Consideration
Chapter 8
What is Consideration?
 Each party gives something (an act,
forbearance, or promise) to the other
party
 Each party trades their contribution for
the other party’s contribution
 Each party trades something of legal
value (worth something in the eyes of
the law)
What is Consideration?
 3 Examples
1. An act would involve doing something
(painting a room, mowing the grass, etc.)
2. A forbearance involves not doing
something you have the right to do (not
driving the car)
3. A promise (to pay or to do something)
What is Consideration? (cont.)
 Consideration must be
mutual – if one party
does not give
consideration, the other
party has no duty to
perform as promised.
 Gifts are generally not
enforceable (don’t
involve mutual
consideration)
What is Legal Value?
 A change in a party’s legal position resulting
from a contract
 Most common form – exchange of two
benefits
 Could include the exchange of a benefit for a
detriment (when you promise forbearance or
not to do something)
 Could also involve exchange of two
detriments (both parties promise not to do
something)
Exchange of Two Benefits
Benefit for a Detriment
Exchange of Two Detriments
Exchanges of Legal Value
 Create 3 different examples (not yet
used/discussed) of exchanges of legal value:
1. Exchange of 2 benefits
2. Exchange of a benefit for a detriment
3. Exchange of 2 detriments
Work with a partner. Be prepared to discuss.
Adequacy of Consideration
 Do both parties need to give and get
something of equal economic value?
 No, as long as there is genuine assent (can’t
involve duress, undue influence or fraud)
 If one party receives consideration that is
grossly inadequate, the contract could be
declared unconscionable – and thus, not
enforceable (due to lacking genuine assent)
February 2007 – Nashville, Tenn.
 A rare, 184 year old copy of the Declaration
of Independence was purchased at a thrift
shop for $2.48
 Turned out to be an “official copy” – one of
200 commissioned by John Quincy Adams in
1820
 Valued at auction at between $200,000 &
$300,000
Can the thrift shop sue the buyer to get the item back
(claiming that they didn’t receive adequate consideration)?
Nominal Consideration
Nominal Consideration
 “one dollar ($1) and other good and valuable
consideration”
 sometimes used in written contracts, such as
publicly recorded deeds (to transfer property)
 Courts will enforce these types of contracts,
as long as no duress, undue influence, etc.
CIRCUMSTANTIAL CONSIDERATION
Has there been a change in legal position …?
 Illusory Promises
 Clauses where one
party can escape
without legal obligation


Stating that you will
perform a task or do
something – if you
have time
Or giving 1 party the
power to terminate a
contract at any time or
for any reason
 No consideration
Is this Promise Enforceable?
 A veteran teacher of many years says the
following to her students:
“All of you have worked hard, and if you continue to
perform at a high level, I’ll pay for a pizza party
for the class at the end of the term – if I think it is
warranted”
 Can the students enforce her promise? Why or why
not?
 How could the above illusory promise be reworded
into an enforceable unilateral offer?
Termination Clauses
 What’s the difference between the
following two statements?
1. The contract can be canceled at any time
and for any reason.
2. The contract will expire in 30 days upon
written notice from either party.
CIRCUMSTANTIAL CONSIDERATION
Has there been a change in legal position …?
 Existing Duty


If you are obligated by
law to do something
Or you are obligated
from a prior contract
 No consideration
Can Joe Jab do this?
 Joe Jab has a contract to landscape his
neighbor’s yard for $100 per month for May
through September. In August, Joe Jab
refuses to do the work unless he is paid $120
per month.
 Is the neighbor required to pay $120 in August for
the landscaping? Why or why not?
 How could the above situation be legally
enforceable (what would need to be added)?
Question
 Do you think a police officer or a deputy
sheriff should be able to collect a standing
reward for capturing a criminal?
 Why or why not?
FALSE CONSIDERATION
Has the exchange between the 2 parties been bargained for?
 Mutual Gifts
 Since gifts are not
usually traded one
for the other,
consideration is
not present
 Past Performance
 If act has already
been performed, it
cannot serve as
consideration
 Trade must involve
present or future
performance
Car Wash
 On a summer day, you are washing your car
and you notice your neighbor’s dirty car in
their driveway. You decide to wash it that
same day. Later, your neighbor comes home,
and he notices his car has been washed.
 He says to you: “I don’t have any spare cash
now, but if you see me tomorrow, I’ll give you
$10.”
 Does the neighbor have a legal obligation
to pay you? Why or why not?
Exceptions to General Rule regarding Mutual
Consideration – When consideration is not required?
 Promissory Estoppel
 When someone intends
a gift but consideration
is not present
 The promise may be
enforced under this
doctrine.
 Requirements:
1. promisor foresees
that promisee will rely
on promise
2. promisee acts, in
reliance of promise
3. promisee would suffer
loss if promise not
enforced
4. injustice can be
avoided only by
enforcing the promise
Promissory Estoppel
 Uncle tells niece and nephew to take a trip around the world and





that he’ll pay for it (up to $9,500 each)
Using their own savings, they take off on a 90-day journey
They each spend over $9,500
They have each depleted their savings account which they were
going to use for college expenses
Is the uncle required to pay each the $9,500 he promised?
How about the amount they spent over $9,500?
Exceptions to General Rule regarding Mutual
Consideration – When consideration is not required?
 Promises to
Charitable
Organizations




you pledge money to a
charity
the charity acts
(enters into a contract)
relying on the pledge
the charity clearly
states a use for the
money to you from
your pledge
Pledge would be
enforceable
 Statute of Limitations
 relates to time period
to bring a lawsuit
against someone (2-3
years)
 if a promise is made to
pay a claim after the
time period has
passed, it could be
enforced
 promise must be in
writing (if so, it would
be enforceable)
Consideration - Review
 Illusory promises
 Exchange of legal value
 Nominal
 Paying $5 for an item worth $500
 Pledges to charity (if use for $ is stated)
 Gifts
 Act, forbearance or promise
 Exchange of benefits, detriments
 Existing duty
 Promissory estoppel
 Adequate, not equal
 Past performance
 In writing, after statute of limitations
 Mutual exchange