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Legal Terms – Consideration
1. An act, promise, or forbearance by one party to a contract that serves as the sum for which he purchases the other party's promise (Dunlop v. Selfridge [1915] AC 847 (HL)). A naked agreement, or nudum pactum, is not legally enforceable in the absence of consideration. It is subject to the maxim ex nudo pacto non oritur actio, which states that a naked agreement does not give rise to a right of action. If the understanding is
a deed (a "contract under seal"), even in the event that consideration is lacking.
Four main concepts underpin the idea of consideration:
1. A valuable consideration is necessary, meaning that the promise, act, or forbearance must have some monetary worth. A pledge cannot be upheld by mere good consideration, such as natural love and affection or a moral obligation (Thomas v. Thomas (1842) 2 QB 851, 114 ER 330).
2. Though consideration must be substantial, it need not be adequate. In this perspective, to be insufficient means that, provided it has some economic worth, it need not represent a reasonable cost for the promise it purchases. Even though X's offer to sell Y his £250,000 house for £25,000 is less than the market value, Y is still providing adequate consideration. According to Silk v. Myrick (1809) 2 Camp 317, 170 ER 1168, a person's performance of, or promise to perform, an existing contractual duty usually cannot be considered consideration. However, in certain situations, such as in a divorce, it may be deemed sufficient consideration if it provides the other party with a practical benefit (Williams v. Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 QB 1 (CA)). Sufficient compensation may include a contractual obligation owed to a third party (Scotson v. Pegg [1861] EWHC Exch J2). Going above and beyond what is required by law does not amount to sufficient consideration (Collins v. Godefroy [1831] 109 ER 1040), but it can (Glasbrook Brothers v. Glamorgan County Council [1925] AC 270 (HL)).
3. The promisee must be taken into consideration. Z cannot therefore enforce Y's commitment to offer Z employment if X agrees to give Y £1,000 in exchange for Y's promise to do so because X has not provided the consideration for it.
4. Thoughts must not be past; they can be executory or executed. Executory consideration is a promise given in exchange for another promise (as in a sale contract); executed consideration is an act or forbearance given in exchange for a promise (as in providing information to get a reward). Forbearance, on the other hand, is a completed act and is past contemplation with regard to any future promise. As an illustration, if X provides Y with information without charge and Y later agrees to compensate him, this is past consideration and does not qualify as consideration (Eastwood v. Kenyon (1840) 113 ER 482 (QB)). The act may not be performed at
the promisor's request, the parties recognized that the deed would be rewarded, and if the cash or other advantages had been guaranteed beforehand, it would have been legally enforceable (Lampleigh v. Braithwaith (1615) 80 ER 255).
Additionally, there are two statutory exemptions: a prior debt may be considered consideration under the terms of Section 29(5) of the Limitations Act 1980 and an antecedent debt or liability may serve as sufficient consideration for a *bill of exchange under Section 27 of the Bills of Exchange Act 1882. 2. The actual amount received on the *disposal of an asset, expressed in cash or cash equivalent, is considered consideration for stamp duty and capital gains tax purposes. It is possible for any receipt to be regarded as consideration. According to Marren v. Ingles [1980] UKHL TC, consideration may include the right to an additional amount if, for example, profit targets are met. Such consideration is an asset, and it generates a second capital gain when it is sold. The ability to convey consideration in money, even if it is not in cash, is a requirement for VAT (Case 154/80 Staatssecretaris van Financiën vs Coöperatieve Aardappelenbewaarplaats GA [1981] ECR 445).
1. An act, promise, or forbearance by one party to a contract that serves as the sum for which he purchases the other party's promise (Dunlop v. Selfridge [1915] AC 847 (HL)). A naked agreement, or nudum pactum, is not legally enforceable in the absence of consideration. It is subject to the maxim ex nudo pacto non oritur actio, which states that a naked agreement does not give rise to a right of action. If the understanding is
a deed (a "contract under seal"), even in the event that consideration is lacking.
Four main concepts underpin the idea of consideration:
1. A valuable consideration is necessary, meaning that the promise, act, or forbearance must have some monetary worth. A pledge cannot be upheld by mere good consideration, such as natural love and affection or a moral obligation (Thomas v. Thomas (1842) 2 QB 851, 114 ER 330).
2. Though consideration must be substantial, it need not be adequate. In this perspective, to be insufficient means that, provided it has some economic worth, it need not represent a reasonable cost for the promise it purchases. Even though X's offer to sell Y his £250,000 house for £25,000 is less than the market value, Y is still providing adequate consideration. According to Silk v. Myrick (1809) 2 Camp 317, 170 ER 1168, a person's performance of, or promise to perform, an existing contractual duty usually cannot be considered consideration. However, in certain situations, such as in a divorce, it may be deemed sufficient consideration if it provides the other party with a practical benefit (Williams v. Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 QB 1 (CA)). Sufficient compensation may include a contractual obligation owed to a third party (Scotson v. Pegg [1861] EWHC Exch J2). Going above and beyond what is required by law does not amount to sufficient consideration (Collins v. Godefroy [1831] 109 ER 1040), but it can (Glasbrook Brothers v. Glamorgan County Council [1925] AC 270 (HL)).
3. The promisee must be taken into consideration. Z cannot therefore enforce Y's commitment to offer Z employment if X agrees to give Y £1,000 in exchange for Y's promise to do so because X has not provided the consideration for it.
4. Thoughts must not be past; they can be executory or executed. Executory consideration is a promise given in exchange for another promise (as in a sale contract); executed consideration is an act or forbearance given in exchange for a promise (as in providing information to get a reward). Forbearance, on the other hand, is a completed act and is past contemplation with regard to any future promise. As an illustration, if X provides Y with information without charge and Y later agrees to compensate him, this is past consideration and does not qualify as consideration (Eastwood v. Kenyon (1840) 113 ER 482 (QB)). The act may not be performed at
the promisor's request, the parties recognized that the deed would be rewarded, and if the cash or other advantages had been guaranteed beforehand, it would have been legally enforceable (Lampleigh v. Braithwaith (1615) 80 ER 255).
Additionally, there are two statutory exemptions: a prior debt may be considered consideration under the terms of Section 29(5) of the Limitations Act 1980 and an antecedent debt or liability may serve as sufficient consideration for a *bill of exchange under Section 27 of the Bills of Exchange Act 1882. 2. The actual amount received on the *disposal of an asset, expressed in cash or cash equivalent, is considered consideration for stamp duty and capital gains tax purposes. It is possible for any receipt to be regarded as consideration. According to Marren v. Ingles [1980] UKHL TC, consideration may include the right to an additional amount if, for example, profit targets are met. Such consideration is an asset, and it generates a second capital gain when it is sold. The ability to convey consideration in money, even if it is not in cash, is a requirement for VAT (Case 154/80 Staatssecretaris van Financiën vs Coöperatieve Aardappelenbewaarplaats GA [1981] ECR 445).
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