The third aspect of valid contract formation is consideration. "Consideration" in contract law refers to the "price" stipulated by the promisor for a promise.

It shouldn't be confused with the agreed price of goods or property that are the subject of the contract; many times this is something different. For example, if I was to enter a contract to buy a $20,000 car, I may upon signing the contract give 10% of the total amount to the seller. This, though it is not the whole amount I will pay pursuant to the contract, will cause the contract to be legally enforceable, because consideration has passed from one party to another.

This then begs the question; what constitutes valid consideration?

Valid Consideration

It's helpful to view consideration as the price for a promise. It is also often described as an act of forbearance of one party for the promise thereof is the price for which the promise is bought and the promise thus given for value is enforceable at law.

For the courts to consider it valid, consideration must move from the promisee (one to whom the promise has been made). Notably, it does not have to move to the promisor - returning to my car example, I may be instructed to pay the $2000 to the seller's nephew. This is still valid consideration, because it has been paid by me (the promisee) in exchange for the promise to sell me the car for $20,000.

Further, consideration must have value in the eyes of the law. A smile or a hug are not going to cut it as fair as the Bench is concerned. It does not have to be money; but it does have to be considered of value by law.

While consideration has to be actual - tangible - and have value in the eyes of the law, it does not have to be adequate. That is, if I put forward $1 as consideration for the car, the contract would still be found enforceable. (see Chappel & Co Ltd v Nestle Co Ltd).

Past consideration is not good (not valid) consideration. Therefore, the fact that I gave the car seller $2000 for his last birthday does not mean I can look back and say "that was the price for this promise you are now making me - I've already paid it".

If courts can find that there has been an agreement (offer & acceptance) and can identify valid consideration, they will find (in the absence of some other factor) that a valid and legally enforceable contract binds the parties.

More on Contract Law...

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_{Disclaimer: the above information has been written by a law student, for law students to help them in their studies. It is in no way intended as legal advice. If you require legal advice, speak to a lawyer. I will not be responsible for any harm or loss associated with taking the legal information above and acting on it as though it were advice. If you have any questions or issues, or do not understand this implications of this disclaimer, please get in contact with me via the ‘contact’ page.}

Daniella Fiocco

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