Consideration under Contracts
Consideration in Contract Law
Definition and Importance
Consideration is a fundamental element of a valid contract. It refers to something of value exchanged between the parties, which each party agrees to give or perform. Without consideration, a contract typically cannot be enforced.
Consideration can be a benefit to the promisor or a detriment to the promisee.
It ensures that each party is giving something in return, distinguishing enforceable promises from mere gifts.
Key Characteristics of Consideration
Must Be Bargained For
Consideration must be the result of a bargain or mutual exchange.
Each party’s promise or performance induces the other’s promise or performance.
Must Have Legal Value
Consideration can be money, goods, services, or even a promise to act or refrain from acting.
It must be something the law recognizes as sufficient, but it need not be adequate or equal in value.
Past Consideration Is No Consideration
An act done before a promise is made usually cannot be consideration for that promise.
Performance of a Pre-existing Duty Is Not Consideration
Doing something one is already legally obligated to do does not count as valid consideration for a new promise.
Types of Consideration
Executory Consideration: Promise for a promise (e.g., agreeing to deliver goods for payment later).
Executed Consideration: Performance for a promise (e.g., payment upon delivery).
Forbearance: Agreeing to refrain from doing something (e.g., not suing in exchange for payment).
Important Case Law on Consideration
1. Hamer v. Sidway (1891)
Facts: An uncle promised to pay his nephew if he refrained from drinking, smoking, and gambling until age 21.
Issue: Whether the nephew’s forbearance was valid consideration.
Holding: The court held that refraining from a legal right (drinking, smoking, gambling) is sufficient consideration.
Significance: Established that forbearance to act legally can constitute valid consideration.
2. Carlill v. Carbolic Smoke Ball Co. (1893)
Facts: The company promised to pay £100 to anyone who used their product and still contracted influenza.
Issue: Whether the plaintiff’s use of the product was sufficient consideration.
Holding: The court ruled that using the product as instructed was valid consideration, making the advertisement a binding offer.
Significance: Demonstrated that performance in response to a promise can constitute consideration.
3. Stilk v. Myrick (1809)
Facts: Two sailors deserted a ship, and the captain promised the remaining crew extra wages if they completed the voyage.
Issue: Whether the promise of extra wages was enforceable.
Holding: The court held that the sailors had no consideration for the extra promise because they were already contractually obligated to complete the voyage.
Significance: Established the rule that performing a pre-existing duty is not valid consideration for a new promise.
4. Past Consideration Case (General Principle)
Principle: Past actions or services that are not requested or bargained for cannot be consideration for a later promise.
Example: If you help someone move and later they promise to pay you, this promise is not enforceable because the help was not done in exchange for the promise.
Summary
Consideration is a core requirement for contract enforceability; it means both parties exchange something of legal value.
It must be bargained for and legally sufficient.
Forbearance, promises, and performance can all serve as valid consideration.
Past consideration and performance of existing duties generally do not count.
Case law like Hamer v. Sidway and Carlill v. Carbolic Smoke Ball Co. illustrate valid forms of consideration.
Stilk v. Myrick clarifies the limits where pre-existing duties are involved.
RELATED Blog
0 comments