promisor.

According to Currie v Misa, Lush J. stated that consideration consists of a detriment to the promisee or a benefit to the promisor:

“ A valuable consideration in the sense of the law must consist in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”

Applied here, this means that B suffers a detriment in that they have to forego their promise in order to receive benefits from A. A assumes a benefit as a result of B’s detriment.

Issue 3: The Benefit Or Detriment Must Be Given In Return For The Promise

The benefit conferred on the promissor or the detriment suffered by the promise must be given in return for the promise. This is regarded as the bargain requirement. In Australian Woollen Mills v Commonwealth , it was held that initially it must be established that the promise is given at the request of the promisor and in reliance upon the promisor’s promise before the act can be regarded as consideration. Thus the acts must be performed in return for the promise.

Asquith LJ states in the case of Combe v Combe:

“I do not think an actual forbearance, as opposed to an agreement to forbear to approach the court, is a good consideration unless it proceeds from a request, express or implied, on the part of the promisor. If not moved by such a request, the forbearance is not in respect of the promise”

Here, if B, wishes to rely on the principle stated in Australian Woollen Mills v Commonwealth, they must prove that A requested B to perform an act in return for A’s promise.

Issue 5: Sufficiency Of Consideration

The doctrine of consideration provides that consideration must be sufficient but not need to be adequate. However it must be something the law regards as valuable. If it is evident that consideration has some value, the courts will not examine whether it’s adequate or not Woolworths Ltd v Kelly. Thus A’s promise to be B must be supported by sufficient consideration in which the law regards as valuable

Conclusion

In conclusion in order for A’ promise to be supported between both parties the benefit detriment requirement must be satisfied which will ultimately create a contractual agreement between the parties

1. 1. Do Such Reciprocal Promises Constitute Sufficient Consideration?

The doctrine of consideration provides that consideration must be sufficient but not need to be adequate. Thus, it must be something the law regards as valuable Thomas v Thomas.

Issue: When Is Consideration Sufficient/Not Sufficient?

Brian Coote answers the question as to how an exchange of reciprocal promises gives rise to the benefit and detriment requirement and how these mutual promises are sufficient:

“A person who makes a commercial promise expects to have to perform it (and is in fact under considerable pressure to do so). Correspondingly, one who receives such a promise expects it to be kept. These expectations, which can exist even where the promise is not legally enforceable, are based on commercial morality, and can properly be called a detriment and a benefit; and they satisfy the requirement of consideration in the case of mutual promises”.

Thus, reciprocal promises are considered sufficient as they bring forth the notion of benefit and detriment which as noted above is a requirement of the doctrine of consideration.

Issue: Past Consideration

However in some cases consideration may be proved to be insufficient. Past consideration is not considered as sufficient consideration. According to Lord Denman CJ in Roscorla v Thomas:

“It may be taken as a general rule, that the promise must be coextensive with the consideration”.

It was held that in a situation where an act is done before a promise is made to pay for it does not amount to sufficient consideration for the subsequent promise.

The Existing Legal Duty Rule

The existing legal duty rule is most commonly raised when one party attempts to vary or modify the contract in order to assume an additional obligation or agrees to release the other party from obligation. However, a promise to perform an existing legal duty is not good consideration Collins v Godefroy. This principle was stated in TA Sundell & Sons Pty Ltd v Emm Yannoulatos Pty Ltd, in which the court held that a promise to perform an existing duty is no consideration, and the promisor is bound to do only what they were supposed to under the original contract.

However, there are exceptions to this. If what is promised is in excess of one’s public law duty there will be good or sufficient consideration Hartley v Ponsonby. According to J W Carter, Andrew Phang and Jill Poole:

“The existing duty rule does not apply if the duty has been exceeded, because legal and factual values coincide”.

This notion is further explored in the classical case of Stilk v Myrick, where it was decided that a promise to perform an existing legal duty is not enforceable.

“There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London, they had undertaken to do all that they could under all the emergencies of the voyage. The desertion of a part of the crew is to be considered an emergency of the voyage… and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safely to her destined port”.

Mason J asserted that in Wigan v Edwards ‘the new promise, indistinguishable from the old, is an illusory consideration’.

In contrast, in the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd, it was held that a promise to perform an existing duty was sufficient consideration because by doing so it will gain an advantage through a persistent relationship with the promisee

2. 2. Should Such Reciprocal Promises Be Considered As Good Consideration In The Modern Commercial Context?

Australian contract law has changed extremely over the years. According to John Gava and Peter Kincaid, if these changes are viewed separately then they perhaps could be considered as incremental. However, when viewed from a wider perspective, they can amount to a revolution. John Gava and Peter Kincaid assert that in areas such as consideration “there has been a decisive, but not complete shift away from will based contract”.

Originally, in the 16th century, good consideration for manufacturing a promise was considered to be evidence supporting that a promise was actually made, thus making it enforceable. In the 18th century the concept of a moral obligation prevailed and the notion that the promisor was under a moral obligation to the promisee was considered sufficient consideration. However in the 19th Century the Doctrine of Consideration was widely criticised in many aspects.

