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'''Consideration''' is a concept of [[English law|English]] [[common law]] and is a necessity for simple contracts but not for special contracts (contracts by [[deed]]). The concept has been adopted by other common law jurisdictions, including the US.


The court in ''Currie v Misa'' <ref>''Currie v Misa''  (1875)  LR 10 Ex 893</ref> declared consideration to be a “Right,  Interest,  Profit,  Benefit, or Forbearance,  Detriment,  Loss,  Responsibility”. Thus, consideration is a promise of something of value given by a promissor in exchange for something of value given by a promisee; and typically the thing of value is goods, money, or an act. Forbearance to act, such as an adult promising to refrain from smoking, is enforceable '''only''' if one is thereby surrendering a legal right.<ref>''Wade v Simeon'' (1846) 2 CB 548</ref><ref>''White v Bluett''  (1853)  2 WR 75</ref><ref>Bronaugh R. (1976). [http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=2434&context=wmlr Agreement, Mistake, and Objectivity in the Bargain Theory of Conflict]. ''William & Mary Law Review''.</ref>
'''Consideration''' is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from doing an act. In broad terms, if one agrees to do something he was not otherwise legally obligated to do, it may be said that he has given consideration. For example, Jack agrees to sell his car to Jill for $100. Jill's payment of $100 (or her promise to do so) is the consideration for Jack's promise to give Jill the car, and Jack's promise to give Jill the car is consideration for Jill's payment of $100.


Consideration may be thought of as the concept of value offered and accepted by people or organisations entering into [[contract]]s. Anything of value promised by one party to the other when making a contract can be treated as "consideration": for example, if A signs a contract to buy a car from B for $5,000, A's consideration is the $5,000, and B's consideration is the car.
==Elements of consideration==
In order to meet consideration's requirements, a contract must fulfill three elements. First, there must be a bargain regarding terms of an exchange. Second, there must be a mutual exchange. In other words, both parties must get something out of the contract.{{citation needed|date=December 2010}}  Third, the exchange must be something of value.


Additionally, if A signs a contract with B such that A will paint B's house for $500, A's consideration is the service of painting B's house, and B's consideration is $500 paid to A. Further, if A signs a contract with B such that A will ''not'' repaint his own house in any other color than white, and B will pay A $500 per year to keep this deal up, there is also consideration. Although A did not promise to affirmatively do anything, A did promise ''not'' to do something that he was allowed to do, and so A did pass consideration. A's consideration to B is the ''forbearance'' in painting his own house in a color other than white, and B's consideration to A is $500 per year. Conversely, if A signs a contract to buy a car from B for $0, B's consideration is still the car, but A is giving no consideration, and so there is no valid contract. However, if B still gives the title to the car to A, then B cannot take the car back, since, while it may not be a valid contract, it ''is'' a valid [[Gift (law)|gift]].
An example of this is renting of apartment. The landlord and tenant come together to discuss the terms of the exchange (most of the time, the leasing is outlined in a contract). Thus, they have fulfilled the first requirement of consideration. To meet the second element, there must be a mutual exchange. In this case, the landlord provides housing, while the tenant provides rent payment. Third, the bargain terms must be of value. The apartment is worth what the tenant hands over each month. Therefore, this contract has met its consideration requirement, because it fits all elements of consideration.


In [[common law]] it is a prerequisite that both parties offer consideration before a contract can be thought of as binding. The doctrine of consideration is irrelevant in many jurisdictions, although contemporary commercial litigant relations have held the relationship between a promise and a deed is a reflection of the nature of contractual considerations. If there is no element of consideration found, there is thus no contract formed.
==Lack of Consideration==
*Past consideration is not valid. Something that is already done is done, and it does not change the legal position of the promisor. Any goods or services to be exchanged must be exchanged at or after the time of contract formation.
*Preexisting duty does not count as consideration.
*An [[Contracts/Illusory promise|illusory promise]], or one which the promisor actually has no obligation to keep, does not count as consideration. The promise must be real and unconditional. This doctrine rarely invalidates contracts; it is a fundamental doctrine in contract law that courts should try to enforce contracts whenever possible. Accordingly, courts will often read implied-in-fact or implied-in-law terms into the contract, placing duties on the promisor. For instance, if a promisor promises to give away a third of his earnings for the year and earns nothing, he has no actual obligation to do anything.


