Home » Eng Accounting » C » Consideration


If a contract other than a contract by deed is to be binding, the promise of the one party must be supported 3y the agreement of the other party to do or not do some act, or to pay some money. The agreement by the other party is known as the consideration.

This consideration, to be effective, must have some value, i.e. it must be capable of being valued in monetary terms. Valuable consideration has been defined as ‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment. loss or responsibility given, suffered or ndertaken by the other’. Two examples: (I) A agrees to sell X to B in return for £10. Both A and B receive something. (Whether X is worth £10 is not always relevant provided both parties act in good faith.) This can be a good contract. (2) A owes B £10. A is a slow payer. B says that if A will pay him the £10 now he will agree to a discount of 5 per cent. This is not a good contract, for A already owes the money and has done nothing extra in return for B’s promise. A discount offered for payment before the agreed date might create a new contract.

Reference: The Penguin Business Dictionary, 3rd edt.