Key Takeaways

  • A contract must include valid consideration to be legally enforceable.
  • Consideration refers to something of value exchanged between parties.
  • An agreement without consideration is generally void under contract law.
  • Exceptions to this rule exist, including natural love and affection, past voluntary services, and promises to pay debts barred by limitation.
  • Courts evaluate the sufficiency, not fairness, of consideration—unless bad faith is evident.
  • A contract without consideration is void if obligations are illusory, past, or legally required already.
  • Legal exceptions may vary by jurisdiction; professional legal advice is essential.

A contract without consideration is void because it is not legally enforceable. "Consideration" means that each party must provide something of value to the other party as designated by the contract terms.

Legal Validity of a Contract

Several elements must be present for a contract to be legally valid:

  • One party has made an offer that has been accepted by the other party.
  • An item of value will be exchanged for something else of value, such as goods, services, or cash.
  • The contract refers to legal subject matter.
  • Both parties have agreed freely to the contract, are mentally able to fulfill its terms, and are older than the age of consent.

Certain types of contracts are only valid in writing, such as real estate transactions or contracts that last longer than 12 months. These laws vary by state. Although oral contracts are legal, they can be very difficult to prove in court, so it's usually best to get any contractual agreement in writing.

Legal Elements of an Agreement

Courts have developed guidelines to determine whether an agreement actually exists to help clarify disputes in which this is unclear. First, an offer and acceptance must exist, whether spoken or in writing. In most cases, the party who receives the offer takes time to consider it and often makes a counteroffer. Sometimes, the party who made the initial offer may amend or withdraw it. All these scenarios may lead to confusion and a possible dispute.

Some offers have an expiration date, but those do not remain open for a reasonable period of time. What constitutes a reasonable amount of time is open to interpretation. If a party wants to take longer to consider your offer for longer than you consider reasonable, you can ask them to pay for the option to do so since you won't be able to make the offer to anyone else during that time.

When accepting an offer, do so as soon as possible since it can be revoked at any time until you accept. Once you accept, the agreement is legally binding and cannot be changed or revoked.

What Is Consideration?

Contract law defines "consideration" as the answer to the question, "How do you benefit from entering this contract?" Both parties to a contract must receive consideration for the agreement to be legally binding. For example, if you purchase a jacket at your favorite store, the garment is the consideration you receive, while your payment is the consideration received by the store.

Consideration usually consists of a promise to do something you aren't required to do by law or a promise not to do something that you have the legal right to do.

Gifts vs. Contracts

The reason that contracts require an item of value to be exchanged is to distinguish a legal agreement from a generous gift or a promise from one party to another, neither of which is legally enforceable. For example, if your friend mows your lawn without asking for anything in return, this does not count as a contract because you have not promised consideration. If your friend promises to mow your lawn but doesn't do it, you can't sue for damages.

Promises Versus Action

Most business contracts fulfill the requirement for consideration with exchanged promises. Actually doing promised work counts as consideration as well.

Contracts Without Consideration

Sometimes a contract is declared void by the court because it lacks consideration. This typically occurs when:

  • The offered consideration is something the party in question is already legally obligated to do
  • The consideration offered is a gift with nothing expected in return
  • When the consideration offered is in the past, such as payment offered for a favor done last year
  • The promise provided is illusory, meaning it cannot be fulfilled

The Doctrine of Privity and Consideration

In common law systems, the doctrine of privity states that only parties to a contract can enforce it. This intersects with the requirement for consideration because:

  • A third party who has not provided consideration generally cannot sue to enforce the contract, even if the contract was made for their benefit.
  • Some legal systems have carved out statutory exceptions (e.g., Contracts (Rights of Third Parties) Act 1999 in the UK) that allow third-party beneficiaries to enforce contracts in certain circumstances.

Understanding privity helps explain why a contract without consideration often lacks enforceability—it also lacks a binding relationship between the parties.

Key Cases and Illustrations in Contract Law

Understanding when a contract without consideration is void can be further clarified through case law and hypothetical scenarios:

  • Case Example: Thomas v. Thomas (1842):
    A husband expressed his wish for his wife to remain in his house after his death. The executors allowed her to do so in exchange for a nominal rent. The court upheld this as valid consideration, showing that even a small or symbolic amount may suffice.
  • Case Example: White v. Bluett (1853):
    A son promised not to complain to his father in return for debt forgiveness. The court found no valid consideration because refraining from complaining had no legal value.
  • Example Scenario – No Consideration:
    If a friend promises to give you their car for free but later changes their mind, the agreement is not enforceable because there was no exchange of value.

These examples emphasize that courts evaluate whether something of legal value has been exchanged—not necessarily if the exchange is fair or equal.

Disproportionate Consideration

Even though a deal may seem unfair in hindsight, the court will not usually opine about whether the value of consideration is proportionate. The exception is when the discrepancy is so great that it constitutes bad faith. In this case, the court may find that the contract is void because the party that offered consideration of much lower value acted unfairly.

Exceptions to the Rule: When a Contract Without Consideration Is Valid

While the general rule in contract law is that a contract without consideration is void, several important exceptions exist, particularly recognized in jurisdictions like India and under certain equitable principles in the U.S. These exceptions can make an otherwise unenforceable agreement legally valid:

  1. Natural Love and Affection
    When an agreement is made out of natural love and affection between close relatives (e.g., spouses, siblings, or parent and child), it may be valid even without consideration. However, it must be:
    • In writing,
    • Registered (where required by law), and
    • Made out of genuine affection.
  2. Compensation for Past Voluntary Services
    If someone has voluntarily done something for another, and the latter later promises to compensate them, such a promise can be enforceable, despite no initial consideration. For example, reimbursing someone who previously saved another’s property without being asked.
  3. Promise to Pay a Time-Barred Debt
    A written and signed promise to repay a debt that is no longer legally enforceable due to the statute of limitations can be upheld, even though there’s no current consideration.
  4. Agency Relationships
    Contracts of agency often do not involve direct consideration but are still valid. The creation of the agency itself is recognized by law as enforceable.
  5. Completed Gifts
    Once a gift is delivered and accepted, it cannot be revoked simply because there was no consideration. While a promise to gift something in the future may be unenforceable, a completed gift is valid.
  6. Charitable Subscriptions
    In some cases, especially in jurisdictions influenced by equity, promises to donate to charity may be enforceable even without direct consideration if the charity has relied on the promise to its detriment.
  7. Contract Under Seal
    In older common law and still in some jurisdictions, a contract under seal (also known as a deed) may be enforceable without consideration.

Frequently Asked Questions

  1. Why is a contract without consideration considered void?
    Because consideration is a fundamental element that ensures both parties have something at stake, making the agreement legally enforceable.
  2. Can a contract be valid without consideration?
    Generally no, but there are exceptions, such as contracts made out of natural love and affection or promises to pay time-barred debts.
  3. What is an example of a contract without consideration?
    A promise to gift a car with no expectation of return or action in exchange is not enforceable, as it lacks consideration.
  4. Is a contract enforceable if only one party benefits?
    Usually not, unless it falls under one of the legally recognized exceptions or the benefiting party provided a promise or act of legal value.
  5. How can I determine if consideration is sufficient?
    Courts don’t assess fairness but do require that the consideration be something of legal value, not a past act or a moral obligation. You can consult an attorney on UpCounsel to evaluate your specific situation.

If you need help with determining the consideration for a contract, 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