What both parties undertake to do in a contract and the reason for the contract being made. It is one of the five essential ingredients of a contract. (See also offer , acceptance , intention to create legal relations and capacity.)
Consideration is usually:
• the exchange of goods; and/or
• the exchange of services; and/or
• the exchange of money.
The courts have also, especially in the 19th century, treated as consideration any benefit that one party to the contract receives which is a detriment to the other party.
The main rules on consideration are:
1. Both parties must give consideration for a contract to come into existence. Where only one party agrees to do something, this is a bare promise and there is no contract. The person to whom the promise was made cannot enforce that promise.
2. Whatever is given as consideration does not have to be of the same value as what is given in exchange.
Case example: Chappel & Co v Nestlé (1960)
Records were sold for 1/6d (8p) plus three chocolate wrappers. These wrappers were thrown away as soon as they were received, but it was held that they were consideration even though their value was very small. Legally they were sufficient consideration.
The following have been held not to be consideration:
• past consideration , that is something which has already happened;
• illegal acts, such as smuggling goods (Foster v Driscoll (1929));
• paying only part of a debt in settlement even where the other party agrees to accept part payment. This is known as the rule in Pinnel’s case (1602) ;
• carrying out an act where there is already a legal duty to do it. In Collins v Godefoy (1831), a lawyer did not provide consideration by promising to give evidence in court as he had already received a court order to do so;
• carrying out an act where there is already a duty under a contract to do it (see existing contractual duty ).