However, even if a court decides there is no contract, there might be a possible recovery under the doctrines of ''[[quantum meruit]]'' (sometimes referred to as a [[quasi-contract]]) or [[Estoppel#Promissory estoppel|promissory estoppel]].
==Exceptions to the Consideration Requirement==
Modern contract theory has also permitted remedies on alternative theories such as [[Contracts/Promissory estoppel#Promissory estoppel|promissory estoppel]]. Also, modifications to existing [[lease]] agreements (as opposed to the creation of a new lease agreement) do not require consideration,<ref>[[Contracts/Uniform Commercial Code|U.C.C.]] [https://www.law.cornell.edu/ucc/2A/2A-208.html § 2A-208(1)]</ref> nor do modifications to existing sale contracts<ref>[[Contracts/Uniform Commercial Code|U.C.C.]] [https://www.law.cornell.edu/ucc/2/article2.htm#s2-209 § 2-209(1)]</ref>  Furthermore a promise to perform a moral obligation—the classic example is of a promise to support a person injured while coming to the rescue of the promisor—is enforceable provided the promissee was harmed in conferring a benefit on the promisor and the promise is not disproportionate to the benefit. The promise to pay a debt discharged by bankruptcy, the promise to perform a conditional responsibility despite the nonoccurrence of the condition, and the promise to perform on a voidable contract form a category of moral obligations that can bind in the absence of consideration.


==Legal rules regarding consideration==
==Contract modification==
There are a number of common issues as to whether consideration exists in a contract:
Service contracts and, in the United States, other contracts not governed by the [[Contracts/Uniform Commercial Code]], generally require consideration to modify a contract (because of what is called the [[Contracts/Pre Existing Duty Rule|pre-existing duty rule]]).
# Part payment is not good consideration<ref> ''[[Pinnel's Case]]'' (1602)  5 Co Rep 117a</ref><ref> ''[[Jorden v Money]]'' (1854) 5 HLC 185</ref><ref> ''[[Foakes v Beer]]''  ''([[per incuriam]]?)'' (1884) AC 605</ref>
# Consideration must move from the promisee but need not flow to the promisor <ref>''[[Tweddle v Atkinson]],, (1861)  1 B&S 393</ref>
# Consideration must be sufficient but need not be adequate <ref>''[[De la Bere v Pearson]]'' [1908]  1 KB 280</ref><ref>''[[Chappell v Nestlés]]'' [1960]  AC 87</ref><ref>''[[The Atlantic Baron]]'' [1979]  QB 705  (aka North Ocean Shipping v Hyundai Construction) </ref>
# Consideration cannot be illusory
# Consideration must not be past. Past consideration is not good consideration <ref>''[[Roscorla v Thomas]]'' (1842)  3 QB 234</ref><ref>''[[Re McArdle]]'' [1951]  Ch 669</ref><ref>''[[Lampleigh v Braithwaite]]'' (1615) Hob 105</ref><ref>''[[Kennedy v Broun]]'' (1863)  13 CB (NS) 677</ref><ref>''[[Re Casey's Patents]]'' (aka  Stewart v Casey) [1893] 1 Ch 104</ref><ref>''[[Pao On v Lau Yiu Long]]'' [1980] AC 614 (PC)</ref>
# Moral consideration is not sufficient<ref>Except for contracts by deed, where "love and affection" is often cited as the (unnecessary) consideration.</ref> 
# Performance of existing duties is not good consideration <ref>''[[Stilk v Myrick (1809)  2 Camp 317</ref><ref>''[[Hartley v Ponsonby]]'' (1857) 7 E&B 872</ref><ref>''[[Glasbrook Bros v Glamorgan CC]]'' [1925]  AC 270</ref><ref>''[[Williams v Roffey]]'' [1990] 2 WLR 1153</ref>


