Consideration is one of the most important elements in the formation of a contract- Analyze the basic legal provisions of consideration in the law of contract

Consideration is one of the most important elements in the formation of a contract- Analyze the basic legal provisions of consideration in the law of contract”


Consideration is some thing that has legal value of contract. These considerations arise when some one doing a contact to other. Basically it is flash the both party same value. Form of term money, physical objects, services, promised actions, abstinence all this are the consideration of contract. But in common law it is a prerequisite, both parties offer consideration before the contract. To give validity to the contract it needs a valid consideration. That mean every valid contract has a consideration. This way each party gets a change to consideration in their position. Consideration is usually either the result of:

  • a promise to do something you’re not legally obligated to do, or

a promise not to do something you have the right to do (often, this means a promise not to file a lawsuit).

for example: when we buy a soft drinks from a shop, in that time we pay money ,and the shop give me the drinks.both the party are same in here. This is true in all contract need a valid consideration.

Do You Need the Word “Consideration” in Your Contract?

Many contracts provide recitals that mean a statement at the beginning of the contract. that the contract is being entered into “for good and valuable consideration, the sufficiency of which is acknowledged,” or something to that effect. The writers of these contracts mistakenly believe that simply stating that consideration exists actually fulfills the requirement of contractual consideration. In a majority of states, however, this is not the case; such recitals don’t prove anything. In other words, saying there is consideration doesn’t necessarily mean there is consideration.

Legal scholars agree that generally, a contract doesn’t need to include anything other than a statement that “the parties agree.” The exception is for contracts that only one party signs, such as assignments, option agreements, or promissory notes. In these contracts, a recital that the consideration is sufficient should be included, because it’s not self-evident that a bargained-for exchange has taken place.

Is consideration most important element in 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. 1Competent 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, a.k.a meeting of the minds. I know this sounds a little strange but it may be thought of as part of consideration, in that both parties agree to give up something of value that they have a legal right to keep, mutual agreement and consideration six of one half a dozen of another. 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 that involve $500. Dollars or more, or, that cannot be fulfilled within a year must be in writing to be enforceable, and must also follow a prescribed form. Needless to say this is not always done. We wouldn’t have Judge Judy and all the rest of them if it was. All of these elements must be present for a contract to be enforceable.

Dyer’s case (1414) 2 Hen. 5, 5 Pl. 26

Thomas v Thomas (1842) 2 QB 851

Currie v Misa (1875) LR 10 Ex 153, 162

Bolton v Madden (1873) LR 9 QB 55, 56, Blackburn J,

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 855,

A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be “damages” or compensation of money. In equity, the remedy can be specific performance of the contract or an injunction. Both of these remedies award the party at loss the “benefit of the bargain” or expectation damages, which are greater than mere reliance damages, as in promissory estoppel. The parties may be natural persons or juristic persons. A contract is a legally enforceable promise or undertaking that something will or will not occur. The word promise can be used as a legal synonym for contract.<href=”#cite_note-0″>[1], although care is required as a promise may not have the full standing of a contract, as when it is an agreement without consideration.

Contract law varies greatly from one jurisdiction to another, including differences in common law compared to civil law, the impact of received law, particularly from England in common law countries, and of law codified in regional legislation. Regarding Australian Contract Law for example, there are 40 relevant acts which impact on the interpretation of contract at the Commonwealth (Federal / national) level, and an additional 26 acts at the level of the state of NSW. In addition there are 6 international instruments or conventions which are applicable for international dealings, such as the United Nations Convention on Contracts for the International Sale of Goods (Vienna Sales Convention)

Consideration and formation of a contract:

1) Consideration move at the desire of the promisor.

2) Consideration move from promise or any other person.

3)Consideration may be past, present or future.

4)Consideration need to be adequate.

That this is in the following give the details:

1) 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.

2) 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.

3)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.

4) 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.

When a Contract Lacks Consideration, In some situations, courts will step in and declare that a contract is unenforceable because it lacks consideration. Let’s look at some of these scenarios.

One of the parties was already legally obligated to perform. For example, a police officer cannot claim the reward for capturing a wanted suspect, because the officer is already legally obligated to capture and arrest people who break the law.

Wilmot et al, 2009, Contract Law, Third Edition, Oxford University Press, page 34

Restatement (Second) of Contracts § 32 (1981) (emphasis added) Law Dictionary

Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701 in which the wrappers from three chocolate bars was held to be part of the consideration for the sale and purchase of a musical recording.

