What is Consideration in Contract Law?
The term consideration is given to the subject that is exchanged in a contract. The most common and obvious exchange is money for goods or services. Consideration means making an agreement to pay for goods or services. If an agreement is made to pay for goods and services upon receiving them, then the contract becomes binding at the point of agreement, not at the point of making payment, the consideration is then referred to as being executory. If the act has been carried out, i.e. goods have been exchanged for money, this is referred to as executed. However, contracts may not always involve exchange for money.
What is the legal definition of Consideration?
The key case that gave consideration its definition is Currie v Misa (1875), which states that the subjects which consideration may consist of are right, interest, profit, benefit, detriment or forbearance. There are two types of consideration, executed and executory. Where considerations may be executed, this is where the consideration has been carried out, so the act has been carried out. An important case of Dunlop v Selfridge (1915) showed the negotiating aspect of a contract.
How does consideration become acknowledged by the courts?
Consideration, in some way, must be acknowledged, and the legal term for this is ‘sufficient’, therefore the consideration must be sufficient and is usually of monetary value. Another legal term used here is ‘adequate’, this means fair price. However, the consideration does not need to be adequate, but needs to be sufficient to form a contract. An example of this occurred in the case of Thomas v Thomas (1842), where the decision was made that a woman was allowed to reside in a property for £1 a year.
Consideration must be given at the time of agreement, but it does not include previous acts. For example, in the case of Re McArdle (1951), previous work was not seen as consideration in that particular contract for a future arrangement.
For more information on:
- What is Promissory Estoppel?
- Duties owed under the law of the land and duties owned under a contract.
- What is the law regarding debt repayment and consideration?