==History and comparative law==
==Theories of Consideration==
Systems based on Roman law (including Germany <ref>[http://www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.html#p1008 German Civil Code § 311], accessed 15 July 2017</ref> and Scotland) do not require consideration, and some commentators consider it unnecessary and have suggested that the doctrine of consideration should be abandoned,<ref> See: [[Harvey McGregor]]'s [[Contract Code]]</ref> and estoppel used to replace it as a basis for contracts.<ref>e.g. P.S. Atiyah, 'Consideration: A Restatement' in ''Essays on Contract'' (1986) p.195, Oxford University Press</ref> However, [[legislation]], rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. [[Lord Denning|Lord Justice Denning]] famously stated that "The doctrine of consideration is too firmly fixed to be overthrown by a side-wind".<ref>[[Central London Property Trust Ltd. v. High Trees House Ltd.]] [1947] KB 130</ref>
There are two common theories that attempt to explain consideration. The first is "benefit-detriment theory," in which a contract must be either to the benefit of the promisor or to the detriment of the promisee to constitute consideration (though detriment to the promisee is the essential and invariable test of the existence of a consideration rather than whether it can be constituted by benefit to the promisor<ref>
{{cite book
  | last = Brantly
  | first = William Theophilus
  | authorlink =
  | coauthors =
  | title = Law of Contract
  | publisher = M. Curlander
  | year = 1912
  | location =
  | pages = [https://archive.org/details/lawcontract00brangoog/page/n110 86]
  | url = https://archive.org/details/lawcontract00brangoog
  | doi =
  | id =
  | isbn = 1-4368-8453-5}}
</ref>). The second is "bargain theory," in which the parties subjectively view the contract to be the product of an exchange or bargain. Bargain theory has largely replaced benefit-detriment theory in modern contract theory, but judges often cite both and may use both models in their decisions. These theories usually overlap; in standard contracts, such as a contract to buy a car, there will be both an objective benefit and detriment. However, there are certain contracts which satisfy one but not the other. For instance, a deal in which the promisee feels subjectively relieved, but has not actually gained any legal rights, might satisfy the bargain theory but not the benefit-detriment theory. Alternatively, a deal in which an actor takes detrimental actions possibly in reaction to an offer, without having viewed the deal as a bargain, would not be viewed as a contract under the law.


The reason that both exist in common law jurisdictions is thought by leading scholars to be the result of the combining by 19th century judges of two distinct threads: first the consideration requirement was at the heart of the action of [[assumpsit]], which had grown up in medieval times and remained the normal action for breach of a simple contract in England and Wales until 1884, when the old forms of action were abolished; secondly, the notion of agreement between two or more parties as being the essential legal and moral foundation of contract in all legal systems, was promoted by the 18th century French writer Pothier in his ''Traite des Obligations'', much read (especially after translation into English in 1805) by English judges and jurists. The latter chimed well with the fashionable will theories of the time, especially [[John Stuart Mill]]'s influential ideas on free will, and got grafted on to the traditional common law requirement for consideration to ground an action in assumpsit.<ref>For a detailed and authoritative account of this process, see [[A. W. B. Simpson]], ''A History of the Common Law of Contract: The Rise of the Action of Assumpsit'', ([[Oxford University Press]]: Oxford, 1975).</ref>
The main purpose of the shift from benefit-detriment to bargain theory is to avoid inquiries into whether consideration is adequate. For example, if a person promised you their car for $1.00 because they needed to get rid of it, then the $1.00 might seem adequate. However, if it were your birthday and your friend wrote down "I give you my car in consideration of one dollar," this same consideration would not seem adequate. Thus whether $1.00 is consideration does not depend on the benefit received but whether the $1.00 had actually been bargained for.


