A fundamental principle of contract law that in order to create a binding contract that the law will recognize and enforce, there must be an exchange of consideration between the parties-explain


Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally to do. In a bilateral contract-an agreement by which both parties exchange mutual promises-each promises regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other’s performance, the performance is consideration for the promise, while the promise is consideration for the performance. The performance is consideration for the promise, while the promise is consideration for the performance.

Consideration must have a value that can be objectively determined. A promise, for example, to make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise.

Traditionally, courts have distinguished between unilateral and bilateral contracts by determining whether one or both parties provided consideration and at what point they provided the consideration. Bilateral contracts were said to bind both parties the minute the parties exchanged promises as each promise was deemed sufficient consideration in itself. Unilateral contracts were said to bind only the promisor and did not bind the promisee unless the promisee accepted by performing the obligations specified in the promisor’s offer. Until the promisee performed, he or she had provided no consideration under the law.

Definition of consideration:[2]

“The act or promise of one party is, as it were, ‘bought’ or ‘bargained for’ by the act or promise of the other; each party exchanges something of value. To create an enforceable contract there must be … ‘reciprocal undertakings’.[3] So, if one party is neither giving anything, nor is promising to do or give anything, there is no consideration for the other party’s act or promise.” It is a fundamental principle of contract law that in order to create a binding contract that the law will recognize and enforce, there must be an exchange of consideration between the parties.

“Consideration is simply something of value received by a promisor from a promisee. It can take the form of a right, interest or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given, suffered or undertaken by the other.

“If there is no consideration there is no contract; and if there is no contract, there is nothing upon or from which to found or create liability.

Historically, when all contracts were verbal the common law did not want to enforce gratuitous offers, those made without anything offered in exchange (such as gifts), to be given the protection of contract law. Therefore, they added the criteria of consideration.

Elements of a Consideration: [4]

Often, consideration is broken down into two parts: 1) something of legally sufficient value must be given in exchange for the promise; and 2) usually, there must be a bargained for exchange.

 Legal Value: The something of legally sufficient value may consist of

  • A promise to do something that one has no prior legal duty to do
  •  The performance of an action that one is otherwise not obligated to undertake, or
  •  The refraining from an action that one has a legal right to undertake (called forbearance).
  • Bilateral consideration consists of a promise for a promise.
  • Unilateral contracts involve a promise in return for a performance.

Bargained-For Exchange: The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties. The promise given by the promisor (offeror) must include the promisee (offeree) to offer a return promise, a performance, or a forebearance, and the promisees promise, performance, or forbearance must induce the promisor to make the promise.

Adequacy of Consideration: Legal sufficiency of consideration involves the requirement that consideration be something legally sufficient value in the eyes of the law. Adequacy of consideration involves how much consideration is given. Essentially, adequacy of consideration concerns the fairness of the bargain.

 Agreements That Lack Consideration: Sometimes, one of the parties (or both parties) to an agreement may think that consideration has been exchanged when in fact it has not.

  • Preexisting Duty: Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. The preexisting legal duty may be imposed by law or may arise out of a previous contract.

For example, A agrees to paint B’s house for TK5000, but halfway through the job A tells B that he will not finish unless B increases the payment to TK.6000. If B agrees, and A then finishes the job, B still only needs to pay A the TK.5000 originally agreed to, because A was already contractually duty-bound to paint the house for that amount.

  • Unforeseen Difficulties: The rule regarding preexisting duty is meant to prevent extortion and the so-called holdup game. In the interest of fairness and equity, the courts sometimes allow exceptions to the preexisting duty rule. When the unforeseen difficulties that give rise to a contract modification involve the types of risks ordinarily assumed in business, however, the courts will usually assert the preexisting duty rule.
  • Past Consideration: Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained for exchange is missing. In short, you can bargain for something to take place now or in the future but not for something, that has already taken place. Therefore, past consideration is no consideration.

Problem Areas Concerning Consideration: Problems concerning consideration usually fall into one of the following categories:

  1. Promises exchanged when total performance by the parties is uncertain.
  2. Settlement of claims.
  3. Promises enforceable without consideration.

 Uncertain Performance: If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory without consideration and unenforceable.

Option-To-Cancel Clauses: In terms of contracts sometimes present problems in regard to consideration. For example if you were to hire someone for TK.1000 dollars a month for a year with the reserve to cancel the contract anytime. On close examination of these words, you can see that I have not actually agreed to hire you, as I could cancel without liability before you started performance. The contract is illusory.

