In common law jurisdictions, three elements are required for the formation of a legally binding contract: offer and acceptance; intention to create legal relations; and consideration. Of these three elements, perhaps the most difficult to understand is consideration. This article examines how consideration operates in common law jurisdictions, draws a comparison with the position in other jurisdictions (including China) and discusses the related concept of privity of contract.
Consideration in common law jurisdictions
Under the doctrine of consideration, as it is often described, a promise will only be enforceable if it is supported by consideration. Consideration is best defined as something of value that is given by each party to the other party. It may take various forms. For example, it might be an act, such as the payment of money by one party in return for the sale of goods or the provision of services by the other party. Alternatively, it might take the form of forbearance to act, where one party agrees to refrain from doing something.
A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia.com.