Consideration is an inducing cause and is used in exchange of value. Traditionally, the doctrine of consideration was used as a promise without any agreement to support it (Melvin, 1994). The instability of the courts to have a standard definition of consideration has led to greater criticisms of the doctrine. The doctrine of consideration emanates from the contract of promise and this creates a moral obligation to its maintenance. A strict requirement for consideration unduly limits the law of contract to promises given for value and can frustrate the expectations and legitimate intentions of the parties. The purpose of consideration can be argued from different perspectives; from the bargain theory, as a formality, and from the realist interpretation. The existence of consideration is appropriate in distinguishing between unilateral obligations and contracts. Hence, consideration must be present in the creation of a legally enforceable contract. The interpretation of consideration acknowledges that the courts have frequently, though changeable, adopted a functional approach to the findings of consideration bargain. The primary importance of consideration is as a valuable indicator of the parties intending to be bounded by their agreement, rather than an end to itself. When entering into a consideration, the intentions should be made clear while entering the legal relations as any changes or variation to the agreement should be bounded (Walker, 1995). Better returns or positives can be achieved if consideration is used in the right manner. Hence, consideration should not be eradicated in contracts while the modern courts should also find its existence to reflect the intention to the parties of the contract.
The principle of consideration is one of the most debated aspects of the law of contract in common law jurisdictions. Despite its criticism, it remains as a necessity for the formation of contracts not in deed form. Contracts due to the doctrine of consideration are largely restricted to the territory of bargains involving an exchange of value between two parties (Val, 2009). Contract theory understanding is essential in the evaluation of the consideration requirement. Hence, consideration must be present in the creation of a legally enforceable contract. An agreement made in the absence of consideration and not made in deed is not binding. A strict requirement for consideration unduly limits the law of contract to promises given for value and can frustrate the expectations and legitimate intentions of the parties (Trebilcock, 1993). Generally, consideration is an essential prerequisite for contract formation while the law in the contract is only meant for mutual exchanges.
From the contract law, consideration is defined as inducing cause and equivalent of the promise. Consideration which means the value is used in exchange of value. Traditionally, the doctrine of consideration is defined as either a benefit to the promisor or detriment to the promisee; promise without any agreement to support it (Val, 2009). Consideration may consist of some interest, right, benefit or profit accruing to one party. On the other hand, it may consist of detriment, forbearance, responsibility or loss suffered, undertaken or given by the other party.
The instability in scope and definition grants courts considerable freedom in settling on the enforceability of any promise. This has aggravated criticisms of the doctrine. The main aggravation results from consideration merely signifying conclusion rather explaining why a promise in the agreement is enforceable. The interpretation of consideration acknowledges that the courts have frequently, though changeable, adopted a functional approach to the findings of consideration bargain (Trebilcock, 1993).
A contract entails a promise or promises prepared in a manner in which the law recognises it as reasonable; which can take on a legally binding obligation (Melvin, 1994). The plain act of promising creates a moral obligation to maintenance of the promise. Therefore, individuals should understand that the contracts are not enforced just because they engage promises. The act of promising creates an obligation to keeping the promise. For instance, consideration is given for the promise to transfer title to the property in a sale with an ordinary contract. This can involve a promisee to pay the actual payment or purchase price. Therefore, consideration must be given prior to the promise or in response to the promise at a promisor’s request and should be plausibly understood as forming part of the same transaction. A new promise that is not sustained by the new consideration is not enforceable since past consideration is insufficient (Walker, 1995). The common law through the doctrine of consideration requires a “mutual exchange” to form a contract. This shows that the common law develops its concept of contract from commercial transactions.
The purpose of consideration can be argued from different perspectives. From the bargain theory, consideration is perceived to be recognized from the common law of contracts and is only concerned with bargains. In this case, the promise and consideration are considered to be mutually inducing. This shows that consideration must be bargained as it is sought by the promisee in exchange for the promise (Schwartz, 1994). Promises in economic terms do not involve any exchange that is worth enforcing, and this makes bargain theory inadequate as it not only describes the current law but does not explain which promises should be enforced as contracts.
