Consideration in Contract Law (Guide & examples)

These are in-depth notes about consideration in contract law tailored for law students in Tanzania.

These notes cover;

  • what is consideration
  • elements of a valid consideration
  • types of consideration
  • etc.

Throughout this post, I will use examples, illustrations, and decided common law cases to back up my points.

Let’s get started!

Previous topics

What is a Consideration?

Section 2 -(1-)-(d-) of LCA defines consideration as;

when, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise;

I think that definition is very technical and a bit confusing.

Let me break things down for you;

Consideration is usually described as being anything of value that benefits or detriments parties to the contract.

Consideration in contract law hinges itself on the Latin maxim ‘quid pro quo’ which means ‘nothing should go for nothing.

Consideration is what distinguishes a contract from a gift or a gratuitous promise.

In a contract, both parties must provide consideration, meaning each party must give or promise something of value in exchange for something else of value.

Consideration can take various forms, including:

  1. Money: Payment of a sum of money in exchange for goods, services, or rights.
  2. Goods: Transfer of tangible property, such as selling a car or delivering a product.
  3. Services: Performing an action or providing a service, such as painting a house or providing legal advice.
  4. Promises: Making a commitment to do something or refrain from doing something in the future.

That means each party to the contract must give something in return for what is gained from another party, so if you wish to enforce someone’s promise to you, you must prove that you gave something in return for that promise.

A quick example of consideration may be in a contract for the sale of a bicycle, the buyer agrees to pay Tsh 200,000 to the seller in exchange for the transfer of ownership of the bicycle.

The consideration from the buyer is the payment of money, while the consideration from the seller is the transfer of ownership of the bicycle.

In Tanzania, without consideration a contract is void, thus it cannot be enforced in a court of law. (see Sections 10 and 25 of the Law of Contract Act [CAP. 345 R.E. 2019] LCA)

Example of consideration in contract law

For example, I give you my dog and you give me Tsh 150,000 or I wash your car and you pay me Tsh 10,000.

That means, your Tsh 150,000 is a consideration for my dog, my dog is a consideration for your Tsh 150,000, or the cleanness I have done to your car is a consideration for your Tsh 10,000, your Tsh 10,000 is a consideration for my cleanness.

Consideration may be a thing or a service.

Consideration entails exchange between the parties.  For example, If I promise to hand over my house and you promise to pay me a sum of money in return, through that exchange we have each provided consideration.

It may also take the form of promises. For example, I promise to work for you and you promise to pay me a salary.

What are the Elements of Valid Consideration?

elements of consideration

The following are the elements of valid consideration

  1. Consideration need not benefit the promisor
  2. Consideration may be executory or executed
  3. Consideration must not be past
  4. Consideration must be sufficient
  5. Consideration can be a promise not to sue
  6. Consideration must be of economic value

Consideration need not benefit the promisor

Generally, for the consideration to be valid, it is not necessarily for the promisor to benefit from it. What matters is promisor must accept the consideration provided.

Sometimes there can be a consideration where the promisee suffers some detriment at the promisor’s request but gives no particular benefit to the promisor.

For example, in Jones v Padavatton [1969] 1 WLR 328 the plaintiff was a resident of Trinidad. Her daughter had a secretarial job in Washington, but her mother wanted her to give it up and train to be a barrister in England.

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The mother, therefore, volunteered to give her daughter a monthly allowance for the duration of her Bar studies.

Here the daughter’s giving up her job would be a consideration for the mother providing an allowance, even though it did not directly benefit the mother.

Consideration may be executory or executed

there are two types of consideration i.e. executory and executed consideration.

What is Executory consideration?

Executory consideration is a form of consideration where something of value is to be done in the future, usually, after the contract has been formed.

It happens when parties to the contract promise each other that something shall be done after the contract has been made.

let’s consider a simple illustration involving the sale of a product:

Imagine you’re in the process of buying a car from a dealership. You and the dealer enter into a contract for the purchase of the car. In this contract:

  1. Promise to Pay: You promise to pay the dealership Tsh 20,000,000 for the car.
  2. Promise to Deliver: The dealership promises to deliver the car to you once you’ve paid the Tsh 20,000,000

Here’s how it breaks down in terms of executory consideration:

  • Future Performance: At the time the contract is formed, neither you nor the dealership has completed your obligations. You haven’t paid the Tsh 20,000,000 yet, and the dealership hasn’t delivered the car.
  • Mutuality of Obligation: Both you and the dealership are bound by your promises. You’re obligated to pay the Tsh 20,000,000, and the dealrship is obligated to deliver the car once you’ve paid.
  • Enforceability: Even though the actual payment and delivery haven’t occurred yet, the promises are enforceable under contract law. If you fail to pay, the dealership can take legal action against you for breach of contract. Likewise, if the dealership refuses to deliver the car after you’ve paid, you can take legal action against them.

