What is consideration in contract law?
‘Consideration’ is the price given in exchange for goods or services under a contract, or a promise to do (or not to do) something in return. The price is usually money – but can be anything that has value.
Consideration of value is required to make the contract legally binding and must be given by the contractual party – it cannot be given by a third party.
What is the legal definition of consideration?
The key case that defined ‘consideration’ is Currie v Misa (1875), which states that consideration can consist of a right, interest, profit, benefit, detriment or forbearance. There are two types of consideration: executed and executory.
Where consideration has been given (executed), consideration has already been carried out. However, it cannot be something that happened in the past.
In the case of executory consideration, one party is bound by the contract by promising to do something or not to do something
Sometimes, there is a dispute as to whether or not a contract is legally binding because of an alleged lack of consideration. The courts have developed important rules on the meaning of consideration over the last 150 years or so.
What amounts to consideration?
Consideration must be ‘sufficient’ and adequate; however, this does not mean it has to be of market value. For example, in the case of Thomas v Thomas (1842), an agreement was made that a woman was allowed to reside in a property for £1 a year. This was sufficient consideration – it was not a mere gift.
Consideration must be given at the time of the agreement, but it does not include previous acts. For example, in the case of Re McArdle (1951), previous work was not treated as consideration for the contract for a future arrangement. However, if there is an agreement between the parties that previous work is to be included, then that consideration may be valid (Lampleigh v Braithwaite (1615) and Re Casey’s Patents (1892)).
Consideration in a contract must not be illegal. In the case of Foster v Driscoll (1929), goods were smuggled into the USA, and therefore the consideration was illegal. So, for instance, if you enter into a contract to supply goods in return for smuggling counterfeit goods or drugs, the contract will be unenforceable because the consideration is illegal.
Consideration cannot be a duty which currently exists. For instance, in the case of Collins v Godefroy (1831), a lawyer who attended court as a witness could not also contract to appear in court.
For more information on:
- What is the relevance of promissory estoppel?
- Duties owed under the law, and duties owned under a contract
- What is the law regarding debt repayment and consideration?