CONTRACTS II

CONSIDERATION
DISCUSSION QUESTIONS
SUGGESTED ANSWERS
Consider whether the following situations give rise to legally binding
obligations.
1) X promises to sell Y her car, which is worth $10,000, for $100. Y accepts.
Is there a contract?
A: The consideration is sufficient. Courts do not require a balance between the
value of the promise (car) and the value of the consideration (promise to
pay $100).

2) X is a franchisor. X promises to give Y, his franchisee, a $500 per month

discount on her franchise fees if she operates her franchised outlet
superbly. Does X have to keep this promise?
A: X will argue the consideration is not sufficient because superbly is vague
and therefore illusory (White v Bluett). A judge would probably say it is not
vague (as in Ward v Byham).
3) X promises to give Y $100 if Y promptly returns Xs car, which Y has
borrowed. Y promptly returns the car. Does X have to pay the $100?
A: The answer depends on whether X and Y have a binding agreement that Y
can keep the car for a certain time, which has not yet expired.
If so, Y is going beyond his contractual duty and therefore giving good
consideration therefore X must pay (Hartley v Ponsonby).
If not, Y is only performing his public duty to return the car and the
consideration is insufficient (Collins v Godefroy). Therefore X does not
have to pay.

4) Y has threatened to sue X for incompetence as a financial adviser. X

promises to pay Y $1,000 if she drops the case. Y drops the case. Does X
have to pay the $1000?
A: Ys consideration is that she dropped the case. That is sufficient
consideration so X must pay.
5) X promises to give Y $1,000 because Y referred four new clients to Xs
investment advising business. Does X have to keep the promise to pay?
A: X will argue this is past consideration because the promise was made after
the consideration (Roscorla v Thomas). Y will argue that the consideration
is sufficient (Re Caseys Patents) because X asked Y to refer clients (we
need more information about whether this is true) and there was an
understanding that X would pay Y (again, more information is needed).
6) X and Y have a disagreement about what is the capital city of Mongolia. X
says it is Ulan Bator while Y insists that it is Lhasa. They make a bet of
$100 about it. Who is right? Does the loser have to pay?
A: Y is right. Y promised to pay $100 to X if Ulan Bator was the capital of
Mongolia. X gave consideration for that promise because he promised to
pay $100 to Y if Lhasa was the capital. Therefore under traditional contract
law rules, Y must pay. However, legislation says this kind of bet is not
binding. Legislation prevails over common law, so Y does not have to pay.