Consideration in Contract Law (Guide & examples)

This is an in-depth guide to consideration in contract law.

In this guide you will learn;

• what is consideration
• elements of a valid consideration
• types of consideration
• is a past consideration a good consideration?
• etc.

Throughout this post, I will use examples, illustrations, and decided common law cases to back up my points.

In common law, without consideration a contract is void, thus it cannot be enforced in a court of law

You may also Read landmark Cases on offer, an invitation to the treaty, and acceptance

What is a Consideration?

Consideration is usually described as being anything of value that benefits or detriments parties to the contract.

Consideration in contract law hinges itself on the Latin maxim ‘quid pro quo’ which means ‘nothing should go for nothing.

That means each party to the contract must give something in return for what is gained from another party, so if you wish to enforce someone’s promise to you, you must prove that you gave something in return for that promise.

Example of consideration in contract law

For example, I give my dog and you give me $150, or I wash your car and you pay me $100.

That means, your $150 is a consideration for my dog, my dog is a consideration for your $150 or the cleanness I have done to your car is a consideration for your $100, your $100 is a consideration for my cleanness.

Consideration may be a thing or a service.

Consideration entails exchange between the parties.  For example, If I promise to hand over my house and you promise to pay me a sum of money in return, through that exchange we have each provided consideration.

It may also take the form of promises. For example, I promise to work for you and you promise to pay me a salary.

What are the Elements of Valid Consideration?

The following are the elements of valid consideration

1. Consideration need not benefit the promisor
2. Consideration may be executory or executed
3. Consideration must not be past
4. Consideration must be sufficient
5. Consideration can be a promise not to sue
6. Consideration must be of economic value

Consideration need not benefit the promisor

Generally, for the consideration to be valid, it is not necessarily for the promisor to benefit from it. What matters is promisor must accept the consideration provided.

Sometimes there can be a consideration where the promisee suffers some detriment at the promisor’s request but gives no particular benefit to the promisor.

For example, in Jones v Padavatton [1969] 1 WLR 328 the plaintiff was a resident of Trinidad. Her daughter had a secretarial job in Washington, but her mother wanted her to give it up and train to be a barrister in England.

The mother, therefore, volunteered to give her daughter a monthly allowance for the duration of her Bar studies.

Here the daughter’s giving up her job would be a consideration for the mother providing an allowance, even though it did not directly benefit the mother.

Consideration may be executory or executed

there are two types of consideration i.e. executory and executed consideration.

What is Executory consideration?

Executory consideration is a form of consideration where something of value is to be done in the future, usually, after the contract has been formed.

It happens when parties to the contract promise each other that something shall be done after the contract has been made.

For example, on making the contract you promise to service my car and I promise to pay when you finish the service.

In normal circumstances this consideration is known as ‘Pay after work’- you deliver, I pay.

What is Executed consideration?

Executed consideration is a form of consideration whereby the consideration is performed at the time of formation of the contract.

I prefer to call it ‘tit for tat consideration’.

For example, if I promise to give $50 to anyone who finds my lost dog.  The contract is termed to be performed when someone returns the dog and executed consideration happens when I pay that person.

Consideration must not be past

Past consideration is no consideration.

The past consideration concept is always confusing. Since the focus is not really on the time of consideration but on whether the consideration was given in exchange for the other party’s consideration.

Consideration must be given in return for the promise or act of the other person. Something given, or promised for another reason will not count as consideration.

What is past consideration?

Past consideration is a form of consideration that has been given by one party without the exchange of consideration from another party.

That usually happens when a person has already performed before the other party offered consideration in exchange for his/her performance.

For Example, if you look after my children when I’m on holiday, and when I return I promise to give you some money, my promise will be past consideration because you did not look after my children in return for it. Consequently, you cannot enforce my promise.

The legal implication of past consideration can be well found In the case of Roscorla v Thomas (1842) 3 QB 234.

In that case, the defendant sold the plaintiff a horse. After the sale was completed, the defendant told the plaintiff that the animal was in good condition. The plaintiff found that to be untrue and decided to seek court redress.

The court held that the defendant’s promise was unenforceable because it was made after the sale.

If the promise about the horse’s condition had been made before, the plaintiff would have provided consideration for it by buying the horse.

As it was made after the sale, the consideration was past, for it had not been given in return for the promise.

The bottom line is Consideration must be given in return for the promise of the other party.

The exception to the Past Consideration Rule

Where the past consideration was provided at the promisor’s request and it was understood that payment would be made in return.

That means when I promise to pay you for a service or task that you have already done for me at my request, then my promise is enforceable.

For example, in the case of Lampleigh v Brathwait (1615) Thomas Brathwait had been convicted of killing a man, and he asked Anthony Lampleigh to obtain a pardon for him from the King.

Consequently, Lampleigh managed to do so. In the excitement of getting his pardon, Brathwait promised to pay Lampleigh £100, but later refused to hand over the money, so Lampleigh sued.

It might appear that Lampleigh’s consideration was past since he had secured the pardon before the promise to pay was made.

But the court held that Braithwaite’s promise to pay was proper consideration for the pardon obtained at his request, thus enforceable.

Consideration must be sufficient

One peppercorn can be a good consideration – even if the promisee does not like pepper

Consideration must be sufficient but need not be adequate. That means it does not matter whether the consideration provided is enough or not enough, good or bad, as long as there is a consideration, that’s fine.

For example, I promise to sell you my house worth $ 1m for $10000; the consideration you pay is clearly very little compared to the value of my house. But as long as there is a consideration and we are all okay with that, it is sufficient.

That principle has been invited by the ‘freedom of contract’ concept. Freedom of contract entails that, parties should be voluntarily and free to enter any contract purely based on their agreements.

In the case of Thomas v Thomas (1842) the plaintiff was a widow whose husband had stated that if he died before his wife, she should be allowed to live in his house for the rest of her life, after which it was to pass to his sons.

When the man died, the defendant, who was his executor, agreed that the widow could continue to occupy the house in return for a promise that she would pay £1 a year and keep the house in good repair.

Despite this, sometime later, the defendant tried to evict the widow, so she sued for breach of contract.

The defendant claimed that the earlier promise was not binding because of a lack of consideration.

However, the court held that the widow’s promise to pay £1 and keep up the repairs was sufficient consideration to make the owners’ promise binding.

Consideration must be of economic value

That simply means that for consideration to be valid, there must be some physical value, rather than just an emotional or sentimental one.

Consideration can be a promise not to sue

If a person has a civil claim against the other, a promise not to enforce that claim is a good consideration for a promise given in return.

For example, if I negligent kill your dog, you might agree that you will not sue me if I pay for the damage or buy you a dog, and your promise not to sue will be a consideration for my promise to pay.

Conclusion

I endeavored to give you an in-depth insight into the consideration of contract law. The bottom line is

• Consideration is anything of value that benefits or detriments parties to the contract.
• Consideration can be executed or executor but not past consideration.
• Consideration need not benefit the promisor, must be sufficient, must be of economic value and it can be a promise not to sue.
• Consideration purely depends on the party’s autonomy.

References

CASES

Jones v Padavatton [1969] 1 WLR 328

Lampleigh v Brathwait (1615)

Roscorla v Thomas (1842) 3 QB 234

Thomas v Thomas (1842)

BOOKS

Contract Law (2004), 4thEdition, Great Britain, Cavendish Publishing Limited, ISBN 1–85941–868–6

Elliott C and Quinn F (2009) Contract law 7thEdition, Great Britain, Pearson Education Limited

Nditi, N.N.N. (2009). General Principles of Contract Law, 1st Edition, Dar es Salaam: Dar es Salaam University Press.