How do the Courts View Consideration? 

What is Consideration?

Consideration is a fundamental principle of contract law. Except for contracts executed under seal, it is one of the essential ingredients that must be present for a contract to exist. At a basic level, consideration can be thought of as an exchange, one that takes a simple promise (which the Courts will not enforce) and elevates it into an enforceable contractual obligation. In other words, consideration is the purchase price of a promise, so long as the promisor has agreed to accept it.

Naturally, issues with consideration most often arise in contract disputes. However, it can also be a central issue in disputes outside of a purely contract law context, particularly in real estate disputes where beneficial ownership of property is at issue. As cases can be won or lost on the question of consideration, it is important to understand how the Courts view it.

How do the Courts View Consideration?

Traditionally, Courts do not inquire into the value or adequacy of consideration. This idea is often referred to as the “peppercorn” principle or theory, which arose out of old case law that held even a peppercorn (a metaphor for something of nominal value) is sufficient consideration for a contract to exist. The reasoning behind it is more economic than legal – the value of consideration is best determined by the parties to the bargain rather than the Courts.

In certain legal contexts, however, the Courts may examine whether meaningful consideration was actually given. For example, in disputes about beneficial ownership of property the absence of meaningful consideration can be important evidence in determining who is the beneficial owner. If a person transfers property to another but receives no consideration in return, the transferor can ask the Court to return the property to them on the basis of a resulting trust. Here, the “peppercorn” principle is no aid to a transferee as the Courts require the transferee to prove they provided meaningful or tangible consideration for the property (Freeland v. Farrell, 2022 BCCA 99).

When disputes arise over the enforceability of a contract or the ownership of property, consideration can be central to the outcome. Parties to these disputes need clear legal advice on whether the facts and evidence support a viable claim or defence and how the issue of consideration is likely to be treated by the Court on the specific facts of the case.

Article by: Robert Goddard and Doug Conolly.