CONSIDERATION

Consideration is something that is done or promised in return for a contractual

promise. For example, in a promise between A and B for the sale of A's car to B, B's payment of the price of the car (or promise to do so) is the consideration for A's promise. Consideration is a central concept in the common law of contracts. Under classical contract theory, consideration is required for a contract to be enforceable. Service contracts, and other contracts not governed by the Uniform Commercial Code, generally require consideration for a contract modification to be binding on the parties, because of the preexisting duty rule.

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. Third, the exchange must be something of value.
An example of this is the renting of an 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.

Defenses Modern contract theory has also permitted remedies on alternate theories such as promissory estoppel.

Consideration theories There are two common theories that attempt to explain consideration. The first is the "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. The second is the "bargain theory", in which the parties subjectively view the contract to be the product of an exchange or bargain. The bargain theory has largely replaced the benefit-detriment theory in modern contract theory, but judges often cite both and unknowingly confuse the two 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 (the buyer experiences a benefit by acquiring the car; the seller experienced a detriment by losing a car) and the subjective experience of entering into a bargain. However, there are certain contracts which satisfy one but not the other. For instance, a deal in which the promisee feels subjectively relieved, but hasn't actually gained any legal rights, might satisfy the bargain theory but not the benefit-detriment theory. Alternately, a deal in which an actor takes detrimental actions possibly in reaction to an offer, without having viewed the deal as a bargain, wouldn't be viewed as a contract under the law. The main purpose of the shift from benefit-detriment to bargain theory is to reconcile consideration theory with other aspects of contract theory. For instance, courts will not inquire as to the adequacy of consideration. If someone honestly dislikes their car and wants to sell it for fifty dollars, the law will not consider this an invalid deal. In some jurisdictions, contracts calling for such nominal or "peppercorn" consideration will be upheld unless a particular contract is deemed unconscionable. However, in other jurisdictions, the court will reject "consideration" that was not 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 or not it was 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). For example, in Fischer v. Union Trust Co., 101 N.W. 852, the court held that $1.00 paid in exchange for the sale of real property within the city of Detroit in 1902 was not "bargained for" by the seller, and thus the transaction was void. The point was NOT that the amount of money involved was too small to be adequate consideration, but that the seller did not convey the property in exchange for the buyer's promise to pay $1.00. There was no consideration, not because $1.00 was too small an amount to "count", but because the $1.00 offered to the seller by the buyer did not induce the seller to part with the property. 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.

Certain other stipulations regarding consideration include the following:

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. However, a promise to pay a pre-existing debt or obligation IS enforceable. 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, he has no actual obligation to do anything; if he earns nothing, a third of zero is zero. However, courts will generally read in an implied term that he will use reasonable efforts to try to gain income. Another, more modern approach to illusory promises is to treat them as "bargaining for a chance". Even though the promisor has no actual duties, the promisee may still benefit by the possibility that the contract may lead to the promisor fulfilling certain duties, and that possibility itself is beneficial. Liquidated debt, or a payment which is fixed and undisputed, cannot be negotiated for consideration. Unliquidated debt, or a payment which is disputed, can be used for consideration.

While the concept of consideration is not generally accepted in civil law systems, some recognize the similarity between consideration and cause by requiring contracts to have a cause.

"Consideration" Defined
Any act or forbearance which is of benefit to the promisor or detriment to the promisee. (Rest.2d 71; Cal.Civ.Code 1605.) The waiver of any legal right at the request of another is sufficient consideration for a promise. (Hamer v. Sidway,124 N.Y. 538, 27 N.E. 256 (1891).) To be sufficient, the consideration must have some value. Something that is completely worthless cannot constitute sufficient consideration. Promises by the parties bargained for and given in exchange for each other constitute consideration. Consideration is what distinguishes enforceable promises from those promises which are gratuitous. Courts will not enforce gift or gratuitous promises but they will enforce promises which are supported by consideration. Consideration may consist of an act, i.e., doing that which one is not legally obligated to do, or a forbearance, i.e., refraining from conduct which one is privileged to engage in. Consideration is not simply doing what you are legally obligated to do in any event. Settlement of Claims or Disputes The compromise of a doubtful claim is supported by consideration so long as the claim is pressed in good faith and is the subject of a bona fide dispute. It is sufficient that the parties entering into the settlement or compromise thought at the time that there was a bona fide question between them, even if it later turns out otherwise. On the other hand, the release from the mere annoyance of unfounded litigation does not furnish valuable consideration.

Bargained for Exchange In addition to meeting the above test, consideration must arise in the context of a bargained for exchange. This means that the promise must induce the detriment and the detriment must induce the promise. Stated another way, the act or forbearance must have been bargained for and given in exchange for that very promise for legal consideration to be present. Receipt of unrequested benefits creates no legal obligation. If a subsequent promise is made to pay for these benefits the promise is unenforceable. (Mills v. Wyman, 3 Pick 207 (Mass.1825).) Therefore, promises made in recognition of a benefit previously received fail the "bargained for exchange" test and are considered to be merely gratuitous promises. In other words, past consideration is no consideration!