Requirements Contracts and Output Contracts: In a requirement contract, a buyer and a seller agree that a buyer will purchase from the seller all of the goods of a designated type that the buyer needs, or requires. In an output contract, the buyer and seller agree that the buyer will purchase from the seller what the entire seller produces, or the sellers output, Problem with the uncertainty of performance in these contracts.

Settlement of Claims:  Businesspersons, or others can settle legal claims in several ways, and it is important to understand the nature of consideration given in these kinds of settlement agreements or contracts.

Accord and Satisfaction: The concept of accord and satisfaction involves a debtor’s offer of payment and a creditor’s acceptance of a lesser amount than the creditor originally purported to be owned. An accord is a promise to do something that is different from the originally stated agreement. Both parties must agree, and satisfaction is when the accord is executed. No satisfaction without an accord. For accord and satisfaction to occur, the amount of the debt must be in dispute.

Liquidated Debts:  If a debt is liquidated, accord and satisfaction cannot take place, a liquidated debt is one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined. In the majority of states, acceptance of a lesser sum than the entire amount of a liquidated debt is not satisfaction, and the balance of the debt is still legally owed. The rationale for this rule is that no consideration is given by the debtor to satisfy the obligation of paying the balance to the creditor because the debtor has a preexisting legal obligation to pay the entire debt.

Unliquidated Debts: The parties may differ over the amount owed. It is not settled, fixed, agreed on, ascertained, or determined. In these circumstances, acceptance of payment of the lesser sum operates as satisfaction, or discharge, of the debt. One argument to support this rule is that the parties give up a legal right to contest the amount in dispute, and thus consideration is given.

Release: A release is a contract in which one party forfeits the right to pursue a legal claim against the other party. It bars any further recovery beyond the terms stated in the release. Releases will generally be binding if they are 1) given in good faith, 2) stated in a signed writing (which is required in many states), and 3) accompanied by consideration.

Agreement Not to Sue: An agreement not to sue is an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim. Unlike a release, an agreement not to sue does not always bar further recovery.

Promises Enforceable without Consideration: There are some exceptions to the rule that only promises supported by consideration are enforceable.

  • Promises to pay debts that are barred by a statute of limitations.
  • Promises that induce detrimental reliance, under the doctrine of promissory estoppels.
  • Promises to make charitable contributions.

Promises to Pay Debts Barred by a Statute of Limitations: Statutes of limitations in all states require a creditor to sue within a specified period to recover a debt. The promise can be implied if the debtor acknowledges the barred debt by making a partial payment.

Promissory Estoppels: A person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery. This doctrine is applied in a wide variety of contexts in which a promise is otherwise unenforceable, such as when a promise is not supported by consideration. The following elements are required.

  • There must be a clear and definite promise.
  • The promisee must justifiable rely on the promise.
  • The reliance normally must be of a substantial and definite character.
  • Justice will be better served by enforcement of the promise.

Charitable Subscriptions: Subscriptions to religious, educational, and charitable institutions are promises to make gifts and are unenforceable on traditional contract grounds because they are not supported by legally sufficient consideration. Exceptions to this general rule are occasionally made, however. Some courts have held that a promise to give funds to a charity was supported by consideration.

Importance of consideration[5]

Consideration is the foundation of every contract. The law insists on the existence of consideration if a promise is to be enforced as creating legal obligations. A promise without consideration is null and void. It is called a naked promise.

 Thus if A promise to pay B tk.1000 without anything in return, this is constitute a bare promise and gives no right of action. Sir William Anson has brought out the importance of consideration thus, “offer and acceptance brings the parties together, and constitute an outward semblance of a contract, but most systems of law requires some further evidence of the intention of the parties and in default of such evidence, refuse to recognize an obligation.’ This further evidence of the intention of the parties is supplied by consideration which is one of the elements of a valid contract.

Section 25 of the Indian contract Act supports this contention and provides that agreement without consideration is void.

Consideration is a most important element of a contract:

Consideration is the most important element in the formation of a contract. Offer and acceptance is subscribed within consideration, and when consideration is established, Intention to create legal relation would ordinary be present.

There are five basic elements to any contract:

1. Competent Parties: a contract can be considered invalid if one party is stoned drunk for example.

 2. Offer: the proposal made by one (the offeror) to another (the offeree) that indicates the willingness to enter into a contract.

