Consideration is a crucial concept in understanding Contract Law. The making of a promise (offer and acceptance) is insufficient by itself to result in the formation of a contract.* The additional requirement is the presence of “consideration.”
The concept of consideration has developed over the years. In 1875 consideration was defined as:
“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.”
Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first. The idea behind consideration is determining the types of contracts we want to enforce. The main type of contract we don’t want to enforce is a gift.
The court now explains that consideration requires a benefit to the promisor or a detriment to the promise that is bargained for. In other words, benefit or detriment are insufficient to constitute consideration. However, according to Pennsy Supply the requirement that consideration be bargained for does not require actual bargaining between the parties.
The court uses the Homlesian test of “reciprocal conventional inducement, each for the other.” (Bargaining theory of consideration). “The promise must induce the detriment and the detriment must induce the promise.” Oliver Wendell Holmes, Jr.
The Restatement adopts the bargain theory of consideration and rejects any additional requirement of benefit or detriment.
*Note: International contract law recognizes that a contract can be formed without the additional requirement of consideration.