Lesson 5: Consideration

Exploring contract fundamentals, best drafting practices, and legal insights to navigate the complexities of contract law.

Consideration is a crucial element in the formation of a contract. It refers to the value that is exchanged between the parties in a contractual agreement. Without consideration, a contract is typically not enforceable. Learn more about other essential elements in Elements of a Valid Contract.

If you're interested in a deeper dive, check out The Law of Contracts by John D. Calamari and Joseph M. Perillo.

Definition of Consideration

Consideration can be defined as something of value that is given by one party to another in exchange for the performance or promise of performance. This value can be in various forms such as money, services, or goods.

Legal Requirements for Consideration

For consideration to be valid, it must meet the following criteria:

  • Must be Sufficient but not Necessarily Adequate: The consideration must be something of legal value, but it does not have to be equal in value to what the other party is offering.
  • Must be Bargained For: The consideration must be the result of a bargain between the parties. Both parties must agree to the exchange of value.
  • Must Not be Past Consideration: The consideration cannot be something that was already given or done before the promise was made.

Examples of Consideration

Here are some relatable examples to help you understand consideration better:

Consideration can take many forms, including:

  • Money
  • Goods
  • Services
  • Promises to act or refrain from acting

Diagram: Mutual Exchange of Consideration

Visual aids can make complex concepts easier to grasp. Check out the diagram below:

graph TD; A["Party A"] -->|Provides Consideration| B["Party B"]; B -->|Provides Consideration| A;

Case Law on Consideration

Several landmark cases have shaped the understanding of consideration in contract law. For example, in Carlill v Carbolic Smoke Ball Co, the court held that the company's promise to pay £100 to anyone who contracted influenza after using their product constituted valid consideration.

Consideration in Different Types of Contracts

Consideration varies across different types of contracts. Here are a few examples:

Consideration plays a role in various types of contracts. For instance, in employment contracts, consideration typically involves the employee providing their labor in exchange for wages from the employer. In lease agreements, the tenant provides payment for the right to use the landlord's property.

Mathematical Representation of Consideration

Consideration can be represented mathematically to show its mutual nature:

\( \text{Party A's Consideration (C_A)} = \text{Party B's Consideration (C_B)} \)

Ensuring Valid Consideration in Drafting

When drafting a contract, make sure to:

When drafting a contract, ensure that the consideration is clearly defined and is something of value. This can help avoid disputes and ensure that the contract is enforceable. For tips on drafting, see Drafting for Enforceability.

sequenceDiagram participant P1 as Party 1 participant P2 as Party 2 P1-->>P2: Offers Consideration P2-->>P1: Provides Consideration Note right of P1: Consideration must move from both parties

For more insights into the complexities of contract formation, read our next lesson on Intention to Create Legal Relations.

Further reading: Contract Law: Text, Cases, and Materials by Ewan McKendrick.

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