Documents · Glossary

What is consideration in a contract?

Consideration is what each party gives in exchange for the other's promise. It can be money, goods, services, a right given up or a promise to do something, and without it a promise is generally not enforceable. It has to be something of value in the eyes of the law, though not a fair value.

It is the reason a gift promised in an email cannot be sued on and the same promise in a properly executed deed can. Most people meet the doctrine only when a document turns out not to work.

Indunil Asanka · Co-founder

5 min read · Published 12 September 2026

What counts as consideration, and what does not
Situation	Good consideration	Why
Paying one dollar for a valuable asset	Yes	The law asks whether value moved, not whether the bargain was fair
Promising to do something you are already obliged to do	No	Nothing new is being given
Giving up a right to sue on a genuine claim	Yes	Forbearance has value to the other party
A promise made in return for something already done	Generally no	Past consideration comes too late to be part of the bargain
Agreeing to accept less than a debt owed	Not on its own	A part payment does not buy a release without something extra
A promise to a charity with nothing in return	No	There is no exchange, so a deed is needed

The bargain, not the fairness

Courts ask whether something of value moved from each side, not whether the two things were worth the same. A nominal sum in exchange for a substantial asset is good consideration, which is why documents sometimes recite the payment of a small amount, and why nominal consideration clauses appear in transfers between related companies. That reluctance to police value has a sensible basis: parties know their own circumstances and a court asked to price a bargain retrospectively would be doing something it is badly placed to do. The doctrine polices form rather than substance, which is also its main criticism, since it lets an obviously unequal exchange stand while defeating a serious promise made for nothing.

Past consideration, and the promise that comes too late

Somebody helps a neighbour move a fence. The neighbour, grateful, promises three hundred dollars. That promise is generally unenforceable, because the help was already given and was not given in exchange for anything. The same problem appears commercially: a supplier finishes a job, the client afterwards promises a bonus for the good result, and the promise sits on nothing. The workaround, where the intention is genuine, is either to find fresh consideration, such as a release or an agreement about future work, or to execute the promise as a deed. This is one of the most common technical defects in informal business documents, and it is easy to avoid at the point of writing.

The existing duty problem

Promising to do what you are already contractually bound to do is not consideration for a new promise, which is why a contractor who demands more money mid job to finish the same work may have no enforceable claim to it. The picture is more nuanced than the bare rule suggests, since a court may find that the paying party received a practical benefit, such as avoiding a delay penalty, and treat that as sufficient. Relying on that is unwise. Where a price genuinely needs to move, restructure the deal so something new is given: an earlier date, a longer warranty, additional scope. That converts an unenforceable demand into an ordinary variation.

Part payment of a debt

A creditor who accepts less than the full amount and promises to write off the rest can generally still sue for the balance, because the debtor gave nothing beyond a portion of what was already owed. That surprises people, and it is the reason settlement documents are drafted carefully. The practical answers are the same as elsewhere: add something new, such as earlier payment, security, or a payment by a third party, or execute the release as a deed. In debt collection this matters both ways, since a debtor who has paid a negotiated reduction on a handshake may find the claim revived when the relationship sours.

Where deeds take over

The whole apparatus can be sidestepped by executing the document as a deed, which draws its force from the manner of execution rather than from any exchange. That is why releases, guarantees, indemnities, gifts, restraints and settlements are so often deeds. The cost is the formality: writing, signature, witnessing where an individual executes, delivery, and words on the face of the document saying it is executed as a deed. It is a small cost against the risk of a release turning out to be unsupported. The judgement is simple. If one side is giving nothing, or the something is thin enough to argue about, use a deed.

Why the rule survives criticism

Every generation of lawyers proposes abolishing it, and it persists because it does a job that is hard to replace. It separates a serious commercial bargain from a social promise, without requiring a court to inquire into anybody's state of mind. It gives a bright line in a field where bright lines are scarce. And where the line produces an unjust result, the deed provides an escape that any competent adviser can use. Understanding it matters less for the doctrine itself than for the habit it produces: before signing anything, ask what each side is actually getting, and if the answer for one of them is nothing, notice.

Questions people ask

Does consideration have to be money?

No. It can be goods, services, a promise to act, a promise not to act, or the surrender of a legal right. A covenant not to compete, a release of a claim and an agreement to keep something confidential are all good consideration in the right circumstances. What matters is that something of value in the eyes of the law moves from each side.

Is a peppercorn rent real consideration?

Yes, and the phrase comes from exactly this doctrine. A nominal amount is sufficient because the law does not weigh the bargain. It appears in long leases, in transfers between related entities and in agreements where the parties want the protection of a contract without a commercial price. It must actually be payable rather than purely notional.

Do all legal systems require consideration?

No. It is a feature of common law systems such as Australia, England, the United States and New Zealand. Civil law systems generally look for cause or intention instead and enforce serious gratuitous promises more readily. That difference matters in cross border drafting, where a document valid in one jurisdiction may be vulnerable in another.

Can consideration be provided by a third party?

The traditional rule is that consideration must move from the promisee, so a payment made by somebody else does not by itself support a promise made to you. Arrangements can be structured around it, and statutory reforms in some jurisdictions have softened the position for third party beneficiaries. It remains a point to check rather than assume.

What if a contract does not mention consideration at all?

It does not need to. Consideration is a fact rather than a recital, so a contract where each side plainly gives something is supported whether or not the document says so. Recitals are common in transfers and releases precisely because those are the documents where the exchange is not obvious on its face.

Does an employment contract have consideration?

Yes, work in exchange for wages. The question resurfaces when terms are varied mid employment, such as adding a restraint clause to an existing employee's contract. Asking somebody to sign a new restriction with nothing new offered runs straight into the existing duty problem, which is why a pay rise or a promotion is usually attached.

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Sources

Written and checked by the OneCraft team. Last checked 12 September 2026.