Consideration

Plain Explanation

Consideration is something of value exchanged between parties to a contract. It is the price that each party pays for the other's promise. Without consideration, a promise is generally not enforceable as a contract under common law.

Legal Meaning

In contract law, consideration is an essential element for the formation of a valid contract. It refers to something of value (which may be a benefit to one party or a detriment to the other) that is provided in exchange for a promise. Consideration must be sufficient (of some recognisable value) but need not be adequate (of equal value to what is received). Past consideration is generally not valid consideration. In Australia, the doctrine of consideration applies alongside the equitable doctrine of promissory estoppel, which may provide relief where a party has relied on a promise without providing formal consideration.

Case References

• • Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 — consideration through performance of a specified act
• • Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 — consideration must move from the promisee
• • Roscorla v Thomas (1842) 3 QB 234 — past consideration is not valid consideration

Examples

• • In a sale of goods, the buyer's payment is consideration for the seller's delivery of goods, and the goods are consideration for the buyer's payment
• • In an employment contract, the employee's labour is consideration for the employer's payment of wages
• • In Carlill, Mrs Carlill's use of the smoke ball as directed was consideration for the company's promise to pay £100

Common Confusion Points

• • Consideration does not need to be money — it can be any act, forbearance, or promise of value
• • Consideration must be sufficient but not adequate — a peppercorn can be valid consideration
• • Past consideration (something already done before the promise) is generally not valid