Consideration can also be considered as a formality. Legal formalities serve three functions; provide evidence of the content of promise or an agreement, as a cautionary measure and fulfils a channelling function to the promise having legal consequences (Walker, 1995). Though the court does not distinguish between real and nominal consideration, it suggests that the function of consideration is simply to act as an evidence of bound intention. Neither deeds nor nominal consideration fulfil any substantive function, yet both are viewed by the legislature and the courts as sufficient substitutes for a concrete exchange of value. From the English Law, it is recommended that consideration is not required if the promise is in writing and amounts to sufficient evidence of intent (Atiyah, 1986).
From the realist interpretation, consideration is developed when there is a reason to enforce a contract. Consideration in this case developed as a mechanism for good reason of enforcement. This makes judges to rely on the reasons that have not been explicitly put to law, but function as residual. Hence, consideration may be considered not to have a strong justification and completely lack certainty.
The existence of consideration is appropriate in distinguishing between unilateral obligations and contracts (Walker, 1995). The absence of consideration does not automatically imply that the promise is not a contract. Therefore promise amounts to an offer necessitating acceptance and not a unilateral obligation. Through the use of obligations, a valuable insight on how a legal system can operate without a consideration requirement is necessitated. The main requirement here is the identification on whether the parties showed an intention to bind during the process.
The primary importance of consideration is a valuable indicator of the parties intending to be bounded by their agreement, rather than an end to itself. The intentions should be clear while entering the legal relations as any changes or variation to the agreement should be bounded. Likewise, the presence of consideration does not make a contract fair, that is, the courts do not render or inquire on the adequacy of consideration.
Better returns or positives can be achieved if consideration is used in the right manner (Atiyah, 1986). For example, the doctrine of consideration guards the promisee’s reliance. Likewise, where a claim is doubtful, forbearance or compromise is a good consideration. When a part of the contract party does something that was not required to have been done, the action can constitute consideration by binding the other party. This makes a subjective matter valuable in consideration as it is what makes the parties attribute it. Additionally, consideration can be used to encourage finality in dispute resolution in case where forbearance is not unspecified.
On the other hand, consideration may have some negatives. For instance, consideration in a contract may be nonexistent and yet it can be sufficient to sustain an agreement. This suggests that the factual detriment to the promisee and benefit to the promisor are doubtful (Atiyah, 1986). This makes consideration be relegated to the status of a single form of evidence that a promisor proposed to be bound. Both parties to the contract must be endowed with consideration for them to sue on the contract, hence making consideration somehow difficult to engage in.
Though the doctrine of consideration has been there for long, it has experienced in the common law a lot of uncontroversial history (Val, 2009). This has been through the existence of lack of unjust results and lack of imbedded status by the doctrine in the courts. This feature has been attributed by the increasing flexible approaches of judges. Consideration must, therefore, have some real value and should represent detriment to the individual who contributes it. Though it does not need to be sufficient, it must be enough to be recognized by courts as a valid consideration (“has value in the eyes of the law”) (Schwartz, 1994). On the other hand, consideration has unwanted consequences. This happens due to the unenforceability of unjustified promises unless in deed form. By doing so, it brings down the legitimate meanings of parties who wish to undertake binding obligations legally. Consideration should not be removed, and the current courts should find its existence to reflect the intention to the parties of the contract. True intentions of the contract considerations should be captured in the findings of the consideration.
Atiyah, P. (1986). Consideration: A restatement. Essays on Contract. Oxford: Clarendon Press.
Melvin, A. (1994). The principles of consideration. Oxford: University Press.
Schwartz, A. (1994). Foundations of contract law. Oxford: Oxford University Press.
Trebilcock, M. (1993). The limits of freedom of contract. Cambridge, MA: Harvard University Press.
Val, D., (2000). The sophisticated doctrine of consideration. New York: Oxford University Press.
Walker, D. (1995). The law of contracts and related obligations in Scotland (3rd ed,). Edinburgh: T&T Clarke.