Consideration is a central concept in the common law of contracts. Without Lawful Consideration An Agreement Can Not Be Entered Into.-Illustrate & Explain
Consideration is a central concept in the common law of contracts It is often called the thing that is exchanged, no matter how minuscule (the classical example being the peppercorn or mustard seed. Consideration can take the form of money, goods, a promise to do something, or anything else that changes the legal position of the promisor. A contract cannot exist without consideration being given by both sides.
Legal analysis of consideration focuses only on a bargained exchange, in other words, only items that are specifically bargained for in the contract can be used as consideration. This protects each party from being sued for something unrelated to the exchange in question.
A contract can only exist if the consideration is both sufficient and adequate. Legal sufficiency of consideration means that both parties suffer a detriment because of the transaction, in addition to any benefit they may or may not receive. Legal adequacy of consideration is more difficult to contest. In general, the courts consider the question of adequacy irrelevant, according to the rationale that if you agreed to the contract, it must have been adequate to you. An exception is made in the case of “dishonesty or unfairness which shocks the conscience of the court.”
Certain other stipulations regarding consideration include the following:
Past consideration is not valid. Something that is already done is done, and it does not change the legal position of the promisor. Any goods or services to be exchanged must be exchanged at or after the time of contract formation.
Preexisting duty does not count as consideration. A security guard cannot enter into a contract to stop a thief for extra payment when his job is to stop that thief anyway. In English Law, the security guard can enter into such a contract, the consideration being his increased exposure to legal action.
An illusory promise, or one which the promisor actually has no obligation to keep, does not count as consideration. The promise must be real and unconditional.
Liquidated debt, or a payment which is fixed and undisputed, cannot be negotiated for consideration. Unliquidated debt, or a payment which is disputed, can be used for consideration.
In some circumstances, the concept of estoppel can be used as a defence where there is a lack of consideration.
While the concept of consideration is not generally accepted in civil law systems some recognize the similarity between consideration and cause, as some civil codes recognize that all contracts must have a cause, though this is not generally accepted.
Consideration as defined is the interest, profit, and benefit accruing to one party involved as a payment for the consideration.
- Consideration move at the desire of the promisor: In order to constitute consideration the act or abstinence forming the consideration for the promise must be done at the desire or request of the promise. Thus an act does or services rendered voluntarily, or at the desire of the third partly, will not amount to valid consideration so as to support a contract. The logic for this may be found in the worry and expense to which every one might be subjected, if he were obliged to pay for services which he did not request.
- Consideration move from promise or any other person: Consideration need not move from the promise alone but may proceed from third person. Thus as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promise or from any other person. This means that even a stranger to the consideration can construct a contract, provided he is a party to the contract. This is sometimes called as doctrine of constructive consideration.
- Consideration may be past, present or future: The words, has done or abstained from doing or does or has abstained from doing or promises to do or to abstained from doing or promises to do or to abstain from doing. Consideration may consist of either something done or not done in the past or done or not done in the present, or promised to be done or not done in the future.
- Consideration need to be adequate: It means that consideration is that it must be something to which the law attaches a value. The consideration need not to be adequate to the promise for the validity of an agreement. The law only consists on the presence of consideration and not on the adequacy of it. It leaves the people free to make their own bargains.
If A signs a contract to buy a car from B for $5,000, A’s consideration is the $5,000, and B’s consideration is the car.
Additionally, if A signs a contract with B such that A will paint B’s house for $500, A’s consideration is the service of painting B’s house, and B’s consideration is $500 paid to A.
Further, if A signs a contract with B such that A will not repaint his own house in any other color than white, and B will pay A $500 per year to keep this deal up, there is also consideration. Although A did not promise to affirmatively do anything, A did promise not to do something that he was allowed to do, and so A did pass consideration. A’s consideration to B is the forbearance in painting his own house in a color other than white, and B’s consideration to A is $500 per year.
Conversely, if A signs a contract to buy a car from B for $0, B’s consideration is still the car, but A is giving no consideration, and so there is no valid contract. However, if B still gives the title to the car to A, then B cannot take the car back, since, while it may not be a valid contract, it is a valid gift.
There are a number of common issues as to whether consideration exists in a contract.
Definition of Consideration
Something with monetary value, voluntarily exchanged for an act, benefit, forbearance, interest, promise, right, or goods or services. In banking, the loan-amount is a consideration, in exchange for the borrower’s promise to repay the principal and to pay interest and other charges. In insurance, insurance company’s offer to make a loss good is a consideration in exchange for payment of premium. Essential element of all enforceable commercial-contracts, it does not have to be ‘adequate’ or equal in value to the exchanged item but must be legal (not in violation of any law).
TYPES OF CONSIDERATION
1. EXECUTORY CONSIDERATION
Consideration is called “executory” where there is an exchange of promises to perform acts in the future, eg a bilateral contract for the supply of goods whereby A promises to deliver goods to B at a future date and B promises to pay on delivery. If A does not deliver them, this is a breach of contract and B can sue. If A delivers the goods his consideration then becomes executed.
