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Rules Regarding Consideration

Rules Regarding Consideration – 6 Major Rules Regarding Consideration | Business Law

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Consideration

A consideration is something of value that is given by each party to a contract as a fundamental concept in contract law. A contract’s presence distinguishes it from a mere promise or gratuitous arrangement, which is another crucial element in the formation of a legally binding agreement.

Consideration is the exchange between the parties involved in a contract that has been bargained for. Essentially, it indicates that one party has provided something in exchange for the other party’s promise or performance.

An essential aspect of consideration is reciprocity. Both parties must provide consideration, which signifies a mutual exchange of promises or obligations. This reciprocity distinguishes contracts from unilateral contracts, where consideration is only given by one party upon a specific event occurring. By requiring consideration, parties are sure to enter into contracts voluntarily and intend to be legally bound.

It can take various forms, including money, goods, services, forbearance, or even a promise to do or refrain from doing something in the future. In order to enforce contractual obligations, consideration must demonstrate the parties’ intention to be bound by their promises. In contractual relationships, it ensures fairness, prevents exploitation, and promotes the principle of quid pro quo.

Rules Regarding Consideration

Consideration refers to the value or benefit exchanged between the parties in a contract. The rules regarding consideration are crucial to determining a contract’s validity and enforceability.

1. Consideration must move at the desire of the Promisor:

A basic rule of consideration is that it must be given at the promisor’s request. This rule ensures that the parties are exchanging value voluntarily and intentionally. In other words, the promisor must have asked the promisee for consideration.

For example, if John promises Sarah $500 for painting his house, the consideration (painting services) must be provided in response to John’s request.

2. It may move from the promisee or any other person

It is possible for consideration to move from the promisee (the person to whom the promise is made) or from any third party. The requirement of consideration exists as long as someone provides a legal benefit or a detriment in exchange for the promise.

For example, if Martin promises to pay Sahara $500 to paint his house, Sahara’s consideration would be her painting services. In contrast, if Martin agrees to pay Sahara $500 to paint his house and Michael provides the painting services on Sahara’s behalf, Michael’s services may also be considered valid consideration.

3. It need not be adequate:

Consideration does not have to be equal to the promise made. This means that the courts do not normally determine whether the amount provided is proportionate or fair on a monetary basis. As long as there is a bargained-for exchange between the parties, the adequacy of consideration is not a determining factor in the validity of a contract.

For example, when John sells his vintage car to Sarah for $1,000, and it turns out the car is worth $10,000, the contract is still valid because the consideration ($1,000) was agreed upon by
both parties.

4. Consideration must be Real:

The consideration must be real and tangible. Consideration cannot be illusory or nonexistent. It should consist of something that can be objectively valued or that results in a detriment for the promisor. By following this rule, the promises made in a contract are supported by actual consideration.

For example, Sarah could not give John her car as a gift if she promised, because a gift is not an exchange for which a bargain was exchanged. However, if Sarah offers John $5,000 in exchange for her car, the consideration would be the car itself.

5. Performance of an existing duty is not a real consideration

There is no real consideration if the party promises to perform an act that they are already obligated to perform under an existing legal or contractual duty. This is known as the pre-existing duty rule. The promisor is not obligated to perform such an act, nor is it detrimental to him.

Suppose John is contracted to paint Sarah’s house for $1,000, but later demands $500 more to complete the job, then his claim would not be sustained by valid consideration, since John is already obligated to complete the painting job.

6. Consideration must not be illegal, immoral, or opposed to public policy:

Consideration must be lawful and should not involve illegal activities, immoral behavior, or actions that violate public policy. Contracts are void and unenforceable if they involve illegal actions or are against the public interest.

As an example, if Samantha promised to pay Jason $1,000 in exchange for stealing confidential information from a competitor, the consideration would be illegal and against public policy. As a result, the contract would not be enforced.

A contract’s fairness and enforceability depend on the rules surrounding consideration, which are essential elements of contract law. A promisee or a third party must give consideration at the promiser’s desire, it does not need to be of equal value, it must be real, it cannot be the performance of an existing duty, or it must not be illegal, immoral, or against public policy.

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