Tuesday, 6 November 2012

Introduction to Consideration

What is consideration?

Lush J’s definition of consideration is one that has been taught and used by lawyers for a substantial period of time. He describes, “a valuable consideration, in the sense of law, may consist in some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by another” (Currie v Misa 1875). 

Consideration, like offer and acceptance is the third neccessary component for the formation of a legally binding contract as under English Law without consideration the promise is not binding. So what is consideration? and what is Lush J trying to communicate in Currie v Misa. The best way t understand this is in an example, as this is what lead to my epiphany moment! To take it simply then, if I make an offer to sell you this bottle of water for 50p, you accept this offer and say yes I will buy it. The consideration can be viewed as the transition of the water bottle from one party to another showing that the offeror has had a detrimental effect and the offeree a benefit. This difference from the actual execution of the contract as that would include the transmission of the 50p and other terms which may be present in the contract.

It is important to understand the notion of ‘past consideration’ as that thus shows that for each legally binding contract that is formed a specific consideration is required, as an interest or forbearance of the past is unjust. It is one that allows a party to benefit without incurring any legal liabilities. Of course, with any such clear rule in law there as exceptions such as if the offeror has requested that a past consideration should be given.

So what are some of the crucial rules associated with consideration...

  1. ‘Consideration must move from the promise’ - This again links to the notion that consideration is making a bare or gracious promise into a more sophisticated legal contract. If the act cannot demonstrate this shift, it fails to be classified as consideration.
  2. ‘Consideration need not be adequate’ - so consideration doesn’t need to be adequate i.e. fair or valuable, it can be anything which has value in the eyes of the law, e.g. chewing gum wrappers in Haelan Laboeratories Inc v Topps Chewing Gum Inc
  3. ‘Motive is not the same as consideration’ - Although intention and consideration play a great role in making a promise or an agreement legally binding, it must be understood they are not the same. Intention refers to the parties intention to enter into a formalistic legal contract where is consderation is the forebearrance or the interest gained by entering into such an agreement.

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