Past Consideration - Modern Trend A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. (Webb v. McGowin, 27 Ala.App. 82, 168 So. 196 (1935); Cal.Civ.Code 1606.) Promissory Estoppel - A Substitute for Consideration Reasonably expected reliance may under some circumstances make binding a promise for which nothing has been given or promised in exchange. (Earhart v. William Low Co. (1979) 25 Cal.3d 503, 600 P.2d 1344.) Where legal consideration is lacking courts sometimes enforce gratuitous promises under the theory of "Promissory Estoppel" (Rest.2d 90) Three elements must exist in order to invoke promissory estoppel: 1) Was there a promise which the promisor reasonably expected to induce action or forbearance? (foreseeability) 2) Did the promise actually induce such action or forbearance? (reliance) 3) Can injustice be avoided only by enforcement of the promise? (injustice) Rest.2d 87 does not impose the requirement that the promise giving rise to the cause of action must be so comprehensive so as to meet the requirements of an offer. Promissory estoppel can sustain a cause of action despite the absence of an intent to be bound. Promissory estoppel is more than an equivalent of or a substitute for consideration. (Hoffman v. Red Owl Stores 26 Wis.2d 683, 133 N.W.2d 267 (1965).) Illusory Promises A promise which is conditioned upon the whim of the promisor is not consideration. (See, Rest.2d 77(1).) Such a promise is called an illusory promise. The trend of the courts is to avoid construing promises as illusory by, whenever possible, implying conditions of good faith and best efforts in the absence of express language in the contract. An example of this would be found in the case of Wood v. Lucy, Lady Duff-Gordon. In that case, Lady Duff Gordon, argued that she was free to break a contract because the other party's promise to perform was illusory resulting in a lack of mutual obligation. The Court of Appeal of New York implied a condition of good faith and an obligation to use best efforts and held the contract to be binding. Contract Modification

A modification of a contract is a change in an obligation by a modifying agreement. With the exception of contracts for the sale of goods, (see UCC 2-209) to be effective the modifying agreement must be supported by additional consideration.

Accord and Satisfaction An accord and satisfaction is the offering of some performance different from that originally called for and the acceptance of the different performance as a full and complete performance. However, California Civil Code section 1526 provides that a payment in full check does not operate as an accord and satisfaction if the creditor strikes out the restrictive words or can prove that she cashed the check without knowledge of the restriction.

CONSIDERATION - The inducement, price or motive that causes a party to enter into an agreement or contract. Something of value that is given in exchange for getting something from another person. For example, rent payments paid to receive the right to rent an apartment. A compensation which is paid, or all inconvenience suffered by the party from whom it proceeds. Or it is the reason which moves the contracting party to enter into the contract. A cause or occasion meritorious requiring a mutual recompense in deed or in law. A consideration of some sort or other is so absolutely necessary to the forming a good contract that a nudum pactum, or an agreement to do or to pay any thing on one side without any compensation to the other, is totally void in law, and a man cannot be compelled to perform it. But contracts under seal are valid without a consideration or perbaps, more properly speaking, every bond imports in itself a sufficient consideration though none be mentioned. Negotiable instruments, as bills of exchange and promissory notes, carry with them prima facie evidence of consideration. The consideration must be some benefit to the

party by whom the promise is made, or to a third person at his instance; or some detriment sustained at the instance of the party promising by the party in whose favor the promise is made. Considerations are good when they are for natural love and affection; or valuable when some benefit arises to the party to whom they are made, or inconvenience to the party making them. They are legal, which are sufficient to support the contract or illegal, which render it void. If the performance be utterly impossible, in fact or in law, the consideration is void. A mere moral obligation to pay a debt or perform a duty is a sufficient consideration for an express promise, although no legal liability existed at the time of making such promise. But it is to be observed that in such cases there must have been a good or valuable consideration; for example, every one is under a moral obligation to relieve a person in distress, a promise to do so, however, is not binding in law. One is bound to pay a debt which he owes although he has been released; a promise to pay such a debt is obligatory in law on the debtor and can therefore be enforced by action. In respect of time, a consideration is either: Executed, or Something done before the making of the obligor's promise. In general, an executed consideration is insufficient to support a contract but an executed consideration on request or by some previous duty, or if the debt be continuing at the time, or it is barred by some rule of law, or some provision of a statute as the act of limitation, it is sufficient to maintain an action; Executory, or something to be done after such promise; Concurrent, as in the case of mutual promises, and;

A continuing consideration. When the consideration turns out to be false and fails there is no contract as, for example, if my father by his will gives me all his estate, charged with the payment of a thousand dollars, and I promise to give you my house instead of the legacy to you, and you agree to buy it with the legacy, and before the contract is completed and I make you a deed for the house, I discover that my father made a codicil to his will and by it he revoked the gift to you, I am not bound to complete the contract by making you a deed for my house.