The promise amounts to a gift, not a contract. If your rich uncle promises to give you money to buy a house, without any strings attached, that is a promise to make a gift. If he changes his mind, you can’t force him to come up with the cash because his promise was one-sided; you have not done or promised to do anything in exchange.

On the other hand, if you make a down payment on a house in reliance on his promise, and your uncle knows about it, a court may enforce his original promise. Although it still isn’t a true contract, the law recognizes that it’s necessary to hold people to their promises once others take action on the assumption that the promise will be kept. This legal theory — called “promissory estoppel”– treats promises as contracts if the promise was reasonably relied upon.

The exchange is for “past consideration.” When someone promises to give you something in return for something you’ve already done — “I’m going to pay you $500 because you quit smoking last year” — a court will not enforce the promise to make the payment because the performance (quitting smoking) wasn’t bargained for. You did it without knowing that someone would come along later and offer to pay for it.

The bargained-for promise is illusory. For example, the laws in Maria’s state prohibit firing an employee for refusing to sign a no compete agreement. Maria signs one anyway, under threat of losing her job. The agreement is unenforceable because Maria’s employer cannot do what it promised (or threatened) to do. A better approach would have been to provide Maria with some benefit or compensation if she signed the agreement, rather than threatening to fire her if she did not.

Pre-existing duty rule:

Pay less: One party has performed their part of the contract but the other party refuses to pay unless the amount owed is reduced. For example, a contractor performs work on a home for $10,000 only to have the homeowner refuse to pay anything unless the contractor agrees to accept $8,000 (assuming no breaches of warranty, etc.). The rule will apply, so the contractor could accept the $8,000 and sue for the remaining $2,000 because there was an ‘honest dispute’ as to the duty.

Pay more: One party refuses to perform their side of the contract unless a larger sum of money is paid. For example, Christine agrees to sell Julian a set of text books for $300.00. Julian wires $300.00 to his friend Jake who is charged with picking up the text books and delivering the $300.00. After the money has been wired and delivery arrangements have been made, Christine calls Julian and states that she has changed the price to $350.00 and will not deliver the books to Jake unless Julian promises to pay an additional $50.00. The rule will apply, so Julian could agree to pay the extra money, but then not do so when the books are delivered. (If Julian actually paid the extra money, then he could sue later under “duress” to recover the $50.00)

Public duty: The party seeking payment already has a public duty to perform the act. For example, a government employee polygraph expert might ask a criminal about an unrelated crime during the administration of a polygraph. If the criminal admits to the crime and the employee then seeks a reward for identifying the perpetrator, he would not be entitled to it under the legal duty rule because he already has a public duty to find out about crimes.

Exceptions: The legal duty rule does not apply if the parties mutually agree to change the terms of the contract. For example, the homeowner and contractor could agree to modify their contract to include a new window for the bathroom at an additional cost of $1,000. Alternatively, the parties could agree not to perform part of the contract for a $500 reduction in the price. Both these modifications to the original contract would be enforceable because there was consideration for each. The legal duty rule protects one party when the other is trying to unilaterally change the terms of the agreement.

There are ways around the legal duty rule, such as mutual rescission of the existing contract with a clear indication of such rescission (literally tearing up the old contract). Also, in some states, parties may renegotiate contracts to include additional benefits if, for example, the party performs unexpected or additional duties, the parties assent in good faith or a new contract is agreed.

Where contractual parties owe each other existing contractual obligations, but a third party offers a promise contingent upon performance of the contract, that promise has sufficient consideration.

Consideration will be found where a party promises to perform where there are unforeseen and/or unforeseeable circumstances sufficient to discharge the party from the obligation, where any new or different consideration is promised (e.g. earlier payment or payment in stock), where the promise is to ratify a void able obligation (e.g. go through despite fraud), where the preexisting duty is owed to another person and where there is an honest dispute as to the duty.

Also, under the Uniform Commercial Code, modifications may be made free of the Common Law legal duty rule even without consideration provided that the modification is made in good faith. However, the Statute of Frauds must be complied with, so a written contract is necessary if the contract as modified comes within the scope of that statute. For purposes of the UCC, a contract must be in writing if it is for the sale of goods where the price exceeds $500.

Past consideration: Generally, past consideration is not a valid consideration and has no legal value. Past consideration therefore cannot be used as a basis when claiming damages. Roscorla v

Thomas. There are two exceptions to this rule they include;

  1. Where it was paid at the request of the offeror.
  2. Where both parties had earlier on contemplated payment.

Option contracts and conditional consideration:

Conditional consideration is valid consideration.

