What is consideration?
In order for a contract to exist the basic elements required include the agreement, consideration and the intention to create legal relations. Agreement is the offer and acceptance and the intention to create legal relations distinguishes between legally binding contracts and the sort of agreements passively made in social and family situations.
The consideration is the bargaining element of the contract and this is a vital requirement in creating the contract. Each party must provide some sort of benefit, a bargaining tool to initiate the negotiation process.
Each party will have to provide something in return for the other party whether that be money or a service provided.
The courts have described consideration as follows;
‘A valuable consideration in the eyes of the law, may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’.
The basic rule is that past consideration is not consideration. The occurs where there is a promise to pay for an act done such as a service for example like fitting a kitchen, before the promise was made, then that act cannot constitute consideration for the promise.
Sometimes difficulty arises where the act is done at the request of the person making the promise. In this case, consideration will occur as long as both parties understand that some form of payment will be made in return for the service/ goods provided.
Does the consideration need to be equal and adequate?
The law will not examine whether or not the consideration/ bargain element is a good one. The only requirement surrounding consideration is that the bargain element has to have some sort of money value regardless of how little.
Can performance of an existing promise be enough to satisfy consideration?
Performance of an existing duty cannot amount to consideration unless the contract extends beyond the existing duty. Basically if the existing promise does not go beyond a mere public duty expected of that person then it is not enough to be classed as consideration.
A duty owed to the person making the promise
The traditional approach is that the promise, or performance of an existing contractual duty that was already owed to the other party before the new contract was created, cannot amount to consideration for a new future promise by that same person.
The thought behind this is that the person who owes the duty to perform some obligation still owes this duty when the new agreement is created. If the law allowed a person to use this again then the first agreement would technically be void for lack of consideration and there would be a an interdependence between old and new contracts.
If the benefit is a practical one then in certain situations this will be enough to constitute consideration.
Jack and Cath have a contract. Jack performs the actions in the contract in return for payment from Cath.
Before Jack finishes his promise Cath promises him additional payment if it is completed by a specified date.
In a case like this Cath is paying more for the same work done. This is a voluntary additional payment and therefore enforceable consideration.
This sort of promise would not amount to consideration if the case where that Jack realised Cath needed the work done on a certain date and therefore asked for more money in order to do so.
Part payment of a debt
Where a person promises not to enforce the whole of a debt, traditionally this was not legally enforceable unless the debtor provided some fresh consideration.
Part payment of a debt cannot constitute consideration. There needs to be something more than the money that the person originally owed anyway.