3. Acceptance: Both parties agree to be bound by the terms of the offer.

4. Mutual Agreement: o.k. meeting of the minds.

5. Legality of purpose: The intent of the contract must have a legal purpose to be enforceable.
There is also, what is known as proper form. Contracts such as those are that involved tk.500. Alternatively, more, or, that cannot be fulfilled within a year must be in writing to be enforceable, and must also follow a prescribed form. This is not always done. We would not have Judge Judy and all the rest of them if it were. All of these elements must be present for a contract to be enforceable.

Monetary value of consideration[6]

Generally, courts do not inquire whether the deal between two parties was monetarily fair—merely that each party passed some legal obligation or duty to the other party. The disparities issue is presence of consideration, not adequacy of the consideration. The values between considerations passed by each party to a contract need not be comparable.

For instance, if A offers B TK.200000 to buy B’s mansion, luxury sports car, and private jet, there is still consideration on both sides. A’s consideration is TK.200000, and B’s consideration is the mansion, car, and jet. Courts generally leave parties to their own contracts, and do not intervene. The old English rule of consideration questioned whether a party gave the value of a peppercorn to the other party. As a result, contracts have sometimes have had one party pass nominal amounts of consideration, typically mention TK.10000. Thus, licensing contracts that do not involve any money at all will often cite as consideration, “for the sum of TK.10000 and other good and valuable consideration”.

However, some courts in the United States may take issue with nominal consideration, or consideration with virtually no value. Some courts have since thought this was a fraud. Since contract disputes are typically resolved in state court, some state courts have found that merely providing TK10000 to another is not a sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals, and consequently, no contract is formed. However, this is a minority position.[7]

With respect to consideration in forming a contract?-[8]

  • Each party to the contract gives consideration and each party receives consideration.
  • only the offeror gives consideration
  • only the offeree gives consideration
  • neither party to the contract gives consideration
  • In general illegal agreements
  • can be enforced
  • can only be enforced in supreme court
  • cannot be enforced but restitution is available

Essentials of valid consideration
The essentials of valid consideration are as under:

  • At the desire of the promisor:

In order to constitute legal consideration is that the act or abstinence forming the consideration for the promisor. The act performed at the desire of the third party cannot be said to be the consideration. Similarly the acts done or services rendered voluntarily will not amount to valid consideration.

  • Promisee or any other person:

The valid consideration is that consideration needs not to move from the promise alone but may proceeds from a third person. This means that even stronger to the consideration can sue on a contract.

  • Stranger to a contract cannot sue:

She/he shouldn’t be a stranger because “privet of contract” (mutually of will) is essential for enforcing any of the rights arising out of the contract. So the stranger cannot be suing.

  • Consideration Must Be Real.

Exceptions to the rule that “No consideration – No contract”[9]


In case of trust, the beneficiary can sue to enforce his rights under the trust, though he was not a party to the contract between the settler and the trustees.


A person in whose favor a charge in same specific immovable property has been created may enforce it, though he may be a stranger to the contract creating the charge.

 Family settlements:

This exception arises in cases of family arrangements or marriages settlements or where provision is made for the marriage expenses of female members. Such members though not parties to the agreements can sue on the breach of agreements.


Where a person is act as an agent for his principal, the principal can sue on a contract though he is not a party to a contract.


A principal even if undisclosed may sue on a contract made by an agent.


Assignments of rights under a contract in favor of a third party either voluntary or by operation of law, the assignee can enforce the benefits of the contract.

 Consideration may be Past, Present or Future:[10]

The words “has done or abstained from doing (past) or does or abstains from doing or promises to do (present) or to abstain from doing (future)” It indicates which has already been done at the desire of the promise or in progress or is promised to be done in future.

 Past Consideration

When the act has been done before means its show its past consideration.


 It takes simultaneously with the promise is called “Present Consideration” or Executed Consideration”. The act constituting the consulting is wholly or completely performed.


When the consideration on both sides moved at a future date, it is called “Future Consideration” or executor Consideration. It consists of promises and each promise is a consideration for the other.




infinitesoluzioni.blogspot.com/…/noconsiderationnocontract-discuss.html htp://en.wikipedia.org.wiki/consideration#monetary_value_of_consideration.



http://en.wikipedia.org.wiki/importanceof consideration




[5] http://en.wikipedia.org.wiki/importanceof consideration

[7] http://www.supreme.courts.state.tx.us/historical/2004/dec/030109.htm.

[8] www.google.com.

[9] infinitesoluzioni.blogspot.com/…/noconsiderationnocontract-discuss.html