Introduction to Consideration

TL;DR

Consideration is what each party gives up in a contract, showing they intend to be bound, not just making a gift. It's often called the "price" for a promise, and it must have some value in the eyes of the law, even if it's small. Without valid consideration from both sides, a contract typically isn't legally enforceable.

1. The Mental Model

Think of consideration as a bargained-for exchange. You're not just getting something for nothing; you're giving something up, or promising to, in return for what the other person is giving or promising. It's the "quid pro quo" – something for something.

2. The Core Material

For a contract to be legally binding, there usually needs to be consideration from both sides. This means each party must provide something of value, or promise to do so, in exchange for the other party's promise or action.

What Counts as Consideration?

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Consideration can be:
- A promise to do something you're not legally obligated to do.
- A promise to not do something you have a legal right to do (this is called forbearance).
- Performing an act.
- Giving up a right.

The key is that it must be something bargained for by the parties. It doesn't have to be equal in value (the law doesn't weigh fairness of the deal), but it must have some legal value.

Key Rules of Consideration

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• Consideration Must Be Sufficient, Not Necessarily Adequate: This means it must have some value in the eyes of the law (sufficient), but it doesn't need to be a fair or equal exchange for the other side's promise (adequate). A peppercorn can be good consideration if it's genuinely bargained for.
• Past Consideration Is Not Good Consideration: If you perform an act before a promise is made, that act can't be used as consideration for the later promise. The exchange must be current or future.
• Performance of an Existing Duty Is Not Good Consideration: If you're already legally or contractually obligated to do something, doing that thing can't be fresh consideration for a new promise from someone else. You're just doing what you're already supposed to do.

graph TD
    A["Contract Formation"] --> B["Agreement (Offer + Acceptance)"];
    B --> C["Intention to Create Legal Relations"];
    C --> D["Consideration"];
    D --> E["Each Party Must Provide Consideration"];
    E --> F{"What Counts?"};
    F --> G["Promise to do X"];
    F --> H["Promise not to do Y (Forbearance)"];
    F --> I["Performing an Act"];
    F --> J["Giving up a Right"];
    J --> K{"Rules for Consideration"};
    K --> L["Must be Sufficient (some value)"];
    K --> M["Cannot be Past Consideration"];
    K --> N["Cannot be Existing Duty"];

Exceptions to Consideration

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While consideration is generally essential, some situations don't strictly require it:

• Deeds (Contracts Under Seal): Historically, a contract written as a deed and "sealed" (though seals are now often just witness signatures) didn't need consideration because the formality implied intention to be bound.
• Promissory Estoppel: This is a legal doctrine where a promise can be enforced even without consideration if:
  1. A clear and unambiguous promise was made.
  2. The promisee reasonably relied on that promise.
  3. The promisee suffered a detriment as a result of that reliance.
  4. It would be unfair to allow the promisor to go back on their promise. This acts more as a shield (defense) than a sword (basis for a new claim).

3. Worked Example

Let's say your friend, Emma, tells you, "If you help me move next Saturday, I'll give you \$50."

1. Offer: Emma's promise to give you \$50.
2. Acceptance: You agreeing to help her move next Saturday.
3. Your Consideration: You promising to help Emma move (an act you're not legally obligated to do). This is fresh consideration.
4. Emma's Consideration: Her promise to pay you \$50.

Now, imagine a different scenario: You helped Emma move last month and she was really grateful. This week, she says, "You know, you were so helpful last month, I'll give you \$50."

Here, the act of helping her move is past consideration. It was performed before she made the promise to pay you. You didn't help her move in exchange for her current promise of \$50; you just helped her. Therefore, her promise to pay you \$50 based on that past act is likely not an enforceable contract due to a lack of valid consideration from your side for this new promise. It's a gift.

4. Key Takeaways

• Consideration is the "something for something" that makes a contract legally binding.
• Both parties must provide consideration for a contract to be enforceable.
• Consideration has to be legally "sufficient" (have some value), but it doesn't need to be "adequate" (doesn't have to be a fair exchange).
• Performing an act you're already legally or contractually obliged to do isn't good consideration for a new promise.
• An act done in the past, before a promise is made, can't be consideration for that new promise.

5. Now Try It

Think about two friends, Liam and Chloe. Liam promises to sell Chloe his gaming console for \$200. Chloe agrees. Then, the next day, Liam changes his mind and says he wants \$250. Chloe agrees again, but later changes her mind, saying the original agreement was for \$200. Identify the consideration in the first agreement and whether Chloe agreeing to \$250 was supported by new consideration from Liam. What would be the likely outcome if Chloe tried to enforce the \$200 price?

Success looks like: You can pinpoint what each party offered as consideration in both scenarios and explain why one scenario might lead to an enforceable contract while the other might not, based on the rules of consideration you just learned.