So, in this scenario, the executory consideration is the promise you make to pay Tsh 20,000,000 and the promise the dealership makes to deliver the car, both of which are to be fulfilled in the future.

In executory consideration, Although the performance is in the future, the promise itself is enforceable as long as the other elements of a valid contract are present (offer, acceptance, legal capacity, legality of purpose, and mutual assent).

Executory consideration is common in many types of contracts, such as employment agreements, service contracts, and sales contracts, where parties agree to perform certain actions or duties at a later date.

What is Executed consideration?

Executed consideration” refers to a type of consideration in contract law where the action or promise has already been completed before the contract is formed.

In other words, the consideration has already been performed by one party before the contract is agreed upon.

For example, if you promise to pay me Tsh 50,000 for repairing a car, and I complete the repair work before the contract is formed, then the consideration (the repair work) is executed.

Let’s consider the following illustration

Imagine you’re hosting a dinner party and you hire a catering service to prepare and deliver the food for your guests. You agree to pay the catering service $500 for their services.

Here’s how executed consideration applies in this scenario:

Agreement: You and the catering service agree to the terms of the contract. The catering service will provide food for your dinner party, and you will pay them $500 for their services.

Execution of Consideration: On the day of the party, the catering service arrives with the food and sets up everything according to your agreement. They fulfilled their part of the contract by providing the food and services before the formal contract was signed or finalized.

Contract Formation: At this point, the consideration (the catering service’s provision of food and services) has already been executed. The contract is formed, but the consideration has already been performed before the contract became legally binding.

Payment: After the party, you pay the catering service the agreed-upon $500 for their services. This payment is the fulfillment of your part of the contract.

In this illustration, the consideration (the catering service’s provision of food and services) was executed before the contract was formally agreed upon. Despite the lack of a signed contract before the services were provided, the contract is still legally binding because both parties received what they were promised.

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Differences between executory and executed consideration

Here’s a table outlining the differences between executory and executed consideration:

AspectExecutory ConsiderationExecuted Consideration
TimingFuture-oriented: Consideration is promised to be performed in the futurePast-oriented: Consideration has already been performed before the contract is formed
PerformanceConsideration is yet to be performedConsideration has already been performed
Contract FormationConsideration is a promise to perform in the futureConsideration has already been executed before the contract is formed
ObligationsParties have future obligations to fulfillNo future obligations related to the consideration, as it has already been performed
RiskFuture performance carries risk of non-performance or breachNo risk associated with non-performance, as consideration has already been executed
ExamplesPromise to deliver goods, provide services, or pay money in the futureDelivery of goods, provision of services, or payment already completed
This table summarizes the key distinctions between executory and executed consideration, focusing on timing, performance, contract formation, obligations, risk, and examples.

Kama bado utakuwa una swali kuhusu executed and executory consideration,uliza kwenye comment

Consideration must not be past

Past consideration is no consideration.

The past consideration concept is always confusing.

Since the focus is not really on the time of consideration but on whether the consideration was given in exchange for the other party’s consideration.

Consideration must be given in return for the promise or act of the other person. Something given, or promised for another reason will not count as consideration.

What is past consideration?

Past consideration is a form of consideration that has been given by one party without the exchange of consideration from another party.

That usually happens when a person has already performed before the other party offered consideration in exchange for his/her performance.

Let’s illustrate past consideration with an example:

Imagine you have a neighbor, Sarah, who is in a tough financial situation. One day, she helps you fix your car when it breaks down unexpectedly. You are very grateful for her assistance. Later, after your car is fixed, you offer to pay Sarah Tsh 100,000 for her help.

Here’s how past consideration applies in this scenario:

  1. Action Without Prior Agreement: Sarah helped you fix your car without any prior agreement or promise of payment. She did so out of goodwill and neighborly assistance.
  2. Past Consideration: When you offer to pay Sarah Tsh 100,000 after the fact, you are offering payment for a service (fixing your car) that has already been provided. This assistance occurred before any agreement for payment was made.
  3. Contract Formation: At the time Sarah helped you fix your car, there was no contract or agreement in place regarding payment for her services. The offer to pay Tsh 100,000 comes after the fact, based on your gratitude for her assistance.
  4. Past Consideration’s Limitations: While you may genuinely want to compensate Sarah for her help, legally, this past consideration may not be enforceable in a contract. This is because Sarah provided her assistance without any expectation of payment or agreement for compensation beforehand. Therefore, the consideration is considered past and not sufficient to form a contract.

In this illustration, Sarah’s assistance with fixing your car constitutes past consideration. While you may wish to compensate her afterward, the lack of prior agreement or promise of payment means that this past consideration may not be legally enforceable in a contract.