“The doctrine of consideration, with its emphasis upon exchange, and its general rejection of ‘more for the same’, seems inadequate for the modern environment in which flexible rewards may reflect the employer’s concern that the importance of individual staff to an enterprise may not remain constant and may alter. Although versions of the classical doctrine have exercised an important influence in English employment law, there now appears to be a noticeable disinclination to use the doctrine as a problem-solving technique. This is especially so in relation to the variation cases as well as those concerned with the enforcement of apparently gratuitous benefits in formal policies, such as equal opportunities policies.”.

In the 19th century the courts adopted a different view to the concept of consideration. Emphasis on the bargaining process came to prevail in the law of contract, as per Blackburn J stipulates in Bolton v Madden:

“The general rule is that an executor agreement, by which the plaintiff agrees to do something on the terms that the defendant agrees to do something else, may be enforced if what the plaintiff has agreed to do is either for the benefit of the defendant or to the trouble of prejudice of the plaintiff. If it be either, the adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced”.

Accordingly, this means that promises made were not enforceable unless there was an exchange between both parties to the contract. Furthermore, modern theories of the doctrine of consideration also assert that the exchange of promises between parties must be regarded as something valuable in the eyes of the law as per Patteson J states in Thomas v Thomas:

“Consideration means something which is of some value in the eye of the law”.

Barry Hough and Ann Spowart-Taylor assert that the classical theory of consideration may not be supported in employment law. Furthermore, Barry Hough and Ann Spowart-Taylor argue that in Employment law the courts are developing alternative conclusions which ultimately undermine or exclude the classical theory of consideration as demonstrated in Taylor v Secretary of State for Scotland.

There are certain misconceptions about the law of consideration in modern times. Brian Coote stipulates that these sort of misconceptions in modern times stem from the definition of consideration in Currie v Misa, in which the meaning of benefit and detriment is taken to “suggest that consideration is found in the benefits to be derived from the contract rather than something exchanged at the point of formation”.

However, Barry Hough and Ann Spowart-Taylor argue that in employment law this can be considered conflicting because an employer’s offer of a benefit to the employee, such as a pay increase, is not usually relied upon the employee suffering a detriment in order to obtain the additional reward.

Furthermore, issues such as equal opportunities policy is also examined within the article. It is contended that an employer’s promise not to discriminate is not usually the result of a bargained-for exchange in which a recipricol promise of performance on behalf of the employee is asserted. This principle is supported by Grant v SW Trains Ltd .

Thus, emphasising that the classical model of consideration is insufficient in these modern circumstances.

Problems Associated With Pre Existing Contractual Duty

As previously established, the case of Stilk v Myrick outlined the rules governing promises to perform existing duties is not considered sufficient consideration unless fresh consideration is provided. Barry and Ann Spowart-Taylor argue that this version of the doctrine allows the employer to step back from a formal promise that is not supported and any reliance on behalf of the employee is irrelevant. However in WPM Retail Ltd v Lang, the courts were unable to use the classical doctrine of consideration. In this case an employee claimed rights to obtain a bonus stipulated in their contract only if he achieved a certain performance in his work. The courts in determing the outcome held that the performance on behalf of the employee placed demands on him in order to obtain the bonus.

The classical doctrine of consideration poses many problems in the employment relations as already established. As technology and globalisation changes employers are encouraged to react to more modern conditions by developing flexible work structures. This flexibility in rewards may consist of offering employees additional rewards in order to preserve key staff members. The doctrine of consideration with its emphasis upon the bargain process is ineffective here in the modern commercial context, as flexible rewards display the importance of the staff member to the company which may not remain consistent. Ultimately, this means that employers are encouraged to offer their employees additional rewards in order to maintain their relationship and ensure they that don’t resign. Barry Hough and Ann Spowart Taylor contend that:

“If flexibility dictates both job and function insecurity, employers must find means of motivating their workforce other than the implicit offer of job security. Formal and ostensibly donative promises are a response to this need. Promises of enhanced terms and conditions are the employer’s retort to any possible threat that valuable, highly skilled staff may be lost to a competitor. If the new flexible working does destroy job security, co-operation will suffer in an environment viewed as one-sided or unfair. This suggests that employees will expect some reciprocation for the new instability of the flexible environment”.

Conclusion

In conclusion it is evident that the classical doctrine of consideration is not consistent within the modern commercial context. Ultimately, courts are engaging in alternative theories to suit changing globalisation conditions. This is seen through decisions mentioned above in which the courts are resilient in applying the classical mode of consideration. As mentioned above in modern commercial times the existing legal rule theory is ineffective WPM Retail Ltd v Lang. Furthermore, flexible working arrangements do not accord with the classical theory of consideration and employers are moving toward providing flexible working arrangements. Ultimately, the classical bargain theory is not consistent within the modern commercial context and the decision in the cases mentioned above are simultaneously moving toward a direction in deciding cases concerned with consideration.