Consideration is a central concept in the common law of contracts. It is often called the thing that is exchanged, no matter how minuscule (the classical example being the peppercorn or mustard seed). Consideration can take the form of money, goods, a promise to do something, or anything else that changes the legal position of the promisor. A contract cannot exist without consideration being given by both sides.
Legal analysis of consideration focuses only on a bargained exchange, in other words, only items that are specifically bargained for in the contract can be used as consideration. This protects each party from being sued for something unrelated to the exchange in question.
A contract can only exist if the consideration is both sufficient and adequate. Legal sufficiency of consideration means that both parties suffer a detriment because of the transaction, in addition to any benefit they may or may not receive. Legal adequacy of consideration is more difficult to contest. In general, the courts consider the question of adequacy irrelevant, according to the rationale that if you agreed to the contract, it must have been adequate to you. An exception is made in the case of "dishonesty or unfairness which shocks the conscience of the court."
Certain other stipulations regarding consideration include the following:
- Past consideration is not valid. Something that is already done is done, and it does not change the legal position of the promisor. Any goods or services to be exchanged must be exchanged at or after the time of contract formation.
- Preexisting duty does not count as consideration. A security guard cannot enter into a contract to stop a thief for extra payment when his job is to stop that thief anyway. In English Law, the security guard can enter into such a contract, the consideration being his increased exposure to legal action.
- An illusory promise, or one which the promisor actually has no obligation to keep, does not count as consideration. The promise must be real and unconditional.
- Liquidated debt, or a payment which is fixed and undisputed, cannot be negotiated for consideration. Unliquidated debt, or a payment which is disputed, can be used for consideration.
- In some circumstances, the concept of estoppel can be used as a defence where there is a lack of consideration.