Consideration Is a Requirement for Contracts

Consideration is an essential element for the formation of contracts

Consideration is a requirement for contracts

Consideration is one of the essential elements of contract formation in Singapore (and English for that matter) contract law, it is the idea of reciprocity – I give u something, you give me something. There is an exchange of something of value to each other

In simple terms, consideration is something that you give someone in return for his promise to do something so that there is reciprocity of promises i.e. Peter promises to pay $50 to John if John washes Peter's car.

Here, Peter's consideration is $50 and John's consideration is washing the car. Thus in every contract there are at least two promises.

Consideration can take the form of money, an act, forebearance (i.e. not to do something) or promise to do something.

An act or promise will constitute valid consideration if requested by the promisor. Conversely, a person who requests another to act to his detriment will be bound by his promise as detriment is consideration of promise.

The Defendant in Gay Choon Ing at Plaintiff’s request gave up claims for severance pay in Plaintiff’s company in return for promise by Plaintiff to give Defendant certain shares.

Past consideration is not good consideration. Therefore if an act is done before and independently of a promise, it is not good consideration. For example if A paints B’s house out of kindness, then later B promises to pay A $500, A cannot sue because the painting of the house out of kindness was past consideration and independent from later promise to pay $500.

When the person making the promise ("Promisor") fails to fulfil his promise, then the person who receives the promise ("Promissee") can sue the Promisor only if the Promisee gave something (consideration) in return for the promise.

Consideration needs to be sufficient but does not have to be adequate. It is therefore common in commercial contracts especially in option contracts for consideration to be S$1.

Consideration must move from the promisee - A promise to paint B house. B is promisee and consideration of $500 must move from B.

However, there is no requirement for consideration to move to promisor – so A can direct B to pay $500 to C instead.

An act or forebearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable

Lord Dunedin in Dunlop v Selfridge Ltd

Filed under: Contract Law
Benjamin Li Yong Le

About the Author - Benjamin Li Yong Le

Benjamin Li Yong Le (“Ben”), is an Advocate & Solicitor of the Supreme Court of Singapore. Ben is currently running his own boutique corporate and commercial law firm under the name and style of L’Avocat Law.

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