Last edited 10 Oct 2019

Consideration

Consideration.jpg

Contents

[edit] Introduction

A basic principle of English law is that a contract must be supported by ‘consideration’ if it is to be legally valid (except where it was made by deed).

A classic definition of ‘contract’ is 'a promise or set of promises which the law will enforce' (Pollock, Principles of Contract, 13th edition). In other words, there is reciprocity of undertaking passing between the promisor and the promisee (see below).

Consideration is something of value that is exchanged between the parties to a contract. One party receives consideration from the other party in return for their act or promise.

For example, a client employs a builder to landscape the garden of the family home. The client (the promisor) promises to pay the builder (the promisee) a fee of £5,000 on completion of the works. If the builder accepts, the £5,000 is the consideration for the value of the building works and their performance under normal circumstances.

Those who provide the consideration are the parties to a contract. For the contract to be valid, the consideration must have been agreed upon by both parties prior to making the contract.

The law distinguishes between good consideration and valuable consideration:

[edit] Good consideration

Gratitude, thanks and love (which may be returned by someone as part of a promise made) are all components of good consideration. However, good consideration is not sufficient for legal purposes. The law requires valuable consideration as the courts will not enforce gratuitous promises (other than contracts made under seal and subject to the Contracts (Rights of Third Parties) Acts.

[edit] Valuable consideration

The payment of money or a promise to pay money is valuable consideration. However, as far as the law is concerned, other acts, however insignificant, may provide valuable consideration.

Valuable consideration was defined in the test case Currie v. Misa as “some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”. Simply put, it is something of value in the eyes of the law (Thomas v Thomas).

For example, a promise to pay £50 “if you will come to my house” was held to be valuable consideration in Gilbert v Ruddeard. However, as a general rule, a moral obligation does not provide valuable consideration, eg a promise made 'in consideration of natural love and affection' (Brett v J.S.). Nor is a pre-existing legal obligation sufficient to provide valuable consideration, often referred to as 'past consideration'.

[edit] Caveats to valuable consideration

  • Valuable consideration need not be adequate, ie if the consideration is clearly an inadequate sum for the work involved, the contract would still be valid as the consideration still has some value and is not just ‘goodconsideration. The assumption here is that rational agents of adult age are free to enter any contract they want to; furthermore, it is their responsibility to assess whether they are satisfied with the ‘bargain’. This has led to the payment of nominal consideration to make certain contracts legally enforceable - for example the payment of £1 for the purchase of a business
  • Valuable consideration must be real, ie it must have some value in the eyes of the law.

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