2. EXECUTED CONSIDERATION
If one party makes a promise in exchange for an act by the other party, when that act is completed, it is executed consideration, eg in a unilateral contract where A offers £50 reward for the return of her lost handbag, if B finds the bag and returns it, B’s consideration is executed.
RULES GOVERNING CONSIDERATION
1. CONSIDERATION MUST NOT BE PAST
If one party voluntarily performs an act, and the other party then makes a promise, consideration for the promise is said to be in the past. The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A gives B a lift home in his car. On arrival B promises to give A £5 towards the petrol. A cannot enforce this promise as his consideration, giving B a lift, is past.
EXCEPTIONS TO THIS RULE:
(A) PREVIOUS REQUEST
If the promisor has previously asked the other party to provide goods or services, then a promise made after they are provided will be treated as binding.
(B) BUSINESS SITUATIONS
If something is done in a business context and it is clearly understood by both sides that it will be paid for, then past consideration will be valid.
(C) THE BILLS OF EXCHANGE ACT 1882
Under s27(1) it is provided that any antecedent debt or liability is valid consideration for a bill of exchange. For example, A mows B’s lawn and a week later B gives A a cheque for £10. A’s work is valid consideration in exchange for the cheque.
2. CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE
Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is recognised by the law as having some value, it is described as “real” or “sufficient” consideration. The courts will not investigate contracts to see if the parties have got equal value.
3. CONSIDERATION MUST MOVE FROM THE PROMISEE
The person who wishes to enforce the contract must show that they provided consideration; it is not enough to show that someone else provided consideration. The promisee must show that consideration “moved from” (ie, was provided by) him. The consideration does not have to move to the promisor. If there are three parties involved, problems may arise.
4. FOREBEARANCE TO SUE
If one person has a valid claim against another (in contract or tort) but promises to forbear from enforcing it, that will constitute valid consideration if made in return for a promise by the other to settle the claim.
5. EXISTING PUBLIC DUTY
If someone is under a public duty to do a particular task, then agreeing to do that task is not sufficient consideration for a contract.
If someone exceeds their public duty, then this may be valid consideration.
6. EXISTING CONTRACTUAL DUTY
If someone promises to do something they are already bound to do under a contract, that is not valid consideration.
The principle set out in Stilk v Myrick was amended by the following case. Now, if the performance of an existing contractual duty confers a practical benefit on the other party this can constitute valid consideration.
7. EXISTING CONTRACTUAL DUTY OWED TO A THIRD PARTY
If a party promises to do something for a second party, but is already bound by a contract to do this for a third party, this is good consideration.
DIFFERENTIATE BETWEEN EXECUTED CONSIDERATION AND PAST CONSIDERATION
Consideration is one of the three main building blocks of a contract in English contract law. it is the exchange of benefit and detriment e.g., making of a promise in exchange for an act or it can be anything of value such as item or service which each party to a legally-binding contract must agree to exchange if the contract is to be valid. If only one party offers consideration, the agreement is not legally a binding contract. In its traditional form, consideration is expressed as the requirement that in order for parties to be able to enforce a promise, they must have given something for it (quid pro quo): something must be given in exchange or return for the promise. A contract must be “met with” or “supported by” consideration be enforceable; also, only a person who has provided consideration can enforce a contract. In other words, if an arrangement consists of a promise which is not supported by consideration, then the arrangement is not a legally enforceable contract.
When a promise is made in exchange for an act, when that act is performed, it is executed consideration for example when you go to a bakery and ask the baker to make you a birthday cake and you pay for his services in advance then we can call the payment Executed consideration for the bakers promise to make the cake.
If a party voluntarily acts and then the other party makes a promise, the act is said to be “past consideration” since the act was already performed and not made in exchange for the promise. For example Korir gives Boit a ride to the market and back home. When Korir delivers Boit to his house, Boit promises to give Korir some money to buy a new rim. Korir cannot sue Boit to enforce Boit’s promise since the consideration (Korir’s act of giving Boit a ride) occurred before Boit’s promise. Korir gave Boit the ride without expecting anything in return. (Korir did not give Boit a ride in exchange for Boit giving Korir money hence past consideration is of no effect to consideration at all.
For example In Eastwood v Kenyon, the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise as taking out the loan to raise and educate the girl was past consideration, because it was completed before the husband promised to repay it.
Also in the case of Re McArdle Mrs. McArdle renovated the house that formed part of McArdle”s fathers estate that they lived in at a cost of 488 pounds and she was promised payment after the property is shared out but latter the beneficiaries refused to pay the sum she had used and when she sued them she lost because it was considered past consideration and past consideration is no consideration. The beneficiaries promise to pay the sum was just a promise with no consideration to support.
