Download The Nature of Consideration

Comprehensive Volume, 18th Edition
Chapter 15: Consideration
What is Consideration?
Consideration is what each party gives up to
the other in the making of the agreement; it is
the “price” of the contract for each side.
That price may be doing an act, refraining from
an act, or merely promising to do or to refrain.
A promise to do what one is already obligated to
do is usually not valid consideration.
Because consideration is the price given to obtain
the promise, past benefits already conferred on the
promisor usually cannot be consideration.
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Consideration is defined as a detriment to one
party while also being a benefit to the other.
Consideration is Required
A promise is not binding if there is no
consideration for the promise.
In a bilateral contract, the promise of each party
must be supported by consideration. If either
promise is not supported, it is not a contract.
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Although consideration is required to make a
promise binding, the unsupported promise is
not illegal. The parties are free to perform
their agreement, but the courts will not help
either of them because there is no contract.
Examples of Consideration
Sale of a Ford Torino by Jake Plumber to Tom Irvin for $1272
$1272
benefit
detriment
Jake Plumber
Tom Irvin
Ford Torino
detriment
benefit
Loan by Bank to Tom Irvin for purchase of Ford Torino
detriment
$1272
benefit
Bank
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benefit
Tom Irvin
Repayment of $1272 plus 8% interest
detriment
Gifts and Consideration
Promise of a gift of Ford Torino by Tom Irvin to his sister Becky.
benefit
No consideration
Tom Irvin
detriment
Becky Irvin
Promise of Ford Torino
detriment
benefit
A gift does not have consideration, so a promise to make a
gift is not enforceable. A completed gift, however, cannot
be rescinded for lack of consideration.
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Consideration and Promises
Consideration
Action
OR
Promise
To Act or To Forbear
+
The
Agreement
Binding
Exceptions to Consideration
Charitable Subscription
Uniform Commercial Code
Sealed and Written Instruments
Promissory Estoppel
What is Not Consideration
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Unrequested Benefit
Promise to Perform Existing Obligation
Moral Obligation
Illegal Consideration
Not
Binding
Adequacy of Consideration
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When the promisor obtains the
consideration specified for the promise,
the law is not ordinarily concerned with
the value or adequacy of that
consideration.
Exceptions are sometimes made in the
case of fraud or unconscionability and
under consumer protection statutes.
Problems in Consideration
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If the consideration is illegal, there is
no consideration, and the promise is
not binding.
When the promisor does not receive
the price promised for the promise,
there is a failure of consideration,
which constitutes a breach of the
contract.