LEGAL PERSPECTIVE: Adequacy of Consideration by Dr AbdelGadir Warsama Ghalib, Legal Counsel, Bahrain

Dr AbdelGadir Warsama Ghalib, Principal Legal Counsel, Bahrain

Formation of any contract requires an offer, acceptance and consideration agreed upon by the contracting parties. If there is no consideration the arrangement could be called anything apart from contract, as there is no legal contract. As long as the consideration given by the parties to an agreement has legal value, the Courts generally do not concern themselves with whether parties to a contract received any actual value in exchange for their promises, or whether the promises of performance exchanged were of relatively equal value. Freedom of contract is the freedom to make good bargains as well as bad ones. Promisor promises are enforceable if they “got what they asked for” in exchange for making their promise, even if “what they asked for” is not valuable in the terms they promised in return.

Asia 728x90

Several qualifications must be made to this general rule. First, if the inadequacy of consideration is apparent on the face of the agreement, most Courts would not enforce the agreement because they would assume that it was a gift disguised to look like a contract. Thus, an agreement by A to pay B $800 in exchange for $400, with no other terms or conditions is unenforceable.

Agreements that recite “$1” or “$1 and other valuable consideration” as the consideration for a promise are similarly treated. Nominal consideration is generally not recognized by the Courts unless it was in fact truly bargained for. If it wasn’t bargained for, the promise is a disguised gift and unenforceable.

Gross inadequacy of consideration may also give rise to an inference of fraud, duress, lack of capacity and so on. Inadequacy of consideration standing alone, however, is not enough to prove lack of reality of consent or capacity. Courts may refuse to give remedies to those who seek to enforce grossly inadequate bargain on the grounds that such persons are not entitled

Saying consideration must be bargained for means that, in addition to having legal value, the consideration given by the promise must be the consideration for promisor requested in exchange for making his promise. The Courts are saying, in effect “if you “the promisor” got your price for making your promise, we will enforce your promise against you”.

The issue of consideration requires clear intention to give in consideration for what you are receiving from the other party. This could be a service, exchange or material value.

Print Friendly, PDF & Email