[[Civil law (legal system)|Civil law]] systems take the approach that an exchange of promises, or a concurrence of wills alone, rather than an exchange in valuable rights is the correct basis. So if A promises to give B a book, and B accepts the offer without giving anything in return, B would have a legal right to the book and A could not change her mind about giving it to B as a gift. However, in [[common law system]]s the concept of ''[[culpa in contrahendo]]'', a form of [[estoppel]], is increasingly used to create obligations during [[pre-contractual negotiations]].<ref>''[[Austotel v Franklins]]'' (1989) 16 [[NSW Law Reports|NSWLR]] 582</ref><ref name="Waltons HCA">{{cite AustLII|HCA|7|1988|litigants=[[Waltons Stores (Interstate) Ltd v Maher]] |parallelcite=(1988) 164 [[Commonwealth Law Reports|CLR]] 387 |courtname=auto}}.</ref> Estoppel is an [[Equity (law)|equitable doctrine]] that provides for the creation of legal obligations if a party has given another an [[wikt:assurance|assurance]] and the other has relied on the assurance to his [[detriment (law)|detriment]].
In some{{clarify|date=December 2010}} jurisdictions, contracts calling for such nominal consideration will be upheld unless a particular contract is deemed unconscionable. However, in other{{clarify|date=December 2010}} jurisdictions, the court will reject "consideration" that had not been truly bargained for. Occasionally the courts in these jurisdictions may refer to "adequate" or "valuable" consideration, but in reality the court is not examining the adequacy of consideration, but whether it had been bargained for. The traditional notion that courts won't look into the adequacy of consideration, an ancient notion in the English common law, doesn't square with the benefit-detriment theory (in which courts are implicitly analyzing if the parties are receiving a sufficient benefit) but does square with the bargain theory (in which only the subjective intentions of the parties are considered).


==Monetary value of consideration==
==Purposes of Consideration==
Generally, courts do not inquire whether the deal between two parties was monetarily fair&mdash;merely that each party passed some legal obligation or duty to the other party.<ref>''Thomas v Thomas'' (1842)</ref><ref name="Woollen Mills HCA">{{cite AustLII|HCA|20|1954|litigants=Australian Woollen Mills Pty Ltd v The Commonwealth |parallelcite=(1954) 92 [[Commonwealth Law Reports|CLR]] 424 |courtname=auto}}.</ref> The dispositive issue is presence of consideration, not adequacy of the consideration. The values between consideration passed by each party to a contract need not be comparable.
There are three main purposes cited for the consideration requirement. The first is the cautionary requirement - parties are more likely to look before they leap when making a bargain than when making an off-the-cuff promise of a gift. The second is the evidentiary requirement - parties are more likely to commemorate, or at least remember, a promise made due to a bargaining process. The third is the channeling requirement - parties are more likely to coherently stipulate their specific desires when they are forced to bargain for them. Each of these rationales ensure that contracts are made by serious parties and are not made in error.


