Consideration
A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other. The definition of Consideration was set out in Currie v Misa [1875]
Common types of consideration:
- Executed consideration where the promise is made in return of doing an act. An example here may involve a promise to pay some percentage on a lost and found item.
- Executory consideration where a promise is in exchange for a promise and any action being in the future.
Consideration is one of the elements that make a contract valid. Legally, if there is no consideration then there is no contract. Under the law of contract, common law courts are not concerned with enforcing gratuitous promises The courts generally may not enforce a promise against the promiser unless the promisee has given something in exchange for the promise. Effectively, the element of consideration requires that a promise to pay the price to the promisor in order to obtain the right to enforce the promisor’s promise.
Consideration is therefore the price of the contractual promise. Such a price may consist of payment in monetary form, in kind, the doing of some action, or even the forbearance from enforcing some rights. The House of Lords, in England, have approved a shorter definition of consideration, given by Sir Frederick Pollock: “The Price for which the promise is bought”. In order to be valid, consideration must be good and valuable. Therefore, we can regard consideration as legal value given in exchange for act or promise which is valuable but not necessarily adequate. The essential feature of consideration is that there must be either some benefit to the promisor or some detriment to the promisee. Either is sufficient to make the promise enforceable, though in many cases both will be present.
Rules or Principles of Consideration
- Adequacy of consideration: The law of contract is not interested in the adequacy of the consideration but rather how sufficient it is
- Consideration must be real and quantifiable: While consideration need not be adequate, it has to be quantifiable and have its value estimated by the law.
- Past consideration is not consideration
- Consideration must move from the promisee
- Forbearance to sue as consideration: A promise to not to file a case against the promisor in exchange for the promisor’s promise is valid consideration
- Part payment of a debt: It was established in 1602, in the Pinnel’s case, that “payment of a lesser sum on the day in satisfaction of a greater sum cannot be any satisfaction for the whole”.
- Mutuality of obligations: A bilateral agreement based on an illusory promise, such as “I will buy all the corn I want”, may be unenforceable due to lack of mutuality.
Exceptions to the rule of consideration
There are however situations in which acceptance of a lesser payment will suffice as consideration.
- Where payment of a lesser sum in the discharge of the whole is was at a different time or in a different form from the one that was agreed in the original contract then consideration was present and adequate. Where payment of a lesser sum in the discharge of the whole is was in a different form at the payee’s request, this would be binding and consideration is present.
- Promissory estoppel and part-payment of a debt
- Equity evolved the doctrine of Promissory estoppel which handles the part-payment of a debt. Let us remember that if there is a clash between equity and common law, equity prevails.
