Consideration is one of the integral parts of a contract. Without lawful consideration, an agreement cannot be entered into- Critically analyze the basic legal provisions of consideration in the law of contract.
Introduction
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 entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is 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. 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 promissory and did not bind the promise unless the promise accepted by performing the obligations specified in the promise’s offer. Until the promise performed, he or she had provided no consideration under the law.
For example, if someone offered to drive you to work on Mondays and Tuesdays in exchange for your promise to return the favor on Wednesdays and Thursdays, a Bilateral Contract, would formed binding both of you once you provided consideration by accepting those terms. However, if that same person offered to pay you $10 each day you drove him to work, a unilateral contract would formed, binding only upon the promissory until you provided consideration by driving him to work on a particular day.
Distinction
Modern courts have de-emphasized the distinction between unilateral and bilateral contracts. These courts have found that an offer may accept either by a promise to perform or by actual performance. An increasing number of courts have concluded that the traditional distinction between unilateral and bilateral contracts fails to significantly advance legal analysis in a growing number of cases where performance is provided over an extended period of time.
In still other jurisdictions, courts have simply expressed a preference for interpreting contracts as creating bilateral obligations in all cases where no clear evidence suggests that a unilateral contract was intend. The rule has been state that in case of doubt an offer will presumed to invite the formation of a bilateral contract by a promise to perform what the offer requests, rather than the formation of a unilateral contract commencing at the time of actual performance. The bottom line across most jurisdictions is that as courts have been confront by a growing variety of fact patterns involving complicated contract disputes, courts have turned away from rigidly applying the concepts of unilateral and bilateral contracts and move towards a more ad hoc approach.
Value
Consideration for a particular promise exists where some right, interest, profit, or benefit accrues (or will accrue) to the promissory as a direct result of some forbearance, detriment, loss, or responsibility that has been given, suffered, or undertaken by the promise. The consideration must be executor or executed, but not past.
Consideration is executor when a promise to do something in the future is giving in exchange for another promise to done in the future. Consideration is executing when a promise is actually executed, in exchange for another promise to be executed in the future. Consideration is past when a promise has been given or executed before and independently of the other promise. For example, I promised to take you to lunch, and then when we got there I said, “You must pay, because I have given you the benefit of my company”. This is past consideration and therefore
NO consideration.
Consideration can be anything of value (such as an 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 expressing 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 or promised in exchange or return for the promise. A contract must be “met with” or “supported by” consideration to 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 supporting by consideration, then the arrangement is not a legally enforceable contract. Mutual promises constitute consideration for each other.
The notion of exchange
To find out if a promise is enforceable, one must look to see what the other party – the person to whom the promise was giving – has done in return for it. If I promise to do something, has the other party done anything for it – promised to pay, actually paid, delivered something to me etc. In most cases, this is perfectly straightforward – I have promised to build the extension to your house and you have paid me a deposit and agreed to pay the balance in stages.
A contract of guarantee can be difficult to see in this way – think of a loan from Bob to Beverley – Geraldine is asked to guarantee the loan (Bob wants security as Beverley is a student) – the general rule is that consideration must move from the promise, but the provision of Geraldine’s guarantee constitutes good consideration for the enforceability of the loan.
Benefit
Consideration is often spooking of as a benefit to the promisor or a detriment to the promisee. Some will make the point that a mere promise from one party is neither a detriment to that party, nor is it a benefit to the other. Atiyah also argues that real benefit and detriment is not soughing, because of the adequacy point – that the courts will not concern themselves with the adequacy of consideration – a point we will look at in a moment. Is it really a benefit to someone to get $1 for a car? Maybe not, but it may well be good consideration.
The Logical Problem
The promise might of course, become a benefit or a detriment if it is enforceable. However, its being a benefit or detriment is a condition of its enforceability, and therefore, one should be able to establish that it is a benefit or detriment, independently of that.
The privets rule
The general rule is that only those who are parties to a contract can enforce it or have rights under it. Other people might benefit indirectly from the contract being enforced, but the third parties cannot bring legal action in their own name to have it enforced.
This is why the manufacturer in Donoghue v Stevenson denied liability – because they did not have any contract with the consumer, (the cafe owner did), and they thought there was no other ground of action.
Otherwise, it is claim that a third party to a contract, intended to benefit from it, but who has not given consideration for the promise of the promisor, cannot obtain enforceable rights under the contract. If the promisee wishes to sue for damages for the benefit of the third party, there is some question as to whether anything greater than nominal damages can obtained – if the loss is that of the third party and not the promisee. The promisee may be able to have the contract specifically enforced for the benefit of the third party, but this may not always be satisfactory.
Agency is different
The normal agency relationship is not really a qualification to this, because the agent is bringing the principal into a contractual relationship with the other party. The Agent as such is not a party to the contract. However, the “undisclosed principal” makes it slightly different. So long as the agent has authority, and intends to contract for the undisclosed party and the other party has not shown that they are unwilling to enter into the contract with another then the agent can contract on behalf of that principal. In this situation, the agent and the principal can sue and sued, but there must be something like an election, as you could not proceed against both.
Trust is different
A trust is use where someone has the legal title to something (a contract) but is then taken to be holding it not for their own benefit but for the benefit of a third party. It is possible that the third party could claim that the promisee holds the benefit of the promise on trust for that third party so as to enable them to get around the rules of contract law? See the discussion on this in Trident.
Existing duties to third parties
Consideration for a promise can be the performance of a contractual duty owed to someone other than the promisor. In Shadwell, Shadwell was under a contractual duty with a third party to marry. Shadwell’s uncle promised to pay him £150 per year after he was married. It was held that Shadwell marrying was good consideration, notwithstanding that he was obliged by a contract with a third party to marry in any event.
Consideration must be sufficient but need not be adequate
Providing consideration has some value, the courts will not investigate its adequacy. Where consideration is recognized 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 equal value.
Consideration must move from the promise
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 promise must show that consideration “moved from” (ie, was provided by) him. The consideration does not have to move to the promissory. If there are three parties involved, problems may arise.
Conclusion
Consideration is a benefit or right for which the parties to a contract must bargain; the contract found on an exchange of one form of consideration for another. Consideration may be a promise to perform a certain act — for example, a promise to fix a leaky roof — or a promise not to do something, such as build a second story on a house that will block the neighbor’s view. Whatever its particulars, consideration must be something of value to the people who are making the contract.