The principle of consideration is a fundamental concept in contract law that requires each party to an agreement to offer something of value in exchange for receiving a benefit. This principle supports the idea that a contract must involve an exchange that is both bargained for and mutually beneficial to be legally enforceable. In most cases, consideration is in the form of cash. However, consideration does not always have to be in cash.
Here are the key elements and rules regarding the principle of consideration:
Value: Consideration must be something of value in the eyes of the law. This can include money, goods, services, a promise to refrain from doing something, or even giving up a legal right. The key aspect is that the consideration must be legally sufficient and must represent a real commitment or sacrifice from the party offering it.
Bargain: Consideration is based on the concept of a bargain between the parties. Each side must provide something of value as part of the deal. This exchange sets the foundation for a contractual relationship. The consideration on each side is what one party demands and receives as the price for their promise.
Present, Past, or Future: Consideration can be present, meaning something that is done at the time of the agreement; future, meaning something that is promised to be done later; or past, which refers to something that has already been done before the agreement. In most legal systems, past consideration is not typically valid unless it is evident that it was intended to be acted upon in return for a future reward or compensation.
Sufficiency vs. Adequacy: Consideration must be sufficient, meaning it must be something of legal value. However, it does not need to be adequate, meaning the law does not generally judge whether what one party gives is equivalent in value to what they receive. The emphasis is on the existence of consideration as a sign of the parties’ intention to create a binding contract, rather than on assessing the fairness of the exchange.
Exceptions: Certain agreements do not require consideration to be binding. These exceptions typically include contracts in the form of a deed (a formalised document, often signed, witnessed, and sealed), certain statutory exceptions, and cases where a promise to pay a debt barred by limitation is revived by a written promise or partial payment.
In summary, the principle of consideration ensures that contracts are entered into seriously and with intent, reinforcing the enforceability of agreements in a legal setting. It underscores the mutual commitment involved in forming legally binding agreements.