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Contract Law - What is Consideration?

Discussion in 'Commercial Law Forum' started by alexaus, 14 July 2014.

  1. alexaus

    alexaus Member

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    Firstly: apologies for the long winded story - but i'm really curious to know how consideration works, and the situation needs explaining...

    We have a "client" who we were in the process of negotiating a job with. We had tendered for their work and they had accepted the tender in writing.
    1. We then prepared a Statement of Work & Contract for the job.
    2. The client signed the contract - and we returned a countersigned contract.
    3. We then issued an invoice for the agreed deposit payment.
    4. The client accepted this invoice and told us it had been forwarded to the accounts team for payment.
    5. We allocated the necessary time & resources for the project in order to meet the client's deadlines (subsequently turning away other work - we're a small company).
    6. We begun preliminary planning and development for the project.
    7. 2 weeks later, the client's deposit payment still hadn't cleared and we had tried numerous times to contact the client regarding this..
    Finally, they emailed us and said they had decided not to continue with the project. When we questioned this - pointing out that they had accepted our Statement of Work, signed our contract and accepted the deposit invoice they replied claiming that there was "no contract as there had not been consideration".

    My question is, what exactly constitutes consideration in a situation like this? Does their acceptance and indication of intent to pay the invoice for our deposit not constitute some form of agreement under contract law?

    Any help or insight would be greatly appreciated! :)
     
  2. DennisD

    DennisD Well-Known Member

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    Hi alexaus

    In simple terms, consideration is one of the elements for a valid contract, along with offer, acceptance and intention to create legal relations. In a typical services contract the promise from the supplier to provide services, and the promise from the customer to make payment, form valuable consideration from each party. Whether or not payment has actually been made and services actually rendered generally touches on performance or timing of obligations under a contract, rather than the consideration requirement in contract formation. It sounds like your 'client' might be getting these concepts mixed up.

    In general a properly executed contract and statement of work strongly indicate that a valid agreement is in place. Although there are many legal rules and principles in contract law, the natural first step is to look to the contract to see what were the intentions of the parties.

    If your contract and statement of work are valid (which I cannot say for sure as I don't know the full facts), you can as a start review these documents giving particular attention to clauses which address cancellation/termination, including what (if any) grounds are needed (or whether termination for convenience is allowed), what notice periods and procedures apply, and the consequences including any compensation.

    Hugh
     
    John R likes this.

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