Lesson 5: Consideration
Consideration is a fundamental concept in contract law. It refers to something of value that is exchanged between parties in a contract. For a contract to be legally binding, there must be consideration from both parties.
Definition of Consideration
Consideration is defined as a benefit that each party gets or expects to get from the contractual deal. It involves a promise from one party in exchange for a performance or a promise to perform from the other party. The classic definition is:
Consideration is a benefit to the promisor or a detriment to the promisee.
Elements of Consideration
- Legal Value: The consideration must have some legal value. This means that it must constitute either a detriment to the promisee or a benefit to the promisor.
- Bargained-for Exchange: The consideration must be the result of a bargained-for exchange between the parties. This implies that the promisee's detriment or the promisor's benefit was sought by the promisor in exchange for the promise.
Examples of Consideration
Consideration can take many forms, including:
- Money: The most common form of consideration.
- Property: Transfer of ownership or an interest in property.
- Services: Promise to perform or actual performance of services.
- Forbearance: Promise to refrain from doing something that one has a legal right to do.
Legal Sufficiency
For consideration to be legally sufficient, it must be something of value in the eyes of the law. The courts generally do not assess the adequacy of consideration, meaning they do not evaluate whether the consideration is fair or equivalent in value to what is received in return. The key is that it must be legally sufficient, not necessarily economically equivalent.
Mermaid Diagram
For further understanding, you might want to explore related articles:
Past Consideration
Past consideration refers to something that has been done in the past and is not considered valid consideration for a new contract. For example, if someone promises to pay for a service that has already been performed, that promise is not enforceable because the consideration is in the past.
Preexisting Duty Rule
The preexisting duty rule states that if a party is already legally bound to perform an act, that act cannot serve as consideration for a new contract. This rule prevents parties from using obligations they are already committed to as leverage for additional promises or benefits.
Example: A police officer cannot demand a reward for performing their duty of catching a criminal.
Mermaid Diagram
Promissory Estoppel
Promissory estoppel is an exception to the requirement of consideration. It allows a party to enforce a promise even in the absence of consideration, provided they have relied on that promise to their detriment.
- Promise: A clear and definite promise.
- Reliance: The promisee must rely on the promise.
- Injustice: Avoiding the promise must cause an injustice to the promisee.
Mermaid Diagram
Consideration in Unilateral vs. Bilateral Contracts
Consideration differs between unilateral and bilateral contracts:
- Unilateral Contracts: Involves a promise in exchange for a performance. The performance itself serves as the consideration.
- Bilateral Contracts: Involves a mutual exchange of promises, with each promise serving as consideration for the other.
Case Study: Hamer v. Sidway
The case of Books on Hamer v. Sidway on Amazon (1891) is a classic example of consideration in contract law. In this case, the court held that forbearance (refraining from doing something legally allowed) can constitute valid consideration.
Mermaid Diagram
Conclusion
Understanding the concept of consideration is crucial for anyone dealing with contracts. It is the cornerstone that ensures mutual exchange and enforceability of agreements. Always ensure that consideration is present and valid to make the contract legally binding.