Consideration

Consideration is the bargained-for exchange of something of value that shows the parties intend to be bound by the contract. There are two elements to consideration:

1. Something of value

2. Is exchanged between the parties.

The “something” that is promised or delivered must be a legal detriment. A legal detriment is giving up a legal or property right.

Consideration may be concurrent or a promise to perform in the future. However, it cannot be “past consideration” based on something that has occurred before the formation of the current contract. In other words, an act or promise made before the current contract is not adequate consideration because it was not given in exchange for the current promise.

When bargained-for consideration is not present, a court may validate a promise based on promissory estoppel. Promissory estoppel is the principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise, and the promisee actually relied on the promise to his or her detriment. Promissory estoppel is an equitable doctrine used as a substitute for consideration that allows the imposition of contractual liability to prevent unfairness.

To establish promissory estoppel, a party must show:

1. A definite promise;

2. The party making the promise should have expected that the other party would rely on the promise;

3. A reasonable person would have relied on the promise;

4. The party relied on the promise and it resulted in a substantial detriment; and

5. Basic justice and fairness require that the promise be enforced.

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Attributions and Licensing

Except where otherwise noted, this page's content is adapted from Contract Elements in Fundamentals of Business Law by Melissa Randall (2020), used under CC BY 4.0.

Except where otherwise noted, this page is licensed under CC BY 4.0.