The legal implication of past consideration can be well found In the case of Roscorla v Thomas (1842) 3 QB 234.

In that case, the defendant sold the plaintiff a horse. After the sale was completed, the defendant told the plaintiff that the animal was in good condition. The plaintiff found that to be untrue and decided to seek court redress.

The court held that the defendant’s promise was unenforceable because it was made after the sale.

If the promise about the horse’s condition had been made before, the plaintiff would have provided consideration for it by buying the horse.

As it was made after the sale, the consideration was past, for it had not been given in return for the promise.

The bottom line is Consideration must be given in return for the promise of the other party.

The exception to the Past Consideration Rule

There are situations where past consideration may be recognized as valid, despite the general rule that past consideration is not sufficient to support a contract.

See also  Vitiating factors in contract law (notes & cases)

Here are some exceptions along with illustrations:

Express Agreement

If both parties explicitly agree that past consideration will be sufficient to support the contract, then it may be considered valid.

Illustration: Let’s say you promise to pay your neighbor Sarah Tsh 100,000 for fixing your car, even though she helped you without any prior agreement for payment. Later, you both agree that her past assistance will serve as a valid consideration for the payment. You both sign a contract acknowledging this agreement.

In the case of Lampleigh v Brathwait (1615), the principle of express agreement as an exception to the general rule regarding past consideration was applied.

This case is a landmark in contract law and established the concept that past consideration can be valid if there is an explicit promise made after the consideration has been given.

Here’s a brief overview of the case:

Mr. Lampleigh, the plaintiff, had performed some valuable services for Sir John Brathwait, the defendant. Lampleigh had successfully obtained a pardon for Brathwait from King James I. Following the successful outcome, Brathwait promised to pay Lampleigh £100 for his services. However, when Lampleigh asked for the payment, Brathwait refused to honor his promise.

Lampleigh sued Brathwait for the promised payment, arguing that there was a binding contract because Brathwait had made an express promise to pay for the past consideration—the services Lampleigh had already provided in obtaining the pardon.

The court ruled in favor of Lampleigh, holding that Brathwait’s promise to pay £100 constituted valid consideration for the past services rendered by Lampleigh.

The court emphasized that Braithwaite’s promise to pay was made after Lampleigh had performed the services, and there was a clear acknowledgment of the debt owed to Lampleigh.

Consideration must be sufficient

The consideration must have some value or benefit to both parties involved.

It doesn’t have to be equal in value, but it must be deemed sufficient to support the contract.

Essentially, both parties must give or promise something that the law recognizes as having value.

One peppercorn can be a good consideration – even if the promisee does not like pepper

Consideration must be sufficient but need not be adequate.

That means it does not matter whether the consideration provided is enough or not enough, good or bad, as long as there is a consideration, that’s fine.

For example, I promise to sell you my house worth Tsh 100,000,000 for Tsh 10,000,000; the consideration you pay is clearly very little compared to the value of my house. But as long as there is a consideration and we are all okay with that, it is sufficient.

That principle has been invited by the ‘freedom of contract’ concept. Freedom of contract entails that, parties should be voluntarily and free to enter any contract purely based on their agreements.

In the case of Thomas v Thomas (1842) the plaintiff was a widow whose husband had stated that if he died before his wife, she should be allowed to live in his house for the rest of her life, after which it was to pass to his sons.

When the man died, the defendant, who was his executor, agreed that the widow could continue to occupy the house in return for a promise that she would pay £1 a year and keep the house in good repair.

Despite this, sometime later, the defendant tried to evict the widow, so she sued for breach of contract.

The defendant claimed that the earlier promise was not binding because of a lack of consideration.

However, the court held that the widow’s promise to pay £1 and keep up the repairs was sufficient consideration to make the owners’ promise binding.

Consideration must be of economic value

That simply means that for consideration to be valid, there must be some physical value, rather than just an emotional or sentimental one

In other words, it must be real and tangible, not based on vague promises or hypothetical scenarios.

Both parties must provide something that is capable of being objectively evaluated.

Consideration can be a promise not to sue

If a person has a civil claim against the other, a promise not to enforce that claim is a good consideration for a promise given in return.

For example, if I negligent kill your dog, you might agree that you will not sue me if I pay for the damage or buy you a dog, and your promise not to sue will be a consideration for my promise to pay.

Conclusion

I endeavored to give you an in-depth insight into the consideration of contract law.

The bottom line is

  • Consideration is anything of value that benefits or detriments parties to the contract.
  • Consideration can be executed or executor but not past consideration.
  • Consideration need not benefit the promisor, must be sufficient, must be of economic value and it can be a promise not to sue.
  • Consideration purely depends on the party’s autonomy.

I hope you have found these notes useful.

In case you have any questions, feel free to use the comment section.

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