Adequacy of Consideration Means: Everything You Need to Know
Adequacy of consideration means that for a lawful agreement to be made, the offeree must give a price that is equal measure to the value given by the offeror.3 min read
In law, adequacy of consideration means that for a lawful agreement to be made between two parties, the offeree, also known as the beneficiary, must give in return, a fair price, that is either in equal measure or reasonably proportional to the value given by the offeror, also known as the benefactor. The price, however, may come in several forms:
- An act
- A promise to perform or not to perform an act
For example, if you offer to sell off your house to someone at $50,000, and in exchange, he offers services to you worth this amount, then the consideration is deemed to be adequate.
Enforceability of a Contract
In addition to a consideration, an agreement to the terms of a contract, a valid offer, and acceptance are necessary for a contract to be enforced by any court. Consideration, in essence, ensures the enforcement of promises made by one party to another, in a manner that is acceptable by the law. In a written contract, even though inadequate consideration is not void, it can make a contract unenforceable.
Some contracts do not necessarily require considerations in order to be enforceable. If the court determines that one party deceived the other and they got into a contract that does not meet the minimum requirements for a consideration, the court may allow for a substitute of consideration, considering that the deceived party greatly relied on the promises made by the other party.
Principles of Adequacy of Consideration
- A consideration may involve monetary sums, a promise to do something, or a promise not to do something.
- A past consideration, such as a party promising to perform a task that he is already legally bound to perform or has already performed, is not considered adequate.
- Once the parties agree upon a consideration, it may be considered binding even if the price may not be totally equivalent to the promise.
- If a consideration involves a worthless item or a misleading promise, it is deemed inadequate.
- The amount or performance given in a consideration must be of a value recognizable by the court.
- A consideration that violates a public policy, such as prostitution, is deemed inadequate.
Adequate Consideration Vs. Sufficient Consideration
Even though both adequate and sufficient considerations involve a given value for a contract to be legal, there is a slim difference between them. Whereas adequate consideration demands that a contract constitutes a fair value, sufficient consideration only considers the value as a factor — irrespective of whether it is fair or not. The law further provides that as long as a consideration for a contract has some value, it is legal, even though the value may not be fair. In this case, the consideration is sufficient but not adequate.
Offer Vs. Invitation to Treat
Apart from understanding what consideration is, it is equally important to be able to differentiate between an offer and an invitation to treat. In the law of contracts, an offer is defined as a statement, usually given by an offeror, that propels the offeree to get into a contract.
An expression of an offer can be communicated through different channels, such as a newspaper, a letter, or an ad, as long as it details the conditions of the offer. When the offeree finally accepts the offer, the two are said to have entered into a contract, as in the case of Carlill v Carbolic Smoke Ball Co (1893).
On the contrary, an invitation to treat is not considered an offer. Its main purpose is to persuade an interested party into a contract. For example, you cannot sue a shopkeeper for displaying a prohibited product on the shelf, as this does not express his intention to sell it. This can be seen in the case of Pharmaceutical Society v Boots Cash Chemists Ltd.
Involvement of Lawyers in Contract Consideration
Issues to do with contract consideration may occasionally prove to be quite demanding. Basically, from the time you show the willingness to enter into a contract with another party, to the time you feel that the contract needs to be rewritten, consideration plays a major role. As such, you will need the help of legal professionals.
If you need help understanding what adequacy of consideration means, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.