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Consideration concept in contract law and its importance in the enforcement of agreements
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  • Country: Australia


Discuss the concept of "consideration" in contract law and its importance in the enforcement of agreements.


Consideration is a key concept of contract law. It plays an important role in the creation and enforcement of contracts. Contract law covers the various aspects of an agreement. It ensures both parties get a fair transaction. Consideration under contract law refers to the value exchanged between parties.

This concept makes sure that each party contributes something worthwhile. It ensures that the agreement is in favour of both the promisee and the promisor. Law students should form a thorough understanding of consideration and its consequences. It helps to determine if a contract is legitimate and enforceable. 

What Is Consideration? 

While entering into a contract, both parties agree to take or give some value. This particular value is referred to as consideration. It motivates the parties to enter into a contract. It can come in various forms, such as cash, products, services, commitments, or the power to withhold. 

The core factor is that there should be a mutual exchange of value. This exchange sets a contract apart from a simple promise. Also, a consideration is legal and can be enforced.  

Legal Requirements  of Consideration

A consideration comes into force on fulfilling a number of requirements:

  • Adequacy and Sufficiency:  The consideration must be sufficient. It need not necessarily be adequate. Meaning it must be something that the law considers valuable. However, its economic value doesn't need to be equal. 

  • Existing Legal Duty:  A party cannot receive consideration for services for which they are already required by law. To perform something that one is already bound to do does not make it a legal consideration.  

  • Past Consideration: Consideration is given in exchange for a value or promise. Any past actions or benefits are not covered under it. It does not include any promises made in the past. 

Importance of Consideration in Contract Law: 

In contract law, consideration is vital for several reasons.

Ensuring Mutuality

The concept of consideration guarantees that each party will benefit from the agreement. There is a mutual exchange of value which makes it a binding obligation. This point sets it apart from non-binding promises. The law guarantees that each party has contributed something of worth. It makes the agreement fair and balanced and keeps both parties satisfied. 

Proof of the Agreement

Consideration acts as proof of the agreement. It proves that the parties intend to be bound by the terms. It ensures that the parties follow the agreement they have made. It also helps to resolve disputes. It helps Courts to decide whether the contract is legal. 

Advancing Justice

Consideration helps to prevent One-sided deals. It avoids deals in which one party gains without giving anything in return. This condition makes sure that both parties are committed to carrying out their end of the bargain. It aims to promote equity and prevent exploitation.  

Types of Consideration

There are multiple types of consideration. It is dependent on the specifics of the agreement and the trade. Some of the common types are: 

Executed Consideration

It is an act that is carried out in exchange for a promise. For example, A pays B $100 for a service. In this case, A's payment is taken as executed consideration. It is often seen in Sales contracts and instant trades. 

Executory  Consideration

it refers to a promise to carry out an act in the future. For example, A has promised to pay B $100 next month for a service to be provided at that time. This promise comes under executory consideration. This clause is commonly found in contracts where performance is due at a later date. 


It is the act of refraining from exercising a legal right. For example, A agrees to not sue B in exchange for a payment of $100. This is referred to as forbearance. This condition is often seen in settling agreements and negotiating deals. 

Case Law Illustrations

There are many cases which show the application of consideration. The concept has been applied. in many contract law cases. Let's have a look below for a better understanding. 

Thomas v. Thomas (1842)

Thomas v Thomas is an English case that is relevant in Australian law too. Mr. Thomas expressed a wish for his wife to be able to continue living in his home upon his death. The executors of his estate granted this request.  However, they did mention a condition.

They stated that Mrs Thomas must maintain the house in excellent condition and pay a minimal amount of £1 annually. The agreement included a legitimate consideration. She had to pay a minimal amount and look after the house. This validated the agreement and made it enforceable. 

 Chappell & Co Ltd v. Nestlé Co Ltd (1960)

This case proved that consideration should be necessary but not sufficient. In this case, Nestlé offered records in exchange for money and chocolate bar wrappers. 
The wrappers were of negligible economic value. However, the court said they still formed part of the bargain. Hence the transaction was deemed a legitimate consideration. 

Winadell Pty Ltd v. Musumeci (1994)

In this Australian case, Musumeci had a fruit store inside a Winadell-owned mall. He was facing strong competition from a new store. This affected his sales and profit.

Hence Musumeci requested a rent decrease.  Winadell agreed on the condition as long as Musumeci kept running the store. The court found that Musumeci's ongoing business qualified for valid compensation for the rent cut. It highlighted that business can take the form of payment. 

Challenges and Criticism of Consideration

The concept of great relevance. However, it has a number of obstacles and objections. Read about them below:

Flexibility vs. Formalism

The whole concept appears rigid and formalistic. Critics argue that it might not accurately represent the present business activities.  There might be informal promises between parties. The concept might overlook this. 

Unjust Contracts

The concept might not always be able to stop unfair contracts. There might be conditions in which one party takes advantage of the other. Even though the law demands careful consideration, it does not always guarantee a fair trade. This could result in the exploitation of agreements. 

Changing Legal Requirements

Legal systems are evolving to become more flexible. They recognise the different forms of enforceable contracts. The systems no longer rely on traditional methods like consideration.  that don't strictly follow the definition of consideration. For example, there are doctrines like promissory estoppel. They enforce promises without regard to whether consideration is justifiable. 

Supplements and Alternatives to Consideration

Given the limitations of the concept, there have been changes. legal theories like proprietary and promissory estoppel have emerged as alternatives. They are explained below:

Promissory Estoppel

It prevents a promiser from neglecting the promise when the promisee has relied on it to their detriment. This notion guarantees justice and fairness. It is particularly helpful in cases where there is not enough consideration.  

Proprietary Estoppel

It applies when someone has been misled into the benefits of the contract. They are led to think they will acquire property rights. However, the actions might lead to loss. Even in the lack of formal discussion, the promise to stop injustice can be enforced by the courts.


Consideration continues to be a fundamental element of Australian contract law. It ensures mutuality and promotes fairness in dealings. Despite its shortcomings, it is relevant in legal proceedings.

The legal system is flexible and covers the loopholes of the concept. Anyone entering into a contractual agreement must have a thorough understanding of consideration. It guarantees that the promises made are enforceable and legally binding. Law students should also work towards a better understanding of the concept. 

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