For instance, if A offers B $200 to buy B's mansion, luxury sports car, and private jet, there is still consideration on both sides. A's consideration is $200, and B's consideration is the mansion, car, and jet. Courts in the United States generally leave parties to their own contracts, and do not intervene. The old English rule of consideration questioned whether a party gave the ''value of a [[peppercorn (legal)|peppercorn]]'' to the other party. As a result, contracts in the United States have sometimes have had one party pass nominal amounts of consideration, typically citing $1. Thus, licensing contracts that do not involve any money at all often cite as consideration, "for the sum of $1 and other good and valuable consideration."
However, some courts in the United States may take issue with nominal consideration, or consideration with virtually no value. Some courts have since thought this was a sham. Since contract disputes are typically resolved in state court, some state courts have found that merely providing $1 to another is not a sufficiently legal duty, and therefore no legal consideration passes in these kinds of deals, and consequently, no contract is formed. However, this is a minority position.<ref>[http://www.supreme.courts.state.tx.us/historical/2004/dec/030109.htm Supreme Court of Texas (1464-EIGHT, LTD. & MILLIS MANAGEMENT CORP, v. GAIL ANN JOPPICH See section III)]</ref>
==Pre-existing legal duties==
{{main article|Pre-existing duty rule}}
A party that ''already'' has a legal duty to provide money, an object, a service, or a forbearance, does not provide consideration when promising merely to uphold that duty.<ref>{{cite BAILII|litigants=Foakes v Beer |year=1884 |court=UKHL |num=1 |courtname=auto}}; See also {{cite AustLII|NSWSC|1390|2010|litigants=Andrew Hennessey v Architectus Group Holdings Pty Ltd |courtname=auto}}.</ref><ref>{{cite BAILII|court=EWHC |division=KB |year=1809 |num=J58 |litigants=Stilk v Myrick |parallelcite=(1809) 170 ER 1168}}.</ref><ref>''Wigan v Edwards'' (1973) 1 [[Australian Law Reports|ALR]] 497.</ref> That legal duty can arise from law, or obligation under a previous contract.
The prime example of this sub-issue is where an uncle gives his thirteen-year-old nephew (a resident of the NY) the following offer: "if you do not smoke cigarettes or drink alcohol until your 18th birthday, then I will pay you $5,000". On the nephew's 18th birthday, he tells the uncle to pay up, and the uncle does not pay.  In the subsequent lawsuit, the uncle wins, because the nephew, by U.S. criminal law, already had a duty to refrain from smoking cigarettes while under 18 or drink alcohol while under age 21.
The same applies if the consideration is a performance for which the parties had previously contracted. For example, A agrees to paint B's house for $500, but halfway through the job A tells B that he will not finish unless B increases the payment to $750. If B agrees, and A then finishes the job, B still only needs to pay A the $500 originally agreed to, because A was already contractually obligated to paint the house for that amount.
An exception to this rule holds for [[settlement (litigation)|settlement]]s, such as an [[accord and satisfaction]].  If a creditor has a credit against a debtor for $10,000, and offers to settle it for $5,000, it is still binding, if accepted, even though the debtor had a legal duty to repay the entire $10,000.
Pre-existing duties relating to [[at-will employment]] depend largely on state law.  Generally, [[at-will employment]] allows the employer to terminate the employee for good or even no reason, and allows the employee to resign for any reason.  There are no duties of continued employment in the future.  Therefore, when an employee demands a raise, there is no issue with consideration because the employee has no legal duty to continue working.  Similarly, when an employer demands a pay-cut, there is also no contractual issue with consideration, because the employer has no legal duty to continue employing the worker.  However, certain states require additional consideration other than the prospect of continued employment, to enforce terms demanded later by the employer, in particular, non-competition clauses.
==Bundled terms==
Contracts where a legally valueless term is bundled with a term that does have legal value are still generally enforceable.
Consider the uncle's situation above. If the same uncle had instead told his 13-year-old nephew the following offer: "if you do not smoke cigarettes, do not drink alcohol, swear or play cards for money (gamble) before your 21st birthday, then I will pay you $5,000".  On the nephew's 21st birthday, he asks the uncle to pay up, and this time, in the subsequent lawsuit, the nephew may win.<ref>[https://sourcelawfirm.com/2019/02/09/contract-law-hamer-v-sidway/ Hamer v Sidway |parallelcite=(1891) 124 NY 538]</ref> Although the promise of not drinking alcohol and gambling while under the age of 21 was not valuable consideration (it was already legally prohibited), most states allow smoking by age 18 and swearing, while some consider it vulgar, is not illegal at any age.  Even though smoking is legally restricted until age 18, it is legal for those above 18, and thus the promise to forbear from it entirely has legal value.  However, the uncle would still be relieved from the liability if his nephew drank alcohol, even though ''that'' consideration is valueless, because it was paired with something of legal value; therefore, adherence to the entire, collective agreement is necessary.
==Past consideration==
Generally, past consideration is not a valid consideration and has no legal value. Past consideration is consideration that has already flowed from the promisee to the promisor. That is, the promisee's act or forbearance predates the promisor's promise. Past consideration therefore cannot be used as a basis when claiming damages.<ref>see {{cite BAILII|court= EWHC |num=J74 |year=1842 |litigants=Roscorla v Thomas |parallelcite=(1842) 114 ER 496}}.</ref>
An exception to this rule is where there is a duty owed to a third party. An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. For this to hold, three conditions must be satisfied (Pao On v Lau Yiu Long [1980]):
# The act must have been done at the promisor’s request
# The parties must have understood the act was to be remunerated either by a payment or the conferment of some other benefit
# Payment/conferment of the benefit must have been legally enforceable had it been promised in advance
==Option contracts and conditional consideration==
Generally, conditional consideration is valid consideration.
Suppose A is a movie script writer and B runs a movie production company.  A says to B, "buy my script." B says "How about this – I will pay you $5,000 so that you do not let anyone else produce your movie until one year from now.  If I do produce your movie in that year, then I will give you another $50,000, and no one else can produce it.  If I do not produce your movie in that year, then you're free to go."  If the two subsequently get into a dispute, the issue of whether a contract exists is answered.  B had an option contract—he could decide to produce the script, or not. B's consideration passed was the $5,000 down, and the possibility of $50,000.  A's consideration passed was the exclusive rights to the movie script for at least one year.
==In settlements==
Suppose B commits a [[tort]] against A, causing $5,000 in [[compensatory damages]] and $3,000 in [[punitive damages]].  Since there is no guarantee that A would win against B if it went to court, A may agree to drop the case if B pays the $5,000 compensatory damages.  This is sufficient consideration, since B's consideration is a guaranteed recovery, and A's consideration is that B only has to pay $5,000, instead of $8,000.
==Treatments by different legal systems==
*[[Consideration under English law]]
*[[Consideration under American law]]
* Consideration is not required for a contract under [[Scots contract law]]


