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'Consideration' in a contract - what is it?

The issue of consideration goes to the very foundation of whether a contract has been validly formed and is enforceable.  If there is no consideration, then there may be no enforceable contract. 

So what does this term “consideration” mean?

If we look at most legal agreements, we can see that the agreement is usually made of an exchange of promises. 

One party may agree to:  do something; refrain from doing something; sell something or the like, in exchange for the other party’s promise to do or give them something else – something that they consider valuable.  This is what is referred to as valuable consideration.

Consideration is usually monetary, as in a cash payment or transfer of funds – but it could be anything so long as it is of value to the party receiving it.  For example, it could be labour, the transfer of rights to something or a reciprocal promise to do or refrain from doing something.

Here are a few examples:-

Ben offers to sell his car and legally transfer it into Joe’s name for $10 000.  Joe accepts Ben’s offer.  Joe pay’s Ben $10 000 (valuable consideration).

After driving off in his new car, Joe accidentally hits another car.  The owner promises that if Joe pays her $1 000, she will not litigate the matter or request further damages.  Joe pays the owner $1 000 (valuable consideration) in exchange for the owner’s promise to release Joe from all further claims in relation to the damage.

Joe’s mother needs a car for the week.  She promises to pay Joe $100 if he lends her his car (valuable consideration).

In each of these cases, the parties received something that they considered valuable in a “quid pro quo” transaction.

If a party has not provided consideration for a particular promise or benefit under an Agreement, then that party will find that he/she may be unable to enforce the Agreement in his/her favour.

Are there any exceptions to providing consideration?

Yes.

Consideration is not a necessary requirement of the more formal types of Agreements known as Deeds.  Because Deeds are generally recognised as a very serious or solemn form of agreement and signed as such, the common law has accepted that these types of formal agreements will be valid even where no consideration has been paid.

 

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