Comprehensive Volume, 18th Edition

Chapter 15: Consideration

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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.

Consideration is defined as a detriment to one party while also being a benefit to the other.

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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.

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.

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Loan by Bank to Tom Irvin for purchase of Ford Torino

Bank Tom Irvin

Examples of Consideration

Jake Plumber Tom Irvin

Sale of a Ford Torino by Jake Plumber to Tom Irvin for $1272

benefit detriment$1272

detriment benefitFord Torino

benefit detrimentRepayment of $1272 plus 8% interest

benefit$1272

detriment

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Gifts and Consideration

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 A completed gift, however, cannot be rescinded for lack of consideration.

Promise of a gift of Ford Torino by Tom Irvin to his sister Becky.

Tom Irvin Becky Irvin

benefit detrimentNo consideration

Promise of Ford Torinobenefitdetriment

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Consideration and Promises

Exceptions to ConsiderationCharitable Subscription

Uniform Commercial CodeSealed and Written Instruments

Promissory Estoppel

What is Not ConsiderationUnrequested Benefit

Promise to Perform Existing ObligationMoral Obligation

Illegal Consideration

Not Binding

ConsiderationThe

Agreement Binding+ActionTo Act or To Forbear

ORPromise

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Adequacy of Consideration

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.

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Problems in Consideration

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.