==References==
==References==
Line 86: Line 52:
For a detailed and authoritative account of this process, see A. W. B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit, (Oxford University Press: Oxford, 1975).
For a detailed and authoritative account of this process, see A. W. B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit, (Oxford University Press: Oxford, 1975).
  see also Giumelli v Giumelli (1999) 196 CLR 101}}
  see also Giumelli v Giumelli (1999) 196 CLR 101}}
[[Category:Contract law]]
[[Category:Legal doctrines and principles]]

Latest revision as of 21:40, September 26, 2023


Contracts Treatise
Table of Contents
Contracts Outline
Introduction and Definitions
Introduction
Definitions
Elements
Contract law in the United States
Contract formation
Parties
Offer
Acceptance
Intention to Bind
Formal requisites
Mailbox rule
Mirror image rule
Invitation to deal
Firm offer
Consideration
Consent
Implication-in-fact
Collateral contract
Modification
Merger
Uniform Commercial Code
Uniform Commercial Code
Course of dealing
Course of performance
UCC-1 financing statement
Uniform Commercial Code adoption
Defenses against formation
Lack of capacity
Duress
Undue influence
Illusory promise
Statute of frauds
Uncertainty
Non est factum
Contract interpretation
Governing law
Construction and Operation
Parol evidence rule
Contract of adhesion
Integration clause
Contra proferentem
Excuses for non-performance
Mistake
Misrepresentation
Frustration of purpose
Impossibility
Impracticability
Illegality
Unclean hands
Unconscionability
Accord and satisfaction
Rights of third parties
Privity of contract
Assignment
Delegation
Novation
Third-party beneficiary
Performance or Breach
Necessity of performance
Sufficiency of performance
Anticipatory repudiation
Cover
Exclusion clause
Efficient breach
Deviation
Fundamental breach
Termination
Termination
Rescission
Termination and rescission
Abrogation and rescission
Subsequent contract
Termination
Forfeiture
Remedies
Restitution
Specific performance
Liquidated damages
Punitive damages
Quasi-contractual obligations
Estoppel
Quantum meruit
Actions
Actions in General
Parties to Action
Pleading
Evidence
Questions of Law and Fact
Instructions
Trial and Judgment

Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from doing an act. In broad terms, if one agrees to do something he was not otherwise legally obligated to do, it may be said that he has given consideration. For example, Jack agrees to sell his car to Jill for $100. Jill's payment of $100 (or her promise to do so) is the consideration for Jack's promise to give Jill the car, and Jack's promise to give Jill the car is consideration for Jill's payment of $100.

Elements of consideration[edit | edit source]

In order to meet consideration's requirements, a contract must fulfill three elements. First, there must be a bargain regarding terms of an exchange. Second, there must be a mutual exchange. In other words, both parties must get something out of the contract.[citation needed] Third, the exchange must be something of value.

An example of this is renting of apartment. The landlord and tenant come together to discuss the terms of the exchange (most of the time, the leasing is outlined in a contract). Thus, they have fulfilled the first requirement of consideration. To meet the second element, there must be a mutual exchange. In this case, the landlord provides housing, while the tenant provides rent payment. Third, the bargain terms must be of value. The apartment is worth what the tenant hands over each month. Therefore, this contract has met its consideration requirement, because it fits all elements of consideration.

