welcome to the third lesson in the contract law module in this lesson we will discuss the doctrine of consideration so what is consideration in simple terms consideration is a necessary element of contract formation if there is no consideration there is no contract but how do you know when there is consideration the most widely cited definition is from curry misa where the court states that a valuable consideration in the sense of the law may consist either in some right interest profit or benefit accruing to the one party or some forbearance detriment loss or responsibility given suffered or undertaken by the other party so consideration is a benefit you convey on the other party or a detriment you suffer in exchange for the other party's promise although the courts often talk about a valuable consideration the courts normally do not inquire into the adequacy of consideration courts are concerned with the existence of consideration not its quality or quantity this has led to the often quoted phrase even a peppercorn of consideration will do consideration must be mutually related to the promise given by the other party it must be the motive for the other party's promise to you and it must be given by you in response to that promise another way to look at this is that consideration is the price you pay to secure the other party's promise although in many transactions the consideration provided by each party is obvious this is not always the case it must also be remembered that consideration is a legal benefit or a legal detriment the fact that a party to a contract does not appear to have received any tangible benefit from the contract does not mean that consideration is lacking for example in hammer and sidwe an uncle promised to pay his nephew five thousand dollars if the nephew did not drink smoke swear or gamble until the age of 21. the nephew did not do any of these things and asked for the five thousand dollars the uncle told his nephew that he would give the nephew the five thousand dollars but died before he paid it the executor of the uncle's estate refused to pay on the basis that there was no consideration for the uncle's promise the executor argued that the uncle did not receive any material benefit and that the nephew did not suffer any actual detriment by not drinking smoking swearing or gambling in fact the nephew was likely better off for not doing those things the court disagreed with the executor and found that the uncle's promise was enforceable the nephew had given up his liberty to do these things on the strength of his uncle's promise and had therefore suffered a legal detriment the fact that the uncle had received no material benefit in return for his promise was not relevant nor was the fact that the nephew may have actually been better off in some situations two parties will reach an agreement that appears to form a contract however upon closer inspection it is sometimes found that only one party to the agreement provided consideration in these situations the consideration is said to be illusory because although it appears as though both parties have made a promise and therefore provided consideration this is actually not the case one such case is tobias and dick in that case tobias entered into an agreement with dick under which tobias had an exclusive right to sell in the prairie provinces the machines that were manufactured by dick tobias was not very successful and dick allowed eaton to sell its machines in the prairie provinces also to buy a su dick for breach of contract in concluding that a contract had not been formed the court found that tobias had not promised anything in return for the exclusive right granted by dick the agreement was entirely a one-sided arrangement under its terms tobias was given an exclusive right to sell dick's machines in the prairie provinces but tobias did not actually promise to sell any of those machines in return in wood and lucy lady duff gordon lady duff gordon and wood entered into an agreement under which wood was granted the exclusive right to use lady duff gordon's name on clothing designs in return for this right lady duff gordon was entitled to 50 of woods profits lady duff gordon allowed her name to be used by other designers and did not share her profits with wood wood sued for his share of those prophets lady duff gordon argued that there was no contract because wood had not promised to do anything in return for the exclusive right although wood had agreed to share 50 of his profits he would only earn those profits if he used lady duff gordon's name on clothing designs since he was under no obligation to do this he had not really promised anything in return for the exclusive right granted to him by lady duff gordon as such his promise was illusory and therefore there was no consideration the court rejected lady duff gordon's argument and found that a contract existed the court held that it was reasonable to imply a promise that wood would use reasonable efforts to earn profits from the use of lady duff gordon's name as such there was a bilateral contract because lady duff gordon promised to let wood exclusively use her name in return for wood's promise to use his best efforts to earn profit from the use of her name the court found that only by implying this promise by wood does the contract make sense this case is therefore another example of where the court will imply reasonable terms into a contract to give effect to any clause that the parties reasonably understood and intended was to have legal effect so what do these cases tell us about consideration consideration must be mutually related to the promise it must be requested by the promisor it must be the reason for the promise it must be either a legal benefit to the promisor or a legal detriment to the promisee consideration must not be illusory and consideration can be nominal as we have just discussed consideration must be mutually related to the promise given by the other party it must be the motive for the other party's promise to you and it must be given by you in response to that promise so what if a promise is made in return for an act that has already been performed or for a benefit that has already been received in this case the promise was not the motive for the act or benefit the consideration for the promise is therefore said to be passed and does not support the promise for example assume that natalie pays for my lunch on tuesday and that in gratitude i promised to buy her lunch on wednesday has a contract been formed do i have an obligation to purchase natalie's lunch on wednesday because she purchased my lunch on tuesday the answer to this is no because although natalie's act of buying me lunch was my motive for promising to buy her lunch my promise was not the motive for her act as such natalie's consideration is passed and cannot support my promise but what if the act is performed or the benefit given at the request of the promisor and in circumstances that suggested payment would be made in these circumstances a court may conclude that the consideration is not passed and the promise is enforceable a court may come to this conclusion based on the test established in the pow on case based on the pow-on test consideration will not be passed if the act is performed at the promisor's request and the parties understood that the person performing the act would receive a benefit a finding that the person performing the act would receive a benefit does not need to be explicit and can be implied based on the circumstances for example assume that i ask my friend charlie to drive me to the shopping mall charlie drives me to the mall and when i'm getting out of charlie's car i promise to give him ten dollars tomorrow has a contract been formed do i have an obligation to pay charlie ten dollars tomorrow here the answer depends on whether it was understood that charlie would be compensated for driving me to the mall if charlie normally drives me to the mall without any payment it is unlikely that my promise is enforceable however if i normally give charlie ten dollars when he drives me to the mall then it may be possible to conclude that it was understood that charlie would receive a benefit for driving me to the mall if this is the case then a contract has likely been formed because the act of driving me to the mall is consideration for my promise to pay charlie ten dollars another common issue in relation to consideration arises when parties to an existing contract further agree to amend the terms of the agreement as a rule amending the terms of a contract is no different than creating the contract in the first place as such when one party promises to do more than was previously agreed to the other party must normally provide consideration for that promise to be enforceable for example in gilbert steel and university construction gilbert steele entered into a written contract with university construction for the purchase of steel at a fixed price the market price of steel increased and gilbert steele asked university construction to pay a higher price university construction verbally agreed to the higher price and gilbert steele continued to deliver steel and charged university construction the higher price university construction eventually refused to pay the higher price the court was asked to determine if the promise to pay the higher price was enforceable in concluding that it was not the court found that gilbert steele was already obligated to deliver steel at the lower price and had therefore not provided new consideration for university construction's promise to pay a higher price gilbert steele was therefore under a pre-existing duty to deliver steel at the lower price and therefore its agreement to deliver the same steel could not count as consideration for university construction's promise to pay more university construction had not received any new benefit and gilbert steele had not suffered any new detriment in exchange for university construction's promise to pay the higher price this concludes the lesson on consideration thank you for listening in the next lesson we will discuss intention to create legal relations make sure to answer the knowledge check questions at the end of this lesson before moving on to lesson four if you have any questions please post them on the owl discussion forum your questions may be answered in writing on the discussion forum or during the weekly question and answer session