failure of consideration

Failure of consideration is a concept which relates to the law of contracts. In contract law, a party trades something of value in exchange for consideration. The term failure of consideration implies that the consideration, which was sufficient at the time of bargaining, has ceased to be sufficient. This could happen if the consideration offered becomes worthless or miniscule compared to the value of the contract, or if the party promising to furnish the consideration fails to do so.

In re Condado Plaza Acquisition LLC, 620 B.R. 820 , the court held that a contract may be rescinded for failure of consideration, meaning the consideration is “little or nothing of value.” Similarly, in Davis v. Am. Int'l Bridge, Inc., 910 N.W.2d 621, the court held that failure of consideration may mean a contract is unenforceable. However, the court distinguished failure of consideration from lack of consideration. When there is a lack of consideration, the contract never was valid or enforceable. In contrast, failure of consideration occurs where a valid contract with a valid consideration becomes unenforceable due to the consideration no longer being valuable. The distinction can be important as failure of consideration involves a valid contract while the former does not, changing the potential remedies available for parties.

[Last updated in December of 2022 by the Wex Definitions Team]