Lack of Consideration[edit | edit source]

  • Past consideration is not valid. Something that is already done is done, and it does not change the legal position of the promisor. Any goods or services to be exchanged must be exchanged at or after the time of contract formation.
  • Preexisting duty does not count as consideration.
  • An illusory promise, or one which the promisor actually has no obligation to keep, does not count as consideration. The promise must be real and unconditional. This doctrine rarely invalidates contracts; it is a fundamental doctrine in contract law that courts should try to enforce contracts whenever possible. Accordingly, courts will often read implied-in-fact or implied-in-law terms into the contract, placing duties on the promisor. For instance, if a promisor promises to give away a third of his earnings for the year and earns nothing, he has no actual obligation to do anything.

Exceptions to the Consideration Requirement[edit | edit source]

Modern contract theory has also permitted remedies on alternative theories such as promissory estoppel. Also, modifications to existing lease agreements (as opposed to the creation of a new lease agreement) do not require consideration,[1] nor do modifications to existing sale contracts[2] Furthermore a promise to perform a moral obligation—the classic example is of a promise to support a person injured while coming to the rescue of the promisor—is enforceable provided the promissee was harmed in conferring a benefit on the promisor and the promise is not disproportionate to the benefit. The promise to pay a debt discharged by bankruptcy, the promise to perform a conditional responsibility despite the nonoccurrence of the condition, and the promise to perform on a voidable contract form a category of moral obligations that can bind in the absence of consideration.

Contract modification[edit | edit source]

Service contracts and, in the United States, other contracts not governed by the Contracts/Uniform Commercial Code, generally require consideration to modify a contract (because of what is called the pre-existing duty rule).

Theories of Consideration[edit | edit source]

There are two common theories that attempt to explain consideration. The first is "benefit-detriment theory," in which a contract must be either to the benefit of the promisor or to the detriment of the promisee to constitute consideration (though detriment to the promisee is the essential and invariable test of the existence of a consideration rather than whether it can be constituted by benefit to the promisor[3]). The second is "bargain theory," in which the parties subjectively view the contract to be the product of an exchange or bargain. Bargain theory has largely replaced benefit-detriment theory in modern contract theory, but judges often cite both and may use both models in their decisions. These theories usually overlap; in standard contracts, such as a contract to buy a car, there will be both an objective benefit and detriment. However, there are certain contracts which satisfy one but not the other. For instance, a deal in which the promisee feels subjectively relieved, but has not actually gained any legal rights, might satisfy the bargain theory but not the benefit-detriment theory. Alternatively, a deal in which an actor takes detrimental actions possibly in reaction to an offer, without having viewed the deal as a bargain, would not be viewed as a contract under the law.

The main purpose of the shift from benefit-detriment to bargain theory is to avoid inquiries into whether consideration is adequate. For example, if a person promised you their car for $1.00 because they needed to get rid of it, then the $1.00 might seem adequate. However, if it were your birthday and your friend wrote down "I give you my car in consideration of one dollar," this same consideration would not seem adequate. Thus whether $1.00 is consideration does not depend on the benefit received but whether the $1.00 had actually been bargained for.

In some[clarification needed] jurisdictions, contracts calling for such nominal consideration will be upheld unless a particular contract is deemed unconscionable. However, in other[clarification needed] jurisdictions, the court will reject "consideration" that had not been truly bargained for. Occasionally the courts in these jurisdictions may refer to "adequate" or "valuable" consideration, but in reality the court is not examining the adequacy of consideration, but whether it had been bargained for. The traditional notion that courts won't look into the adequacy of consideration, an ancient notion in the English common law, doesn't square with the benefit-detriment theory (in which courts are implicitly analyzing if the parties are receiving a sufficient benefit) but does square with the bargain theory (in which only the subjective intentions of the parties are considered).

Purposes of Consideration[edit | edit source]

There are three main purposes cited for the consideration requirement. The first is the cautionary requirement - parties are more likely to look before they leap when making a bargain than when making an off-the-cuff promise of a gift. The second is the evidentiary requirement - parties are more likely to commemorate, or at least remember, a promise made due to a bargaining process. The third is the channeling requirement - parties are more likely to coherently stipulate their specific desires when they are forced to bargain for them. Each of these rationales ensure that contracts are made by serious parties and are not made in error.


References[edit | edit source]

  1. ↑ U.C.C. § 2A-208(1)
  2. ↑ U.C.C. § 2-209(1)
  3. ↑ Brantly, William Theophilus (1912). Law of Contract. M. Curlander. pp. 86.
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