What is failure of consideration? Definition and examples

A failure of consideration occurs if one of the parties in a contract fails. Specifically, it occurs if they fail to fulfill their end of the deal. In a contract, a party trades something of value in exchange for consideration. When there is a failure of consideration, it means that the consideration ceased to be sufficient.

In other words, even though the consideration was sufficient at the time of bargaining, it is not anymore. This may happen if the consideration loses its value. It may also happen if the party who pledged to provide the consideration fails to do so.

Put simply; failure of consideration is usually synonymous with ‘breach of contract‘ or ‘failure to execute a promise.’

Merriam-Webster has the following definitions of the term:

“1. The neglect, refusal, or failure of a party to a contract to perform as promised or furnish the consideration promised.”

“2. The extinguishment of the consideration or of the worth of the consideration promised.”

Failure of Consideration

If a party fails to keep to their end of the deal, there is a failure of consideration.

Failure of consideration – a legal term

Failure of consideration is a legal term that we use when a party fails to fulfill an obligation in a contract. We may also refer to it as a ‘failure of basis.’

When a ‘total failure of consideration‘ occurs, the claimant can seek restitution. The claimant brings an action of unjust enrichment against the defendant.

Regarding the term, JamesEducationCenter.com says the following:

“Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party.”

“This failure may arise from a willful breach of the promise.”

Failure of consideration – contracts

When we apply the term to contracts, it does not necessarily mean a lack of consideration. It implies, however, that a consideration that originally existed and was good has since lost its value.

It may also imply that the consideration has ceased to exist or has partially or entirely been extinguished.

The Free Dictionary by Farlex explains:

“It means that sufficient consideration was contemplated by the parties at the time the contract was entered into, but either on account of some innate defect in the thing to be given, or nonperformance in whole or in part of that which the promisee agreed to do, nothing of value can be or is received by the promisee.”

Meaning of promisee

The ‘promisee’ is the person to whom the promise is made. If I promise to see you tomorrow at 2 pm, you are the promisee,  and I am the promisor.

Failure of consideration – example

Let’s suppose you and I enter a contract. I am a baker and you own a restaurant. I am the supplier, i.e., the one who provides or sells something. You are the client, i.e., the one who pays for a good or service.

In our contract, I must deliver 35 chocolate cakes every Wednesday and Saturday to your restaurant.

The contract states that I promise to deliver thirty-five chocolate cakes on those dates. You trust me, and we sign the contract.

Unfortunately, I am not very good at meeting deadlines. In the first week, I only deliver 22 cakes on Tuesday and twelve on Saturday. In the second week, I deliver nothing on Wednesday and 100 cakes on Saturday.

If suppliers do not deliver goods or services when they promised in a contract, there is a failure of consideration.

You are subsequently in your right to withhold payment, i.e., refuse to pay me. You are also probably in your right to take legal action, i.e., to sue me.