Consideration in Contracts

Consideration in contracts refers to the benefit each party receives in exchange for what it gives up in the contract. It is a vital
element that must be present in a contract in order to make it legally binding on the parties. A contract, whether oral or in writing,
becomes invalid if there is no consideration involved.
Consideration is a key element of a contract. In the UK, business contracts need to include the following to be legally binding:
1. Offer 2. Acceptance 3.Consideration 4. Intention to be legally bound 5. Contractual capacity
All these elements must be present for a contract to be binding, and if just one of them is missing, the agreement may not be
legally enforceable.
Essential Elements of Consideration
In order to form a valid contract, consideration must meet the following conditions:
1.It must be something worth bargaining for. 2. It must benefit all the parties to the contract. 3. It must be something of value.
Types of Consideration
There are two types of consideration:
 Consideration in a bilateral contract involves exchanging a promise for a promise.
 Consideration in a unilateral contract involves one party making a promise and the other party doing something in
return.
Consideration Need Not Be Monetary
Consideration can be in the form of money, property, promise, services, or something else. It can be something as simple as a
promise to do or not to do something. For example, if you enter into a contract with your neighbor wherein he agrees not to sue
you for the damage you caused to his property, and in return, you agree to pay him a sum of $800, then the amount of $800 is the
consideration your neighbor gets, whereas his promise to not sue you is the consideration you get from the contract.
Disproportionate Consideration
Consideration can be as big or small as the parties mutually agree to exchange between themselves. For example, when you go to
buy a dress, it's between you and the seller to agree upon the price. When a valid consideration is present, courts rarely interfere
to decide whether the deal is unfair or disproportionate. However, if a party is tricked into an unfair deal by hiding some
important information or otherwise acting in bad faith, then it can affect the legal validity of the contract.
Is It Mandatory to Mention the Word 'Consideration'?
Most contracts contain a line or two to the effect that a valid and sufficient consideration forms the basis of the contract.
However, just mentioning something in the contract does not prove the existence of valid consideration. Likewise, a
consideration does not become invalid if it doesn't find a mention in the contract. No
What Happens When a Contract Lacks Consideration?
If there is no consideration present in a contract, the contract becomes invalid, and the courts may refuse to enforce the contract.
Sometimes, a contract may lack consideration though it may seem at the surface that the parties are exchanging something of
value.
Following are some of the scenarios where there is no valid consideration involved:
 When a party promises to perform something he or she was already legally bound to perform. For example, when a
policeman promises to catch the thief.
 When the consideration is more of a gift and does not require bargaining or mutual agreement between the parties. For
example, when a mother creates a legal document promising to buy her son a car if he graduates with good marks.
 When a party promises to give something in exchange for some "past consideration" by the other party.
 When the promise to do something is illusory. For example, when a mango juice company enters into a contract with a
farmer, saying that the company will buy all its mango requirements from the farmer, and the farmer can sell to the
company as many mangoes as he wants, then the consideration given by the farmer is illusory since he is not legally
bound by the contract to sell the mangoes to the company.
Failure to Provide Consideration
If a party fails to provide the promised consideration, the other party can cancel the contract. The defaulting party can also be
sued for damages or specific performance.
The following instances are tantamount to failure of consideration:
 When the provided consideration is worth less than promised.
 When the provided consideration is damaged or destroyed.
 When the performance is not carried out as promised or expected; for example, when a mechanic does not repair a car
properly.
It is worth noting that a promise to do something illegal or immoral does not serve as a valid consideration.
How does consideration work in a contract?
For a contract to be legal, there must be “mutuality of obligation”, which means both parties must meet their obligations. And
consideration is the commitment the parties make to each other. This means both parties must be exchanging one thing of value
for another. 
It doesn’t have to be a large value – it simply has to be “sufficient”. As we mentioned above, it also doesn’t have to be money
(although it often is). Some examples include: 
 services, or knowledge and expertise – like painting a house or consulting on a project 
 a promise to do something, like transfer ownership (e.g. if you’re selling/buying a car or house, or intellectual
property), or to create or develop something (like computer software or a wedding cake)
 a promise not to do something (called a “restrictive covenant”) – like not working for a competitor for several months
after leaving an employer, or not having a pet in a rental property
 property of any kind (whether that’s a house, land, or an “intangible” like stocks or bonds)
As well as being a promise to do something, consideration must also be “fresh”. This means that one of the parties hasn’t given
or delivered the service or payment (or whatever) already, and isn’t already contractually obliged to do it. 
And finally, consideration can be executed or executory. If it’s executed, then one party has already performed their part of the
contract, while the other has yet to do theirs. 
For example, imagine you pay a caterer in advance to make a buffet for your birthday party. The executed consideration is the
payment you’ve made in exchange for the caterer’s promise to make your finger food and canapés. 
Executory consideration is when promises are exchanged between both parties, for example if you promise to pay the caterer
after they deliver those vol-au-vents and blinis.
When is consideration invalid in a contract?
Consideration must have value in the eyes of the law. If it doesn’t, a court might decide it isn’t valid. So what type of things don’t
meet the definition of consideration?
 The promise of a future gift - for example, if I promise to gift you a painting if you complete a project for me.
‘Donative’ promises aren’t enforceable, because there’s no consideration.
 An illusory promise. This sounds a little bit Hogwarts, but actually just means a promise that’s too vague or open-
ended. Like, “If you pay me £500 I’ll paint your house when I have time”, or “If your cakes are high-quality, I’ll buy
my wedding cake from you”.
 If one of the parties was already legally obliged to do something. For example, a police officer can’t claim a reward
for catching a criminal, because they’re already legally bound to catch bad guys (and gals) as part of their job.
 Anything that both parties haven’t agreed on.
Without valid consideration, a key element of the contract is missing, which means the agreement isn’t legally binding. This
doesn’t mean you can’t still follow the course of action described in the document - but it’s not a contract in the eyes of the law
(for example, a breach of contract isn’t possible) and you can’t enforce it in court
Past consideration
A promise for a voluntary action performed in the past that will enable the party making the promise to pay or to do something
later is referred to as a ‘past consideration.’ It indicates that future payment is promised in exchange for an act performed without
any promises from the other party. When a promise is made because of a benefit the promisor got in the past that gave rise to a
need to make restitution, the promise is said to have been made for the past consideration. Prior to today, there had been no
consideration; nevertheless, there is now a good and valid consideration.
Present or executed consideration
This type of consideration moves simultaneously with the consideration. An act which has already been done in response to the
promise is called ‘executed consideration.’ People often tend to confuse past consideration with executed consideration. But they
are, in fact, very distinct. Past consideration always consists of an act done without any promise. But executed consideration
means an act which has been done in response to a positive promise.
Future or executory consideration
Executory consideration, also known as future consideration, refers to a promise that will be carried out at a later time. This is
future consideration since the promisor is making an offer for a later date, and the promisee is promising to accept and execute
the contract after that date. Each promise, in this particular case, is a consideration for the other. In this instance, both parties
postpone the payment of the consideration. At a later date, both parties are liable for the obligation.