Key Takeaways

  • Consideration notes represent the value each party exchanges in a contract and are essential for enforceability.
  • Consideration may be executed, executory, past, present, or future—but must carry legal value.
  • Valid consideration must be real, possible, lawful, and not based on existing obligations.
  • Courts typically do not evaluate adequacy of consideration, but it must not be illusory or against public policy.
  • Case law, from Thomas v. Thomas to Chappell & Co. v. Nestle, shows how courts assess adequacy, legality, and value.
  • Consideration can involve promises, services, goods, or even forbearance to sue, but cannot rely on illegal or impossible acts.

Consideration notes indicate the items of value that are exchanged by each party to a contract. This quid pro quo transaction is essential to create a contract that can be legally upheld by the court. For example, if you promise to sell someone your car for $1,000, the money and the car each constitute consideration, thus creating a valid purchase contract.

Types of Consideration

When two parties exchange promises, an agreement is called a bilateral contract, executory consideration has been created. Executed consideration occurs when one party makes a promise in exchange for the action or inaction of another party. When the latter condition occurs, the consideration has been executed. Executory consideration is not yet executed.

Forms of Consideration in Practice

Consideration may take many forms, provided it has some legal or economic value. Beyond the bilateral and unilateral distinctions:

  • Tangible consideration – money, property, or goods exchanged.
  • Intangible consideration – services, time, or forbearance (e.g., promising not to sue).
  • Nominal consideration – a symbolic amount (such as $1) that may still be valid if intended to create legal relations.
  • Conditional consideration – where obligations are dependent on a future event, such as performance milestones in a business deal.

Courts often emphasize that even minimal or nominal amounts can support a contract, but sham or illusory promises are not valid.

Features of Valid Consideration

  • To be valid, the party who agrees to do or not to do something as part of the contract terms must not have already been planning to voluntarily engage in that specific action or inaction. That's because he or she is not offering consideration.
  • Anyone can provide the consideration provided it is done so on behalf of the contracted party.
  • Consideration can be given before, at the time of, or after the contract is signed. Past consideration, for example, would be a promise to pay a debt that was already incurred. This type of consideration is often not valid because the person was already obligated to pay. However, one valid example would be if you work to plant crops for a farmer and he or she promises to pay you at harvest time. Your labor would be considered valid past consideration. Present consideration means that both items of value are provided at the same time, such as when you order food and pay for it upon delivery. Your agreement to purchase the meal constitutes a valid contract. Future consideration, also called executory consideration, is when consideration is provided at a later established date.
  • Consideration must exist and have some legal value, though this value does not need to be equal to the consideration provided by the other party. However, if consideration is inadequate on one side the court may consider whether the other party signed the contract of his or her free will.
  • Forbearance to sue is considered valid consideration provided the actions described in the contract are not illegal.
  • An existing legal duty or obligation is not valid consideration.
  • Consideration that is illegal or against policy is not valid. For example, if someone offers a third party $500 to attack their enemy but does not pay up, the person who conducted the assault cannot seek legal recourse because the consideration was illegal, rendering the contract invalid. This is true even if only part of a single consideration is illegal.

Requirements for Consideration to Be Enforceable

For consideration notes to create a legally binding contract, several conditions must be satisfied:

  1. Must move at the promisor’s desire – consideration given voluntarily, without request, may be invalid.
  2. Must not be past consideration – a promise for something already completed is usually unenforceable, unless tied to a continuing obligation.
  3. Must be real and not illusory – vague promises (e.g., “if I feel like it”) lack enforceability.
  4. Must be legally sufficient – though courts do not measure adequacy, consideration cannot be trivial to the point of being meaningless.
  5. Must not be illegal or impossible – contracts for unlawful activities or impossible tasks lack valid consideration.
  6. May be present or future – performance at the time of agreement or promised for a future date is acceptable.

Case Law Examples

The 1842 case of Thomas vs. Thomas explains the concept of inadequate consideration. In this case, a property was rented for £1 even though it could have commanded a much higher price. The court ruled that the consideration was valid, indicating that even though consideration was inadequate, individuals are free to make bad bargains.

This case also illustrates that consideration must have some economic value. Another case that illustrates this point is the 1853 case of White vs. Bluett, in which a father promised to forgive a debt he was owed by his son under the condition that his son would stop complaining about the terms of his will. This consideration was found invalid by the court, which ruled that a promise to stop complaining does not have economic value.

The 1960 case of Chappel & Co Ltd. vs. Nestle Co. Ltd. found that candy wrappers submitted as prize entries had economic value and could act as valid consideration. However, the 1991 case of Lipkin Gorman vs. Karpnale found this was not true for casino chips.

The concept of performance of an existing duty is illustrated by the 1925 case of Glasbrook Bros. vs. Glamorgan City Council, which found that civil servant services can constitute consideration if they go above and beyond what would be expected in the ordinary course of duty. For example, the police department may charge money to have its officers staff a private event after-hours.

Modern Judicial Approaches to Consideration

Recent interpretations of consideration continue to refine its application:

  • Adequacy vs. sufficiency: Courts reaffirm that adequacy is irrelevant as long as there is legal sufficiency. For instance, Chappell & Co. v. Nestle showed that candy wrappers could amount to consideration.
  • Forbearance as consideration: Modern rulings uphold agreements not to pursue litigation when supported by good faith belief in a claim.
  • Public policy limits: Courts invalidate consideration if it encourages illegal activity or undermines policy. White v. Bluett illustrates that emotional restraint (like ceasing complaints) lacks economic value and cannot form valid consideration.
  • Commercial context: In contemporary business contracts, consideration often takes the form of intellectual property rights, licenses, or confidentiality obligations, which courts recognize as having real value.

Frequently Asked Questions

  1. What are consideration notes in a contract?
    Consideration notes represent the promises, goods, services, or value exchanged by each party to make a contract legally binding.
  2. Can past actions be valid consideration?
    Generally, past consideration is invalid. However, if tied to a continuing obligation or implied request, courts may uphold it.
  3. Do both parties need equal consideration?
    No. Courts only require sufficiency, not equality. Even nominal sums can qualify if intended to create legal relations.
  4. Is forbearance to sue valid consideration?
    Yes, if the claim is made in good faith. An agreement not to pursue litigation can constitute enforceable consideration.
  5. What makes consideration invalid?
    Consideration is invalid if it is illegal, impossible, illusory, or based on an existing legal duty.

If you need help with consideration notes, you can post your legal need 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.