Consideration

Consideration

Consideration is a fundamental element of a legally binding contract in common law jurisdictions. It refers to the value exchanged between the parties to a contract, which can consist of money, goods, services, a promise, or an act. Consideration distinguishes enforceable agreements from mere promises or gifts. It ensures that both parties incur a benefit or detriment, thus legitimizing the contract.

Nature of Consideration

Consideration must involve an exchange of something of value between the contracting parties. Key aspects include:

• ★ Benefit and Detriment: Consideration involves a benefit to the promisor or a detriment to the promisee. It means one party receives something of value, while the other gives up something of value.
• ★ Must Be Sufficient: Consideration must be sufficient, meaning it must be something of legal value. However, it need not be adequate, meaning it does not have to match the value of what is received in return. For example, selling a car worth £10,000 for £1 can still constitute sufficient consideration.
• ★ Must Be Real and Tangible: Consideration must be real and have some measurable value. It cannot be illusory or based on vague promises.

Types of Consideration

Consideration can take various forms, including:

• ★ Executed Consideration: This occurs when the consideration is provided immediately as part of the contract's performance. For example, payment made at the time of purchase.
• ★ Executory Consideration: This refers to a promise to do something in the future. For instance, a promise to deliver goods at a later date constitutes executory consideration.
• ★ Forbearance: Agreeing to refrain from doing something that one has a legal right to do can also constitute consideration. For example, agreeing not to file a lawsuit in exchange for a settlement payment.

Rules Governing Consideration

The concept of consideration is governed by several key rules:

• ★ Consideration Must Not Be Past: Consideration must be given in exchange for the promise at the time the contract is made, not for something done previously. Past consideration, something given or done before the contract is made, is not valid.
• ★ Consideration Must Be Legal: The consideration must not involve anything illegal or against public policy. For instance, a contract based on consideration involving illegal activities is void.
• ★ Consideration Must Move from the Promisee: The person who seeks to enforce the contract must provide the consideration or show that it was provided on their behalf.

Exceptions to the Requirement of Consideration

In some situations, a contract can be enforceable even without consideration:

• ★ Promissory Estoppel: If one party relies on the promise of another to their detriment, the promisor may be estopped from asserting the lack of consideration as a defense, provided it would be inequitable to allow them to go back on their promise.
• ★ Contracts Under Seal (Deeds): A deed is a formal legal document that is enforceable without consideration because it is executed in a specific manner, often requiring a signature, a witness, and a statement that it is executed as a deed.

Examples

Conclusion

Consideration is a vital component in the formation of contracts, ensuring that each party provides something of value in the exchange. It legitimizes the contract and provides a basis for its enforceability. Understanding the nature, types, and rules governing consideration is essential for ensuring that contracts are legally binding and enforceable. While consideration is generally required, exceptions like promissory estoppel and deeds provide flexibility in contract law.