Re-considering Consideration

Re-considering Consideration

Anyone who has studied common law principles in a legal context has heard of the concept of “consideration”. Consideration is a benefit or right for which the parties to a contract must bargain; the contract is founded on an exchange of one form of consideration for another. Whereas many civil law countries require only an offer, an acceptance and an intention to be bound in order for there to be a valid contract, common law jurisdictions have the additional requirement that there be consideration. As a practical matter, this is rarely a problem when drafting contracts. Most contracts contain clauses setting out those acts which each party undertakes to perform (i.e., provide services or paying for such services). However, it is possible for contract drafters to mistakenly omit consideration in certain types of contracts, thereby making the contract unenforceable. For example, it is easy to forget to include a clause which satisfies the consideration requirement in intra-company license agreements. Where a parent company is licensing products or trademarks for use by its subsidiary, it is necessary to include a clause in which the subsidiary undertakes to do something. The example below demonstrates an acceptable clause in such a circumstance:

Licensee undertakes to uphold the reputation and integrity of the products and trademarks and shall take any and all reasonable action necessary to maintain such reputation any accompanying goodwill within the Territory.

As seen above, any promise to do (or not do) something generally satisfies the consideration requirement. The drafter must merely remember to include this element when drafting contracts in common law jurisdictions.