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Consideration – A Legal Contract Necessity? (2019 Update)

Consideration – A Legal Contract Necessity? (2019 Update)

The best things in life are free - but not according to contract law. Read about consideration and why it forms such an integral part of contract law.

30th July 2019
Reading Time: 2 minutes

It sounds simple enough, someone offers you something and you sign a contract to receive it. However, it’s actually quite possible that this contract will not be enforceable. Alternatively, if you signed the contract and offered $1 as consideration, you likely would not have this problem. In this article, we’ll discuss what consideration is and how it forms a crucial part of a contract.

For a contract to be valid, there needs to be an offer, an acceptance of that offer, and consideration. Generally, a Court will not enforce a contract where there’s been no exchange of one thing for another. However, there may be exceptions when dealing overseas with international contracts.

What is it?

Consideration is essentially the price of a contract or for what the contract provides. More often than not, this is by way of money. However, it does not have to be strictly monetary. In fact, consideration can take the form of an ‘act, forbearance or a promise.’ An example of a promise can be seen in historical transfers of land. A spouse transferring property into both spouses’ names could list the consideration from the other spouse as ‘love and affection.’

The range of things that can be consideration is extremely broad. It has even been deemed to include Peppercorns, despite whether or not the seller would use them. Subsequently, if you wanted to give your house to your friend, for a contract to be valid they would need to provide something. This could be them paying $1 or buying you dinner. However, if something isn’t provided by both parties to a contract, then it won’t be enforceable.

Despite this, there are several rules that regulate what is and isn’t consideration. As such, the law of contracts can be quite difficult to navigate and understand without the advice of a lawyer.

International Law

Consideration is an essential part of Australian Law and stems from the common law tradition. However, laws in other countries differ. This can be seen in European countries  – where it’s not required to enforce contractual obligations. This can effect Australian contracts, or companies who are parties to these contracts.

An example of this is where an Australian business engages in a contract with an overseas company. The other party may be subject to an exclusive clause which binds both parties to the law in the contract. Even though the company may not have supplied consideration, the contract may still be enforceable. Moreover, this issue is compounded by the inclusion of international treaties such as the United Nations Convention on Contracts for the International Sale of Goods.

Conclusion

In Australia, one of the fundamental elements of a legally binding contract is consideration. Without consideration, there is no exchange of promises, and no ‘payment’ for the good received. If you sign a contract which does not have consideration, it is likely that it will not be enforced by the Court. If you’re unsure as to whether your contract is legally enforceable, it is worth speaking to a contract lawyer. 

Author
Christopher Tsiknas

Chris is the Partnerships Manager at Lawpath. He holds a Bachelor of Business and Bachelor of Laws from the University of Technology Sydney. He is interested in how technology can influence the future of the legal industry.