contractual consideration

Consideration is an essential element of a legally binding contract. Enforceable contracts governed by English law are concerned with the bargain reach between the parties by an exchange of promises which have value, and is required to be exchanged by each of the parties as an element for the agreement to be legally binding.

Consideration is a thing which has value in the eyes of the law or a promise to do something. This reciprocity is fundamental to contracts in English law. In this way there is a benefit to and a burden for each party entering into a binding contract. What is the benefit of the contract for one party is the burden of the other.

Where this reciprocity does not exist, a legally binding contract is not formed. For instance where a person promises to pay £10, but the person offered does not provide consideration in return, the promise to pay is not enforceable - it is a gratuitous promise. This is in contrast with the requirements of contracts formed in civil law countries in continental Europe where consideration need not be not provided by both parties.

There is an exception in English law to the requirement of consideration, which are deeds which are signed, sealed and delivered. Deeds have special requirements for execution, and have no requirement for consideration to move from both parties.

Consideration is able to be negative in nature (ie restrictive covenants), so that one party promises not to do something; it is also able to be de minimus, such as £1.00. Contracts supported by small consideration such as this are more often than not enforceable, because Courts will look for consideration for a promise, rather than examine the commercial merits of the contract.

Types of Consideration

Consideration may be:

1. executed, that is where the consideration has been provided by the party promising it. Money which has been promised to be paid under a contract which has been paid is executed consideration;
2. executory, which is when the consideration has been promised but not yet performed. This may take the form of supply of products or services which have not yet been delivered. Assuming delivery was late and time is of the essence, the buyer is entitled to sue for her damage even if the price has not yet been paid - the consideration is a promise to pay for the goods at or at some time after delivery.

Courts are generally reluctant to interfere with contracts which are freely made between contracting parties. English law looks for some of value in an economic sense, whether promises to be performed at a later date or at the time of the contract.

Sufficiency of Consideration

The following are not consideration in English law:

1. Past Consideration: consideration which has been provided in the past at the time of formation of the contract. For example, a buyer of goods who paid £10 in the past is not good consideration for supply of new goods. Fresh consideration is required to be provided at the time the contract is formed. The consideration moving from each party must be connected to form a legally binding contract.
   An exception to the rule exists where a person supplies goods or performs services at the request of another person, the supplier is entitled to rely on his performance of the services or supply of the goods to sue on a subsequent promise to pay by the receiver, assuming it was reasonable for the supplier to expect to be paid. The contract is formed by the request and the subsequent performance, and not the later promise to pay.
   Other areas of law may provide a remedy where this leads to injustice, such as estoppel.
2. Existing Obligation or Duty: something that the promisor is already required to do, such as an existing obligation to perform a contract or an obligation imposed under the general law such as performance of a public duty or a duty imposed by statute. Where the consideration offered exceeds the requirements of the duty, then that is good consideration usually sufficient to form a contract.
   In the case of existing contractual rights, it cannot be said that a promise to perform a requirement in an existing contract is fresh consideration; a superior performance of the requirement of the contract however would do so. The person would be promising to do something they are already bound to do. Nevertheless, the fresh consideration must be offered freely and not under threat, the receiving party receives a benefit from the performance.
3. Lack of Economic value: informal gratuitous promises, charitable gifts, or promises of sentimental or moral value. Consideration must be real or sufficient in the sense that it has economic value.
4. Part Payment of Debts:A promise to pay part of a debt is not adequate consideration to discharge a larger debt. As a consequence, the creditor is entitled to go sue to the debtor for the balance of the debt after payment of the smaller sum. Compromises of debts debt are settled by paying a smaller sum are settled because the parties provide other consideration, such as a waivers of rights to sue in the future.
   Exceptions to the rule include:
   1. early payment which is supported by consideration from he creditor that the debt will be discharged,
   2. part payment on the date due which takes place at a different place at the request of the creditor which is for the convenience of the creditor;
   3. transfer of a chattel of a lesser to the creditor, where the creditor promises that the debt will be treated as discharged,
   4. where the debtor is insolvent, and the creditor accepts a smaller sum to discharge the entire debt,
   5. where the creditor agrees to accept a lesser sum from a third party in exchange for a promise to discharge the debt, and
   6. promissory estoppel, whereby it would be unfair for the creditor to go back on his word that he would not to enforce the debt and the debtor relies on the statement to his detriment - the promise not to enforce is treated as defence in equity.

Even if a person provides consideration, a contract may be vitiated by misrepresentation, mistake, duress or some other illegality.