ACCT 202 Lecture Notes - Lecture 6: Promissory Note, Negotiable Instrument, Estoppel
29 May 2018
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Chapter 8: The Requirement of Consideration (pg 136-146, PDF:169-
Consideration: fourth essential element of every simple contract, that is something (consideration) that
has value in the eyes of the law, and which a promisor receives in return for a promise. And need not be
adequate to be valid, Is an essential requirement for any contract not under seal.
• Unless a promisor gets something in return for his or her promise, the promise is merely
gratuitous. Consideration for a promise must exist for the contract to be legally binding
Exceptions to this rule
1. Gratuitous offer of a service must be performed with care and skill if not, The promisor will be liable
for any loss suffered as a result of careless performance or negligence.
2. A person may be liable a promissory note, or other negotiable instrument, to a subsequent
endorser, even though no consideration exists between them.
3. If the rule relating to consideration is strictly applied to a promise of a donation to charity, the
agreement would not be enforceable, as the promise would be gratuitous. because the donor would
receive nothing in return for the promise made, however If the charity can show that it undertook a
specific project on the strength of the donor’s pledge, then the promise may be enforced if the
donor’s promised donation was substantial part of the funds needed for the project
Fulfilment of the promise can be at that instant(present consideration), or at a later date (future
consideration).
Seal: A formal mode of expressing the intention to be bound by a written promise or agreement. This
expression usually takes the form of signing or affixing a wax or gummed paper wafer beside the
signature, or making an engraved impression on the document itself. Used by the courts to enforce
promises.
• The courts will not normally look behind a contract under seal to determine if consideration exists,
because the agreement derives its validity from its form (i.e., the signature plus the seal). The seal
give binding effects to a contract.
• When parties wish to enforce a gratuitous promise, the expression of the promise in writing with
the signature of the promisor and a seal affixed is the usual method used. Many formal agreements
still require a special form and execution under seal to be valid.
• Some legal entities execute formal documents by way of a seal. A corporation, for example, can only
act through its agents to carry out its objects. Must have the corporate seal affixed by the agent. It
should be noted, however, that not all corporations are required to have seal under business
corporation statutes The general trend has been to eliminate the need for business corporations to
use seals to execute documents such as contracts.
• The Supreme Court of Canada, on appeal, stated that only the party who seals a document has
obligations under it, in this case only the corporation was liable on the mortgage.
Calling for tenders: process where a firm will advertise specific need (in newspapers/direct-mail) to
potential suppliers and invite them to present offers which they may accept or reject. This has no
binding effect on firm that makes the call they aren’t obligated to accept any offers.
Tenders are frequently used by business/government organizations that wish to establish a contractual
relationship for the supply of goods/services or the construction of buildings, machinery, or equipment
The tendering process generally uses the seal to render an offer irrevocable, and often uses the
payment of a money deposit as a special type of consideration
Rule: an offer made in response to the call may be revoked at any time before acceptance, unless the
call for tenders requires offerors to submit their offers as irrevocable offers under seal therefore can’t
be revoked will stand until it’s accepted or it expires.
Offerors may also be required to make a returnable deposit with the tender under seal, a refusal/failure
from chosen offeror to get into the formal contract and perform it according to terms will cause the to
the party who made the call to gain ownership of the deposit and may also take legal action.
Document Summary
Chapter 8: the requirement of consideration (pg 136-146, pdf:169- Consideration: fourth essential element of every simple contract, that is something (consideration) that has value in the eyes of the law, and which a promisor receives in return for a promise. And need not be adequate to be valid, is an essential requirement for any contract not under seal: unless a promisor gets something in return for his or her promise, the promise is merely gratuitous. Consideration for a promise must exist for the contract to be legally binding. Fulfilment of the promise can be at that instant(present consideration), or at a later date (future consideration). Seal: a formal mode of expressing the intention to be bound by a written promise or agreement. This expression usually takes the form of signing or affixing a wax or gummed paper wafer beside the signature, or making an engraved impression on the document itself.
