Consideration Issues

Types of Considerations with an example - QS Study

“For there to be a valid contract, there must be consideration.”

The above is a troublesome question often posed on real estate examinations.

It’s unfortunate there there’s so much debate with respect to the nature of the question. That simply means that it is a rather poorly worded question. Also, there’s not much point having a question which is somewhat designed to trick a student.

Here are the two other statements as I understand them to be under review:

Both parties to the contract must receive something of value as consideration.

That’s really not true. A person who executes a document under seal would be bound to the contract. That person need not receive nor give any consideration.

The deposit paid by buyers is a sign of good faith and not a full amount of consideration.

The deposit is not consideration at all. It’s not part consideration, and it is not required under the terms of a contract.

So, the deposit is however “a sign of good faith”. That part is quite true. The second part is that it is not a full amount of consideration. That part is also true. It’s not consideration at all, full or part.

If a question were worded just slightly differently, then the answer might be different.

Consideration Generally

Consideration must be adequate to satisfy the demands of the other party.

Courts do not quantify the extent of the consideration between the parties.

Whatever it is will be deemed sufficient. So “adequacy is never measured”.

Consideration must be made at the time of contracting in order to have a valid contract.

If the document is under seal, this would eliminate the requirement of consideration. So, truly consideration would not be required.

The “trick” is often contained in the question.

Brian Madigan LL.B., Broker

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