Key Takeaways

  • The doctrine of consideration is essential for enforceability in contract law, requiring a mutual exchange of value.
  • Consideration must be more than a past obligation or gift; it must be current or future and legally sufficient.
  • Exceptions exist, such as promissory estoppel, which allows enforcement without traditional consideration.
  • Courts evaluate the presence, not the adequacy, of consideration unless unconscionability is evident.
  • Certain modern legal principles and reforms challenge traditional rules, including reliance and fairness-based doctrines.

Knowing the doctrine of consideration in contract law is important for any business person as there can a sense of mistrust when doing business in the western world. Contract law began in the common law of the Middle Ages. There were concerns at the time about property law and safety that made the formation of contract law a necessity.

This started with the requirement that transferring property required the acts of an offer and acceptance. While the original contract was made under word of honor, this soon became a problem since there was no extra proof that the actual agreement existed. This created the need for written contracts which is basically a written offer and terms of acceptance.

Contracts are found everywhere in people's daily lives. People enter into contracts for a number of reasons such as:

  • To sell or transfer property.
  • To purchase goods.
  • To contract for services.
  • To rent property.

To be a valid contract the agreement can be:

  • Formal
  • Informal
  • Written
  • Verbal
  • Understood

Doctrine of Consideration

The doctrine of consideration was widely practiced in the late 10th century, and it came to English law as somewhat of an accident as proof was required to enforce agreements.

The doctrine of consideration came about because plaintiffs in court proceedings were not allowed to bring assumpsit claims to court merely on the basis that the defendant promised to do something. Therefore something had to be created for the plaintiff to have proof of their claim and be able to seek damages.

Historical Foundations and Evolution of Consideration

The doctrine of consideration has evolved over centuries, beginning as a procedural requirement in medieval English law. Initially, actions to enforce agreements were restricted unless supported by a quid pro quo. Over time, courts began recognizing that a contract needed some element of exchange to justify legal enforcement.

Key historical developments include:

  • The shift from moral obligation to legal enforceability.
  • The rise of the "assumpsit" action, which required proof of consideration to support a promise.
  • The embedding of consideration into common law systems, and its influence in American contract doctrine.

Modern contract law continues to reflect these origins, requiring that each party gives or promises something of value, not merely a promise made out of goodwill or social obligation.

What is Consideration?

The consideration portion of a contract is the price that is promised to be paid in return for the items provided under the contract. Unless the promise is considered made in deed, it will be legally binding unless it is supported by consideration.

It is important to note that past actions will not constitute a consideration unless any of the following situations apply:

  • The act was requested.
  • The act though unrequested was performed under an emergency.
  • Part of the performance or a new promise was made in writing.
  • It was a promise to make good on a debt by someone who filed for bankruptcy before being discharged.

Consideration is defined in law as something that consists of some:

  • Right
  • Interest
  • Profit
  • Benefit

with the other party experiencing a:

  • Forbearance
  • Detriment
  • Loss
  • Responsibility

Examples of consideration can include:

  • Something that the promise will give to the promisor.
  • The carrying out of a specific act.
  • Not doing something that the promise had the legal right to do.

Adequacy vs. Sufficiency of Consideration

Courts distinguish between adequacy and sufficiency of consideration:

  • Sufficiency means the consideration must be recognized by law as having value.
  • Adequacy refers to whether the value exchanged is equal or fair.

Contract law does not require that consideration be adequate. For instance, exchanging a car for $1 can be valid if both parties voluntarily agree. Courts only assess adequacy when fraud, duress, or unconscionability is suspected.

Rules for Consideration

As with every part of a legal contract, there are rules that you need to follow to make sure that the contract is legally binding. The consideration:

  • Is essential to every simple contract,
  • Can be present and future but not past.
  • Must stem from the promise.
  • Must have some type of value.
  • Must promise more than a current or existing obligation.
  • Must be possible.
  • Must be definite and legal.

The doctrine of consideration requires that every contract must be supported by some form of consideration. Though a partial payment of the debt does not constitute a good consideration of the contract.

The promise must be supported by the consideration, and it only can be if:

  • The promise was made by both parties who mutually agreed to the promise.
  • The promise was made as a way to persuade the other party to act in a specific way to obtain the promise.

Exceptions and Modifications in Consideration Doctrine

While the general rules of consideration are strictly applied, courts recognize exceptions in specific cases:

  • Past Consideration: Normally invalid unless it was rendered at the promisor’s request or with an implied promise of payment.
  • Existing Duty Rule: Performing a duty already owed (e.g., a police officer catching a criminal) isn't valid consideration. However, if new or additional obligations are involved, the rule may not apply.
  • Pre-existing Contractual Duties: A promise to perform an existing contract obligation is not new consideration, unless:
    • Unforeseen circumstances arise.
    • A third party offers new consideration.
    • The agreement is modified under UCC §2-209 for sale of goods without requiring consideration.

Promissory Estoppel

Unlike consideration, Promissory Estoppel cannot be used to form a contract. It can only be used to enforce the different promises made in a current contract. This means it cannot be used to create a new action, though this has been challenged in court in various countries. As a result of the ruling in Australia, a Promissory Estoppel can be extended to enforce voluntary obligations.

When using Promissory Estoppel, it does not requires that there be a consideration if legal considerations were lacking in the original agreement. It still can be used to protect the interest of that claimant and prevent the original promisor from going back on their promise if the promisee has already acted upon it.

Consideration in Modern Legal Systems and Reforms

In modern practice, some legal systems are moving away from strict adherence to the doctrine of consideration:

  • Restatement (Second) of Contracts in the U.S. acknowledges doctrines like reliance as alternate enforcement grounds.
  • Some common law jurisdictions have begun adopting good faith and fair dealing as enforceability bases, especially in commercial contracts.
  • Courts may also apply economic duress or inequality of bargaining power doctrines in place of strict consideration.

This evolution reflects a broader shift toward ensuring fairness in contractual relationships, even if traditional consideration is weak or absent.

Case Law Illustrating the Doctrine of Consideration

Several landmark cases have shaped the understanding of the doctrine of consideration:

  • Currie v. Misa (1875): Defined consideration as a right, interest, profit, benefit, or a forbearance, detriment, loss, or responsibility.
  • Thomas v. Thomas (1842): Held that motive is not the same as consideration—emphasizing the need for legal value.
  • Foakes v. Beer (1884): Reaffirmed that part payment of a debt is not sufficient consideration for discharging the full amount.
  • Williams v. Roffey Bros (1990): Introduced the idea that practical benefits can constitute valid consideration, especially in construction and service contracts.
  • Re Casey’s Patents (1892): Past consideration was valid where services were rendered with an implied promise of payment.

These cases illustrate how courts apply and interpret the doctrine based on facts, fairness, and evolving legal standards.

Frequently Asked Questions

1. What is the doctrine of consideration in simple terms? It's the legal requirement that something of value must be exchanged between parties to form a valid contract.

2. Can a contract be enforced without consideration? Generally no, but exceptions like promissory estoppel allow enforcement in certain situations where one party relied on a promise.

3. Is a promise to make a gift enforceable? Not usually, unless the promisee took action based on the promise (e.g., promissory estoppel).

4. What makes consideration "sufficient" but not "adequate"? Consideration is sufficient if it has legal value, even if the exchange is unequal. Courts don't evaluate fairness unless there's a legal concern.

5. Can past behavior count as consideration? Typically no, unless it was done at the request of the promisor with an expectation of compensation.

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