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.

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:

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.

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.

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.

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