Suppose A is a movie script writer and B runs a movie production company. A says to B, “buy my script.” Instead, B says “How about this – I will pay you $5,000 so that you do not let anyone else produce your movie until one year from now. If I do produce your movie in that year, then I will give you another $50,000, and no one else can produce it. If I do not produce your movie in that year, then you’re free to go.” If the two subsequently get into a dispute, the issue of whether a contract exists is answered. B had an option contract—he could decide to produce the script, or not. B’s consideration passed was the $5,000 down, and the possibility of $50,000. A’s consideration passed was the exclusive rights to the movie script for at least one year.

Stilk v. Myrick: Stilk v. Myrick in which a captain’s promise to divide the wages of two deserters among the remaining crew if they would sail home from the Baltic short-handed, was found unenforceable on the grounds that the crew were already contracted to sail the ship through all perils of the sea.

The preexisting duty rule also extends beyond an underlying contract. It would not constitute sufficient consideration for a party to promise to refrain from committing a tort or crime, for example. However, a promise from A to do something for B if B will perform a contractual obligation B owes to C, will be enforceable – B is suffering a legal detriment by making his performance of his contract with A effectively enforceable by C as well as by

The rule in Pinnel’s Case – Foakes v Beer (1884) 9 App Cas 605

Eastwood v. Kenyon (1840) 11 Ad&E 438

(1809) 2 Camp. 317.

Collins v. Godefroy (1831) 1 B. & Ad. 950.

Stilk v. Myrick case I can explain in blew…


In contract law, consideration refers to any bargained-for exchange.

Promissory maintain requires the following elements are, The promise was clear and definite, justifiable relied on the promise, substantial and of a definite character and will serve the best interests of justice. Consideration of some sort or other is so necessary to the forming of a contract, that a agreement to do or pay something on one side, without any compensation on the other, will not at law support an action and other activities. This situation is effect one contract and consideration.
Basically, for a contract to be valid, there must be an exchange of goods and/or services. Because the vast majority of contracts are for sales of some type, consideration usually takes the form of an exchange of money for goods or services. For consideration to be valid things exchanged must be of some legal value.

So, each and every contract should have a legal consideration. I can say that, consideration is an integral part of the contract. Without that, an agreement can not valid


In my above research it is clear that consideration is some thing that all are about contract .and also we knew agreement is also a contract. In our daily or business purpose it needs consideration. In every sector we need consideration. Now we know what that is, what its value is and how it applies.

The most important part is integral parts of the contract. Consideration is most integrating part on the contract. Offer and acceptance is subscribed within consideration, and when consideration is established, intention to create legal relation would ordinary be present. If only one party offers consideration in contract, the agreement is not legally a binding contract. Consideration is one of the essential elements of a contract together with consent of the parties and object of the contract. It is absent; there is no contract just like the absence of any of the other two elements. 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 provides consideration can enforce a contract.


Nolo’s article Unenforceable Contracts: What to Watch Out For.

Hans Wehberg, Pacta Sunt Servanda, The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.; Principle of Sanctity of contracts


Lord Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR 433; c.f. § 133 BGB in Germany, where “the actual will of the contracting party, not the literal sense of words, is to be determined”

[1893] 1 QB 256

(1953) 92 CLR 424

Wilmot et al, 2009, Contract Law, Third Edition, Oxford University Press, page 34

Restatement (Second) of Contracts § 32 (1981) (emphasis added) Law Dictionary

Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701 in which the wrappers from three chocolate bars was held to be part of the consideration for the sale and purchase of a musical recording.

The rule in Pinnel’s Case – Foakes v Beer (1884) 9 App Cas 605

Eastwood v. Kenyon (1840) 11 Ad&E 438

(1809) 2 Camp. 317.

Collins v. Godefroy (1831) 1 B. & Ad. 950.

Shadwell v. Shadwell (1860) 9 C.B.N.S. 159.

ex nudo pacto actio non oritur

Dyer’s case (1414) 2 Hen. 5, 5 Pl. 26

Thomas v Thomas (1842) 2 QB 851

Currie v Misa (1875) LR 10 Ex 153, 162

Bolton v Madden (1873) LR 9 QB 55, 56, Blackburn J,

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 855,

Chappell & Co Ltd v. Nestle Co Ltd [1960] AC 87, Lord Somervell,…/…