So, you’re about to sign a contract whether that be for a job, a business deal, or a generous gift to a charity. But before you put pen to paper, here’s a crucial concept that might come up which can make or break the enforceability of that agreement: consideration.
More specifically, good consideration.
But what does this even mean? Well in the legal world, consideration is the value, whether money, goods, services or even a promise, exchanged between parties when entering a contract. But here’s the catch: not everything that looks valuable is legally “good” consideration. And sometimes, something that seems totally worthless is perfectly fine under the law.
Let’s break down what is legally accepted as good consideration and what isn’t:
- It’s not about the dollar $ value
One of the most surprising things that confuses people is that consideration doesn’t need to be adequate, it just needs to be legally sufficient. That means the court doesn’t really care if you agreed to sell your car for a paperclip, as long as you knowingly entered the agreement and weren’t coerced.
However, something to be aware of is saying “in consideration” doesn’t magically make something valid. Courts will look at the substance, not just the wording.
KEY TAKEAWAY: It’s not what the consideration is worth, but whether it legally counts.
- Promises that are too vague or optional? Won’t hold up
Ever seen a promise that says, “I’ll pay you if I feel like it”? That’s not enforceable and it’s what lawyers call illusory consideration. If a promise is completely discretionary or lacks any real obligation, it’s as good as no promise at all.
Same goes for promises lacking substance. Saying you’ll behave “respectfully” might work in some cases (Dunton v Dunton), but courts won’t enforce a promise to “not be annoying” or to “stop complaining” (sorry, Dad).
KEY TAKEAWAY: A promise must have clear, binding intent to be legally meaningful.
- Past favours don’t count
Did someone do you a favour last year and now you’re promising to pay them back? Unless that favour was requested with an understanding of later payment (like in Lampleigh v Brathwait), it won’t hold up.
Courts require a present or future exchange, not a thank-you gift after the fact.
KEY TAKEAWAY: A deal made after the act isn’t a contract, it’s a gift.
- Existing duties don’t cut it, unless something extra is involved
Doing what you’re already legally or contractually obligated to do isn’t good consideration. For example, a police officer can’t claim a reward for making an arrest, that’s just part of their job.
However, if you go above and beyond, like if said police officer agrees to stay on-site for added protection during a strike, now you’re talking real consideration.
Even if you’re already in a contract and renegotiating, like in the famous Williams v Roffey Bros case, doing the same thing you agreed to might still be enough if the other side gains a practical benefit (like avoiding penalties or delays).
KEY TAKEAWAY: Doing what you already had to do doesn’t count, unless it gives the other party something extra or avoids a loss.
- Compromising or settling a dispute? That’s good consideration
If two parties are in a genuine dispute and decide to settle, even if one claim is a bit shaky, that agreement to resolve things is usually enforceable. Courts support people working things out instead of going to trial.
Just be careful, if the dispute is entirely baseless or manufactured just to squeeze a better deal, the “consideration” might be invalid.
KEY TAKEAWAY: Settlements can be valid contracts, but only when the dispute is real and not made up.
- Conditional gifts ≠ contracts
Here’s an odd one: “I’ll give you my Tesla if you fetch it from the garage”.
This sounds like a deal, but legally it’s a conditional gift not a contract. But if you offer even 10 cents in exchange for that Tesla? Now we’re talking binding contract.
It’s weird, we know. But it’s the law.
So why does all this matter?
Understanding what does, and doesn’t, count as good consideration can save you from unenforceable agreements, legal headaches, and lost time. Whether you’re making a deal, writing a will, or giving to charity, a bit of legal clarity goes a long way.
Still unsure if your agreement stacks up legally? Talk to a contract lawyer who can help you sort through the confusing world of contracts and draft something that works in the real world.
Need help navigating contract law?
Our team at Shore Lawyers is well-versed in the nuances of consideration and contract formation. Reach out at (02) 9712 4244 or email us at cases@shorelawyers.com.au to set up a discussion for some expert legal advice.
