Failure of Consideration

A failure of consideration exists when one party does not follow-through on an agreement to bestow something upon another person or party. In and of itself, failure of consideration is not sufficient grounds for demanding restitution, but rather creates the basis for those situations in which one party may pursue restitution from another.

Failure of Consideration vs. Lack of Consideration

Despite the similarity in their names, there is a difference between failure of consideration and lack of consideration. Primarily:

  • A failure of consideration occurs when one party’s lack of follow-through results in the other party being unable to uphold their end of the agreement. For example, if you are a grant writer and you need someone to provide you with certain details before you can complete a grant proposal, and they do not do so, you, in turn cannot complete the grant proposal. Therefore, a failure of consideration has occurred.
  • A lack of consideration occurs when a contract does not place obligations on all involved parties. For example, let us assume the previously mentioned grant writer does not require information to be provided to them, but rather they just fail to complete the grant proposal by the required date. In this case, a lack of consideration has occurred.

Ways to Remedy Such Situations

Anytime there is a breach of contract, the knee jerk reaction of most people is to take legal action. This is not unreasonable, as either a failure or lack of consideration can easily result in the following issues:

  • Loss of income or earnings
  • Damaged reputation
  • Additional resources needing to be spent to complete the assigned job

The most common way by which people choose to address a breach of contract, or failure or lack of consideration, is through financial restitution. Simply put, the hurt party involved with the contract seeks monies lost. For example, a homeowner, who needs to hire a new house painter because the initial one did not complete the job, may seek restitution from the painter, to cover the costs of having to hire a new painter.

Apportionment is yet another way by which a party may choose to address a failure of consideration or lack of consideration. This is often pursued when only part of the contract was not fulfilled. Essentially, this method is used to divide the contract into different parts or areas, versus viewing it as the entire contract being invalidated or not upheld.

You may have heard the term, “gentlemen’s agreement.” In some situations, the involved parties may have the type of relationship that allows for them to not immediately take legal action. Instead, they may choose to enter into a gentlemen’s agreement, which is often a verbal agreement, established by all parties. While this is often the friendly route to take, it can create problems, down the road, as it is often difficult to prove or enforce, should legal recourse be needed.

Breach of Contract

So, is it a breach of contract when a failure of consideration or lack of consideration occurs? A breach of contract is quite easy to identify and define, as it exists when one of the parties who had entered into a contract does not uphold their end of the agreement, either in full or in part. As such, a failure of consideration may occur as the result of a breach of contract.

Additionally, the breach of contract must be considered material, meaning that the breach must result in the entire contact in the entire being rendered ineffectual, or vastly different from what had been initially conceived. For example, if Party A does not complete Project A, then they cannot move onto completing Project B, which in turn may mean that the entire contract can no longer be fulfilled.

Further factors in determining whether or not a breach was material, include:

  • Is there any good faith to complete the job in a revised timeframe, on the pat of the breaching party?
  • The hardship that resulted from the breaching party not upholding their end of the agreement. (This is generally considered to be financial hardship.)
  • What kinds of damages would need to be provided to the non-breaching party?
  • How much of the contract was completed, and can the remainder be completed in a reasonable amount of time?

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