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INTRODUCTION
Consideration is the concept of legal value in connection with contracts. It is
anything of value promised to another when making a contract. It can take the form of
money, physical objects, services, promised actions, abstinence from a future action, and
much more. Consideration to create a legally enforceable contract entails a bargained for,
legal detriment incurred by the promisee OR a legal benefit to the promisor. Under the notion
of "pre-existing duties", if either the promisor or the promisee already had a legal obligation
to render such payment, it cannot be seen as consideration in the legal sense.
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. 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. There are a number of common issues as to whether
consideration exists in a contract.
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HISTORY AND COMPARATIVE 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
the Middle Ages and remained the normal action for breach of a simple contract in England
& 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, 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.
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 you promised
to give me a book, and I accepted your offer without giving anything in return, I would have
a legal right to the book and you could not change your mind about giving me it as a gift.
However, in common law systems the concept of culpa in contrahendo, a form of 'estoppel',
is increasingly used to create obligations during pre-contractual negotiations. Estoppel is an
equitable doctrine that provides for the creation of legal obligations if a party has given
another an assurance and the other has relied on the assurance to his detriment.
Generally, courts do not inquire whether the deal between two parties was monetarily
fairmerely that each party passed some legal obligation or duty to the other party. 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.
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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 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 will 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. Supreme Court of Texas (1464-EIGHT, LTD. &
MILLIS MANAGEMENT CORP, v. GAIL ANN JOPPICH See section III)
A party which 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. 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 seven year old nephew (a resident of the US) the
following offer: "if you do not smoke cigarettes or marijuana until your 18th birthday, then I
will pay you $500" (assuming it is a criminal offense in the US for people under the age of 18
to smoke cigarettes, and for people of any age to smoke marijuana).
On the nephew's 18th birthday, he tells the uncle to pay up, and the uncle says no. In
the subsequent lawsuit, the uncle will win, because the nephew, by U.S. law, already had a
duty to refrain from smoking cigarettes or marijuana. 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.
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An exception to this rule holds for settlements, 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 17 year old nephew the following offer: "if you do not smoke cigarettes
and do not engage females before your 18th birthday, then I will pay you $500". On the
nephew's 18th birthday, he asks the uncle to pay up, and this time, in the subsequent lawsuit,
the nephew may win. Although the promise of not smoking was not valuable consideration (it
was already legally prohibited), virtually all states allow some sort of engagement by minors.
Even though the engagement by minors is legally restricted, there are circumstances where it
is legal, 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 smoked a cigarette, 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 therefore cannot be used as a basis when claiming damages. Roscorla v
Thomas. Two exceptions to this rule include:
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CONCLUSION
REFERENCES
http://en.wikipedia.org/wiki/Consideration
http://nationalparalegal.edu/public_documents/courseware_asp_files/contracts/Consideration/
IntroductionAndConsideration.asp
http://www.businessdictionary.com/definition/consideration.html