💡Key Insight
- In Australian contract law, consideration does not have to be monetary; it must be something of value such as a promise, object, or service, which makes the contract legally binding.
- Consideration that is merely a party’s existing contractual duty is generally not sufficient unless it goes beyond what was originally required.
- Past acts performed before a contract was formed can count as consideration only in limited circumstances where the act was done at the request of the promisor.
- Valid contractual consideration is essential because without it a contract may be unenforceable under Australian law.
What is consideration?
A contract is a legal agreement, which binds parties to their promises. Every contract must have some form of consideration in order to be enforceable. Consideration in a contract is something of value given to prove that the person who promises something in the contract will go through with it. However, it’s important to note that if the contract you are in involves the formation of a deed, consideration is not necessary.
A typical example of consideration being given in a contract is:
Abbie promises to buy Becca’s car, and they form a contract. Abbie provides monetary consideration of around $200, making the contract enforceable. If Carrie wanted to buy Becca’s car for a higher price, the consideration makes Abbie and Becca’s promise legally binding. Therefore, Becca could not take back her part in the contract with Abbie.
What can consideration be?
Consideration is mostly always monetary, but can take other forms as well. It needs to be something of value to the individual making the promise. Therefore, it can also be an object or a service that the individual chooses.
What can’t consideration be?
1. Existing Duty
Although consideration can be a service, performing an existing contractual duty is not an accepted form. This duty is already part of the contract, so it’s not enough to be one’s consideration. However, there is an exception to this rule. If you can prove that you went beyond your contractual duty, a court will accept this as a form of consideration.
2. Past Consideration
Past consideration cannot be enforced. This is when an act is done on before a contract is formed. Past consideration cannot be enforced. An example where it can’t be enforced is:
Freddie has lost her cat, but miraculously, George has found it. Freddie offers to give George $100 after learning about her cat. However, this promise can’t be enforced as the consideration (the act of finding the cat) was completed before Freddie promised anything to George.
However, past consideration can only be enforced where the individual completing the promise is only doing because of the request of the other party. A example of this is:
Harry agrees to tutor a student for a year at the request of the student’s parents. He agrees to the terms in the contract which states that he will be paid at the end of the period. Although Harry’s actions are past consideration, they will be enforced by the law.
It’s important to make sure that if you are entering into a contract, the consideration you are providing is valid. Without consideration, your contract can become unenforceable. If you have further questions, you can talk to a contract lawyer.
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