What is acceptance?

...

3- Consideration

Consideration is one of the fundamental principles in contract formation. It (consideration) is the inducement, the reason, the cause, the price or motive that causes a party to enter into an agreement or contract. A valid contract requires consideration by both parties. It is something of value that is given in exchange for getting something in return. Consideration can consist of a promise, an act to do something or not to do it (e.g. forbearance from suing someone).

To constitute consideration each party in a contract must receive a benefit or right, but must also have an obligation or detriment from their respective promises. In a contract for the sale of a car for example; there will be both a benefit and detriment to both parties. The seller, on the one hand, experiences a detriment by losing a car, but benefits by receiving payment for it. The buyer, on the other hand, benefits by acquiring a car, but experiences a detriment for having to pay for it.

Since contracts may be basically defined as an exchange of promises which are enforceable, it became necessary to distinguish between enforceable promises and unenforceable promises. To be enforceable, promises must be “supported by a consideration”, which means a good reason for enforcing them. English law does not enforce a gratuitous promise unless it made by deed.

Consideration can be defined as any lawful alteration of responsibilities that is given in exchange for the other party’s consideration. It is based on the idea of “quid pro quo” meaning “something for something”. In the sense of the law, consideration is the price for which the promise of the other party is bought. The thing given in exchange may be an action, a right, an interest, a profit, or forbearance.

Love and affection are not consideration. A promise to make a gift contains no consideration because it does not entail a legal benefit received by the promisor or a legal detriment suffered by the promisee. Since a promise to give a gift is freely made by the promisor, who is not subject to any legal duty to do so, the promise is not enforceable unless there is promissory estoppel. Promissory estoppel is a doctrine by which a court enforces a promise reasonably expected by the promisor, to induce action or forbearance on the part of a promisee, who justifiably relied on the promise and suffered a substantial detriment as a result.

Originally, the doctrine of consideration was concerned with the reasons whether good or bad for enforcing promises. That’s why today still consideration may be qualified good or bad. Good consideration fulfils the requirement of consideration whereas bad consideration does not.

As for example, imagine the situation where the owner of a vintage Rolls-Royce (une Rolls-Royce de collection) agrees to sell it for £100. From an economic point of view, the deal is most detrimental to the seller or the owner who sells his car, and highly beneficial to the buyer of the car. However, from a legal point of view, the deal is totally enforceable because it fulfils the requirement that such an enforceable contract must result from the exchange of promises by the parties. The seller’s promise to give away its car is exchanged against the buyer’s promise to pay the agreed price, whatever the amount of that price.

The common law courts refused to inquire into the adequacy or fairness of a bargain, finding that the payment of some price constituted legally sufficient consideration. If one is seeking to prove mistake, misrepresentation, fraud, or duress – or to assert a similar defence – the inadequacy or the price paid for the promise might represent significant evidence for such defences, but the law does not require adequacy of consideration to find a contract enforceable.

As a matter of fact, English judges never question the economic value of what is given in exchange for a promise. They are simply satisfied with the current exchange of promises which fulfils the requirement of good consideration.

The legal rules of a valid consideration have been built up from case law. They are as follows: consideration must move from the promisee (a), consideration must not be past (b), consideration must be sufficient, but does not need to be adequate (c).

a- Consideration must move from the promisee

Consideration must move from the promisee means that a person to whom a promise was made can only enforce that promise if they had themselves provided the consideration for it. In other words, the promise cannot be enforced if the consideration moved from a third party (Tweddle v. Atkinson (1861)). The promisee is the person to whom the promise to do something was made. That means that the person who seeks to enforce the promise must be the person who provided consideration for that promise.

As a contract is an exchange of promises between the two parties to the contract, each party is both a promisor and a promisee, that is to say each party makes a promise and in exchange for that promise he or she receives consideration given by the other party. So for instance in a contract for the sale of goods, the seller promises to sell goods in exchange for the buyer’s promise to buy them by paying the price asked for them.

b- Past consideration is not good consideration in law

Since consideration is the price of a promise, it must usually have been given in exchange for it. Consequently, a promise to pay for something that has already been done would not be considered as having been done in exchange for it and therefore will not be considered as good consideration. The legal and basic principle is that the consideration for a promise must be given in return for that promise. The promise and the consideration must not been made after the act was done or executed.

This is the principle confirmed by the Court of Appeal in the case Re McArdle (1951). Yet, there is a long-standing exception to that rule concerning past consideration. If services are rendered at the promisor’s request and where both parties understand that payment will be made, the promise may be enforceable even though the consideration is past. This principle was affirmed in Re Casey’s Patents (1892).

Finally, a clear-cut distinction must be made between: a past consideration, an executory consideration and an executed consideration.

A past consideration is something that was performed without expectation of obtaining something in return from the other party. If the latter should afterward promise some compensation for the benefit received, this promise

...