A plaintiff may rely on past consideration in the following instance:
a) Where services are rendered at the express request of the defendant in circumstances which raise an implication of a promise to pay e.g. in case of Lampleigh v Brathwait the defendant who had killed a Mr. Patrick Mahume asked the plaintiff to Endeavour to obtain a pardon for him from the king. The plaintiff thereafter exerted himself to this end and travelled wherever the king was obtaining pardon for the defendant for the said felony. After the pardon was granted by the king the defendant promised to pay the plaintiff 100 pounds but failed to honor his promise when sued the defendant pleaded past consideration but he was held liable by the court.
b) Past services may constitute valuable consideration for a bill of exchange under section 27 of the bills of exchange act which provides that valuable consideration for a bill may be constituted by an antecedent debt or liability e.g. in the case of Re McArdle if the children of Re.McArdle had given mrs.McArdle a bill of exchange or a promissory note then they would be held liable even if the bill was drawn after the work had been completed.
c) An acknowledgement of a statute- barred debt is binding under limitation of actions Act 1968 even though it is made in respect of a bad debt provided that it is in writing and it is signed by the debtor.
Importance of Consideration
Being considerate is certainly important to any relationship, business or otherwise. When it comes to law, consideration takes on another meaning and plays a pivotal role in contracts. It’s one of the three elements necessary for successful contract formation in the United States, along with the offer and the acceptance.
Consideration is part of the glue that makes a contract binding. It can be the payment of money in exchange for goods or services, themselves in the case of a barter arrangement. Consideration can be a promise to do, or not, do something. Essentially, consideration must be something value, something you wouldn’t ordinarily have but for the agreement.
When mountain division manager Tracy Horner was asked by his employer Lucht’s Concrete Pumping to sign none compete agreement in 2003, two years after starting the job, he did so. The terms of the agreement required that Horner not compete against the company for a one year period if he ever left their employ.
Sure enough, about a year later he left and started working for a competitor with the week. Lucht’s claimed Horner’s customers in the mountain region pulled their business and followed Horner to his new job, causing them to close their business in that region. They were not amused and sued. They said Horner had breached the no compete agreement, among other things.
Legal rules of consideration
i) Consideration must move the desire of the promisor:
In order to constitute consideration the act or abstinence forming the consideration for the promise must be done at the desire or request of the promise. Thus an act does or services rendered voluntarily, or at the desire of the third partly, will hot amount of valid consideration so as to support a contract. The logic for this may be found in the worry and expense to which every one might be subjected, if he were obliged to pay for services which he does not need or require.
ii) Consideration may move from promise or any other person: Consideration need not move from the promise alone but may proceed from third person. Thus as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promise or from any other person. This means that even a stranger to the consideration can be con a contract, provided he is a party to the contract. This is sometimes called as doctrine of constructive consideration.
iii) Consideration may be past, present or future: The words, has done or abstained from doing or does or has abstained from doing or promises to do or to abstained from doing or promises to do or to abstain from doing. Consideration may consist of either something done or not done in the past or done or not done in the present, or promised to be done or not done in the future.
iv) Consideration need to be adequate: It means that consideration is that it must be something to which the law attaches a value. The consideration need not to be adequate to the promise for the validity of an agreement. The law only consists on the presence of consideration and not on the adequacy of it. It leaves the people free to make their own bargains. Which has a tendency to be injurious to the public or against the public good?
The rules or the necessary factors for consideration can be summed up as follows :
(1) There must be desire of the promisor ;
(2) it must be real ;
(3) reasonable ;
(4) not illegal, immoral or opposed to public policy ;
(5) present, past or future ; and
(6) from the promisee or any person.
.Subject to the above essential factors, a good consideration can be any of the following :
(1) physical goods ;
(2) services ;
(3) forbearance (for example not to sue) ;
(4) arbitration or the compromise of disputed claims, and
(5) settlement or composition with creditors.
We have seen how consideration law permeates every section of our lives. Convincing or even to social and recreational activities such as buying a drink in the pub, contracts are created all around us. While the majority is short lived and the terms fairly simple unobtrusive, breaches of such agreements may still be enforced with all force of the law as with the more serious forms of contract. The law of consideration needs to change with the developments in economics, technology and social attitudes. It is usually a matter for Parliament to intervene and legislate for new situations and introduce law that will govern particular relationships and the contract that arise between them. It is impossible however to legislate for all potential eventualities as a situation may arise that was not foreseen, or the technology, issue or relationship that it was intended to regulate may have moved on. It is then for the Courts to interpret the law so as to find the solution to any dispute.
 Consideration Articles & Information. Available from http://neohumanism.org/c/co/consideration.html
 Consideration From Wikipedia, the free encyclopedia. Available from http://en.wikipedia.org/wiki/Consideration
 Comparing executed & past consideration. Available from http://www.123helpme.com/comparing-executed-consideration-and-past-consideration-view.asp?id=163566
 Law Teacher. Available fromhttp://www.lawteacher.net/contract-law/lecture-notes/consideration-lecture.php
 McKendrick E. Contract Law – Text, Cases and Materials. 2005(Oxford University Press ).