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

• Introduction to contract law
• Offer and Acceptance

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?

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.

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